Transcripts For BLOOMBERG Bloomberg Markets European Open 20240713

By 2015 nuclear deal after the killing of its top general. President trump threatens disproportionate u. S. Retaliation should tehran take military action. Aboveextends its search 70 a barrel after the u. S. State Department Warns of missile attacks near military bases and Energy Facilities. Plus, riskoff rules as global stocks trade to the downside, gold searches to the highest level in more than six years. As i said, just under one hour away not from the start of cash equity trading in europe. Futureske a look at this morning after the first couple of days of the year traded in different directions. We are now headed firmly down in terms of sentiment. Clearly, over the weekend, after the attack that we reported on friday, you can see cac and dax. 75 . S down take a look at u. S. Futures. You also see losses there, about three or 4 10 of 1 . To a veryinting riskoff open. What do you see on the gmm . Anna the gmm giving us the same riskoff picture. As you point out, we see futures suggesting we are lower on European Equity markets. On friday, we asked a few questions about why we have not seen asian equity markets selling off to a greater degree than we did. Perhaps it was because it was so early in the year. Perhaps because japan was out of the picture. Today, we see the asian story, the asian liquidity back with a vengeance. Turkish markets, all trading to the downside. In the fx markets, we are seeing selling of emerging market fx, particularly where it is focused on higher oil pricing doing damage because of the way their trade relationship works, particularly in currencies doing pretty well since the middle of december. Those are the currencies where we see the vulnerability. You can see the moves coming out of equities going into sovereign bonds and going in to the Commodity Prices so we have seen gold spiking higher and brent crude higher, wti higher, over 70 of barrel on brent crude. We have fairly weak data out of china in terms of the composite number and the u. S. Ism still reverberating through markets as well. The weakest since the middle of 2009, matt. Now, President Trump. Lets talk about the top story today. He is threatening iran if major reality with major retaliatn if they do anything to avenge the u. S. Killing of top military general caps on so many this solemeni. Many there werepeo said no debts within the Trump Administration about the intelligence behind the decision Qassem Soleimani next week. Lets get into the markets from that with mark cudmore, or bloomberg mliv managing editor. Clearly, we have seen reaction here. The jump in oil, the surge in gold. What do you think about this rush to on the one hand, safe otherassets, and on the hand, infrastructure globally . Mark i think it makes sense. Investors risk pricing in a longterm story over the short term he had what i mean by that is this uncertainty is something we will have to factor into pricing for the next many months. We do not know when or how exactly iran might retaliate and that will be there on the horizon. That does not mean we have to price in all the risk in the short term. I think things like gold will probably keep a bit all year. They will do well in 2020 but it may be a little bit stretched in the shortterm. It is the same for oil prices. Maybe the risk aversion and equity markets might have done enough until we actually see some concrete retaliation. However, this issue will rear its head again. Its a little bit like an analogy to the u. S. China trade story, which was a longrunning theme. The traders struggled to price extremely and then price it the other way when we got optimistic. I think that could happen on the u. S. Iran situation where we kind of price in this extremist version in the short term. We might see you know retaliation for a wild, people might forget about it, and then it might flare up violently again. It will be a longrunning theme that we should not priced too aggressively in the short term. Anna stay with us. Our golf economy and government reporter also joining us. I suppose from an International Investor perspective, watching the region, everybody focused on commemoration, but further down, people are looking for how it is that iran is going to respond. About whate theories form that response could take . Definitely, people are bracing for what avenue iran will use to avenge the slain leader. And what which assets they are likely to hit. We have seen attacks on aramco, Oil Facilities in saudi arabia earlier last year. Some expect to see more of that. Others say possibly attacks on u. S. Diplomatic facilities and troops, etc. The one thing across the region we are seeing is trepidation and worry that this is escalating very quickly. The region is not ready for it. Even among the gulf allies, President Trump, who initially embraced the maximum Pressure Campaign against iran and wanted to see iran contained, most of them have come out with statements showing they are really worried about the fallout from this, and calling on the for d iran matt i just want to bring you some live pictures we are seeing here in the streets of tehran. We have got a feed showing the funeral of general Qassem Soleimani. Looks like the picture is frozen, but you can still see from this how many people are out there. Is youre bottom line question of the day, which is how should assets price geopolitical risk . What are you hearing in response to that question on the mliv blog today . Have ae probably need to slight extra premium and volatility markets this year that was not there last year, so is, in many asset last year, we saw a very extreme decline in volatility, most notably in fx markets, which saw the beast volatile markets ever. There will be extra volatility priced in this year, so we will see a bit more here. The other one is i think we will see that next little bid for havens. That is why people are calling for treasuries to selloff after the extremely low yields of last year were likely to be wrong. We will not see treasury yields tick up to much higher. Not expensive, up to 3 , or anything like that, this year. Gold, the move is the start of something that has been much bigger. It arguably started a year or two ago. Cannot conflate these mediumterm views that the extra within the shortterm moves we can expect for the next 72 hours, for example. Anna one we focus on the region, interesting to see that iraq has been voting over the weekend to remove foreign troops and President Trump pledging sanctions against iraq. It seems as if iraq played an interesting role in any escalation here. Upcertainly, iran is caught between two major countries, between the u. S. And iran. Is son influence pervasive across iraq, across most of the government and parliamentarians and government institutions. Its a very deeprooted influence that is being called expelow and being used to the u. S. Forces out of iraq. At the same time, we are seeing a group in lebanon, hezbollah, the leader was calling for the expulsion of u. S. Forces from anywhere in the region, and we are hearing more of this. That is definitely not good for iraq and thefor stability of iraq. With less u. S. Influence, that means the country will fall completely under the influence of its neighbor, iran, at a time where we may actually see more chaos among the different more sectarian issues among iraqs different populations, from ias. S, sunnis, and sh matt thank you so much for joining us this morning. Zainab soleimani is fattah is our reporter. Along with mark cudmore. Coming to us of course out of dubai. We are going to take a look at your stocks to watch this morning at the open, including royal dutch shell, british petroleum, total. Oil jumping on the back of those increased the increased attention we are talking about, and that is sure to move those huge stocks so heavily weighted on the indexes. And remember, Bloomberg Radio is live on your mobile device and dab Digital Radio in the london area. Tune in. This is bloomberg. Anna welcome back to the European Market open. 13 minutes past 7 00 in london. This is what the futures look like right now. We are expecting to see further riskoff moves in markets as we continue to respond to the developments in the middle east. Lets get your individual stocks to watch. There are some interesting stories on the individual stocks and from the geopolitical tensions into the stock market so lets focus on all of those things. Dani burger is looking at the mna story of 2019. Annmarie hordern is focused on the car markets. And philippe if the check to and another person is covering oil markets. Dani takeaway. Com looking like they are preparing to declare victory. This has been five months in the making. Half of like more than shareholders say they are willing to accept takeaway. Com takeaway. Coms bid. With this likely hurdle to be overcome, look for the shares to move. Matt lets get to you on the carmakers peered what should we expect today . Annmarie look out for the entire auto industry, especially the dealers in london. This comes after u. K. Data shows that sales have been the worst in three years, so we are still seeing the slump. And new auto registrations are at the lowest levels since 2013 and the reason behind all this was the brexit uncertainty and what that meant for consumer sentiment. On top of that, just a lack of demand for those diesel cars. Anna the whole sector caught up in the bigger macro moves. The geopolitical tensions that are likely to affect the oil stocks. Take us to the story. Of course, we should watch closely all of the big, major names throughout europe, such as bp, total, and smaller names such as those small caps from golf,k. , general energy, keystone petroleum. They have assets in iraq. Apart from those evident names, oil trades above 2 . We have gold miners at the highest level in over six years. Then, we should watch airlines, for example, because they could be repricing higher oil and they could be announcing different measures due to the increase in geopolitical tension. Finally, worth taking a look at shipping companies. In to theange tensions here in the gulf. Right. Ll thanks very much for joining us. You can get the latest stocks stories from our Equities Team by going to first on your bloomberg or via the mobile app. Lets get back to our top story, the flare up of geopolitical tensions between the u. S. And iran. Joins us. She has been covering fx for 15 years and because the latest escalations unfortunate. What kind of reverberations do you expect to see have you seen already and do you expect to see in fx . Good morning. We have seen already some of the impact of the spike in the geopolitical tensions. We saw it in the price action and risk correlated currencies, especially those for commodities importers. In particular, those with current account deficits. India rupee, korean won leaving the losses peered at the same time, equally, safe havens like the yen, gold, also the dollar, outperforming, and that pattern of heavier likely to persist at least in the near term, so long as we have that uncertainty or so long as really that conflict continues with both sides seemingly still willing to escalate that further. Anna we dont see enormous amounts of moves in the yen. Moves in fx. Today, its stock markets in asia that seem to be reacting. Again, 108. How much more strengthening and the japanese currency makes sense, do you think . Risktin they, against correlated commodities currencies. Dollaryen itself may be stuck in the middle, if you will, with the dollar also playing a role of a highyielding safe haven. It is a real indication of how the markets are feeling in the thepace after looking at Way Investors have been using currency, a funding with the highyielding south african rand and the turkish lira, which has suffered a lot. I would expect both the yen and the euro that have been widely used as funding currencies to fund and carry trades in the em space to continue to benefit against those currencies. Matt what do you expect for gold . I mean, its not a currency as such, but it is something that a lot of people use currency to trade into during periods of unrest. Valentin we expect the goal to continue to shine, if you wish. It is one of our calls for 2020 as a whole to be long gold. We have it for our nominal portfolio. Our target is 1600, and it seems like that we could well get there. The appeal of gold certainly has a lot to do with its hedge against spikes and risk aversion, but also importantly as a hedge against Currency Debasement because what we are dealing with at the moment is unwarranted tightening in the Global Financial conditions have prices, higher equity prices. The next step for the market is looking at central banks. In particular, one central bank. The fed, what is it they could do if we see evidence that the unwarranted tightening in the financial conditions starting to weigh on global and u. S. Growth . That is a prospect for more easing. It will likely boost the appeal of Currency Debasement hedges like gold. Anna we will pick up on some of that centralbank conversation in just a moment. Thank you very much. Valentin marinov, head of g10 fx research and strategy at cut at a call. We bring you our interview with a founder and president of an energy company. How high can oil prices go . This is bloomberg. Matt will come back to Bloomberg Markets european open. We are currently about 36 minutes, 37 minutes away from the start of cash trading across europe and the u. K. , and you can see futures are down across the board. We could be in for the third trading day of the year to be considerably risk off. Lets catch up on some of the stories that you need to know. Manus cranny joins us now from dubai and theres a lot going on, clearly, in your region. The u. S. A rainy intentions and now, u. S. Iraqi tensions. What effect are they having on markets there . Manus it is interesting that you start with the equity markets. I am looking at the oil markets. The equity market risk premium seems to be moderately contained. I would say the oil market is, if you look at two days worth of trading in oil, we are up 6 , about 70 a barrel. The state department and the in the United States of america warms up. This is about trying to assess the response mechanism from the iranian side to the soleimani killing. I cant up with bob mcnally caught up with bob mcnally and he things allout war might be avoided. The percentages of change and pricing of crude might have a little bit further to run. Overt u. S. Military conflict with iran went from 5 to 25 , and we think crude has some more risk pricing to be. At the day, we think we will avoid a war because both washington or President Trump and the iranian leadership wish to do so. Manus inherent in that comment, anna, from bob, was that we will avoid a war, and i think this was quite important. We will get your ratio with the big risks for 2020. The very First Response from the iranian side was a political response, where they stepped back from the 2015 iran agreement, so that is their First Response. The question is now, how will they act . Will it be via proxy . Will it be minding the strait of hormuz . Will it be an attack on facilities . Anna the Iraqi Oil Infrastructure in focus or the strait of hormuz . We will get to another oil conversation later in the program. Manus, thank you for setting that up for spn manus cranny in dubai. Our guest is still with us. It was interesting to see in that conversation, he went on, bob mcnally went on to talk about how oil prices could get to 80 a barrel. What does that do to oil fx in your world . If you look at the smaller currencies in our space, g10 and the region, Canadian Dollar in the region, they were outperform her spirit i would expect more relative resilience of those, especially against Oil Importing currencies in the region. It could outperform the swedish crown from here. Maybe a good entry point to establish a fresh long set. The fact that these are liquid currencies puts them at a disadvantage against socalled safe havens, especially against the dollar, and i think the dollars role now is also as an oil currency, where the u. S. Is the Biggest Oil Producer in the world and that is likely to benefit from a further increase in oil prices, likely to burnish anna dollar positive . Valentin the dollar is a highyielding safe haven, but it is also the case that Higher Oil Prices are not necessarily detrimental. They are actually supportive for the currency. Has won energy independence, so as such, the impact it is different from before. Oil pricesher is not negative for the dollar anymore. It could burnish its appeal. Head oflentin marinov, g10 fx research and strategy at credit at a call Credit Agricole stays with us for the hour. We take a look at the week ahead including Economic Data out of europe, china, and the u. S. , plus we continue to focus in on the ongoing tensions with iran. A press conference by carlos ghosn as well, and the brexit bill is back in parliament. Matt welcome back to the european open. 30 minutes away from the start of cash equity trading across the konta nintendo. I am matt miller alongside anna. Anna lets take the opportunity to check out with what else we need to be watching out for this week. Wore live in brussels as european leaders battle to come up with a response to tensions with iran. They begin with a debate on the brexit bill. Plus we are in berlin ahead of Carlos Ghosns press conference. With all of that in mind, we keep our eye on what is going on in equity markets. European futures are pointing to the down side. Stocks sold off in asia, more than friday. Lets pick up on the themes and get to our conversations around europe. First to bloombergs Germany Bureau chief, who is with us in frankfurt. Also with us, edward evans from our exet team in brussels. And benedict. Daniel to you first then in terms of what we are seeing from europe and european leaders. I suppose european leaders are watching, calling each other, perhapsing speaking to allies in the middle east as well, but essentially watching . Yes, that is what they are. What we are seeing now is that the killing of the iran general really has all but sounded the death knell on europes efforts to keep the Iranian Nuclear deal alive. Iran has already said they are no longer abiding by the International Obligations to we see now m, and the germans, british and french come out with some wording and saying they are urging iran to abide by the deal. But it doesnt seem to be more than words at this stage, and we dont really see any real efforts that will bring this deal back together. Matt speaking of deals that are difficult to cant bring together, u. K. Parliament returns tuesday. Will it be back to brexit business straight away here . Very much so. Tuesday, wednesday and thursday, the withdrawl bill will go through its last stajans in the house of commons. They want to get it done by january 31. There will be an attempt by the optician to amend the bill. You will see amendments of putting a meaningful vote on it but with a majority of 18 that johnson has, you can expect those to fall and the bill to go through by the end of the week. Matt and of course here we are well, you and i have been fiction eighted by this carlos ghosn scandal. I am sure most of the world has as well. Clearly the u. S. iranian crisis is more important globally. As far as the drama is concerned though, what do we expect on wednesday . It is the story that keeps on giving. Some interesting reports over the weekend. Ozarka, the airport from which he flew out, that was selected by his aids because it had lax security in terms of getting people out on private jets. He was apparently packed into a box used for music equipment, holes drilled into the bottom and then made his way out. The way he left the house was quite simple. Walked out. Boarded public transport train and so on. As you say, wednesday is the big day. That is when he gives his press conference in beirut where he will talk about more details, how he got out and importantly what he plans to do next. He is 65. He probably wants to restore his name and a lot of that will come out on wednesday. Matt that will definitely be fascinating, and we look forward to that. Bloombergs Daniel Shafer in frankfurt, edward universe out of lin dont, and here in berlin, benedict. He head of fx research and strategy is still with us, valentin, the conversation moving to the u. S. After manufacturing saw its weakest month since 2009 in december, what do you expect for the u. S. Economy . We have had a wide range of forecasts. Well, it was quite a sobering release indeed. But it ties in with our expectation of a subtrend growth for the u. S. Economy, at least for the first half of this year. In particularly, we think that the Business Confidence will continue to struggle by implication. Lack of investment overall will continue to hamper growth and before long may even impact the otherwise resilient labor markets in the u. S. All of which makes us expect another insurance cut by the fed potentially as soon as june. I guess i should also mention that the latest developments that we are seeing, really the Higher Oil Prices, by implication the weaker stock market would present unwarranted tightening in the global and u. S. Conditions, that may further that expectation that the fed will have to respond by taking steps to ease the financial conditions. Matt so you expect one more insurance cut in 2020, or more . We expect one for now. It is the case that the fed tance has shifted already. Late last year we did have the announcement of the expansion of the Balance Sheet focusing on short date the securities. We expect that to continue. Obviously, feds Forward Guidance could help. The way we see it, more action may be needed on top of the steps that the fed has already taken, and that additional measure will take the form of a fourth insurance cut as soon as june. Matt what do you expect in terms of i mean if the fed cuts one more time, where does that he leave us in terms of treasury yield . Well, in terms of expectations, we expect the risk for treasury yields could be on the down side from here, rifting lower to 1. 7 or 1. 6 or 165 basis points. Overall the expectation is really likely to strengthen, especially if the u. S. Outlook actually starts to deteriorate more significantly from here. I guess on the fx side, this will mean that it will deprive the dollar of some of its yield appeal. That is a major factor. The resulting unwinding of ollar carried trades funded in euro and yen. They both could do well against the dollar, especially in the first half of this year. Anna let me ask you about what is going on with the pound at this point. The pound is flat. At the end of last week we saw the pound selling, and the explanation i found on digging markets were reassessing risk in 2020. It is going to be quite volatile from here. We expect that the brecksilt saga would have a happy ending, if you wish. But until we get there, there could be quite a few hurdles along the way. What the market is focusing on right now is the possibility that the transition period which ends in december of this year may not be extended. We could end up having a no trade deal brexit, and that could potentially hamper growth and lead to further easing by the bank of england, which is going to be something of a negative outcome for the currency. Well know more as the trade deals start. As you probably know, the government has until july to potentially request such an extension. In the interim, the markets will be torn between i would say the hope that we are going to get a brexit feel, but also the time that time will run out before we get there. Anna we will see as the deadline looms. Before we finish the conversation i want to ask about things you prepare for that could happen this week. The incredible scenes we see of the bush fires taking place in australia, what is the economic empact you assess . Likely to be negative. If anything, it would precipitate any further easing measures by the r. B. A. The lower the rates go, the higher the risk of q. E. Or unconventional monday torii policies in australia as well. The kely headwinds for Australian Dollar. We would prefer to express against the japanese yen because of overall positioning in the market is favoring that Australian Dollar. Headwinds for the currency is likely to persist from here. The Australian Dollar is likely to under perform other currin says. Matt valentin, thank you for joining us. Valentin marinov head of strategy at agricole. With fast rising tensions in the middle east, gold has surged to the highest level in more than six years. We will look into more of that and more pressure metals. We are still seeing live pics of crowds in streets. Completely clogged streets. Iranian leaders have attended he funeral of Qassem Soleimani , and a lot of people have showed up to support them. This is bloomberg. Anna welcome back to the european open. 18 minutes to go to rt start of equity trade fog this week. It looks as if it will be another tough session for European Equity market, a lot to do with the happenings in the middle east. Here is our partner. They are going to join j. P. Ricciardi and city 2k3wr507 by setting up a parising of pricing platforms. Forward swap, nondeliverable forward and options. It will allow trading of precious and base metals. It is going to lend as much as billion pounds to british businesses. A certainty over the british economy. They errored a clinic quarter. They say overall credit quality remains strong. Would you give up facebook for month in exchange for 50. They estimate the social network could add as much as 11 Percentage Points annually to he u. S. G. D. P. Matt thank you for the business flash. Gold as surged to the highest level in more than six years as fast rising tensions in the middle east stoke demand for haven assets. It is not the only precious metal at its peak. Palladium is at a report. Platt yum is hovering around 1,000. Joining us here from bloombergs asia metals and mining team is crystal from singapore. Why is gold doing so well . Are there reasons other than the obvious u. S. iranian tensions . Yes, we have to note that gold is really doing very well, and now it is doing even better. We have an analyst that caught called gold a nobrainer with the ongoing tensions in the middle east and also uncertainty on the u. S. china trade war. We just had a report from Goldman Sachs saying that there is potential for a range of things, it likes gold and thinks of gold as better than oil. That is interesting. Is goldman saying that gold is a better hedge than oil in the iranian crisis. What are some of the other calls then on metals, crystal . They like copper. We have steen copper forming a technical golden cross. That signals more gains, and copper is there because of things like renewables. Like nickal balls nickel. What are the themselves this year for commodities in general, crystal . I think a theme to watch this year is Climate Change and how governments, companies and Investment Funds respond to that will determine investment positions in 2020. We have seen that wind and solar Power Generation capacity is expected to surge this year. Another good example of climate hange and how it impacts commodities. The mayor time rules came into effect, also asian shipping. Thank you very much. With some of the response we are seeing in the gold price with the current positions. Coming up, one strategist says you shouldnt be selling stocks right now. We take a look at that next in your morning call as we bring you live pictures continuing to as they s from teheran mark the funeral of Qassem Soleimani. This is bloomberg. Matt welcome back to Bloomberg Markets. This is the european open. We are just 10 minutes away now from the start of cash trading across europe and in the u. K. You can see that we have futures down again. So it could be the second day. It will likely be the second day in a row of losses for stocks. Lets get the bloomberg first word news. We igawa to laura in london. Thanks, matt. Iran is pulling out of a key part of the 2015 nuclear deal. The new Jersey Agency reports teheran will no longer abuy or sell any limits on uranium enrichment. That is the fallout from the killing of a top general. The parliament has voted to excel troops. Oil extended its dramatic surge above 70 a barrel as the stapleton warned of a heightened risk of missile attacks in saudi arabia. Prices got a further booth fter President Trumps threats of retaliation if american troops are forced to leave the country. Gold surged to the highest level in more than six years. Goldman sachs say it offers a more effective hedge than oil. Australia has wildfires ravaging the country. They saw property in small towns off the coerce, and neighboring victoria hit by blazes that grew so large they generated dry thunderstorms. Thousands of people have been evacuate the to Recreation Grounds, hastily converted to camps, shrouded in smoke. A new top man in hong kong. Is a cox nist party stall wart. That signals beijings intention to restore law and order in hongchin congress. They are certain the situation in the city will stabilize. We have confidence that the constitution and the basic law will be fully enact the in hong kong. That will maintain the one country, two systems policy and ensure the citys longterm prosperity and stability thanks to the chief executive, her government and all parts of the community. The Golden Globes has lived up to its reputation as hollywoods most unpredictable awards show. 17, a world war i epic one the prize for best drama. That was bad news for netflix which one just two prizes on the night. One for the crown and the other for the film the marriage story. Global news 24 hours a day on air on bloomberg, powered by more than 2,700 journalists and analysts in more than 120 countries. This is bloomberg. Anna and matt. Anna thank you. Stocks are sliding in the wake of escalating middle east tensions. Traders who are selling equities right now may be making the wrong move. That is according to one analyst at least. Here with the details of the morning call, danny. That one specific analyst is dennis. He says that you need to be careful if you are using this latest escalation as a reason to sell stock. Specifically it is because we dont know the magnitude of impact that this will have. It will indeed be a head wind for earnings he notes, but still we dont know the direction and just the free of that impact. He says that typically went we have investors playing by the rules of thumb making smi sort of gut punch selling, they tend to lose money. On the other side of that trade are other investors who can take advantage of those behavioral things. He says the macroback drop is still supportive. Some of the Global Concerns seem to have stem the at the moment, so programs now isnt the time to be selling stocks. Makeup . Matt thank you dani with the morning call. Lets take a look at some more of your stocks to watch ahead of the open, or themes to watch. Airlines is one of those themes, of course. Be careful with airlines today because fuel is one of the biggest costs. I cant remember if it is the biggest or second biggest cost after personnel, but it is among the top two for airlines. When you see oil rise like this, that hurts your investment. It hurts airlines profitablity for sure. With oil rising, keep an eye on producers, but airlines are also a close second. Anna . Anna with oil prices hovering above that 70 a barrel mark, we look for response in stocks in those sectors. A quick word on what is going on in Financial Services and Trading Platforms. We had an update from plus 500. This is a relatively small stock, a Trading Platform. They talked about a much improved second half performance compared to the first half. They finished year in a good financial and operational shape. They say the q3 active Customer Growth was ahead of the growth estimates, pleasing that particular analyst at least on that metric. I have seen other brokers suggesting we are going to see it cross into i. G. Group as a result of this update from plus 500. Maybe others as well will react. Keep an eye on oil, airlines and gold miners as well because of the macrostory. Matt absolutely. The market opens in less than five minutes time. We have futures pointing down. The third trading day of the year. The first one was up, the second one was down, and we are looking at down again. So 2020, which i think people were very optimistic about at the end of last year, isnt starting off so well with all of these tensions. We are seeing futures down 2 3 of one on the dax. The open is next. This is bloomberg. Minute until the start of cash equity trading in europe. Here are your headlines. Iran says it is no longer bound by 2015s nuclear deal after the killing of its top general. Threatenedrump disproportionate retaliation should iran take action. A surge above 70 after the state department warned of missile attacks near missile military bases and Energy Facilities. With global stocks trading to the downside, gold surges to the highest level in more than six years. Matt we are looking at futures that indicate a down open across the continent and in the u. K. 75 percent down and ftse futures not doing as poorly but euro stoxx 50, the bluechip European Index is down two thirds of 1 . It is going to be another risk off day for equities. The start ofee european equities session and see how risk off it is. A risk off picture on friday, asking questions about why asia wasnt worse than it was because japan is back in the mix, we have a full picture of what the asian equity markets make of the geopolitical tensions and we saw selling in the Asian Session overnight. That adds to another session of selling in europe. Down on the ftse 100 and euro stocks,. 25 percent down on the French Market and the dutch market, down. 8 . We look for oil stocks to respond, we look for aviation stocks to respond. Lets get the sector picture. Wouldnt be surprised to see Oil Companies doing quite well or bucking the trends and aviation as a week came for a cash equity markets. For equity markets. We will see what is going on with the oil market and mining companies, looking for a response in gold mining companies. The big picture from this imap see heavys that we selling across European Equity markets, just like friday. Matt absolutely. Function onhe mov the stoxx 600, you see the same thing. A lot more stocks down than up. You have about 400 losers and only about 60 winners right now. Amongst asinners are you might saying Great Britain is bp and royal dutch shell. The Oil Companies will be doing quite well as the underlying continue to rise. For the most part, the gainers are the oil makers. On the downside, asml is the biggest loser, down 1. 5 and you see some of the Luxury Companies like louis vuitton, lloyd hennessy losing out today as well as hsbc and bnp paribas. Theyre coming you see a snapshot of what is going on in individual movers. Markets are opening lower after President Trump warned of a disproportionate u. S. Retaliation against iran if they undertake any military action in retaliation to the killing of one of their top generals. Annmarie hordern is looking at oil today. What are the spreads telling us . Annmarie thats what im looking at this morning as we have brent hovering at 70 a barrel. Use spreads are showing march delivery are taking off and becoming more expensive than if you were to buy oil in december. The spread is really widening. Premiums for nearterm oil, showing a physical tighter physical market and brent hovers around 70 a barrel. Bloomberg daybreak middle east was told he sees the flat price three dollars to 10 could be added to that. Right now, this is geopolitical risk. Ast is the worry, especially the state Department Says there is heightened risk around u. S. Particular,d in saudi arabia. Many people will think about what happened in september. Anna bloombergs Annmarie Hordern with the latest on oil markets. Lets get into a broader conversation about assets in the tensions. Litical will start with the oil prices and what that does for the asset you look at. On the short end, we are looking at oil dipping below 70 a barrel on brent. As we see oil play a more central role as an asset that is targeted as part of retaliatory actions, what does a Higher Oil Price me to you . Ofer we should be thinking the risk scenario oil could not just be going above 100, but above 130, 150 depending on a number of scenarios that can play out over one to two years. Asa even if we ceded u. S. More of a producer than it used to be, this is in 2003, this is 2020 and the world is different. Oil supply comes from different places but you still think the market should be braced for such elevated oil price . Peter yeah, you are talking about america bringing more online so that means the wti to brent spread could widen out. Take the scenario where all of iraqs oil supply disappears and maybe some neighboring supply has difficulty in being exported, then it will take at least a couple of years for american production capability to be switched online, looking at how quickly american production has increased the past couple of years. It is a situation that will require a significant amount of time for supply demands to become back into balance. Your experience in the markets, you know how supply and demand can swing significantly in Commodity Prices. Is this scenario, assuming that some sort of military oilliation from iran hits assets directly is this prefaced on the idea that the erring ins take out some saudi production or take out some iraqi production . Im thinkingenario of is iraqi production goes to zero and some neighboring production is also reduced i amficantly so really, thinking about these sorts of scenarios where i am talking about oil going above 100, 130 region. This is a third gulf war lets give it that name. Not the most probable outcome at the moment, it would require a lot of escalation on both sides, to turn this into another war. This doesnt happen for many months or many quarters from here. It would be unprecedented for it to happen this quickly but it is something the market needs to be thinking about when we are thinking about now and various financial assets. Matt thats exactly why im asking. It is not going to just be 150 oil that we see. You will also see what else would you expect, gold at 2000 . Would people around the world flood back into the dollar . What happens in the case in that scenario . Peter gold is clearly a good play here. We think its value is 1800 per ounce. We would be expecting and that is not an escalation scenario. That is what we singled should be trading at. Thinkexpect there gold should be trading at. We think there would be a sustained flight to quality. Thinking of rate markets, what the fair value for 10 year yields in a scenario where headline inflation has been ramped up materially by a sustained rise in energy prices, and that is very difficult. If you try to do empirical analysis on previous wars, you dont get any conclusive move in treasuries and bunds. You dont see them sustaining the kind of gains he cant extrapolate recent gains because of this material rise in headline inflation. If gold goes up, in regions im 150, this is a three percentage point increase. More on that, i pulled up a chart of the tuesday and s and everyoneten talked about further steepening last year. From what you say, it sounds very risk off. It sounds like a flatter curve with inflation dynamics . Peter i think the steepening strategy is very much intact. It is a kneejerk reaction which has flattened it. Weyou think about friday, had all of this kicking off and we heard from the fed i think it was evans who was talking about the likelihood the fed any energy price induced rise to inflation. It sounds like a fed that would want to be on hold even if energy had a transitory rise to headline inflation up to 3 or 4 . Got to think there is a negative impact for the consumer. It raises more of a risk of a stagflation scenario than a runaway inflation scenario. Matt peter, you will stick with us. More with peter chatwell, Mizuho Internationals head of rate strategy. Coming up, do we have the tools . Mario draghi gives a warning about the capability of the ecb to face threats coming up in the next year. We will discuss that. This is bloomberg. Anna welcome back to the european open. 12 minutes into your trading day and we have a negative picture for European Equity markets. Significant weakness coming theugh as a result of continual conversation over the weekend about the way iran will react to tensions in the middle east. Lets get a Bloomberg Business flash with laura wright. Is planning to join citigroup and jpmorgan setting up an electronic inrency Trading Platform singapore. The facility would support electronic trading of 50 according to a company statement. It would allow trading a precious metals. Lloyds has pledged to lend as much as 18 billion pounds to british businesses in 2020, matching last years commitment it will make available for companies of all sizes as uncertainty over brexit clouds the economy. Overall, credit remain strong. Would you give up facebook for a month in exchange for 50 . It could help analysts analyze how much social media is reshaping our lives. Thats your Bloomberg Business flash. Anna laura wright here in london. Decades most influential Central Bank President , mario draghi and janet yellen warned there were down to challenges ahead. They warned the fed and ecb might not have the tools to cope world of consistent low inflation. Japanification is a risk in europe, but not a foregone conclusion. Matt European Services this morning and composite pmis are out with spanish numbers imminent. Show analystseys expect the numbers to rise across the continent. Peter chatwell, Mizuho International head of rate strategy is still with us. Do you expect from pmis and how does the economy look to you from a 10,000 foot view . Europethe economy in looks like it is still shaky, but some of the deceleration in the Manufacturing Sector has started to slow in the last quarter of last year, so we are thinking the Manufacturing Sector would be able to continue to recover, to stabilize essentially and move back into some growth as trade uncertainty deteriorated. The service sector, though, is still going to be on slightly shaky ground. Strongest part of the european economy, didnt really suffer, but it was suffering some contagion from the slowdown in the Manufacturing Sector. Signs of any for roaring ahead from the service sector. Things will be acceptable for confidence that declining confidence to continue to unwind. Anna we will look to the data as it builds this morning to give you the first building blocks. Weve got the spanish december 54. 9,es pmi, rising to slightly ahead of the forecast of 53. 9 but the composite number reflect thing weakness, coming in ahead of forecast, rising to 52. 7, but not a stronger the services number. Strong as the services number. From your notes come you talk about a 10year bund yield at the end of 2020 of mine is 0. 7 . 0. 7 . That is the number we touched in 2019. What takes us there . Geopolitical tension or Something Else . Peter the big driver we seem is the euro area is in a liquidity trap and we see very large probability that the u. S. Joins them, joins europe, joins japan in being in this liquidity trap. The liquidity trap is that Monetary Policy is trying to too much do too much. It is going way beyond its something what we see that is not ecb specific that drives the bond downed bund down, but the fed doing more easing because it is trying to elongate this very old u. S. Economic cycle in very adverse conditions. They should really let it go. Better in the long run for the Global Economy if the u. S. Cycle word come to an end. That glass of liquidity continues to grow into the system is what will drive longterm yields lower. We are expecting in this quarter that bund yields can rise. We werent factoring any sort of war when we were figuring that scenario, but the composite pmi, the economy is not as bad a shape at the moment. Some of the risks to the european economy are to the upside as long as there is not a further significant escalation of conflict between the u. S. And iran. Anna with that important proviso. Peter chatwell, Mizuho International stays with us. Next, stocks on the move. Seeing astock is better second half according to a Trading Statement from the Trading Platform. This is bloomberg. Anna welcome back to the european open. 21 minutes into the negative trading session for the European Equity session, responding to tensions in the middle east. Lets get our top stock movers with Annmarie Hordern. Annmarie responding to tensions in the middle east, oil and gas is the only sector rising on the stoxx 600, up 1 . Weve seen bp, total, ecuador higher with brent hovering around 70 a barrel as the tensions escalate. The latest from the state department was heightened risk around u. S. Military base is under Oil Facilities and saudi arabia. France, one of the biggest fallers in terms of airlines, down more than 3 . All airlines are falling this morning on Higher Oil Prices making it harder for them. They can hedge, but it is out of their control. Plus500, a tiny company up nearly 5 . It sees a much improved secondhalf compared to the first half. Matt thanks very much for that. Fed officials either monetary likely to stay Meeting Minutes were released on friday. Release, we asked Charles Evans about the u. S. Manufacturing isn data, which saw its weakest print in a decade. Surprised by the week number. It had been weakened and ticked up. Manufacturing has been struggling, contracting recently. I think the trade policy uncertainty has been part of that, the gm strike was part of that, but that is over. It isnt surprising. Anna Charles Evans, responding to the week data. We heard the fundamentals are still strong in the economy. The strong part of the economy is consumer stock, labor markets are strong, incomes are up. The consumer side has offset the weakness on the manufacturing investment side. The economy has been moving in a good direction. Anna lets pick up on this with peter chatwell, Mizuho International head of rate strategy. The weakness being talked about came through in the isn, contrasted with pmi data. Maybe there is a boeing effect, foryou see a weak picture the u. S. Economy to be predicting the fed will have to cut three times this year. What is your backstory . Peter one of the things we dont do is pay any attention to the strength of the consumer. Our assumption anna in an economy with such a large portion of the economy driven by the consumer . Peter outside of recessions, the u. S. Consumer is extremely strong. It is not a leading indicator in our view. Looking at where the dollar is trading is far more important than the level of consumption in our view. What is more important is looking at some of the tail risks and the economy to see if anye tails are getting fatter. One of those it will not cause the next crisis, but auto loans. You look at the rate of delinquency on those loans. It is not a big driver, nowhere near the significance of mortgage defaults, but this is a sign that consumer may be happy to spend, happy to borrow, but their ability to repay is deteriorating somewhat. Im much more interested actually in how much liquidity is the fed putting in, and what is their Monetary Policy relative to what it needs to be to continue to keep this economy going. It needs to be much lower. Fedsstimate is that the neutral rate is lower than current policy. We think the economy is still burdened by over tight Monetary Policy. Matt and you think the fed will cut a lot this year. Peter yes. The way we would expect this to pause will this last for about a quarter. By then, we will see the significant downdraft in equities that continues to add liquidity, but i think we will have to ignore knowledge the need to cut the rates further, primarily to get the dollar lower. The dollar is one of the main problems the u. S. Economy suffers from. When we are looking at our models, what does the fed need to do to allow this expansion to continue . They really need to get the dollar lower. If they fail to do that, then they need to be stimulating credit by getting rates a lot lower than this. This is why we forecast three rate cuts this year and we do this thinking the fed will start on this path in reaction to having a weaker economy. Anna peter, thank you and happy new year to you. From Mizuho International, peter chatwell, head of rate strategy. Peter will join us on radio at the top of the next hour. Beyond the routine checkups. Beyond the notsoroutine cases. Comcast business is helping doctors provide care in whole new ways. All working with a new generation of technologies powered by our gigspeed network. Because beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected. To do the extraordinary. Take your business beyond. Anna welcome back to the european open. 30 minutes into a trading day that is negative. Im an edwards in the city of london alongside matt miller in berlin. Matt lets take a look at the stories in what is going on with the Industry Groups in the stocks 300. The index itself is down almost 1 . What are the biggest losers . Any winners . As we showed you at the top of the session, oil and Gas Companies are doing well with the rise in price of the underlying commodity. Oil and gas is gaining here. Otherwise, Everything Else is down with banks, auto parts, and down. Als leading the way almost half of these groups are trading with losses bigger than 1 . It is certainly a risk off day for stocks today. Lets get the bloomberg first word news with laura wright in london. Iran is pulling out of a key part of the 2015 nuclear deal. Longer abide by it limits on uranium enrichment, marking the widening fallout from the killing of an iranian general. Toqs parliament has voted expel the coalition from the country. Toilet surging about 70 a barrel as the state department warned of a risk of missile attacks near military bases and Energy Facilities and saudi arabia. A further boost after President Trump reiterated run threats of retaliation should iran do anything and without heavy sanctions against iraq if american troops are forced to leave the country. Gold surged to the highest level in more than six years with Goldman Sachs saying it affected was a more effective hedge. Australia assessing the cost of wildfires. Anderties in small towns alpine villages were hit by blazes that grew so large, they have generated dry thunderstorms. Thousands have been evacuated the Recreation Grounds converted into makeshift camps as a shroud of smoke. China has a new top man in hong party stallunist wart, signaling beijings intention to restore law and order in hong kong after nearly seven months of political unrest. He said he is certain this situation the city will stabilize. We have confidence the constitution and basic law will be fully enacted in hong kong. That will ensure the citys longterm prosperity and stability, thanks to the joint efforts of chief executive carrie lam, the government, and all parts of the community. Laura global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. Matt laura wright in london with your first word news. President trump is threatening iran with major retaliation if it does anything to avenge the u. S. Killing of top military general qasem soleimani. No longeraid it will be bound by the 2015 deal on Nuclear Enrichment while iraq is calling for all American Forces to be expelled from the country. Joining us now are bloombergs foxman and eric in singapore. What are the key elements the markets are reacting to today . Is it all this u. S. Iran tensions . I think so. I certainly think that what is different about todays reaction septemberhappened in around the aramco attacks is we have seen tensions continue to escalate over the weekend. Weve seen a clear sense of who is behind what, and weve seen the rhetoric continue to amp up and if we dont see that backed down quite soon, we could be in for a period of substantial tensions, unrest. Matt anna derek, what form could escalation take . I read a lot about the vulnerability of Oil Infrastructure in saudi and iraq, the strait of hormuz, all of that being discussed, im sure. Thinkts right, and i President Trump came out and said he had 52 sites they were targeting, 52 being a magic number related to americans held hostage at the end of the carter administration. The president has made clear he is willing to go after cultural sites. He came out and said it to reporters on air force one again and i would further add that President Trump has said not only is any action a redline, but he has said the u. S. Is ready, willing, and prepared to retaliate in a disproportionate fashion. You are not talking about a titfortat. One person i read on twitter said it is like iran is playing chess with the inventors of dodgeball. That is one of those things you have to be watching for. All when you think you have the answers, donald trump changes the question and that is what has happened here and that is why you see markets reacting isthey have, because there a new threat in the iraq sanctions and an escalated threat in the u. S. Iran positioning. Simone, theres been a discussion about whether or not this will have a Lasting Impact on oil prices, because the attack the killing of soleimani is different than the attack on the aramco facilities, right . Simone absolutely, and if we were to see the supply of oil iom iraq suddenly cutoff, think that would have enormous impact on the market, and to note, one of the other thelopments we have seen is Coalition Forces fighting isis are no longer able to concentrate on that because they are defending their own base. That saw something massive, it would impact in the oil market, but then again, the key story hasnt changed. Goldman analysts are writing today that we would see an overenthusiastic rallying oil on a demand story that was a really there. I dont know if this changes things. It doesnt change the fact that u. S. Shale has risen to the forefront. I think that remains to be seen. Derek, what impact do we see these latest developments having on trumps middle east strategy . He talked in 2016 of bringing the troops home, yet he finds himself in a situation where tensions are escalating. He says he doesnt want more, but has had to further commit troops to iraq. What is the latest thinking on trumps middle east strategy . I think it has really been changed in the last little bit and what i mean is when President Trump says i want to bring the troops home, what he means is i want to bring troops home on my turns. Hes not saying he wants iraq to go kick out all the u. S. Troops. In fact, that was the condition donald trump set for possible sanctions on iraq. If they kick out u. S. Troops, and dont reimburse the u. S. For the billions on billions of dollars of cost the u. S. Has had in iraq. If you are sitting there from a troop level, you have irans threats to go on and say military families better be ready for their kids coming home in caskets. In the meantime, you have folks in the United States who were born the year the u. S. Went in iraq, are turning 17 this year. It has been a while since the u. S. Went in and it has been a while since people have started saying they will pull out. As you rightly noted, every time people talked about pulling out, there have been events on the ground that convinced people to stay in. It is a really delicate situation. As you see here, iraq is caught between the u. S. , which has been a big money and security benefactor, and iran, which is its neighbor and a powerful influence. There are not a lot of good options on the table right now ir people, and certainly, think the escalation has been felt across the board, across all asset classes. Matt im just looking at the costs of the war. Direct costs of the war in iraq. According to Brown University in a recent study, 1. 1 trillion. It certainly has been an expensive endeavor from 2003 until now. Thanks to bloombergs simon foxman end half and Derek Wallbank joining us on our top story. Continue to cover this, plus bring you stock movers this morning including ecuador, bp shell as oil surges on the fallout from u. S. Iranian tensions. This is bloomberg. Matt welcome back to bloomberg Bloomberg Markets the european open. Drops of more than 1 across continental indexes and almost 1 in london. Lets get to the carlos ghosn saga. Carlos ghosn use Public Transportation to get from tokyo to osaka before boarding a private jet in his escape to lebanon according to japanese media reports. The former head of nissan took a bullet train and taxi. A Railway Spokesperson said it cannot confirm the report for joining us from beirut is someone who has been covering carlos ghosn very closely, matt campbell. Youlast story i read from about carlos ghosn paring for the trial of his life, you point out that unmarked sedans tale him wherever he goes. If he enters a restaurant or subway station, men in dark suits get out and follow him in. Get to walk did he out of his apartment or his house and get on a train to osaka when hes not allowed to leave tokyo . Well, the picture that is emerging is one of an escape that was incredibly daring and also really occurred in some respects implants id. While in plain sight. Undercarlos ghosn was surveillance, he was allowed to leave tokyo and occasionally did. The idea of him getting on a bullet train down to osaka as has been reported by the japanese media is not completely ridiculous. It is something he had probably done before. What is so incredibly daring is the way he spirited onto an airplane and made it safely out of japan and back to the country of his childhood. Anna good morning to you, matthew. What is the angle you are taking on this story . What will be the consequences of his escape for him, the industry . What is your focus . Matthew not surprisingly, the governments of japan and turkey, escape washosns also partly staged, are not happy about this to say the least and are both investigating. Could beeem there perhaps criminal repercussions in both countries for anyone andd to have assisted him, there is the question of what happens to carlos ghosn himself. He is now in lebanon, a country that does not extradite its has nowheret he reclaimed his former stature as one of them worlds most revered executives. He will now probably be looking to clear his name in some way. Matt on that note, what do you expect from Carlos Ghosns press conference i guess he is planning to hold wednesday. ,hould other nissan, renault french, japanese executives and leaders be quaking in their boots . Matthew i dont know about quaking in their boots, but we will see a carlos ghosn we have not been some time. He is able to speak now for the first time without fear of judicial repercussions in japan. He will be about to speak his mind, to settle scores, to criticize those he feels are responsible for his current predicament. We will probably see quite a conference from a man used to being in the public eye and media. From the start, he has claimed the Japanese Justice system could not give him a fair trial. A lot of people will be watching whether or not he proposes to be tried in lebanon. That seems to be a solution people around him have suggested would be acceptable to him, though not to the japanese. Anna matthew, fascinating story, still yet to unfold. Thank you for joining us with a preview on the ground, matthew campbell. President trump is threatening iran with majored retaliation if the country does anything to avenge the u. S. Killing of a top military general. Has already said it will not be bound by the 2015 nuclear deal on enrichment of uranium. Lets get into the conversation around oil. We are joined by an analyst at tesla. Good to speak to you. Do you see iraq as being the main theater of further tensions here . If we see escalation, is that where it will focus or will it be the strait of hormuz . What will be the focus . Thanks for having me. Absolutely, i agree with this. I think iraq is very likely going to be one of the main theaters of conflict between iran and the u. S. I think iraq is more torn apart than ever, between these two countries now and looking at how important the oil sector is for this country 90 of their government revenues comes from the sector and it is very important for the oil market. Last month, our estimate is 3. 3 Million Barrels from the south of the country, so significant for the oil market. If iran decides to physically retaliate, the first place this iraq. Be the case could be given 90 of the countrys production is located in the south of the country, if anything happens there, then iraq is going to be a big loser but the oil market is going to be a lot more stressed about what is happening and the other thing about iraq is it depends a lot on iranian gas. It has been able to to continue importing iranian gas despite u. S. Sanctions thanks to the waiver it was granted by washington. Endsnk the current waiver in the middle of february, so it remains to be seen what will happen there, what will be washingtons decision but this will be key for iraq. Will they continue to import iranian gas from matter what . Baghdad forarker in electricity and if they dont import gas from iran, it could impact their Oil Production somehow because of the lack of electricity production. The situation here is very dramatic and it is very, very dangerous for iraq, which looks to be the most vulnerable country here. Matt is an attack, and iranians on a oil facility the most likely result . Or could we see another attack on aramco, the likes of what we saw in september . What is the most likely move from iran . Is almosti think it impossible to answer. It is a guessing game here. I think we are looking at a huge play of chess between the leader of iran and donald trump. Between themselves, they are trying to assess what will be the others next move. Iran was testing red lines with washington and it looks like the game has changed and it is washington testing redlines for iran. Iran has many levers they could use in the region. They have many ways they can inflict pain to the u. S. Not by targeting directly u. S. Assets, but may be targeting u. S. Allies. Will openlyk iran attack iraqi facilities. I mentioned gas, but iraq is one of the main trade partners of better thee situation is for the iraqi government, the better it is for iran. Iran makes about 15 billion in trade with iraq not just energy, but the whole trade situation. I dont think this is very likely, but the could use proxies to cause some damage and increased tensions even more. As you said, for the other countries in the region such as game arabia, it is a guess but if something happens, definitely will have a huge impact for these countries. Anna homayoun falakshahi, Senior Oil Analyst that kpler, with further analysis. Next, the latest european data, french and italian pmis. Richard jones will be joining us from berlin. This is bloomberg. Matt welcome back to the european open. We are just under an hour into the trading day, and we are looking at red arrows big red arrows across the board, but im looking at the German December Services pmi, 52. 9 was the final the preliminary have been 52. Me, got Richard Jones with our mliv fx and rate strategist, back from his holiday hiatus. Off andback, first secondly, what do you think about the pmis we have seen today . France earlier and now germany, better than expected. Richard services are holding well. I think they are doing ok but the problem in europe is not what services. Manufacturing is such a number part of the economy and that is lagging. Services numbers are coming stronger than the composite which tells me manufacturing is weighing on the composite. We still havent turned the corner yet and if you look ahead if manufacturing continues to be as weak as it has been, it will bleed even more and to services and those Services Numbers will not be able to bailout the composite numbers. We will probably head below 50 if manufacturing stays in the doldrums. Matt that is all we have time for, but Richard Jones, mliv and rate strategist at bloomberg. Get more of his work by typing mliv on the bloomberg terminal. That is it for the european open. Stay tuned, up next is surveillance. We are headed to radio. This is bloomberg. Longere iran says is no is bound by the 2015 nuclear deal the killing of a top general. President trump threatened disproportionate retaliation should were iran take military action. The ust debarment warns military attacks at basis. Global stocks fly. Gold surges of the highest level in more than six years. ; francine good morning everyone. Talking to bloomberg survll