Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20180119

Anna good morning, everybody. Bloomberg it is bloomberg daybreak europe. The market choosing to focus on the positive around level growth. The chinese growth story we covered in detail yesterday. The risk of a shutdown in the united states. Senate democrats may be in the steering seat for that one. Inflation, inflation, inflation is the big talking point this week, in particular today. Mex in here moving in the other direction, down one point 22 . Down 1. 2 . That is on a meeting taking place, opec and Friends Meeting in moscow over the weekend. Getting news there. The story around the bond markets and inflation, u. S. 10year yields at two points at 2. 6 . Trump thes shutdown inflation jitters . It seems the other way around. This is the demand that is 10yearthe 30year breakeven spreads, and this is a gauge of Inflation Expectations. Subzero for the First Time Since 2013. What is in the backdrop to this . Bond traders were clamoring to buy inflation protection. There was an auction. At 2. 09kevens came in percent on wednesday, the highest since 2014. The fed meets in two weeks. Marketbasedut for measures for inflation compensation remain low. They came, they bought, they protected. Pales to the Inflation Expectations and nerves out there in the market. He will talk about those sequences later. In the meantime, Juliette Saly has your first word news. Germanys social Democratic Party is looking for anothercreate government with Angela Merkel. 600 sp delegates are due to vote this sunday on a proposal by Party Leaders to Start Formal Coalition talks. Leaders expect a tyga vote. A tied vote. Britain must pay into the European Union budget if it once its banks to keep full access to the block market after brexit. That is the message from emmanuel macron. He made the comments alongside may after a summit. I am going to be very clear with you. I am not here to reward or punish. I am here to do the maximum for mutual interests, but i have one request. The Single Market is preserved, because it is fundamental in the European Union. Juliette u. S. Federal reserve insider john volumes has been interviewed by the white house for the post of vicechairman of the Central Banks. Was not viewed as being on the shortlist for the job. Williams is currently president of the feds Regional Bank in san francisco, where he took the reins in 2011 from janet yellen. As a seniored economist in president bill clintons council of economic advisers. Europe, economists have brought forward their estimate of when the ecb will fed an end date for its Bond Buying Program , and made signs more optimistic views on inflation might be gaining sway among policymakers. While no action is expected at the meeting next thursday, almost half of respondents in a survey predicted central bank will announce a definite and date for asset person asset purchases by june. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. We are on track for a six weekly indexere in the regional with the msci asiapacific index up, another record high. Atan closing the session. 2 . Hong kong powering on at record highs with two hours straight to go. Australias market had a slightly weaker section slightly weaker session. India still at record highs. There has been a lot of upside for this stock. Investors are betting on a Crypto Mining over its phones. In the industrial manufacturing sector, a company in hong kong on an absolute tear. It has been up as much as 20 today. Nintendo rising after it came through with a marketing gimmick , what ubs is calling a marketing gimmick. When you buy the switch, you will now get cardboard with it and can now create your own consuls for it. Who says paper is dead . Singapore,ng us from Juliette Saly. What is goingut on in the united states. If the house of representatives have passed a spending bill to avoid up government shutdown. A government shutdown. It would give the government opened through february 16, while all sides negotiate. In the senate say they have the votes to block the measure. They want republicans and President Donald Trump to include protection for young immigrants. Current funding is set to run out at midnight today. Lets bring in Kathleen Hunter,. Lets bring in Kathleen Hunter and eric. What are the prospects in the senate that we get the house deal blocked . Kathleen did the talent in the senate is that they need to get democratic votes. In the senate, the republicans only control 51 seat. They are nine votes short of the 60 they need to pass the bill. That creates difficulties for republicans trying to get legislation there. Couple getting matters more, republicans have said they will vote against it. Compounding matters more, three republicans have said they will vote against it. It looks like they dont have the votes. It is an open question. Is horse playing trading in terms of what trump might offer as an incentive to get this across the line. How does trump factor into the debate . He talked on twitter about our military needs this. Trumps benefactor in this debate trumps has been a factor in this debate all along. Had originally hoped to get a broader deal. Democrats oppose this because it doesnt have daca. Scrap that. King to andcrats wanted a face, there was a bipartisan solution they brought to the president last week. That was the infamous comment that has been much discussed when he rejected that deal. That soured the talks. From democrats perspective, they feel like republicans controlled the levers of power in washington. They are gambling that if there is a shutdown, that it will be blamed on republicans and not them. They have not been given a lot in this shortterm extension to make them want to support it. Anna lets get the market perspective. What matters to you about this shutdown . Is it a disaster if it happens from an investors perspective . Into a positive if it gets february . Eric the noise around the horse trading of trading one idea or one off another is pretty trivial and iraq went to markets. We have been here before. And marketlity assumption is that they will come to some sort of solution. It is not in anybodys interest to call the bluff. Way youvestor, the would think about this is completely unpredictable. You will not get the answer by doing more analysis. The sensible thing to do is be reactive. If it did call the market episode, we would be interested in that as investors, because your view would be it is temporary. If there is a shutdown, it is unlikely to go on forever. It might affect data for a short time, and create an opportunity. Manus in terms of how we started this show, we started by talking about inflation, the relativejitters paling to inflation fears. Is that a fair take . Is it that inflation irks you more than the political hubris from the white house . Eric inflation may be, but much more important is real Interest Rate structures. What people forget is bond yield has, as we have seen post trump, you can get a very material so often bonds without any shift in the inflation. Real Interest Rates change. We are absolutely at a critical juncture. One cannot overstate enough, with respect to where the bond market is. These are still low levels of Interest Rates, including in the united states, versus economic outcomes that are phenomenal if you just look at standard metrics of unemployed growth rate. If we get any sign of tight labor markets that you are seeing broad increases in wages, that is going to be profound going to be a profound problem for the bond market. Anna lets continue monitoring what is going on in capitol hill. Kathleen, thank you very much. Kathleen hunter joining us with what is happening in washington. Eric, when we saw the clamor for tips yesterday, is that of great significance to you, the extent to which the market is trying to protect themselves . Eric not really. You have to be careful in interpreting the break even. Typically what happens is when the bond market rallies, you get a decline in inflation based on breakevens when bonds are selling off, the opposite typically occurs. There in mind you have got a Big Oil Price effect when it comes to underlying, because it is inflation being used for bonds. The wouldnt be worried about it. Logically, people are concerned cyclical inflation risk. I dont anybody believes there is a sustained inflation problem, but could we get bad data . Absolutely. Manus this chart we used today. This looks at the bond market. Going back to 1988, there is various moments in time. Yieldarkets, when the prices in such a short time, over and 18 month period of time time, these 18 month cycles are important. Monetary tightening, backup and rates is they set the precedent for the next bear market, would you agree . Eric there is a major caveat. Why are you choosing 18 months . Changes and yield are actually very instructive. It is a very good chart. Because i do, these, it will look different if you do 12 months rather than eight. 18 month is important, because you are choosing a little month and bond yields. Shift inhad a material yield relative to 18 months. The basic point is correct. This is undeniably a cripple juncture. 1 what is your manus what is your key criticism of it manus what is your key criticism of it . Aic if you look at that as traitor, you would say, look at those big selling points. Caveat with that is that you have cleverly chosen a piece cleverly chosen an 18 month period. [laughter] thingss we discussed all u. S. Inflation, where do you see the fed conversation involving in terms of the personnel at the fed . Williams was interviewed by the white house, but people saying he is not on the short list. How much of the makeup of the fed could influence where things go . Eric it really shouldnt, and itshouldnt the only way will is if they are thrown some serious problem, because you may fed to be dealing with major problems in asset markets. That is where people will be concerned. I dont think there will be any major change in how most of the kinds of economists will be appointed really think. Rarely you get unorthodox decisionmaking out of Central Banks. The economics will dominate. People may forget this. In the past there were big concerns about the bond market, inflation outlook, because it was tricky. What would concern me more is you get inexperienced, particularly in managing communication, in an environment where asset markets are demanding. You also have the tax reform, which is a serious issue a stumbling block for the economy. Eric, you stay with us. Work orre traveling to in the car, jump on radio. We are in the london area and digital radio. They will talk about the future of europe, merkel, and macron as they meet today. Anna leaders prepare to gather in davos. Later, tentatively later, penalty paid. Hsbc settles. This is bloomberg. 1 you have manus you have every market charging higher in asia. You have moves in the yuan. You have asian equity markets set for six weeks of gains. Japanese stocks are rising. This is what you should be watching for the day ahead. Anna Angela Merkel is in paris today to meet with emmanuel macron. He has been busy. The german chancellor is scheduled to meet with the imf, Christine Lagarde in berlin. That could be interesting given comments made recently about the amounts of money germany should be willing to spend. President u. S. Vice is due to embark on his delayed to the middle east. Juliette saly is standing by in singapore. Hsbc has agreed to pay 100 Million Dollars in penalties to resolve a u. S. Justice Department Investigation into the rigging of currency rates. It is part of a probe that has led to the conviction of one of its former bankers and charges against another. Deferredred into a agreement with prosecutors and promised to help with a criminal case against former traders and other individuals in the matter. The ceo of hna groups has canceled plans to attend next weeks meeting. Whyasnt immediately clear he decided to pull out. A representative couldnt immediately comment when contacted. Meanwhile, the company has halted its shares from trading in shenzhen ahead of a major announcement to becoming. To the coming. Two becoming. Two be coming. Be coming. The Worlds Largest Chemical Company unexpectedly published figures more than a month before scheduled earnings. Over has completed its deal with softbank a maturing reforms with softbank, triggering reforms. The japanese conglomerate invested one and a quarter billion dollars into uber. That is your Bloomberg Business flash. Anna thank you very much. As leaders gather for the World Economic foreign World Economic forum next week, the two largeste on the economies. It is one year since xi jinping emerged as a defender of the davos consensus. Manus since that speech, the u. S. President donald trump has enacted his America First agenda by withdrawing the u. S. From the Transpacific Partnership and the paris climate agreement and threatening to remain on nafta. What should the markets make of his historic role reversal . Still with us. The scrambleagine around donald trump next week. Davoscoming to challenge man and put the America First agenda on the table. What good comes from America First for markets in the world . For markets and the world. . Eric a lot of people would welcome the devils culture being shaken up aggressively. Culture being shaken up aggressively. What is interesting about trump is the extent to which the reaction to him can just be as forceful an important to the reaction he intends to create. I think this is happening across western culture. A lot of the things that are happening now are a rejection. Trump is such a blunt and aggressive statement of certain sets of beliefs that it galvanizes people in opposing it. , the eliteonsensus is out of touch with the populace. Those are deeply held beliefs across the political spectrum. Somebody like trump going there and checking things up, what it means is he is far less significant. Nationalism, new if that is what he represents, appears to be mercantilism, antifree trade, but nothing more than that. Is it just rather than actual substance . We are only one year through the presidency. The you see this and Brexit Debate as well. If you think nationalism has taken its expression now in tradeof throwing up negotiations, the first thing trump did, that is effectively what is happening here with brexit over the trade negotiations. The tension here is the Political Parties behind these individuals are protrade. You have this curious attempt to be nationalistic, but then everybody sits in the room and says im a but we actually believe in free trade. Says, but we actually believe in free trade. Things thatf the frightens investors the most was populism. We have had a cracking week in terms of data from china. The gdp was strong and fervent. What do you make of this . This is our Bloomberg Intelligence surprise index. Bullish on how bullish on china are you . Eric i am still pretty bullish on china. My starting point would be valuations. Chinese equities are one of the cheapest equity markets in the world. Index, itked at the is materially lower than that. If you think of it in terms of an expected return, that is priced to deliver you close to doubledigit returns. Everybody is talking about how global asset prices have been inflated. That is typically u. S. Centric perspective. Still remaintion depressed, despite the fact that markets have done well. Eric, thank you very much. Up next, we talk about german stability and politics. This is bloomberg. This is bloomberg. Manus it is 6 30 a. M. In london. Lets get a check in on the markets with nejra cehic. Nejra we are seeing gains pretty much across asia. The hang seng pushing to a record high, also the msci asiapacific index heading for a record close. You can see china in the green, japan and the green, hong kong as well. A little bit of weakness in australia. Overall, Risk Appetite in the asian markets. , seeing to the dollar weakness here. The bloomberg dollar index sets for a sixweek drop. It is the head of a possibility of a u. S. Government shutdown. Seeing this, despite the fact we have been seeing a rise in 10year treasury yields. ,ou can see on the next chart and with these technicals, after it pushes past some of these key levels, some strategist saying a little bit will step the 10year 3 . D from moving towards this is around Inflation Expectations. We saw good demand for that auction. Generally, Inflation Expectations have been rising. What is playing into this is the rise in the oil price, and that brings me on to my next chart. Wti lower than more than one percentage point today. It has been pushing up against that technical resistance. It went above 70. Now that it is dropped below, a technical indicator. We are seeing weaker crude, but it is not just about a little bit of a fundamentals playing into it as well. Anna lots to talk about on oil. We would do that shortly. Lets talk about german politics. The social Democrat Party is looking for ways to start another government with Angela Merkel. Will begin formal Coalition Talks with the chancellors block. It will determine whether europes biggest economy heads back to stability or lurches toward repeat election. For more, lets bring in matt miller. Good morning. Concerns . Heir are they daunted by the idea of more coalition . Matt definitely that. The social democrats experienced experience in government with merkel hasnt proven to be a good one. Ofyou look at the results votes held after the coalitions. This last coalition and it with postworld war ii low, so postworld war ii low and the results of the election. The socials really want be a speedy to go further once the spd to go further left. They want to get rid of the private tier of the health care system. They also want to raise taxes on the wealthy, which is something they havent gone in this preliminary agreement. They have been pushing. We havent had exact polls, because the delegates dont submit to such polls. A former chairman said he thinks there is a 60 chance this will go through on sunday. If there is a yes vote, what happens next . There is a lot of horsetrading to be done to get this across the line. What makes or breaks the deal . What schulz once is halfway through to have a review and be able to renegotiate whatever terms they come to in talks. That could be seen as a springboard for the spd to get more of what it once. The former chair says. The man who runs the Parliamentary Coalition for merkel, the union blocks, says that if there is a yes vote, he expects them to begin talks within a week and says those talks to be over in two weeks. Tocould come fairly quickly another vote by the social democrats. This time, it would be their members. You are looking at 40,000 people they would have to get this passed. Anna mats, thank you very much. Thank you very much. With us on set in london. We watched the german Coalition Talks. They seemed to drag on. Meanwhile, the german economic engine plows on. I have got this chart, which is u. S. Treasury yields versus european and japan average yields. U. S. Bond yields keep rising relative to the euro areas. This is a story through 2017 and into the start of this one. As we see the stories about investors changing their mind about exposure they want to have, does this shine a light more on eurozone debt . Eric the big challenge in europe is clearly the kind of returns people are stirring to experience in the bond market. For most of the last five to 10 years, the yield maturity on bonds has not been be returned you have received, because yields have kept going lower. European bonds have been delivering u. S. Style returns. What has happened in the last 12 months is you are getting what you are paying for, which is virtually no return or negative return. Market, the bond ,afety part of it, the court the german, french, the european part of the bond market is vulnerable to any reversal and policy or continued cyclical economic strength. Ultimately it is about fiscal sustainability, which is a function of growth. You could see spread compression. You have to be concerned about the european bonds. Anna you play euros on equities instead . Eric i think european equities are interesting. Everybody focused on global by galatians. Everybody talked on global valuations. The scope for positive earnings surprises and every raising of those markets is materially high. They are still in early stages of cyclical recovery. Manus we have done a survey. The qe has ats say end date that will be set at the june meeting. More than 50 of respondents predict the ecb will in of a definite end date in june. In the previous survey. If we are getting closer to that exit point, take me into your view on european banks. They are still, majority of them, subpar in terms of price of valuations, but those are improving. Talk me through your thinking on the banks. Put them ind context. You have got to remember where banks are coming from. What was the story 18 months ago . A negativedisastrous Interest Rate, low bond yields were going to be for the profitability of the financial sector. Consequently, if that situation is unwinding. If you are talking about an end to qe, aggressive monetary easing, potentially, and i think this has to become part of the debate, higher Interest Rates in the euro zone is a Huge Positive to the banking sector. If you look at a sector that is on very reasonable valuations were investors have been mentally scarred, where there is a potential for positive earnings, absolutely it is in the european banking sector, probably within the worst quality banks. Investors have tried to go to the safer once. Everything centers around quite you lets. We have Political Risk coming up. There is a nonperforming loans story and twitter you participate in that or the equity or bond market. Which segment of bond which segment of markets you want to be in . It is an interesting one. My preference would be in the equity, because i am getting a Strong Negative correlation currently between the equity price and the pricing of Interest Rate and Government Bonds. That is robust and plausible to me as a correlation. I think there is a lot of value there. Anna in terms of where the ecb goes next, you brought up the rate you brought up the latest research. For everybody reassessing that exit by the ecb, how much of a concern should the inflation chart be . They havent reached the target on inflation. Is this something that keeps the hawks at bay for now . Eric not just inflation. There is a bigger picture, which will be the back of mario draghi which will be on the back of Mario Draghis mind. Still a fundamental problem in europe, which is Government Bonds are underwritten by the ecbs quantitative easing. There is no fiscal flexibility, because germany has lost monetary sovereignty, and they want to maintain a tight fiscal environment. Emmanuel macron is not going to get his way. You have to have extremely loose monetary policy. They need economies like spain and italy to continue their growth momentum. If you looked at the data, you would say they should be raising Interest Rates. If you think of the political economy, it is a much bigger game. Manus this goes back to the discussion where economists say you have an account surplus in germany. You should think about spending that. I had a conversation yesterday. They talked about the unemployment rate. Has gone from an excess of 10 . That trajectory keeps falling. The momentum in europe, just how strong a plus cannot be and what does that do to due to the European Equity story . Eric i think it is very important. When you look at equity valuations, point level of earnings. Long chunks, the opposite is the case. It is incredibly important to the global bond market. It is extremely important. Anna eric, thank you very much. He stays with us on the program. The president has a plan to revive their economy. Says themnangagwa he nation will pay compensation to farmers whose lands were caught josh were confiscated. Whose lands were confiscated. He told bloomberg that zimbabwe is open for business. This change which has happened, the new order that is now in the country is sending positive signals from the americas, canada, brazil, u. K. , germany, france, russia, china, india, and so on. Positive and ag willingness to assist. We are happy the International Immunity is willing to embrace the International Community is willing to embrace us. We are opening our arms for more friends to come on board. Symbolic way, a country open for business. Zimbabwe, a country open for business. In terms of legislation, in terms of the ease of doing business, we are focused on being attractive for capital to come to the country. A to the international that will what is it bring you to zimbabwe . In my speech, i committed this country to pay our debts. We will not succeed overnight, but we have committed to addressing our debts. If we are expected to be recognized by the International Community, which has been a problem, we must make sure our elections, which are coming in four or five months, are free, fair, and accountable. They must be violent free, no violence at all. Apply the election guidelines, democratic guidelines, which we have agreed to. We shall accept International Observation of our elections so that we have people observing our elections to show transparency of what we are seeing. New president the in zimbabwe, emmerson mnangagwa. Oil market rally, that is delivering, but will it run out of steam . From thean expect meeting. Anna the latest shutdown countdown. Will be u. S. Spending bill be passed before tonight deadline . We will have the latest. This is bloomberg. It is new york on a thursday night, friday morning. It is 6 48 a. M. In london. The market is worried about shutdown jitters. Is inflation what matters to the market . U. S. Lets focus on the justice system. Hsbc has agreed to pay 100 million in penalties to resolve a u. S. Justice Department Investigation into currency rate rating. One former banker has already been convicted, as another charge in the probe. As part of the deal, the company agreed to help with the investigation. What does this agreement involve . From hsbcs cooperation with the Justice Department over this reading issue. Sue. Ver this rigging is they have agreed to cooperate over the next three years or else face prosecution. The Justice Department has agreed to impose a smaller fin e. Out thisquick to point conduct happened several years ago and they have since improved and it is prepared to keep cooperating with the inquiry. Anna where do we go from here . Mentioned, the case is now focusing on individuals. A former fx trader has already been convicted late last year. Colleague is in the u. K. , awaiting extradition to the u. S. For the same case. Banks and individual traders are also being pursued. A barclays a former fx trader was indicted in the u. S. For a similar situation. There probe is now shifting from the institutions to the individuals. Anna thank you very much for the update. Russell board joining us tokyo. Manus lets talk about the oil market. Theirs are poised for first weekly decline since the middle of december. U. S. Production has rebounded to record levels. Meanwhile, opec and its partners meet on sunday to review their strategy for reducing oversupply in the markets. In ourght we would bring reporter and eric is to what is. I love this piece this morning. The kings of oil rethink their ageold habits. He u. S. Is pumping big risk, small risk, negligible risk, rated for me. Reporter the most important thing in the oil market this year is how the u. S. Auto Industry Response to these higher prices. The u. S. Oil Industry Response to these higher prices. The iea is more bullish. They are predicting 1. 1 billion barrels a day. Their first big report of the year this money. What people will be looking for is if they upset. There was a hint yesterday that they were preparing to up their estimates for u. S. Shale supplied this year. Anna what about opec and how they respond to the march higher in oil surprise oil prices . The move has been upwards in recent weeks, and is there any what is the latest on whether opec will or will not decide to stick to their production cuts . Reporter you are right. These levels are a the price for opec. They didntt expected to get to 70 so quickly. In the short term, i think they will continue to do what they are doing. We have heard that from several oil ministers. Will poseay here, it problems for opec. Lets bring eric into the conversation. Here is our test hosted this morning. Where are we on oil . Lets bring in our guest host this morning. Where are we on oil . Create a floor in oil markets . Eric there are two important considerations. The big picture is the revolution in u. S. Shale. Whether that changes but eventually the shape of the supply curve. If you think Oil Price Volatility is a function, any shift in demand causes a dramatic shift in price. As that supply curve flattened, in other words, can oil be supplied ondemand . That is being tested at the moment. What i would say is that everybody is on top of the microanalysis. There is a consensus that the oil prices elevated currently and likely to come down. We forget what we do a microanalysis that it is a cyclical commodity price. At the margin were people will be surprised is by demand. I think the surprise to the market would be higher oil price. Anna because of global synchronized growth. Eric absolutely. Will we are going to miss the fact that the Global Economy is stronger, which drives demand. At the margin, people will be surprised that the demand outlook. Give us a bandwidth. Invest isway i would i like to look to oil stocks. If you look at were analyst forecasts are, they are using a lower level of the oil price. Prices, you have got extraordinary levels of cash flow in certain stocks. Bid if those prices were to go higher, there would be a shift in market police. In market beliefs. Anna it reminds me of a conversation we had about commodities recently. We talked about the levels the stocks are cutting out doesnt stocks are trading at doesnt reflect what we are seeing in markets. They will be talking about what to do in june, how they frame an exit from the steel, how they gradually exit this deal. Manus will, thank you very much. Is our guest host and has been with us. Great conversation. Up next, shutdown countdown. The u. S. House of representatives passes a shortterm fix to fund the government, but challenges remain in the senate. We will bring you the latest. This is bloomberg. Morning from london, i am manus cranny. Anna i am and edwards. These are todays top stories. Passes itsu. S. House spending bill to avoid a government shutdown, but Senate Democrats get the votes they need to block it. Zimbabwes new president tells bloomberg about his plans to revive one of the worlds worst performing economies. On those focused issues to say we must be attracting capital. Hsbc agrees to pay 100 million to end u. S. Investigation or into currency rate rating rigging. Welcome to the show. 7 00 a. M. In london, 8 00 a. M. In frankfurt. Welcome to you all in paris. Equities are rising. 6. 4. Uan broke what will the pboc due to react . Democrats gather enough votes to push back against the republicans . The house asked to avoid a shutdown. What will happen in the senate later . It seems to be the equity markets are more focused on the bullish story of global growth, of china as we come into the end of the week. You are looking at the debate on inflation. A reflationary world. That has consequences for the bond markets but in a reflationary world, we wait for the iea to give us their demandside today. Anna lots to talk about with regard to inflation. Ppi out of germany came in line on the month on month number. Year on year, also in line with estimates. That is the german ppi numbers. Conversation. Hat in the asian equities session, pacific up at this stage of the trading day. Focusing on global growth, the strength out of china that according to Eric Monaghan could Push Oil Prices higher or keep them as high as they are. Markets are focused on that rather than the potential for shutdown. Perhaps they dont think it would be such a negative. That is the story in equities heading into the meat of friday. Nymex is down one point 28 . 1. 20 percent. Mixed signals from the output data out of the united states, but there is a big meeting we just talked about for opec and nonopec friends taking place this weekend. U. S. 10 year yields 2. 64 , ticking higher on the yield. 2. 6 , ad above conversation we started will continue around demand for the inflation protection in the u. S. Manus and we had an option last night with voracious demand. Iond traders want to be will be quoting him on monday. This is how bond markets look at the moment and Government Bond yields are down. Look at the bond rally in yield over the past 18 months. There is a chart that talks about the 18month period, is it a clue to something bigger. The buzz is about four rate hikes. What does that mean for the terminal rates . You are seeing a surge in the shorterterm rates. Bones are down by 16 bunds are down by 16 pips. We will ecb is start to change in march. Willeconomists say qe end. That will be set at the june meeting and the deposit rate will be lifted from 25 in the Second Quarter of 2019 from a record low of. 4 . Inspectingrkets are reinflation pulse in the u. S. , the end of qe in europe and the goal in line with bund. Juliette saly has your first word news. Germanys social Democratic Party is looking for ways to sweeten another government with Angela Merkel. Delegates are to start former Coalition Talks with the block. Leaders expect a tight vote, while young Party Activists lead a campaign to shun compromises and go into opposition. Britain must pay into the European Union budget and accept the jurisdiction of eu courts if it wants its banks to keep people access to the markets after brexit. That is the message from emmanuel macron. He made the comments alongside theresa may after a daylong in girl anglofrench summit. Firstly, i will be clear with you. I am not here to award or punish. I am here to do the maximum for our mutual interest, but i have one request. The Single Market is preserved because it is fundamental in the European Union. Williams has been interviewed for the by the white house for the post of vice chairman of the Central Bank According to a person familiar. They say he was not viewed as on in sanrtlist for the job francisco, when he took the reins from janet yellen who went on to become fed chair. He also served as a senior economist in bill clintons council of advisors. Set an endb will date for its Bond Buying Program. Amid signs more optimistic views on inflation may be gaining ground among policy makers. While no action is expected at the meeting next thursday, almost half of respondents predicted Central Banks will announce a end date for asset purchases by june. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more. Han 120 countries you can find more stories on the bloomberg at top. Mostly green across these markets when you look at the wn function on bloomberg. We saw the japanese market close higher after its biggest selloff in a month yesterday, on renewed optimism about earnings results. Hong kong, another record high. Gains in China Holding on to the highs. A little weakness coming through in australia. Overall, the regional index on track for a sixth consecutive week of gains. Lets look at some of the stocks we have been watching. Taipei climbing. Is a lot of upside, even if we see demand for iphone suppliers wayne. Mining, cryptocurrency or components of that. China resources is a story across property makers in hong kong, after record home sales in hong kong. The dubious title of the most expensive real estate there. Sdi, providers and korea under pressure today on concerns that iphone x sales may lead companies to reduce orders in the first half of 2018. A mixed picture on the tech front, but a pretty good rally on asian markets to rather round out the trading week. Anna amazing when you see bitcoin mentioned in various earnings reports from asia. Thank you, Juliette Saly from singapore. Lets turn to our top story in the united states. The house has passed a spending bill to avoid a government shutdown. The bill would keep the government open through february 16, while all sides negotiate on longerterm funding for defense and domestic program. But democrats in the senate say they have the votes to block the measure. A want republicans and donald trump to include protection for young immigrants. Current funding is set to run doubt run out at midnight today. We are joined by Kathleen Hunter and tim hayward. Kathleen, great to have you on the program. What are the prospects in the senate we have seen this blocked before. What do we need to watch out for . In the senate, they need to get democratic votes. That is the big extract her. X factor. At a lot ofng democrats from republican leaning states that trump won in 2016 that may feel under pressure to not let a shutdown there is ause if shutdown, republicans are are ready trying to blame that on democrats. A lot of these democrats might be in states where there are folks receptive to that argument. These are people like joe manchin in west virginia, claire montana, in missouri, these are red state senators that may be more inclined to continuing resolution. Right now, i imagine republicans are trying to bring them on board. It remains an open question whether they will be successful. Manus Quinnipiac University poll would blame 34 democrats, 32 republicans and 21 would blame donald trump himself. Political be the implications of shutdown, because the last one was in 2013 when the republicans went after legislature in regard to the Affordable Care act. Political ramifications . Kathleen those numbers are interesting. In 2013, republicans democrats controlled the senate, republicans controlled the hat and the democrats controlled the white house and polls showed afterwards that republicans mostly took the blame for the government shutdown, even though they werent in control of washington. Now rip publicans are arguably it looks like the arguments that republicans are making is gaining some resonance with voters, the poll would indicate. Of question creates a lot risk, because republicans hold more of the cards here and if they think there is a political upshot to them potentially allowing a shutdown to happen, we have heard trump come out and say that, that does raise the possibility of there being a shutdown. I would predict i dont know that it will be today, but if not today, we probably will see the next time around. Kicked ahave seen it few times. We wonder when that stops. Kathleen hunter with the latest on what has been going on in washington. Lets bring Stephen Hayward into the conversation. Politics. K with in the shortterm, what does this mean for your expect haitians . Does the risk of a shutdown matter from an investment perspective . Only when it happens. We have heard so many cry wolf moments on this that when i speak to american colleagues, they said forget it. It is a nonstory. It has always been a nonstory and i will regret saying that because this is probably the one time when it is a story. Anna and if it does happen what is the significance . Tim not immediate. Eventually, it will turn into something quite problematic but so many time, we have seen this brinkmanship occur and so many times a nonevent. Im afraid we are not taking it seriously and we could be wrong. Manus one thing that is an bynt is the world is irked the prospect of potential inflation. A lot of caveats, but i take you to this chart. 8573 and what we have here is the demand for the auction yesterday, the 3010 your breakeven. Subzero for the First Time Since 2013. This is getting squeezed now. About are getting irked the possibility of inflation. Would you buy inflation protection . Tim yes, however, there is a point at which people who buy inflationary bonds would be disappointed in years to come when they look at the performance of those securities. They are affected by a variety of things, the rate of inflation, nominal bond yields. You showed how those are steadily rising. One basis point rise in Inflation Expectations, you get riseee to four basis point in nominal yields. Since nominal yields are so low to start with, you dont need much nominal rise to have negative bond returns. You went on the inflation and lose on a nominal yield and are disappointed by your returns. If you think inflation is going to go up a lot, it is going to be short bonds. Pips wont do it for you. Stories was our that investors were clamoring to put money not make them as much as they hope. Tois difficult annoying predict something and find in your portfolio it hasnt done as well as you thought. That how many less times you look in your portfolio and things are going well. We caught up with a noble mr. Phelps,terday, and he said there has been a serious stumble. Comment from a viewer who was talking about the dollar and the relationship of fiscal deficits, 2017, 2019, the deficit will continue to rise. Is it a misstep i vacillate from bullish to bearish in terms of the stimulus and the deficit prospect in the u. S. Cause some sleepless nights . Tim deficits have not really been super important for 30 years. These days, your report mostly one economics the that people focus on. 30 years ago, it was all trade data. You are also talking about oil. America becomes more energy my view isient, so it is not as important. The trade numbers are not as important. First, what if deficits move towards surpluses . Would that change the direction of the dollar . Tim look at the strength in the capital flows to the euro. Areongoing trade surpluses what help support the euro. That is constant flow and important. Hold fiscal. It is gasoline at the wrong time. Gasoline on a fire. Claims sincelowest february 1973. You dont need stimulus at this point in the american economy. Anna tim hayward, investment director at gam stays with us. Manus coming up on the show, social democrats prepare to vote on a proposal for Coalition Talks with Angela Merkel. Could this be the beginning of the end of the countrys political impasse . This is bloomberg. Manus 7 20 in london, 8 20 in berlin. 40 minutes till the start of the trading day. This is the state of play on the markets. Keep an eye on u. S. Treasuries. Another new level for the u. S. 10 year Government Bond. The yield rises to the highest level since 2014. A little change there. S p futures a shade lower, absorbing what is going on with earnings in the united states. It shutdown versus inflation debate in the u. S. 50, not very dramatic. Hsbc has agreed to pay about 100 Million Dollars in penalties to resolve the u. S. Justice Department Investigation into the riggin of currency rates. It led to a conviction of one former danger bankers. As part of the deal, hsbc entered into a deferred prosecution agreement with prosecutors and promised to help with the criminal case against former traders and other individuals in the matter. The ceo of hna group has canceled plans to attend the World Economic forums annual meeting according to people familiar with the matter. It wasnt immediately clear why he, who is listed as an attendee for the davos summit, decided to pull in pull out. A representative couldnt comment when contacted. Sharesvel group halted. Mid a major announcement the fourth unit to do so since last week. The asf has sent annual process profit rose to a fiveyear high amid growing demand for materials used in cars for construction. To 8. 3 billion euros, beating analyst estimates. The Worlds Largest Chemical Company published the figures more than a month before its scheduled earnings. Its deal witheted softbank, triggering a slate of governance reforms at the ridehailing company. Shares were sold at a discounted , making it thenk largest shareholder. Point 25vested one billion directly into uber at a valuation of about 17 million 70 billion. Socialgermanys Democratic Party is looking for ways to sweeten another stint in government with chancellor Angela Merkel and bring the political impasse. Delegates will vote on a proposal by leaders to start a 4 formal Coalition Talks. Determine whether the economy heads back to stability. Investment is the director at gam and is still with us. Theimportant is it to economic recovery and market sustainability that merkel retain the coalition and remains chancellor of germany . Tim reasonably, but not entirely. In other words, across the world, we have seen markets, economys move ahead in 20 17 and early 2018 in spite of politics rather than because of them. I am more optimistic than how you spoke about the german economy. A fantastic rise in apartment prices, workers asking for pay raises and getting two thirds of those. Future inflation in germany looks high at the headline level. All is well in germany. Manus longlived germany. Anna we see the politics divorcing from the market reality. In terms of the credit markets in europe broadly, where are you looking . Is it the corporates in germany and in the eurozone . Is it in the u. K. . A story this morning talked about credit strains in the united kingdom, the font investors getting more selective as Interest Rates are up and it becomes more expensive to refinance their way out of trouble. To talk oneople come your show and talk about how wonderful they are at managing their mask asset class. We are bearish for european bonds and most corporates, even in the u. K. The yields are just so terribly low. Highyield, you flashed up how 10 year yields are the highest they have been in 2014, american bonds look attractive compared to that. 2. 7 , not hugely attractive. In the u k, we have gone from being the economy that was doing surprisingly well postbrexit to doing sort of ok, but we have been overtaken in a relative way in the optimism. We are pretty cautious here too. Manus lets tie this together because you have seen moves in cable. These are the risk reversals on sterling. You are breaching pads for the First Time Since 2009. Turnaroundincredible in a very short period of time for sterling. What does that do to the gilt discussion . What does that do to the u. K. Discussion . Were at a eightyear high on risk reversals. Tim this is really a dollar sterling trade rated has not been so impressive. Yes, we have had the creeping higher of sterling versus the dollar. Two of the most unpopular currencies in the pack at the moment. Currencies have been powering ahead. Mexico is recovering. This is not the top of the table. Anna ugly competition in the currency markets. Tim haywood from gam. That is it for european markets. The open is next. Your car,you are in you have the podcast, digital radio, you can listen to everything they have been covering through the day. This is bloomberg. Guy friday morning, you are watching Bloomberg Markets the european open. I am guy johnson in london alongside matt miller in berlin. The cash trade is less than 30 minutes away. Countdown to the shutdown. Avoiduse passes a bill to the u. S. Government closing but democrats say they have a blocking vote in the senate. Thes First Anniversary be difficult . The french president tells the u. K. It can keep full access to the eus