Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20180110

BLOOMBERG Bloomberg Daybreak Europe January 10, 2018

Anna very good morning. 6 00 here in london. 7 00 if you are joining from paris or berlin. Not a lot of movement in the bull market. 2018 a seen so far in surge in risk assets. Morgan stanley talks about euphoria. Others talk about a melt in equity markets. Equity markets in asia in the wake of the bull markets, msci asiapacific down. Perhaps taking a breather. Speed anddo with the pace of that move. We will talk about that more as we go through the program. Lets talk about what is going on in currency markets. The yen is on the move. For ase currency is up second day. It was described by many strategists and economists as a small tweak to boj policy, not it not a change in their qe strategy. We do see a second day of moves for the japanese currency. Crude oil up. Of thellows a strong set moves for energy markets. We see 2. 5 gains. This all comes on the back of u. S. Industry data which signals that crude straps and dropped for an eight week. That may be the biggest decline since 1999. That will be worth watching. A big move in commodity markets. There is a wonderful line, gnome mr. Bond, i expect you to die. No, mr. Bond, i expect you to die. 27 a share, out there buying up. I talked to you about mr. Bond, i expect you to die. That could be the euphemism. Mr. Bond emerges from the clouds, and the smoke on ruffles. What this chart is asking you, they are nervous, they are twitchy, they are even paranoid, bond traders that is. Three markets telling you three stories. The bond market, equity market, and fx market. 255 is where we went on the yields. The bond market is bear. The curve steepened. This is incredibly important. The steepest move in over a year. Huge amount of supply. This move in the bond market is going to work supply from the u. S. , the u. K. , and japan. Year, he called the death of the bond market, and set a break of 3 . He believes the market can push higher to 2. 6 . Will starthaps what hurting the equity markets. Three markets, three very different stories, higher yields. The fx is becoming a bit stronger. Anna we will see how long the equities keep pushing and fundamentally what it means for the u. S. Economy, and the global economy. Chief economist will join us later on the program. A. M. In london. On the u. K. Up retail story. We have had contrasting story reports. Next hour we will speak to the cfo, kevin obyrne. More about that in the next hour. Lets go to the bloomberg first word update. With Juliette Saly. Juliette in the u. S. , the children of undocumented immigrants facing deportation from the country have won a court order temporarily blocking the trump administrations position of ending the dream program in march. I judge rejected the arguments that the courts dont have the authority to secondguess whether the president and properly decided to terminate the program started by barack obama. Former white house chief strategist steve bannon has left his job as chief executive of breitbart news. He also will no longer host a radio show on sirius xm. Lost his support of republican megadonors and his closest patrons after trump spoke with them by phone. The European Union risks opening the door to another Global Financial crisis if it refuses to give londons bankers a trade deal. Article for a german newspaper, they said they want eu andooperation between u. K. Regulators as part of an expensive trade deal. Warning thates are price increases are ahead, according to a survey by the british chambers of commerce. 37 of firms are expecting to raise prices in the next three months, the highest since 2008. U. K. Inflation accelerated to field by the pound slide since the brexit vote. South korean president has vowed never to accept north Koreas Nuclear program. It comes after delegations from the two sides met facetoface, and disagreed when the south proposed talks on denuclearization. I do not desire the immediate reunification of the koreas. It is my goal during my term to resolve north Korean Nuclear issues and reestablish peace. The nuclearization of the Korean Peninsula is the process of peace. We can never concede regarding denuclearization, which was agreed to and at south north joint declaration. The Development Lender raised its estimates of Global Economic growth to 3. 1 , up by two Percentage Points from its june estimate. It said the World Economy expanded 3 last year, each would be the fastest pace since 2011. Global news 24 hours a day powered by 2700 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. A little pullback from asian equities, which have been on a strong rally. The first block we are seeing in seven sessions, the nikkei down by hong kongs market up. The longest winning streak on the hang seng index on record going back to 1964. Having a look at some of the stocks we been watching, it is a story of these chip makers coming under pressure. A lot of movement coming through in the korean shipbuilders. They could benefit from a push by the south korean government. Great wall motor in hong kong disappointing with some of its earnings. Its share price is down by 6. 5 in the latter part of the hong kong session. Thank you Juliette Saly in singapore. We have breaking news. This is in scandinavia. Deal ingot a scandinavia. Comhen is a holding company. Digital television, broadband, and the like. Consolidation coming through there. The market cap at the close of not an enormous business. Manus shareholders are getting a 16 premium after that last 30 days trading according to the valuation you just gave us, agreeing to combine the premiums. Premiums, bondt traders are a bit nervous. The bond bear market, after the 2. 5 since theop First Time Since march. U. S. Stocks saw six days of gains closing at another record high. As asset markets price in this longer term lower interest rate, that is partly what is explaining the higher asset prices, because theyre discounted at a lower rate as cash flows. There is optimism about Global Economic growth. There is a warning that the s p 500 will have a negative return in 2018. Joining us is fx strategist, good morning to you cant. Good morning to you, kit. Your talents stretched far and wide. In your universe, what significance is this move . It seems to have many people scratching their heads, and asking when does the equity market party fade . Yields have moved higher. If you look at the last 12 months range, we have not broken out of that. Im not good enough to draw the lines, bear market here. This is a move higher than a range we have been stuck in. It is only interesting if we intinue to see what the fx will call a bear market at 3 if you like. Lets put it another way. Yearal yield on 10 inflation securities above 1 would mean something. That is what we have not done. Until then cancel yes this is a difficult year that we will move to the point this huge amount of bond buying from the worlds Central Banks goes into reverse when the feds Balance Sheet shrinks. The ecb Balance Sheet is growing more slowly. Some point, when it stops we will have to look at a price the bond market and the cut price everything off of that. Implicit and what we have looked at in the last 24 hours, a movement by the bank of japan, is it al movement signal . Is it a sign . Did we over interpret it . Past fourfor the weeks is saying get ready for inflation going into the new year. Was it an excuse to sell the bond market . Kit yes, if inflation is our what cpi does see on friday in the states, and get some of that. I read a note yesterday saying that thecoincidence bond market moves higher as soon as chinese authorities start resisting further currency strength. That is what happened over the weekend. The japanese have a yield target. The yield target, you have a commitment to buy so many bonds. None of those are targets, if you have not changed your yield target, it seems to me irrelevant. The big move in japan, if they say, instead of wanting 10 year yields to zero to 1 , but they like 10 year yields at 25 basis points, it will trade 30 seconds later and we will see what happens to global bond markets. I would downplay the japanese move, despite it is making more moves. ,hat we are doing is exploring ok, policy is moving into reverse. Anna they dont describe as departing from their strategy. 7 anythin kit anything i take from the japanese move, we are hypersensitive to anything the japanese does, or the fed does. Districting of ballast sheets is not Balance Sheet is not priced in. How do you want to play the fact that central bank contraction is not fully priced in . Kit to that extent, that will hurt everything. It is not about inflation. It is one of three things. One, there is going to be inflation which will be a game changer in a meaningful way. We havent figured out where to price real yields. That qe had nome impact on financial assets, so it is dangerous to suggest that reversing qe will have no effect. I get that. The third is, are we going to change our minds about, as far as im concerned i am hearing nothing to suggest peeking hedge case,is 2. 5 , in which and i will build a yield curve off of that, and it will build a view of the Foreign Exchange market off of that. You. Thank too muchization proved for pyongyang. We are live in seoul next. Manus matt miller is on the ground. With the conversation you dont want to miss on bloomberg. It is 6 20 in london. It lets get to Juliette Saly. Cutting 7000 jobs in italy, or 14 of its workforce. According to people familiar with the matter, the company has started discussions with unions to reduce labor costs while remaining in compliance with italian law. The monopoly would be in favor of reducing headcount with about 4000 early retirements and 3000 voluntary eye outs over three years. A spokesman for Telecom Italia declined to comment. The Company Recently talked to 21st century fox about acquiring its film and tv assets, but eventually lost out to disney. He spoke to bloomberg in las vegas. Is to now, the strategy shore up our Motion Picture business, and then make sure any of the deals we may concern in the future, we are in the , and not in a situation where we have to give up control. Juliette that is your Bloomberg Business flash. Anna , and not in a situation where we have to give up thank you, juliette. Present then south korean president has bowed never to accept north koreas denuclearization. They disagreed when the south post talks on denuclearization. I do not desire the immediate reunification of the koreas. It is my goal during my term to resolve Korean Nuclear issues and establish peace. Denuclearization of the Korean Peninsula is part of the process toward peace. It is our basic stance that we can never concede to nondenuclearization. There is a bit of wrangling from pyongyang in terms of being too pushy to talk about denuclearization. That is right. Since theways known president took over in last may that he favored dialogue. The full onant sanctions tactic like the United States and un security council. To engage as fellow koreans. It is interesting because obviously the allies, United States and japan, appeared if you allowed them to talk directly, it could drive a wedge and japanouth korea and the United States. They talked about that issues today, denuclearization, they are not separate issues. He is saying to the south korean people, we need this dialogue, the week must insist on denuclearization. That was the overriding theme in his comments to the press in this new years address. They cannot accept north korea as a Nuclear State and must push for denuclearization. Manus thank you very much. The chief fx strategist, Societe Generale. In terms of sport, doesnt set the stage take a look at this the global risk aversion seems to be saying in the markets, that we have overestimated the risk. Are you optimistic . I am optimistic about some of the economics. I do not think the geopolitical risk environment has changed very much in the sense that it makes headlines. I think, what does this tell me . It tells me that markets see more balance, Global Growth, smaller in balances smaller imblaalances. At the end of the day, that plus lower Interest Rates everywhere says the people, i am going to stop worrying about north korea. Im going to get back to my business of buying equities, buying corporate bonds, and having a good time. Wea if we are doing that, are not worry much about whether we are going to get paid. Asia,hows indexes in europe, and u. S. At their lowest since 2007. The markets are not overly concerned. These are all the same type of thing, low volatility, credit risk. This guarantee from the fed that we are going to have an extraordinarily low peak level of Interest Rates in the worlds that underpins, everything. Back to yours world. If i am less concerned about north korea, less concerned about getting paid, what does that do to the euro . Kit and the dollar. None of them do as well as the ,orean won, or more excitingly money frozen and emergency markets. It has been flying into emergent markets emerging markets. Were not worried about what is happening. Without worried about what we were worried about last week. Into that you throw this one pond. Stone into the someone says there is a bear market in bonds, and that is the first ripple that will turn your chart around. ,nna thank you, kit juckes chief fx strategist, Societe Generale. Coming up we will speak Goldman Sachs and see what they have to say about the bond market. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Anna welcome back. This is bloomberg daybreak europe. 6 30 in london. The dollar against the yen is on the move. 112 point 38 is where we trade. Reaction to the bojs forecast. Qe a big departure from its strategy, we are told. We will see how that manifests in the markets. Heres nejra cehic. Nejra quite a lot of movement in the markets. S p 500 had its sixth day of gains. That optimism doesnt seem to have translated into asia. The msci asiapacific shilling a little softness. This is the picture. Weakness in australia, weakness in japan. The hang seng doing well. Sincengest winning streak 1969. Overall, a touch weaker in asia even though global stocks are near a record. The big focus for the markets is the 10year treasury yield. Hitose seven basis points, the highest since march. We are slightly higher today, 2. 56 . Bill gross has already said 2. 5 , now we are in a bear market. Guggenheim bear call is at 3 . A little bit higher than the yearend consensus call, 2. 92 . This is the core of where a lot of markets are going to go. Dollaryen, you just mentioned it. We are seeing a little bit of further reaction. What happened to the 10year treasury yield to some extent as well. Ask, is there some support coming through for dollaryen . Citigroup saying it could go either way from here. Finally, taking a look at oil. Nowe gone past 63 a barrel on wti after that api data showed u. S. Stockpiles dropping. We get the eia data later today. Manus thank you very much. Were going to get all these calls from the bulls and the birds in these bond markets. Matt miller is on the ground with Goldman Sachs. Hes joined by the banks chief economist. Maybe hes got the answer. Boom or bust in bonds . Are probablye we at different places in different regions. Thanks so much for your time this morning. Lets focus on what is going on in the u. S. You put out a forecast of 4 growth 2018. Largely due to the new tax package that has gotten through congress . That number refers to the global economy. As far as the u. S. , we are thinking 2. 7 for 2018. That is up about half a percentage point. Weve seen improvement at different rates. What are the drivers of growth in the u. S. I would say two things. One, this is partly a backward looking view, but i think it is still relevant, the change in the impulse from financial conditions. It took a while before the market has i just did has digested the increases. That has really swung. Weve gone from an impact of minus one percentage point to almost plus one percentage point. I think in 2018, given what has happened, how buoyant markets have been, we will continue to see positive impulses for the next few quarters. Second point is the one you mentioned, fiscal expansion, the tax reform bill, which we think is going to contribute to growth in 2018, 2019, probably not as powerful financial conditions, but we think 0. 3 . On top of that, probably some spending increases. Half a percentage point give or take seems like a reasonable estimate. You mentioned financial conditions in 2015. That was a time when the market was concerned the u. S. Economy may not be able to handle a 50 basis point benchmark rate at the fed. 2 , 2. 25 expecting from the fed. Does that hurt financial conditions . That is the point to some degree. The idea is you tighten financial conditions gradually in order to slow things down gradually. That is not normally how it is presented, but i think that is the point. So far, we havent seen any of that. Weve seen 125 basis points rate increases, but financial conditions are a lot easier. Over time, in 2018, 2019, i would expect some of that to reverse. Ideally it would reverse gradually. You dont want a sudden tightening of financial conditions. I think it is likely to go in that direction, primarily through the right channel at the shorter and the longer end. We expect some increases. 2018. E four

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