Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20161205

BLOOMBERG Bloomberg Daybreak Europe December 5, 2016

U. K. s Supreme Court, with 11 judges to hear the governments case on triggering brexit. Manus you are welcome to bloombergs daybreak europe, are flagship morning show in london. Good morning, i manus cranny. All eyes will be on the bond and equity markets, and the currency market. The world wakes up to its Third Political dislocation in as many as six months. Brexit, trump, matteo renzi. What happens next in the bond markets will be critical for the policy of the European Central bank. This is italian market calm before the potential political and market storm. Paul krugman is trying to gain a possible euro prices. What you have is 10 year Government Bond yields, the best rally in as many months. Weve rallied nearly 20 basis points. The spread against germany widens, with action down now 160 basis points. Will we retest those wide areas . The risk premium for Holding Italy, of what happens next, of who is the next leader of italy, is whats going to play out in Global Markets over the next couple days. Talk dei paschi, lets about the risk radar how have Global Markets taken on this new Political Risk . One has to say that Global Markets are becoming perhaps just a little bit more, i suppose, sanguine in terms of their ability to assess risk. Deardollar is testy. What is the next big move . The odds of parity on the eurodollar have jumped above 50 . Deutsche bank is saying . 95 is on the way. The euro is under pressure, money going into the dollar. That is the haven of choice this morning, as opposed to gold. We rallied. 9 at one juncture in the market. Hedge funds, in terms of their positioning in the gold market, they have raised their short positions by about 13 at the end of last weeks trade. Then of course you have the oil market down. Oil coming off that 16 month high. Back to the assessment of the market risk this morning. Lets get you up to speed with christine harvey. Very good morning. Christine good morning. A new Prime Minister is to step down next week in a surprise announcement in wellington where he backed bill english to succeed him. Pm said that for family reasons he could not commit to serving until the fourth term if his National Party wins the election, due late next year. The dollar slipped on the news. A green party backed leftist will be the next president of austria. He ran as an independent and took almost 52 of the vote as he defeated the freedom party. The victory comes in the face of a resurgence of rightwing, antiimmigrant parties around the world. I think thats something [inaudible] it signals to all of europe, to europeans, [inaudible] christine the uks a will start to hear the governments case against holding a vote in parliament before beginning britains exit from the european union. The scene for theresa may is a ministration would mean debating, amending, and passing an act which the Prime Minister would likely try to limit in size and scope. Officials are expecting unprecedented numbers of spectators, so much so that they have opened a video link to deal with demand. President elect donald trump has used twitter to renew criticisms of china after backlash over his phone call with taiwans president. He tweeted that beijing didnt ask permission to devalue its currency or build up its presence in the South China Sea. Beijing compared after trump flouted decades of diplomatic protocol by speaking directly with taiwans president. The south korean opposition may have secured enough votes to impeach the president this week over the influence peddling scandal. A faction in her ruling party has agreed to sit a motion and on friday. They would just reach the 200 votes required. Park may address the nation in the next two days. Global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. Im christine harvey, this is bloomberg. Manus thank you very much. Lets get straight out to asia and pick up on the market with david ingles, standing by. The dollar seems to be the haven at the moment, but equities are just a little bit more under pressure this morning in your part of the world. David yeah, certainly. Since you brought up the currency, we thought again was going to be a haven it didnt strengthen initially, because when there was the news that down, the yenping got an initial bit. Have a look at how things divvy up. Just about everything will area is down except for the mining stocks,. Financials very much in focus you guys are watching italian banks. 1. 6 underwater. How do things look by a country basis . I guess the story is that volumes are light, and in that sense you have a Silver Lining that people are holding their positions. You had an initial selloff at the beginning; things a stabilized, and as we enter the last few hours of trade, we did get another leg down. When you look at chinese markets, is the first trading day, the first day of the shenzhen hong kong, not exactly a rush out of the gates. About 6 15 depending on which way you look at it, not a lot of people are rushing in. Have a look at the bond markets. Long story short, yields trace ack a little bit, 2. 34 , and quick look at the currency market. Dollaryen flat here, the euro,. 06,session low in asia, 105 just barely above 105. The other currency we are watching closely was the key we jar. The Prime Minister saying he will be stepping down, not seeking reelection. Thats the story across asia as we get started. Manus thank you very much, david ingles with the latest on the markets. Italian Prime Minister matteo renzi says he would quit in the early hours of this morning after losing a referendum. He called to push for constitutional changes. [speaking italian] it is clear that my government ends here. I want to thank my ministers for the extraordinary venture, and i will offer my resignation to the president of the republic. Manus with the euro dropped to a 20 month low, lets get straight out to Francine Lacqua, standing by. Great to see you. Another huge political upset on the global landscape. What did the papers say . Give us a feel. Four of we picked up the biggest papers, ranging from the papers supporting him, the most Populous Party who called for his resignation, and also calling for a fresh election. Fivestar, saying its a dramatic picture. They say the ballot he needs to leave. One a more promarket renziay the wave of no, leaves us. Ublicaf all, la rep saying that the no triumph, renzi leads. This is a century. And this is the more right wing ally of Sylvia Broyles scotty, saying that renzi goes home. I think, like brexit, like donald trump, we are seeing a wave of populism. Whats clear is that it has really divided the country. Some of the talk has been extremely divisive, and now our Political Parties are trying to get into the populist ones. For the more moderate politicians, their first goal would be to find some kind of government stability. Matteo renzi will go to see the president this afternoon, and formally tender his resignation. Then we also need to change possibly the electoral law, because this was reform seven months ago, and the way the electoral works is that it could clearly give a majority win to one of the populist parties because of the way it is structured. Manus that is going to be the critical part, isnt it, for markets in terms of assessing risk. Who like the caretaker be . What are the possibilities of snap elections . It is still too early to make the assessment. It is, but because he has seen such a big no vote if you look into what was priced into the markets, what was priced in, with a little bit of market turmoil, was a possible no. What we thought would happen would be around 52, 54 no with a 60 no. They had a huge turnout, and 60 of the people that turned out to vote wanted this. They didnt want this constitutional reform. With a large majority, it is difficult to see how matteo renzi can be part of the transition team. It may force early elections. The problem with early elections is you have this new electoral law, and it would do a french style election, which means that even if you dont have a majority of 40 , if the two main candidates have a lot of power, than they face off to get the majority. That would clearly give the populist parties a chance to govern. Manus interesting, one of the lines was my objective coming into politics was to put an end to jobs for the boys, and it is my job which is going. To reminds me of ireland, in so many ways. Lets talk about the banks, the potential Market Assessment of risk. Francine, bang in the eye of the storm, trying to raise capital. What does it mean for the banks . Isncine again, the problem if you dont have political stability, manus, you really point out that if you have one of the largest banks, monte dei paschi, looking for a Capital Increase, and we were expecting sales to start. You are an investor, you say you cant buy into the Capital Increase and you shy away from it. That may feed through some of the smaller banks. Its not listed, its a mediumsized bank, but the ecb has asked it to strengthened its capital position. Again, they need to find some Capital Raising or go to shareholders, institutional or otherwise. If there is political instability, it may mean a lot of these investors are shying away. At the moment everything is up in the air, but we will know in the next two to three days exactly what we will face in terms of the government plays and whether we have a caretaker government or not. Throughout the day we will bring you great exclusive interviews, talking to the secondlargest bank, biggest in terms of market cap, and also to a former finance minister. He joins us in about two hours. Manus great reporting. We look forward to trying to read the tea leaves of the third Major Political upset. Francine lacqua in rome, to see you. Joining us on set in the city of london, Daniel Morris, Senior Investment strategist at bnp paribas. Thanks for coming in. Pleasure. Manus round three, ring the bell. Markets this is 10 year Government Bonds, italy over germany. Are you surprised by the scale of the no vote, at 60 on this election referendum . Yes. At least this time the polls did get it right and that people expected to lose, but not by this big of an amount. Even though you have a result, i think of him losing, we have more uncertainty in terms of interpreting the consequences. Manus if we break it down to the markets, the risk is that the premium to hold italy over germany the risk to hold italian banks versus the risk of your peers all three markets have a propensity for risk. Where will the warning sign come for you and what should i look for . The thing we will be looking for is will we be able to manage to get a caretaker government . Otherwise, if you think you will fresh elections on top of everything going on, i think that is the biggest uncertainty right now. Otherwise, the government has some stability. But if you add in the possibility of fresh elections, and if you look at where five star is in the polls, its certainly going in the wrong direction. Manus francine talked about monte dei paschi. There in the middle of raising 5 billion euros, trying to convert bonds. This is a mammoth task, given the market risk at the moment. What does monte dei paschi encapsulate for us . Failure to raise the 5 billion would that be the beginning of a Systemic Risk warning to you . Necessarily, because i think not necessarily, because i think the ecb is aware of the risk. Its not ideal, but this is something that has been going on for quite a long time. With the ecb it is in terms of their position of regular in the Banking Sector. It may fail because at this point it doesnt look like a great opportunity to invest in italian financials. But i think youll find something that will allow them to get over the turbulence, get political stability, and come up with something else. Manus thats what politics is about, thats the essence of compromise. Its ironic. We saw these black swans, brexit was the first, donald trump is the second. Markets markets have not reacted. I have to be careful and not be subjective. They have not reacted as very lightly us far. As virulently thus far. Money poured in for five straight days. We had the biggest inflows in almost five years, and the market assumed there would be a no vote. Thats probably a little more ambitious or optimistic than might be appropriate for the situation. With brexit, the economic consequences i think are negative in the markets reflected that. With the victory of trump, it is less clear. I think theres a difference in terms of market reaction. Italy, you have to come down with it being more negative. You know you need reform, and you say the likelihood of that reform has fallen. Be more optimistic about the economy. Manus dan, stay with me. We have a lot more to debate during this first half hour. Here are some of the highlights for your week ahead, and what a week it will be. The Supreme Court in the United Kingdom starts hearing evidence on last months ruling that the u. K. Governments approach to triggering brexit. Tomorrow, we get the u. S. Trade deficit figures. Wednesday, theres a bank of canada rate decision. Followed by the next day, by a policy announcement from the ecb. On friday, European Commission president jeanclaude younger gives a keynote speech at an the event working the 25th anniversary. Coming up on daybreak, keyboard warrior. The commander in chief elect, donald trump, takes another shot at china after speaking to taiwans president. See you in court . The uks most senior judges deliberate whether brexit can still mean brexit. Will that derail the governments plans . And one last her a. The economists see another euro area boost from the ecb reaction to mario draghi, but will it be the last . This is bloomberg. Manus 6 22 here in london. A beautiful day. You are looking over tory harbor. Christine has the business flash. Christine thanks. Rom unicredit, according to people familiar with the transaction. Is valued at as much as 3. 5 billion euros. A purchase of pioneer, which oversees about 226 billion euros, would be the biggest acquisition for amundi can propel it into the top ranks of global Money Managers with almost 1. 4 chilean dollars in assets. Native american of american and environmental protesters have victory, with the u. S. To nine the permit needed to complete the Dakota Access pipeline. The army corps of engineers says there is much work that needs to be done ands alternative route must be found. In what across land sacred to native americans and protests against the project have resulted in hundreds of arrests. David walsh and Nicholas Udall left man group after the closure of a stock cooler helped oversee. According to a person with knowledge of the matter, the Hong Kongbased managers exited the unit after the firm in april shuttered the asian equity alternative fun. A spokesperson declined to comment. And that is your Bloomberg Business flash. Thank you very much. Christy harvey. Donald trump has taken on the Chinese Government in a series the president elect very and his 61. 7 billion followers, did china ask us if it was ok to devalue their currency, heavily tax our products going into their country, or to build a massive military complex in the middle of the South China Sea . I dont think so. The yuan is lower amid concern that the china could be named aa currency manipulator. Stan morris from b. N. P. Paribas investment partners. Dan, the prospect of labeling china a currency manipulator, what are the real applications of that in 2017 . Is that the role that he travels . Not so much. Certainly if you contrast it, it to them immediately currency manipulators starts a steady they look at the current account deficit and make estimates. That really doesnt have much of an economic consequence. It is more important if and how the chinese might react. Manus this is the yuan and capital outflows. For anybody who has the terminal, have a look at this. This movement in the yuan, we are down since donald trump won the election, is there a crisis point, a break point for the globe . Dollar will to the we become concerned that he will go into full overload on this . I think youre probably going to get to that pretty quickly. We are expecting the depreciation to continue. If it goes at a modest pace, it allows other currencies within emerging markets to adjust, and that is probably fine. What we are concerned is the stepped down depreciation. Manus how quickly could we get to 7, and do you think he give beyond that . The rate appreciation of the last year has been steeper. At this point we will expected to turn around, not necessarily because we still have fairly persistent capital outflows. That is whats driving the currency lower. Manus talk to me about the trade deficit. Those numbers come out on tuesday, and normally i wouldnt do that. But you are. One of his things is that running an account deficit is bad for the economy, and if you close the deficit it is good. Givenonomic logic aside, that you have this announcement coming out on tuesday, one that investors dont pay much attention to given the current political environment, you might see something centered around that, because it allows him to pick up on this theme of we need to export more and import less, but that means you also on the phone else to import more. Manus decades of geopolitics etiquette undone in 140 characters. Stay with us. Gray . Up, hard, soft, or the u. K. Supreme court begins the seeing of the governments case of holding a vote in parliament on the coun

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