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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: dot com, the Radio plus Mobile Act and on your radio.

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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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Speaker 1: I'm Charlie. Public of Brexit selling continues on this Monday,

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Speaker 1: the Dow, the SMP, NASDAK all declining. Let's head right

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Speaker 1: over the first word Breaking Views Desk four, Today's afternoon call,

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Speaker 1: and here he is Bill Maloney. Good afternoon, Charlie. That's right.

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Speaker 1: The breaks that followed continues, with it DAL currently down

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Speaker 1: two hundred nine points, SMDs dropped forty one and NAZAC

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Speaker 1: declines a hundred and twenty three. The SMP five hundred

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Speaker 1: dropped back below the two hungine moving average for the

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Speaker 1: first time since March over in New York. Germany and

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Speaker 1: France each fell three percent. Italy slipped three point nine percent.

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Speaker 1: The United Kingdom was cut to double A from triple

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Speaker 1: A by s MP back In the US A small

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Speaker 1: cap six hundred falls twenty two points, and the US

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Speaker 1: ten YELL dropped to one point for six percent. Eight

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Speaker 1: out of tennants to be sectors are lowered, led by

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Speaker 1: losses in financials, materials and energy utilities and Telecom gained down,

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Speaker 1: transports fall three point two percent, and as a biotech

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Speaker 1: dropped eighty points, and the vix is down by nine

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Speaker 1: point four percent. Leaders to the downside of the down

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Speaker 1: included American Express, DuPont and JP Morgan, Small Games for

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Speaker 1: Verizon and J and J. Western Digital sank twelve percent.

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Speaker 1: Seagate dropped ten percent, while Dr Pepper Snapple outperformed, gaining

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Speaker 1: four percent. Live from the First Bacon News to de

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Speaker 1: Scot Bill Maloney, Charlottean, all right, thank you very much, Bill,

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Speaker 1: And do hear live breaking news over your Bloomberg type

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Speaker 1: squawk el sq you a w K on your terminal.

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Speaker 1: I'm Charlie howled. That's a Bloomberg business flash you're listening

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Speaker 1: to taking stock with Kathleen Hay and pin box on

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Speaker 1: Bloomberg radio stocks selling off the United Stays around the

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Speaker 1: world for that matter, second day in a row. The

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Speaker 1: bond market is on fire, certainly with the US Treasury

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Speaker 1: market with the third year bond up about three points today,

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Speaker 1: the yell down below two point three per cent. I

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Speaker 1: could go on and on about the big moves in

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Speaker 1: these markets. Is this going to last? Our markets overreacting

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Speaker 1: or are we heading for some kind of crisis that

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Speaker 1: could keep markets up ended for a while and economies

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Speaker 1: as well. Joining me now right here in our New

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Speaker 1: York studio is Brendan Brown. He's chief economist at m

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Speaker 1: u f G in London, that's ground zero for the

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Speaker 1: bregsit vote. But he's here in New York with us today. Brendan,

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Speaker 1: welcome to the show. Thank you. So, uh, let's start

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Speaker 1: with the market reaction. Is it overdone? It's difficult to

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Speaker 1: say it's overdone, because there are all some really bad

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Speaker 1: scenarios out there, um and one in particular we see

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Speaker 1: focused on is a possibility of some sort of Italian

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Speaker 1: banking meltdown. And of course, given the possibility with the

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Speaker 1: euro or EU may not even be here in a

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Speaker 1: few years time, it's reasonable euro falls in value, a

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Speaker 1: dollar stronger, and a big spike in the dollar is

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Speaker 1: not such great news for US corporate profits. So there

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Speaker 1: is some there is some rhythm behind this. You wrote

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Speaker 1: quite quite markedly, quite impressively, something I think everyone's been

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Speaker 1: wondering about in a recent note actually on Friday, that

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Speaker 1: the UK referendum result is not a Leman moment. It's

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Speaker 1: not two thousand eight all over again. If I may

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Speaker 1: put some words in your mouth, but it is is

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Speaker 1: the start of a European journey away from the failure

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Speaker 1: of the EU. How do you know when something is

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Speaker 1: a Leman moment or when it isn't well? A Leman

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Speaker 1: moment would be characterized by terrific liquidity pressures, and what

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Speaker 1: we're not seeing UM today or Friday is a shortage

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Speaker 1: of liquidity. What we are seeing as a fairly I

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Speaker 1: think judicious re pricing of assets UM to take account

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Speaker 1: of some of the dangers ahead along a route which

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Speaker 1: may end up well for Europe and the world economy,

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Speaker 1: but there are dangerous from getting here to that final destination.

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Speaker 1: If this is the beginning of a European journey away

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Speaker 1: from the failure of the EU, is that your conclusion

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Speaker 1: is that your view that how are painful breaks? It

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Speaker 1: may be it is the right path for the UK

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Speaker 1: to take. I would put it this way that the

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Speaker 1: the EU had failed in three or four fundamental respects.

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Speaker 1: UM didn't deliver prosperity, it delivered monetary failure, it increased

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Speaker 1: political geopolitical instability, and it didn't deliver political democracy. So

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Speaker 1: the UK, in deciding to move away from that were

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Speaker 1: there were very powerful grounds and and and reasons for

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Speaker 1: hoping that a better future would lie going along an

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Speaker 1: independent route, and that that independence may in turn shock

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Speaker 1: Europe into something better. Now, none of this is for certain.

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Speaker 1: There are dangers, and ultimately people have to decide themselves

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Speaker 1: as to whether the risks worth the candle of the journey.

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Speaker 1: But there were definite reasons for thinking along that way

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Speaker 1: and and and hoping for a better future. You have

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Speaker 1: spenttioned the possibility of banking meltdown in Italy, and of

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Speaker 1: course the weakness of their banks has been an issue

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Speaker 1: for some time. France has its own issues, strikes and

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Speaker 1: you know, struggles with its economy. Uncle Merkel now is

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Speaker 1: going to be left without the UK in the EU,

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Speaker 1: two of major major partners within the EU with their

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Speaker 1: own difficulties. How does she respond? What does all this

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Speaker 1: mean for her future? Well? I think the pressures on

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Speaker 1: on Angela Merkel are tremendous from inside the German political system.

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Speaker 1: Even ahead of this, we saw support for the anti

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Speaker 1: euro Party rising where they were getting fifteen percent of

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Speaker 1: the vote in recent regional elections. And given Philip now

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Speaker 1: of seeing the UK having voted for Brexit. Um one

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Speaker 1: can only imagine that support is going to rise, particularly

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Speaker 1: as without the UK budgetary contributions and as you say,

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Speaker 1: Germany on its own, the prospects are Germany is going

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Speaker 1: to be having to finance this much more than previously

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Speaker 1: relative to the other partners. So as the anti euro

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Speaker 1: vote grows, I would imagine that the precious within Merkel's

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Speaker 1: own party c DU for Merkel to take a harder

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Speaker 1: line on European bailouts and on immigration is going to increase.

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Speaker 1: So ultimately, because the CDU does not want to see

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Speaker 1: more and more support being taken away by the far right,

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Speaker 1: we have to get some of that support back ahead

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Speaker 1: of elections next year. So the Mirkel's going to either

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Speaker 1: have to go along with this mood of harder line

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Speaker 1: towards easy being not too many bailouts, more more control

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Speaker 1: of immigration or or or yield power. And I think

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Speaker 1: that's what we're going to see. And that does open up,

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Speaker 1: of course, a conflict with the rest of the EU

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Speaker 1: and with France, and I would imagine retentions are going

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Speaker 1: to grow on that critical access between France and Germany.

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Speaker 1: Let get one more quick question before we continue this

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Speaker 1: conversation just a moment. What's the worst outcome in all

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Speaker 1: of this for the financial markets right now? The worst

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Speaker 1: outcome I could imagine in the in terms of the

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Speaker 1: next few weeks would be an Italian type um banking

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Speaker 1: meltdown and concern that because of the German situation we described,

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Speaker 1: where isn't going to be for support for them. We're

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Speaker 1: gonna continue this fascinating conversation with Brendan Brown, chief economist

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Speaker 1: at m uf G in London, joining me in our

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Speaker 1: New York studios today here at Bloomberg World Headquarters, Italy,

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Speaker 1: the Spanish elections, the Bank of Japan trying to cope

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Speaker 1: with a sergeant Yen that causes great difficulties for them

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Speaker 1: as they try to stimulate the Japanese economy. All this

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Speaker 1: and more coming up. I'm Kathleen Hayes taking Stock on

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Speaker 1: Bloomberg Radio. Bloomberg Taking Stock is brought to you by

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Speaker 1: Bentley University. What to rebooting America's oldest ski shop and

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Speaker 1: crunching numbers at Vistaferent Having common an NBA from Bentley

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Speaker 1: everywhere prepare here broadcasting live to New York, Bloomberg eleventh,

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Speaker 1: Rio to Washington, d C, Bloomberg to Boston, Bloomberg twelve,

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Speaker 1: under It to San Francisco, Bloomberg nine six to the Country,

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Speaker 1: Series X and General one nine and around the globe

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Speaker 1: the Bloomberg Radio Plus app and Bloomberg dot Com. This

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Speaker 1: is taking stock. I'm Kathleen Hayes, my close pim Fox

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Speaker 1: on vacation, the Brexit vote, a political earthquakes, sending reverberations

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Speaker 1: across Europe, around the world. We're gonna be looking at Italy,

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Speaker 1: Japan and more right here on Bloomberg Radio. Now we're

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Speaker 1: gonna toss that over to Charlie Pellett. He's in the

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Speaker 1: newsroom with a Bloomberg Business flash. Thank you very much,

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Speaker 1: Kathleen Hayes. Those aftershocks include continues selling in the US

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Speaker 1: equity market, with the DAL, the SMP and nastac Hall

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Speaker 1: extending Friday's declines. Right now, the SMP pine hunted in

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Speaker 1: text down forty three points of n a drop of

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Speaker 1: two point one percent. Those aftershocks reverberating across financial markets

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Speaker 1: after a weekend of political turmoil, the pound extending its

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Speaker 1: record sell off right now, we've got the NASDA Compositive

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Speaker 1: Index down one eight declining two point seven percent down,

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Speaker 1: industriels down three oh two, a drop of one point

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Speaker 1: seven percent, sm D down two point one percent, the

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Speaker 1: ten year up thirty one thirty seconds, looking at the

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Speaker 1: yield now of one point four or five percent, Gold

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Speaker 1: up nine eighty ounce now to thirteen thirty two again

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Speaker 1: there of seven tenths of one percent. A Bloomberg exclusive

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Speaker 1: this morning, as we sat down with the former Chairman

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Speaker 1: of the Federal Reserve, Alan Greenspan, he was on Bloomberg surveillance.

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Speaker 1: He talked at length about last week's UK for referendum

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Speaker 1: and what it means for the future of the United Kingdom,

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Speaker 1: significant renewals, Scotland and I'm almost certain school. It was

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Speaker 1: part of a Bloomberg Breakfast conversation hosted by Bloomberg N

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Speaker 1: one in Washington, d C. So again, taking a look

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Speaker 1: at what's happening with US markets, we've got crude oil

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Speaker 1: slumping two point three percent, down one ten of arrol

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Speaker 1: forty six fifty five right now. On West Texas intermediate

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Speaker 1: crude grant is at thirty two, a drop there of

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Speaker 1: two point three percent, and the SMP five hundred index

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Speaker 1: down forty one to a drop of two. Tow industrials

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Speaker 1: now down to a decline of one point seven percent

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Speaker 1: at three thirty two on Wall Street. Now, let's take

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Speaker 1: a look at other news from around the world right

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Speaker 1: here on Bloomberg Radio. Thank you, Charlie from the Bloomberg

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Speaker 1: News Room. I'm Jill Schneider. This news update is brought

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Speaker 1: to you by the Jeep Grand Cherokee, the most awarded

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Speaker 1: suv ever. The Grand Cherokee continues to raise the bar

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Speaker 1: with its luxurious interior and legendary four by four capability.

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Speaker 1: Drive on at your local Jeep dealer today. British Prime

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Speaker 1: Minister David Cameron says the UK will not trigger formal

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Speaker 1: EU EXITOX at this stage. He says the RAF random

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Speaker 1: result is quote not the outcome I think is best

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Speaker 1: for Britain, but says the result must be respected and

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Speaker 1: implemented in the best possible way. Britain is leaving the

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Speaker 1: European Union, but we must not turn our back on

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Speaker 1: Europe or on the rest of the world. The nature

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Speaker 1: of the relationship we secure with the EU will be

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Speaker 1: determined by the next government, but I think everyone has

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Speaker 1: agreed that we will want the strongest possible economic links

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Speaker 1: with our European neighbors, as well as with our close

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Speaker 1: friends in North America, the Commonwealth and important partners like

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Speaker 1: India and China. Cameron says there will be no immediate

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Speaker 1: changes for EU citizens now living in the UK. Hillary Clinton,

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Speaker 1: on the campaign trail in Cincinnati today, took the stage

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Speaker 1: in a first joint appearance with Elizabeth Warren. Clinton praised

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Speaker 1: the Massachusetts senator law, offering a harsh critique of Donald Trump.

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Speaker 1: She exposes him for what he is, temperamentally unfit and

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Speaker 1: totally unqualified by to be president of the United States.

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Speaker 1: Senator Warren called Clinton a fighter who has never backed down.

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Speaker 1: The Stone Wall in has officially claimed its spot in

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Speaker 1: American history, The site of the nineteen sixty nine riots

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Speaker 1: that launched the gay rights movement, was recognized as a

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Speaker 1: national monument in a ceremony today. Global News twenty four

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Speaker 1: hours a day, powered by more than twenty hundred journalists

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Speaker 1: and analysts in more than one twenty countries. From the

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Speaker 1: Bloomberg News Room, I'm Jill Schneider. This is Bloomberg, Charlie,

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Speaker 1: and we thank you and again recapping a forty point

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Speaker 1: loss now for the SMP five hundred index at nine

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Speaker 1: down two. I'm Charlie Pellett. That's a Bloomberg business flash.

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Speaker 1: You're listening stock with kath on Bloomberg Radio. Problem with

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Speaker 1: any kind of big move in markets, particularly when you

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Speaker 1: see a move like the British pound where it fell.

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Speaker 1: Uh had his biggest drop on Friday since the Japanese

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Speaker 1: yen on Friday, also coming within six n of the

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Speaker 1: point where Prime Minister Amy jumped in with his three

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Speaker 1: pronged stimulus plan three years ago. The problem is that

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Speaker 1: you really don't know what one move can mean for

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Speaker 1: the markets more broadly, and is the Brexit vote reverberates

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Speaker 1: across Europe. I'm continuing my conversation with Brendan Brown. He's

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Speaker 1: chief economist at m u f G. Brendan, you just

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Speaker 1: mentioned Italy and it's banks. This has been a festering problem,

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Speaker 1: but it seemed like it like it kind of float

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Speaker 1: along right with the rest of the EU. But the

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Speaker 1: bank stocks in many countries, but particularly Europe, have gotten hammered.

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Speaker 1: What does this mean totally? What's going to happen well

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Speaker 1: Italy in many ways is the most exposed banking system

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Speaker 1: to sovereign debt and also to bad loans, and Italy

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Speaker 1: has been gaining from the fact that of the QI

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Speaker 1: operations by the ECB and all a cheap funding. In fact,

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Speaker 1: many German voters are sort of cynco draggy in his

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Speaker 1: position is ec BE chief has been using the e

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Speaker 1: c B basically to help Italy, and and that's true

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Speaker 1: to a considerable extent. When when when you look at

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Speaker 1: the numbers, so now, with the pressures being very much

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Speaker 1: towards EU disintegration and possibly a harder German line as

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Speaker 1: we've been discussing a few minutes ago on ECB funding,

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Speaker 1: the question really does rise as to whether this Italian

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Speaker 1: situation is sustainable or whether the banks are going to

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Speaker 1: have to face a much harder environment. Look at that

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Speaker 1: mean for Italy? What could it mean for the EU?

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Speaker 1: Is this what you're going to see? Are these are

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Speaker 1: kind of stresses that pull the E together because somehow

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Speaker 1: they all come together and help Italy? Are these are

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Speaker 1: kind of things that pull up further apart? I think

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Speaker 1: in the present climate it would pull apart because the

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Speaker 1: German electorate is all very already very intense and upset

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Speaker 1: about the amount of funds which have gone onto this project,

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Speaker 1: and seeing British example of being able to walk away

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Speaker 1: with it, walk away from it, the question is whether

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Speaker 1: why shouldn't Germany be able to do the same thing.

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Speaker 1: Now certainly allowed voice in Germany over the year saying

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Speaker 1: just that. Let's look at the Bank of Japan. Last

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Speaker 1: night in the New York early in the morning in Asia,

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Speaker 1: we learned that there was an emergency meeting being held

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Speaker 1: with the Bank of Japan Prime Minister Abby and his

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Speaker 1: many of his members of his cabinet to look at

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Speaker 1: this distress on the end and what it could mean

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Speaker 1: for their markets, What does this surge in the end

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Speaker 1: mean for their economy, for their policy going ahead. Well,

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Speaker 1: what one has to realize first of all is that

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Speaker 1: Japan has a huge net investment position in European bonds,

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Speaker 1: with Japanese investors over the last ten years or more

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Speaker 1: have basically been piling into the so called high coupon

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Speaker 1: European bond markets. So when they see anything like this

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Speaker 1: happened and the unknowns as to how the brexits going

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Speaker 1: to emerge, they all rushed to hedge. And so you

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Speaker 1: seem tremendous upward pressure on the yen dutifous hedging by

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Speaker 1: japan UM institutions. Now on top of that, when you

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Speaker 1: get for yen rising, this is bad news with Japanese

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Speaker 1: stock market. In the stock market for in turn increases

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Speaker 1: risk aversion, and in turn that means less capital leaving Japan.

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Speaker 1: So a sort of a sort of a whole vicious

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Speaker 1: circle here developing. UM. And of course our be economics

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Speaker 1: is founded on the two principles of using monetary policy

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Speaker 1: to boost the stock market and to appreciation to appreciate en,

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Speaker 1: both of which now have gone completely into reverse. UM.

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Speaker 1: I don't I if you ask me what's going to happen.

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Speaker 1: I think at some stage it's going to be intervention

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Speaker 1: by by the government of Japan. Currency market intervention. Currency

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Speaker 1: market intervention. But it's so important to stop all of

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Speaker 1: this andthing well at working the latterly if it's we

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Speaker 1: have to join them. I think ultimately their first intention

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Speaker 1: would have been to do this jointly with the United States,

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Speaker 1: but there's really no prospect of the US joining in

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Speaker 1: any intervention, so the Japan would do this unilaterally. Dollar

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Speaker 1: gold What does all this mean? Keep buying into the

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Speaker 1: paling into the gold. What about the dollar? Well, by

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Speaker 1: to go do you have to think that here the

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Speaker 1: second biggest currency in the world, Euro is now now

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Speaker 1: it's an EU currency, and yet we don't know where

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Speaker 1: the EU is headed or whether you will even be

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Speaker 1: here according to some extreme scenarios within a few years.

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Speaker 1: If we really see pressure between Germany and France building

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Speaker 1: up so that that that means that investors should that

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Speaker 1: there were no longer in a multi currency universe anymore.

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Speaker 1: They have to think seriously, but from only alternative to

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Speaker 1: the dollar is gold. So it makes sense that gold

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Speaker 1: is pushed up here as as a result of these happening,

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Speaker 1: and the dollar of course gains as being the only

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Speaker 1: fat money which is not negative interest rates and doesn't

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Speaker 1: face some sort of existential risk or exploding budget deficit

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Speaker 1: risks such as we have in Japan. Brendan Brown for investors,

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Speaker 1: are we gonna look back in five years and say, wow,

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Speaker 1: that that's when it really all turned. That's one that

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Speaker 1: was the beginning sort of the the end of the world,

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Speaker 1: but still big, big negative moment for markets. Uh, you know,

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Speaker 1: between the Brexit vote, between eight point seven trillion dollars

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Speaker 1: worth of negative bond yields around the world. Is this

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Speaker 1: an ominous sign? I think the most ominous sign I

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Speaker 1: would look at in recent months has been this steady

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Speaker 1: decline in Tokyo. I mean, Tokyo is the second biggest

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Speaker 1: equity market in the world, and it's it's crashed by

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Speaker 1: around That has to be a warning because very often

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Speaker 1: when you look at global asset price deflation, it's it

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Speaker 1: doesn't all start at once everywhere. You normally get a lead,

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Speaker 1: a leader at the same time as other markets may

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Speaker 1: still be going up. And I think that's what we've

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Speaker 1: seen in the first six months of this year. But

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Speaker 1: it does make one much more anxious. I think about

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Speaker 1: what follows Brendon Brown. But you know, you're less anxious

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Speaker 1: if you have a sense of white what might be coming,

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Speaker 1: because you can prepare for Thank you so much for

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Speaker 1: joining us. Brendon Brown is chief you as economist. Excuse me,

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Speaker 1: he's chief economist at m u f G based in London.

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Speaker 1: Joining me. Kathleen Hayes on taking Stock on Bloomberg Radio today.

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