Borthwick: Shrinking Global Influence Powers GBP Plunge (Audio)

with pim Fox. The focused remains on the UK in global markets is the pound falls to its weakest level in three decades against the dollars, even lower than the hit the lows it hit right after Britain's vote to leave the European Union was passed. Why is this unsettling markets because it could hit fragile economy at a time when the rest of the global economy is fragile as well. We're gonna look at some of the currency impacts right now,

PIM Yes. So we've got Doug Barthwick, I'm managing director in the head of foreign Exchange at chap The Lane and Company. He'll be giving us more details right now. More details from Catherine Cowtery in the Blomberg newsroom. Thank you, pamla wall Street. Starting off this holiday shortened week with a retreat. Bank of England Governor Mark Kearney warned of prospects for a material slowing of the economy on the

developing risks from Britain's withdrawal from the European Union. Now banks are taking the largest losses and energy companies are sinking along with the price of oil. The government said gasoline supplies on the East Coast reached a record. Jim Paulson, chief investment strategists at Wells Capital Markets, on one of the reasons why he thinks the market can reach new highs over the next few months. I like the fact that this rally since January has been very broad based.

The equally weighted indices are outperforming overall, which tells you that a broad array of stocks are doing better than the market cap weighted I think that suggests that a number of companies are are experiencing earnings momentum. Again, we check the markets every fifteen minutes throughout the trading data. Industrial averages down one eight points three quarters of a percent rating at seventeen thousand, eight hundred ten, SMP five founded down nineteen points nine tens of a percent to

two thousand eighty four. Then nastac is down fifty six points one point two percent to forty eight oh six. West Texas sent a media Crude Oil down two dollar thirty two cents of barrel four point seven percent to forty six sixty seven. Spout Gold is up nineteen dollars twenty cents agains at thirteen fifty eight twenty ten Your Treasure thirty seconds with the yield of one point three

seven percent. Among today's top business maker business stories, it marks a revival for the iconic baker Hostess Brands, the baker of Twinkies, and Ding Dong's plans to become a publicly listed company. And now let's get an update of some of the other stories we're following today on Bloomberg Radio. Thank you Catherine from the Bloomberg Newsroom. I'm Jil Schneider. Home Secretary Theresa May has won the first round of voting in the contest to replace David Cameron as the

next Conservative leader and Prime Minister. Mrs May, who began the race as the front runner, got one hundred sixty five votes. Minister Andrea leads Something came in second with sixty six. Liam Fox Will been eliminated from the race, coming in last with sixteen votes. The battle against Zica continues. Virginia Senator Tim Caine said today most mosquitoes stay within a two yard radius of where they are Borns can find the spot of the standing water, and you can

wipe out standing water or spray there. In that narrow geographic zone. You can reduce the density of mosquitoes and then reduce the incidents of Zeca. Officials say Islamic State appears to be increasing its attacks as the group loses territory across the Middle East. Here's Deputy Secretary of State Anthony Blinken, territory matter is a great deal because what it does is it's the pole of attraction. It's where they get their resources by exploiting people within the territory.

They control oil extortion, et cetera. It also is the poll of attraction for jeehatta surround the world who think that they see is as succeeding ten feet tall building. The so called Caliphate authorities now say at least one hundred seventy five people were killed and almost two hundred wounded after a truck bombing in Iraq. Islamic State claimed responsibility. If you watched fireworks in the city last night, you

likely noticed beefed up security. About five thousand nyp D officers were dispatched to oversee the show, the largest detail the NYPD has ever assigned. On July four, Global News twenty four hours a day, powered by more than twenty six hundred journalists and analysts in more than one hundred twenty countries. From the Bloomberg Newsroom, I'm Jill Schneider, and this is Bloomberg Catherine, Thank you. And now let's get

a quick check of the equity benchmarks. Down, Industrial leverage down one thirty three points at seventeen thousand, eight hundred sixteen, smp F I foundered down eighteen points at two thousand, eighty four, nastack down fifty five points at forty eight oh seven. And that's a Bloomberg business flash. This is taking Stock with Kathleen Hayes and pimp Box on Bloomberg Radio. In the aftermath of the Brexit vote, the pound plunge,

global equity markets suffered on's rallying. Things seem to stabilized for a while, but today, as the head of the Bank of England, Mark Harney sought to reassure investors that the Bank of Lincoln is ready to take even more steps to shore up an economy that will be hit by the Brexit vote, heading for a recession and more. Uh, the pound slid again, stocks are under pressure. Where will this end? And what does it mean as these uh, these asset classes keep moving so sharply. Let's bring in

Doug Borthwick now. He joins us from Chapter Lene and Co. Here in New York City where he is a managing director and head of Foreign exchange. Doug, welcome back, Thank you very much, nice to be here. So how do you assess what is going on in the UK and how it's hitting the pound at this point? Well, going into this, we we always talked about how this is a bit of iceberg. I mean, you were the top side was we always thought that was one fifty In the downside, we weren't really sure and we've no hit

this one thirty level. I think that it's it's very good that Theresa May today got the hundred sixty five votes in the first vote of who's going to be the next leader. There's further votes in July seventh and twelfth, and then all party members for the Conservative Party will vote again for September nine, and that sort of surety of who's going to be the next leader and who's going to leave the UK through Brexit. I think it's very important in the market should adapt to that and

see through that. But as you can see, that's in two months time. In the meantime, the market today is really reacting on the back of what Carney said. And what Carney said is look, Row, it's going to be lower and we're gonna have to cut rates. So the expectation is now they'll cut twenty five bases points, so around a quarter of a percent in August. But on top of that they also may increase que to five

from three seventy five billions sterling as well. In other words, the UK's deciety, we're gonna cut rates, we may end up having to print some more money and that's obviously negative for sterling. Doug fourth weckome, what if you can explain why these round numbers like one dollar and thirty one dollar and fifty how does anyone arrive at those specific levels? I mean, with a company, you can do valuation.

You can say X number of shares current market value and then compare that to sales as well as net profit. But can you do that when you're looking at the currency market. No, No, it's very much more of a

chart watching a charge as opposed to an actuality. I think though, when when you looked at the where the polls were going into the Brexit vote, when we're training around with that one forty eight and we actually went up to one fifty, that was when the market has decided with certainty that the UK was going to stay within the Union, and that's something that the market very much had a hold off, which is why we came out to our clients and said at one eight knows

maybe the time you should be short sterling because it seems like all the good news is priced in. And we see that so many times because for example, in March tenth and the market thought that the ECB would end up doing further CHEWI and they didn't, and you saw a huge rally in the euro. You saw the same thing in sterling as well. So a lot of the time you find that the market gets very fraughty and excitative about position when the reality is that the

actually anality hasn't yet happened. So in terms of what happens next. At some point after such a big, big drop in the pound, big move up in the dollar against the pound, you'd say, well, you know, this has got to be just about it. And of course, as you mentioned, there are some there are some upsides to a weaker pound, which Mark Karney mentioned as well. I mean, to a certain extent it helps exporters, although the they hit to the to the current account and the cawlow

flows seems to be of a much quicker impact. It has to be dealt with, and the boon to exporters seems like a play out over a much longer time. I think that if you look at sterling an added to value, you can really think of it as going from a global nation to isolationism. And when you know, I think one of the best charts to look at really is maybe sterling in where in the seventies sterling in was treating at a nine hundred and I was treating on two sterling against the ends drop year to date.

This year we're sterling against the dollars when we dropped by twelve. So the UK as it begins to become less of a global nation and much more of a singular isolated nation is just losing the value in Sterling because fear people really want to be involved with certain because they don't have to be anymore because the UK becomes more and more irrelevant than on a daily basis.

I think that that's what we're seeing in this movement in Sterling today is that Sterling has taken us out from sort of one of these global leaders with a huge sphere of influence to becoming one that really is

only going to be managing itself. And if it's only managing the United Kingdom, it could be that could only manage that for a year or two before Scotland ends up leaving, And so you're dealing with the currency now that is being less used globally and has less sphere of influence and so is having less of an impact on the world. Doug Borthwick, Uh, not only is political news in the United Kingdom dominating headlines, but also in

places such as Australia. I wonder if you give us your outlook for commodities for currencies that are tied to commodity producing industries. Certainly Australia is tied to commodity um in the streetes, but it's also very much tied to China, and what we're seeing is obviously you seen dollar China rally. There's been a lot of discussion about how China's devaluing their currency in the background and no one seeing it.

Certainly China's been devaluing their currency against the yen and versus the euro or at least uth until lately, but against the dollar, China's only moved by two percent on the year. I think that as long as there's weakness in China, or perceived weakness in China, that will be

perceived weakness in the Australian dollar and in the Kiwi dollar. Obviously, the Australian dollar is added to by the fact that there's no clear leader, let in the leader yet in the general elections, and that's causing heaviness there as well. Thank you very much. Douglas Borthwick is managing director in the head of f FX at Chapter Lane and Company, speaking about the British pound, which currently trades against the dollar at one thirty in the Japanese Yenna one on

one point five too. This is taking Stockheim pim Fox, my co host Kathleen Hayes, and this is Bloomberg a brewing Italian banking crisis. This is another important part of the fallout from the Brexit vote. Will be looking at that and what it means for the EU broadly. This is Bloomberg