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

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francine: we are just hours away from the bank of england rate decision and inflation report. investors expect connie to change course and cut interest rates. government bonds slip into negative territory and brexit triggers market uncertainty. we will hear from the ceo of one of the world's largest gold producers. after dipping into the bear market earlier this week, u.s. court's holding gains, sending emerging market currencies higher. welcome to "the pulse" live from
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london. i'm francine lacqua. let's quickly check on the markets. we decided to plug pound before anything else. if you were to choose one story you wanted to date deeper into, it would be bank of england and repercussions of a brexit on whether they will do qe and what an interest rate cut means for the economy. for europeanicture stocks overall, gaining a touch. we had earnings news here in there. crude oil at $43. let's get the bloomberg first word news with nejra cehic. nejra: siemens has raised its earnings outlook for the year after higher-than-expected third-quarter profit. europe's biggest engineering company said profit from so-called industrial operations rose 20% in the three months through june.
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chicago fed president charles evans says one rate hike could be warranted this year. he expects growth to increase in the second half of 2016 following disappointing gdp readings in the first two quarters. investors are awaiting friday's jobs data for july. a woman has been killed and five others injured in a knife attack in central london. police were called to russell square just after 10:30 p.m. u.k. time. a 19-year-old man was arrested after being tasered. the net said mental health was a significant factor in the event. the possibility of terrorism is also being explored. global news 24 hours a day. i'm nejra cehic. this is bloomberg. francine: thank you so much. more than seven years in the bank of england cut rates to 0.5%, in the wake of brexit and
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sinking atggesting the fastest pace since 2009, nearly every economist in our survey is expecting a rate cut. manus cranny is outside the bank of england. just how brutal could the expected downgrades be? doom part ofs the the super thursday report card. it could be the third slashing of the growth rate here in the united kingdom in 2016. back in may, we were looking at a growth rate of 2.4%. is thatity of brexit this economy is slowing. construction, services, composite showing the worst reading in almost 12 years. the market has assumed a 25 basis point rate cut. the risk and reward for the governor and the mpc is this,
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the risk is they don't signal points, already assumed by the market. there is this weight of expectation. they might just do more. or will they hold back on quantitative easing. could they do more corporate bond buying? there is a full menu. it is a taster menu. how far through that menu will mark carney bring the mpc in terms of delivering today? francine: depends on the appetite going forward. we don't know what the endgame for brexit is. i have a chart looking at pound volatility. does the market expect that to continue? it is fascinating. as you look through the chart, you see this slow creep lower in terms of dollar-sterling. the market has put on the most
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amount of short that's since 1992. that was the back end of last week. the risk is that they don't do a qe and a rate cut. it will be fascinating to see how the pound reacts. we've got the rba and the bank of japan, and both those currencies rally even though we saw a rate cut in some stimulus. the pound seems to have found its initial floor. the betting is heavy on the pound on the downside. francine: thank you so much. manus cranny outside the bank of england. let's introduce our guest. she is geraldine, pimco's managing director. pimco runs the world's biggest actively managed bond fund. thank you for coming on. give me a sense of what you are expecting mark carney to do. economists want a rate cut.
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does he need to do more? >> we expect a 25 basis point cut and extension of the sls funding. the question is on the qe, will he go this road or keep some powder dry and wait for autumn when the budget is going to be reset by the treasury? francine: even if we do get something bigger than a rate cut, it doesn't be are going to euphoria in stocks. how do you position yourself? think in our portfolio we are, i would say, moderates when it comes to risk, but not risk-averse at the same time. me, it comes to u.k. for u.k. is important in the portfolio, but not necessarily so important on a global scale. we think it is very much a u.k. event.
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we have a tendency to be underweight on the british pound. francine: overall, is brexit going to lead to recession? what does it mean for gilts? u.k.u have an ideal portfolio you would be looking at? geraldine: we don't think there will necessarily be recession in the u.k. we are a bit short on data at the moment. the first pmi are pretty dramatic, but you might have overreaction. things might be normalized as time goes by. we expect some fiscal easing when the autumn comes. growth around zero is pretty much what we're expecting for the next one or two years. francine: is there concern about a policy mistake from mark carney? he seems to be the person who held the crisis, the reliable boyfriend. he seems to be on top of it. geraldine: the bank of england
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seems to be a lot more cautious when it comes to interest rate policy. we are not sure if they will get their or not, or keep a positive rate just about that. i think bank of england is going to be much more cautious when it comes to financial stability and try to balance the two. francine: how should he look through inflation? this also goes back to how you build a portfolio. geraldine: i think in the past the bank of england has looked through inflation. a couple of mpc members have hinted they would look through. this is our expectation. inflation will probably rise above target in 2017 and then revert back to below target because of the low growth. francine: thank you so much. geraldine sundstrom stays with us. we will talk about some of the safe havens. stay with "the pulse."
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in a world of negative rates and cheap money, how can we be sure assets are priced correctly? we will get the thoughts of pimco's geraldine sundstrom. plus, nearly all economists suggesting a boe rate cut today. we will look at the task facing governor mark carney. and, comes back after hitting a their market. the world's most important commodity is making a comeback. this is bloomberg. ♪
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francine: this is "the pulse." i'm francine lacqua. let's get to the bloomberg business flash with nejra cehic. nejra: toyota has cut its fiscal year forecast. the automaker said profit will probably drop to $14.3 billion for the year ending in march as cheap fuel pushed u.s. demand away from its car lineup, toward trucks. raised its full-year earnings forecast as it beat analyst estimates. earnings before interest, taxes, depreciation, and x putting some costs -- excluding some costs, rose. london stock exchange has said the u.k.'s decision to leave the eu may damage investor confidence. sanofi is pursuing a tire, a
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transaction that has been shaken by the brexit fallout. officials have threatened to clawback, clearing operations central to the acquisition. francine: thank you so much. in a world of cheap money, how can we be sure assets are priced correctly? take a look at stocks and bonds have performed so far. the s&p 500 more than 5%. bond yields have continued to fall as bond prices have risen. my guest is the portfolio biggestfor the world's managed fund, geraldine sundstrom from pimco. when you look at assets, it has been going not as smoothly as it used to. are we pricing things wrong? geraldine: that is the big question and a complicated one. i think we are in a world where most asset classes are pretty mature when it comes to valuation. manager, i have
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to look at them in absolute but also in relative terms. in absolute, pretty much everything looks on par relative to history. in relative, one thing we think stands out his credit. we do not think recession is on the very near horizon. portfolioing to focus around quality income and try to avoid negative yielding assets. there's plenty out there. francine: such as? geraldine: we like some investment-grade in the u.s., but also in europe, securitized credit, selective high-yield bonds, but away from the commodity sector. there's still a fair bit out there. even in some specific areas of emerging markets. francine: what if i said, i'm just going to buy what they ecb buys? does that make sense as a strategy? geraldine: probably a bit too
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simplistic. you also have to buy because of the fundamental of a company and analysis. we know that the euro market might be more supportive in times of volatility than other markets, but this is not enough. francine: any corporate bonds from banks? because of the situation with banks at the moment, it seems too risky. geraldine: financial bond is something that we like. we think that banks' balance sheet are repairing. tier one capital ratios are going up. profitability is an issue. that is something for equities. when it comes to the safety of bank bonds, we think these are attractive. francine: do you look at it industrywide, a specific company, or countrywide? geraldine: we would look company by company. we have analysts helping us choose that. francine: negative rates. i'm going to bring you the swiss
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chart in just a second. are you concerned that the boe would go down that route? more hurtfulrates than they are helpful? geraldine: negative rates in the u.k. is not part of our base forecast. never say never, but it seems that they have ruled it out. the fed seem to be much more cautious than the japanese or european colleagues. francine: this is my swiss curve. i like it because it is so outrageous. two years ago, you would have said, you are crazy. is there any value in some of the swiss companies or is this a story -- you have to know returns here. why would you invest in switzerland at the moment? geraldine: that is very much love you that we were thinking. try to avoid negative yielding assets and find alternatives that give you quality income. francine: why are people still
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piling in havens us to and mark -- havens? geraldine: there are a lot of questions when it comes to ammunition that central banks have. i think what we're seeing is that people are paying an incredible price for certain the of the risk-free assets. we are very cautious when it comes to durations these days. we think they would help in case of recession or bad outcome in the world, but you should not rely on duration for generating income in your portfolio. francine: how do you look at treasuries? probably the most difficult market to read. geraldine: because they are still with a positive yield, attractive to a number of people. this is one place where the -- [indiscernible] they have some attraction. there, we keep quite a neutral
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stance when it comes to duration. francine: will janet yellen be able to hike this year? geraldine: the probability is not very high, but certainly not zero. probably a 50-50 if they manage a hike before the end of the year. francine: including september? it seems that there is a presidential election so they would have to be pretty bold to hike rates so close. geraldine: you would need two very strong job reports. we will have one of them tomorrow. so far, given the data we are seeing, i would say the probability is fairly low. francine: thank you very much. geraldine sundstrom stays with us. next, as rand gold resources reports lower second-quarter profits, we will bring you our interview with the company -- ceo. then we talk more about havens. this is bloomberg. ♪
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francine: welcome back to "the pulse." rand gold shares down more than 10%. it had operational problems at african mines which led to a decline in profit. rand gold shares soared after the brexit. we spoke to the rand gold resources ceo, mark bristow, about the results. mark: the big plus for this
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-- that really delivered. we had a difficult quarter because of a failure that took some time to fix, not an operational issue, but more an engineering issue. we struggled out of last quarter. overall, on an interim basis, up on that profits, earnings flat. anna: so some better than expected. manus? manus: mark, very good morning to you. breaking numbers for you. second-quarter gold production, 281,000. what kind of guidance can you give us for the rest of the year? we've overcome some production issues. the guidance for the rest
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of the year, pretty assured? mark: sure. we will make up for the lower gardens or the revised gardens that we put out two weeks ago. thate on track to beat 600,000 ounces. the gold price is very helpful. the backend weighted production profile for this year plays into a higher gold price going forward. anna: where are we now? at a chart, it looks nice, better than it did for the last few years. how much difference as that made to your business? we play it at $1000. looking forward, as you talk about the bank of england, i think globally it is going to be a bit twitchy. the gold price for the next quarter or so. people have to get their head around what is going to happen
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to interest rates. in the longer term, it is a very solid outlook for gold. anna: do you think the nervousness geopolitically, with that in mind, how sustainable is this higher price? both the economic uncertainty on a global platform and the geopolitical issues around the world, it is a good place for gold. not particularly good for -- we always do bad when i everybody is struggling a bit. francine: talking to the ceo of rand gold. let's get back to geraldine. when you look at havens, gold, every time i have someone here, they say, by gold. sometimes it is in a bubble. what goes up significantly has to come down. geraldine: in our portfolio, we
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do not recommend gold. we would have to become much more risk-averse in the search for safe havens. we think the outlook is steady. at midyearf course levels, but certainly steady. we prefer to go in positive yielding assets. cautious we have a stance on equities, we are not completely out of it. gold for us is a little bit a distant prospect. we would have to turn much more negative on the outlook. francine: what about japan? it is a haven. it seems no matter what they do, if they are not doing structural reforms, it is a haven. geraldine: yes. so far, they haven't really -- probably they have under delivered relative to market expectations.
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this is something they have to be very careful with. we see what they did last week. bankshares did very well because they didn't cut rates more negative. the stronger yen is a problem for the exporters. they need to strike the balance and hopefully the fiscal situation is not that much of a -- it should help. they have to be more creative. francine: do we need japan to do better for the world economy or is it isolated? geraldine: i believe it is somewhat isolated. it is more like a test case for the frontier of monetary policy. we've had a weak japan for a number of decades and this has never stopped the world from going forward. francine: thank you for your insight. up next, as pmi suggests britain's service sector is shrinking at the fastest pace in seven years, nearly all
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economists are expecting a rate cut today. brexit, economic growth, and the bank of england. stocks subdued, pound weakening. this is bloomberg. "the puls♪
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francine: welcome to "the pulse" live from bloomberg's european headquarters in london. i'm francine lacqua. let's get the bloomberg first word news with nejra cehic. nejra: siemens has raised its earnings outlook for the year after a jump in large orders from power generating equipment. europe's biggest engineering companies had profit from industrial operations rose 20% in the three months through june. >> we've been clearly on track on the growth path.
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10% compared to currency related changes. revenues are up 9%. we increased investors profit by more than 20%. chicago fed president charles evans says one rate hike could be wanted this year as the economy except steam. he expects growth to increase in 2016 following disappointing gdp readings in the first two quarters. investors are awaiting right is jobs data -- fridays jobs data for july. a woman killed and five others injured in a knife attack in central london. police were called to russell square just after 10:30 p.m. u.k. time. a man was arrested after being tasered. the mat said mental health was a significant factor in the attack. global news 24 hours a day
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powered by more than 2600 journalists and analysts in more than 120 countries. i'm nejra cehic. this is bloomberg. francine: the most hotly anticipated bank of england rate decision in three weeks ago. last time, governor mark carney surprised the markets by not cutting rates which have been at a record low in's 2009. today, investors are more convinced the boe will cut 50 economists forecasting a rate drop. my next guest is expecting a 25 basis point cut. brian hilliard, great to have you on the program. is aate cut, let's say it done deal. will he announce more measures, a package, some kind of qe? >> i think he will. they are expressing such a sense of urgency that they are going to deliver much more in total over time. if we believe that 25 basis
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points is going to take us to the new low, they've got to continue that in other ways. that is qe. francine: why is it so urgent? you could argue that it is just july, a couple days, weeks after the referendum, and people freak out. brian: i share the sense of your question. prior to carnies very clear comments, -- carney's very clear comments, i would have expected more data before making a judgment. francine: is there a concern that he doesn't have any powder left when article 50 gets invoked? brian: not really. the bank has made it very clear that even when they reach a new floor, they believe that qe is equivalent to rate cuts. it is a conventional monetary policy tool. francine: is it? they argue it is. brian: it will have some power,
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but i think pound for pound, it is less powerful than the first rounds we had back in 2009. francine: if people are pulling back consumption, you can deal with it by either doing qe or interest rate cuts. investment from abroad has been pulling out because people don't know whether they have access to the single market, this kind of policy measure is not going to help. brian: the foreign direct investment component, you are completely right. domestic business investment has been suffering. that is something where the bank of england can play a role. they can say, don't worry, we're going to stabilize growth. you should reconsider. francine: what do you see the biggest strength for the u.k. economy and the biggest weakness? is consumption going to get worse? brian: consumption will weaken.
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that was the case before brexit. there was some loss of momentum. francine: and that is because? brian: we had an amazing conjunction of stimuli. you had rate cuts and qe that gave you this surge of growth which was always going to peter out. francine: how much does a weaker pound help? brian: more than it did when it weakened in 2008. francine: why? brian: at that time, you had key export markets faltering. now europe is back to a reasonable growth trajectory. if you are getting more competitive and your market is growing, you will see some benefits. the feeling out there is this is a country skewed toward services. a pound drop does not help services, or does it. brian: reexport them out of services, so the price still does matter. addcine: how much does that
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to gdp? [both talking] francine: let's say pound drops 15%, 20%. i don't know if this is possible to say how much it automatic he adds to gdp. brian: it could add maybe half a percent. francine: do you expect pound to continue falling? brian: i think there is a risk of going down to the mid-20's. francine: how do you explain that weston mark -- that? brian: the political uncertainty about the formation of a new government has been dispelled much more quickly than we expected. the conservative party election was meant to last themselves september 9. -- until september 9. think, a is there, you
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miss pricing in the markets, that people still believe, the business community in the markets believe that article 50 will not be triggered? brian: i don't think so, to be honest. i think the government is right to take its time, think how it wants to play it, have negotiations about negotiations, but i think it is pretty clear that they will trigger that article. francine: thank you so much for now. brian hilliard from societe generale stays with us. markets a little flat this morning. let's head to the cmc market trading floor where ryan chilcote is standing by. ryan: good morning, francine. the pound has been weakening against the dollar. the brand-new bloomberg pound index has also been weakening. it is not just against the dollar, but against several trading peers for the pound. the traders here say that tells
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you more money is going to the short side, people subscribing to the view that we're going to get a rate cut for the bank of england. we talked to 52 analysts. 50 said they are expecting a cut. if there is a risk today that it is that we perhaps get less than we are expecting from the bank of england, that might lead to volatility on the trading floor. francine: if we do get a cut, is there a danger that it hurts the banks? there is a danger of that. one of the interesting things is, as far as the way people are positioned, you can get a cut and you can still get a rise in the pound. people aren't just anticipating that 25 basis point cut. they are also expecting qe. if the bank of england under delivers on that, there is a
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huge short side because so many people are shorting the pound. they would move to cover those shorts. implied volatility for the pound right now, it is a measure of how much traders think they might get in terms of a price move. right now we're looking at the third against move of the year -- third-biggest move of the year after the referendum vote. people were concerned about a price move. the last bank of england meeting, we had quite an elevated since of event risk as well. there, we didn't get the rate cut. now people saying, if this doesn't go as i'm thinking, we could see big swings in sterling. francine: thank you so much, ryan chilcote. crude is holding steady. we discuss what is behind the trend next. this is bloomberg. ♪
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francine: let's get to the bloomberg's nest flash with nejra cehic. postedmerck second-quarter profits that beat analyst estimates. earnings before taxes and excluding some costs rose 29% to 1.1 6 billion euros. has cut its full-year profit forecast after net
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incomes fell. the automaker said profit will drop to $14.3 billion for the year ending march as cheap fuel pushed u.s. demand toward trucks and a strong yen cut earnings from vehicles sold overseas. has saidock exchange the u.k. decision to leave the eu may damage investor confidence. tire, a is pursuing a transaction that has been shaken by the brexit fallout. officials have threatened to clawback clearing operations that are central to the acquisition. nike is to stop selling golf equipment. sales at the company's golf division fell more than 8% in the year through may, making it the worst-performing category. nike built its golf business around tiger woods, but he's never returned to his previous dominance after 2009. tesla has reassured investors it
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can ship roughly 50,000 cars in this year's second half and half a million in 2018. that eased the sting of a loss worse than the $.60 a share average estimate in a bloomberg survey. that is your bloomberg dismissed flash. francine: crude is making a comeback, trading around $41 in new york this morning. we are going to talk about oil and the impact on emerging markets. jabier, let's have a look at these markets. this is my chart of the hour. i like to give you a chart. this is the msci all country world index. this is what happened to wti. if you zoom in on the bloomberg terminal, these are two dollars to three dollars moves. keene i would talk
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about standard deviation. what underpins this volatility? javier: we have a drop below some technical levels in oil. [indiscernible] suddenly we went into a bear market. that triggered some technical selling. we saw oil prices dropping about three dollars. yesterday, the inventory report was seen by the market as a bit better than expected. we have a larger drop in gasoline stocks. we have this rally. interesting to note that despite the rally, 4.5% now, we are basically back to where we were only two days ago. there have been fairly significant movements. if you look at the model longer-term on your chart, we are still down significantly about 10% over the last month.
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francine: there's nothing about growth more general that we can extrapolate to look at the strength of the world economy? javier: sometimes there is a view on the market that the global economy is going to be softer in the second half of the year. we see the growth of gasoline demand in the u.s., india, and china not softer now compared to beginning of the year. the question here is that weather plays a big effect. it was very warm in february and march in the united states. we have americans driving a lot in those two months. spring came early. francine: it did. now we are in winter in london. javier: london does feel like winter. that probably skewed the numbers in the first half of the year. it is still a supply problem. we have too much oil in the
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market. opec is consistently pumping a lot of crude. i want to talk about the new chief of opec in a second. brian, the problem with oil is that it has always been correlated to world growth. this time feels a little different because it is correlated to the markets more than growth. this is the problem central banks have regarding inflation. brian: referring to central banks first, the fact of that oil prices falling is going to reduce that bounce. those -- icern for think it is a growth story more than anything. the issues are not just world growth. it is also saudi oil policy. tell me if you agree. we've got a little more clarity. they are not trying to push the price lower. even though we are looking for
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it to settle a little lower than it currently trades, maybe the high 30's for brent, it is forming a floor. francine: if you look at the market on the last drop, the consensus is around $40. can we go below that? for sure. but it is not what we had in the first half of the year. we still have too much supply and we are not dropping inventories nearly enough. francine: if you are a central bank, do you need stability? the price of oil has not given you stability. do you need to look at deflationary pressure from china? brian: most central banks will have a formal procedure for building in the oil price. it is not just the spot. it is the oil curve.
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that is less volatile. affect thectually stories. inflation a little lower in the short-term, but not having an amazing impact. we are certainly going to see the big impact for the u.k. being the exchange rate rather than the oil price effect. francine: thank you so much. hilliardas, brian stays with us. up next, we hear from the ceo of siemens after it raises its full-year forecast. this is bloomberg. ♪
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francine: welcome to "the pulse ." i'm francine lacqua. the big one today is the bank of england policy decision. that is at midday u.k. time followed by governor mark carney's news conference. have a later, we just couple of -- well, just a day ahead of friday's key payrolls. it is a big week for central banks.
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news,g to some corporate shares in siemens are higher this morning after it raised its earnings outlook after posting higher-than-expected third-quarter profit. ceo joe kaeser spoke to bloomberg earlier today. joe: obviously i'm very proud of my team. we've been delivering a strong quarter on the back of a strong quarter in q2. we've been back on the growth path. our bookings were up 10% compared to currency related changes. revenues are up 9%. satisfied server of a great company. on the other hand, the environment has not been exactly great. we need to work hard to get the performance in. we are our wish in 2020. we do what we say and it moves along very well. after the brexit wrote, the
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whole managing board of siemens, including key people from our company, have been going to the u.k. we've been talking to representatives with the government. we made it very clear we are with the customer. there is no change in plans for the current project. i also urged the house of commons and the representatives at that time that we need to have clarity one way or the other. we will look at it and may or may not reconsider. we need austerity one way or the other, then we will be ok. francine: dallas joe kaeser, ceo of siemens. brian hilliard is still with us. there's always a link to brexit. anything the central bank around the world does, brexit leads us back to mark carney. what will you be watching for in
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mark carney? is in language, forward guidance, concern about inflation? brian: he's going to stress, i think, that there is a lot more easing to come. although we started to get the first hints from the surveys, they need to see a lot more evidence to know how they are going to calibrate their response. the fact that he gave this very strong statement in his 30 june speech that they are likely to act so early tells you that in aggregate, they want to do a lot of easing. this is the start. francine: what does it mean for how the ecb looks at what the boe announces today? brian: to the extent that the bank of england message is one of big risks to growth, that is going to hurt the eurozone as well. it brings a downward risk to the ecb forecast. francine: brian, overall, what is the one thing people get
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wrong about mark carney? brian: there's a leading question. i think people take his signals, his guidance too literally. i think his forward guidance, the first phase was an unmitigated disaster and he should have said something more general. francine: that is probably the biggest problem for central banks worldwide. how can you be data dependent if you are giving so much guidance? brian hilliard, economist at since a gets in a row. surveillance is next. tom keene will be joining me. we will talk with simon wells, our chief u.k. economist. we will also be joined by simon kennedy. he oversees our brexit coverage. this is a picture for the stocks. traders are waiting for this rate cut. we will see if there's any knee-jerk reaction. when you look at pound volatility, it spiked quite a
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lot in the last couple weeks. it is almost at the level we saw the day after brexit. it is all about boe. tomorrow, u.s. jobs data. we will watch for clues on what janet yellen will do. this is bloomberg. ♪
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francine: think of england cap tone. two hours away from the bank of england rate decision. cut interest rates for the first time in seven years? volatility spikes ahead of the decision. and theest since brexit pound is weaker. and oils come back after dipping into a bear market earlier this week. surveillancemberg ."

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