Transcripts For BLOOMBERG The Pulse 20151201 : vimarsana.com

Welcome, this is the pulse, live from london. Nameds yuan has been as the latest reserve currency to the imf basket. Economicsa correspondent is standing by in hong kong enda, what does it really mean . Importants a very shift forward this is something that has been a key priority for the reformers within china, who want to go and open up and modernize, especially the central bank governor. This has been a key target for them. They were turned down five years ago and now they have got it. They can say, we have followed this path and it will get china theme world stage and get among the powers of the world. It is kind of a symbolic win. In reality, it will not change the economy overnight. It will, over time lead to a greater inflow of capital with more reserve managers buying yuan, but that will take time to build. It will be a slow burner before he reached the point that it is threatening the dollar or euro as a true reserve currency but it is a step forward. Say, it tookou years for Global Fund Managers to reweight the euro. We have the manufacturing story having problems, the Services Side rebalancing and doing better. Are we any further on in the debate between hard and soft landing . Enda i think it is as you were. You can read it both ways. An can say that it is not indication that the economy has turned the corner, but at the same time you can say that the pmi readings dont show things getting any worse, either. There is a view that things are broadly stabilizing, that the overall drivers are slipping away, but the service side of things is holding up, just not yet enough to fill the gap. But i think people are hoping that the slight stabilization we are seeing maybe in the housing sector, and that is where it fruition. To all the Infrastructure Spending might put a slower on growth, but i dont think it necessarily changes the narrative on where we are on chinas economy. Manus another indication we have, we just have the eurozone november manufacturing pmi, 52. 8. Yawn, but have a look at the eurodollar. This is the 12th consecutive month of expansion. This is the highest reading since april, 2014 for the headline index. It is also the highest rating for the new order index since april, 2014. Backup, set yourdollar the view would be that everyone is so short already as we go to the ecb meeting on thursday. The market is incredibly short as it stands, so perhaps people are taking money off the table. Lets return to china. We have our guest host in the studio, simon smiles. Heyve just published their outlook for 2016. Welcome. We were just talking about china, and ok, so the yuan goes into special drawing rights. What i loved about your notes is that you talked about the petro yuan. What is the accession of the currency and oil bring them all together. Simon i think it is very symbolic, as enda was talking to, but it is for now just that. It doesnt make the yuan a reserve currency. At the end of the day, reserve managers hold 1 of their reserves in youan. We could increasingly see it toward 5 . But in the very near term, any movement will likely be muted. Manus about a month ago, you said you had dinner with the number of institutional investors. What i found fascinating was that you said, actually, the chatter around the table was that the yuan could fall further. There was a line from the ministry saying that they want to be less handson. Within that context from what you heard a month ago, from here to now, is there any progress in terms of what dots on the yuan devaluation . Simon we expect modest depreciation from here. We areend of 2016, expecting it to trade around 6. 80. But there are some very high profile hedge fund managers, and there are more negative views, and a strong consensus that yuan could depreciate beyond 7. Manus there is a line in your notes and you have a couple bubbles of thoughts in terms of co2 emissions and germany but i like the line about the petrodollar phrase, and you take us through the history of that. Petro yuan oil is one of the most contentious issues in the market. How does that fit into your thinking . Simon the petro angle, i dont think its the foremost driver in the nearterm. As the economy shifts more to a service driven economy, we still need to stimulate the manufacturing segment, which has been very weak. We saw that drop in profits and it is the center of enterprises. The private side of the economy is continuing to grow. ,n that general environment some weakness with respect to the currency helped stimulate the export sectors at the same time to the domestic policy we expect another Interest Rate cut by the end of the year and further reserve rate requirements. Manus do you think that will come before the close of business this year . Simon and further rate cuts next year. Manus the debate is, going into next year, what happens in china will reverberate all the way around global markets. And we will talk about your views for 2016 a little bit later. But what we have here is more of an inflection on deflationary pressures coming from china, whereas various people coming in are saying the oil price will drop out of the inflation numbers. How do you look at the deflationary pressures globally to 2016 . Simon the oil price rolling off mechanically should reduce some pressures. Endddition, we see the of this very steep bull run. We think the dollar has done most of its depreciation, and we are saying 1. 10 by the end of the year. Along with a modest improvement, we think will ease concerns of a deflation. Manus we have a lot more to get through in terms of 2016. Simon smiles, of ubs. Heres a look at what else is on our radar. All seven major u. K. Banks passed the bank of england stress test, and even standard fell short in some parts. The bank of england also said that it may begin forcing banks to set aside capital to support lending. Vladimir putin is giving erdogan the Cold Shoulder at the climate summit. He says that it to ration of ties with turkey is, quote, a shame for all of us. Erdogan has asked him for a onetoone meeting. Lindt dropped the most in seven years, the ceo reducing earnings targets for third time in just over a year. Ok. U. K. Banks are leading the charge this morning, taking the market. They passed, hurrah. But we will dig a little deeper into the reports. Manus welcome back. Inare live on bloomberg tv streaming on bloomberg. Com, your tablet and your phone. Lets turn our attention to all major u. K. Lenders they passed the bank of englands 2015 stress test. No shock there, but not all was flying colors. Caroline hyde has the details. Rdf and Standard Chartered have just slid under the radar. Caroline you are right. A few hurdles, but overall, all seven lenders did pass, reminding us of those stress scenarios. The emerging markets crumbling, the likes of europe, u. K. Slimming down, u. S. Stagnation, boil at 38 per barrel. Under these scenarios, all seven major u. K. Banks have enough capital to weather the storm. But to shine a light as to where they kept up, Standard Chartered, a company in the midst of raising one of 5 billion of capital in shares, had a lot on its plate. It seems as though they failed the minimum Tier One Capital ratio under these stressful scenarios. But they are not off the hook because the chief executive has done so much of late to ensure that in the future it is strong enough. Meanwhile, rbs fails on an individual capital guidance, a specific threshold for rbs. It, too, managed to stumble over that but overall past because it had been getting equity to ensure it is stronger in the future. So overall, they all passed. The leading lights, the building society, is really coming out on top. Manus if we look at those u. K. Lenders in terms of the need to set aside more capital as the economy improves the lovely technical phrase is the cyclical buffer. Tell me what that is. What does it mean for me, why do i care . Caroline it means you can have higher borrowing costs come march. It means that this is a red flag from the bank of england about the stress that the Banking Society could have in a few months, because we are getting better. The economy is getting stronger, and they want to use this buffer to ensure that when times are bad, banks are setting aside enough money to ensure they can whether a storm, and have enough to lend to the economy. Come march we could see the bottom raised to 1 . Mark carneys explicitly setting out that it could hit the real economy to the tune of. 1 gdp. 10 billion pounds it would add up to, for banks to raise that capital would mean that you and i have higher borrowing costs. It is another red flag that while the banks can weather these scenarios, you may have to set aside more cash. Manus caroline, thank you very much. Thes bring simon smiles, chief Investment Officer at ubs, back into the conversation. What a week we are looking at. We have got the ecb, a jobs report, yellen speaking, opec coming it is almost feeling like a crescendo in terms of how you look at the world. Is it a big risk week for you . Simon its december and the world is meant to be calming down. [laughter] simon it definitely is. Very little is priced in in terms of expectations. There has to be some cut supply and a rally in oil prices. I think with respect to the ecb, i think draghi talked himself into a corner. I would be amazed if we didnt see action, it is just how much action. A three to six month extension to qe seems to be the consensus. Manus we talk about looking forward to 2016. Your view on the world on growth and equities you say we will get a pretty decent turn, 7 8 per terannum. Would give us your outlook for equities. Simon one of the big calls for 2016 is that 2015 did not mark a peak. Cycle of we cnn to the underperforming emergingmarket equities. Thirdly, with respect to keep tactical views, it is heightened volatility that is likely to remain with us for longer, if we are entering into a diverging world. The ecb, bank of japan, and others. Manus i have a volatility chart i think it encapsulates very well where we are, and expectations of bigger currencies to come and what we are looking at here is one month implied volatility. The one month implied volatility, 2. 93 . We havent seen it since june, 2012. In terms of risk and protection and we have touched on this you are a believer in terms of heightened volatility, but also protection in that case. Simon i think the onemonth volatility makes a lot of sense. We have a fed meeting, an ecb meeting, and lower trading volumes around christmas. With respect to using volatility for our private clients, it is something we spend a lot of time on. It is one of the advantages that private clients have, without having an agency being agents for other peoples money without having to be benchmarked. There are no dislocations which exist between different markets. A an example is looking at, for example, one protection on the coffee index. Confronting that by selling projections, it is the hedging market, the default hedging market for many managers, costs being relatively off the beaten track. You often get multiple times, for selling relatively smaller. Manus the giver of liquidity to write your options strategy. The ceo this morning said that the market is still trying to find a bottom you say be wary. There is not enough reward for the risk that you actually get in Commodity Markets. So give me your perspective on that. Simon the last 10 years, you see annual returns up from commodities, 18 volatility for that return. Hardly a compelling risk return. Going forward, we see modest returns, higher than the last 10 years, but modest and at the same levels of volatility. That is a good risk return and it is why we have zero waiting commodities. Manus time is always against us so lets take a leap forward and talk about the big thought beyond 2016. Longerterm investment, how should i be staying good . Simon the next five years, we have alternatives as the standouts, that absolute in terms of returns and with respect to risk return. We think traditional Asset Classes will be relatively challenged, even the best performing equity markets are looking at sharpe ratios. Where we see the best opportunity is structural trends, longerterm investments, and one standout is oncology. Investing in helping cure cancer. Manus simon, i wish we had more time. Lets see what the rest of the week brings to us in terms of the ecb and that jobs report. Simon soils, chief Investment Officer from ubs. Up next, why putin and obamas meeting at the Climate Change conference was decidedly frosty. We are live in paris up next. Manus on the sidelines of the Climate Conference in paris, russias president held a oneonone with obama. Apparently snubbing her to erdogan. Hans, obama it putin how to go . Hans well, there was a pull side meeting we dont quite know because there are different accounts. The u. S. Side is saying it was a mixed meeting, that they still have disagreements on whether Bashar Alassad should stay. Mr. Putin said on the whole that they came closer to a better understanding, but on the crucial issue of whether you can have a Broad Coalition against isis, mr. Putin suggested to the issue with turkey is a negative one. At kind of Broad Coalition can we talk about . President obama later in the evening have dinner with francois hollande, the top was how to deal with isis. Hans, the German Cabinet also approved the use of warplanes in syria. This is quite significant. Hans well, the cabinet hinted this. We still need the final approval from the bundestag. It is four to six surveillance planes. They will not be engaged in combat. All told, it will report that 1200 troops will be available, but we really need to stress that they are sending a frigate, the surveillance plane but these will not be involved in combat, and that is a crucial distinction. Manus as the United Kingdom members of Parliament Look to vote on the same kind of issue, that is very relevant. Lets turn our attention to ryan talk to me about russia and turkey and the consequences of these import bank. What are you hearing . Ryan there were people who thought we would get reconciliation between the two leaders, and what we got was a rationing of rhetoric and russia slapping this ban on the imported food and clothing and other things. We are getting the first signs that people are concerned about what this might mean for the russian economy. Less turkish goods means less competition in the grocery store, meeting higher inflation, which is already at 15. 6 , just off the highs from 2002. Three banks weighing in on this apple bank saying that it could increase inflation in russia by 2 , bank of america saying that a week from friday, when the bank of russia m eets, they will lower rates to 10. 5 . Barclays say they will forgo the rate cut altogether. The concern is that it will push up the ruble at a time when you could have the oil price continue to go down. Obviously it will stem the opportunity for growth. Gettingt signs we are this intervention in syria may have consequences for russias of domestic economy. Manus thank you for wrapping data. Hans nichols, ryan. Lenders pastu. K. The stress test, but mark carney says there is still room for improvement. Manus welcome back to the pulse. We are live from london. Simon is here, and it is certainly a miss and drop on a previous occasion. Pmi. Six manufacturing previously 55. 5 what we have here is a bit of a drop in the pmi in the manufacturing data, a similar drop in china. We brought ourselves up from that psychological level, which just broke yesterday. Keeping an eye on sterling and pmi. Lets get you up to speed with the top headlines. Chinas manufacturing pmi dropped to the lowest level in three years. The official reading came in a 9. 6 in november, the weakest since august, 2012. Interestrate cuts havent been spur theo u manufacturing sector. All seven major u. K. Banks pass the bank of england stress test. Though Standard Chartered and royal bank of scotland fell short in some parts of them, the bank of england says it may start requiring banks to set aside capital for a downturn. Morgan stanley is planning to cut as much as a quarter of its income staff. The Company Reported a 42 plunge in bond trading last quarter. The cuts would be across all regions and are set to take place before the end of the year. Shares of Morgan Stanley rose on the banck of the news. Lets get more with nejra cehic, who says this decision hasnt been publicly announced. What do we know about the brett of this story . Nejra we heard this story from people who say that these cuts will happen across all regions and are set to take place in the next two weeks. They would amount to a reduction as much as 25 of fixed income trading. The reason why we are going to see these cuts, according to these people, is simply years of revenue decline and insufficient return. Last month, Morgan Stanley reported a 42 plunge in bond trading revenue. The ceo called it the worst quarter for fixed income, currencies, and commodities since he took over in 2010. Is alone iney having a bit of trouble, because if you look at the top 10 biggest Global Investment banks, ficc is on pace to drop to 65 billion this year. That would be the lowest since the financial crisis, and also less than half of what those companies produced in 2009. In europe we have our racing the likes of ubs, deutsche bank, barclays shrinking the investment banks to rein in costs, and now we are seeing a similar thing for Morgan Stanley. They didnt say recently that we might be seeing the bottom of this lull, but it still isnt clear how much revenue is typically produced after stabilizing. It looks like uncertainty has called for big measures. Manus thank you very much for that. Nejra cehic. Lets get a quick check on the biggest Market Movers of the day. Mark barton is trailing the markets. Mark global stocks have risen every december all but five years since 1988. As we start this new month, stocks are rising. It is certainly a glass halffull day after investors chose to ignore weaker than forecast official chinese manufacturing data, which fell to the lowest in more than three years, and focus on the private sector, which has an Global Fund Managers<\/a> to reweight the euro. We have the manufacturing story having problems, the Services Side<\/a> rebalancing and doing better. Are we any further on in the debate between hard and soft landing . Enda i think it is as you were. You can read it both ways. An can say that it is not indication that the economy has turned the corner, but at the same time you can say that the pmi readings dont show things getting any worse, either. There is a view that things are broadly stabilizing, that the overall drivers are slipping away, but the service side of things is holding up, just not yet enough to fill the gap. But i think people are hoping that the slight stabilization we are seeing maybe in the housing sector, and that is where it fruition. To all the Infrastructure Spending<\/a> might put a slower on growth, but i dont think it necessarily changes the narrative on where we are on chinas economy. Manus another indication we have, we just have the eurozone november manufacturing pmi, 52. 8. Yawn, but have a look at the eurodollar. This is the 12th consecutive month of expansion. This is the highest reading since april, 2014 for the headline index. It is also the highest rating for the new order index since april, 2014. Backup, set yourdollar the view would be that everyone is so short already as we go to the ecb meeting on thursday. The market is incredibly short as it stands, so perhaps people are taking money off the table. Lets return to china. We have our guest host in the studio, simon smiles. Heyve just published their outlook for 2016. Welcome. We were just talking about china, and ok, so the yuan goes into special drawing rights. What i loved about your notes is that you talked about the petro yuan. What is the accession of the currency and oil bring them all together. Simon i think it is very symbolic, as enda was talking to, but it is for now just that. It doesnt make the yuan a reserve currency. At the end of the day, reserve managers hold 1 of their reserves in youan. We could increasingly see it toward 5 . But in the very near term, any movement will likely be muted. Manus about a month ago, you said you had dinner with the number of institutional investors. What i found fascinating was that you said, actually, the chatter around the table was that the yuan could fall further. There was a line from the ministry saying that they want to be less handson. Within that context from what you heard a month ago, from here to now, is there any progress in terms of what dots on the yuan devaluation . Simon we expect modest depreciation from here. We areend of 2016, expecting it to trade around 6. 80. But there are some very high profile hedge fund managers, and there are more negative views, and a strong consensus that yuan could depreciate beyond 7. Manus there is a line in your notes and you have a couple bubbles of thoughts in terms of co2 emissions and germany but i like the line about the petrodollar phrase, and you take us through the history of that. Petro yuan oil is one of the most contentious issues in the market. How does that fit into your thinking . Simon the petro angle, i dont think its the foremost driver in the nearterm. As the economy shifts more to a service driven economy, we still need to stimulate the manufacturing segment, which has been very weak. We saw that drop in profits and it is the center of enterprises. The private side of the economy is continuing to grow. ,n that general environment some weakness with respect to the currency helped stimulate the export sectors at the same time to the domestic policy we expect another Interest Rate<\/a> cut by the end of the year and further reserve rate requirements. Manus do you think that will come before the close of business this year . Simon and further rate cuts next year. Manus the debate is, going into next year, what happens in china will reverberate all the way around global markets. And we will talk about your views for 2016 a little bit later. But what we have here is more of an inflection on deflationary pressures coming from china, whereas various people coming in are saying the oil price will drop out of the inflation numbers. How do you look at the deflationary pressures globally to 2016 . Simon the oil price rolling off mechanically should reduce some pressures. Endddition, we see the of this very steep bull run. We think the dollar has done most of its depreciation, and we are saying 1. 10 by the end of the year. Along with a modest improvement, we think will ease concerns of a deflation. Manus we have a lot more to get through in terms of 2016. Simon smiles, of ubs. Heres a look at what else is on our radar. All seven major u. K. Banks passed the bank of england stress test, and even standard fell short in some parts. The bank of england also said that it may begin forcing banks to set aside capital to support lending. Vladimir putin is giving erdogan the Cold Shoulder<\/a> at the climate summit. He says that it to ration of ties with turkey is, quote, a shame for all of us. Erdogan has asked him for a onetoone meeting. Lindt dropped the most in seven years, the ceo reducing earnings targets for third time in just over a year. Ok. U. K. Banks are leading the charge this morning, taking the market. They passed, hurrah. But we will dig a little deeper into the reports. Manus welcome back. Inare live on bloomberg tv streaming on bloomberg. Com, your tablet and your phone. Lets turn our attention to all major u. K. Lenders they passed the bank of englands 2015 stress test. No shock there, but not all was flying colors. Caroline hyde has the details. Rdf and Standard Chartered<\/a> have just slid under the radar. Caroline you are right. A few hurdles, but overall, all seven lenders did pass, reminding us of those stress scenarios. The emerging markets crumbling, the likes of europe, u. K. Slimming down, u. S. Stagnation, boil at 38 per barrel. Under these scenarios, all seven major u. K. Banks have enough capital to weather the storm. But to shine a light as to where they kept up, Standard Chartered<\/a>, a company in the midst of raising one of 5 billion of capital in shares, had a lot on its plate. It seems as though they failed the minimum Tier One Capital<\/a> ratio under these stressful scenarios. But they are not off the hook because the chief executive has done so much of late to ensure that in the future it is strong enough. Meanwhile, rbs fails on an individual capital guidance, a specific threshold for rbs. It, too, managed to stumble over that but overall past because it had been getting equity to ensure it is stronger in the future. So overall, they all passed. The leading lights, the building society, is really coming out on top. Manus if we look at those u. K. Lenders in terms of the need to set aside more capital as the economy improves the lovely technical phrase is the cyclical buffer. Tell me what that is. What does it mean for me, why do i care . Caroline it means you can have higher borrowing costs come march. It means that this is a red flag from the bank of england about the stress that the Banking Society<\/a> could have in a few months, because we are getting better. The economy is getting stronger, and they want to use this buffer to ensure that when times are bad, banks are setting aside enough money to ensure they can whether a storm, and have enough to lend to the economy. Come march we could see the bottom raised to 1 . Mark carneys explicitly setting out that it could hit the real economy to the tune of. 1 gdp. 10 billion pounds it would add up to, for banks to raise that capital would mean that you and i have higher borrowing costs. It is another red flag that while the banks can weather these scenarios, you may have to set aside more cash. Manus caroline, thank you very much. Thes bring simon smiles, chief Investment Officer<\/a> at ubs, back into the conversation. What a week we are looking at. We have got the ecb, a jobs report, yellen speaking, opec coming it is almost feeling like a crescendo in terms of how you look at the world. Is it a big risk week for you . Simon its december and the world is meant to be calming down. [laughter] simon it definitely is. Very little is priced in in terms of expectations. There has to be some cut supply and a rally in oil prices. I think with respect to the ecb, i think draghi talked himself into a corner. I would be amazed if we didnt see action, it is just how much action. A three to six month extension to qe seems to be the consensus. Manus we talk about looking forward to 2016. Your view on the world on growth and equities you say we will get a pretty decent turn, 7 8 per terannum. Would give us your outlook for equities. Simon one of the big calls for 2016 is that 2015 did not mark a peak. Cycle of we cnn to the underperforming emergingmarket equities. Thirdly, with respect to keep tactical views, it is heightened volatility that is likely to remain with us for longer, if we are entering into a diverging world. The ecb, bank of japan, and others. Manus i have a volatility chart i think it encapsulates very well where we are, and expectations of bigger currencies to come and what we are looking at here is one month implied volatility. The one month implied volatility, 2. 93 . We havent seen it since june, 2012. In terms of risk and protection and we have touched on this you are a believer in terms of heightened volatility, but also protection in that case. Simon i think the onemonth volatility makes a lot of sense. We have a fed meeting, an ecb meeting, and lower trading volumes around christmas. With respect to using volatility for our private clients, it is something we spend a lot of time on. It is one of the advantages that private clients have, without having an agency being agents for other peoples money without having to be benchmarked. There are no dislocations which exist between different markets. A an example is looking at, for example, one protection on the coffee index. Confronting that by selling projections, it is the hedging market, the default hedging market for many managers, costs being relatively off the beaten track. You often get multiple times, for selling relatively smaller. Manus the giver of liquidity to write your options strategy. The ceo this morning said that the market is still trying to find a bottom you say be wary. There is not enough reward for the risk that you actually get in Commodity Markets<\/a>. So give me your perspective on that. Simon the last 10 years, you see annual returns up from commodities, 18 volatility for that return. Hardly a compelling risk return. Going forward, we see modest returns, higher than the last 10 years, but modest and at the same levels of volatility. That is a good risk return and it is why we have zero waiting commodities. Manus time is always against us so lets take a leap forward and talk about the big thought beyond 2016. Longerterm investment, how should i be staying good . Simon the next five years, we have alternatives as the standouts, that absolute in terms of returns and with respect to risk return. We think traditional Asset Classes<\/a> will be relatively challenged, even the best performing equity markets are looking at sharpe ratios. Where we see the best opportunity is structural trends, longerterm investments, and one standout is oncology. Investing in helping cure cancer. Manus simon, i wish we had more time. Lets see what the rest of the week brings to us in terms of the ecb and that jobs report. Simon soils, chief Investment Officer<\/a> from ubs. Up next, why putin and obamas meeting at the Climate Change<\/a> conference was decidedly frosty. We are live in paris up next. Manus on the sidelines of the Climate Conference<\/a> in paris, russias president held a oneonone with obama. Apparently snubbing her to erdogan. Hans, obama it putin how to go . Hans well, there was a pull side meeting we dont quite know because there are different accounts. The u. S. Side is saying it was a mixed meeting, that they still have disagreements on whether Bashar Alassad<\/a> should stay. Mr. Putin said on the whole that they came closer to a better understanding, but on the crucial issue of whether you can have a Broad Coalition<\/a> against isis, mr. Putin suggested to the issue with turkey is a negative one. At kind of Broad Coalition<\/a> can we talk about . President obama later in the evening have dinner with francois hollande, the top was how to deal with isis. Hans, the German Cabinet<\/a> also approved the use of warplanes in syria. This is quite significant. Hans well, the cabinet hinted this. We still need the final approval from the bundestag. It is four to six surveillance planes. They will not be engaged in combat. All told, it will report that 1200 troops will be available, but we really need to stress that they are sending a frigate, the surveillance plane but these will not be involved in combat, and that is a crucial distinction. Manus as the United Kingdom<\/a> members of Parliament Look<\/a> to vote on the same kind of issue, that is very relevant. Lets turn our attention to ryan talk to me about russia and turkey and the consequences of these import bank. What are you hearing . Ryan there were people who thought we would get reconciliation between the two leaders, and what we got was a rationing of rhetoric and russia slapping this ban on the imported food and clothing and other things. We are getting the first signs that people are concerned about what this might mean for the russian economy. Less turkish goods means less competition in the grocery store, meeting higher inflation, which is already at 15. 6 , just off the highs from 2002. Three banks weighing in on this apple bank saying that it could increase inflation in russia by 2 , bank of america saying that a week from friday, when the bank of russia m eets, they will lower rates to 10. 5 . Barclays say they will forgo the rate cut altogether. The concern is that it will push up the ruble at a time when you could have the oil price continue to go down. Obviously it will stem the opportunity for growth. Gettingt signs we are this intervention in syria may have consequences for russias of domestic economy. Manus thank you for wrapping data. Hans nichols, ryan. Lenders pastu. K. The stress test, but mark carney says there is still room for improvement. Manus welcome back to the pulse. We are live from london. Simon is here, and it is certainly a miss and drop on a previous occasion. Pmi. Six manufacturing previously 55. 5 what we have here is a bit of a drop in the pmi in the manufacturing data, a similar drop in china. We brought ourselves up from that psychological level, which just broke yesterday. Keeping an eye on sterling and pmi. Lets get you up to speed with the top headlines. Chinas manufacturing pmi dropped to the lowest level in three years. The official reading came in a 9. 6 in november, the weakest since august, 2012. Interestrate cuts havent been spur theo u manufacturing sector. All seven major u. K. Banks pass the bank of england stress test. Though Standard Chartered<\/a> and royal bank of scotland fell short in some parts of them, the bank of england says it may start requiring banks to set aside capital for a downturn. Morgan stanley is planning to cut as much as a quarter of its income staff. The Company Reported<\/a> a 42 plunge in bond trading last quarter. The cuts would be across all regions and are set to take place before the end of the year. Shares of Morgan Stanley<\/a> rose on the banck of the news. Lets get more with nejra cehic, who says this decision hasnt been publicly announced. What do we know about the brett of this story . Nejra we heard this story from people who say that these cuts will happen across all regions and are set to take place in the next two weeks. They would amount to a reduction as much as 25 of fixed income trading. The reason why we are going to see these cuts, according to these people, is simply years of revenue decline and insufficient return. Last month, Morgan Stanley<\/a> reported a 42 plunge in bond trading revenue. The ceo called it the worst quarter for fixed income, currencies, and commodities since he took over in 2010. Is alone iney having a bit of trouble, because if you look at the top 10 biggest Global Investment<\/a> banks, ficc is on pace to drop to 65 billion this year. That would be the lowest since the financial crisis, and also less than half of what those companies produced in 2009. In europe we have our racing the likes of ubs, deutsche bank, barclays shrinking the investment banks to rein in costs, and now we are seeing a similar thing for Morgan Stanley<\/a>. They didnt say recently that we might be seeing the bottom of this lull, but it still isnt clear how much revenue is typically produced after stabilizing. It looks like uncertainty has called for big measures. Manus thank you very much for that. Nejra cehic. Lets get a quick check on the biggest Market Movers<\/a> of the day. Mark barton is trailing the markets. Mark global stocks have risen every december all but five years since 1988. As we start this new month, stocks are rising. It is certainly a glass halffull day after investors chose to ignore weaker than forecast official chinese manufacturing data, which fell to the lowest in more than three years, and focus on the private sector, which has an Acceleration Service<\/a> industries. I will focus on a matter of the chinese the currency is now a reserve currency, so says the imf. The yuan dropped after the announcement yesterday, but is now growing amid International Credibility<\/a> that they will join the dollar, the pound, and the yen in the drawing rights basket. It will be 10. 90 , seconded to the dollar. And the euro will the chinese intervene . Yes, they well, according to barclays. They expected to weaken by midnext year. On the back of the china manufacturing data, i thought we would look at the price of copper, which is rising today, calling back some of its losses since november. This is a chart from the last month in november copper sank by 10 , the worst month since january. It wasnt alone. The London Metal Exchange<\/a> index salk for 7 index sunk for seven consecutive month. The worst by the for copper, which is at a sixyear low, investors betting there is more pain in store. But we have some slightly hawkish news citigroup isnt so bearish. Had forecasted many Commodity Markets<\/a>, including copper, to strengthen in the second half of next year. We want to show you an index that we show you every day the ftse bank index. This is an index that i have shown you over the last month all seven lenders are taking part in the bank of england stress test passed. There is a little star sign next to rbs and Standard Chartered<\/a>. They need to raise further capital. Negative euro area growth and plunging Commodity Prices<\/a> and because of all these measures, it is down by 11 . But the index is rising today. Manus thank you very much. Lets talk more about the bank of england stress test for 2016. We are joined now by james ferguson, a Founding Partner<\/a> of macro strategies. Good to have you with me. Looking at these stress tests, there is an argument out there that the stress test for 30 for a barrel of oil that was a big drop. Not exactly stressful, are they . James no. And the most important thing about stress tests is that everyone passes. Every time we have a stress test, everyone passes. There were a couple lottie boys here the edge not just the bank of england stress test but the eba, the fed the first thing to bear in mind is that it is a pr exercise. If we look underneath the layers of that we can have a look at the stuff that matters, what happened to the capital ratios, the riskweighted capital ratios and the leverage ratios. Manus that leverage ratio was at 3 , and it is the area of contention, for example, within rbs and Standard Chartered<\/a>. My question to you would be, if they didnt make that benchmark, are we going to see a sale of assets . You have credit squeeze, barclays, Standard Chartered<\/a> the whole world is trying to deal ever. James all the improvements in the capital ratio since 2011, 71 of the improvement has come from the risk weighting of assets, and only 29 has come from more retained earnings and more capital. The way that banks are dealing with the problem in the first derisk,is 2to which is why Interest Rate<\/a> margins have gone down. Manus with all of that said, when you listen to carney at the start of his news conference, it was brief and to the point. He said there would be no raising of capital for the sake of raising capital, but we the public will pay if there is a need for more capital. In some ways, it was giving a one hand, in terms of we arent going to be any more onerous, but of course capital the customer will pay. James one of the things left out of the crisis talk was who benefited form the credit bubble . Take a look at u. K. Credit rates and it is much slower than u. S. Peers. We had a much faster growth. Arectual fact if you measuring these things based on cheapness and affordability and availability of credit to the you economy, then if will get it cheaper, and you have to remember what you had to pay on the far side of that. You wont have to arguably bail them out after the credit bubble bursts. It is all about prudence, looking at a situation and saying and may look good though, but we could have trouble later. Manus lets talk about potential bubbles. George osborne tried to quell that twice now, one with taxation, secondly with anybody thinking about its only going to get more penal. We had carney in his statements really talking about the risks in regards to that property market. James yes. Two points. The first is that the property markets risks geographically seem to be centered quite strongly the southeast. If you look at the National Average<\/a> figures they arent too bad. The reason is because if you look at the way banks have prepared their balance sheets, they have lowered lending on every type of loan except residual mortgage. But amongst mortgage, the only growth has been by the left. Our entire recovery is predicated entirely by that. Manus frightening. James very. So before we get into any nasty advice, we should wean ourselves off this to see if we can find proper growth. Manus what did you make of the interview from carney, that the cyclical capital buffer, as its technically known when times are good, we are going to ask the banks to put aside more capital, so when times are tough they have the money to lend . The interest is that it will come next year, q1. We know that everyone has a strong resistance to thinking now is the time when i should save for a rainy day. The way that bank has decided to measure this and it admits that this is a very fraught measure they are looking at private sector debt against gdp and comparing it to the longrun trend. Trend is that long but the stock of debt to gdp is at a very low level. According to this main measure, we shouldnt be doing any kind of cyclical Capital Raising<\/a> at all. Manus it was a carney moment. James it has to do with a very low Interest Rate<\/a>s we are on some measures on one measure, Mortgage Rates<\/a> and house prices to income terrify, but on another measure, house prices to Mortgage Prime<\/a> ins are as cheap as they have locked since the war. A lot of big distortions to deal with and this is another one. Manus great to get your take. Im sure therell be much more to come from the bank of england. Jams ferguson. Thank you for joining us next, as the leaders call for new climate markets, a tax on carbon. How high is the climate companies agenda . We bring you the surprising data compiled by bloomberg, right here on the pulse. Manus welcome back. This is the pulse. Were live from london. Time to check in on the markets. The stoxx 600 just dipping into the green. All the london banks passed the stress test, hurrah. We had our purchasing Managers Index<\/a> come off the 16 month high, but still demand is looking pretty perky. Eurodollar trading at 105. 95. As you go toward the ecb meeting on thursday is the market so short of going into this position on thursday that it is equitiesake global have wrapped up the year with gains on all but five occasions since 1988. December is typically the biggest and the best. Lets get your top stories. Germany unexpectedly dropped to a record low, the jobless rate falling to the lowest since german reunification. Italian unemployment was also out this morning, dropping to 11. 5 , the lowest since december, 2012. Zurich Insurance Group<\/a> ceo will leave the company at the end of the year. He has been the head of switzerlands biggest insurer since 2010. The move comes after the Company Reported<\/a> a loss in its general Insurance Unit<\/a> and abandoned the takeover of rsa. In hedgenhorns mage han fell, dropping to almost 21 and is on track to be it second losing year in two decadess. Heres a stat. 6 . 6 of ceos are rewarded on Climate Change<\/a> achievements, according to data compiled by the bloomberg terminal. We are joined by the bloomberg Sustainable Finance<\/a> editor, shavon. Great to see you. That is a pretty low number. Is, so there are 94 of ceos that arent rewarded for Climate Change<\/a>. The interesting thing is that we have cop21 this year, all these Companies Making<\/a> all these statements about how they will reduce emissions, and when you look at the president s and c eos, and the metrics of their pay, there is nothing in there about omissions. Money is the big driver when it comes to these things. Manus it is. Ask a banker how you want to be rewarded it tells the tale. Are the biggest three identifying Climate Change<\/a> is something as a benchmark metric . Can use the bloomberg terminal to find this out. We have the top three microsoft, exxon, in ge. What interesting is that exxon is an oil company, but because the operations are so related to the environment, it would be almost strange to not be incorporated with the ceo pay. Sense it sort of makes if you think about the bp trauma. Its not about a new concept of focusest certainly in the mind and investors on terms of what kind of risk a ceo should have. The flip side is those are the kind of names which are benchmarks. The flip side is the people that arent apple does a huge amount of business in china, and has been criticized on a number of occasions in terms of production process. Siobhan apple has been doing a lot in terms of Renewable Energy<\/a> in china. They announced that they are investing in solar, so they are trying to do a lot in terms of reducing their emissions. Whats interesting is that while they have been investing, their footprint has been going up. That could just be due to the fact that increase of business and omissions, but they know they need to do something about it. One thing we will be looking for at cop21 is carbon will there be a price on carbon . If you are a heavy energy user yeah. Its something every Company Might<\/a> have to think about. Manus siobhan, well done. Living the dial from 6 will be quite a feat. Up next, a dire forecasts for the commodity market. The ceo tells bloomberg that this slump isnt over. Stay with us. Manus welcome back. This is the pulse, live on bloomberg. Commodities markets are still searching for a bottom, according to a ceo speaking to jonathan ferro. He said producers are battling with oversupply and waning chinese demand. Lets listen in. Ok. This is one of those classic tv moments. Jonathan the voice comes in your ear and says we dont have the sound go long. I spoke to him markets are still searching for a bottom in Commodity Markets<\/a>, three reasons. China, rates, production. You dont have a seat on the pboc our fomc the only thing you can control is production. That is one of the reasons the Commodity Markets<\/a> is still searching for a bottom. Manus there is that integral issue, the policy look what opec are doing. As much iron ore as you can pilfer. The policy is to jonathan exactly, and that is not happening. Thats where the echo of the Energy Markets<\/a> are so loud, because the opeclike reduction strategy is quite clearly taking part in the market as well. The big players are carrying on pumping production, the lowcost producers trying to flush out the highcost producers. But the bottom line he said this to me he went through the commodities markets, and there is still a High Percentage<\/a> of assets that still have their necks above water. The price will have to come down more, strip out the excess production, then maybe we can find equilibrium. We arent there yet. Manus but i can tell you where we are we will listen. I think that we have a market event over the next 30 days, and that is what will happen with Interest Rate<\/a>s and the u. S. Dollar visavis other trading currencies. That will be the immediate catalyst in terms of telling me, all the drivers that are out there, what is guiding us in terms of commodities . Manus talking his book. Toathan he does next produce much iron ore he is a big copper producer. He is also the former ceo of rio. I wanted to ask him whether he would have a different strategy. He didnt really want to go there, but you he was a big player, a big producer, and they are clearly wielding that. Manus great interview. I love the way he put it in context. He can tell you what will happen, that he can tell you what he has control over, and that is cost. Enjoy surveillance with tom keene. Is equities and stress tests. The bank of england says all major u. K. Banks are 2015 stress tests. It may force banks to set aside more capital in march. Capital hits a three year low. Commodities brace for more pain. For 2015, theonth dollar index retreats for the first time in five days. A busy morning for the city of london. A","publisher":{"@type":"Organization","name":"archive.org","logo":{"@type":"ImageObject","width":"800","height":"600","url":"\/\/ia601203.us.archive.org\/9\/items\/BLOOMBERG_20151201_090000_The_Pulse\/BLOOMBERG_20151201_090000_The_Pulse.thumbs\/BLOOMBERG_20151201_090000_The_Pulse_000001.jpg"}},"autauthor":{"@type":"Organization"},"author":{"sameAs":"archive.org","name":"archive.org"}}],"coverageEndTime":"20240623T12:35:10+00:00"}