Transcripts For BLOOMBERG Countdown 20150505

Labour are now and neck. It is a nationwide campaigning marathon. Mark welcome to countdown. Caroline im caroline hyde. Anna mark can germanys biggest carrier complete its turnaround . We will bring you the numbers as they break. Caroline plus exclusive interviews you dont want to miss. First, rayban maker making the second version of google glass. We will speak to the chief executive in a couple of hours. Mark we catch up with the finance minister in another exclusive conversation. Caroline ubs reported firstquarter earnings that beat analyst estimates. The profits almost doubling it jumped 88 . All divisions beating analyst estimates. Investment banking up 81 . We had plenty of volatility in fixed income and equities. Meanwhile, Wealth Management saw profit up 54 . 14. 4 billion. Very interesting. They will be changing the pricing amid negative rate outlook as we see many going into negative territory. That could affect the amount of customers they have but they feel they will have net flows next quarter. They have made adequate provisions. No more provisions being made by ubs. We will be speaking with the cfo himself to take us through the numbers later in the morning. You dont want to miss our conversation with tom naratil. Mark the Central Bank Cut its rates to 2 . Lets go to james thornhill. Hello to you. Give us the Market Reaction first. James plenty of excitement following the cut. A surprising thing which was they did what was expected of. We have not seen that happen. Since the currency went down initially, which is what you would expect. Very quickly reversed the losses and the last time i looked at the market, it was actually higher. That is a result that they have not provided very much guidance on what to expect Going Forward. In fact, traders are focusing on the fact banks of seen positive trends in household growth and employment in the last six months. Mark what are the prospects for fursor further easing rates . What is next for the rba . James speculation will be whether there is scope. The rba has held its cuts close to which just. The next thing to look out for which is the quarterly statement on friday. People are expecting that to produce moderate growth forecast which will backup the move today. We are back to data watching essentially. The employment numbers were always key. Business investment, that sort of thing. I think the jury is still out. Mark thanks a lot. We will see you soon, james. The rba did what the economists said they would do and cut rates to a record low 2 . Caroline just two more days of campaigning until u. K. Voters choose the next government. The battle rages on between labour and the conservatives, each hoping for a lastminute surge to form a majority. Talk us through these lastminute strategies. Good morning. Two days of campaigning left. If you thought polling was going to be healthy, im afraid i have bad news. The latest polls show the conservatives and labor both on 33 . Not helping workout exactly where the voting intentions are moving. The latest campaigning tactics they are stepping up a little bit in terms of the rhetoric towards westminster. If the government was formed that did not have representation from the smp, it cannot be the biggest pocket in england that forms the government. His latest campaigning or latest strategy is to dare the smaller parties not to back him. If if he gets that opportunity to put the government together in one of the votes which could then lead eventually to another election if any government would to fall apart and that would cost him money. This is the latest campaigning tactic. Even if they were not able to form an agreement between labor this is the message they are giving out to the smaller parties. David cameron was talking about labours record on the economy criticizing them and the relationship between labour and the banking sector. David cameron they got away with the bonuses and pensions. It was the low paid the people that lost their jobs. The families that did not make it through. They have not helped any intercountry. In our country. Mark bloomberg has been analyzing some of the sectors that could be impacted. Not much between the major parties . Anna big policy differences. They find interesting reasons to not pick in terms of the reaction we will see in some of the companies. In the power sector for example, they describe it as a loselose saying that whoever wins will see big changes to the energy sector. In the detail, they will be big differences between the proposal and one analyst says he does nothing the bonds and shares are likely to rise if there was a conservative win. Some of the Renewable Energy Companies Might have some concern if the conservative government wins because there is support for onshore wind farms which are significant for that industry. The Labour Party Said they would freeze prices and break up some of the companies. Some substantial changes potentially there. In the housing sector, bloomberg has been talking to experts about the housing policies and finding both parties are designed to increase access to allow people to get on the housing ladder. Some of the experts at bloomberg is talking to is saying that these are policies that will just increase house prices. They just deal with demand not supplied. They are great there are Great Stories. It is the number four issue behind the economy, immigration and health. That is the first time has been that high up in the agenda. Caroline talk a little bit about celebrities for us. Delia smith, who else . Anna Russell Brand has gone to people to vote for labour. He did that for his youtube channel. Getting a little bit of a back chat from the crowd it seems in scotland. He was with jim murphy in glasgow. They didnt like their presence all that much. Delia smith backing labour. Hugh grant was tweeting last week about alexander and saying he is a nice guy. All nii can predict from here until thursday ifs that more celebrities will be coming out and speaking for one party or another. That is what they have been thinking about at this point. Caroline thank you very much. Check out bloomberg. Com europe for an interactive map where we will bring you the results of the election all through the night. Mark top stories this hour greek officials meet with european counterparts in paris as the Company Continues talks with creditors. The ecb president mario draghi of germany. In france greeces is due to make a 200 million euro interest charge to the imf tomorrow. Luxury eyewear maker reported earnings that beat estimates. Sales were up 20 , helped by the strong euro tail wind. Stay tuned for the exclusive interview with the chief executive later. Department of justice is joining ofan investigation from 2012. The probe relates to the last meeting between officials and a Global Advisor whose reports on details is at the center of the investigation. The total return fund is the largest nonmutal fond following two years. Pimco suffered 110 billion from outflows since the longtime manager bill gross left in september 26. You can find more on that story at bloomberg. Com europe. Caroline none other than bill gross is trending on twitter. You can join us on the conversation on twitter. It is also on apple tv as well. Give us some of your thoughts. Some of the things that are trending today. New guinea also trending after having another earthquake. The fourth earthquake may have experienced. Im caroline hyde. Mark coming up later, earnings as they break. And looking at what British Business things about breakfast. My chart makes an early debut. Stay tuned. Caroline greeces 200 million euro debt payment but does the market still care . We will ask our next guest after the break. Mark 24 hours to go until greeces deadline to make a 200 million euro payment to the ecb. Hi, phyllis. What a month greece had in april. They saw the best month since 2010. Why isnt the euro trading off the greek saga . Phyllis interesting question. It is not trading off of Political Developments because we have a very powerful dynamic in europe which is quantitative easing. Real rate differentials, the eru uros real rate disadvantage is really big. We know it has yield advantages that will dwindle over the next 18 months. It is not a force to be underestimated when it comes to how the euro will trade. Political developments continue to be quite somber in europe. As you mentioned, the euro is trading off of Political Risk because it is a continuing feature of the backdrop at the moment. Caroline we have some Great Stories talking about the fatigue in the market when it comes to greece. Not only in the euro but the bond market people are feeling the peripheral of the market are not really factoring the downside. We could have a significant downside. You feel that the euro could trade lower. Phyllis the risk has been contained to greece. When we had a risk flareup, it has been greek yields that have come up. It is pretty contained due to the peripheral spread. That will probably continue. The outlook in terms of the next year will be quite important in terms of the politics, but i think itll be quite distinct in terms of impacting the euro. Mark the ambition to downgrade the forecast of the greek economy. That has implications Going Forward for its ability to achieve this this this budget excluding interest payments. Phyllis there are a number of variables that policymakers are grappling with. One is a much weaker Growth Outlook they had been anticipating and that impacts the physical numbers. And the fiscal objectives. The other one, of course, which is what the key focal point for the negotiations is pension and labor market reforms. If we dont get agreement in that area, according to her own economists, it is going to be tell for them to negotiate a deal in the next month or six weeks. We are punctuated by the series of deadlines which will keep the markets attention. Caroline you mean they are putting them to one side after making a deadline for themselves . Phyllis there are different deadlines for different things. The one pertaining to the imf we think will be made. The ones that are more difficult as we approach the summer. We are going to need to see something in the way of a concrete deal between the stakeholders. If we dont, you could see some risk getting priced into the euro because as we lose time, that is when the risk builds into the Exchange Rate. Mark as it is, the Exchange Rate had a great month, didnt it, against the dollar in april . It was down 1. 03 at one stage. Is that all on the u. S. Side of things . Phyllis yeah, it is on the u. S. Side of things. You saw the dollar really consolidate the downside over the past month. It is really down to positioning because so many investors have the long dollar trade. We really felt as though it was a positioning squeeze. As soon as we get that better data in the u. S. , i think we will see another leg higher. Mark it is the key to the data in the u. S. Phyliss lis this friday included. We will see the dollar get a leg up we feel. It is for payroll and we think we will see that above trend. The trend has been around 200. Mark stay there. Stay with us. Caroline welcome back. Phyllis is still with us. Lets talk about the united kingdom. It was a holiday monday but you were writing notes about what could be the effect in the currency market of this incredibly difficult election. There is uncertainty aboounund. Is that showing in the currency . Phyllis there has been uncertainty in the currency. Sterling has been unsettled because of the instability in the government. As well as the looming risk of an eu referendum. There are different risks associated with any potential outcomes for any number of coalitions we might get. We will have some risks associated with it for sterling. It has been trading in relation to that, volatility as well has been quite elevated. Mark one week volatility is the highest since 2010. Threemonth volatility though is below it tiess highs of early april. Does that mean investors are not so worried about the uncertainty or the fear in the near term . Phyllis i think so. People are concerned about the outcome we could get in the immediate aftermath of the election and what kind of agreements or arrangements will be made. Thereafter, there is a level of confidence that we will get some sort of stable government in the u. K. I think that is why volatility at that threemonth horizon might be a little lower than we have seen it. All eyes are on the u. K. Election. It is still a very open election with just a couple of days to go. So i think the currency market if we did not have an election this week, for example and we did not have all that uncertainty associated with it the macro economics and the u. K. Were very solid. We would see sterling much wrong than it is right now, we think. Caroline is there a risk we will suddenly see a jump back up for sterling that people are not positioned for because people turned their attention to the bank of england . Phyllis i think that is the case. If we see, for example an outright win for one of the parties, we could see a relief rally in sterling. Caroline how do you position yourself when theres so many uncertainties . Phyllis we have been recommending long positions in sterling volatility for six months now. That has been the best way to play it, rather than taking a directional trade. We have recommended going along the euro sterling volatility. Mark we had a rate cut. The rba cut rates to 2 . Economists did forecast that. Last time i checked, the dollar was actually rising. Was the news in the prize or it has been rising since the meeting in april. It had a good run. The rba cited strong currency. Why is it up today . Did the market expect more . Phyllis it has been very interesting fx reaction in the wake of the policy action recently. Same thing happened about 10 days ago where the bank did larger than expected amount of qwe. It did very well. It did not weaken. I think we are seeing a little bit of the same. We were actually looking for a rate cut from the rba. I wouuld expect the aussie to resume a downtrend over the next week or so because clearly the bank is not happy with strong Exchange Rates. Australia suffered a significant trade deterioration. Commodity prices are still quite low, weak. I would not see this reaction as likely to be sustained. It is very interesting. Caroline it is very interesting having you on as well. Thank you very much, phyllis. Mark coming up breaking news out of germany we will break down the numbers for you right after the break. Marketing welcome back. Time for your market check. The aussie dollar is rising today against the u. S. Dollar after australia cut it Interest Rate to a fresh record low in response to an economic outlook. The strengthening in the currency the rate was lowered to 2 from 2. 25 . It was predicted by 25 of the 29 economists surveyed. The reaction was interesting. Just a few honest ago, a guest was puzzled by the aussie dollars move upward by the decision by the centralbank. This is the oneyear chart. This is down for the aussie dollar in the last year. 79 u. S. Cents. Interestingly since the last meeting on april 7, the aussie dollar has risen more than 7 the best performer in a that period among the major currencies of this the dollar after the norwegian krone and brazilian reality. The rba stipulated that the further aussie dollar depreciation seems likely and necessary and policymakers did warn investment in industry outside of mining which was supposed to take up slack in the economy could fall. The government is due to release its annual budget on may 12. As a likely to add stimulus to an economy that is growing below potential rebounding currency and slumping iron or prices. The rba will release updated Quarterly Economic growth forecast on friday which the board would have seen ahead of today given insight into the Growth Outlook. Right now, when aussie dollar gets you 79 u. S. Cents. On april 13, the aussie dollar fell the lowest against the u. S. Dollar since may 2009 when it reached 70 . 75. In the last month it has risen on a trade way against nine of major peers, the secondbest performer. Interesting move today. It is done over the last year but the aussie dollar has risen despite a Central Banks cutting rate by 25 basis points to 2 which was predicted by 25 out of 29th economist surveyed by bloomberg. We are getting breaking figures for caroline they are looking pretty good. A beat helped by the euro weakening and translating the money made in africa and asia and china, it gets a little bit better on your bottom line. Four point zero 8 billion euros, . 17 uptick for the First Quarter. Strip out currency in neutral, total sales up 9 for the quarter. Also seeing Margin Holding steady. They say it is a strong start for the year. Adidas doing well. Doubledigit growth and western europe china, africa. Strong revenue tailormade. This has been is a thorn in their side for the last few quarters having to take charges for you they said mainly due to sales declines which more than offset the doubledigit increase in clothing. Overall they said were onto successful start of the year and enjoying great mementos behind the chief executive. They are looking for a placement for him in 2017 and have been hiring headhunters. Fashion driven stars and highly engaged campaigns and they said we are excited. They really changed their strategy earlier this year. A torrid time in a 2014 when their shares felt fell. It was the worst performer on the dac. We saw hits in russia and concerns are about them losing tonight the end now they are trying to reclaim the focus and focusing on key cities, l. A. Tokyo, new york city. Not trying to win everything but in certain areas. Try to beat the market as it is cutting the amount of models they sell. Sticking to their forecast. Off to a strong start for the year. Total sales up 17 aided by the euro. Mark a german company, the national airline, the First Quarter net profit of 420 5 Million Euros after releasing a net loss a year earlier. The metric that investors like to watch as a company prefers to focus on is earnings on a debt measured, we do have a loss of 144 million. A loss of 200 70 Million Euros last year. It is now or when. It is been turbulent. A loss of 217 Million Euros last year. A copilot of the germanwings flew in airbus into the french alps killing all 150 people on board. Even before that disaster, the company had been struggling for followup for one of the fiercest labor disputes as well as pressure from lowcost air carriers and persian gulf attacking a longhaul routes. It seems a further impact of the strike in coming quarters. The First Quarter affected 42 Million Euros. The further 15 million euro burden in coming quarters as well and expect fuel costs at 6. 2 billion euros up from 6 billion euros. It reiterated its forecast for the year. That is the earnings before taxes to rise to more than 1. 5 billion euros win at adjusted for tension and asset disposal and impairment as well. On a level, yes, we have a loss on a net level and a profit. The Company Still feeling the effects of the strike action both in this quarter and continuing to feel the effect in coming quarters as well. That is the details from lufthansa germanys biggest airline. Caroline the European Commission publishes in spring economic forecast. It will cover 2014 and 2016. Gross inflation and budget deficit will be included. It will be released 10 00 a. M. London time. A Rating Agency were unprepared with the mcdonalds turnaround plan. The ceo announced a restructuring into a 4 segments. They will shift more restaurants to independent owners. Cutting to the Company Ratings and shares closed down yesterday. Prime minister matteo renzi overhauled italian election system on monday far more stable government. Under the new law, a party with at least 40 of the vote will be assigned a majority of seas and in the lower house for if no party reaches 40 , a second ballot will come between the 2. The low total system will come forth in july. You will find more on that story at bloomberg. Com. Ev left taurus system will come forward in july. Mark two days before the elections. Electoral system will come forward in july. Mark cahr charles, thank you for joining us. You say a conservative led government is slightly more likely. Back to that. Charles i would not put my life on it. If there is any surprise a for thursday or on thursday it would be for the conservatives prehistoric lake, the polls that had a problem identifying how big the conservative vote is not cool to say it is going to the Good Services conservatives. It is reinforced this year because of the conservatives is slightly safer. Labour will ultimately not be able to get the support of the snp. I think the conservatives have rightly or at least capitalize on a this and the socialist will probably flock to the conservatives to some degree. Whether it gives them on season with the liberal democrats and snp i do not know. Caroline you are in agreement that generalized that labours has run a Better Campaign print have campaign. What has gone wrong . Charles lichfield labour has exceeded expectations. Ed miliband has exceeded. At first, they were quite low. It is not there been very hard for to show he has political experience a he can give a speech and asthma his popularity figures soar. They are not as high as the conservatives. And gave his popularity figures, allowing them to soar. They thought they were more credible and David Cameron was more credible as they had a lead on the economy because of growth and unemployment was down. They were hoping leading a dull campaign on the economic figures and extra credibility would be enough. It is now within the party over doubts it was enough. The Campaign Strategist had a history of delivering successful campaigns on very dull points economy, credibility. He is still telling the party by thursday you will see he is right. Whether they might have been better to talk about values or other things and not just boring economic credibility. Mark as you say charles leading to the question if we do have a labour minority government informally supported what are the implications of three strand Economic Policy evolution and in relation with the eu . Should we rustled through . Charles lichfield ahead headline is the spy all of the noise it would be terribly unstable, we think ahead of the headline over the noise it will be on terribly stable to star on the economic data, a lot of agreement. Snp agreed on the 50 tax on higher income should be returned. As they agree that the nondom policy should be abolished. They agree on many things. I think but they disagree on principle about austerity and reducing public spending. Labour needs to rebuild economic integrity. And to strive for a balanced budget. And likely perhaps thats what they will strive poorsn strive for. Snp talks about more spending. On policy, pretty much agree. On devolution, not to the labours interest to push devolution agenda. Labour historically has done well in scotland and the conservative party has not. Labour will try to push the devolution issue. Some type because the two shall committee and because it will be an unstable government anyway, the majority view is hoping that Constitutional Committee will call up with proposals to get through parliament. Whether the snp tolerates this, i do not know. The snp could threaten to withdraw support. They are predicted to do well. They will not do well if they have led to a good allegedly tory government. And then if they do well emboldened by the figures, they could withdraw support from labour. Finally on europe, if we have a Labour Government supported by the snp, we do not have a referendum on europes by 2017. I think there will be a lot of frustration that i referendum has been canceled because people have been expecting it and prepare for it. There will be no referendum. I think the country will suddenly become the referendum has been canceled. It will strengthen the u. K. Which is not done very well in this campaign. And then ultimately what happens to the european question depends on hold because of the next leader. Cameron will go if miliband becomes Prime Minister. I think the prospective candidates will have to support each other and oh i do not have a very good outlook for the character of the party. Mark thank you. Well said. Charles lichfield researcher for europe at eurasia. Caroline staying with the election theme. Labor the service have promised a referendum upon elect conservatives have promised a reptile referendum on election. We spoke to this is honest to gauge their thoughts. Business owners to gauge their thoughts. I think more capable people as there are constraints and certain communities where jobs to go around where it creates more attention. Here in central london, i can tell you we are always struggling to higher great people. I would strongly advocate the remaining business and attracting the best and the brightest and most capable people not only in the shortterm interest is also the longterm interest. Chris is really critical for the u. K. It is really critical for the u. K. In our office, we have 16 different nationalities and that is not it is the best people we can find. We are bringing people from Silicon Valley and china and scandinavia and brazil and etc. That is truly unique. That makes us super powerful. No one likes uncertainty. I think specifically what i can say is with had huge success expanding to america. You only have to comply with one set of rules. You only have to integrate one set of systems to the market where europe is more complex. Anything that makes europe more complex will make jobs going there more difficult eventually. Immigration is a real plus. Immigration for businesses in the environment and could potentially be a concern. Europe is our biggest trading partner. Involved in a lot of businesses. It is important we make it as easy as possible. Mark off the, though bart chart. Stay tuned. Up next the bart chart. Mark time for bart chart. Multiyear highs. We are looking at implied volatility, the measure of anticipated price swings at the current Exchange Rate raised on option prices. For now until the end of the maturity date, we are looking at one with volatility on the pound against the dollar. With w 2 days before the election, it has risen to 18 . Look at the top chart. Since may 2010. Even more interesting is one big volatility is past the levels reached at the time of last septembers Scottish Referendum which i circled up in there. The white circle. That was the referendum last september which clearly illustrated the uncertainty surrounding this weeks vote. Two week volatility is almost at a fiveweek high. Threeweek volatility is below a five year high. Look at the middle chart. This is implied volatility, a measure of anticipated price swing and the pounddollar Exchange Rate over the next month. It has been rising in recent days as you can see right there. It is closing at a level last reached april 9, with yellow circle right up there. The highest since september 2011. Investors are not just uncertain about the next week, implied volatility tell us they are uncertain about the next month as well. What about the remote implied volatility . That is the bottom chart. The measure of anticipated price swings in the pounddollar Exchange Rate over the next three months. Unlike the one week and onemonth chart, this one is neither act nor just below the high earlier this year. That high which i circled, the green circle, was 3. 5 year high on april 1. Right now, the measure, a gap of about 15 . 15 below the 3. 5 year high. The trend in recent days has been an upward one that investors do seem to be more relaxed on the threemonth horizon then they were at the start of the month the start of last month when we saw threemonth implied volatility and a 3. 5 year high. To keep an eye on these three charts for one week, one month and three month implied volatility. They tell us how worried investors are and how long they expect this postelection uncertainty to last and implied volatility is a way of gauging if investors are betting on the second election in the mediumterm as well. Three very important charts just 2 days away from the u. K. Election. Caroline the west london boroughs in chelsea have outlawed the socalled megabasement. Some Property Owners digging three stories underground added millions to the value of their homes. We met up with 2 developers who are said to be building the last megabasement. Were off to chelsea to go to a project we recently finished which is on the market. A normal basement job we will charge the client 400,000 pounds. Now 1000 squarefoot basement that is going to make the client one Million Pound extra. My name is nick jeffries. At present, we are in chelsea. We have created 1000 square feet and we have a jim, the utility room gym, the utility room and a bedroom with a suite. The Property Value added about 2. 7 Million Pounds just to the basement. This house is on the market for 12 Million Pounds today. It is expected to go up up. The super rich around the world what having a piece of chelsea and mayfair. These properties are going up and up and up. It is crazy. We are the monsters, we create havoc for a year and a half. It is london. It is a building site. You cannot get away from it. We like to focus on the high end, luxury market. The 1 of the super rich. What we are standing here is 2 new properties. Triple basement, three stories below ground and 4 stories above ground. Two basements and a swimming pool. This will be the end of the mega digs. Caroline you can see more of that hes online. Piece online. Mine is a sad story and one that made me fall to the floor. It is david goldberg, chief executive of surveymonkey and husband to sheryl sandberg. Mark and we have interviewed on this show. Caroline he spoke at a web summit last year and a great speaker. A tragic death on may 1. He actually sell off of a running machine in mexico while holidaying and hit his head and do to blood loss. He died died in the hospital leaving 2 Young Children and mother. He really was one half of the power couple in Silicon Valley. He launched a media back in 1994. He worked in a growing survey monkey into a 2. 5 billion company. It is incredibly sad. Silicon valley must be unbelievably sad. Mark and 47 years old. Countdown continues. I will be speaking to a chief executive of about his companys earnings. Countdown australiamark we bring you the Details Behind the First Quarter. Countdown 20 for hours to go for greeces deadline to make a 2 million euro payment to the inf imf. Greece makes lastditch efforts with creditors to strike a deal. Mark the u. K. Election campaign enters its closing stages. Party leaders had out head out on a nationwide campaigning marathon. Hello and welcome to countdown. We will walk you through the numbers. Caroline we bring you two interviews you would not want to miss. We will speak to the chief executive in a couple of hours. Mark we will catch up with another exclusive conversation where conversation. Any second now, we will be awaiting details on underlying profit. Just to give you a sneak preview ahead of the earnings and head of the interview. Our first interview with the day of the day with Martin Gilbert. We have a first pretax profit up by 20 or 25 . Firsthalf sales up and assets under management, 330. 6 billion pounds. Gross new business inflows have continued to grow. But they have been offset by outflows. That is something i will be quizzing the ceo on. Lets get to him. Lets join the chief executive, Martin Gilbert. On the line for his first interview of the day. Thank you for joining us today. Martin gilbert good morning. Mark up to 44 part 7 . Everything 44. 7 . Everything looking good. Just explain the net outflows what is going on . Martin everything is in good shape. Profits are up spectacularly swift deck acquisition. You are quite right. We are seeing these outflows by merging markets, sort of macro calls as the world floods to safer assets. And comes out of emergingmarket equities and even emergingmarket debt. It is surprising because debt is yielding 6 and european and world government bonds around 1 . The volume is in emerging markets but we are seeing the money coming out. Mark are you going to reduce your exposure to emerging markets or you are stuck there for the long term . Martin i am afraid so. We have always been an emerging market. Although the acquisition of swift has changed the business dramatically. I think it is excellently the wrong time to be reducing exposure. In fact it is probably the time to be thinking about increasing your exposure as other markets and other bond markets are at record highs and their israel value in emerging markets there is real value in emerging markets. Mark we saw what happened at the beginning of last year when markets started getting unary about possible jittery about possible rate hikes. Can emerging markets withstand that few that first u. S. Rate hike when it comes . Martin there is a shortterm blip. Regulators are concerned about the levels of developed market bond markets around the world because they are concerned about the level of them and what will happen when the first rate hike comes through. That first rate hike, we have been looking for it to happen in june. It is deferred again. It is not coming anytime soon, i think, because the u. S. Dont want to put up rates. We even have australia reducing rates this morning. Mark it is very true. The question on when the fed will raise rates continues. I want to ask you about matters closer to home. The banking industry. You are big shareholder in Standard Chartered. You are a shareholder in h best ec hsbc. The possibility of moving its headquarters from london. One of your singaporebased [inaudible] said Standard Chartered should relocate. Should hsbc follow suit . Martin i think i saw the chairman Douglas Flint saying that the agm they had differed discussing it for the last four or five years but it was now back on the agenda with the calm coming as far as regulation is concerned. They will look at it but it is more couple dated than anyone thinks. I do not think it is a decision that can be just made overnight and actioned overnight. It is many years in discussion and but it is a subject that the boards should look at. Mark are you making new investments in banks or are you banging your head against the wall because there are so many barriers, are there . There is regulations, capital requirements, misconduct finds. Are they attractive as an asset class right now or not . Martin i think we have for the last six or seven years had a bias toward emergingmarket banks which have had more deposits than loans lend money to people who might pay them back, and have very little Investment Banking exposure. Standard chartered and hsbc we regard as quasiemergingmarket banks which is why we hold them. You are quite right. The difficulties for banks are still there. Mark got to ask you about the election. You are quizzed many times before the Scottish Referendum on the outcome and use it even if they voted yes, scotland would be fine. Lets go to the ui get to the u. K. Election. What is the best and likely outcome . Martin even the okies cannot decide. Usually they are the best guide because the referendum, they got it right. So if you go by what they are saying it is going to be conservatives as the Largest Party. Ed miliband is the favorite to beat Prime Minister. If you can work that out, youre better than me. Mark as someone who probably knows the habits of the smp more than most on this side of the border, will the party hold the labour party to ransom because the conservative party, if they are a minority government. Martin i think the thing that surprises us north of the border is the number of seats that predicted to win because i am not sure even the smp expect to win 50 odd seats. Im sure they would be a they would be delighted if they won 30 or 35 seats which means that labour would have more seats than people predict. I do not know what the outcome will predict. Bookies support labor but whether that happens or not i have no better idea than you do. Mark always good to chat to you. Thanks for joining us. Martin good speaking to you. Mark sales rose by 20 and underlying profit up i more than 20 . More breaking news from volkswagen. Countdown they have caroline they have their [inaudible] they will create an integrated truck group and the truck and bus becomes holding for the commercial vehicle ground. A board member will be joining. Showing once again volkswagen focusing on the trucks and buses area. Looking at man and scania to pull together with a call a world champion. What they call he global champion. Mark a very good morning to you. Give us the Market Reaction first to this. It was not a big surprise, was it . Dan it was not a big surprise. It initially went down and skyrocketed up. That is it in the minds of many people in the market. That the cycle is over. You still have the aussie dollar hovering around . 79 at the moment. Australias predicament is based on their [inaudible] so that is what we saw today. The central bank decided inflation is low. That is that classic in australia. 2 . That is what is going right to get a decent turn on a large whack of money. Mark could we see further cuts down the line . What is the market saying . Dan 2 is the basic mark. That continued to rocket at strong levels. We are talking 1 million for a very average half. Just to live harborside. They should be concerned about exacerbating or feeling anymore credit growth in that economy. Without the [inaudible] that they are delivering, that great revenue they have enjoyed, there is not much in astoria other than services and some small manufacturing, but that is the situation australia is facing at the moment. Caroline lets check in on greece. Officials meet with european counterparts as the country continues to talk with creditors. Greece is due to make a 200 million euro interest charge. What are we watching for today amid all these talks . Mguest the European Commission published its economic forecast. Probably that will shed some light into why they have such differences over financial assumptions. He moves on to brussels to meet [inaudible] the key driver will probably be the meeting between the deputy Prime Minister and the ecb resident. Reports saying that he will ask for an immediate liquidity injection from mario draghi. The thing is just last week the finnish president said when it reveals its program for greece there might be a haircut on the greek bank collateral. We do not know how much difference the past six days have made into this negotiation progress. They used to be 100 80 degrees turn. That remains to be seen. Thats 180 degrees turn. That remains to be seen. A final note from athens, a new poll out today two out of three greeks say they want to stay in the euro. Only one out of forces otherwise and 55 say theyre willing to stay in the euro even if that means a third bailout program. Caroline perhaps more downside to be seen in peripheral markets. We have all the breaking news for greece. Mark reporting a profit that has nearly doubled. Manus has been talking to the financier in zurich. Manus they are bringing in more money than the market had estimated. They are turning over their inventory very quickly. And one defining line in the press releases operating costs decline. To give you some context, net income is up 88 in the last year. Money literally flooding in the door. Over 14 billion swiss francs in terms of new funds. The estimate was for 9 billion. That sets you up for the future. You get those moneys through the door and you begin to operate and trade on the capital. That was nearly 14 in terms of their call equity tier one. Deutsche bank lit a fire in terms of setting that new leverage rate. Ubs is nearly up there at 4 . I caught up with the cfo and said is this an urbana, is this is good as it gets and he said it is not that she was not sure this was not is good as it could get. There was consistent delivery across asiapacific and europe. They are getting ready they told us last quarter to deal with pricing and i think this is possibly to do with the quality of deposits that you are bringing in which i found quite interesting. The quality of deposits they want to take in and that is something that they are looking at in terms of the pricing when they talk to clients. The Investment Bank, what a seller performance there. This is profit, the tax profit up 82 at 774 million swiss francs. The language they are using around the Investment Bank is they would say this they have reformed their investment rank and they have. They have cut back on that fixed income trading side of the business and their staff are used to turning over the inventory, matching up with clients and that is the critical part of the ib. They have a fixed position in fx and commodities. Mark what is the biggest risk to its business . Manus i was quite surprised. I thought they would turn around and say negative Interest Rates. Some trying to speculate about where the smb will go and whether they have to implement negative rates. He said the biggest risk was a global slowdown. This is the most important thing to them. And a normalization. There is a word you have heard before. Normalizing the Interest Rate cycle. Lets get positive rates, first of all and then get to a positive yield curve and hopefully the fed would be the best to move on that. So there you go. Not a bad set of results. And for ubs, we hopefully have a little bit of sign from tom later in the show. Mark see you later. In zurich, his second home. Caroline the u. S. Department of justice has joined an investigation into a leak of confidential Federal Reserve information in 2012. The program relates to an alleged meeting between officials and Global Advisors. Pimcos return fund has lost its crown as the largest mutual fund. Pimco has suffered more than 110 billion in outflows. Since bill gross left on september 25. The European Central bank is considering delegating more power to avoid Monetary Policy makers becoming entangled in lowlevel details. According to people familiar with the matter. Mark we will round them all up with our next guest after the break. Stay with us. Caroline can equity markets had a good day, once again hovering near their alltime highs. Wonderful to have you in this morning. Give us a sense of how you feel earnings season has kicked off this far. The u. S. Seems to be outperforming. It always tends to. Guest; the benefits of the weaker euro is stirring to feed through. It is slow but it is coming. The size of the move over the last 12 months, 14 is a big swing factor for European Industries especially against those who manufacture outside europe. We are seeing that slowly feed through as well as some of the periphery. In spain, unemployment is starting to come down. Actually starting to come through in some of their numbers and we are seeing the pmis in italy are higher than that of the u. S. And higher than most of the eurozone. There is some positive news coming through. Compared to the u. S. Where there are ethics breakdowns [inaudible] the swing in the currency. Mark how does ubs think into your fit into your thinking . The focus is on the Wealth Management bank. Guest ubs is becoming more of wealth manager than an Investment Bank. The inflows were saying over 14 billion is very positive. It is getting back to the wealth manager it used to be before the financial crisis. And the lack of emphasis on the investment rank is positive for it. With a negative Interest Rate, it is not a help for them but as we get to more normalized economy and Interest Rates slowly start to rise, that will be a big push for most banks and the Wealth Managers as well. Caroline hsbc coming out later today. You always talk about moving themselves abroad. We heard from Aberdeen Asset management. Is this a trend that you see coming becoming a reality . Richard the hsbcs and center charters standard charters are there is a rationale for them, where they have their headquarters. A bit of it might be a game. And what is coming up with the u. K. General election and trying to make sure that there is not an antibusiness coming from the Major Political parties. It has always been part of the argument between the two of them. Where hard where headquarters should be. At the moment, banks are relatively their valuations are not stretched like a lot of the equity markets at the moment. Must banks have now repriced all their mortgages at bottom rates, Interest Rates. That could only be a positive for banks were normally raising Interest Rates is not good for them. Mark stocks have come off the ball since april. Is that a good thing . Richard i have seen equities come back and they have got stretched, a lot of them. The u. S. Gdp numbers probably were not a help. That is [inaudible] the real thing is consumer spending. At the moment although lending is has been growing for the past 42 months, that impact in spending has been come through. Currently a large part of that is being [inaudible] they have not seen their wages rise. We are seeing mcdonalds talk. Caroline we will have to leave it there. Thank you. Mark welcome back. The estoril you and centralbank cut rates by 25 basis points to 2 . Dan petrie says that is because investors are not expected to get any more rate cuts. That was predicted by 25 out of 29 economists. The currency has been falling down by 15 against the dollar over the last year but since the rba lost on the seventh of april, it is among the best performance versus the dollar since that period. Only the krone and the brazilian real have outperformed it since april 7. The rate cut has come, what next . That is the big question. As it is the dollar, the aussie dollar, that is how it is traded is down to roughly 78 u. S. Cents. Keep an eye on that Rate Exchange in the coming days. Caroline the European Commission publishes its spring forecast. Projections for growth, inflation employment, and budget deficits will be included. Released at 10 a. M. London time. Rating agencies were unimpressed with mcdonaldss come back when. Standard poors cut their ratings and shares closed down yesterday. Premised are Prime Minister renzi in a bid to stabilize the government. If no party which is 40 , a second ballot with the two leading parties will be held. The new electoral system will come into force in july of 2016. Mark lets get to richard. What impact did the germanwings crash have on lufthansas financials . Richard they do admit following the crash, there has maybe a little bit of an impact but they have said that the impact is limited to the germanwings brand which has a fraction of the 600 planes that fly in the entire group. It is negligible, the company has said. We know the company is insured and they have set aside about 300 million for insurers. Whatever lufthansa will have to pay out, the money they need to get a new aircraft, that they will get reimbursed from the insurance. From a fisher from a sheer financial standpoint the crash should not have a meaningful impact. Mark is the company back to business now after the crash . Richard a hard question to answer in terms of business sense. They must be. They are competitors they are not pushing into germany any less hard because of that plane crash. They do have to remain on their toes and act. One of the main things they must do is come to a conclusion with their pilots on in the ongoing care of conflict which has caused 60s of strike create this year alone cost 100 Million Euros. There is urgency to act here definitely. Mark thanks a lot. Talking about the stanza lufthansa. Caroline two more days of campaigning until u. K. Voters choose their next government. The battle rages on between labor and the conservatives, each hoping for that last minute surge needed to form a majority. What are we expecting from the last dying embers of the campaign . They are going all out i guess. Theguest he will be out on a super charged campaign trail. The latest polls suggest conservatives and labor are still locked in this neck in the battle. We saw a big cameron campaigning in bath. He described what he thinks labor let the bankers get away from with. They got away with the bonuses and pensions. It was the low paid who got hurt. Dont you ever dare lecture us. Caroline an increasingly passionate David Cameron joining this campaign trail. The leader of the party suggesting that putting together a government that represents the s p would be illegitimate and suggesting that just because a party was the biggest in england, that would not be enough to give them the right to form a government. It is an antitory majority. We will call on labor. Even if they are not the Largest Party to vote with us to keep the tories out. [applause] and surely, any labor leader cannot allow the tories to get back in office. David miliband suggested last week that he might never be forgiven in scotland or other parts of the u. K. Either. We have been looking at Party Policies for the housing sectors. What have we discovered . Caroline we have done some analysis of the very best various policies. There is a different emphasis coming through. Labor is talking about breaking up our companies. Conservative want to end their support. Depending on which of those areas of policy you are most exposed to that will dictate how much are impact is. Interesting that the german some german politicians have been speaking out with what they think spd speaking out. They are partners with Angela Merkel and the coalition in germany. Caroline thank you. Mark lets bring in our economic adviser from ubs. How are you feeling about the election . Guest as everyone knows it is the most unpredictable election we have that i can remember. I think a lot hinges on it in terms of how the economy is managed afterwards and bigger social issues as well. It is an important event and i think we do not have a clue as to probably most people believe this Scottish Nationalist Party will be the winners one way or the other. That what that means in terms of government, composition of government, content of government, who to play for. Caroline is there a least ugly shirt or the lesser of two evils . People are saying you have concern about the eu referendum. Perhaps they have not got this friendly outlook conservatives have. Is there one that you would veer toward . Guest purely from a business standpoint given the coalition of second shot as it were, is where most Business People would come down. From an economic point of view it is tough. It is a tough call. From my perspective, i think simply from the point of view of deficit and is meant which is one of the big issues deficit management which is one of the big issues. Both the major partners parties want to bring the deficit down over the next parliament. The problem with that is it is a bit kind of nerdy. The annual flow of privatesector sabres has saverss has ground to a halt. Whether it comes down more or less quickly will depend on fixed reducing our external debts. We cannot get by the next five years without a rise in taxes. Rises in taxes, depending on how they are put on and who they affect, you may have a very permission is pernicious effect on the economy. It does other me from a management point of view that the court the most punitive of the parties may reap the poorest harvest. That is an s p you influenced labor government. Mark how will the markets take to that . Guest i think sterling is a short. And it depends on what happens in terms of on friday and then how long it takes to put the government together and who is it. My hunch would be that the uncertainty and the risk of a radical whole toward the left and politics sometimes you swing left, sometimes you swing right. The s p exercises, will exercise a lot of influence on the labor polity parties. Mark stay with us. Caroline you can discuss with us what you think ahead of the election when we had to the polls. Mark we will focus on the pound which george mentioned. He talked about sterling volatility. It is the bart chart. Jumping to a multiyear high. Stay with us. Mark sterling volatility jumps to multiyear highs. We are looking at implied volatility, which is a measure of anticipated price. In this case were looking at one week volatility on the pound versus the dollar. With only two days to go before the general election here, sterling volunteer volatility against the dollar has written risen to its highest level. That is the white circle in the middle of the chart. We have passed those levels. I have circled it in white which clearly illustrates the uncertainty surrounding this the time of this Scottish Referendum last autumn. The record twoweek volatility is at almost of at a fiveyear high. What about one month volatility . The middle chart is a measure of anticipated [inaudible] over this one month. It has been rising for straightf days and ito is approachingu ther level it reached on april 9. That is the yellow circle. That was the highest in september 2011. Investors are feeling uncertain about the next week. Implied volatility telling us they are uncertain about the next month as well. The last chart looks at three months implied volatility, a measure of anticipated price swings. Unlike the one week and the onemonth chart, this is neither at or near multiyear highs. The peaks of this period was april 1. That is the green circle right there. That is a three and a half year high. Right now the measure is 15 below that level. Notice the trend in recent days has been an upward one but investors seem to be more relaxed about the threemonth horizon than they were at the start of april when we had that threeyear high that threemonth implied volatility. Do keep an eye on these charge charts. They are a good gauge of how of implied volatility, it is a good way of other investors are betting on the election. Volatility clearing to multiyear highs ahead of thursdays vote. Caroline lets get back to our guest, george magnus. We were talking about the u. K. Before the break. Compared to the rest of geopolitics and the worlds economy what are people wanting to get your expertise on at the moment . What is on the forefront of their mind . George there are two, three major things that crop up a lot. Everyone is always keeping a watchful eye is the Global Economy picking up speed or not. Unfortunately a lot of the consensus expectations we had three or four months ago before the u. S. , it looked right the u. S. Economy was out in the First Quarter. All of those are being revised downwards. If you look at the kind of exercise which some people do called nowcasting, using models to incorporate thousands of data points to understand what is going on with the economy in realtime. In the United States, it has not picked up a lot from the beginning of the year. In the u. K. , it is moderating. In the eurozone, it is not that great anyway. In china it is coming down. This has a huge bearing on peoples expectations of the fed. Inevitably, what is there to say . The uncertainty still keep people on edge and china shortterm in terms of what is going on and longerterm. There is a huge i think it is important, a grandstanding plan which the chinese have to recreate. And create grillions of dollars in business opportunities. It is nuanced. It is a big plan whether it comes to fruition or whether it is as successful as they would liken to be. It depends on lots of factors. Mark and do you think it will be as successful as they hope it can be . What are the main factors . George there are lots of things that happen in china which are big kind of slogans. And to make things happen, the idea that if you rebuild the silk road from china through central asia to europe, if you could do that, and that is with Energy Pipelines and hyperactive cables. If you can do that them a this will be transformative of the world. I think it is a misnomer. That is propaganda. It could happen if china itself were to develop a growth model that would propel it to be really the equal of the United States or close, not just in terms of the size of gdp but governance per capita gdp, openness, transparency, that kind of stuff. That would really sell china to the rest of the world. That is a big leap to get from here to there. It may happen, if it does happen it could happen 50 years, 100 years from now. Caroline we will come back to you. We have some sound. Mark manus has been speaking with the ceo. It is the global slowdown he sees is the biggest risk to business. Guest the biggest is this risk overall will be a new global slowdown in terms of growth. I think we certainly have the business that is procyclical to gdp. The environment we are in, if we can continue to have a reasonable recovery and that will lead Central Banks to get back to a normalized rate environment and that is really what i think all of us in the Financial Services industry whether you are talking to banking or insurance, we would like to see those moves back to positive rates, lets get see rates return to a more normalized environment. Hopefully the fed will be starting that process. Mark you will not ask the ubs senior economic adviser about earnings. Coming back to greece it is uncertain and it is sort of chugging along. Where are we going to be in a year lets look further out which gives everyone enough time to resolve many of these issues. Where are we going to be in eight years . George it is possible we could still be suddenly having this conversation. I doubt that. It is reaching a bit of a [inaudible] the one thing i inc. Was certain from the beginning is that one way or another, greece would default. And when it defaults on its payment to one assumes it would not be to the imf because that is kind of verboten. It gets into default in effect to the European Countries or to its own people through pensions and wages payments and salaries and so on. I think my hunch would be that there may be some interim arrangement that is in the making which would release funds and buy a little bit more time because politically, it is quite important to keep greece inside this year the eurozone. It would be a terrible damnation of the eurozone, the idea of europe. It might not lead to a neck sit. Especially if they were to introduce a parallel currency. If you twist my arm i would say that in a year, i have a strong that suspicion that the eurozone will bid farewell to greece one way or another. Caroline the worstcase scenario would be a default and no exit. Because it gives credence to more right wing, more extreme parties and the rest of europe and other peripheral lets others other peripheral nations get off the hook. They have not had this sort of flexibility. Would that be the worstcase scenario . George i think it is messy. There are advisors to the greek government who have as far as they are concrete, plans to basically default, or to negotiate a default and stay within the eurozone by introducing an iou. To buy time. Whether this works and not, i am not sure. I think it would be neater from the eurozones point of view and from its own existential point of view to basically cut the cord. Because then i think it will be traumatic that ultimately certainty will then rebuild and Business Investment may start to take place and so on. Just this shadow of what is going to happen, when is it going to blow up i think is a real that is the risk because what was deemed to be air of a couple irrevocable would nrbe seen as impossible. All of them have to cleared very rope declared very robustly their commitment to swallow the medicine and live within this teutonic eurozone and i think it will survive. Caroline great having you on. Ubss Senior Adviser with us this morning. Mark we will beat talking to the [inaudible] off luxottica. Caroline Aberdeen Asset management, Martin Gilbert called 2 lower. Mark operating profit up, sales up but the net outflows continuing and i am guessing that is what investors are focusing on. We will see you tomorrow, what we . Wont we . Jonathan good morning and a warm welcome. I am jonathan ferro. Moments away from the start of european trading session. A busy morning to you straight to your morning break. Australia cuts rates. The benchmark rate to a low 2 to health needs precious from a strong currency are plunging commodity prices. Ubs profit surges for it smashes estimates as profits almost double. It is higher by over 3 . Greek chaos. A payment due to the imf in a 24 hours. The European Commission is set to slash growth. Is a division emerging among creditors . We will try to answer. Interesting action developing. Ftse up by 40. They are playing catchup. Futures lower across the board. Dax is down. I look to shanghai, the shanghai composite it is lower. The yield in spain and italy a touch higher. Lets go to the market open with caroline hyde. Caroline that from holiday you are looking at japan, south korea, and thailand all continue to be closed. Asia trading lower. Following suit in asia. Ftse is up 0. 8 . We saw equity markets yesterday the ftse 100 playing a bit of catchup or your friends is coming off the high yesterday. 0. 2