Transcripts For BLOOMBERG Bloomberg Surveillance 20161125 :

BLOOMBERG Bloomberg Surveillance November 25, 2016

Packed day. This is the show today. Political risk in europe with less than 10 days until italys referendum. France chooses candidates for its president ial elections. We bring our exclusive interviews with yannis stournaras, governor of the bank of greece. The latest news on the brexit debate. Our guests will break down what elections in europe and the trunk content white house will mean for the u. K. As it negotiates to leave the e. U. First, lets get straight to the first world news. Here is never change. Cheich. Nejra nejra cpi excluding fresh food dropped 0. 4 in october from a year earlier. It underlines how different have distant the economy is from achieving its 2 inflation target. The ceo of fiat said donald trump could affect his strategy in north america. Mainly, i think there are a number of conditions in the u. S. That are not yet settled. I heard him during his campaign, and the president elect made some statements about how he sees trade. That is a big issue, because of the way in which nafta is configured. And the implication of has on the industrial footprint. Nejra homes in london are less affordable than ever before, as lance allow you to borrow more. It cost the average lender for. 2 times their annual salary to purchase a home, the highest level on record and more than double the ratio of the u. K. As a whole. Global news, powered by more than 2600 journalists and analysts in more than 100 countries. Cehic. Jra francine it is friday. Maybe we see low volumes because it is the day after thanks giving. This is on the back of the hope for higherectations Interest Rates. An environment in the u. S. From the december fed meeting, there is a 100 probability, if you look at the markets, that the fed will hike. Google stocks building on gains in asia. In europe, down 0. 2 . Oil following oil falling and treasuries slipping a touch. And chief is the ceo Market Strategist at longview economics. And so much for joining us. When you look at the markets, we have seen a huge rotation. This is on the back of inflation fact ofions, from the donald trump, but also the Dollar Strengthening on expectations of a fed rate hike. Can this old . Chris i think the trend could hold. Were seeing a new trend that may last 40 months. If you look at the train in the near term, it is quite overextended. I think if you look at the way equity markets are trading, the dollar also its of stuff is very overextended. Bonds, for example. Probably the strongest in 20 years. Bitee a rotational pause, a of a giveback on some of the gains in equity markets over the few weeks. But beyond that, i think there is plenty. Francine are they building on a trend that was their pretrump, or is this only trump . He has promised a billion dollars to spend. If he does 10 of that because of funding, the markets could be disappointed very quickly. Chris i think trump was in its element of a trend that started in july. U. S. 10 year bond yields made their low on july 8, a 100 year plus low, as far as the data goes back, really. They started moving them. Then, we had the debate moving from emphasis to monetary from monetary to fiscal support, and trump accelerated that. He brings other things to the equation as well. Francine is he going to have a problem with Dollar Strength at some point . Is there a dollar he is targeting . It is somewhat of an issue, but perhaps not as bad as people think. The old mantra is if the dollar goes up, it is not a problem. Allocation the asset trades changed dramatically. During the bull market, it has buy equities and bonds. Very then, it has been different, because of perceived coming strength in the u. S. Economy. Francine donald trump is trying to build an economy based on manufacturing, on infrastructure, on exporting. Americasically the old that we saw in the 1950s, coming back. Is it not necessary to have a weaker dollar . If the dollar keeps rising, because we are in a divergence play, this goes against the america he is trying to build. Buts i totally agree, remember we may get a number of tax cuts to boost consumption domestically. I think if you stand back from it, we have monetary support for the u. S. We are going to have fiscal support. If you look at where the money supply and credit creation is working, that has been normalized in the last year or two. Back tot is good to go the reinhardt analogy. Six years after crises, economy start behaving normally again. If you look at the u. S. Banking stem, the money, the credit creation, that is where we are at. This is why bond yields are backing up. It is not just fiscal. It is a normalization of money supply happening in the u. S. And the u. K. It is classic after a financial crisis. Francine in the u. K. , we still have very accommodative rates. Given brexit, we do not know what comes next. Fair . Chris 28 degree, but to a degree not, actually, of course. Francine you think Interest Rates will rise next year . Chris i think they should rise. It would be a mistake to cut money afternt brexit, because the money supply has been accelerated for 15 months in the u. K. , so the economy is already in acceleration mode prebrexit. Brexit is a minor wobble in the middle of that, if you like. Francine you expect it to remaining minor wobble . Or at some point may we realize that Foreign Direct Investment gets pulled down, and people move out . It could be a shock. Chris to quote marion Somerset Webb a couple of weeks ago and i think she is right in a couple years time, this is a minor change in our trading relationship with the european union. I think the whole thing is slightly overplayed. It is not irrelevant, but it is overplayed. The more important dynamic is the normalization of money creation. That is why a few take q3, it is so much more than people thought it would be. Francine what kind of brexit are you looking at . What does brexit mean to you . Chris again, i think actually what does it mean to me . I mean, i honestly think it is not a huge difference between hard and soft brexit in the mediumterm. Littlely, there may be a bit of difference. This is why i think we should not try to force the government to reveal their negotiating hand. Really, if you break it down and analyze it, hard brexit is a reversion to wto rules cup which is rules, which is not so bad. Like to have protection for the auto and finance sector, which i think is where the government is going. But i think people overplay this. Francine we will talk more about that in financial services, and the financial passporting a lot of people in the city of london have been talking to us that they want to see. Chris stays with us. The with surveillance for key elections. We focus on Political Risks in europe and when you take away from an interview with the bank of greece governor, yannis stournaras. And france juppe with elon Francois Fillon spar in a fight for the french presidency. And we bring you the latest on the brexit debate. Our panel will break down what a Trump White House might mean for the u. K. As it negotiates leaving the e. U. That is in half an hour. Francine lets get straight to the Bloomberg Business flash. Here is nejra cehic. Nejra monte dei paschi shareholders of plan for a vital 5 billion euro capital increase. By capital plan was approved 96 of investors attending the meeting in vienna. Shareholder approval is the final step to implement the recapitalization after the European Central Bank Approved it on wednesday. Johnson and johnson has approached actelion about a potential takeover for 17 billion. That is according to people familiar with the matter. Deliberations are still in an early stage, following the initial offer, and actelion is working with an advisor to explore options. Representatives from the companies declined to comment. Japan airline is preparing to sell its first bond in more than a decade to help fund the purchase of air france from airbus. The carrier is planning to sell about 176 million of notes next month, with the amount evenly split between fiveyear and 10 year notes. Ordered 31 airbus planes, with delivery set to start in 2019, and has options to purchase 25 more. Francine nejra cehic with the latest corporate stories you need to know about. Investor optimism is on the rise in greece. Its benchmarked index is one of the best performing equity gauges this month. In thed more than 20 last month on expectations creditors may finally ease the debt burden. For more, guy johnson joins us from athens. You just finished a great interview with the Central Bank Governor. I know you talked about greece and debt relief. You also talked about tapering and the ecb. Guy he said tapering maybe is not the story we should be focusing on right now. Now is not the moment, he said to me a few moments ago. I have literally just run from the central bank in grace. Fortunately, you can do this the bureau is wellpositioned to talk about what has happened. It is quite a story. The tension is rising within the Ecb Governing Council about what needs to happen next. The rising bond yields have made it in some ways easier for greece and the rest of europe to actually make the qe program and greece is not part of the program to make it work a little better. Maybe we do not need to extend our taper it. Maybe we do not need to reform and change the t. That is the tension that exists on the governing council. Esther gasser norris is yannisely dovish mr. Stournaras is definitely dovish. He does not feel now is the moment for tapering. A 20ine i know it was minute interview. Is he expecting debt relief . I do not know if he pronounced himself on that. The clock is ticking and he wants something soon. Been backwards and forwards to greece for many years as the financial crisis has raged here. In some ways, it still is. I have to say, this is the calmest i have seen athens and quite some time. There is a sense we are going to be seeing that meeting on december 5 delivering what it needs to deliver. If not, there will be a subsequent meeting and we will get what needs to happen here, happening. The imf will stay on board, talking to bank ceos. It is interesting to get that sense. It feels very, very calm at the moment. The data are certainly pointing in that direction. The data are getting a little bit better. As yes, i asked mr. Stournar about the greek economy, and he sounded quite positive. Take a listen. Yannis basically the ecb has delivered. If you look at numbers, inflation is on the rise in europe. Gdp growth is better than we have had before. Have calculated that the ecbs contribution i mean the Monetary Policy contribution is quite substantial to this effect. So the ecb has delivered. Sometimes, markets are very impatient area impatient. Guy he is referring to the fact the markets want to see an extension on the program, but what he is really referencing is this idea that Monetary Policy is delivering for europe, and greece is part of this. Yes, it is not part of the qe program, but we are starting to see things turning around a little bit, and greece is part of that story. He definitely feels Monetary Policy has much to deliver in the ecb needs to carry on from here. Things are moving in the right direction not only here in greece, but more broadly across europe. Certainly, political events coming up you kind of get the feeling he is saying, actually, we are doing our job. It is up to the politicians to deliver theirs. Francine what you mean . When he says the ecb is delivering, is it because they are mispricing risk, putting the safety pointed on a lot of yields . Or is it actually having an impact on gdp or employment, or something more concrete . Somethingnk it is more concrete. He feels you would hear this from other members of the governing council as well that Monetary Policy draghi referenced this only the other day that the Monetary Policy is providing some momentum. And yes, we are still seeing expected, and its trajectory is still below where the ecb would like to see it. But unemployment is starting to take lower. Re starting to see pmis we saw a early this week, they are in positive territory. There is momentum in europe, albeit not great. Was. T is better than it i think that is the message the ecb is trying to deliver at the moment, that the trajectory is correct. It is being supported by Monetary Policy, and that is why Monetary Policy needs to maintain its current path at the moment. That is why he made it very clear in the meeting i had with him that it is not time to taper. It is not time to start unwinding the qe program and the monetary stimulus the ecb is providing for the euro area right now. Francine a great, great interview. I urge all are listeners and viewers to go check it out on the website, or i imagine on your social media. Guy johnson. We go back to the chief strategist at longview. Chris, the greek situation the you view it as a greek, immediate that really question . Or, when we look back at the last 12 months, and the fact we were in a greek crisis and are now over it and have multiple crises actually, you see greece is a success story, where other countries should be inspired . Chris i would not say that. I think greece has done terrifically well to get where they are. But i am with the imf. They clearly need more debt relief. For the moment, if European Growth lifts greek growth a little bit, you could temporarily get away with that challenge. But in the long term the debt levels are far too high. They need proper debt relief. Thing from the market perspective is, the market is not really focused on greece anymore. We have moved on. We are now focused on italy. Francine for now. The problem is, i have always for greece could come back to haunt us. Chris but things do not tend to come back when their large banks are in place. As long as the backstops maintain efficacious and in place and working, greece should not come back to be a problem for markets. Italy, i think, is increasingly increasing Political Risk around europe. It is becoming much more of a focus, and likely rightly so. The worlds political mood is changing, and changing dramatically. Francine is there anything that central banks, policymakers, or even politicians can do to stop this wave of voter anger from taking hold . Chris i think what they could have done is what they should have done for the last 20 years, which is ensure that globalization is more broadly inclusive. So really, if you look at it, and say roughly half of the population in a lot of western countries the u. K. , u. S. , and so on feel left out. And i think that is a failure of policy over the last 20 years to not be better globalization. I want more globalization is that technology . Globalization is a big move, and we do not understand exactly what it means. People have been left behind because technology has moved on and they do not have proper training. That is education, not globalization. Chris lets call it policy to address globalization, if you like. There are lots of strands to the policy. But one failure, i think, is overly cheap money for 30 years, really. Certainly going back, i think, to the late 1990s, the asian and russian crisis. We got into this phase of cheap money and bubbles. And the response to that has , mostore money creation recently in the cycle, and i think that has created divisive income and Wealth Effects. How can it deliver productivity growth . Broadbased income growth. Francine that is technology. Chris well, Technology Works both ways. European technology should enhance productivity growth. I would say core Monetary Policy and over indebtedness has taken away growth. There is a lot going on. It is complex. At that is the challenge. It has not been inclusive. Francine think you for that. Chris watling stays with us. Over to france shortly. The Republican Party in france takes its 2017 president ial candidate this weekend. Last night, two hopefuls spar in the debate. Francois fillon, the front runner after a short success last week, defended his views as personal and not public. He also sold himself as a real agent of change that the country needs. Fillon in fact, alain juppe does not really want to change things. He is attached to a system. He wants to improve it. He wants to bring modifications. I think these modifications will not enable the nations recovery. Juppe i want to reinforce the voice of france. I want to reestablish our economic power, our credibility visavis our partners, particularly germany. From that point on, we are free to make our own choices, and i do not want france to be a vassal either of washington nor moscow. Francine i try to look at the debate as much as possible, chris. It is clear we do not know who, if any of these two, will face Marine Le Pen, and who survives the second round. This is politics in france like we have never seen before. Or is it . Are we over dramatizing everything with elections because of brexit and trump . Thes it is hard to see French Election having such a shock result. Although we did say that about trump and brexit. But i do think the general way the mood is going in france is consistent with this global shift in politics that we have seen over the last 12 months, 24, and so on. It is interesting to me that sarkozy comes nowhere in the first runner. He really is the main face of the establishment and the elite. Francine im in japan. He has been around a while. Chris they have both been around. But not as high profile as sarkozy. Francine is it was actually present. Chris for a long time. Francine because he was actually the president. Chris for a long time. Francine do you think Marine Le Pen has a chance to become president . Chris i think it is unlikely. It is a long shot. But clearly, the mood of Global Politics is shifting toward people like le pen. In many ways, she has a lot of the brexit and trump in her. I know there are factors going on in both of those elections. There are parallels as well. It is a protest against globalization. We can call it whatever you want to call it. You are sure it is globalization,

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