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Speaker 1: This is Bloomberg Surveillance. Brexit really is a structural issue,

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Speaker 1: and that is of Britain does leave the EU, what

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Speaker 1: sort of events will that trigger? In the Phillips curve,

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Speaker 1: you have an infliction point, and the infection point is

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Speaker 1: when you hit full employment. The market's going to be

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Speaker 1: all at all if the FED raises rates because the

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Speaker 1: majority of investors out there, quite frankly, haven't been through

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Speaker 1: a regular cycle, and because of that, they're gonna be

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Speaker 1: reactive and probably sell stocks. Bloomberg Surveillance your link to

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Speaker 1: the world of economics, finance and investment on Bloomberg Radio.

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Speaker 1: Good morning everyone, Michael McKee and Tim Kan's Friday. Our

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Speaker 1: inflection point is ten am. Michael mckeees already ordered out

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Speaker 1: for Murderita's I believe to get a started, Ccaolan Guacamolian

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Speaker 1: Chips is well. We say good morning to all of

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Speaker 1: you worldwide, particularly listening in the United Kingdom. One of

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Speaker 1: our themes here in a moment Brexit in gaming pounds sterling.

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Speaker 1: Good morning, Coaster Coast, Bloomberg Boston one FM should thank

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Speaker 1: you for hosting Mike McKee and his portant conversation with

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Speaker 1: Jeff Lacker. Yesterday San Francisco, Good morning New York, Good

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Speaker 1: morning San Jose. Back to back shutouts against the St.

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Speaker 1: Louis was Michael. I thought it was like, you know,

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Speaker 1: hasn't happened since nineteen eight kind of thing. But it's

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Speaker 1: more recent than I thought. It's not rare. I guess

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Speaker 1: they have back to back shutouts where the other team

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Speaker 1: doesn't score for six periods of hockey. No, especially in

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Speaker 1: the playoffs where you get these incredibly tight games. I

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Speaker 1: do want to take this occasion to announce that I am,

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Speaker 1: since the Capitals were eliminated, picking my new team, anything

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Speaker 1: but anything but Pittsburgh is number one, and then I

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Speaker 1: will go with the West. Either San Jose or St.

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Speaker 1: Louis will be my team going forward. Both teams have

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Speaker 1: played so well for so long and not gotten a

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Speaker 1: sniff of the cup of them. We're gonna go right

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Speaker 1: now on a jersey annalysis for those of you, and

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Speaker 1: I'm sure this is true of premium foot well is

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Speaker 1: well in England. Everybody pays attention to the jerseys, and

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Speaker 1: and my my good friend Carl once told me he says,

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Speaker 1: look at the original six and HL teams like the

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Speaker 1: Bruins would be an example, and then you'll root for

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Speaker 1: the next six led by the St. Louis Blues, who

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Speaker 1: were the first good next six team, And then there

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Speaker 1: was everybody else, and you never rooted for anybody that

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Speaker 1: had teal in their jersey. Well. San Jose has cleaned

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Speaker 1: up their jerseys. They got a little bit of teal,

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Speaker 1: but you gotta go with the Blues based on the jersey.

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Speaker 1: Blues have one of the best uniforms in all of

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Speaker 1: professional sports. They do. I have always thought that, even

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Speaker 1: if I were not putting the myst for those of

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Speaker 1: you worldwide, when the St. Los Blues come on the

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Speaker 1: color of the blue, the aura of the St. Lois

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Speaker 1: Arenas is just a joy to see. Just make a

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Speaker 1: surveillance correction of time, um, since we're about to talk Brexit,

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Speaker 1: uh and and the United Kingdom. When you talk about uniforms,

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Speaker 1: there you're talking about kit Oh. Is that why it's

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Speaker 1: kit chooks? No, okay, it's a different kid. That's a

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Speaker 1: different kid talking about the Premier League kit Oh. Very good.

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Speaker 1: I like that. Bloomberg Savellas this morning brought of by

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Speaker 1: cone Resnik Accounting to x Advisory. Regulatory changes can impact

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Speaker 1: your business see how the experts at Cone resident can

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Speaker 1: help you navigate these complexities. Find out more at Cone

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Speaker 1: Resnick dot com. Michael, why don't you bring in Mr Rochester? Well,

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Speaker 1: we want to Jordan Rochester. He works for No Mirror.

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Speaker 1: He's an f X strategist there and uh, he has

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Speaker 1: an interesting take on the currency uh situation post vote.

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Speaker 1: He's really put a lot of work because a lot

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Speaker 1: of people everybody calls it brexit. He's talking about remain

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Speaker 1: because the odds are that the United Kingdom does remain

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Speaker 1: within the EU, and asks, you know, what happens then

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Speaker 1: in the four X markets? And so we we welcome

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Speaker 1: him to the program and ask you, you know, if

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Speaker 1: indeed the polls are correct and the you know, Kingdom

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Speaker 1: remains Ian, what drives the British pound from there? Right now?

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Speaker 1: It's obviously political uncertainty, But then what happens well in guys, So,

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Speaker 1: I mean, what a hullabaloo we've had of all these

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Speaker 1: poles to put in perspective for the Scottish referend. You

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Speaker 1: may remember we only ever had three poles that had

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Speaker 1: said that said Scotland might leave the UK. Well, this

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Speaker 1: time around, over the last two years We've had roughly

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Speaker 1: forty poles out of two hundreds saying the UK could leave,

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Speaker 1: So it's definitely a risk that the market has had

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Speaker 1: to price in and that's why we're here talking about it.

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Speaker 1: So the sort of idea we're saying is I mentioned

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Speaker 1: to you there's forty poles out of two hundred, but

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Speaker 1: actually you know there's hundred and sixty saying we won't

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Speaker 1: leave the EU, and we have to actually think about

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Speaker 1: how to weigh the risks and which way the trader

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Speaker 1: is obviously the Sterling upside in the long run. The

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Speaker 1: problem we have is we have to address what happens

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Speaker 1: if there is a Brexit, and that is obviously you

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Speaker 1: Sterling weakness and downside. So with all these polls coming out,

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Speaker 1: we have to balance that the risks should either Bromain

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Speaker 1: or whether of course it's a Brexit. So we've seen

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Speaker 1: the market tracking what you may know as betfair Exchange,

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Speaker 1: the online gambling website. We have very liberalized gambling laws

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Speaker 1: in the UK here, so we can actually make a

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Speaker 1: market in this. You can buy and sell the odds.

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Speaker 1: So we actually saw Sterling on our sort of analysis

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Speaker 1: tracking the moves and the odds of a Brexit. So

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Speaker 1: every time the odds increased, and you saw that when

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Speaker 1: you had the Mayor of London at the time, Boris Johnson,

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Speaker 1: coming out in support of leaving the EU, you saw

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Speaker 1: Sterling sell off and also volatility, the premium you paid

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Speaker 1: to take options out in in Sterling spike as well.

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Speaker 1: So with that in mind, the analysis we looked at

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Speaker 1: was what happens if on the Bromain where the probability

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Speaker 1: of a Brexit goes down to zero, what does that

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Speaker 1: mean for Sterling? And what we found is Sterling on

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Speaker 1: trade weighted basis would appreciate by three and a half

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Speaker 1: per cent. Now that's okay, but currencies tend to move

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Speaker 1: foward to five within a week. So we have to

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Speaker 1: look at what specifically, what trades we like. So we're

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Speaker 1: looking at how Sterling trades versus the yen and versus

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Speaker 1: the dollar. And because of the risk averse nature of

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Speaker 1: the yen and also euro and dollar being the reserve

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Speaker 1: currency of the world, it's in our views obviously sterling

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Speaker 1: upside versus euro and yen and and dollar as well.

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Speaker 1: So that's the sort of remain trade that we're looking

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Speaker 1: at here. Well, if if there is indeed the case, then, um,

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Speaker 1: how long can the pound keep it up as it were?

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Speaker 1: Well when we get out of the campaign period that

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Speaker 1: we're in now. So once we actually have the result

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Speaker 1: coming as we expect with remains vote swinging the day,

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Speaker 1: we have to then look at what the Bank of

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Speaker 1: England is doing and also what the Fed doing in ECB.

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Speaker 1: So we expect the Fed too height in September. Even

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Speaker 1: with the recent comments made by Fed officials bringing the

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Speaker 1: possibility earlier, we still think September is more likely. The

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Speaker 1: Bank of England, though, have been very devilish in their

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Speaker 1: communication and the reason I'm talking about this does these

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Speaker 1: guys really do impact where the currency goes. So the

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Speaker 1: sort of stirling out performance in our view, would be

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Speaker 1: more on the euro side, where we actually expect the

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Speaker 1: ECB to continue not to do rate cuts but stamp

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Speaker 1: up the Quei efforts on there front. Your printed research

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Speaker 1: on Brexit Remain is exceptionally detailed. What do you do

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Speaker 1: with it? Is it a curiosity of politics or is

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Speaker 1: numerous suggesting we could advance a trade around our probability

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Speaker 1: distribution and what's going to happen. I think Tom, it's

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Speaker 1: obviously a benefit to the trade if you've taken into

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Speaker 1: account the politics. So you have to try and at

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Speaker 1: first decide whether you're going to have the Brexit or not.

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Speaker 1: But the market is reacting to these holes, whether we

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Speaker 1: like it or not. I mean, if you take a

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Speaker 1: long term look at what the polling has been doing,

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Speaker 1: it's actually been becoming closer and closer towards the Brexit.

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Speaker 1: But that's because the public has not really had the

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Speaker 1: adult conversation about it. Well wait a minute, wait this week,

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Speaker 1: I thought Remaine did well in the polls. Am I wrong?

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Speaker 1: It did, And my point to you is that this

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Speaker 1: is a lot of noise because it's within the recent

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Speaker 1: ranges of the last three months. So people and the

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Speaker 1: market tend to try and find trends in these short

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Speaker 1: term noises what the pole is doing. But the margin

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Speaker 1: terror on these poles is three to fourth center times.

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Speaker 1: So when someone's trying to tell you that remains doing

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Speaker 1: quite well and they had to pick up in their support,

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Speaker 1: it's still within these margin various so we have to

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Speaker 1: take the anti account. Well, let's finish up with this

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Speaker 1: and move on in our next section to other stuff.

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Speaker 1: But Jordan's when when you when you look at the polling,

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Speaker 1: and this is important into the weekend. Did I hear

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Speaker 1: you say, did Brexit has a modern, modest upper hand

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Speaker 1: within the mood of the United Kingdom Brexit So in

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Speaker 1: terms of the mood, I think really the economic argument

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Speaker 1: is starting to feed through. We have this sort of

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Speaker 1: vulcan of soft voter smile and I know on the

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Speaker 1: radius it's hard to describe, folks, but all the time

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Speaker 1: we described predimensional. We use the we we work in

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Speaker 1: the X y Z space on Fridays always continue. If

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Speaker 1: you imagine on the either side of your curve on

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Speaker 1: the left and right, and you have the guys who

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Speaker 1: are definitely voting to vote out, and you have the

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Speaker 1: guys we're definitely voting to remain in and in the

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Speaker 1: middle of your swing voters. And what we've been seeing

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Speaker 1: through the polling data we've been looking at is the

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Speaker 1: sort of swing voters have been falling in number and

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Speaker 1: they've been allocating themselves to either yes or no. So

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Speaker 1: people are starting to make their minds up, which is

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Speaker 1: natural at this stage of the of the campaign, and

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Speaker 1: by far and large, those swing voters are starting to

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Speaker 1: creep into the remain side. That's what you've been seeing

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Speaker 1: in polls recently. It's still within the mindes of error.

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Speaker 1: But yes, that's the sort of volcan a brilliantly described

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Speaker 1: for the first time in the history of surveillance Friday,

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Speaker 1: have we had a description of the x y z

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Speaker 1: val space, Mike, that was so good Jordan Rochester could

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Speaker 1: come back for his new section. Uh, whyn't you cope

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Speaker 1: with it? One of those charts, the three dimensional volatility charts, well,

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Speaker 1: v d V, we could do that. They're they're tough

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Speaker 1: to there, there's so much math and then they're tough

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Speaker 1: to go out over the wire. But we'll try to

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Speaker 1: do that. Maybe we'll do that on Monday on television

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Speaker 1: as well. But but that's very important dynamics, folks, and

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Speaker 1: that you've got people skewed either way, and the middle

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Speaker 1: ground is beginning to choose on Brexit, and clearly Secretary

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Speaker 1: lou making comments along with other G seven ministers in

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Speaker 1: Japan today on this important voice a vote in the

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Speaker 1: United Kingdom. Futures five come down to check in with

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Speaker 1: Michael Byr and get the latest world in national headlines. Mike, Tom,

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Speaker 1: thank you very much. Egyptian authorities have found a wreckage

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Speaker 1: from the missing egypt airplane that crashed into the Mediterranean

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Speaker 1: Sea yesterday. The military officials says Egyptian military aircraft and

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Speaker 1: naval ships found personal items and parts of the plane

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Speaker 1: this morning, about a hundred eighty miles north of Alexandria.

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Speaker 1: The airbus A three twenty was flying from Paris to

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Speaker 1: Cairo with sixty six people on board. Questioning by investigative

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Speaker 1: judges was met with silence today from the last known

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Speaker 1: survivor of the team that carried out last November's Paris attacks,

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Speaker 1: Salah Abdoslam, was brought to Paris from prison. Officials had

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Speaker 1: hoped Abdoslam might shed light on terror operations in Europe. Instead,

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Speaker 1: he refused to talk in the session ended abruptly. Global

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Speaker 1: News twenty four hours a day, powered by our twenty

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Speaker 1: four hundred journalists more than a hundred fifty news bureaus

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Speaker 1: around the world. I'm Michael Barr and Micha. Thanks so much,

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Speaker 1: Gold South. This week it's been one of the big moves.

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Speaker 1: Let's talked about gold that dashed reversed, UH some form

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Speaker 1: of support maybe thirty dollars below gold with Jordan Rochester

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Speaker 1: business news twenty four hours a day at Bloomberg dot com,

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Speaker 1: the Radio plus mobile lapp and on your radio, this

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Speaker 1: is a Bloomberg Business Flash and I'm Karen Moscow. US

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Speaker 1: Sock Index futures are rising this morning. Let's go to

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Speaker 1: the First Word Breaking news desk for today's morning call.

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Speaker 1: And here's Bill Maloney. Good morning Bill, Good morning Karen.

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Speaker 1: That's right. US futures remain higher after yesterday sell off.

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Speaker 1: Doubt Future is currently hired by fifty four points, Sesames

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Speaker 1: gain six and AzaC futures rise by sixteen and a half.

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Speaker 1: The U s ten uel at one point eight six

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Speaker 1: per cent. Up of markets are also rising, led by

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Speaker 1: one percent gains in the UK and France. On the

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Speaker 1: US economic front, at ten o'clock, existing home sales and

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Speaker 1: after the bellas Night AUTODESQ TWBE views missed estimates, applied

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Speaker 1: materials Q three at does EPs forecast topped estimates and

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Speaker 1: the gap debt rating lower to junk by s and

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Speaker 1: paid Regarding arians this morning, dear cut for your profit

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Speaker 1: outlook foot Locker, q on comp sales missed and Campbell

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Speaker 1: Soup raised your adjusted EPs views and deal news Oil

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Speaker 1: search greas to buy Inner Oil for about two point

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Speaker 1: two billion, and in other news, City Group sees Monsanto

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Speaker 1: valuation of approximately a hundred and thirty a share. Stephile

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Speaker 1: sees the low one twenties. Finally, some of your Wallstreet

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Speaker 1: upgrades and downgrades at JP, Morgan, Avery, Dennison and b

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Speaker 1: Airspace cut to neutral at Morgan Stanley, Dick Sporting Goods

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Speaker 1: raised to equate Urban outfitters raised to overweight. Fondly of

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Speaker 1: the gap cut the hole versus by over at Steve

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Speaker 1: Fold Live from the First Breaking News desk on Bow

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Speaker 1: Maloney Karen thanks bail to hear live breaking news over

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Speaker 1: your Bloomberg type squawk ago on your terminal. That's squ

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Speaker 1: a to the UK go and that's a Bloomberg business flash.

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Speaker 1: Tom and Mike, Karen, thanks so much. Good morning everyone.

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Speaker 1: Theodore tweeting out noting that we work in the x

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Speaker 1: y Z space on Fridays. We think Theodore for listening. Yes,

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Speaker 1: that's excellent from his math Cave's with Jordan Rochester with

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Speaker 1: us Namura Foreign Exchange. Jordan Rochester on the Yen. Really

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Speaker 1: it's been very quiet Jordan's but yen weakness over the

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Speaker 1: last ten days, is there a bit to it? I mean,

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Speaker 1: can the yen really get break out and challenge one

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Speaker 1: fifteen or the abe nirvana of one well press On

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Speaker 1: the end, there's a two stories as the sort of

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Speaker 1: funding story Euro versus Yen, and then there's what's going

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Speaker 1: on with dolly In, So Dollyan is a different story.

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Speaker 1: We're talking about upside in dolly In. You know we

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Speaker 1: expect one eighteen by ends Q two. What's what's pretty

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Speaker 1: interesting in dolly In is the sort of flow dynamics

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Speaker 1: being quite negative for the yen. But we actually saw

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Speaker 1: a lot of that strength in Q one and that

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Speaker 1: was mostly due to the risk off factors that we

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Speaker 1: had in the markets. So you may remember we're talking

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Speaker 1: about in markets about the possibility of a recession on

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Speaker 1: a global basis. What we've what we've seen since his

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Speaker 1: market to recover back and the sort of nervousness of

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Speaker 1: Marcus still existed still there, but the sort of bid

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Speaker 1: in dolly In is quite encouraging. We're going into the

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Speaker 1: G seven next week where that will be obviously on

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Speaker 1: the docket. What's going on the currently manipulation. My own

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Speaker 1: take is we won't really see much material action, but

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Speaker 1: it will of course be on the agenda between policy makers.

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Speaker 1: But yeah, dolly En upside makes sense, and you're again

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Speaker 1: is a different story. So with the we the ECB

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Speaker 1: and real yields, we expect uri end to decline over

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Speaker 1: the period um. This is the sort of battle of

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Speaker 1: banks Japan versus ECB in some respects, but also but

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Speaker 1: also what's happening on the inflation dynamics, So we expect

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Speaker 1: inflation to pick up in the Euro Area versus Japan,

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Speaker 1: but less so. And what we find is it's not

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Speaker 1: really the nominal yield story that dominates, but the real yields.

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Speaker 1: Is everybody waiting for the Fed. The Bank of Japan

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Speaker 1: wants a weaker currency, The Eurozone wouldn't mind a weaker currency.

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Speaker 1: If the Fed moves, maybe they get what they want

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Speaker 1: that they don't have to take any more extraordinary action. Yeah,

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Speaker 1: there's the possibility that you know, last year October we

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Speaker 1: were talking about the diminishing returns to Qui and then

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Speaker 1: when it came to Q one, it was no return

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Speaker 1: to Qui and in fact negative returns when the Bankapan

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Speaker 1: went negative on the air. So the sort of market

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Speaker 1: trade following what central bank actions tell them to do

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Speaker 1: has seen a sort of a lot of pain out there.

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Speaker 1: And when it comes to the Fed, I think, yeah,

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Speaker 1: they're in a good space right now. I think they'll

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Speaker 1: be pretty happy with the market reaction as well to

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Speaker 1: the comments we had this week in the Fed minutes,

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Speaker 1: it's not been too much of a blowout. So risk

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Speaker 1: is doing pretty well. So the Feds in a good space.

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Speaker 1: What's happened to currency trading? The littleboard folks note that

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Speaker 1: there's been a decline in trading over the last twelve

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Speaker 1: eighteen months. So with markets where they are and the

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Speaker 1: sort of very choppy price action. Yeah, volumes in FX

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Speaker 1: are lower if you look at that sort of data

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Speaker 1: from the Bank of England and also over the New

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Speaker 1: York side and Japan. This makes sense when the twins

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Speaker 1: are not so clear to investors. So they've been dealing

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Speaker 1: with an ECB and a Bank of Japan, and of

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Speaker 1: course it's said which has this forward communication, which is

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Speaker 1: kind of baffled a lot of people, especially when they've

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Speaker 1: changed their minds. You may remember the last year, we're

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Speaker 1: talking about four hikes this year in the stead from

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Speaker 1: people on the street, we were a bit more devish

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Speaker 1: than that. But you know, here we are and it's

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Speaker 1: May now and we're still waiting for the hike from

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Speaker 1: the Fed this year. So the sort of economic trends

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Speaker 1: that tend to get investors involved in trading not so clear,

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Speaker 1: and there's a lot of uncertainty out there and just

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Speaker 1: people holding cash. Is there a bet? Is there is

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Speaker 1: there a one way bet on any of the major pairs? Now,

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Speaker 1: not that it provides an opportunity, but just do you

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Speaker 1: see a bet out there on euro onion on dollar?

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Speaker 1: So for us, we like euroyen downside for now. That's

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Speaker 1: what I spoke about early on the real yields. It

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Speaker 1: just makes a lot of sense to us on sterling,

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Speaker 1: for example, what we spoke about earlier. We think in

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Speaker 1: the long run we'll look back at these levels good

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Speaker 1: levels to buy sterling. So there's a sort of two

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Speaker 1: hyping visas trips we have. George Well, I was just

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Speaker 1: curious before we let him go, going back to where

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Speaker 1: we started in England, is there a consensus on the

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Speaker 1: best looking Premier League? Get I mean, I'm from Birmingham,

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Speaker 1: so I'm an Aptan Vida fan and he said Premier

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Speaker 1: League and so they're no longer in it, unfortunately relegate

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Speaker 1: to this season. But I was born forty miles away

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Speaker 1: from left to city, so maybe I'll put he could

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Speaker 1: cheer that. Well, I guess the Aston villa just bought

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Speaker 1: by a Chinese billionaire, so maybe you do you know this? McKee?

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Speaker 1: How do you know this? You just gotta keep up,

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Speaker 1: tob I'm in awe, Jorgan Rochester, thank you so much.

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Speaker 1: FX strategis Nomura uh and in a really terrific, thoughtful report,

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Speaker 1: no inflammatory stuff, just thoughtful report on Bromaine and Brexit.

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Speaker 1: And I'll see how I did that balance Mike did

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Speaker 1: Bromaine and Brexit together. Very good, Um. Congratulations on your

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Speaker 1: Lacquer interview yesterday. He seemed in very good spirits. He

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Speaker 1: did not. Voting are going his way. People are beginning

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Speaker 1: to agree with the position he took all the time ago.

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Speaker 1: Michael McKee and Tom Key Michael mckeeback on your Good

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