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tv   Bloomberg Markets European Open  Bloomberg  June 20, 2017 2:30am-4:01am EDT

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♪ welcome, you are watching "bloomberg markets: the european open." i'm guy johnson in london. as is matt miller. breakfast at the mansion house down the road. mark carney and philip hammond's speak shortly. plenty to come from that event. in september, live from the fed.
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dudley says they are hoping the tightening wouldn't imperil the economy. now that terms of the discourse before -- divorce before any future trade deal. can london regain the initiative? and four individuals from fraud.s charged with matt: very interesting story there, considering individuals have been charged as well as barclays. interesting also to look at the march, the equities march the continues around the globe. andu.s. is at record highs now you see futures up in europe, even nasdaq futures up.
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gains as far as equities are concerned. take a look at the bund trade sold off. yields being pushed up a little here. because we only two significant digits there. i go a little further. 0.795. i always go four. guy: always the extra mile. let's talk about what else we could see on the gmm. kiwi is bid, krone bid, dollar -- bloomberg dollar index is about .1% up. look at what is happening around euro-dollar. what is happening around this queue surrounding trade. interesting to see how the market is positioned. dudley isn't with them and he is a significant voice to listen to. the fed debate interesting at
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the moment. we will talk about that and bring you carney and hammond. they are getting ready to speak. let's get a first word news update with juliette saly. and four barclays former executives have been charged with conspiracy to commit fraud regarding the 2008 capital raising from qatar. they faced charges along with the bank. in the u.k., a 70-year-old man is being held on suspicion of attempted murder and alleged terror offenses after a van hit muslims in north london. pedestrians, leaving one dead and several injured. the father of four who lived in wales was not unknown to the security services and believed to have acted alone. donald trump has denounced north
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the death of ottawa warm beer. . to 15 harmenced partiers -- hard years labor for stealing a banner. -- still preliminary. spicer has served as white house press secretary and has been the subject of speculation for months that he was on the verge of being fired. in the u.k., bank of england policymaker has a message for colleagues as her term ends, don't wait too late to rein in consumer prices.
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for higher interest rates in each of the past three policymaking's. the british economy shows signs of weakening. theents come as consideration for british industry lifted its inflation forecast, seeing a peek. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. the u.k. lost its first battle with the eu over the timetable for brexit talk. demands ton to the discuss divorce before any consideration can begin on a future trade deal. barney a had to take a smile off his face. >> time not in the frame of mind to make or ask for concessions. it is not about punishment, not about revenge.
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we are implementing the decision the eu andave unravel 43 years of patiently built relations. the united kingdom has decided to leave the european union. it is not the other way around. the united kingdom is going to leave the european union single markets and custom union, not the other way around. so we have to assume our responsibility and the consequences of our decisions and the consequences are substantial. haydenet's get to john's in brussels. what did we learn from the first official day of talks? isthe most obvious thing that the leverage is still very much on the side of the eu here. whatever the u.k. hoped to achieve in terms of balancing it among this first day of historic talks didn't happen. the timetable, the sequence, all of that has been set by the eu
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and the u.k. agreed to that yesterday. and is the timetable that we are going to be using going forward. hand, there is lots of expectation that we would see a softening in the brexit position of the u.k. given all that is happening in london with the tories and everything. as hasn't happened. david davis was still hartline in with the u.k. -- how it will go about these talks as theresa may has been. we expect that to soften, but at this point, we are in that same position. guy: what happens next? jones: the very next thing is there is a summit in brussels on thursday and friday. show barney a is going to report on the early talks to the eu leaders sent theresa may is going to go there. she is going to bring with her an outline of her proposal for citizens rights and this is one wants toitial issues
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wrap up before they can move on to trade issues. on thursday, theresa may is going to give her proposal for citizens rights and the eu leaders are going to have their first look at it. then we will see what happens going down the road. the eu wants to see sufficient progress on these issues, citizens rights, the brexit, the northern ireland border before they can move on to the other positions the u.k. wants. guy: jones hayden joining us out of brussels on day one brexit. joining us is the head of rates at weaver investors. are there simply too many variables to price the u.k. right now? i am trying to understand the political current and what is happening with frexit, the economy, there seems to be so much going on. >> there are a lot of
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crosscurrents. scenario, the market had a pricing in mind before the election outcome. where therentially has to be revision going forward. on an blow-by-blow basis, we are not going to get some big reveal. this is how brexit starts. it is incremental. , if there were a move to a softer brexit, that would be good for sterling. but you are not going to wake up and find sterling 5% higher. it is going to be tracked out over six months as we get additional pieces of information. on the other side, we seem to be what wesigns of expected after brexit. it has been delayed a year. we are getting inflation showing through, we are seeing the
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economy turning down. that present the bank of england with a quandary. that is a difficult one to navigate. our view is more that policymakers will look through the inflation risks. matt: how do you expect them to do that? if they have growth at is really slowing, they don't want to raise rates in spite of inflation and cutoff -- >> a little inflation is easier for them to do than say we will raise rates and further exacerbate the downturn. considering the amount of risk facing the u.k. economy with the brexit scenario and uncertainties that go with that, the worst thing they can do is artificially slow the economy to try and control inflation. , we hadook back inflation rates at 5% and they didn't raise rates. "forbes"can see banging the drum on the inflation story. what about supply?
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one of the takeaways from the election is the end to austerity, whatever that means. in the economic outlook, if you are going to end austerity, whatever that means, you are going to be increasing spending and you are not really looking at a macro environment where revenues are increasing. it is bound to mean more supply. 1%, itr, if you look at is street financing is one way of looking at it. for the time being, people aren't so worried about a dramatic tick up in supply, simply because almost always, the macro background will win out. if you believe the inflation spike is transitory, brexit will slowdown, there won't be demand for u.k. bonds even if supply
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picks up. historically that is what happens. the macro wins out. clearly there is a lot more to absorb and that is disconcerting. guy: charlie, we need to talk about fed. the head of rates at aviva investors. use tv , we will be playing you what is happening. you can see the live video stream. you also get this sidebar. did you the latest breaking news and a nice little bio on charlie, gives you the breaking details of what is going on in markets and the charts. also, ask the guest a question. matt: you give charlie a question. up next, president charles evans and dudley are sending different messages with evans having the possibility of policy makers done for this year. which side is the market on?
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we get analysis next. this is bloomberg. ♪
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♪ the markets and charles we skip september. dudley is not sure. he's opening the tightening
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would imperil the economy. charlie is still with us. dudley, the markets siding with evans. looking at what is happening in the auctions space, it is clear the market is pricing out september, pushing up by a considerable margin. atop the most important thing to come from charles evans was his comment that inflation is run below target for eight years and this was a serious policy miss. that sounds a lot like the talk we have been hearing about a policy ever or mistake regarding this latest hike. they have some soul-searching to do. are they going to be data -- dependent and wait if the slowdown is transitory, or are they going to go ahead with this plan to normalize whatever
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happens to the data? as far as treasuries go, i think they have taken a dove case all year. even though the fed has raised rage, treasury yields have falling. the pattern for the first half holds in the second half, yields can head lower. we see the market is giving the fed a free pass. rates are falling, financial yet,tions are decent and they are raising rates, sticking to their targets and going to reduce the balance sheet in a more hawkish way people expected. they need to take advantage of that? charles: depends on if you think the bond market is trying to send you a signal. historically, the slope of the yield curve is the best economic indicator there is. the key.rential is
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that has been progressively flattening along the hiking cycle this time around. --t that is telling you is if you take it as read -- the longrun interest rates and run growth potential is material shifted lower from where it was. that is not radical news, but no one knows where that level is. the bond market is choosing to oppose the fed and take a more you theine, tells markets are being given a pass. inflation isn't causing them a problem, supply is not it problem. there is no fiscal expansion coming from trump. you are at late cycle waiting for the economy to roll over. your riskinvestor, reward is skewed lower. that is the balance risk the market is trying to interpret. us, they have this balance sheet reduction issue has a free pass.
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they can put that out there in september -- say they are still tightening -- they buy themselves time during the period were in flashing -- inflation data is trending weekly. s, i think we get fisher speaking later on. you can figure all this stuff out on the federal page. to hear more voices siding with either side of this, which way will the market jump? the market may have to change its positioning very quickly and the fed can reposition the market in a hurry. , wewe in the phase now build up towards september and yellen says, we are on for september and everything has to reposition? that is a possibility. i am thinking it is unlikely.
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it is looking more like september will be a pause and december is the bigger candidate. we have these bloomberg surveys of economists that project yields and now they reject yields rise by the end of the year if the fed raises rates. the trouble with these surveys is they are wrong a lot of the time. the flattening of the yield curve, negative term premium and a couple other spreads are pointing to further gains for bonds. i might also mention volatility is real low right now. --you look at the move index on the bloomberg terminal. that demonstrates their is not a kinds ofspute, all trading were people are trying to figure out the price -- if there is agreement that low yields are acceptable. v's, thee tlib
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evidences for yields to stay low. matt: how much longer can you stay low if the fed unwinds its balance sheet? why are you buying bonds if the biggest holder start selling? is -- reale reality -- rolling over what they are really hold. liquidating the balance sheet -- think of it another way. when they are buying those bonds, yields are rising. it comes back to this principle that if there is an increase in supply, what is to say there isn't more demand. if the market thinks unwinding the balance sheet will work and it will load the u.s. economy, that will trade bonds. bloomberggoodman, mliv macro strategist, you can follow live market insights on
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the bloomberg at mliv . that is how guy and i start our morning's every day. coffee, can't really beat that. , he will stick around. we will speak with treasury secretary. today at 12:50 we get steve mnuchin. are joined by larry summers. that is all next. this is bloomberg. ♪
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♪ guy: 7:54 in london. five minutes until the market opens. our clays will be in focus today. barclays caught up in this. fraud office charging barclays with fraud. we were talking about the possibility of a 200 million pound fine. for -- fourg individuals in this guitar case. which makes it much more serious for them. guy: i read this story and it was barclays probably going to in thefine and that context of fines thrown around, didn't look at it clearly in or miss.
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it is a big lump of money -- matt: slap on the risk for banks. guy: the fact that individuals are charged changes the game. this is bloomberg. ♪
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guy: welcome back. just a minute until the catch up in here in europe. the wti screen, the fair value revealing we will be a positive start to stocks. undelondon looks like it will underperform. keep an eye on barclays today. matt: the equity indexes on the march and also obviously, what is happening at mansion house, waiting for the chancellor of speak.hequer to they are all set up for him there behind the podium. after that, we hear from mark, the governor of the bank of england. both interesting in their own way. one, i think, more important to
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the domestic economy update, what philip hammond has to say. and carney, it will be important to england, but globally interesting as well. guy: he has not spoken since before the election. the markets are opening up. let's take a look at where we stand with cash ithis morning. we saw yesterday european stocks into the session yesterday, the auction at the get go of t rade. we are opening, up this morning. the market makers will push it a little bit higher from where we are, but i interested to see where our cleabarclays goes. the cac, expected to be positive this morning. the gilt market, i'm sure will be paying attention to mention house. let's get the details of that with anna. anna: thanks.
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gilt markets, no doubt gilt investors watching out what comes out of marriage and house. we might get a few clues about the fiscal directions for the u.k. and central-bank policy. this morning we will hear from mansion house. gilt investors watching that. the yields going a little higher. the gilt prices coming down a little. kristin forbes, giving a warning as she gets ready to leave the bank of england, saying don't wait for the inflation outlook to worsen. the foreign-exchange can have a permanent effect on inflation. this goes to how transitory is the following the pound's effect on inflation. this is something people tend to disagree about. we got news of a new member of the mpc as well. let's talking little bit about equity markets. this is the stoxx 600 on the imap function. this shows you where we are. we are up .2% for the securities
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as a whole. the consumer discretion rate, the biggest gaining sector. he won it, even if it was not as strong as some people expected. german stocks hit a record high 's session.y let's talk about china because it is important in terms of china and is placed in the world. perhaps, forucky, their attempt to get their domestic stocks into the benchmark in this index will step his comes tonight, -- in this index. this comes tonight. because of domestic listed stocks, they are so much smaller now than their offshore traded counterparts, maybe it matters less than it used to. china had to shrink its
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ambitions to get this fourth attempt. if they do get the go ahead, it will take up half a perecent of the msci index. guy: thank you. let's deal with a little more detail about where the markets are at the moment. barclays is movin not really one move. guy: we have your percentage changes in there. matt: absolutely. it is barely budging on the back of this. which is interesting. barclays, santander, nestle. it is interesting come in terms of the rotations we are seeing. banks are in the mix, not barclays, but parabas is trading high. to be honest, it is really hard
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to get any kind of sense of direction out of this market this morning. a, at a sectoral level b, at a stock level. guy: what is the ticker? wlson. the interesting thing about wolseley, and anna was telling me about this british plumbing business, it is really a u.s. company. 66% of their sales are there and 81% of their profits come from the u.s. guy: and really interesting stuff about plastic piping versus copper piping. the ceo can tell you a lot about this. the u.k. chancellor and the exchequer talking about the financial plumbing. philip hammond will be making his mansion house speak very shortly. i think it goes the lord mayor, then hammond, and then carney.
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philip hammond is supposed to push for a so-called pragmatic brexit. guy: i think slow brexit. the slow brexit kind of works. matt: it will be interesting to see if hammond talks at all about the austerity you and charlie were discussing. the question was austerity, in the most basic sense, it is not spending as much money. if they start to spend more, it will be very fascinating. guy: to be honest, we have not seen that much austerity. have we seen austerity in the u.k.? >> not to the extent people think there has been. there have been cut, but in terms of the actual amount of government spending, it has been actually relatively generous, compared to a country like germany. guy: if the conservatives cut 20,000 police officers since 2010, that is the kind of
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austerity baguettes people up in arms. -- kind of austerity peopl are up in ts people arms. money,ants to spend more the politically more intelligent thing to do would be to hire more police officers. needed or not, it is a good picture. rid of the ones they have already got. i think that there has been a very clear acceptance from the political classes. they have been sent a message. this idea that you know, financial prudence overcomes everything is not going to win you elections and it is not a popular stance. maybe austerity, or the lack of physical expansion, has been
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going on too long, holding out the middle classes. these are longer-term structural things. potentially, they are factors you can only do so much about. there are long-term things you cannot just, you know, you can't change. guy: we have got a bit of breaking news i want to talk to you about. u.k. rough gase storage. that does not mean the gas is rough, it is a place called rough. the stocks is trading a little lower. guy: we had a great article yesterday about rolls-royce not wanting to make engines for mom. [laughter] you were at the air show there. guy: anyway, the stock is trading down. it is more interesting than it initially first sounds, even if
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you are not interested in centrica. what is interesting about the qa tar story, delivering gas around the world. the qatar story is one to keep an eye on because it could affect the u.k., which built this huge plant, and has moved in that direction. gas feels like it could be the mainstay of the electricity consumption story. charles diebel is still with us. harlie, i want to talk about this argument surrounding gilts. break evens are up here, and gilts are down here. how sustainable is that? >> every economic textbook will tell you it isn't. however, there are structural factors relating to the pension industry. ensure that, that
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long-duration bonsds are popular, which gives them an intrinsic value to the community that tends to defy economic sense, shallw we say. the reality is, if we do see a b ig fiscal expansion, for example, and the economy does better as a result, growth is maintained because of fiscal expansion, all of a sudden the inflation running at 3% is much more of a risk. will we see the unwind of that story? >> this is the circulatory event we are involved in. we end up in a scenario where yes, you get a stronger pound, but that could kill off the potential. is: the argument with forbes the big currency adjustment tends to be more permanent,
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rather than having a transitory effect. >> yes, there is some academic evidence to support that. however, the reality is, if you unwind it to the other extent, that is an equal and opposite shock. matt: we don't need to go into the hypothetical discussion. hillary has a chart for us that anna has been showing. guy: at some point, we should split who hillary is, but we will get to that. matt: she is the chart is, the wizard behind the curtain here. -- the chart genius, the wizard behind the curtain. inflation is in yellow. are we in stagflation right now, charlie? >> well, do you have inflation picking up? is that sustained stagflation? probably not. guy: philip hammond is speaking
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down the road at mansion house. let's take a listen. am immenselyd: i grateful to the city corporation for hosting us so soon after the cancellation of last thursday's banquet in the wake of the appalling tragedy that was unfolding in west london. we have had a series of shocking events. the terrorist attacks. the terrible fire at grenfell to wer. this fire was an unimaginable tragedy. my thoughts are with all of those in the community who lost loved ones, and with the many people who are still suffering in hospital and the many who have lost their homes. our immediate focus is to ensure that survivors have everything they need, in terms of housing, clothing, food, and other essentials. but we must also get to the bottom of the failure at grenfell and take decisive
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action to ensure nothing like this ever happens again. quoted heready majesty the queen. none of us can escape the somber mood these events impose. but while he drew inspiration from the performance of our emergency services, i would like to focus on something else, the fact that we should be cheered by the resilience of our communities, and the strange of our shared -- and the strength of our shared values, which shines through the dark clouds wherever such tragedies unfold. and even in the face of such events, the business of government must go on, managing our economy in challenging times, improving our public steps thattaking the will deliver on our ambition an economy that works for everyone. and of course, the huge, complex
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and vital task of renegotiating our membership of the european union and the terms of the partnership which we want to se e replace it. we have much work to do. and we're determined to get on with it. we have a solid foundation on which to build. our economy has come a long way since the dark days of 2009. last year we grew faster than any other major advanced economy, bar germany. business has graded 3.4 million more private sector jobs, and that is even if we count george osborne just once. [laughter] philip hammond: the deficit is down by 3/4 and below 3% of gdp. while at the same time we have lowered income tax to 31 million people and taken 4 million out of income tax altogether through
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raising thresholds with more to come. lowest in is at its the u.k. for 30 years and the poorest households have seen their wages rise more since 2010 than in any other country in the g-7. thanks to the introduction of the national living wage, which is added to the annual income of those in full time work in minimum wage. a record of which we are proud. but that's probably enough of past achievements. i would rather we talk about the future. traveling the country during the general election campaign, i have had hundreds of conversations reflecting the challenges and the issues that people face in their daily lives. fears about job security, about wage levels, the need for good schools, a well functioning health service, decent care for
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elderly relatives, or access to the housing market. and it's clear, as many of my colleagues have noted, that britain is weary after seven years of hard slog, preparing the damage of laabour's great recession. when i took office last year, i reset the fiscal rules, recommitting to achieving fiscal balance, and doing over a longer time scale, creating additional fiscal space to support the economy if needed. but we must not lose sight of the unchanging economic facts of life. funding for public services can only be delivered in one of three ways. higher taxes, higher borrowing, or stronger economic growth. and only one of those three choices is al ong long-term sustainable solution for this country in the face of the
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inexorable pressure of an aging population. higher taxes will slow growth come undermine competitiveness and cost jobs. so, the conservative party will remain committed to keeping taxes as low as possible. and higher discretionary borrowing to fund current consumption is simply asking the next generation to pay for something that we want to consume, but are not prepared to pay for ourselves. so, we remain to the fiscal rules set out at the autumn statement, which will guide us by our interim targets in 2020 to a balanced budget by the middle of the next decade. stronger growth is the only sustainable way to deliver better public services, higher real wages, and increased living standards. i thought we'd won that argument, but i learned in the
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general election campaign that we have not. that we must make a new case for a market economy and sound money, the case for growth. and we need to explain again how stronger growth must be delivered through rising productivity. that means more trade, not less. that means maintaining our strong trade links with european markets after we leave the eu, as well as seeking out new opportunities for trade and investment with old friends and fast-growing emerging economies alike. it means the u.k. remaining open to the talents, the ideas, and the capital that have driven the success of our economy in the past, and will drive it in the future. but it also means addressing the domestic th weaknesses that have plagued us under investment of public and private, inadequate skills and regional
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disparities. this government has a plan to address all three. the national productivity investment fund starts to address under investment in economically productive infrastructure. the new t-levels will overhaul our provision of technical education and the industrial strategy on which we are currently consulting will tackle regional economic disparity. llisting productivity growth by aen 1/4 of 1% a year on sustained basis over 10 years would add 67 billion pounds to our gdp, that is 2400 pounds for every household in the u.k. productivity is the elixir that raises incomes and living standards, and it must be a national priority to make every learner more skilled, every worker more productive, every
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business more competitive, and every public service more efficient. that is the root to higher wages, higher quality public services, and a brighter future. productivity in the private sector is driven by investment. one of my immediate priorities is making sure that government is doing all it can to facilitate access to firms, large and small, to allow them fruits ofd bear the the flow of renovation that is pouring out of the u.k. universities. the european investment bank, and its offshoot, the european investment fund, have been an important source of funding for infrastructure, investment, and for growth businesses. i want that access to eib funding to continue wildly our members, on equal terms with other member states.
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i am engaged and will provide the assurances that eib needs in order to sustain the flow of eib and eif funding to u.k. businesses and projects. and to ensure that finance continues to be available after brexit, alongside these discussions with the eib, i can also announce i am expanding the support available to capital funding in the u.k. for infrastructure projects, we will broaden the range of theu.k u.k. guaranty scheme by offering construction guarantees for the first time and will consider other credit enhancement tools, such as first loss guarantees to reduce the financial risk that complex projects face. tho support the venture capital funds that are so important to growth and innovation in our economy, the british business bank will raise the limits on the amount it can at best in
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venture capital funds up to 50%. and it will be able to bring forth some of the 400 million pounds of additional investment that i analyst at the autumn statement. -- that i announced at the autumn statement. in the long term, it could be mutually beneficial to maintain a relationship between the u.k. and the eib after we leave the european union. and we will explore the options together. but we cannot take chances, so we will be prepared in case we do not maintain that relationship. because investment is crucial for the economic future of this country, and we will not let brexit uncertainty slow us down. investment is critical to securing economic growth and so, too, is trade. the british public knows that. poll show that 90% of
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respondents believes that free trade is positive for our economy, regardless of how they voted in last year's referendum. we are not about to turn inward. but we do want to ensure that the arrangements we have in place work for our economy. just as the british people understand the benefits of trade, so, too, they understand how important it is to business to be able to access global talent, and to move individuals around their organizations. so, while we seek to manage migration, we do not seek to shut it down. let me quote you from our manifesto just on the off chance that one or two of you may not have read it. it says, britain is an open economy and a welcoming society. we will always ensure that our british businesses can recruit the brightest and the best from around the world. britain has benefited from
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globalization, but we cannot be blind to the growing tide of hostility to it in parts of the developed world. to counter that, we must push for a new phase of globalization to ensure that it delivers clear benefits for ordinary, working people in develop economies. to date, much of the thrust of globalization is focused on the removal of barriers to trade and .naught,lobalization 1 if you like. expanding to china and germany. but our economy is 80% services. many of our areas of greatest competitiveness are in services, finance, insurance, communications. so, for the u.k. to be able to share fairly in the benefits of globalization, we need to lead a global crusade for
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liberalization of services. and we must employ that logic in our brexit negotiations to agree a bold and ambitious free-trade agreement with our eu counterparts that covers both goods and services. let me talk in a bit more detail about what we want to achieve from those brexit negotiations. the prime minister's lancaster house speech set out clearly the arrangements that the u.k. would like to agree. built around the comprehensive trade agreement in the context of a deep and special partnership that goes much wider. but we recognize that this is a negotiation and our negotiating counterparts, while broadly close, our desire for a ongoing relationship, will have their own priorities. so, we must be clear about ours.
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is aid -- i said before and i remain clear today that when the british people voted last june, they did not vote to become poorer or less secure. they did vote to leave the eu, and we will, but it must be done in a way that works for britain, in a way that prioritizes british jobs and underpins britain's prosperity. anything less would be a failure to deliver on the instructions of the british people. so, how do we achieve this brexit for britain. firstly, by securing a comprehensive agreement for trade in goods and services. secondly, by negotiating mutually beneficial transitional arrangements to avoid unnecessary disruption and dangerous cliff edges. thirdly, by agreeing frictionless customs arrangements to facilitate trade
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across our borders and crucially, to keep the land order on the island of ireland open and free flowing. to do this in the context of our wider objectives will be challenging. it will most certainly involve deployment of new technology. and therefore, will almost certainly need an implementation period. outside the customs union itself, but with current customs border arrangements remaining in place until new, long-term arrangements are up and running. and finally, by taking a pragmatic approach to one of our most important eu export sectors, financial services. let's be honest. we are already hearing protectionist agendas being advanced, disguised as arguments about regulatory competence,, financial stability and supervisory oversight. we will have no luck with that
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approach. we do with knowledge that is britain leaves the eu, there are genuine and reasonable concerns among our eu colleagues about oversight in financial markets that will then be outside eu jurisdiction, but which provide a significant proportion of economically vital financial services to eu firms and citizens. we saw just such a concern articulated in the eu's proposal on supervision of ctp's last week. allust and will engage with genuine concerns. and we must be flexible and pragmatic in responding, too, and resolving them. while never losing sight of the principal purpose of the regulatory and supervisory regime, to ensure financial stability and to protect taxpayers from having to step in
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to deal with failure. getting this right will be critical to the future success itthe british economy, but will also be critical to the future success of the eu economy. remember, 60% of all eu capital market activity is executed through the u.k. u.k. banks provided more than 1.1 trillion across border lending to the rest of the eu in 2015 an almost half of all british private equity investments in 2014 went into companies across mainland europe. the financial ecosystem that underpins this activity is large and complex, and critical mass is important. so, let me be clear about this. fragmentation of financial services will result in poorer quality, higher priced products for everyone concerned. and when we talk about complex
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financial products like derivatives were need to remind ourselves that these seemingly esoteric instruments are crucial to facilitating everyday commercial and domestic transactions across our continent, allowing households to obtain fixed rate mortgages, airlines to hedge fuel costs, and farmers to have certainty over the prices they will get for their product. avoiding fragmentation of financial services is a huge prize for the economies of europe. and i believe we can do it if we approach the challenge with three simple principles. newt, we will need a process for establishing regulatory requirements for cross-border business between the u.k. and the eu. it must be evidence-based, symmetrical, and transparent. and it must reflect international standards.
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second, it must be reciprocal and prioritize financial stability. crucially, they must enable timely and coordinated risk management on both sides. first, these arrangements must be permanent and reliable for the businesses regulated under these regimes. the industry needs confidence in the structures if it is to provide the financing needed to underpin growth in the real economy in the u.k. and across the european union. the future of our economy is inexorably linked to the kind of brexit deal that we reach with months,ver the next 20 and i am confident we can do a brexit deal that puts jobs and prosperity first, that reassures employers that they will still
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be able to access the talent our need, that keeps markets for goods and services open, that if is early agreements on transitional arrangement so trade can carry on flowing smoothly and businesses up and down the country and across the continent can move on with investment decisions that they want to make that have been on hold since the referendum. the collective sigh of relief would be audible. the benefits our economy would be huge. in established sectors like manufacturing, the car industry, financial services, pharmaceuticals, and emerging industries, in the housing sector, in travel, in companies large and small right up and down the country, employing between that millions of people, our departure from the eu is underway, but ensuring that it happens via a smooth pathway to
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a deep and special future partnership with our eu neighbors, one that protects jobs, prosperity, and living standards in britain will require every ounce of skill and diplomacy that we can muster. yesterday was a positive start. it will get tougher. but we are ready for the challenge and confident that we can deliver for british jobs, british business, and british prosperity. thank you. [applause] >> and now i am pleased to hand over to the governor of the bank of england, mark carney. [applause] >> my lord mayor, chancellor,
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ladies and gentlemen, in recent weeks, we have been reminded of find balances. balances in decisions, in parliament, and in life. balance between hope and despair. hope fort the murders, the remarkable life that is serviced, the inspiration that lives on in her family, friends, colleagues, and admirers. despair of the terrorist attacks in westminster, manchester, and finsbury park. despair at the treasury of grateful tower. but hope in the heroism, the resiliency, in the community of the response. hope, when we recognize our common humanity. and the best tribute that this city and this country can give to the memories of those lost is to renew our commitment, whatever our differences, to
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promote the common good. building a brexit and an economy that works for all. since the prospect of brexit emerged, financial markets, most notably sterling, have marked down the u.k.'s economic prospects. the monetary policy cannot prevent weaker real income growth that is likely to accompanied new trading arrangements with the eu, but it can influence how this income is distributed between job losses and price rises, and it can support households and businesses as they adjust to such profound change. indeed, in such exceptional -- andtances, thewe are this support the monetary policy can provide good jobs and activities. that is why last summer the bank
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of england announced a series of monetary and macro financial measures to support the economy during this transition. this stimulus is working. credit is widely available. the cost of borrowing is the record lows. the economy has outperformed expectations. unemployment is at a 40 year low. roads, allpacity else equal, its tolerance for above target inflation falls. different members will understand that we have different views about the outlook, and therefore about the potential timing of any bank rate increase. but all members expect that any change would be limited in scope and gradual in pac. e. from my perspective, given the mixed signals on consumer spending and business investment, and given the still
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subdued domestic inflationary pressures, in particular anemic wage growth, now is not yet the time to begin the adjustment. in the coming months, i would like to see the extent to which weaker consumption growth is offset by other components of demand. when wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of brexit negotiations. during this negotiating period, the economy will be importantly influenced by the expectations of households, firms, and financial markets, of the natures of both the transition and the longer-term economic relationships with the eu and the rest of the world. markets have already anticipated some of this adjustment. depending on whether and when any transition arrangement can be agreed, firms on either side of the channel may soon need to
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activate contingency plans. and before long, we will all begin to find out the extent to which brexit is a gentle storm along a smooth path toward the land of cake and consumption. but whatever happens, monetary policy will be set to return inflation sustainably to target . spend the rest of my time on another balance -- or rather, other imbalances to which the chancellor alluded. these are in balances whose resolutions will be important to determining our future prosperity. with many concerns the global trade taking local jobs, protectionist sentiments are rising again across the world. global imbalances are often described as morality details,
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contrasted with the vices of but tradeons, imbalances are natural features can bepen economy, and swayed by differences in demographics and levels of development and income. these are good in balances, and we need a trade and the financial system that both encourages them and facilitates them. but they are also bad and balances, imbalances that are caused by domestic distortions, and that is part of what is occurring today. with japan, germany, and china running excess surpluses relative to fundamentals, and the u.s. at u.k. writing excessive deficits. itsuch global imbalances, matters for three reasons. first, to the global financial crises, what marked current-account deficits are one of the most rewarding signs of financial instability.
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second, when unfair competitive advantage, either through managed trade or sustained traits exists, it can lead to protectionist backlashes that leave everyone worse off. when the current environment has synchronized weakness, it is not hard to imagine how there is low inflation, low wage, low growth traps, as it was in the 1930's. it is in this environment that the u.k. is running an historically large current account deficit. of the positive side, that deficit is funded in domestic currency and financial reforms have increased the resilience of our system, making larger imbalances much more sustainable. but the u.k.'s deficit has also been associated with markedly and increasingly rapid consumer credit growth. this isn't an imbalance funding
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its own resolution. large,r despite the depreciation around the referendum, the extent to which moved closeras to sustainability is a question that remains open, hinging on the outcome of the negotiations. most fundamentally, the u.k. relies on trade investment and financial fragmentation which have increased. the world economy has been here before, in 1930 one monetary policy was exhausted and fiscal policy was held in a band. there was a wave of protectionist measures in the united states, spread into your. so what should be done to prevent history from rhyming? in the simple world of the economist, the prescription is straightforward -- deficit countries, loosen monetary policy, tighten fiscal policy. itsnly the 21 roll up
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sleeves at one of its countless meetings, it could be easily solved. but those cures are prescribed in the abstract, where policies y spaces are constrained. monetary policy is still challenged by the lingering risks of a global liquidity trap with a low global equilibrium interest rate. fiscal space is limited for the financial crisis. exists ishat i unevenly distributed. 1930's,, as in the theoretical remedies are generally hauling fa -- falling far. reasons,hese and other looking at the imf and the bank of england, changing the macro best solvewould at about a third of the problem,
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leaving the rest to exchange rates might prove risky. that the required changes would be greater than any that have occurred in any year since the collapse of the system half a century ago. since all countries can't become more competitive, there is no avoiding it. higher global growth requires boosted productivity, and with it, real wages and demand, and it also requires a new approach to trade policy. consider that bank research estimates that up to one half of the post crisis activity slowdown could be related to the deceleration in global trade growth. it won't be enough for the g-20 to just resist protectionism. it now needs to make trade work for all. that includes using e-commerce platforms to promote free trade across the g-20, and as
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the chancellor suggested, it requires an urgent and critical examination of trade in services. context, brexit in general and financial services in particular will be key tests of the world's's capacity to build its path to a more strong and stable global growth. that's because one of the causes of global imbalances is the uneven playing field between trading goods and services, with barriers to services trade up to three pounds higher than barriers to good straight. most of the world's surplus benefit from this asymmetry. countries with convert his advantages, like the u.s. and u.k., are more likely to run current-account deficit. between faces a choice leveling down by restricting goods trades, were leveling up
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by liberalizing services treats. reducing restrictions on services trade to the same extent as goods have been reduced could reduce the excess deficit in the u.s. by a third and the u.k. by a half. services liberalization is a more efficient form of rebalance ring, because services industries tend to have higher domestic value-added and more domestic jobs and manufactured goods, which means smaller changes are needed. with 10 billion pounds increase in exports, they would reduce the trade deficit by more than a billion sterling, whereas the same in exports would contribute 5.5 billion. services, liberalizing isn't as straightforward, as there tend to be behind the border differences. but this is where global
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standards and regulatory cooperation can help. -- in arguably, the greatest prospects are in financial reform. serveial services could as a template for broader services trade liberalization, and with brexit, we have the coincidence of necessity and opportunity. since the crisis, the g-20 has agreed on a series of new minimums entered to make global financial services employer, safer, and fairer. implementation is now regularly assessed and transparently reported. the playing field for cross-border activities in financial services's level. at the same time, supervisory cooperation has intensified through the mechanism of supervisory colleges and crisis management groups. in short, platforms are being created for deference to each other's approaches when they
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achieve similar outcome. with robust standards consistent with applied wholesale financial service is drops fully into bilateral trade agreements, keeping the global financial system open and resilient and supporting greater trade, investment, and innovation. let me use the specific example of central parties in london. although points might apply more generally and reciprocally to all cross-border financial infrastructure in the u.k., in europe, and beyond. crisis, derivative transactions created a complex and dangerous web of exposures to help turn a shock into a panic. with the g-20's encouragement, ccp's are now untangling this web. for over, by netting exposures across currencies and products, bcp's are supporting liquid
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markets and lower costs to end-users, which means more resilient financing for households and businesses. as you know, the u.k. houses some of the world's largest ccp's. -- for firms and 55 jurisdictions handling over 90% of cleared interest rates globally and 98% of all cleared swaps in euros. all currencies, all products, and all counterparts is benefit. fragmentation of such markets by jurisdictional currency would reduce the benefits. firms account for only a andter of global activity, 14% of total interest rates are cleared by lch. any developments which prevented
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them from continuing trades in the u.k. would split liquidity between the less liquid onshore market and more liquid offshore market. clear, the potential for higher costs isn't theoretical. take japan for example. yen denominated swaps by japanese firms must take place onshore, and the difference in the price between onshore and offshore has been in the range of one to three basis points. differencesrice translate into significant cost for an, given the scale of activity in these markets. s could cost eute firms 22 billion euros per year across all activities, costs
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that would ultimately be passed on to eu households at the -- households and businesses. if the large stock of existing eu trade tens of trillions of euros in size were tracked out , they would these capital charges as much as 10 times higher than today unless and until they can move them. fragmentation is in no one's economic interest, nor is it necessary for financial stability stop indeed it can damage it. it would lead to smaller reducing the ability to diversify risks and diminishing resilience. higher costs would reduce incentives to hedge risks, increasing the amount of risks are real economy would have to bear. that said, the bank of england fully recognizes european can --
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european concerns. i know because i shared similar was several years ago when i was governor of the bank of canada. those were addressed through common standards and cooperative supervisory oversight, allowing canadian dollar clearing to move to a more efficient and resilient hub here in london. to address current issues, we can and should build on existing models to develop new forms of regulatory and supervisory cooperation, and the european commission's proposals announced last week recognize the importance of effective cooperation arrangement between relevant eu authorities and are overseas counterpart. they include provisions for deference to which the ccp is subject in its home jurisdiction, in line with the jurisdiction of g-20 leaders. the bank of england welcomes
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this. the proposal is driven in part by brexit, addressing increasingly important and more general issues and the general financial system. elements of these proposals could provide a foundation on , robust build arrangements for the supervision should be based on deep cooperation between jurisdictions and the parties whereffer to each other they meet international standards and where they deliver similar outcome. innovative,ch an cooperative, and reciprocal arrangement would promote competitive financing in the euro area and maintain the resilience of the u.k. and global financial systems. more fundamentally it would be a milestone in the broad rebalancing of the u.k. and would produce and far superior outcomes to other elements of the commission
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proposal, which would fragment and raise costs. mayor, this bill and appear arecould not there from the concerns of people in this country. but they are much more closely related than the appear. a decade of radical financial itself,asn't an end in but rather a means to serve households and businesses that are -- better. we must ensure the real economy reaps the benefits of such exit -- of such efforts. one million people across this country work in financial services -- it's an industry that contributes 7% of output and pays taxes that cover two
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thirds of the cost of the nhs. at a time when the u.k. is running a 5% current-account deficit, financial services run 1.5% of gdp. trade surplus in the eu alone runs a 5% surplus with the world and employs over 80% of u.k. workers. we can take these realities for granted and it would be all too easy to give into protectionism, but as we learned in the 1930's, another road leads to equity or prosperity. raising barriers to trade disproportionately heats -- hurts the least well-off, and escaping the low inflation, low-wage, low growth trap requires more than a textbook rebalancing of macro these. it demands comprehensive structural reforms and a new approach to trade policy.
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change is good more than make up for the dramatic all in real incomes that u.k. households have asked areas in the decades is the crisis. the brexit negotiations will be the test. may we help pass it by working towards innovative, cooperative, and responsible solutions to the benefit of tens of millions outside. thank you very much. [applause] carney, that speech following one delivered by the chancellor, philip hammond, moving quite sharply on the back of governor carney's line. kind of stomping a little bit. matt: yes. i was going to say, both of them stomping a little bit on the idea of -- the possibility of exit being good for the economy. that pound move we saw during thehammond speech,
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text was released in the market had a chance to read it while he was talking -- we saw the pound dive while he was talking about his desire for a brexit that seems like a non-brexit. he is asking for openness, increased trade. guy: access to talent. to be honest, if you look at both speeches, you wouldn't hear much difference. i sense that the chancellor may be a little bit more -- he may have been willing to accept that something will be lost, but the governor was strong on that subject, that clearing would cost europe, would cost the world significant amounts of money. matt: right. he was talking about also the
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differences between onshore and offshore clearing. argument,rongest because he was saying one basis point would cost about 22 billion euros for all eu companies, but that is spread out between all you companies. guy: i just want to read you -- this is what was said in a bloomberg interview. "i wouldn't be surprised if we continue to do that." she's making it clear that she's deals there is a reflationary story with more permanent features than we suspect, that it's not just a currency related story. it's clear that the governor feels it will not go in that direction. matt: he thinks the domestic inflation pressures are subdued, especially highlighting the fact that wage growth is not there. guy: we will speak about that.
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matt: we will stick to treasury secretary's old and new, speaking with steve mnuchin at 12:30 london time. later we are joined by larry summers for exclusive conversation. this is bloomberg. ♪
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francine: brexit battle. round one goes to the eu as the chancellor of the exchequer and bank of and with warned of a tough process ahead. a dovish mark carney says there is no room to tighten, while a hawkish new york fed disagrees. four former executives are charged with conspiracy to commit fraud in 2008 capital raising from qatar. plus, we hear exclusively from sheryl sandberg. you won't want to miss that conversation.


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