Transcripts For BLOOMBERG Bloomberg Markets European Close 2

But the equity markets are open. We are up by 1. 2 . Earnings season getting up tomorrow with j. P. Morgan, but stimulus talks are not going anywhere. The german tenyear yield, yields are going lower. We are also seeing some pressure caught in periphery. We are getting awful close to a has 100 spread that basis points on it, and that is certainly something we are watching very carefully. We note the comments from mr. Lane over the weekend. The other thing we are noting as well is what is happening with chinese currency. The pboc over the weekend basically putting two way risk back into that currency pair. The question is, will that be marketto stabilize this and keep the pboc happy, or is further action ultimately going to be required . Kailey joining us now is mark mccormick, Td Securities global head of fx strategy. Lets talk about the u. K. First. More restrictions to stop the spread of the virus there. The market doesnt really seem to blink at any of these new additional restrictions. Why . Mark it is an important question. I think part of it is, you can see on the index construction, we have seen lockdowns getting a lot tighter over the last couple of weeks, and get equity markets and risk markets are still moving gradually higher. I think one of the key things is markets are very forwardlooking. What they are kind of looking to is the scope for a vaccine or some workable treatment, or the ability to do faster, more rapid tests, which would help the markets and general humanity get back to some level over, lies asian. I think they are also looking forward to something that happens in 2021, were stimulus efforts are working in concert with a potential vaccine on a much larger scale. If you look past the immediate lockdowns and the immediate things this government has to do to quell the curves a little bit, i think the markets are trying to internalize this shift that we have from fiscal stimulus, from monetary stimulus , and also potential change in Geopolitical Uncertainty that would stem from a biden presidency. If a couple of months ago, a central bank had taken action, it would be viewed as currency positive. Over the philip lane weekend certainly indicating that more stimulus is coming from the ecb. Will that be euro positive . Are we still in that same paradigm . Mark i think the connection for euro is again, there is obviously an antidollar bias, but i do think there is positive develop that has been driving the euro higher. If you get ecb stimulus, that helps to reduce the spread between btps and other currencies, or other yield curves, btp and bunds. We are seeing reduction in the risk curve because at the exact same time we are getting fiscal stimulus, that is good for the currency, largely because they are anchoring the risk premium across different countries. While some would think that would be a negative driver that you are getting more monetary stimulus, i would take the other side of that, where the positive fiscal and the reduction in the italian btp spreads would be very positive for the euro because it would also be beneficial for broader growth of elements in europe. Kailey positive to the euro to the extent that it would bring it to a level that may be because of the ecb a little bit more concern . Mark they are definitely concerned about inflation, but theres good drivers of currencies, and i guess you could call them bad ones. Our fair value models for euro that are basically replications of the Academic Work that Central Banks follow is they are probably wouldnt be a lot of oneion until we got to dollar 35 cents in eurodollar. We could get to 1. 25. Mightf we had 1. 30, it not be significantly overvalued where it would create too many problems for inflation, largely of growth in these global defendants we are seeing now would move in that direction the next three to six months. 1. 25 is an important anchor point because that is where fair value is. I dont think that would be necessarily a point where they would be too concerned if the move wasnt rapid. Guy the ecb Vice President speaking right now. The ecb closely monitoring second wave risks and uncertainty. We will bring you more of his comments as they come. ,ets talk about the pboc introducing two way risk into the currency over the weekend. Do they have to take further steps . What are the locations if they do . Mark i think the state of the market is they are just not very comfortable with the magnitude at which the renminbi has pushed higher. I think they are introduced more to a risk as part of the internationalization of the currency, working to move up and down with a greater degree of confidence. I think they are trying to protest a bit on the magnitude of the move, but if you take a step back, what is most important is stability in the currency, and deform it has seen as a kind of antidollar currency. What people are going to try to look towards is what Financial Markets and we invest in outside . F the United States this is where europe and asia, where it all circles back to the u. S. Election, where if europe and asia can start to grow without the Political Uncertainty we have had over the last two years, then the currency can strengthen on more durable forward inflows. But right now they are just a little but uncomfortable with how quickly it has moved. But if you look at two of the best performing assets year to date globally, chinese equities are one of them, along with gold, which to me are signs that the park at is looking for assets that are not dollar related. Kailey you mentioned the u. S. Election. I want to point to some research from Goldman Sachs over the weekend that said the dollar could we can to 2018 levels if we do get a blue sweep. Does that sound about right . Mark mark i think so. There was a big concern about a contested election which would introduce more volatility, create more twoway risks, would interrupt the flow of this reflation trade we had already discussed. I think markets are getting more comfortable putting trades on ahead of the election, although i think what most people are going to wait for is the actual outcome. Once we have the outcome, it is if it is clear with where mike at expectations now are, theres about an 80 chance priced in that we could have conclusive results before thanksgiving. With that in mind, that would give us an entire month to start to reprice risk assets around Geopolitical Uncertainty, around taxes, around global growth, which is probably very bearish this outcomer, if is confirmed. If this is confirmed and we do have an election that is not contested and concluded by december, there is a term in this amount of runway for the u. S. Dollar to climb, with emerging markets now starting to participate in this move, particularly in asia and latin america. Todayanadian thanksgiving , which is obviously confusing everybody. A biglk about this being move against the dollar. How far could it go . Pendulums tend to swing too far. How far could this push . Mark if you look at the slower moving fair value maters fair value models, theres a better picture of what scares Central Banks. Our composites say we could have about 10 , 15 slide in the dollar. I think what is really important is we havent seen all of the currencies participate in the dollar move. Covid has had such a regional impact on risk premiums and latin america and parts of asia. Indonesia and india have had a very tough time dealing with covid, and we have seen the same thing in brazil and mexico and peru. We have seen these problems where the global reflation prayed the global reflation trade is being priced in. We havent seen emergingmarket currencies that are still a big component of a dollar basket. We havent seen them participate. What you would have on the next dollar move, which would be potentially confirmed through the election, as you now have the euro piercing through 1. 20 on the way to 1. 25. We have cable moving to 1. 30. You have aussie potentially moving. Now you have broader participation of mexico, brazil, and other parts of asia that have lagged. Youve got the den amex where it could be a 10 to 15 broad move over the next couple of quarters. Guy we are going to leave it there. Thank you very much, indeed. Always appreciate the analysis. What are we going to do next . We are going to talk more about european politics. We are going to look at what is happening with brexit. Weve got a big summit coming up. We are going to be speaking to Guntram Wolff of a bruegel. This is bloomberg. Guy this is the european close on bloomberg markets. Lets talk about what is happening with the brexit stories. Eu leaders will gather at the end of the week in brussels. Over the weekend, british Prime Minister Boris Johnson spoke with Frances Emmanuel macron and Germanys Angela Merkel to figure out a way to break through the recent difficult ease. Going up recent difficulties. Joining us now is Guntram Wolff, bruegel director. Do you expect a deal at all . Guntram i would really like to see a deal. I dont think that a deal is likely this week, but overall, i am an optimist. That is why i really think there will be a deal. I think there is really a lot at stake. Looking back at more than three years of negotiation, so much was at stake. Was very rapid and a very united from the beginning, and i predict that it visavis theited united kingdom, so the u. K. Will not achieve a sort of breaking of the front of europeans. United, but the question is will it be effective. I think if we cant reach a deal, history will also put some blame on the european side, not just on the british side. I think in the current situation, it would really be unnecessary not to reach a deal. Towould really be harmful our firms, to our consumer. It would be harmful to all of the Small Business is do daytoday business with the u. K. , so i really think it is the duty almost to find a compromise that is acceptable. Kailey if they cant, if we dont get a deal, what are the concrete ramifications of that. Are either side prepared for a no deal scenario . Guntram of course, there has been quite a bit of preparation ongoing in the last one or two years, but i would say the Immediate Impact of a no deal will still be felt quite significantly, and i think one immediate effect is certainly logistics. Despite all of the attempts to build up appropriate customs control and all of this, there will be difficulties if customs controls difficulties in customs controls, and there will be delayed. Mediumterm, i think the big issue will be regulatory divergence. That will impose costs on business, costs on employment. Are atink those things the core. Finally, of course, there is always the irish issue. The Withdrawal Agreement has sort of solved this issue, but without a deal, it will be very u. K. Tot for the swallow that deal in the long term. Deal. Hink they do need a otherwise we have lots of problems emerging, and for the eu, it wouldnt be nice either because lots of economic agility would be lost. Guy is there something worse than a no deal brexit . What happens if the u. K. Doesnt make the payments it is required to pay to the eu . Guntram look, i think that the of course by now has almost done the payments it is required to do, but of course, there remains some financial payments that will have to be done in 2021, until basically the very longterm term, related to of publicr functions employees, the european institutions for which the u. K. Is to pay as well because it also british Civil Servants who receive those engines. I think the u. K. Not respecting , therehdrawal agreement was a lot of loss in trust in the brits in the u. K. , and not paying i think would really be sending a dramatic signal, and politically it would not be acceptable to the rest of the eu. I think it would really be a low point in terms of International Relations between the eu and the u. K. Kailey of course, theres trillions of euros worth of trade at risk here, but what about you were just speaking to, euu. K. Relations . What does the ability to get a deal or the lack thereof signify about the usefulness of diplomacy between the two sides . Saying well, i am away the euu. K. Relation hasnt they are the closest neighbors among european nations, so we have to find ways of working together. I think if you look at all the big topics come beget china, be it also the u. S. Under trump, b that russia, and all of these topics, eventually and ultimately, i am still quite convinced our interests are really aligned. Wethat sense, i really think need to go together and not lose out. Guy given all of that, are we really prepared to see a fallout over fishing rights . Speaking, ifkly history books will be written and the deal will have failed because of fishing rights, i think historians will say these people meeting in brussels in the european council, the british Prime Minister, and Michel Barnier and Emmanuel Macron and angela merkel, they failed. That is what history books will say. This deal cannot fail over fishing rights. Kailey we have to leave it there. Thank you so much for joining us today. This is bloomberg. Kailey tech maybe gearing up to face eu regulators yet again. A list of up to 20 Large Internet Companies may we suggested to tougher rules to curtail their market dominance. Joining us with more is bloomberg tech columnist alex webb. Do we have a sense of what these regulations would actually look like . Vague at this stage. The Financial Times reporting that it seems to lean on some ideas that were proposed by the former advisor to barack obama, when he wrote the report for the British Government in the last year or so which suggested you should treat some of these Massive Companies differently from others, such as having to declare every single deal they , and terms of acquisitions suggesting it might be subject to more stringent measures when it comes to sharing data with potential competitors. It certainly seems to be setting the stage for some more tension with the u. S. Guy we are going to be talking to the ceo of allegra, a polish ecommerce site that went public today. It is trading on some really punchy multiples. Is that the kind of company that europe is looking to protect . It would seem so. Companies like amazon, and in the ecommerce space, shopify has a competitive note that even if they cease to be good for consumers, it is very hard for others to compete with them simply because they have so much share. D such huge market it is a fools errand to try to compete at all. Those sort of homegrown competitors, it is unclear whether this is the correct way to do it, or whether the best way is to try to be more proactive in supporting that sort of innovation from your Homegrown Companies instead. Kailey to the point of homegrown, i want to talk about the regulation these players are also facing on the others had of the atlantic in the u. S. We saw that antitrust report coming out of Congress Just last week. Would the e. U. Be setting an example for the u. S. In terms of how they regulate these companies, or vice versa . Alex absolutely. The eu seems to lead on this stuff, and the u. K. Follows and the u. S. Follows. Gradually, other states are adopting similar measures. By proposals that were made the house subcommittee about a because the committee is controlled by democrats, there was not as much support from the republican side of the house, it is unlikely that those measures actually ever appear in law. The European Union, because of the way it is set up, you are able to do more unilateral measures without necessarily having bicameral approval. That gives a certain level of power to weigh in on the sort of issues. Different would a Biden Administration be in viewing what europe is doing is positive . It strikes me as a very bipartisan issue in washington, that the europeans attacking u. S. Tech is something that you need to rally around in the United States, regardless of which side of the ill use it on side of the aisle you sit on. Alex we have seen criticism from both sides of the aisle on some of the actions in europe. I think that perhaps the response would be a little bit less abrasive than it typically is under the trump administration. You are less likely to get titfortat, less reaction by tracking down french luxury firms, for instance. That has been the response of the trumpet ministration. Dont forget that Kamala Harris in particular is someone who is from california, and perceived to be quite close to big tech on the personal level, as well as political level. Therefore, it is not any stretch of the imagination that a Biden Administration would have that view. Guy we are going to leave it there. Alex webb of bloomberg opinion. The european closes next. Guy 30 seconds until the end of regular trading. Lets look at where european equities are. Going sideways. Light volume. Not sure if it just being a monday, but nevertheless experiencing that. Range bound towards the top end of the session. Up. 8 . In many ways, the evidence is ironic, considering we see u. S. Bond markets closed. The action is in european bonds. We saw hints over the weekend from the ecb chief economist there is likely to be further stimulus, and that may be coming relatively soon. That has once again provided further reason to compress disparate bunds to btps, the german bond market to the italian bond market. Closing in on 100 basis points, which is amazing. A number of factors behind this. The ecb action has been significant. The idea we are removing redenomination risk by the fiscal package has been announced. This trait has further to go. We could continue to see european bonds, potentially seeing yields push lower, prices even higher than where we have been. In terms of the equity market, the ftse 100 down. 2 . The dax and t