Transcripts For BLOOMBERG Bloomberg Markets European Open 20

BLOOMBERG Bloomberg Markets European Open February 20, 2018

25 . That is not the big number. It is boosting its dividend by a whopping 38 . The market wanted more. It is a big week for a bonds as treasuries reopen. Will investors drive the 10 year through 3 . Good morning. Lets talk about these markets and get into the details of what you need to know. The fair value london fairly flat. Interesting to see how hsbc opens. It will be interesting to see how bhp opens. Bhp really flat. Hsbc trading lower. That is the picture. That is the set up into europe. Lets take a look that dmx talk about asian trade is going. Hong kong dominated by what happened with hsbc. Korea, indonesia trading softer. Europe generally a little bit softer. The dollar is trading higher. That is something to Pay Attention to. This is what some of the asian currencies are doing right now. Interesting. Is iron ore is where the weakness lay in the numbers. Copper is well bid. You got some of the Agricultural Prices coming back. They have been on a great run. We are going to talk with mark cudmore shortly. Lets talk about the treasury market. He comes back. The story is going to be about supply. We are stopping at the front end of the curve. What will demand look like . What will pricing look like . Will we see that 10 year moving towards 3 . Today in europe, a big day for earnings. Intercontinental hotels group is looking to acquire small luxury brands. Iag said no Additional Capital return will be paid this year. Join us now is keith barr. Joining us now is keith barr. You have been in the business for 12 percent of months. You happy with the business is going . Keith i am happy. A strong set of results for last year. 2. 7 globally. The number of hotel rooms we opened around the world is up 4 , our best results since 2009. Underlying profits up 8 . Able to increase our dividend so really strong set of results. Today we announced a number of initiatives to build on those results, to take existing brands into new markets. Continue to invest in technology and retain our commitment. Guy china is growing pretty quickly. How quickly will grow in the future . Keith i was fortunate to live in shanghai and that market goes from strength to strength as it moves from a manufacturing market and focusing on resources and consumption. Were opening up a significant number of hotels. You are really seeing that market stabilize, grow and strengthen. We are encouraged about the longterm by you of the market there. The u. S. , we saw a really strong fourthquarter and we launched a new brand which they already have 75 hotel brandings. We have already Broken Ground to open our first one and looking to launch new brands around the world. Hopefully this year youll watch us launch an upscale conversion brand. Guy just to circle back to china, you got 300 hotels now. How many will there be in two years time . I want to put that into terms that we can understand. Hotels, 300. Is that double in two years time . Give me a sense. Keith to give you a sense of how the business has scaled up over time. I was there 10 years ago, we had 100 hotels. Five is ago, we had 200 hotels just five years ago, we had 200 hotels. Youched our holiday will see that market continued to accelerate and grow. U. S. Lets talk about the you have talked about the u. S. Backstory the past as being able for the business. What does that mean . Keith the u. S. Tax reform announced back in december will have an impact for us lowering our tax rate to lower 20 . That is more cash to be able to invest back into the business. Growing businesses organically by launching new brands is how you create shareholder value. Over the last 14 years we returned 13 billion to our shareholders. By launching new brands, we continued to accelerate our existing brands. Guy one of your biggest competitors is heading down a similar path. We are going to be seeing that process pushed on a little further shortly. In the competitive landscape, how that change . Keith my view of the industry is the big Hotel Companies are going to get bigger and bigger and take more share in this industry. We are wellpositioned to do that. Bein, what is going to challenging for the smaller Hotel Companies is their ability to invest in technology. Launching a cloudbased Technology Platform this year. Small companies can afford to do that and make the investment in digital. You will see more consolidation happen across industry. A Small Companies mechanize it is hard for them Small Companies recognize it is hard for them to compete. Guy the meat to your movement and how income equality is affecting different industries. How do you think those issues are going to affect the Hotel Industry . Diversity fundamental and how we have great Corporate Cultures is what determines makem sustainable sure we are place that is appealing to work at. I am proud of the fact we have one of the most diverse boards on the ftse. We have significant diversity across our senior management. It is something that is what we are and what we do. Every company has to be more and more focused on it. Boardou talk about the and diversify the board level, that is one end of the spectrum. Does that reach down into the people that are cleaning rooms, cleaning halls that are making sure the mechanics of the hotel operate in the way that it should. Keith you have to be equal work for equal pay across our businesses. How do you promote diversity question mark diversity is not ethnicity andt is graphics. Were focused to doing that. When you look at our senior executives, we have a high level of diversity and that continues to increase yearoveryear. Guy sexualharassment issue . Keith an industry with hundreds of thousands of hotel rooms around the world, something that is going to happen in different places, we are very fortunate to have very strong policies in terms of zero policy zerotolerance. Make sure they understand the training and of element. It is something that happens is so many industries. We have to lead from the front and top. You have to set an example is the chief executive that you do not tolerate this and you make sure you create an environment that people are confident they can report. Guy thank you france and the questions it keith barr, thank you very much. Here is the bloomberg first word news with ed ludlow. Ed u. K. Government is having plans to hold billions of pounds in brexit payment if the eu doesnt give the country the trade deal it wants. It is not the preferred option, many believe it could be necessary if the eu tries to renege on a future deal. In a speech lives today, david davis will reassure the European Union that u. K. Will not try to undercut the bloc by tearing up regulations after the separation. Angela merkel has sent a signal about a preferred successor as german chancellor by appointing a close ally. Have calledhe right for more conservative policies as a way to win back voters. The unexcited move is a signal that merkel tends to keep the cdu and germanys political center. Donald trump has endorsed mitt romney for u. S. Senate seat in utah. The move sets aside as theanding differences gop looks to preserve its narrow majority in the chamber. Romney announced on friday that for the seat left open by orrin hatch. From returning to his post after he was caught up in a bribery probe that rocked the baltic nation. Suspension that she faces suspension from his job. Rejects the allegation in sisi lance to hold a News Conference later today. The head of opec says the rebalancing of the oil market is gaining traction. The uaes minister says the cartel, russia and other producers looking at ways to continue he says he does not want to return the market the downtime expensed between 2014 and 2016. Downtime experienced between 2014 and 2016. Global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. This is bloomberg. Guy with 250 billion of options this week are they looking to ignore . We will discuss that story next. This is bloomberg. Guy 15 minutes until the start of european trading. The focus is what is happening with the bond market. 10 year treasury yields still hovering at 2. 9 . Could be heading higher. That u. S. Cpi be, still fresh and investors minds. The big story is issuance. Through inns coming the next three days. The question is, at what price is that going to go out the door at . Will we go north of 3 . Joining us, mark cudmore. Still with us, bob janjuah. Mr. Cudmore, let me start with you. Which way are yields going this week . And willhink the long top out this weekend and come lower. I should give this disclaimer i said that two weeks ago. It was a multiweek high in here we are, higher again. The curve will continue to flatten. It is as if the market has just billion of 258 supply. We might see 10year yields come lower. Inflation is not taken off enough yet. It is also looking good against the s p yields. We will put in a multiweek high this week. I was wrong to weeks ago. Guy the cognac is important. We have a chart the caveat is important. Hat is a range we have been in the beginning of 2018 come the real yield story popping a little bit higher. Bob, at one point do these yields start to become attractive . What does that do . Bob we are getting there. My sense is it is in the 3 area. That is an overshooting level. I think that is probably where investors switch out of equities into bonds. I think for equities, unless the earnings story turns is for, when all of it is priced in at around 3. 25 , equities looking very expensive. Guy mark, what will it take to get 3 . What will it take for the market to buy the 10year to sell the 10 year . Mark it is not very far away. It is come to a level in the market where people are going to try and pick the bond and treasuries. We will get nervous if we spike a few basis points. Everyone knows the market wants to go to 3 . It is very hard. We are seeing food prices move higher it we could see a spike in oil. All you need is equities to boot higher for whatever reason. That might be enough to get a little momentum. Were only nine basis points away. Doesnt like the market has been focusing there for too long. All the dynamics are starting to shift. The auctions will be what everyone is watching. Guy do you focus on the story . Agricultural prices have been going south. Where have this strength divergence that is kept the basket down. If what we are hearing from the metals and bhp earlier that the demand is going to remain strong. If the agricultural story turns, that could shift the basket. How big of a story are we mark if the agricultural story turns, it would be massive. Food Price Inflation is important for cpi inflation in asia. , we havetion in asia seen that with china. What has happened, why inflation continues to disappoint is that food prices have continued to come lower. That happened in over the last year. What we are seeing this week is a lot of food prices starting to bank. Businesses are not getting the upside. The latest is the drought in argentina. We are seeing corn prices bounce 7 . We are seeing sugar up 7 . We are seeing livestock prices go up to a twoyear high. They feed the commodity price index of the effect consumer Price Inflation basket. They are the worst kind of inflation. There is no gain for any company on the spectrum. It squeezes consumer purchasing power. But if it iss off the start of something new, it is bad for bonds in equities. Guy mark, great stuff. You can follow mark and the rest of the team on your bloomberg. Bob janjuah, he is a senior independent advisor at nomura. He is going to stick around. We are minutes away from rocket open. From market open. Bhp trading flat down in australia. Investors, do they want more . This is bloomberg. The market open, nine minutes away. The Fourth Quarter from our perspective and the industries was a little bit weaker with respect to global rank and market revenues particularly in the ficc space. Coleman with some of our peer group, we had a couple of collisions for corporate exposures in the Fourth Quarters. Guy Carillion Health receives the latest reporting on those two elements the ian mckay speaking to bloomberg. The stock trading lower. The Conference Call has just started. If you want to follow that, theres a special live blog running in a Conference Call. We are now six minutes away from the start of european trading. Joining us now, it is be trading down in asia. As you mentioned it is trading down in asia which is one of the stocks we already know what it is going to do. A note from goldman sachs, theyre saying the pretext is about an 8 miss and morgan. Tanley saying it is a 6 miss we are looking for the possibility of a Share Buyback which we didnt get. Disappointment on a few fronts. Guy it is a sequencing issue because theyre going to change some of their capital structures. Bhp as well. Joe they have got the Dividend Announcement today which is a positive. Markets looking at the earnings and saying it is a miss and they traded lower a bit in australia. As you said, return in capital to shareholders but market wants more from the earnings. Not looking 100 great. Guy iron ore an issue. Joe podesta Financial Technology Company Provides Trading Technology and they had a good earnings run yesterday but the share rallied about 12 . There was a huge rise for the shares. Today, theres been this merger announcement. As you say, it looks like somebody may be new something before it happened. Share rose 12 yesterday. Guy thank you very much indeed. ,o on your bloomberg is to say we will be speaking to the covestro ceo shortly. We will get his take on what is happening in the plastics market. Looking forward to the conversation. Go on your bloomberg and pull all the stocks you need this morning. Four minutes to go into the start of european trading. Looks likely just looks like a flat opening. Looks like a flat opening. 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. We use so why do we pay touters thave a phone connected. When were already paying for internet . Shouldnt it all just be one thing . Thats why Xfinity Mobile comes with your internet. You can get 5 lines of talk and text included at no extra cost. So all you pay for is data. Choose by the gig or unlimited. And now, get a 200 prepaid card when you buy an iphone. Its a new kind of network designed to save you money. Call, visit, or go to xfnitymobile. Com. What do you need to know it in advance of the start of european trade . Theu. S. Returns from president s day holiday, the eurodollar trading. The nikkei was down overnight. I want to mention what is happening in the commodities space. 65. 63. Trading at u. S. Is going to return later today with the supply story. Lets show you what the screen is telling us about the fair values. It is a mixed picture for europe. London is positive. Cac is just negative, the next is just positive the dax is just positive. At the moment the u. S. Is pointed towards a negative start. Lets show you what is going on with this European Market open. Banksig miners and big certainly going to be setting the pace. The ftse is up a touch. 0. 2 . E up by around other European Markets may be mixed. Ibexurious to see how that comes out at the start of trade. Orly has been the outperform during this outperformer during this whole phase. Is hsbc right there doing some damage to these markets. Everything else looks reasonably ok. The materials are going red over here. Up, that are softening is the bhp story. That is hsbc softening up, materials are softening up a little bit as well. A little bit of weakness in the consumerre and sectors. Lets go back to the monitor and talk about what is happening. Up, the ftse is now turning negative as hsbc and bhp open up. We knew from asia that this was going to be the trade. Bhp is down as you can see. , we look at these first. Astrazeneca is trading up. I am actually more interested in the other and of the market other end of the market. Lets show you where we are. Hsbc softening up, as you can see, pretty much in line with what we saw out in asia. Remember asia gap lower, and then came back. Those two heavyweights is where the story is coming through. Stuart gullivers sevenyear c coming to an end. It ended with a rare failure to live up to expectations. He will be replaced tomorrow morning. To the Group Finance director about the numbers. We have always taken a somewhat conservative stance when dealing with troublesome credit. We believe largely in the Fourth Quarter of the year. Expect to go into 2018 with a fairly clean slate. Analysts expected another buyback today. 12 13 . Et is why did you decide that today is not the date to do another buyback. Youre absolutely right. Well above the top and that we have targeted end that we have targeted. We are targeting some alternative tier one in the first half tier one issuance in the first half of the year. The first have tens to attract more interest in the instrument as well as better pricing overall. There is a regulation with respect to some of our listing authorities that you cannot do buybacks and capital instruments at the same time. Our perspective about how we manage our capital has not changed. Buybacks are still very much a part of the toolkit. We want to get alternative tier one instruments into the marketplace during the first half of this year. Guy that was hsbcs finance director. Where to talk more in detail we are going to talk more in detail about hsbc. Why was the miss . Why did the markets disappoint . They missed on both revenue and profit. It seems largely driven by 2 things, poured trading poor 2ading, but also it took rather large losses on stocks linked to steinhoff and carillion. Those kind of ruined Pay Attention<\/a> to. This is what some of the asian currencies are doing right now. Interesting. Is iron ore is where the weakness lay in the numbers. Copper is well bid. You got some of the Agricultural Prices<\/a> coming back. They have been on a great run. We are going to talk with mark cudmore shortly. Lets talk about the treasury market. He comes back. The story is going to be about supply. We are stopping at the front end of the curve. What will demand look like . What will pricing look like . Will we see that 10 year moving towards 3 . Today in europe, a big day for earnings. Intercontinental hotels group is looking to acquire small luxury brands. Iag said no Additional Capital<\/a> return will be paid this year. Join us now is keith barr. Joining us now is keith barr. You have been in the business for 12 percent of months. You happy with the business is going . Keith i am happy. A strong set of results for last year. 2. 7 globally. The number of hotel rooms we opened around the world is up 4 , our best results since 2009. Underlying profits up 8 . Able to increase our dividend so really strong set of results. Today we announced a number of initiatives to build on those results, to take existing brands into new markets. Continue to invest in technology and retain our commitment. Guy china is growing pretty quickly. How quickly will grow in the future . Keith i was fortunate to live in shanghai and that market goes from strength to strength as it moves from a manufacturing market and focusing on resources and consumption. Were opening up a significant number of hotels. You are really seeing that market stabilize, grow and strengthen. We are encouraged about the longterm by you of the market there. The u. S. , we saw a really strong fourthquarter and we launched a new brand which they already have 75 hotel brandings. We have already Broken Ground<\/a> to open our first one and looking to launch new brands around the world. Hopefully this year youll watch us launch an upscale conversion brand. Guy just to circle back to china, you got 300 hotels now. How many will there be in two years time . I want to put that into terms that we can understand. Hotels, 300. Is that double in two years time . Give me a sense. Keith to give you a sense of how the business has scaled up over time. I was there 10 years ago, we had 100 hotels. Five is ago, we had 200 hotels just five years ago, we had 200 hotels. Youched our holiday will see that market continued to accelerate and grow. U. S. Lets talk about the you have talked about the u. S. Backstory the past as being able for the business. What does that mean . Keith the u. S. Tax reform announced back in december will have an impact for us lowering our tax rate to lower 20 . That is more cash to be able to invest back into the business. Growing businesses organically by launching new brands is how you create shareholder value. Over the last 14 years we returned 13 billion to our shareholders. By launching new brands, we continued to accelerate our existing brands. Guy one of your biggest competitors is heading down a similar path. We are going to be seeing that process pushed on a little further shortly. In the competitive landscape, how that change . Keith my view of the industry is the big Hotel Companies<\/a> are going to get bigger and bigger and take more share in this industry. We are wellpositioned to do that. Bein, what is going to challenging for the smaller Hotel Companies<\/a> is their ability to invest in technology. Launching a cloudbased Technology Platform<\/a> this year. Small companies can afford to do that and make the investment in digital. You will see more consolidation happen across industry. A Small Companies<\/a> mechanize it is hard for them Small Companies<\/a> recognize it is hard for them to compete. Guy the meat to your movement and how income equality is affecting different industries. How do you think those issues are going to affect the Hotel Industry<\/a> . Diversity fundamental and how we have great Corporate Cultures<\/a> is what determines makem sustainable sure we are place that is appealing to work at. I am proud of the fact we have one of the most diverse boards on the ftse. We have significant diversity across our senior management. It is something that is what we are and what we do. Every company has to be more and more focused on it. Boardou talk about the and diversify the board level, that is one end of the spectrum. Does that reach down into the people that are cleaning rooms, cleaning halls that are making sure the mechanics of the hotel operate in the way that it should. Keith you have to be equal work for equal pay across our businesses. How do you promote diversity question mark diversity is not ethnicity andt is graphics. Were focused to doing that. When you look at our senior executives, we have a high level of diversity and that continues to increase yearoveryear. Guy sexualharassment issue . Keith an industry with hundreds of thousands of hotel rooms around the world, something that is going to happen in different places, we are very fortunate to have very strong policies in terms of zero policy zerotolerance. Make sure they understand the training and of element. It is something that happens is so many industries. We have to lead from the front and top. You have to set an example is the chief executive that you do not tolerate this and you make sure you create an environment that people are confident they can report. Guy thank you france and the questions it keith barr, thank you very much. Here is the bloomberg first word news with ed ludlow. Ed u. K. Government is having plans to hold billions of pounds in brexit payment if the eu doesnt give the country the trade deal it wants. It is not the preferred option, many believe it could be necessary if the eu tries to renege on a future deal. In a speech lives today, david davis will reassure the European Union<\/a> that u. K. Will not try to undercut the bloc by tearing up regulations after the separation. Angela merkel has sent a signal about a preferred successor as german chancellor by appointing a close ally. Have calledhe right for more conservative policies as a way to win back voters. The unexcited move is a signal that merkel tends to keep the cdu and germanys political center. Donald trump has endorsed mitt romney for u. S. Senate seat in utah. The move sets aside as theanding differences gop looks to preserve its narrow majority in the chamber. Romney announced on friday that for the seat left open by orrin hatch. From returning to his post after he was caught up in a bribery probe that rocked the baltic nation. Suspension that she faces suspension from his job. Rejects the allegation in sisi lance to hold a News Conference<\/a> later today. The head of opec says the rebalancing of the oil market is gaining traction. The uaes minister says the cartel, russia and other producers looking at ways to continue he says he does not want to return the market the downtime expensed between 2014 and 2016. Downtime experienced between 2014 and 2016. Global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. This is bloomberg. Guy with 250 billion of options this week are they looking to ignore . We will discuss that story next. This is bloomberg. Guy 15 minutes until the start of european trading. The focus is what is happening with the bond market. 10 year treasury yields still hovering at 2. 9 . Could be heading higher. That u. S. Cpi be, still fresh and investors minds. The big story is issuance. Through inns coming the next three days. The question is, at what price is that going to go out the door at . Will we go north of 3 . Joining us, mark cudmore. Still with us, bob janjuah. Mr. Cudmore, let me start with you. Which way are yields going this week . And willhink the long top out this weekend and come lower. I should give this disclaimer i said that two weeks ago. It was a multiweek high in here we are, higher again. The curve will continue to flatten. It is as if the market has just billion of 258 supply. We might see 10year yields come lower. Inflation is not taken off enough yet. It is also looking good against the s p yields. We will put in a multiweek high this week. I was wrong to weeks ago. Guy the cognac is important. We have a chart the caveat is important. Hat is a range we have been in the beginning of 2018 come the real yield story popping a little bit higher. Bob, at one point do these yields start to become attractive . What does that do . Bob we are getting there. My sense is it is in the 3 area. That is an overshooting level. I think that is probably where investors switch out of equities into bonds. I think for equities, unless the earnings story turns is for, when all of it is priced in at around 3. 25 , equities looking very expensive. Guy mark, what will it take to get 3 . What will it take for the market to buy the 10year to sell the 10 year . Mark it is not very far away. It is come to a level in the market where people are going to try and pick the bond and treasuries. We will get nervous if we spike a few basis points. Everyone knows the market wants to go to 3 . It is very hard. We are seeing food prices move higher it we could see a spike in oil. All you need is equities to boot higher for whatever reason. That might be enough to get a little momentum. Were only nine basis points away. Doesnt like the market has been focusing there for too long. All the dynamics are starting to shift. The auctions will be what everyone is watching. Guy do you focus on the story . Agricultural prices have been going south. Where have this strength divergence that is kept the basket down. If what we are hearing from the metals and bhp earlier that the demand is going to remain strong. If the agricultural story turns, that could shift the basket. How big of a story are we mark if the agricultural story turns, it would be massive. Food Price Inflation<\/a> is important for cpi inflation in asia. , we havetion in asia seen that with china. What has happened, why inflation continues to disappoint is that food prices have continued to come lower. That happened in over the last year. What we are seeing this week is a lot of food prices starting to bank. Businesses are not getting the upside. The latest is the drought in argentina. We are seeing corn prices bounce 7 . We are seeing sugar up 7 . We are seeing livestock prices go up to a twoyear high. They feed the commodity price index of the effect consumer Price Inflation<\/a> basket. They are the worst kind of inflation. There is no gain for any company on the spectrum. It squeezes consumer purchasing power. But if it iss off the start of something new, it is bad for bonds in equities. Guy mark, great stuff. You can follow mark and the rest of the team on your bloomberg. Bob janjuah, he is a senior independent advisor at nomura. He is going to stick around. We are minutes away from rocket open. From market open. Bhp trading flat down in australia. Investors, do they want more . This is bloomberg. The market open, nine minutes away. The Fourth Quarter<\/a> from our perspective and the industries was a little bit weaker with respect to global rank and market revenues particularly in the ficc space. Coleman with some of our peer group, we had a couple of collisions for corporate exposures in the Fourth Quarter<\/a>s. Guy Carillion Health<\/a> receives the latest reporting on those two elements the ian mckay speaking to bloomberg. The stock trading lower. The Conference Call<\/a> has just started. If you want to follow that, theres a special live blog running in a Conference Call<\/a>. We are now six minutes away from the start of european trading. Joining us now, it is be trading down in asia. As you mentioned it is trading down in asia which is one of the stocks we already know what it is going to do. A note from goldman sachs, theyre saying the pretext is about an 8 miss and morgan. Tanley saying it is a 6 miss we are looking for the possibility of a Share Buyback<\/a> which we didnt get. Disappointment on a few fronts. Guy it is a sequencing issue because theyre going to change some of their capital structures. Bhp as well. Joe they have got the Dividend Announcement<\/a> today which is a positive. Markets looking at the earnings and saying it is a miss and they traded lower a bit in australia. As you said, return in capital to shareholders but market wants more from the earnings. Not looking 100 great. Guy iron ore an issue. Joe podesta Financial Technology<\/a> Company Provides<\/a> Trading Technology<\/a> and they had a good earnings run yesterday but the share rallied about 12 . There was a huge rise for the shares. Today, theres been this merger announcement. As you say, it looks like somebody may be new something before it happened. Share rose 12 yesterday. Guy thank you very much indeed. ,o on your bloomberg is to say we will be speaking to the covestro ceo shortly. We will get his take on what is happening in the plastics market. Looking forward to the conversation. Go on your bloomberg and pull all the stocks you need this morning. Four minutes to go into the start of european trading. Looks likely just looks like a flat opening. Looks like a flat opening. 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<\/a> across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. We use so why do we pay touters thave a phone connected. When were already paying for internet . Shouldnt it all just be one thing . Thats why Xfinity Mobile<\/a> comes with your internet. You can get 5 lines of talk and text included at no extra cost. So all you pay for is data. Choose by the gig or unlimited. And now, get a 200 prepaid card when you buy an iphone. Its a new kind of network designed to save you money. Call, visit, or go to xfnitymobile. Com. What do you need to know it in advance of the start of european trade . Theu. S. Returns from president s day holiday, the eurodollar trading. The nikkei was down overnight. I want to mention what is happening in the commodities space. 65. 63. Trading at u. S. Is going to return later today with the supply story. Lets show you what the screen is telling us about the fair values. It is a mixed picture for europe. London is positive. Cac is just negative, the next is just positive the dax is just positive. At the moment the u. S. Is pointed towards a negative start. Lets show you what is going on with this European Market<\/a> open. Banksig miners and big certainly going to be setting the pace. The ftse is up a touch. 0. 2 . E up by around other European Market<\/a>s may be mixed. Ibexurious to see how that comes out at the start of trade. Orly has been the outperform during this outperformer during this whole phase. Is hsbc right there doing some damage to these markets. Everything else looks reasonably ok. The materials are going red over here. Up, that are softening is the bhp story. That is hsbc softening up, materials are softening up a little bit as well. A little bit of weakness in the consumerre and sectors. Lets go back to the monitor and talk about what is happening. Up, the ftse is now turning negative as hsbc and bhp open up. We knew from asia that this was going to be the trade. Bhp is down as you can see. , we look at these first. Astrazeneca is trading up. I am actually more interested in the other and of the market other end of the market. Lets show you where we are. Hsbc softening up, as you can see, pretty much in line with what we saw out in asia. Remember asia gap lower, and then came back. Those two heavyweights is where the story is coming through. Stuart gullivers sevenyear c coming to an end. It ended with a rare failure to live up to expectations. He will be replaced tomorrow morning. To the Group Finance<\/a> director about the numbers. We have always taken a somewhat conservative stance when dealing with troublesome credit. We believe largely in the Fourth Quarter<\/a> of the year. Expect to go into 2018 with a fairly clean slate. Analysts expected another buyback today. 12 13 . Et is why did you decide that today is not the date to do another buyback. Youre absolutely right. Well above the top and that we have targeted end that we have targeted. We are targeting some alternative tier one in the first half tier one issuance in the first half of the year. The first have tens to attract more interest in the instrument as well as better pricing overall. There is a regulation with respect to some of our listing authorities that you cannot do buybacks and capital instruments at the same time. Our perspective about how we manage our capital has not changed. Buybacks are still very much a part of the toolkit. We want to get alternative tier one instruments into the marketplace during the first half of this year. Guy that was hsbcs finance director. Where to talk more in detail we are going to talk more in detail about hsbc. Why was the miss . Why did the markets disappoint . They missed on both revenue and profit. It seems largely driven by 2 things, poured trading poor 2ading, but also it took rather large losses on stocks linked to steinhoff and carillion. Those kind of ruined Stuart Gullivers<\/a> last days at hsbc. These things can happen. He prepares to hand over the reins. Guy he has transformed his business. He leave the business and a much more stable and solid position than when he founded found it. Looking forward, i am just kind wondering, as steinhoff are steinhoff and carillion idiosyncratic stories . Im wondering what the exposure looks like for banks. With steinhoff and carillion they both seem to have been run into the ground by their respective managements. It will be interesting when the cycle starts to turn, how banks managed to cope with that. Hsbc is usually pretty conservative, so it should not be among the worst affected. They came in with a good capital number. They continued their dividend. A lot of u. K. Banks are either paying very restricted or no dividends whatsoever. We have to give him some credit for the way he has turned it around. Guy a lot of that has been completely tidied up. What does flint have to do . He has spent his entire career at hsbc. The have done a lot to try and correct these. He has to focus in on what hsbc is good at. He has to look at what businesses are doing well, see how they can redeploy capital. They now get 78 of their profit in asia. It rose double digits today. There really is a changing balance. Hsbc has always been weighted towards its Traditional Home<\/a> in hong kong and asia. It will be interesting to see tows that line. Guy volatility is rising. It has started to pick up. After potentially flattening out, has the potential to steepen. Is it going to drop better trading potentially . Could there potentially be some corporate that will fall foul of that story . Where does that leave the banks. Bob we have had a long. Of central bank driven low volatility we have had a long drivenof central bank low volatility. Hsbc will not be the only bank involved in carillion and steinhoff. As the tide goes out with higher ol and higher v guy what about the trading story . Bob i have grown up with is this with this comment that volatility is your friend come but over the last few years nobody wanted any volatility. I think the Banking Sector<\/a> in general, the regulators kind of crushed them to a large extent. It is going to be tougher for banks. Im not sure how much of an effect it is going to be. Banks do not have huge Balance Sheet<\/a>s. It is give and take. I think the corporate default story is going to be an interesting one. Guy thank you very much indeed for bringing us the latest on what is happening in the Banking Sector<\/a>. The Indian Government<\/a> is concerned about overseas borrowing. That is having an effect on the rupee this morning. We have been talking about hsbc. This is how the stock is trading this morning. If you are an outgoing ceo, this is not necessarily the way that you want to be outgoing. The stock is dropping. This is bloomberg. 12 minutes into trade. As you can see we are up in europe, a sea of green. We have hsbc low. Bob janjuah is a senior independent client advisor for nomura is still with us. Where do equities go this year . To have to make a big decision later this year about what i do with my portfolio . Bob i think the risk is that equities go higher. Guy how much higher . Bob i would not be surprised to see the s p trade at alltime highs this year. I can give you a round number of about 3000. That might be extreme, but that is kind of the ballpark. Be ank that is going to Pivotal Moment<\/a> in all of this. For me the temptation to then flip into bonds would be very strong. How much real Wage Inflation<\/a> are we going to get . Is this a cycle or not . I dont think this is a cycle, i think it is a shortterm thing. I think a lot of the earnings story is priced in. I think a lot of the Consumer Spending<\/a> positive sentiment is a repressed and. Sentiment isses already priced in. Guy what gets us back to what gets us to 3000 . Bob volatility has been crushed for 10 years by central banks. What makes you think you dont want any of that and what does it to you about the wider market . Bob the concern going into a higher rate environment would always be the u. S. Corporate sector. I could still trade equities tactically, but structurally that worries me. I can generally for me anything that is really relying on a lot of Consumer Spending<\/a>, i think concerns me. Without significant real wage big where a Company Announces<\/a> a bonus, but structurally were not think wage growth were not seeing wage growth. Guy ok. I want to talk about the dollar as well. Bob janjuah is a senior independent client advisor for nomura. He is going to stick around. Lets kick it off with hsbc, down 2. 5 this morning. Stuart gulliver is ending seven years at the helm of the bank. The bank booked on loan charges, which weighed on Fourth Quarter<\/a> earnings. Billiton is also down. The ceo is going to have a meeting with a management company. They want bhp billiton to have a new Corporate Structure<\/a> and to be only listed in australia. Covestro gained this morning. Now you will be seeking speaking to the ceo. Guy we are going to be talking to covestro in just a moment. Thanks. It is a Plastics Company<\/a> come it works in a bunch of different sectors, the auto sector, and that construction sector the construction sector. Patrick thomas is a company ceo the companys ceo. Where going to talk to him next we are going to talk to him next. This is bloomberg. Guy welcome back. One stock that really stands out is germanys covestro. Theyre posting fourthquarter earnings ahead of estimates. The materials manufactures manufacturer have felt that the sales were driven by significantly stronger margins. Joining us now is covestro ceo patrick thomas. Are you surprised by the strength in Global Demand<\/a> for your products . Not really. Our story has not changed since we were created. We satisfy the need for more sustainable materials. The growth that we enjoy is driven by the fact that we substitute lower performing materials with materials that are either lighter, lower carbon footprint, more energy efficient, all of the things that are needed to satisfy Energy Efficiency<\/a> demands. Medical needs are also more important. The main markets that are driving this art automotive, are automotive, the fashion industry, and the wind power industry, where we have some new materials making windmill blades that last a lot longer. Cyclicalt still a business . And if it is still cyclical, when the cycle are we where in the cycle are we . Patrick the underlying growth has always been that. The cycles that we have been experienced have experienced have been principally supply demand cycles. We invented most of these materials, up to 80 years ago, and we remain number one ever since. Yes, we have seen cycles over those years, but typically they are supplydemand cycles. 20082009, everyone else canceled their capital programs. We were one of the holy companies that remained committed only companies that remained committed. The markets are very tight, which gives us enormous Pricing Power<\/a> in the current market. We can still get significant improvement in results. Our cash flow is up 35 year on year. That makes is the highest Free Cash Flow<\/a> return business in chemicals anywhere in europe. Guy given that and given what you talk about, the investment cycle that your peers did not pick up on, is this is good as it gets . The market likes what these this morning, but my question really is, does it get any better than this . Can it get any better than this . The Growth Numbers<\/a> around the world are currently strong. We have synchronous growth. How long can this be sustained for . Patrick i think probably you have to think about the investment cycle for our business. It takes about seven years between the decision to invest in a new asset to manufacture our products, and as it coming asseteam and that coming on stream. I would expect this to continue at this level at some time. Where are we in the cycle . I think we are in a space where we have established a new operating level. Relativelyt will be sustainable. We are forecasting fullyear ebt level ashe same last year. Guy how does it break down geographically . The chinese growth story, how do you see that developing . Is there a risk that the chinese story starts to slow down from here . Do you see that just beginning to fade little bit a little bit . Fading at dont see a all. My sales growth laughter in china was at 31 . The Pricing Power<\/a> is just and much in china just as much in china as the rest of the world. We are able to get cash out of china. The system is freed up. Were 100 owned. 34,000,000,000 of assets on the ground in china. We run the whole of that business out of china as if it is a chinese company. I think we understand china. It is still the highest growing region for us. Europe in comparison, 17 growth. 7 , buts only down at that was mainly because of the weather and all the disruption to the supply chain. Guy what do you think of mr. Trumps infrastructure plan . Patrick we would love it to happen. I think we have seen a lack of investment in infrastructure in america, which has been america port which has been very apparent after Hurricane Harvey<\/a>. Our biggest problem was the Railway Network<\/a> was not operating and was damaged. The rail and road infrastructure was very much disrupted. We cannot get Raw Materials<\/a> in our finished product out. That is what took the Hurricane Harvey<\/a> affect all the way through to the end of last year. Expenditure in infrastructure in america is very important. We supply some of the most advanced coatings for bridges, large scale construction projects, and infrastructure products. Guy thank you very much indeed for taking some time to join us here at bloomberg. Patrick thomas, the covestro ceo. I want to talk about another stock that is trading higher. The stock is sharply higher this morning. As you can see, what we got was a decent gap yesterday, what that has been eclipsed this morning. The stock is trading up very sharply. Up next, the Technology Sector<\/a> had its best week in years. Next. Tory is 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<\/a> across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Show me the olympic winter games leaving every competitor, threat and challenge outmaneuvered. Like ive never seen before. Xfinity x1, yeah, i always know the scor. Triple corks in 4k. Lookin so sick. Stream live on every screen, every win, every trick. 2000 hours of coverage, get your mind blown. 50 olympic channels, yup, youre in the zone. And if theres something that you want to see, pick up that voice remote and just say show me. Experience nbcuniversals coverage of the olympic winter games like never before with xfinity. Proud partner of team usa. Guy lets talk about the headlines. For sses in quarter quarter 4. Ceo Stuart Gulliver<\/a> leaves today. Bhp billiton profits jumped. The market wanted more. It is a big week for bonds. The market prepares for a flood of issuance. Will investors drive the tenure yeargh 3 drive that 10 3 . Ugh the percent the bulk of the market is up. Construction materials look good. Media insurance media, insurance, industrial goods and services. Basic resources are trading a little softer this morning. Today we got bhp billiton numbers. The numbers look good, the market is having money donated money thrownhaving at it by bhp. Auto sector and Parts Trading<\/a> down by 0. 33 . There is a huge case coming up in germany on thursday relating to diesel. It is an important story. Lets get a bloomberg first word update. Angela merkel has sent a signal about a preferred successor as german chancellor by appointing a close ally. Critics on the right have called for more conservative policies as a way to win back voters. The unexcited move is a signal that merkel intends to keep the c. D. U. In germanys political center. In a speech to manufacturers, Jeremy Corbyn<\/a> said that if elected labor would broaden the scope of Public Interest<\/a> test to allow the government to intervene. Governor markd carney has said he is already apparent for the uks next already preparing for the uks next financial crisis. That excepting that a crisis will happen is the best way to prepare for it. And he is said to be tightening and india is said to be tightening its approvals for firms borrowing offshore. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Guy thank you very much indeed. Lets get back to the markets. Technology stocks capped the best run since 2014 last week. Hedge funds and other large speculators skipped the rally. With the gauge turning down yesterday, led by the tech segment, we had asked the question, do they know something . Ginger janjuah from nomura is still with us. It seems like one of the big draws here is volatility. You need a downs to downsize a bit. The market took a hit a couple of weeks ago. Perhaps now is the time to go and take some profits. They have reduced their long positions to such a degree and kept on their short positions, and that has left them with a net short position. This is the most bearish they have been since 2011, which is interesting because nothing has seemed to change too much from the macro picture that would drive this bearishness. Veryems to be barely structurally driven. Get to 3000going to on the s p. Techort tech and now now . I dont know. There is a shortterm reaction to what has happened in the flat the last few weeks. I agree that technology was heavily exposed. I look at it another way. Up,ink if Interest Rates<\/a> go the ease have to go down. I think the concentration of ownership and a handful of stocks was not healthy for the market. We can see a recovery in tech im sure in the next few weeks or months. When we get to that kind of point, if i amot right, this will be one of the sectors that sells off a lot. Guy if you look at the key drivers for the market, it has been a tighter range of. Stocks we inevitably had to break out of that. When you think about why hedge funds have done well, they have posted a great leader great year last year. Thanare more concentrated the market. At the same time it is tech that has led this bounceback. They already have gotten more than half of their losses back. We are at a Strange Point<\/a> where hedge funds are darlings. The reason they have done so well is that they seem to be discarding them a little bit. If we look at all of the indexes, the most shorted stocks, those have performed very well, especially for equity launch equity long hedge funds. Is onenteresting now they are taking the decision not to hang gone, not to bite the buy the dip. s view is that the economy is at a point where it is so good that you want to be. Im sure the economy is great for ray dalio. Im not sure if it is so great for the vast bulk of people in america, for example. I think the interesting point is that if markets are transitioning from equities into bonds, lets say that is kind of the longterm shift this year, the most overbought sector, technology, is probably where the transition is going to be most obvious. If you are planning for the longterm, tech is probably a sector that is very highly valued. It is very concentrated. Guy have these markets been through a euphoria fades . Phase . Kind of like a blowolic bloat off top off top. Guy how do risk models what is the setup into that . How does this set up look like from a kind of risk point of view. If momentum continues, models will certainly carry that on. There is another large group out there who could easily jump back in and continue this melt up, as it were, because they are not in the market right now. We could see valuations pushed even higher from here. Guy thank you. What are going to carry on the conversation with bob janjuah. He will join the Bloomberg Radio<\/a> around 15ound in minutes time. Guy we are going to discuss what is happening in the auto sector next. There is a huge case coming up in germany on thursday, which could be the kiss of death for diesel. It is a big deal. We will talk about it next. This is bloomberg. Guy welcome back. If you are a bloomberg customer you can watch all of our shows using the tv function. The real kind of value added on the righthand side there, you can follow all of the charts, all of the functionality, all of the stuff that the bloomberg delivers. The auto sector is one of the worstperforming sectors this morning. The german Auto Industry<\/a> is waiting for it court ruling. Are will decide if bans permissible in german cities. They are trying to manage air pollution in those cities. We could see bans across german cities, which obviously have a major impact on diesel. That is one of the stories that we have to talk about with arndt ellinghorst. One of the highest courts in germany will decide whether to writing whether driving bans in cities work. It can have a big consequence on carmakers. Guy is it priced in . Arndt i dont think it is yet. On yet priced in earnings per auto stocks four auto stocks have gone up for years for auto stocks have gone up for years. Tom where does the paint get felttom guy guy where does the pain get felt . Arndt people are already feeling it with the residual value of their cars. The industry is already feeling get. There is this huge transition towards electrified powertrains. If that is a solution that is needed, that is going to be in the billions for the industry. That is likely going to be paid , but id doubt that the consumers will have to chip in. Guy if we get the grand coalition, how does that feed into this story . It is much more left leaning than the politics in germany suggest. Arndt it remains in the hands of the cdu and the. I would not expect too much of a change in the core ministries in berlin. They have been quite supportive of the Auto Industry<\/a> and diesel so far. Theres so much public pressure know now that something will have to happen when it comes to they have been quite supportive ofthese emission levels in citi. Guy obviously a lot of manufacturers come from germany. Say ifher Companies Germany<\/a> is doing it, were going to do it. Arndt germany is by far the harshest when dealing with this industry. You dont see this amount of public pressure and any other european country in any other european country. Obviously the u. S. Is turning far more supportive these days. It creates a real competitive disadvantage for german manufacturers. I doubt it will affect other markets in europe. your and to been seen you are anticipating could get some big news. Arndt we are anticipating that volkswagen continued moves ahead to separate its truck and car business. The company is saying that all auctions are open. They have been talking about this for three years now. I think management has to act. They should act ahead of their event, the press conference in march, their Shareholder Meeting<\/a> in may. I think they will sell just enough of it for the market to find attractive. They have to, otherwise you do not get a valuation. We are not at the start of the truck cycle. We are in the middle of it. They need to float at least 30 40 for people to find it attractive. Buy vw now . Te vw i think you wait for thursday. The German Court Ruling<\/a> that we discussed the such a big deal that we discussed is such a big deal. I would wait for the event on thursday. I think we talk about at least 5 volatility, if not more. Guy for a stock like vw that is a lot of money. Weekend we saw the are we immune to it . Arndt it is a good question. Auto of it is priced into valuations. The stocks are trading on very depressed earnings. The cash on oems Balance Sheet<\/a> is not really about it by the market. The market is saying that you will need this cash to pay for some unsorted stuff when it comes to, especially diesel. This is a situation that is wellknown. It is covered in their risk of section in the annual report. It does not come as a huge surprise and certainly is a very different story to the story that volkswagen experienced in the u. S. Guy back to thursday, they are not provisioned for that . Arndt nobody has provisioned example,isk of for hardware solutions. 12 could cost the industry 7 billion euros. For all the cars it is probably not possible technically anyhow. Has oem no oem provisioned for this. Guy does the market extrapolate . Does the market look at other companies within the sector as well and extrapolate . Trucks now, maybe Something Else<\/a> later. Arndt it is a big industry thing. Same theme. If you look at a some of the parts valuation at a sum of the parts valuation, porsche would be worth more than 100 billion. Theres so much hidden value in these big conglomerations. From a Capital Market<\/a> perspective it is a huge disappointment. Guy there are two competing thoughts that we discussed. One is that we do not know how much the diesel story is going to cost, and the retrofit story. They have crown jewels which the market is underpricing. Which of these two forces is the greater in terms of how the sector is going to trade in the coming months . Arndt the inherent undervaluation of a conglomerate is something structural. The market will probably price that when off quickly, and then we will go back to business, and talk about these companies anymore structural and fundamental way. The more important element guy do think the fact that they they are driven by a number of different metrics, if they wanted to get the share price is up, they could do it very easily. Arndt management teams are not too incentivized by the stock price of their company. If a volkswagen was an american company, it would certainly be split up in different units. That is a fact. Those companies are considering their structure because they understand that they are not fast enough nowadays in a world is moving faster and faster, where you need to have the ability to form partnerships on different levels, with different players, and different use of your brand. Guy always good to see you. Thank you so much for coming to see us. , the head oforst global automated automotive research. Stuart gullivers sevenyear reign at hsbc is coming to an end. Thising to bloomberg about impairment, ian mckay said the bank goes in with a clean slate. With have always taken a somewhat conservative stance in always with we have taken is somewhat conservative stance in dealing with troublesome credit. Expect to go into 2018 with a fairly clean slate with respect to those exposures. Affected has rejected a new activist call. Higher Commodity Prices<\/a> saw first cap profits rise to a threeyear high. Bhp raised interim Dividend Payments<\/a> by 39 . The Worlds Largest<\/a> Money Management<\/a> manager has turned bullish on u. S. Stocks. Fiscalck said that stimulus will boost already strong earnings. He says blackrock has raised u. S. Equities from mutual to overweight. That is your Bloomberg Business<\/a> flash. Guy lets talk about the midcaps. Intercontinental hotels down more than 4 this morning. The earnings came in line with what analysts were projecting. Was ats are sent it positive strong report, but it looks like investors were disappointed with a lack of special dividend. You spoke to the ceo earlier today. Lets take a listen. I think what is going to be challenging for the smaller Hotel Companies<\/a> is their ability to invest in technology. We are launching a cloudbased Technology Company<\/a> this year. I think you will see more consolidation happen across this industry as things progress, and Smaller Companies<\/a> were less it is harder for them to compete going forward. That was intercontinental ceo speaking to guy johnson earlier today. Thereby back as many thereby buybackgram their program is going to start today and last until early september. Fidessa is on a tear. Guy thank you very much indeed. The stock of the hour is hsbc. We knew how it was going to open here in europe, and we got exactly what we thought we would get. The stock is trading sharply lower. Mr. Gulliver departs today and mr. Flint takes over as ceo today. He walks away from the business after 38 years. It is going to be interesting to see how volatility affects the Company Going<\/a> forward. Steinhoff and we did see carillion both affecting the business. Aswill be fascinating to see rates start to rise how the corporate story is going to be affecting big banks like hsbc. We are trading on the big volume as well. It is interesting as well, the markets kind of reluctance around the whole issue of tier ones. Part of the reason why the stock is trading lower is the kind that reluctance from the markets on the tier ones. Lets talk about the day ahead. Areal democrats in germany to vote oneriod Coalition Talks<\/a> with angela merkel. The Palestinian Authority<\/a> president addresses the Un Security Council<\/a> a little bit later. Bloomberg television continues. Francine lacqua and bloomberg surveillance. Is up next. She will be rejoined by tom keene. I am going to be going over to Bloomberg Radio<\/a>. Bob janjuah joins the conversation with edwards and I Anna Edwards<\/a> and i. This is bloomberg. The market prepares for a flood of bond auctions as treasuries reopened. The u. K. Government is reportedly preparing to withhold billions in payments if the eu is not play ball on a trade. Ceo. Utgoing hsbc can his successor regain momentum . 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