Transcripts For BLOOMBERG Bloomberg Surveillance 20180103 :

BLOOMBERG Bloomberg Surveillance January 3, 2018

Following the successful trading session in asia. Mifid ii, 15 minutes into the trading session, there was 25 less volume ban on the 30 day moving average. Looking at your dollardollar, unchanged. Tle bit at 2. 7 my 10 year yield . Well talk geopolitics and south and north korea talking. Coming up on bloomberg surveillance, we will be speaking to Lucy Macdonald, chief Investment Officer at lianzl equities and al global investors. Twe also discussed the new financial law. And Daniel Morris also joins us at 10 00 a. M. Lets get straight to the bloomberg first word news. Nejra u. S. President donald trump has responded to kim jong uns latest threat. Trumps remark on twitter came that kimw arne warned the u. S. The Nuclear Button is always on my desk. Earlier trump claimed his peonts to pressure th pyongyang were having a big impact. According to white house officials, trump met with Vice President mike pence and members of his National Security team to discuss the protests amid liberations already underway regarding opposing sanctions. An emergency session of the security council. Nikki haley it takes great bravery for the iranian people to use the power of their voice against their government, especially when their government has a long history of murdering its own people who dare to speak the truth. Nejra the eastern half of the u. S. Already seeing record low temperatures, might now get hit with a snow bomb. A storm will raise up americas east coast. Boston could see 11 inches. Manhattan could get three. Meanwhile, the United Kingdom is being battered by storm eleanor 80 milesth winds up to per hour and the risk of flooding. After 2 billion of clients ompliance costs, the biggest shakeup is finally here. Trading volumes slumped ahead of mifid ii coming into affect today. Bloomberg lp is now competing. Orrin hatch of utah will not seek an eighth term in 2018. He is the longestserving republican senator in u. S. Sena te district. The decision could open the way for a senate bid by mitt romney, two time president ial contender. Hes a republican elder statesman, who could challenge donald trump, who he has called a fraud. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im nejra cehic. This is bloomberg. Francine u. S. Equities have started the new year by hitting a record highs. Tech shares started the latest rally with the nasdaq closing above 7000 for the first time ever. Markets will have to contend with the rollout of mifid ii, the biggest shakeup in European Regulation in a decade. Is Lucy Macdonald and james barty. Happy new year. Lucy, when you look at mifid, volumes were down 25 in the first 15 minutes of the trading day. What does this tell you about how the market is trying to process mifid ii . Lucy theres a period of discovery over the next three months. Thats what we are doing. Systems are being brought in, which are new. We are all in that period of a fermentation and discovery. By march we should have a better idea on the research side. Francine james, if you look at the period of implementation, doesnt mean the next two to three months are going to be bumpy, or does it mean it is mo re difficult to position yourself . Jamees the process is still ongoing. We are in conversation with our clients, what they want to do. Over the next two to three months, it will all become clearer. Francine are you worried that it will not settle down as it was meant to . Lucy from the Research Point of view, i think it will. This will be fine, and we know how we are going to do it. But its certainly very different from the way everybody has worked before. As far as new channels of communication, it is different. It will take a little time to get used to. Francine when you look at the drivers for the market over the next couple of months we will talk about the u. S. , the ecb, the fomc and fed what do you think the big impetus is . Will it the earnings . Lucy the big factor for us is liquidity, and whether we can reach liquidity and what impact that has on markets. That has been the biggest driver financials since the crisis. At the end of the day, the valuations are not where they were. So, thats going to be the big question fo rus. And seeing how that plays out. Francine james . James i think the big difference last year for the previous years was we have got the big earnings coming through, which drove markets upwards last year. Yes, the valuations are where they are because of the valuations of other asset classes. One question i get from investors is, dont equity markets look at services . My answer is, against what . If you compare them to government bonds or credit, they do not look extensive. Its about the relationship between equities and the bond market. If we get the Earnings Growth driven by the strength of the Global Economy, equity markets will go up, provided we do not get any signs of inflation that cause bond yields to drop to radically. The way i am setting up my strategy is look, we are long equity markets, and that is where we have our risk. That we have short bonds against that because as long as short bond markets behave, then if we get a strike beyond that, thats the threat. Francine at some point, we will normalize, right . When is the normalization process going to begin . James i think we are starting the normalization process at the moment. We see u. S. 10 year treasury yields head up to 2. 5 head up to 2. 5 . Thats normalization after years were bond yields have been oppressed because people did not Larry Summers said we would not get there with the Global Economy. It appears we have gotten there now. Now the fed and other central things are moving away from thes Monetary Policy process. Away from this Monetary Policy process. It is tough to transition from qe to no qe to higher rates to tapering without causing a major problem. Clearly, its about central things going gradually. If Central Banks look what they are behind the curve, the market will get spooked. Francine the german bond seems ot be i dont know the word. Is there a danger that when the bond yield changes, the markets are not ready for it . Lucy i think the same thing applies everywhere. Equities look cheap against bonds, but expensive against history. They will be affected by the rise in bond yields. But i think the point made about inflation is the major risk. If theres more inflation in the system then we think and the Central Banks think, that could be a source of trouble. And lucy james barty macdonald stay with us. Plenty coming up, including more on the mifid ii shakeup. Are banks really ready . Later on the show, we talk commodities as they start 2018 in the positive territory with the bloomberg Commodity Index nearing high levels. We also focus on oil. This is bloomberg. Francine economics, finance, politics. This is bloomberg surveillance and im Francine Lacqua in london. Nejra the firm next has lifted the forecast profits. Slaes rose 1. 5 in the days through christmas eve, which beat analyst estimates for a 0. 5 decline. This is an upbeat signal for britains companies. Bitcoin has bounced back from the nearest decline. A person with knowledge, the san franciscobased firm has been purchasing small amounts of bitcoin, totaling no more than 20 million to establish a toehold. That is now said to be worth several hundred million dollars, but it has yet to return any games to investors. Alphabet google moved 59 billion euros to a Shell Company in 2016, saving the company in billions of dollars in taxes th at year. Profitsh to shield the from taxation. The setup involved shipping revenue from one irish subsidiary to a Dutch Company with no employees and then to a bermuda mailbox on by another island registered company. A mergeras abandoned with money grab after they failed to win Regulatory Approval in the u. S. Any deal would have been valued at 1. 2 billion. In u. S. Takeovers companies have prompted warnings. Ken griffins hedge fund could expend as it closes in on a deal. According to a person with knowledge of the matter, citadel has been in talks. And possibly neil chris himself. He announced he would close his firm after a series of failed credit and equity bets. Thats the Bloomberg Business flash. Francine the biggest shakeup of European Regulation in a decade is finally here. Banks and Asset Managers has been huge amounts of time and money preparing. Are they really ready . Theing us on the phone is vice chair of the European Parliament committee on economic and monetary affairs, the man who helped pass the mifid ii legislation into law. Thank you for joining us. Ii do you think the mifid start went . We decide all of the stuff in 2014. The proposal from the commission came in 2011. Being in 2018. To there was time enough for anybody to prepare and i am confident everything will go properly. Francine how big is the problem that there are still several countries that have not transferred mifid into International Law . If they have not done that, the european law automatically moves up to the clients out there. As we have done mifid, regulation is in every member state. Especially in the area of Consumer Protection. All citizensse, have rights according to the european legislation. Those Member States that have not brought things in place are protected as well. Francine sorry, a lot of Market Participants have been worried about it. Do you think there was too much panic about mifid ii . I think there was too much panic, but if you look to the core of mifid ii, its a huge regulation for regulated markets, even commodity markets. Weve made the presentation for highfrequency trading. Position limits to ban speculation. A lot of things. Everyone is concentrating on the Consumer Protection area. Hoenestly, when i was the person responsible to negotiate the legislation, when we fan of Product Development was driven not by the interest of the clients, thats what we changed. I think its right. The other thing. To make documentation on all the things you do, as a banker, distributor or salesman for the financial product, there are obligations we have, for other people as well, for other branches as well. It is only transferring what we have on other areas to the financial market. Francine how will you measure success . Do you measure it in three months, six months, or a year . [laughter] francine the idea of mifid ii was to avoid mifid iii. So, we will wait on the implementation reports by the end of this year. Then, i think we can make a serious valuation, but at the moment, nobody is thinking of mifid iii. Francine what will be different one year from now . Are there two or three priorities absolutely want to get right . Honestly, i dont see huge changes. I have some concerns, especially Smaller Banks. In the u. K. , banks give financial advice, but in the rest of europe, it is allowed. I bet Smaller Banks will leave this kind of market, but i dont see major changes. I think with mifid ii we have strengthened financial markets. Weve stabilized them and aerefore, they can create benefit for everybody who has a good approach and a good axis point for the financial product. In one year, i think we will see this is really functioning. Francine trading volume, i think in the first 15 minutes of trade was about 5 below the 30 day average at the start of trade. What does that tell us about the markets and how they are dealing with this . Ireland that is a link i dont think that is a link to mifid ii. I think that is more related to what is happening in iran, the oil cirrisis, whats happening with north korea. Its not mifid ii. Francine you dont think people want to wait to see how the first day pans out . No, i dont see any link to m ifid ii. Its creating an environment that is stable and functioning. We dont see flash crashes like in the New York Stock Exchange in 2011. This is stable running. I dont think investors are aborting the stock markets because of mifid. They are avoiding the stock markets because of the unclear political framework we see these days. Francine give me a sense of whether you think banks were too late to the game, whether they took too much time in implementing mifid ii. You told us this was a long time in preparation. I was a little bit surprised because original it was foreseen that mfid ii came into force in january of 2017. We organized a delay for one year, where everyone has a chance to prepare themselves. Therefore, i cant accept any complaints that there was not enough time to fix the system. I know some technical things had to be adjusted. As i was delivering late december, last explanation, how to solve that, we in the negotiation team, we really work hard until the end of december so everything could function properly. We stressed the commission to deliver some things in november and december, especially for systemic internalization. I think we have been everything, so everything can come into force today. Im happy this longtime legislation piece is now coming to an end and is on the market. Francine is there anything in mifid that allows regulators to deal with bitcoin . Or do we need new regulation . For bitcoin theres nothing toch has any link regulation. It. Ne is standbing behind g we have done on the International Level is to establish a group of experts that is following his cryptocurrencies, but mifid has no link to that. Francine do you regulate it . How would you regulate it, if you had to . And would you regulate it this year . Honestly, i dont see a need for these currencies, only if you do businesses in areas which are not in the legal area. Therefore, everyone should know these cryptocurrencies are unregulated agents. Therfore, its gambling and should be treated as gambling. Francine mr. Markus ferber, thanks so much, joining us on the phone from munich. Of course, for more on mifid ii, tune in to your bloomberg. , and in thego interest of full disclosure, we should they bloomberg lp competes to provide a range of services for folks complying with mifid ii rules. Still with us are james barty and Lucy Macdonald. We touched a bit on mifid. Lucy, first of all, that the regulators are certain they have been everything they can to make sure everyone was ready for it. There seems to be a sense in the market that on everyone is 100 ready. Is it a mistake, or just the way things go . Lucy i think thats right. Not everybody is ready. Clearly, theres been a lot to hundreds has taken of hours of organizational man hours. Not all companies have that luxury. Im not surprised that everybody is ready. I think what has taken longer was just making the decision about who would pay for the research and that took some time because it needed some traction with clients. I think that is a conversation that for some companies is still not done. Francine do you worry about it, in terms of unintended consequences . If we had to wait to see if it was a success, is there something that could skew the markets . James even before i joined merrill lynch, one issue about mifid ii is about, how much would it reduce the amount of Research Available to investors . Because by inches in this new system, what all investors are doing is, they are starting to reduce the number of providers of research, and talking to investors before the christmas break, they said some of the independent research we do currently, we cannot justify carrying that on. The intended consequence of this is reducing what they have to look at later on. How do you reduce research too much, so investors have a smaller pool of research. Francine i dont know whether it shows that there is a need for something, whether it is cryptocurrencies or Something Else outside the financial markets. Is just ar this speculation that does not show or translate a real demand. Lucy well, from our point of view, we are not investing in bitcoin. Well look at it when the client feel comfortable with it. We are fully on board with developing Blockchain Technology internally in the financial sector, which will benefit a lot. But the currencies are at the moment, i agree, they are more speculative until they become more regulated i think they will remain that way. Francine thank you, lucy and james. Both stay with us. Now, up next, the bigger Nuclear Button. Donald trump responds to kim jong uns latest threats. Geo politics. You can hear both sides. Some say mifid is pushing volumes lower. We just heard from one of the law people. And he said not so. Economics, finance, and politics. This is bloomberg surveillance. Lets get straight to the bloomberg first word news. Nejra the u. K. S International trade secretary has said hes looking at all options amid reports that britain is exploring membership of the tpp. Liam fox made the comments to bloomberg during a trip to china. The eastern half of the u. S. Already seeing record low temperatures may now get hit with a snow mom. Snow bomb. Boston may see much as 11 inches. The United Kingdom is being battered by storm eleanor today with some area seeing wins up to 80 miles per hour. In europe, after seven years of preparation, 2 billion, and one false start, the biggest shakeup to regulation of the financial industry in a decade is here. Ahead ofolumes slumped mifid ii coming into effect today. Bloomberg lp competes to provide a range of services for firms complying with mif

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