Global business news twenty four hours a day at Bloomberg dot com, the Radio plus Mobile Act and on your radio. This is a Bloomberg Business Flash from Bloomberg World Headquarters. I'm Charlie. Public of Brexit selling continues on this Monday, the Dow, the SMP, NASDAK all declining. Let's head right over the first word Breaking Views Desk four, Today's afternoon call, and here he is Bill Maloney. Good afternoon, Charlie. That's right.
The breaks that followed continues, with it DAL currently down two hundred nine points, SMDs dropped forty one and NAZAC declines a hundred and twenty three. The SMP five hundred dropped back below the two hungine moving average for the first time since March over in New York. Germany and France each fell three percent. Italy slipped three point nine percent. The United Kingdom was cut to double A from triple A by s MP back In the US A small cap six hundred falls twenty two points, and the US
ten YELL dropped to one point for six percent. Eight out of tennants to be sectors are lowered, led by losses in financials, materials and energy utilities and Telecom gained down, transports fall three point two percent, and as a biotech dropped eighty points, and the vix is down by nine point four percent. Leaders to the downside of the down included American Express, DuPont and JP Morgan, Small Games for Verizon and J and J. Western Digital sank twelve percent.
Seagate dropped ten percent, while Dr Pepper Snapple outperformed, gaining four percent. Live from the First Bacon News to de Scot Bill Maloney, Charlottean, all right, thank you very much, Bill, And do hear live breaking news over your Bloomberg type squawk el sq you a w K on your terminal. I'm Charlie howled. That's a Bloomberg business flash you're listening to taking stock with Kathleen Hay and pin box on Bloomberg radio stocks selling off the United Stays around the
world for that matter, second day in a row. The bond market is on fire, certainly with the US Treasury market with the third year bond up about three points today, the yell down below two point three per cent. I could go on and on about the big moves in these markets. Is this going to last? Our markets overreacting or are we heading for some kind of crisis that could keep markets up ended for a while and economies as well. Joining me now right here in our New
York studio is Brendan Brown. He's chief economist at m u f G in London, that's ground zero for the bregsit vote. But he's here in New York with us today. Brendan, welcome to the show. Thank you. So, uh, let's start with the market reaction. Is it overdone? It's difficult to say it's overdone, because there are all some really bad scenarios out there, um and one in particular we see focused on is a possibility of some sort of Italian
banking meltdown. And of course, given the possibility with the euro or EU may not even be here in a few years time, it's reasonable euro falls in value, a dollar stronger, and a big spike in the dollar is not such great news for US corporate profits. So there is some there is some rhythm behind this. You wrote quite quite markedly, quite impressively, something I think everyone's been wondering about in a recent note actually on Friday, that the UK referendum result is not a Leman moment. It's
not two thousand eight all over again. If I may put some words in your mouth, but it is is the start of a European journey away from the failure of the EU. How do you know when something is a Leman moment or when it isn't well? A Leman moment would be characterized by terrific liquidity pressures, and what we're not seeing UM today or Friday is a shortage
of liquidity. What we are seeing as a fairly I think judicious re pricing of assets UM to take account of some of the dangers ahead along a route which may end up well for Europe and the world economy, but there are dangerous from getting here to that final destination. If this is the beginning of a European journey away from the failure of the EU, is that your conclusion is that your view that how are painful breaks? It may be it is the right path for the UK
to take. I would put it this way that the the EU had failed in three or four fundamental respects. UM didn't deliver prosperity, it delivered monetary failure, it increased political geopolitical instability, and it didn't deliver political democracy. So the UK, in deciding to move away from that were there were very powerful grounds and and and reasons for hoping that a better future would lie going along an independent route, and that that independence may in turn shock
Europe into something better. Now, none of this is for certain. There are dangers, and ultimately people have to decide themselves as to whether the risks worth the candle of the journey. But there were definite reasons for thinking along that way and and and hoping for a better future. You have spenttioned the possibility of banking meltdown in Italy, and of course the weakness of their banks has been an issue for some time. France has its own issues, strikes and
you know, struggles with its economy. Uncle Merkel now is going to be left without the UK in the EU, two of major major partners within the EU with their own difficulties. How does she respond? What does all this mean for her future? Well? I think the pressures on on Angela Merkel are tremendous from inside the German political system. Even ahead of this, we saw support for the anti euro Party rising where they were getting fifteen percent of
the vote in recent regional elections. And given Philip now of seeing the UK having voted for Brexit. Um one can only imagine that support is going to rise, particularly as without the UK budgetary contributions and as you say, Germany on its own, the prospects are Germany is going to be having to finance this much more than previously
relative to the other partners. So as the anti euro vote grows, I would imagine that the precious within Merkel's own party c DU for Merkel to take a harder line on European bailouts and on immigration is going to increase. So ultimately, because the CDU does not want to see more and more support being taken away by the far right, we have to get some of that support back ahead
of elections next year. So the Mirkel's going to either have to go along with this mood of harder line towards easy being not too many bailouts, more more control of immigration or or or yield power. And I think that's what we're going to see. And that does open up, of course, a conflict with the rest of the EU and with France, and I would imagine retentions are going to grow on that critical access between France and Germany. Let get one more quick question before we continue this
conversation just a moment. What's the worst outcome in all of this for the financial markets right now? The worst outcome I could imagine in the in terms of the next few weeks would be an Italian type um banking meltdown and concern that because of the German situation we described,
where isn't going to be for support for them. We're gonna continue this fascinating conversation with Brendan Brown, chief economist at m uf G in London, joining me in our New York studios today here at Bloomberg World Headquarters, Italy, the Spanish elections, the Bank of Japan trying to cope with a sergeant Yen that causes great difficulties for them as they try to stimulate the Japanese economy. All this and more coming up. I'm Kathleen Hayes taking Stock on
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the Bloomberg Radio Plus app and Bloomberg dot Com. This is taking stock. I'm Kathleen Hayes, my close pim Fox on vacation, the Brexit vote, a political earthquakes, sending reverberations across Europe, around the world. We're gonna be looking at Italy, Japan and more right here on Bloomberg Radio. Now we're gonna toss that over to Charlie Pellett. He's in the newsroom with a Bloomberg Business flash. Thank you very much,
Kathleen Hayes. Those aftershocks include continues selling in the US equity market, with the DAL, the SMP and nastac Hall extending Friday's declines. Right now, the SMP pine hunted in text down forty three points of n a drop of
two point one percent. Those aftershocks reverberating across financial markets after a weekend of political turmoil, the pound extending its record sell off right now, we've got the NASDA Compositive Index down one eight declining two point seven percent down, industriels down three oh two, a drop of one point seven percent, sm D down two point one percent, the ten year up thirty one thirty seconds, looking at the yield now of one point four or five percent, Gold
up nine eighty ounce now to thirteen thirty two again there of seven tenths of one percent. A Bloomberg exclusive this morning, as we sat down with the former Chairman of the Federal Reserve, Alan Greenspan, he was on Bloomberg surveillance. He talked at length about last week's UK for referendum and what it means for the future of the United Kingdom,
significant renewals, Scotland and I'm almost certain school. It was part of a Bloomberg Breakfast conversation hosted by Bloomberg N one in Washington, d C. So again, taking a look at what's happening with US markets, we've got crude oil slumping two point three percent, down one ten of arrol forty six fifty five right now. On West Texas intermediate crude grant is at thirty two, a drop there of two point three percent, and the SMP five hundred index
down forty one to a drop of two. Tow industrials now down to a decline of one point seven percent at three thirty two on Wall Street. Now, let's take a look at other news from around the world right here on Bloomberg Radio. Thank you, Charlie from the Bloomberg News Room. I'm Jill Schneider. This news update is brought to you by the Jeep Grand Cherokee, the most awarded suv ever. The Grand Cherokee continues to raise the bar with its luxurious interior and legendary four by four capability.
Drive on at your local Jeep dealer today. British Prime Minister David Cameron says the UK will not trigger formal EU EXITOX at this stage. He says the RAF random result is quote not the outcome I think is best for Britain, but says the result must be respected and implemented in the best possible way. Britain is leaving the European Union, but we must not turn our back on
Europe or on the rest of the world. The nature of the relationship we secure with the EU will be determined by the next government, but I think everyone has agreed that we will want the strongest possible economic links with our European neighbors, as well as with our close friends in North America, the Commonwealth and important partners like India and China. Cameron says there will be no immediate
changes for EU citizens now living in the UK. Hillary Clinton, on the campaign trail in Cincinnati today, took the stage in a first joint appearance with Elizabeth Warren. Clinton praised the Massachusetts senator law, offering a harsh critique of Donald Trump. She exposes him for what he is, temperamentally unfit and totally unqualified by to be president of the United States. Senator Warren called Clinton a fighter who has never backed down.
The Stone Wall in has officially claimed its spot in American history, The site of the nineteen sixty nine riots that launched the gay rights movement, was recognized as a national monument in a ceremony today. Global News twenty four hours a day, powered by more than twenty hundred journalists and analysts in more than one twenty countries. From the
Bloomberg News Room, I'm Jill Schneider. This is Bloomberg, Charlie, and we thank you and again recapping a forty point loss now for the SMP five hundred index at nine down two. I'm Charlie Pellett. That's a Bloomberg business flash. You're listening stock with kath on Bloomberg Radio. Problem with any kind of big move in markets, particularly when you see a move like the British pound where it fell.
Uh had his biggest drop on Friday since the Japanese yen on Friday, also coming within six n of the point where Prime Minister Amy jumped in with his three pronged stimulus plan three years ago. The problem is that you really don't know what one move can mean for the markets more broadly, and is the Brexit vote reverberates across Europe. I'm continuing my conversation with Brendan Brown. He's chief economist at m u f G. Brendan, you just
mentioned Italy and it's banks. This has been a festering problem, but it seemed like it like it kind of float along right with the rest of the EU. But the bank stocks in many countries, but particularly Europe, have gotten hammered. What does this mean totally? What's going to happen well Italy in many ways is the most exposed banking system to sovereign debt and also to bad loans, and Italy has been gaining from the fact that of the QI
operations by the ECB and all a cheap funding. In fact, many German voters are sort of cynco draggy in his position is ec BE chief has been using the e c B basically to help Italy, and and that's true
to a considerable extent. When when when you look at the numbers, so now, with the pressures being very much towards EU disintegration and possibly a harder German line as we've been discussing a few minutes ago on ECB funding, the question really does rise as to whether this Italian situation is sustainable or whether the banks are going to have to face a much harder environment. Look at that mean for Italy? What could it mean for the EU?
Is this what you're going to see? Are these are kind of stresses that pull the E together because somehow they all come together and help Italy? Are these are
kind of things that pull up further apart? I think in the present climate it would pull apart because the German electorate is all very already very intense and upset about the amount of funds which have gone onto this project, and seeing British example of being able to walk away with it, walk away from it, the question is whether why shouldn't Germany be able to do the same thing. Now certainly allowed voice in Germany over the year saying
just that. Let's look at the Bank of Japan. Last night in the New York early in the morning in Asia, we learned that there was an emergency meeting being held with the Bank of Japan Prime Minister Abby and his many of his members of his cabinet to look at this distress on the end and what it could mean for their markets, What does this surge in the end
mean for their economy, for their policy going ahead. Well, what one has to realize first of all is that Japan has a huge net investment position in European bonds, with Japanese investors over the last ten years or more have basically been piling into the so called high coupon European bond markets. So when they see anything like this happened and the unknowns as to how the brexits going
to emerge, they all rushed to hedge. And so you seem tremendous upward pressure on the yen dutifous hedging by japan UM institutions. Now on top of that, when you get for yen rising, this is bad news with Japanese stock market. In the stock market for in turn increases risk aversion, and in turn that means less capital leaving Japan. So a sort of a sort of a whole vicious
circle here developing. UM. And of course our be economics is founded on the two principles of using monetary policy to boost the stock market and to appreciation to appreciate en, both of which now have gone completely into reverse. UM. I don't I if you ask me what's going to happen. I think at some stage it's going to be intervention by by the government of Japan. Currency market intervention. Currency
market intervention. But it's so important to stop all of this andthing well at working the latterly if it's we have to join them. I think ultimately their first intention would have been to do this jointly with the United States, but there's really no prospect of the US joining in any intervention, so the Japan would do this unilaterally. Dollar gold What does all this mean? Keep buying into the
paling into the gold. What about the dollar? Well, by to go do you have to think that here the second biggest currency in the world, Euro is now now it's an EU currency, and yet we don't know where the EU is headed or whether you will even be here according to some extreme scenarios within a few years. If we really see pressure between Germany and France building up so that that that means that investors should that there were no longer in a multi currency universe anymore.
They have to think seriously, but from only alternative to the dollar is gold. So it makes sense that gold is pushed up here as as a result of these happening, and the dollar of course gains as being the only fat money which is not negative interest rates and doesn't face some sort of existential risk or exploding budget deficit risks such as we have in Japan. Brendan Brown for investors, are we gonna look back in five years and say, wow,
that that's when it really all turned. That's one that was the beginning sort of the the end of the world, but still big, big negative moment for markets. Uh, you know, between the Brexit vote, between eight point seven trillion dollars worth of negative bond yields around the world. Is this an ominous sign? I think the most ominous sign I would look at in recent months has been this steady
decline in Tokyo. I mean, Tokyo is the second biggest equity market in the world, and it's it's crashed by around That has to be a warning because very often when you look at global asset price deflation, it's it doesn't all start at once everywhere. You normally get a lead, a leader at the same time as other markets may still be going up. And I think that's what we've seen in the first six months of this year. But it does make one much more anxious. I think about
what follows Brendon Brown. But you know, you're less anxious if you have a sense of white what might be coming, because you can prepare for Thank you so much for joining us. Brendon Brown is chief you as economist. Excuse me, he's chief economist at m u f G based in London. Joining me. Kathleen Hayes on taking Stock on Bloomberg Radio today. Bloomberg Taking Stock is brought to you by Bentley Universe.
We are filling to tell you a moment of the coming up on Bloomberg Radio, which is I'll look at the stock market right here,