Transcripts For BLOOMBERG Bloomberg Surveillance 20180226 :

It good morning. Welcome to Bloomberg Survey is. Im in london. Lets check on the market. The rally coming through. Treasuries pretty much stabilizing. A lot of want. Testimony on tuesday. Wednesday we hear from him again. The euro, looking at the pairing of the dollar. Looking at the dollar, pretty much unchanged. Coming up on bloomberg surveillance, we are live with the World Congress in barcelona where we speak with the chief executive. Ahead of the election, the chief of staff for the ministry. Later on, we will speak to Steve Whiting from citigroup. Now, lets get straight to the bloomberg first review. China, scrapping limits on president ial terms. Ofonstitutional provision ours that head of state from more than two consecutive terms in office. A committee wants to change that. Comments were supportive, others work article and mocking. And may be willing to hold talks. The white house will see the first step toward denuclearization. Closing ceremony, standing near ivana trump. Ties should develop between them and pyongyang, washington. And a plan for mexican president to visit donald trump this month or next has been postponed indefinitely. It comes after the Washington Post report that during a phone call last week, President Trump refused to deny or confirm that mexico would be paying for the border wall. Ad wanting written to seek new agreement. Leader Jeremy Corbyn fleshing out details today. The move files pressure on theresa may whose rebels in her own party also want the same. Nd suffering a defeat unexpected loss in progovernment stronghold. Ruling uninterrupted for the past two decades and showing the potential if they band together. Could energize. The former italian Prime Minister urging politicians to combat violence ahead of next week in elections after street battles against far left and far right activist. I shadow cast over the campaign and unhappy memories of when extremists. Arred by it is important for everyone to give a message against violence, and against all violence. It has to be because today is it good day. And the smash movie black panther has joined an exclusive group of only four films earning 100 million in its first week. Forecast. Neys own it takes the two week earnings to 400 million dollars. And 120 countries. Bloomberg. Thank you. Lets kick it off. Treasuries it retreated from multiyear highs. Keith speeches from fed chairman jay powell. He is set to speak before the House Committee tomorrow and the Banking Committee todays later. It is the first speech as fed chief. Will he be willing to accept inflation rising as high as 2. 5 percent. Discussing ahead of his appearance. Now, we go to head of research at an Investment Firm and the managesment firm who 5. 5 billion pounds in assets. Thank you for joining bloomberg surveillance. It . Y february, is that we think obviously fundamentals are fine. Especially in europe. We think despite that corrections observed in february, variations are excessive. Most importantly, technicals including liquidity have imbalance. In particular, independent markets where etf is holding up large positions. We think we might see much more severe correction in the months to come. When you look at your research, what is the one word you wish you understood better . Definitely inflation. Central bankers themselves say they are not sure. I think we are coming from 2017 when inflation surprised us on the downside as essentially to 2018 where we had a couple upward surprises. The economy will remain strong but inflation is somewhat deteriorating. Especially in europe, for example we see the pmi for example is fluctuating or coming down a bit. And inflation is rising. In europe, we see cyclical pressure. We see it et ting. Probably it is going to make it in 2018. s or anything with the markets misinterpreting what the fed is saying . Converge. Looking to we are moving their now. Important,it is inflation has hit its target in the future pope future possible outcome. Quitediumterm could be i will show that in a second. In the meantime, fundamentally strong, right . More of a correction will spread to the credit market. Does it mean that could get a lot uglier . I could see volumes a lot higher. The finale collated. What we see is when you see despitetios in europe that 10 or 12 correction, when also 3. 54at ratio and aroundeld, the yield 2. 5 , there are obvious questions. Especially in an economy that will not be forever growing at such a pace. We think we might be entering into a risky. Go back in history, we might be closer to the time like pre1987 before the crash where you have a time with collectively 4 or 5 up and down moves. More volatile ahead. That would be treated by what . And balances in particular. Imbalances in particular. Liquidityee the daily difference. Lots of redemptions at the moment. Lowest as it, the has been in the past 12 years. Bonds themonly traded basically have tripled or quadrupled in the last weeks. This leads to significant questions. Specifically about the corrections in the coming months. Is a major correction in the economy . Fect the real are you looking at that in your research . Where do we go from here . Here is the twoyear treasury yield. Repricing if you look at the dots. More moves are priced in. I would like to come back. If you look at total returns ,esterday at stocks and bonds both negative. When you have such a force, you tended to see some derisking. That could make the market shaky. We areack to treasuries, seem quite a substantial rise already this year. Already the bias remains. Eventually were going to break 3 . We do not really want to fight this market action. There might be a force. I do not expect to be sounding havedifferent from what we been told this week. I am not too worried about that specifically. The bias remains. I think the whole story about stagnation is being questioned right now. It might conclude that the national right rate of interest is not as low as was concluded. Could see some sense of the correction. What kind of correction . A violent correction . Or a slow correction . I suppose there is a selfdirecting mechanism. When the bond yield increases too much you tended to see downward corrections and equities and that turns to cap. Indeed, many assets are priced richly and if bond yield increases too fast, that creates a difference there. The flash crash we saw the early this month obviously was murray much focused on the u. S. Equity. The fundamentals were there. It clearly planted the seed of that correction. The volatility actually in a lot of funding were caught unaware. The premiums and volatility, i closuresve seen a few of funding. Weve seen a lot of people that had to unwind at the highest volatile position. Thatusly, we have had balance of view on the fact of high evaluation. Valuation. You need to think about what happens on the other side of the trade. We will see what can happen. You very much. Stay with us. Stay with bloomberg surveillance. Plenty to come up, including air sends hangups. We will ask the chief executive how his plan is going more than one year into it. Beyond 2023. This is bloomberg. Markets, economics, finance, politics. This is bloomberg surveillance. Lets get straight to the Bloomberg Business flash. Nejra Deutsche Bank has formally announced its intention to show shares in its Asset Management. The initial Public Offering will take place in the earliest available window. The move kicks off what is usually a fourweek runup to the ipo. It will sell existing shares held by Deutsche Bank and doesnt plan to issue new ones. Weinstein co. Is set to file for protection from creditors. The board failed to revive a deal to sell the studio to investors who ran the Small Business administration from 2014 to 2017. The studio has been looking for the cofounder was fired in october amid allegations of Sexual Assault and harassment. Theung has grabbed spotlight of the mobile World Congress in barcelona with the launch of the new galaxy x nine. The company is banking on features such as emojis, camera upgrades, and stereo speakers. Concernsants to calm about a possible slowdown of its component business and j wileys ability to manage the company. Goldman sachs informed that stocks would plunge if the treasury yield hit 4. 5 . Its scenario calls for a 10year yield of 3. 25 by the end of 2018. A stress test indicates such a move would cause shares to tumble. An economist also said under such circumstances americas economy would probably suffer a sharp slowdown, but not a recession. That is the Bloomberg Business flash. Francine it has been a pivotal week for brexit talks. Labor party leader Jeremy Corbyn will deliver his roadmap for a deal. Hes expected to say that labour would support a Customs Union. This may cause rebellion by proe u conservatives. What does this all mean for the markets . Look at brexit, i dont know whether you follow the political machinations. We understand there may be an alliance between corbyn and some conservative mps that want to remain in the e. U. Or do you look at fundamentals and what carney says . You have to follow the politics. Eventually the nature of the deal is going to impact the economy. We are going to listen to Prime Minister may at the end of the week when she tells us what she sees in terms of a trade deal. Corbyn, that move from put some pressure on her. She has pressure on both sides. She will have to revisit some of the red lines. One is the Customs Union. I think on some of those, she will have to be a bit more accommodating. Francine is it possible to say how it will end . Theres a huge expectation about mays stance on all this and i think we will know more in the next few days. The u. K. Has a lot to lose in this and the European Union is having a hard stance. This is a precedent and sets a precedent for potential other countries. I dont anticipate to ceu weakening. Francine thank you both. Stay with us. Ericsson has signed a strategic agreement at the mobile world conference in barcelona with china mobile to develop the internet of things opportunities together. The latest research critics more than 20 billion connected devices by 2023 related to the internet of things. The partnership will support chinas one belt, one road initiative. Caroline hyde is back and shes in barcelona. Caroline, over to you. Welcome back. Caroline francine, so great to be back with you. Erickson, wonderful to speak with you again. We are hearing about the partnership with chinese players. Youre looking at the internet of things. We are hurtling towards this. Is europe getting on board with 5g as quickly as asia and the u. S. . Borje it is fair to say that north america and northeast asia are way ahead here. At the same time, we see a number of european operators gearing up to prepare. We are seeing europe really starting to rev up the engine. The u. S. Have an interesting take. Theres even talks of nationalizing 5g in the United States. Have a fairly we well functioning model. Know that if we [indiscernible] we know that the private operators, service providers, will invest in the network. Just look at how quickly the operators have evolved. We see that happening in five years. Caroline you dont think we should see nationalization in the u. S. . Borje we can see private operators and private capital provide infrastructure. Caroline your delivery, you say, could happen by 2018, but sizable deliveries by 2020. How sizable . Borje it will be a gradual ramp up. We said that we will start to see the first deliveries this year. We will start to see enhanced mobile growth coming next year. We will see it rampup from there. Bebelieve in 2023 there will one billion handsets for 5g or subscriptions for 5g. It is a fairly quick ramp up. Caroline what about 2018 . Last time we spoke, you had been in the job for a month. They want you to be the turnaround king. Can you be it . Borje we put in place a focused strategy last year and we are executing on that. We see great traction with our customers. We see that we are building a lot of momentum with customer orders where we are increasing our market share and gradually returning erickson to better form. Of course theres always challenges. If you look at our company, we have one area where we need more focus to continue to turn around. Caroline that being official services . Borje yes. Caroline what will it take . Could you break even by this year . Borje we will gradually see improvement this year. See performance as we move into software led and more Efficient Service deliveries. Caroline do you think the activist investors that are starting to come to your shares, will they give you that breathing space because they want harder cuts now . Borje for us, we put a strategy in place. Weve communicated that and we are along those lines. Caroline what about your Media Service business. You didnt get to sell all of it. Borje we never wanted to sell all of it. We wanted to keep a large part. Medium content distribution is a key area for our customers. We needed was more capital to develop it further and participate in what we think will be an industry consolidation in that area. That is why we sold 51 of it. Caroline this time next year, what will you be able to tell me . Borje we will be very optimistic. 5gwill start to see commercial deployment of and running. We will start to see devices coming. Cases being see iot much broader and much widely adopted. Caroline industrial perspective for the consumer . Borje they will start to see very rapid deployment. Caroline what could this mean in terms of your own Business Growth . How is this going to fend off the competition. Borje we need to be on 5g. We are increasing our investment. We hired 2000 rmb engineers last year to make sure we are Technology Leaders in 4g and 5g. Caroline always great to have time with you here. The chief executive of ericsson talking optimistically. Francine . Francine thank you so much. Caroline hyde joined by the ericsson chief executive. Lets take in the corporate space. Deutsche bank has announced a plan to sell shares. The initial Public Offering will take place in the earliest available window. The move kicks off what is usually a fourweek runup to the ipi. Ourmore, we are joined by finance reporter. Steven arons is in frankfurt. Good morning to you. When will we know when the ipo will happen . Theyve left the door open to basically delaying the ipo. As you said, it is usually a fourweek period. They are now in touch with investors. That is when it should become clear. It will be really difficult to delay the ipo once again . Is this a positive for Deutsche Bank as a whole, or just the Asset Management unit . You could argue that it gives it more flexibility, it values the unit properly, but also gives it more flexibility to grow. Thats right. Many investors, many analysts say it is a mixed blessing for Deutsche Bank. What is theirng most profitable unit by far. Last year it had pretax return and tangible equity compared with just 1. 4 at the investment bank. It is really profitable. They are selling it, or at least a Minority Stake in it, but it is also a good thing for Deutsche Bank because it shows they can pull up the strategy announced a year ago. The ceo of Deutsche Bank has been struggling to implement much of that strategy and to show investors and people at the bank that he can do it. It will probably boost morale. Francine thank you so much. Steven arons, our financial reporter in frankfurt. When you look at Deutsche Bank and some of the troubles and travails it has had, today they are saying, we are ipoing the Asset Management. Is it something you would be looking at . Investing, not be but i think from the Asset Management standpoint, the cycle of valuation, it is probably a good time for Deutsche Bank to do that trade. Now new leadership, solveo, and it will also potential conflict of interest, detaching from the bank. I think it is probably positive. Francine you are invested in banks, genoa in italy, but also in greece. Do you see an opportunity because you see consolidation or because certain banks arent lending directly to the enterprises you are trying to fund . We are trying to find imbalance around europe. Areas where there is an imbalance between supply and demand of credit, we are trying to step in. Banks or European Finance Division Like Consumer Finance. Time there is an which we feel there might be a good value to do. Francine thank you so much. Lets get to another top story. We are doing around the world in 60 minutes. China set to repeal president ial term limits in a move that would allow xi jinping to rule beyond 2023. A provision that bars the head of state from serving more than two consecutive terms in office is in place, but the carty Committee Party Committee Says it wants to change that. Enda curran joins us with the latest. What does this mean about president xis ambitions . Good morning. I think it underscores just how powerful president xi is in china, at least in the near term. Hes very much in control and he has the opportunity to drive through his agenda one way or another. Economists ando investors, they say it offers a sense of stability. Longerterm, it opens up much bigger questions around when mr. Xi will eventually move off the stage. Certainly it is a case of doubling down on one of the more p