WEBVTT - Borthwick: Shrinking Global Influence Powers GBP Plunge (Audio)

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<v Speaker 1>Broadcasting live to New York, Bloomberg eleven Brio to Washington,

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<v Speaker 1>d C. Bloomber to Boston, Bloomberg twelve hundred to San Francisco,

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<v Speaker 1>Bloomberg nine to the Country series Exam General one nine

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<v Speaker 1>and around the globe the Bloomberg Radio plus Appen Bloomberg

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<v Speaker 1>Got Gone. This is taking stock. I'm Caffeine Hayes along

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<v Speaker 1>with pim Fox. The focused remains on the UK in

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<v Speaker 1>global markets is the pound falls to its weakest level

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<v Speaker 1>in three decades against the dollars, even lower than the

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<v Speaker 1>hit the lows it hit right after Britain's vote to

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<v Speaker 1>leave the European Union was passed. Why is this unsettling

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<v Speaker 1>markets because it could hit fragile economy at a time

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<v Speaker 1>when the rest of the global economy is fragile as well.

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<v Speaker 1>We're gonna look at some of the currency impacts right now,

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<v Speaker 1>PIM Yes. So we've got Doug Barthwick, I'm managing director

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<v Speaker 1>in the head of foreign Exchange at chap The Lane

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<v Speaker 1>and Company. He'll be giving us more details right now.

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<v Speaker 1>More details from Catherine Cowtery in the Blomberg newsroom. Thank you,

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<v Speaker 1>pamla wall Street. Starting off this holiday shortened week with

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<v Speaker 1>a retreat. Bank of England Governor Mark Kearney warned of

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<v Speaker 1>prospects for a material slowing of the economy on the

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<v Speaker 1>developing risks from Britain's withdrawal from the European Union. Now

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<v Speaker 1>banks are taking the largest losses and energy companies are

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<v Speaker 1>sinking along with the price of oil. The government said

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<v Speaker 1>gasoline supplies on the East Coast reached a record. Jim Paulson,

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<v Speaker 1>chief investment strategists at Wells Capital Markets, on one of

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<v Speaker 1>the reasons why he thinks the market can reach new

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<v Speaker 1>highs over the next few months. I like the fact

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<v Speaker 1>that this rally since January has been very broad based.

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<v Speaker 1>The equally weighted indices are outperforming overall, which tells you

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<v Speaker 1>that a broad array of stocks are doing better than

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<v Speaker 1>the market cap weighted I think that suggests that a

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<v Speaker 1>number of companies are are experiencing earnings momentum. Again, we

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<v Speaker 1>check the markets every fifteen minutes throughout the trading data.

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<v Speaker 1>Industrial averages down one eight points three quarters of a

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<v Speaker 1>percent rating at seventeen thousand, eight hundred ten, SMP five

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<v Speaker 1>founded down nineteen points nine tens of a percent to

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<v Speaker 1>two thousand eighty four. Then nastac is down fifty six

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<v Speaker 1>points one point two percent to forty eight oh six.

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<v Speaker 1>West Texas sent a media Crude Oil down two dollar

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<v Speaker 1>thirty two cents of barrel four point seven percent to

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<v Speaker 1>forty six sixty seven. Spout Gold is up nineteen dollars

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<v Speaker 1>twenty cents agains at thirteen fifty eight twenty ten Your

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<v Speaker 1>Treasure thirty seconds with the yield of one point three

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<v Speaker 1>seven percent. Among today's top business maker business stories, it

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<v Speaker 1>marks a revival for the iconic baker Hostess Brands, the

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<v Speaker 1>baker of Twinkies, and Ding Dong's plans to become a

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<v Speaker 1>publicly listed company. And now let's get an update of

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<v Speaker 1>some of the other stories we're following today on Bloomberg Radio.

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<v Speaker 1>Thank you Catherine from the Bloomberg Newsroom. I'm Jil Schneider.

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<v Speaker 1>Home Secretary Theresa May has won the first round of

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<v Speaker 1>voting in the contest to replace David Cameron as the

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<v Speaker 1>next Conservative leader and Prime Minister. Mrs May, who began

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<v Speaker 1>the race as the front runner, got one hundred sixty

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<v Speaker 1>five votes. Minister Andrea leads Something came in second with

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<v Speaker 1>sixty six. Liam Fox Will been eliminated from the race,

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<v Speaker 1>coming in last with sixteen votes. The battle against Zica continues.

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<v Speaker 1>Virginia Senator Tim Caine said today most mosquitoes stay within

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<v Speaker 1>a two yard radius of where they are Borns can

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<v Speaker 1>find the spot of the standing water, and you can

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<v Speaker 1>wipe out standing water or spray there. In that narrow

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<v Speaker 1>geographic zone. You can reduce the density of mosquitoes and

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<v Speaker 1>then reduce the incidents of Zeca. Officials say Islamic State

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<v Speaker 1>appears to be increasing its attacks as the group loses

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<v Speaker 1>territory across the Middle East. Here's Deputy Secretary of State

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<v Speaker 1>Anthony Blinken, territory matter is a great deal because what

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<v Speaker 1>it does is it's the pole of attraction. It's where

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<v Speaker 1>they get their resources by exploiting people within the territory.

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<v Speaker 1>They control oil extortion, et cetera. It also is the

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<v Speaker 1>poll of attraction for jeehatta surround the world who think

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<v Speaker 1>that they see is as succeeding ten feet tall building.

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<v Speaker 1>The so called Caliphate authorities now say at least one

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<v Speaker 1>hundred seventy five people were killed and almost two hundred

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<v Speaker 1>wounded after a truck bombing in Iraq. Islamic State claimed responsibility.

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<v Speaker 1>If you watched fireworks in the city last night, you

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<v Speaker 1>likely noticed beefed up security. About five thousand nyp D

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<v Speaker 1>officers were dispatched to oversee the show, the largest detail

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<v Speaker 1>the NYPD has ever assigned. On July four, Global News

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<v Speaker 1>twenty four hours a day, powered by more than twenty

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<v Speaker 1>six hundred journalists and analysts in more than one hundred

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<v Speaker 1>twenty countries. From the Bloomberg Newsroom, I'm Jill Schneider, and

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<v Speaker 1>this is Bloomberg Catherine, Thank you. And now let's get

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<v Speaker 1>a quick check of the equity benchmarks. Down, Industrial leverage

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<v Speaker 1>down one thirty three points at seventeen thousand, eight hundred sixteen,

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<v Speaker 1>smp F I foundered down eighteen points at two thousand,

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<v Speaker 1>eighty four, nastack down fifty five points at forty eight

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<v Speaker 1>oh seven. And that's a Bloomberg business flash. This is

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<v Speaker 1>taking Stock with Kathleen Hayes and pimp Box on Bloomberg Radio.

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<v Speaker 1>In the aftermath of the Brexit vote, the pound plunge,

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<v Speaker 1>global equity markets suffered on's rallying. Things seem to stabilized

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<v Speaker 1>for a while, but today, as the head of the

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<v Speaker 1>Bank of England, Mark Harney sought to reassure investors that

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<v Speaker 1>the Bank of Lincoln is ready to take even more

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<v Speaker 1>steps to shore up an economy that will be hit

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<v Speaker 1>by the Brexit vote, heading for a recession and more. Uh,

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<v Speaker 1>the pound slid again, stocks are under pressure. Where will

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<v Speaker 1>this end? And what does it mean as these uh,

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<v Speaker 1>these asset classes keep moving so sharply. Let's bring in

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<v Speaker 1>Doug Borthwick now. He joins us from Chapter Lene and Co.

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<v Speaker 1>Here in New York City where he is a managing

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<v Speaker 1>director and head of Foreign exchange. Doug, welcome back, Thank

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<v Speaker 1>you very much, nice to be here. So how do

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<v Speaker 1>you assess what is going on in the UK and

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<v Speaker 1>how it's hitting the pound at this point? Well, going

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<v Speaker 1>into this, we we always talked about how this is

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<v Speaker 1>a bit of iceberg. I mean, you were the top

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<v Speaker 1>side was we always thought that was one fifty In

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<v Speaker 1>the downside, we weren't really sure and we've no hit

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<v Speaker 1>this one thirty level. I think that it's it's very

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<v Speaker 1>good that Theresa May today got the hundred sixty five

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<v Speaker 1>votes in the first vote of who's going to be

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<v Speaker 1>the next leader. There's further votes in July seventh and twelfth,

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<v Speaker 1>and then all party members for the Conservative Party will

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<v Speaker 1>vote again for September nine, and that sort of surety

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<v Speaker 1>of who's going to be the next leader and who's

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<v Speaker 1>going to leave the UK through Brexit. I think it's

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<v Speaker 1>very important in the market should adapt to that and

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<v Speaker 1>see through that. But as you can see, that's in

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<v Speaker 1>two months time. In the meantime, the market today is

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<v Speaker 1>really reacting on the back of what Carney said. And

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<v Speaker 1>what Carney said is look, Row, it's going to be

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<v Speaker 1>lower and we're gonna have to cut rates. So the

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<v Speaker 1>expectation is now they'll cut twenty five bases points, so

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<v Speaker 1>around a quarter of a percent in August. But on

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<v Speaker 1>top of that they also may increase que to five

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<v Speaker 1>from three seventy five billions sterling as well. In other words,

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<v Speaker 1>the UK's deciety, we're gonna cut rates, we may end

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<v Speaker 1>up having to print some more money and that's obviously

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<v Speaker 1>negative for sterling. Doug fourth weckome, what if you can

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<v Speaker 1>explain why these round numbers like one dollar and thirty

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<v Speaker 1>one dollar and fifty how does anyone arrive at those

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<v Speaker 1>specific levels? I mean, with a company, you can do valuation.

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<v Speaker 1>You can say X number of shares current market value

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<v Speaker 1>and then compare that to sales as well as net profit.

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<v Speaker 1>But can you do that when you're looking at the

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<v Speaker 1>currency market. No, No, it's very much more of a

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<v Speaker 1>chart watching a charge as opposed to an actuality. I

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<v Speaker 1>think though, when when you looked at the where the

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<v Speaker 1>polls were going into the Brexit vote, when we're training

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<v Speaker 1>around with that one forty eight and we actually went

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<v Speaker 1>up to one fifty, that was when the market has

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<v Speaker 1>decided with certainty that the UK was going to stay

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<v Speaker 1>within the Union, and that's something that the market very

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<v Speaker 1>much had a hold off, which is why we came

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<v Speaker 1>out to our clients and said at one eight knows

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<v Speaker 1>maybe the time you should be short sterling because it

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<v Speaker 1>seems like all the good news is priced in. And

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<v Speaker 1>we see that so many times because for example, in

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<v Speaker 1>March tenth and the market thought that the ECB would

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<v Speaker 1>end up doing further CHEWI and they didn't, and you

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<v Speaker 1>saw a huge rally in the euro. You saw the

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<v Speaker 1>same thing in sterling as well. So a lot of

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<v Speaker 1>the time you find that the market gets very fraughty

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<v Speaker 1>and excitative about position when the reality is that the

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<v Speaker 1>actually anality hasn't yet happened. So in terms of what

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<v Speaker 1>happens next. At some point after such a big, big

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<v Speaker 1>drop in the pound, big move up in the dollar

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<v Speaker 1>against the pound, you'd say, well, you know, this has

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<v Speaker 1>got to be just about it. And of course, as

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<v Speaker 1>you mentioned, there are some there are some upsides to

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<v Speaker 1>a weaker pound, which Mark Karney mentioned as well. I mean,

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<v Speaker 1>to a certain extent it helps exporters, although the they

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<v Speaker 1>hit to the to the current account and the cawlow

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<v Speaker 1>flows seems to be of a much quicker impact. It

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<v Speaker 1>has to be dealt with, and the boon to exporters

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<v Speaker 1>seems like a play out over a much longer time.

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<v Speaker 1>I think that if you look at sterling an added

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<v Speaker 1>to value, you can really think of it as going

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<v Speaker 1>from a global nation to isolationism. And when you know,

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<v Speaker 1>I think one of the best charts to look at

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<v Speaker 1>really is maybe sterling in where in the seventies sterling

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<v Speaker 1>in was treating at a nine hundred and I was

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<v Speaker 1>treating on two sterling against the ends drop year to date.

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<v Speaker 1>This year we're sterling against the dollars when we dropped

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<v Speaker 1>by twelve. So the UK as it begins to become

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<v Speaker 1>less of a global nation and much more of a

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<v Speaker 1>singular isolated nation is just losing the value in Sterling

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<v Speaker 1>because fear people really want to be involved with certain

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<v Speaker 1>because they don't have to be anymore because the UK

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<v Speaker 1>becomes more and more irrelevant than on a daily basis.

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<v Speaker 1>I think that that's what we're seeing in this movement

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<v Speaker 1>in Sterling today is that Sterling has taken us out

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<v Speaker 1>from sort of one of these global leaders with a

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<v Speaker 1>huge sphere of influence to becoming one that really is

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<v Speaker 1>only going to be managing itself. And if it's only

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<v Speaker 1>managing the United Kingdom, it could be that could only

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<v Speaker 1>manage that for a year or two before Scotland ends

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<v Speaker 1>up leaving, And so you're dealing with the currency now

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<v Speaker 1>that is being less used globally and has less sphere

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<v Speaker 1>of influence and so is having less of an impact

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<v Speaker 1>on the world. Doug Borthwick, Uh, not only is political

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<v Speaker 1>news in the United Kingdom dominating headlines, but also in

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<v Speaker 1>places such as Australia. I wonder if you give us

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<v Speaker 1>your outlook for commodities for currencies that are tied to

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<v Speaker 1>commodity producing industries. Certainly Australia is tied to commodity um

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<v Speaker 1>in the streetes, but it's also very much tied to China,

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<v Speaker 1>and what we're seeing is obviously you seen dollar China rally.

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<v Speaker 1>There's been a lot of discussion about how China's devaluing

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<v Speaker 1>their currency in the background and no one seeing it.

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<v Speaker 1>Certainly China's been devaluing their currency against the yen and

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<v Speaker 1>versus the euro or at least uth until lately, but

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<v Speaker 1>against the dollar, China's only moved by two percent on

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<v Speaker 1>the year. I think that as long as there's weakness

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<v Speaker 1>in China, or perceived weakness in China, that will be

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<v Speaker 1>perceived weakness in the Australian dollar and in the Kiwi dollar. Obviously,

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<v Speaker 1>the Australian dollar is added to by the fact that

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<v Speaker 1>there's no clear leader, let in the leader yet in

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<v Speaker 1>the general elections, and that's causing heaviness there as well.

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<v Speaker 1>Thank you very much. Douglas Borthwick is managing director in

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<v Speaker 1>the head of f FX at Chapter Lane and Company,

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<v Speaker 1>speaking about the British pound, which currently trades against the

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<v Speaker 1>dollar at one thirty in the Japanese Yenna one on

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<v Speaker 1>one point five too. This is taking Stockheim pim Fox,

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<v Speaker 1>my co host Kathleen Hayes, and this is Bloomberg a

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<v Speaker 1>brewing Italian banking crisis. This is another important part of

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<v Speaker 1>the fallout from the Brexit vote. Will be looking at

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<v Speaker 1>that and what it means for the EU broadly. This

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<v Speaker 1>is Bloomberg