Transcripts For BLOOMBERG On The Move 20160531 : vimarsana.c

Short interest on chinese equities jumped to the highest level in a year. Its the big short back in china. We are less than half an hour to the european open and that all lines are open as we open for futures trading where up just slightly. For the w toing cross at any moment this morning before the market opens. Also take a look at the amazing story unfolding in asia. The nikkei to 25 getting about 1 right now but it is really in china that the interesting story is unfolding. You can see the chinese if i 300 up 3. 1 . This is an index keep in mind that was limit down overnight in less than one minute chinese stocks dropped 10 and then bounced almost immediately back. Its interesting because we are also watching the incredibly high levels of Short Interest in china. It doesnt seem to have stopped a quick recovery for what looks like it may have just been a Technical Glitch or socalled bad finger. In currencies you can see a little bit of gain and emergingmarket currencies. You can see the yen getting about 0. 1 and the aussie dollar putting up the biggest gains of any of the major currencies against the u. S. Dollar at about 9 10 of 1 as the dollar loses some of the steam it had builtup yesterday and especially friday. Lets get to bloombergs first word news with julia. The japanese industrial output rose 0. 3 in april better than an estimate of 1. 5 decline. Year on year it fell 3. 5 . Agoding 12. 4 from a year less than the 1 drop forecast. The data comes as investors await announcement from Prime Minister shinzo abe on a delay to increasing the nations sales tax. Reversedce minister cause and joined the ranks of lawmakers calling for it. Chinese equities are once again in the cross hairs of short fellows. Short interest in one of the largest Hong Kong Exchange traded funds tracking chinese stocks have surged fivefold this month with highest level in a year according to data compiled by markets and bloomberg. The last time they were so high they to prove wellfounded as chinas bull market turned into a 5 trillion route. Meanwhile the chinese stocks when inclusion to the msci Global Indexes in june have shut up to 70 with the governments efforts to curb trading halts and clarify that. Thats according to sources. Inclusion of asia. An ally of german chancellor Anglin Merkel said the u. K. Must and resist clinging to its imperial passes Voters Decide whether to leave the european union. The European Parliament Foreign Affairs committee and a member of the Democratic Union the political arguments favored saying it is a block bash on the other side of the motion. For global news 24 hours a day powered by our 12 400 journalists in more than 150 news bureaus around the world. You can find more stories on the bloomberg. Have to be talking about what is happening in the united states. The fed shifted toward raising Interest Rates. Meanwhile, treasuries have lost their edge over stocks. Stagnating in the second quarter. The s p 500 has returned to over 2 which is a reversal of the trend we saw in the first three months of the year. Guest,elcome our first Daniel Morris, senior strategist at bnp paribas. Andys good to have you always good to hear your american accent when we will be leading with the u. S. Because today, king dollar it aint. We are seeing some he currencies related to minors doing well today but give us a sense that the u. S. Dollar really has been the out performer. Suddenly janet yellen adding to the course that is a hike to come, is it june or july . It is the swiftness of the change in tone. If you took it how cautious they were highlighting risks about china and seemingly in a short period of time turning it around to the next several months you may have a hike. That is the most important thing weve always seen and have strengthen the u. S. Economy to justify a hike. It is surprising how quickly that has changed. Does the economy support this change as well as some of the vocalization that we are getting from the fed . That you got is on the one hand remaining the market that u. S. Interest rates are going up and make a up sooner than you think but there is always a caveat the result is a caveat that if the data justifies it. Which could be nonfarm payrolls are unemployment dropping. In the fed itself and highlighted that core inflation was in their view going to rise temporarily in the first part of the year, it did and has been coming down the last two months. If we see that continue, it will be more difficult to justify something in the shortterm. 160,000 is currently expected for nonfarm tables and wage growth is excited to fall off a little bit. Do those numbers back up the data . We had a slight contradiction of the first part of the year that you had really good nonfarm payroll growth at the same time that u. S. Gdp was weak him a that was a disconnect. Growth suggest there is more tightness in the labor market and low Participation Rate is not a significant as people think. I think june is probably less than 50 . July is probably 5050. Much more on how it affects the emergingmarket as well. We will be digging into that chinese news. Then you morris, the senior strategist at b p paribas. Up next, the big short is back in chinese stocks. The highest in a year. Welcome back, it is currently 7 14 in london and we have been seeing the futures market continue to signal that we are on the upside today up about 0. 2 . You can come into my screen and we are up about 50 on the overall market when youre looking at the stocks 50. We could see the 5100 up for about a 10th of a percent. Lets ask denny morris, the Senior Investment strategist at e p paribas. What are the effects that the potential that the fed could move faster than anticipated. What is that mean for european equities . Are they a buy or a cell . Do we concern ourselves that will make it riskaverse or is it time to come out of that . The frustration for a lot of investors this year is when they look at the earnings outlook for the u. S. Versus Europe Europe look much better because our margins were lower so the majority of people european equities have not worked out very well and the reason for that is certainly at the beginning of the year the fed was so dovish that we did get the strength in the dollar that we expected so european equities underperformed. That seems to be changing. A defenseman to earnings outlook they still look more attractive another we have dollar strengthened we now have a path through to exporters. More than we had a december the way that we had hoped. How much is there a concern that if the fed moves, even though we have not seen u. S. Treasurys move all that much, and we seen the continued strength in u. S. Stocks, is there a way this could destabilize the emerging markets in particular which would rattle our equity feature outlook . If it goes to the far too soon yes. Thats the story we had earlier. So now has been signaled that there is always been a kneejerk negative reaction to the idea of u. S. Interest rates going up but you realize we are doing this because hopefully fundamentally the economic numbers look good. Hopefully its a shortterm setback and it best are is a modest appreciation. You are not likely to see the u. S. Fed hike this year. Not too much appreciation and not too much turmoil for emerging markets. There is still some. Looking at thebe Short Interest that is building in one of the largest Hong Kong Exchange traded funds tracking domestic chinese stocks. In fact they surged fivefold this month of the highest level in a year. Lets join her asian Market Structure team leader sam moody in hong kong. Talk to us about whats happening. Why are investors getting so bearish on chinese stocks. It is a currency play. There is a suspicion that the chinese currency is weakening it will continue weakening and that he had been discussing with daniel, the expectation that in the u. S. They will increase the rate slightly which will strengthen the dollar further. When you get that kind of situation you will see investors getting out of chinese assets and thats where they show that they are pouncing. It seems to be displayed particularly in the Exchange Traded funds where we are seeing the rampant buildup but even the last time Short Interest was this high we saw the crash in chinese stocks. Should we be worried to the same sort of level that that could be about to happen . One should always be worried. But theres a situation different now. Shanghai composite is 40 lower than it was at the start of last summers are you could say even if there is a bubble, the company is so overvalued that it is not quite as extreme as it was and also theres the belief that the policymakers have learned some lessons from january. China did some things that did work in some things it didnt in the pbocs keeping an eye on things now. Give us a little sense of some of the volatility we have been seeing. Displayed even as soon as today we have seen some very interesting news, dramatic news. From the cfi 300 futures. We saw as much as 10 . Is this all about that is what we are hearing from our colleagues in shanghai especially. But the talking our markets seems to be at the was a fat finger and briefly we saw a 10 decline and it snapped back again. We wont get too concerned yet but there seems to be a bit of a reoccurring theme. Well keep an eye on what happened use of a phenomenal moves it did not really seem to dispel the buying we have seen in the csi 300 the underlying edge mark for the rest of today. Somebody thank you very much in hong kong with all things you should be watching out for an lets bring back our guest, Daniel Morris, Senior Investment strategist from bnp paribas. As long as the u. S. Doesnt hike too quickly or suddenly, we could, not fall off a precipice but is it still time to be long china . There are views that from the valuation perspective are quite expensive. It depends on the market you look at which is a bit of a challenge im in. If you look at valuations for in emerging markets equities as a whole. They seem much less than you get in developed markets. The look at the sectors within china the sectors are probably more worried about the Banking Sector with nonperforming loans paid on enterprises. Those are the parts of the market that are cheap or have more valuations than the past. The parts of the market you probably like such as tourism or internet commerce those are above average. As always when you look at an index youre taking an average and the variations of parts of the market are cheap for a good reason. The parts of you that you like with Growth Potential youre paying for that. We are going into one particular industry, the auto industry. Give us a sense of breaking news and even maybe even more about cpi. Let me give you volkswagen right now we are getting headlines rolling across here. First Quarter Sales at 51 billion euros. A little bit lighter than the estimate 51. 5 billion euros. The First Quarter operating profit is 3. 4 billion euros. And volkswagen is reiterating its 2016 forecast as a whole. So we are seeing sales that are a little bit light of the forecast and we are seeing operating profit of 3. 4 billion euros. I cannot tell you how that all compares with the estimates, but we are a little bit light on sales here and the forecast remaining unchanged. We will see when volkswagen stock opens up in about 13 minutes how investors are seeing this and we will continue to get headlines. But im looking for to the amount of money that they put aside to deal with this in emissions scandal. Eurosut 16. 2 billion aside. We could see a revision of that although hopefully not by too much. And then i will look for anything in the outlook. They say they are reiterating the 2016 forecast as a whole. Groups quite interesting sales resonating slightly but the operating profit seems to have been helped by special items, certainly coming in better than expected. Beating that estimate of 2. 7 billion euros. Sticking to their overall fullyear forecast but it does seem to be interesting digging into the detail of what the special items exactly were. Still seeing twice 16 operating returns on sale. As you say, operating profit is up 3. 4 billion euros. Were looking at 3. 3 billion euros it is hard for me to get my head around it even after a few weeks around using the term euros when looking at numbers, i automatically think dollars. That will change. We are seeing sales come in a little bit right and is this a question for volkswagen . Diesel has been some of the most popular products recently and across europe diesel is incredibly popular. Consumers are turning their nose devotees all. Will this expect will this affect sales . In the First Quarter they missed the estimate slightly with 51 billion euros compared to 51. 5 billion euros. I will get into the statement and look for any statement from the ceo or the cfo as far as what they expect. Ew has outperformed the rest of the market. Despite the emissions scandal they are starting to even shake off those initial concerns and in the last month alone the risen 6. 6 . Lets check in on where the rest of the market comes in at the moment. It looks like a great day. We are likely to see holding on to some of those gains, ftse 100 up about 2 10 of a percent. Not a runaway success with volkswagen. It will be dictating where we move. Talking at the New York Post in fact regarding Deutsche Bank been potentially probed. Keeping a close eye on all the equities out in the open we have about 10 minutes to go will bring you the other stocks. You have to stay tuned. This is on the move. Welcome back to on the move. We are minutes away from the open and it went to get some stocks to watch for you. Kicking off with volkswagen. You can see the Company Coming out with earnings that were slightly higher operating profit , 3. 4 4 billion euros versus 3. 3 3 billion euros because of some special items. However sales were down 3. 4 and missing estimates as well. Sales coming in at 51 billion euros compared to 51. 5. A statement from the company says it is not only due to a drop in unit sales but also to a drop in currency and fx effects. Sales are coming in a little bit light because of special items comes in better than not only better than expected but also better than it had been in the year ago period. Finally are we signed to see the dubya managing to look forward and shake off the emissions scandal. Checking another big german stock, keep an eye on Deutsche Bank. It could fall on the open with this also running a report by the New York Post saying that actually Deutsche Bank Deutsche Bank is the focal point of an investigation into traders potentially suggesting the auction of some u. S. Debt. The New York Post is that site anyone, these are unidentified sources but of the 22 primary dealers of the u. S. Treasury, all are being asked for data at the moment. There is no reason to be a political point. Essay Deutsche Bank we get a quick check from Daniel Morris briefly. We have about one minute. Ati think we want to look particular to the w but he says more broadly about sumer demand in the eurozone. That is one of the stories people are hoping to play. Consumer confidence Getting Better again slowly so hopefully more consumer demand. So it should help auto sales. Culturally you been looking at smallcap stocks within europe. They performed significantly better over the last year but on a relative valuation basis they are still attractive. Betterconsumer demand, for smallcap stocks and valuation totals. Eurozone and unappointed out later today. And out of germany the unemployment figures as well. Caroline are welcome to Caroline Caroline welcome to on the move. We are moments away from the open of trading. Matt good morning. The road ahead. Volkswagens profit rose 3. 4 in the First Quarter as operating profit climbed to 3. 4 4 billion euros. Hawks flock. The dollar dominates in may. Our markets prepared for the fed shift . Investors turn on china. Short interest on chinese equities jumps to the highest level in the year. Is the big short act in china . Back in china . Let us take a look at futures. Do you want to look at futures . Caroline i am tracking it here. We are seeing the dax coming off of its previous highs. The futures market signaling we should still hold on to our gains as we open up on the market. 100 openeing the ftse about 0. 1 higher. The tax switching into green. Yet to open. Ill let us get straight over to. Green across the screens. Ap up hereave the imp on the bloomberg. The majority in the green on the stoxx 600. Financials leading the game. Up 0. 2 following by consumer discretionary. Industrials edging into the red. That is how Industry Groups are performing. We are seeing the u. K. Guilt market open for the First Time Since janet yellen spoke on friday. Look at the spiky. The 10 years is up three basis points. The reaction we are seeing in the u. K. Market. Treasuries we saw move higher. European yields when they opened yesterday, moved up yesterday. Stocks we are watching on to stocks including volkswagen. This is the first time the carmaker has not yet as i aliens of euros in provisions since admitting in september to rigging those vehicles to pass the emissions test. Operating profit number for the First Quarter was a beat as well. Deutsche bank. That ithave heard is has emerged as a probe into whether traders rigged options for u. S. Debt. They are citing unidentified pe