Transcripts For BLOOMBERG The Pulse 20140808

Im guy johnson. Here is whats coming up to you. Turkey headed for its first ever direct president ial election. Well be headed do i stan bull. First, our top story, president obama has authorized air strikes against militants in iraq as well as a humanitarian operation. Today i authorize two operations in iraq. Targeted air strikes to protect our american personnel and a humanitarian effort to help save thousands of iraqi civilians who are trapped on a mountain without food and water anding almost certain death. U. S. Aircraft dropping supplies to iraqis threatened by fighters from Islamic States. 60,000 people have been stranded there after advance fwiss Islamic States. President obama said the u. S. Would proceed with air strikes against islamicbased militants if they move toward the kurdish city of erbil. A significant shift from president obama. Yes, this is definitely something that people will be worried that it would mean reengagement for the u. S. Military in iraq after president obama vowed that he will pull all u. S. Troops but as he said in this speech, he is worried about the prospect s of genocide against this Minority Group and that is mostly because Islamic States or as it was known, isis have been targeting several minorities groups such as the christians and we heard a report of 50,000 people. Most of them are children fleing to the top of mountains and are without food and water and that could be a catastrophic thing for them. In interpret s of the scope of the action were talking about here, terms of the scope of this action here, what are people saying in the region . A lot of people are saying that this is probably going to an extremely limited limited operation if it ever happens. If the strikes are utilized. We may see some strikes against the sunni insurgents or militants if they are if they attack u. S. Troops or they continue to target these Minority Groups, but it is very unlikely that they would be tchash the u. S. Military would engage them in other parts such as syria or lebanon or other parts of the region. Well leave it there. Hank you very much indeed. The latest development from dubai. Crude oil extending gains. Were looking at a drop in most arkets here in europe. It is a little bit messy this morning. The problem is, though, you have a number of Different Things happening. How do you price them in . You try to figure out russia and the impact on companies. We have seen whats happening with the dax this week. You try to figure out what the story is. There is an energy line there and the iraqi story as well. To bulk of the fields are the south. We hasnt engaged in a way we were expecting to. You have west africa in the mix as well. Hard to price in. You treasuries. Yield 2014 lows. Almost a direct business impact. We talked about companies and about sanctions and that ban on food imporkts. You have seen whats happening imports. You have seen whats happening in norway. Down 8 yesterday. 5 today. There is a direct business impact. We talked about how this has been isolated. Early june, the dax reached 10,000. Correction territory now. Were up by 10 . If everybody was looking for the the correction when you talk about complacency. When you get this news that obama has authorized air strikes, that is concerning. That immediate concern is priced nto the extreme. I dont think it is actually up that much. You think about the fact that were at 106, 107. It is not really moving the dial. You saw what happened in first gulf war and what oil did then. You saw what happened in second gulf war and what oil did then. This is not the prelude to that. Of course we didnt have the u. S. Shell boom back then either. Thats why a lot of people think to some extent the oil price is by whats going on in the u. S. Libya, Oil Production is lower but it is a Spare Capacity service. The answer is no. That applies to a lot of countries around the world. The saudis are the only guys now with serviceable Spare Capacity. Are it is not great crude coming out of there. Pretty sour. Hard to refine. I think youre right. We need to look at this from a Company Point of view. It is interesting. When you look at a day like today, you think it is a big macro story. Geopolitical forces at work. But it is quite easy to see how this is translating into the companies. Were becoming clear. Kind of started the ball rolling. It is becoming clear how companies are being affected by this. It is much more of a bottom up selloff. I think the market is focused on geopolitics but it is starting to understand the dynamics of how this affects companies and their bottom lines and how they run their companies. The dax speaks to that. For me as well when you look the situation in iraq. I told you about the contact that reached out to me. He said what does this mean for the situation in ukraine . The way bioama responded could be similar to the way obama responded to the situation in iraq could be similar to putins response to the ukraine. If obama is allowed to authorize air strikes in Northern Iraq. Vladimir putin makes its his role to go into the ukraine. Some would argue were in that situation. Using longrange missiles to shell ukrainian troops in sorry, freudian error. In ukraine. Air strikes are in some way artillery is already being used. Putin you could argue is already there. No one really has a clue. When i see the sanctions that have come out this week, it has a direct impact. We can quantify them as well. 10 . We can quantify that and pinpoint the companies that are going to be hurt the most. And you can look at Companies Like basf. They are already suffering because of the Lower Oil Prices and lower ethylene prices in the states. And now were raising Energy Prices further in europe. What can Central Banks do about it . It has been there for five years. Draghi doesnt have an answer. I expect he doesnt have an answer. Ok. Thanks very much indeed. Lets go to italy. Voting shortly on a major constitutional change. To powerdesigned and could unseat many. Why is this so important . It is very important. You mentioned draghi. He himself yesterday during the e. C. B. Press conference sort of put the pressure on renzi and the country to, you know, get these Institutional Reforms through, otherwise the country just is not going to grow. This is an important part of it. It is not necessarily the most important part because at the same time renzi is trying to reform italys labor market, trying to make the country more competitive, but it is key. Because what he is trying to do is essentially change the senate to take it into more of an advisory role. Because as it is now, it is very difficult to get legislation through this country. So if he can reform this, it will be a big step. How much momentum if he can do this, how much momentum will that give him for other reforms . Well, i think we should say immediately that even if the Senate Passes this today, it still has to go back to the other chamber in parliament and probably back to the senate. So we still have some obstacles. If he can get this victory today, it gives him momentum going into september because the legislative process will be halted for the rest of august. It will give him momentum to start tackling these other pieces of his Reform Program basically. Well leave it there. Well watch this space very careful lism youll continue to update us. What else is on our radar friday morning . The World Health Organization has declared ebola a health emergency. It said the possible consequences of a further global spread are serious. Chains trade surplus surged for a record in july as export growth unexpectedly accelerated and imports fell. Overseas shipments surged. The number suggests Global Demand will help the Chinese Government achieve its 2014 economic expansion goal. And israel says a ceasefire basically the ceasefire is over. They were violated before the easefire expired. 1,800 palestinians and 67 israelis dead. Coming up, the russian food fight. How moscow could take a big bite out of norways food industry. Well talk with the director of the norwegian seafood council. Welcome back. Youre watching the pulse. Live on bloomberg tv. On a tablet. On your phone. On Windows Phone now. We have you covered. Here is some company news you eed to know about. Well be speaking with the companys c. E. O. Later on in the next hour. Malaysian airlines suffered two major disasters this year. And rio tinto c. E. O. Said the worlds second Largest Mining Company is on its way to becoming a cash machine. We had a report today a 21 jump in earnings. This does become a cash machine. It does enable for you to make and i quote from the press release, material increases in shareholder return. That is good news. Good news for the organization. It is good news for investors. Ok. Lets get back and talk about russia. Russian diners may not be able to enjoy sushi because of western sanctions. Seafood index plunged. We have seen another drop again this morning. A 10 drop in two days. Christian chramer is a director of the norwegian seafood council. Good morning to you, christian. The market is trying to price into the shares of the Major Companies involved in the norwegian seafood industry, the impact of this. Were down by 10 over the last two days. Can you put it in number for me how significant this is for your industry . Today we are saying this is a challenging situation for norwegian Seafood Companies that have their largest market in russia. In 2013 we exported seafood from norway to russia for 6. 5 billion norwegian kronors. They have trout and herring. They are searching for new markets. Our largest markets effectively closed yesterday. In terms of finding other markets. I have heard a number of reports that there was almost too much demand, particularly in the salmon market. How easy is it going to be to find alternative buyers . For the salmon business, these kind of situations are quite normal. Changes in the trade patterns, boycotts, patterns in the market. Also weather changes makes the salmon industry quite accustomed o having to reroute and find new customers. The situation is challenging. This is something that the Salmon Companies are used to doing and are able to handle. We know that the Global Demand is strong. It is a Global Growth and demand for salmon. There is a lot of buyers for our salmon within the European Union in the u. S. And also in asia. Given the fact that that is the case, and the fact that we are seeing marine harvests and Companies Shares being hit so hard. Do you think that is an overreaction . Companies are capable of handling this. Trying all their best to minimize any loss and make sure they can supply our healthy norwegian salmon to market across the globe even though at the moment one of our largest markets are closed. But the expectation would be the prices will drop. All of these changes in market situations will normally affect the price. Our job together with the exporters is to try to minimize the loss and regain and strengthen the value. That is our companys main policy in the marketing process and finding new markets and making more customers eat and buy more salmon. I want your take on how the industry feels in terms of sanctioned goods as a share of exports to russia, norway has been massively disproportionately hit as a result of the sanctions that have come out of moscow. Do you feel that you are being targeted . Do you feel that this is unfair . Do you think the fact that norway is such a big focus for this . Is this proportionate . It is difficult to comment on that. I know the most important thing is for norway seafood is really, really important. We are the second largest exporter of seafood in the world and the largest producer of salmon. If sanction hits Food Products and norway is affected, it will be inflicted heavily on our seafood sector. But this is something that we are quite used to, changes come quite quickly into this sector and the industry is capable of handling it. The fact that it is for a year, though, makes it more of a longterm story. Weather changes tend to be transitory. Fact that this is on for a year must make it a slightly more meaningful move. Of course. The situation is said to be able to last as long as one year. We have to prepare for that. Still, we see the Global Growth of salmon exceeding the volumes going russia in one year. Yearonyear, the growth is stronger than the volume drop, banned from russia. We see it as a temporary slide and well be working hard to find new markets. I know the company is really on to this issue and doing all their best to make is that your the products come safely and quickly to new customers in other markets. Christian, thank you very much indeed for taking the time to talk to thus morning. Coming up, you may have thought you were watching the food channel. Nobu on a roll. How the highend japanese restaurant took sushi global one place at a time. Well take you inside. See you in a moment. Welcome back. Youre watching the pulse live on bloomberg tv and were on the radio and streaming on your tablets, phone, bloomberg. Com. Were on the markets this morning. Because there is a lot of action. Jonathan ferro has more. Pretty messy. Top line is that barack obama, u. S. President , if you didnt know, has authorized air strikes in iraq. No air strikes yet, but off the back of that, stocks getting slapped around. Ftse down. 1 . The dax down by 1 . Early june, that breaks 10,000 points. There was a lot happy talk about what the e. C. B. Might do. Two months later we are down 10 . That is a correction. If you look at the dax, one of the big fallers, Lufthansa Airline lower. There is a lot of talk about a flight ban. What would that mean for lufthansa who has flights over siberia every week. They would have to divert those flights. The bond market is obvious. The money going into bonds and treasuries. Treasury yields. Lows for 2014, 2 poifer. 6 . Five basis points lower. The risk aversion reflected. The dollar yen, money going into 101. 76. Oil. 9 hire. Oil brent has been on shoes in roughout all shoes in throughout all this time. 90 reduction in iraq is in the south of the country. Is this a see injerk reaction . Is this fundamental . Is there a false soverpbes security about the excess supply around the world for oil markets . Iraq drops off in production. That is something to think about carefully. It certainly is. Im trying to figure out to airline story. Someone told me it was roughly they would save 30,000 per flight. That would give you a figure of roughly 6 million which is an awful lot of money. Until it was in place, if you wanted to go to tokyo, it would take 18 hours. You basically go the long way around. Yeah, this is going to be a big deal. For a lot of our audience who spends a lot of time on airplanes, maybe they are going to be spending more time on airplanes. Jon, thanks very much indeed. Were going to take a break coming up and go to turkey. El well take you do i stan bull president ial elections. Well be talking about nobu and sushi coming up. Welcome back. You are watching the pulse. I am guy johnson. These are the top headlines. Barack obama has authorized airstrikes in iraq. Ashcraft american aircraft dropped supplies to those threatened by the fighters. Cried to the world there is no one coming to help. Today, america is coming to help. We are consulting with other countries and the united nations, who have called for action to address this humanitarian crisis. Israel says a ceasefire with forces was violated hours or the recent conflict has left more than 1800 palestinians dead. The World Health Organization has declared a global declared ebola a health emergency. The conditions for the title have been met. The consequences of a further old will a further global spread are serious. A change of gear. In milan. L nearly 10 the luxury shoemaker posted disappointing earnings. It says youre going to walk us through the numbers. Painful. A painful day for todds. Of cuts to their price target. Bank of america, merrill lynch, ubs. Know that these numbers were really bad and theyre going to cut their price target. A significant mrs. What citigroup says. Even when the a significant miss is what citigroup says. Italy, a third of their sales down 8 . China, a quarter of their sales, sales down 4 . This is a company interestingy, research from bloomberg intelligence, saying that italy is the country hardest hit by the lack of russian spending. Russians big spenders in taxfree shopping, about 20 of the worldwide spend. Overall, this has dropped by about 30 because of the ruble weakening. Clearly, this is an area that is going to be hit in luxury spending. Italy will feel the repercussions. More spending in dubai and places like that. It is interesting shoppers are not buying tods. Are other people going to be buying tods . Maybe companies . Remember the big spending spree last year . Said made in italy is up for grabs. With the share price fall, with the price targets being cut, could a conglomerate help turn the story around. Sales are not doing much on our own. You could probably say it is a proper warning. They tend to coming groups. They tend to not be isolated. Thank you very much. The nation is preparing for president ial elections for the first time in turkey processor. If you want an idea of ambitions, you could see worse than looking here. The trucks and building equipment shovel tons of earth. They will be one of the biggest airports in the world. It is one of three major Infrastructure Projects planned by the turkish government. Of a grand plan for turkey to become a bigger regional power. We need Infrastructure Projects. That was the case in 10 years and that will be the case in the next 10 years. Not everyone is happy. These villages here must make way for the airport. They have been offered a price for their land below market value. No one would speak out on camera, saying they were afraid of repercussions. Last summer, a wave of protests erupted across the country. A sound off over the future of a park is met with policeman. Claiming social media was a menace to society, he tried to silence online criticism by banning youtube and twitter. As voters go to the polls, we will see whether the ambitions will give him the presidency and secure at least five more years in power. Lets go to istanbul. His son they going to be enough . He is expected to become the first directly elected president. He will push for a new constitution, which will boost the president cost hours. It has set off alarms among his opponents. Him is the purity is the joint candidate of the two main opposition parties, chp and mhp. Some observers say s candidacy comes as a challenge as the Prime Minister needs the support of the turkish. Wins more than 50 , a runoff will take place in two weeks time. What has he achieved so far . What does he still want to achieve . It has become more difficult to understand the achievements. His years in power, turkey has seen Economic Growth with gdp tripling. The policies have improved the infrastructure and living standards. Inflation has fallen from double digits to single, allowing many turks to buy using a new mortgage scheme. The problems remain. The nations struggles with the leads to his dependency on oil and gas imports and it is still resting with high inflation. It is currently above 9 . Challenges still remain. Thank you very much. To take a break. We will be back in a few minutes. Welcome back. You are watching the pulse. Lets go back to istanbul. The turkish Prime Minister is entering the final stretch his president ial campaign. Is the election a done deal for him . Joining us now, the chief economist to bgc partners. He joins us from istanbul. 10 he secure what he wants in the first round . Successful is he going to be . The polls point to the fact that he is well ahead. At n you look available, he enjoys a Comfortable Lead right now. Polls are showing the correct results, it will mean that on sunday, the Prime Minister will be elected in the first round. There is a possibility he will not be elected in the first round, but then we have the second round. Be elected he will as the next president of this country. If i was running a company in turkey right now, would this be a good thing for my business or a bad thing for my business . There is not a clear answer to that. If you look at what prime yesterday,dogan said the policies of the country will not change. Probably the same economic policies will be implemented. You cansee that as see the country as a company and assume this will be a change from being a ceo to going to the head of desperate in terms of economy, investments, economic policies, probably we will not see a massive change. The biggest question that we are receiving from the majority of Foreign Investors that we talk team whether the economic will remain in office or not. That will be the key Going Forward. Will they still be there, pulling the levers of economic power . The relationship between the economic team, the Prime Minister, the central bank that has been difficult. How is that going to change . The relationship between the Prime Minister and the Bank Governors is a little bit sour because the Prime Minister wants to see lower Interest Rates in the country. As a politician, it is a normal thing. Monetary policy seems to be awkward in a country in which we have in which you have inflation targeting. The Prime Minister and finance minister remain in office, will remain in his position as well. And not that concern about the implementation of monetary policy. Say that the pressure on the central bank will continue as long as Prime Minister as long as erdogan is either the Prime Minister or the president. How does the move to the president ial palace change the dynamic of the power structure within turkey . Is it going to become harder to understand . Harder toing to be understand why policy is being implement it . To easy is it going to be read the tea leaves, as it were . The Prime Ministers powers if you had asked me this years ago, the answer would be simple. Right now, we are entering a new era. Turkish people will be electing me president for the first time will be electing the president for the first time in history. They will be more involved in making the economic policies. We might have confusion there. In order i am sure the politicians are aware of that confusion. , as heinister erdogan becomes the president , he will recessivework with a Prime Minister Going Forward in order to have full coordination in the economic front. Be in charge and in the office. Prime minister erdogan wants that. We need higher Economic Growth to achieve that. As i mentioned earlier, the average age in this country is 29. Every year, 700,000 new people enter the labor market. Makes this gives us limited room for mistakes and the Economic Policy making. To do with more where turkey sits regionally. It will have an effect on energy policy, on turkey becoming an energy corridor. Developments on multiple borders for the administration to think about. Wantedlly, Erdogan Turkey to be a regional power. How is he going to play the situation that continues to vis thevis a situation in syria . Are we going to see more developments on that front . If you had asked these questions six months ago, i could have more optimistic answers. Right now, unfortunately, not. Verything depends on erdogan these are external developments and we are hopeful about the energy deal between turkey and Northern Iraq. You follow the developments in. He Northern Iraq there are Serious Problems there. The problems in syria still continue. Israelgaza thing which complicates the relationship. We were hopeful for a possible natural gas deal between turkey and israel. The relationship between two andtries deteriorated again normalization of this relationship will take a long time. True, turkey has an ambition to become an energy hub of the region, but i think because of the regional , whatever the Prime Minister or the president will do in the coming period, it will not assimilate that process. We have to wait in order to become an energy hub. We will leave it there. Thank you. Thank you for having me. One of the biggest losers. Losses were bigger than it bigger than expected. The is an alliance with the vendee. Avendi. Vivendi. Buy parta offered to of vivendi earlier this week. Like many publishing companies, a struggling in its transition. They slipped from Rupert Murdoch s fox entertainment unit a year ago. Let me take you to todays pulse number. That is the average price of the house and the united kingdom. House prices rose to a record last month as sales reached the highest in seven years. The National Picture is being skewed by london. 270,000 will not buy you a substantial home in the southeast. We are going to take a break. We will be back in a couple of minutes. Good morning, everybody. Welcome back. We are streaming on your tablet, your phone, and the bloomberg. Com. The japanese have been enjoying sushi for centuries. It has only been in recent decades that the dish has been enjoyed all over the world. Manus cranny spoke to the mastermind behind the sushi business. Traditionala japanese food with international appeal. With itassociated more than this man, nabu. With americanish flavors. Going from chef to entrepreneur, he opened his own brand of restaurant in new york 20 years ago. Backed by a hollywood alist business partner. Saiden was the moment you you looked at Robert Deniro and said i trust him . He came to my restaurant and he asked me to open in new york with a harder ship your the first time he offered to me, i said no thank you. Then, after four years, he asked again. I can trust him. He understands my philosophies. That philosophy gave birth to an international business. 32 restaurants in 28 different cities. It has not all been easy. Sometimes i open my restaurant in alaska, a fire came out and burned down. A lot of people supported me. Not give up. Also, always i tried my best. Not only did he go on to become a celebrity sushi master, but also a Las Vegas Hotel owner. Why do we not do like a hotel . The idea came from him. In vegasappens does not necessarily stay in vegas. It is coming this year. End of the year, it is going to be in miami. The greatest skill has been turning raw fish into raw success. Manus always likes to dress the part for these things. I thought it was really fantastic. You can see he is dressed up as a piece of sushi. The orange cardigan, the white rice. I think it blends decently. I am going to get grief for that. Lets take a break. Upomberg the first word is next. For our viewers, a second hour of the pulse. We are going to talk about iraq, the latest development out of washington, d. C. And the possibility of airstrikes from the united states. We are going to be talking about again. Ctions story an interesting conversation from ceos in europe. We will be talking turkey as well, from a political point of view. We will see you in a moment. Back in iraq, u. S. Air strike authorization shades local markets, from equities to oil. The World Health Organization declares ebola and International Public health emergency. Taly misses a step stumbling as Prime Minister the economyto get back on track with constitutional reform. Live in milan. Good morning to our viewers in europe, good evening to those in asia, and a very warm welcome to those just waking up in the u. S. I am guy johnson, this is the pulse. Live from bloombergs European Headquarters in london. What if we got coming up . Turkey heading to the polls on sunday. The First Time Ever weve seen a direct president ial election, huge regional implications. Live in istanbul. President obama has authorized airstrikes against militants in iraq. As well as humanitarian operations. Today, i authorize two operations in iraq targeted air strikes to protect american personnel and a humanitarian effort to help save thousands of iraqi civilians who are trapped on a mountain without food and water and facing almost certain death. Plans to drop supplies close to the syrian border. Been stranded there after advances by the militant Islamic State. Obama said the u. S. Will proceed with airstrikes against islamic militants if they move towards erbil,dish city of where the u. S. Festival medic staff the u. S. Has diplomatic staff. A shift in policy from a a president who campaigned on getting troops out of iraq and withdrew troops in 2011. It is seen as a real engagement it is seen as a reengagement in the regions political climate. The president has tried to show that the focus of this operation will be limited. Some officials i have been speaking to have been saying that he authorized the use of , if they were targeting u. S. Personnel, different religious communities, as well as to break the siege of the people who are trapped at the top of the mountain. We are being told that there will be no chasing of these militants and other regions in other countries such as syria and lebanon. Is that how it is being seen . These things always start small. People are talking about this thing a limited operation. Do people believe it will be a limited operation . You just went through the other areas of engagement, but at this stage is limited. Does it go further, what are people saying in the newspapers about what could happen here. Is there a suggestion that maybe this does go further . There is always a possibility that things could go further. After all, this is a region that is completely engulfed and political strike, from syria to lebanon to iraq. TwoIslamic State swept, months ago, a lot of people could not have first seen this happening. They swept through Northern Iraq and easily took over the biggest city there, mosul. They took over a dam there and are pushing against the most stable area in iraq, the kurdish area. President obama has been very careful to show and say that this will be very limited. Things could definitely get out of control if there were developments. Were going to watch this very carefully. Thank you for watching it. Bloomberg news from to back. From dubai. We will work out the indications from a market point of view. Jonathan ferro is with us. The geopolitical story is weaving its way through every single asset class. Multiple geopolitical stories. Trying to figure out exactly how to price them all in. A result in a messy market. We can draw a line between what is going on in iraq and russia sanctions. The implications of the way obama has reacted to the situation in Northern Iraq, the way putin reacts to what he calls native russians in ukraine. Is very much a sentiment issue pushing equities down, that is authorizing airstrikes in iraq. The other is a business issue. If you look at what has been happening in norway this morning, the Food Companies there are being hammered. The dax has been down all week. You listen to what the companies are saying, maybe it is not having a direct impact now, then the cat with language that is talking about how this could be significant. The fact that the russians are talking about this becoming an evolving story, we may now struggle airlines and autos. We are talking about escalation. The food import ban is going to hurt seven harvesters in norway. Havecannot saying they found new buyers but the stock is still down. On the airline thing, this is escalation. If russia says no more flights over our territory, no more diverging across siberia. Who does it hurt . Lm has about ghts throughli siberia. Has aboutufthansa 220. More than half of the weekly flights to that region. Concern about the potential for that to become reality. Ive heard a number of 30,000 there 30,000 per sector. Millions per week, per company. Oil prices could be going higher, this can get expensive. If you want to go another way, is a longer flight. Is in are a company that the airline business, it will affect you directly. If you and i run a company and we are sending people to asia, time and money. Surcharges, people are going to be on airplanes for longer. More expensive to do business. It is something that is going to be felt on the bottom line. Thank you very much indeed. Lets talk about politics. From a different angle. In italy, the senate will do shortly on major constitutional changes as part of prime s reform agenda. It would curb the senates power and unseat many representatives. Joining us from milan is bureau chief for italy. Walk us through why this is important. The head ofsterday the ecb, mario draghi, put this in context. He said one of the reasons why italy is not growing, we have bad gdp numbers this week, is in making is lagging Institutional Reforms. Changing its labor market, coming more competitive. Renzi is trying to respond to this. One of the planks of this program is trying to make it easier to pass laws in italy. Currently, you have two branches of parliament. All legislation has to be approved by both the chamber of deputies and the senate. What he is proposing is to basically redesign the senate. It becomes an elected assembly. It makes recommendations it d assembly unelecte and makes recommendations to our house of parliament. It does not have any voting. Mind, speeding legislation through parliament and making italy more governable. If he gets the vote today it is not the end of the story. Still more bumps along the road. Getsy that he does and he this all the way to the finishing line. What does it mean for his other reforms and the momentum that he has for them . Key word is momentum. This is not the end of the story. Before the legislative recess, if he can get this victory, markets will like that. It will give him some momentum and help him get some more credibility as he prepares the other key reforms. They are very important. He wants to change the electoral law, the way it really elects its public officials. He wants to make Public Administration more efficient. It will give him some momentum. It will give him a victory that he really needs to show his opponents, even within his own party, that he can get these things done. You. Ank joining us from bloomberg italy. What else is on our radar . The World Health Organization has declared ebola and International Public health emergency. Thatho decided unanimously conditions for this title have been met. It says the possible consequences of a further global spread are serious. Chinas trade surplus surged to a record in july as asked worker of accelerated and imports fell. The numbers suggest mobile demand will help Chinese Government achieved its 2014 economic goal. Israel says a ceasefire with hamas forces in gaza was violated hours before it was due to expire. Is after negotiations between the two sides failed to reach a longer term deal. The recent conflict has left more than 8000 palestinians and seven israelis dead. We will talk a break and be back in a couple minutes, see you then. Youre watching the pulse, live from bloombergs European Headquarters in london. Currency markets. A lot has been happening. This is what the euro dollar has done. Probably a reaction to the geopolitical story we have seen this morning. On the week, still down by 1 3. On the session, up. Bank the fact that the dollar is down out of the oil price rise. Oil up, back out the fact that oil is priced into the dollar. The weaker dollar is necessarily an effect on the oil price. This ancient story is front and center. Lets continue the conversation. Head of markets at bcs financial joins us. It seems to me that we are at a we are beginning to understand that the sanctions are going to be meaningful and with us for quite some time. They will have a significant effect on core industries. Look at what is happening with the norwegian salmon farmers. The market is now looking beyond that and trying to find out the escalation risk. The russians are talking about the car industry and overflights. It could cost millions of dollars every week for the european airlines. How significant is that escalation risk . It is significant. Both sides have little appetite to escalate this further. Yesterday was quite a warning shot from the russian side. It was slightly more significant than what we expected. If we put this into perspective, russian trading goods with europe is about 200 billion a year. 80 million of that is machinery and transport. Add another 40 billion in financial services. Targeteds sanctions 10 million 10 billion or 15 billion of goods that are easily substitute. If we take this to the next level, the repercussions on both sides will be significant, with a significant feedback loop into europe. If i was running a manufacturer. Nokia is out with numbers, the biggest market is russia. Would he be preparing would you be preparing that the biggest chunk of sales is about to disappear . That is what the norwegian salmon farmers are watching. That is something companies should take into account. Talking about the unintended consequences of these sanctions. Eu andctions that the the u. S. Put into place do not touch any of that. They were very well orchestrated and constructed not to touch the real economy in a very significant way. Even the hit on the Financial Sector in russia was structured in a way that left huge loopholes for the russian sanction banks to operate within. On a very practical basis i would not be worried in the immediate or midterm future of these companies to invest in russia. From a practical standpoint, the risk aversion would dominate. We are already seeing unintended consequences coming into force. For a political point of view, how do we assess the risk here . Risks. S running some big you look at the fact that food Price Inflation is already a story in russia, inflation is a story. He has high Approval Ratings come if he starts taking away peoples food, they start thinking differently. Especially gourmet food. Thef you look at the risks politicians are running and transact them into your thinking on where sanctions go next, where does the balance line . It looks asymmetrical. Angela merkel is running risks, she has just been reelected and is unlikely to face a nearterm problem. Putin does not face reelection but he has big forces that could become upset. We would not have this discussion if the mh17 hadnt happened. Willriving force four it be the americans. If you look from the russian perspective, only 3 of trading goods in the u. S. Versus over 50 in the eu. We have to see what the eu appetite is. It is not going to be very big. Italy has dropped again. Yesterday in negative territory. If you look from a russian perspective, it is difficult to decipher the kremlin. Decisionmaking is very centralized. They have a very solid footing to wait this out. They have been prudent on the way theyve been managing their accounts. Public debt to gdp in russia is barely 15 . Wants kremlin under putin to continue this, they want to from what we see, this will continue for a long time. Your sense is the russians, they have a long history of isolationism, have probably got the chops to see this one out on a longerterm. The way russia is constructed versus the eu, it is very centralized decisionmaking versus the eu. In terms of the ability to got this out, it is hard to see how the europeans pen down russia to make the decisions they want. Theres a political and military track and a sanctioned track. Seemanction track does not to be a fruitful avenue for the europeans to pursue. We can discuss ukraine and hansk andnetsk and lu get some military breakthrough. What really should happen is a political resolution of this matter. It is very hard to put a timestamp on this. Just to game out some scenarios. If we were to see donetsk falling and we were to see the rebels in Eastern Ukraine offering a significant loss, do you think there would be an escalation in sections or do you think there would be a military escalation. What would follow from the military l escalation . Press it in for me. Russias trading at very extreme levels. If you look at credit, the fiveyear cds is touching 280 basis points. Levels we have not seen, levels we saw when russia annexed crimea or back in 2012. Most of this is already priced in. If you see a very significant flareup with lots of bloodshed we wouldk and luhansk, argue that that would break up another Asset Classes would do the same thing. We are trading at very extreme levels now. Hard to see a very imminent escalation, if at all, the risk is upside here. Thank you for the analysis. Joining us from bcs financial group. We will take a break. Up next, creating a sushi empire. How japans chef nobu has a bite out of the global sushi markets. See you in a moment. Good morning, welcome back. You are watching the pulse. Under pressures after the shoemaker posted disappointing earnings. Here with more is our European Business correspondent caroline hyde. There was not a single pun in that intro best foot forward. Eking it down the road. Worsthas a falloff, the day for the share price on record. The reason is because sales significantly missed. So that were the numbers that came out yesterday, bank of america, merrill lynch, deutsche bank, exxon, bnp paribas have sl ashed their price tag for tods. Of sales were off by. 5 eight percentage point. Profit down by 26 . Where you are seeing the spending falling off is italy, down 8 . China, 25 of their sales are from china for luxury shoes. They had a man bag. Down 4 . I was hoping you would be sporting a man bag. Europe did ok. France, the spending there seems to has picked up. Whether or not that is taurus spending. I wish we could see how much of this is russian purchases. Fascinating story saying italy is the country hardest hit by the weakness in the ruble. Russians have gone with their taxfree spending to italy, that is where most of the Luxury Brands are. 33 of all taxfree purchases are done by the russians, that has slumped by the last three months. The russian crisis, the weakening of the ruble is ea ting in two to tiny luxury. Im going to wrap up. Of whether it is going to be a big target bid target. It could be, lvmh. 270,636, theer, average price of a house in the u. K. Most house prices rose to a record last month as sales reached the highest in seven years. While the report as to evidence of a boom in property markets, the National Picture is skewed by london and the southeast. Back,d morning, welcome you are watching the pulse. Live from members European Headquarters in london. U. S. President barack obama has authorized airstrikes against militants in iraq. Wouldd the airstrikes happen if Islamic State militants threaten u. S. Personnel in the kurdish city of erbil. American aircraft dropped supplies to iraqis threatened by fighters. Therehelp save thousands, is no one coming to help. Today, america is coming to help. Were consulting with other countries and the u. N. , who have called for action to address the humanitarian crisis. Israel israel says a ceasefire with hamas forces in gaza was was due hours before it to expire. This is after negotiations failed. More than 1800 palestinians and 67 israelis have been left dead. The World Health Organization has declared ebola and International Public health emergency. Decided unanimously that conditions have been met. The possible consequences of a further global spread are serious. On. T going a lot for the markets to price in and digest. Lets find out how that is happening with Jonathan Ferro will stop risk. Political this is european equities, with the exception of italy, every index across europe is lower. The dax feeling the pain. The germany equity market down by almost 1 . In june, and of happy talk from the ecb. Two months later, it is down 10 . Correction territory. It is not all about barack obama and authorizing airstrikes in iraq. It is about pressure as well. The sanctions and the band of food imports. The dax, the companies in it, they are exposed to what happens in russia. Escalation risk. These are companies in the dax that are moving lower. The biggest fallers is deutsche lufthansa, down 2. 5 . Escalation risk desk what happens if russia bans flights through their territory . Flights traversing siberia. Of those has over 200 weekly flights going through that area. Think about that. The extra cost, the extra money it will take two different those flight paths. That could hit them on the bottom line. Their sentiment is two pronged, geopolitical risk feeding into lower bond yields. The 10 year u. S. , 2. 36 , down by 5 basis points. German bunds, record lows. In the fx markets, money coming out of dollar and going into yen. Stronger yen, weaker dollar. Brent. Dollar yen, thats brent. 106, up by 0. 8 . 90 ions in Northern Iraq, of production is in the south of the country. Is this a kneejerk reaction or a story for down the road if we get more and more risks . Wouldhink mr. Abe like 106. My bad. He would love 106. Some people think you might get it. Thank you very much indeed, jon ferro locking us through market reactions is to geopolitical news. In 25 minutes time, surveillance. Tom keene joins us with a preview. Jonathan ferro did a wonderful day to check. It is very cross correlated. The news flow out of iraq. Andalked to ian bremmer aaron david miller. A conversation on the ramifications of this. Then over to the market, we bring you two wonderful guests. Sa from morgan stanley. Stocks, bonds, currencies, and commodities. We will talk with Jason Trennert on what not to do with your investments and your Financial Decisions given this geopolitical news flow. Much to think about, looking for to those conversations. M keene with surveillance lets stay in the u. S. , president obamas approval of airstrikes and iraq has crude prices climbing for a second day. What did this mean . How could it impact opec . Lets talk about this. Head of Commodities Research at us fromank joins frankfurt. Good morning. The move out and oil this in oil the move up this morning is catching headlines. How significant is the fact that we are seeing the geopolitical risk being priced in . Until a couple days ago, the on at did not truly react support side to the geopolitical risk. Starting from yesterday over the course of the last 24 hours, the prices are up two dollars. It seems even an immediate affect on the possible supplies in a very short to medium term. The market is trying to price that in already. And what isement going on right now in the north s iraq is taking putin escalation to a new level. Is putting this escalation on a new level and becoming more visible to the market. Geopolitical risks were already present. When i look at the dec contracts and the beginning of 2015. The market is taking a step the contact table but is not pricing in a significant steepening of the story. Were not going to see significant higher prices in december when it is color, etc. Do you think we have fully priced in at this point yet to do you think the market will be further out of the futures table and start pricing more. How do you think the conflict is going to change . Marketstioned the did not disseminate all the risk at the beginning of the year. The front end and not move, but the back end of the curve moved a lot. At the beginning of the year, the 20. 20 futures for brent were 15 lower at them now. That the market has already taken very seriously the possibility of less investment in russia and less investment in iraq. Those are necessary for an increase in production. I think the market is not really get pricing in other geopolitical tensions right now. I would not be surprised to see prices moving higher in the short term. How does the relationship between oil and gas work . How does gas reacts to all this . It did not react much. Those markets are not too related, with the exception of the gas contracts by gazprom or lng deliveries. In the future, the market development, the globalization it will be important to see whether those markets will be dependent on oil or not. At the moment, gas prices are still very relaxed, even here in europe. They do not react much to the sanctions and resanctions and trade were right now between russia and the eu and the rest of the world. Wouldnt be surprised to see european gas prices reacting to this. Gas prices in the u. S. Are likely to move higher under different reasons. Can i talk about the Product Market . Trying to work out if we were to see an overflight ban of russia and what that would mean for the european airlines. What does the jet fuel market look like right now . Demand forincrease jet fuel, how will that be factored into the thinking after how will they hedge it and play this one . The market is hoping this will not happen. There is likely to be a reaction to this, a reaction by russia. It was already announced the possibility of embargo for the russian flights to europe. I do not think it is a real risk at the moment. It was played down by the russian government as well. Jet fuel market is not trading much. Todays reaction by the airlines is more about the geopolitical risks and the overall high level of oil prices rather than those threats by russia. He will leave it there. Thank you. Joining us from commerzbank. A historic election begins this weekend in turkey. It happens on sunday. We will be live in istanbul with the details of what happens next for this country. And its president , Prime Minister a fairly blurred line at the moment. We will talk about that when we come back. Good morning, youre watching the pulse. Live from london. Lets turn to turkey. Repairing for president ial elections for the first time in turkeys history. For the first time in turkeys history, the people will vote on this position. OganPrime Minister recep erd is expected to win by a landslide. If you want an idea of look here. Mbitions, a group of trucks and building equipment make way for turkeys newest airplane. Airport. With the biggest airports in the world, 13 billion. One of three Major Projects planned by the turkish government for the countrys centenary celebrations in 2023. Part of Prime Minister erdogans grand plan for turkey to become a regional power. With the help of Infrastructure Projects, turkeys gdp accelerates. What was the case in the last 10 years and that will be the case in the next 10 years with the third airport, third bridge, crazy canal project. There will be many projects, more than 200 billion. Not everyone is happy. The villages here who must make way for the airport so they have been offered a price for their land below market value. No one would speak out on camera, saying they were afraid of repercussions. Gan has not always dealt with critics well. Last summer, may sound of was the future of gezi park met with water cannons. Try to silence only criticism by banning youtube and twitter. As voters go to the poll, we will see what the ambitions of him thewill give presidency and secure at least five more years in power. Bloomberg, istanbul. Lets talk to simin now from the stumble. What can we expect from the first round on sunday . Exciting times in turkey. It is the First Time Ever that the turkish people will vote for their president. Erdogan expected to win. If he does, he will push for a new constitution, that could boost the president s power. His comments have set off alarms among his opponents, who fear a more authoritarian system. Lets look at the other contenders. Academics. Nd ihsanoglu. Selahattin demirtas, who would have support of kurdish voters. , a runoffwins 50 will take place in two weeks time. What is the legacy and was the future . Power,ng his 11 years in turkey has seen rapid Economic Growth. Gdp has tripled. She government policy ha improved infrastructure and living standards. Inflation has fallen from double digits to single. This allowed many turks to buy their first homes using a new mortgage scheme. Although there is a vast improvement in the economy, deeprooted problems remain. The nation struggles with a high current account deficit, mostly due to its dependency on oil and gas imports. It is still wrestling with high inflation. It has never reached the governments target of 5 . Currently about 9 . Demokan joining us from the stumble. Lets get more insight. Of emerging market bond and high yield at Pioneer Investment trends us now for his take on the story. Might even do it in the first round this weekend in terms of making the transition from Prime Minister to president. Once he has done that, what are the primaries for mr. Erdogan . The First Priority is to make sure there is a continuation of his policies. The main question is who is going to become the next Prime Minister or the next head of the party. The big question would be for his party. Dify people expect him to shift power to the executive branch. Does the economic theme stay the same . We expect my changes to Economic Policy. Babacan is expected to step down. The main question is whether president gul will remain. If there were to be a rival, what would implications of that they . We have a creation of toisions and come position erdogan. You mentioned a landslide is expected, he is undoubtedly the most popular politician at the moment. There, weve really is will see a potential erosion of his policies. Thepotential of stoppage to deterioration of the institutional fabric that investors see in turkey. What about the relationship with the central bank . Difficult already. Does that remain as is . Desire by the the government to influence centralbank policy and Interest Rates. Our scenario is the relationship will remain uneasy. The question mark here is if the central bank steps down at some point, there has been speculations about that. The relationship will remain uneasy because we will still continue to see erdogan calling the shots, no matter what configuration at the top. There were aspirations for turkey to become an energy hub. The region hasn changed. Is that still a viable option . How can the president make it a more viable option . And over what time i do we think we should be looking at. Turkey has a lot. At the moment, the aspirations and strategy of turkey have been to become the energy hub, basically a still growing basically, for energy. That will be enforced with the situation around russia. Turkey will regain its geopolitical power in that sense. Spend willtructure continue driving the economy. So we do not see any change in that. Positive demographics allows us to believe turkey will continue to grow. How is he going to manage the situation in Northern Iraq, syria, all those are relevant to the desire to become an energy hub. Plays a part in this story, a very destabilized region. How is he going to impose himself on that situation . It is a long game erdogan has chosen to stabilize the situation with regards to the kurds. He has been building a reasonably Good Relationship now with barzani. , he hast respective achieved a lot. He will continue to try to stabilize that from that perspective. Turkey has benefited a lot from this uncertainty to an extent. Uncertainty in iran, turkey has managed to create goal for oil swaps. , turkeynty in iraq has built relationships not with baghdad but actually with barza ni to get oil flowing to turkey. Turkey will continue to benefit. The syria is a lot more serious. To be a fullhosen of assad. I do not see that changing anytime soon. He has taken turkey to the 10 hrough more of her through more authoritarian extremes when it comes to democracy. Etc. Would be examples of that. An issueink turkey has with Financial Markets and fdi . Investors may apply that discount. In the environment of searching benefited, turkey has tremendously. That may change with time. If that changes, it stands on monetary policy. Investors already have started to discount the situation. We saw a last year. Turkey remains vulnerable from that perspective. The discount could be easily applied. Not just because of erdogan, but because of all the misgivings about the institutional framework in turkey. About the chronic deficit of current accounts. Turkey remains to be vulnerable from that perspective. Thank you for the analysis, joining us from geithner investments. We will take a break and be back in a couple minutes. Welcome back, you are watching the pulse. A quick update on what is happening in the currency markets. The euro spiking on the five day chart. Yesterday,o draghi did not do much, the currency dropped a little bit during his press conference. This morning with geopolitical tension, we have seen the dollar down. Back at the oil prices, rising a little bit. Up significantly over the next few days in oil prices. Nevertheless, as you can see, the europe and a fitting from that. Not necessarily what we want to see from the ecb. Congratulations to jo alice shields. Surveillance is next. Markets seized up. Airunited states considers strikes the Islamic State. And in may sell in may go away. A very cool south korea. What can we learn from the people of korea . This is bloomberg surveillance. It is friday, august 8. I am tom keene. Joining me, scarlet fu. Us thisgreeley joins morning. Adam johnson is on assignment. To talk about. T global stocks falling, bonds rising. That sent german yields to a record low. Over to the u. K. , home prices rose to a record. Sales reaching a sevenyear high. In china, the trade surplus jumping to a record thanks to export growth. In the u. S. , it is a fairly light today. Unit labor costs at 8 30 a. M