Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20240713

Nejra welcome to daybreak europe. Lots to discuss in terms of the market moves, but lets get to news. Im ew in at im looking at Third Quarter net. That is a beat on Third Quarter net. Thirdquarter revenue, 5. 0 3 billion euros estimate, 4. 9 9 billion. That is a beat on Third Quarter revenue. 0. 1. 211ratio rises. 7 . Thats what were looking at in terms of that. Really, what were seeing is benefited from higher revenue at the Investment Bank in the First Quarter since the ceo unveiled his new target. We saw the profit rise 8. 9 in the First Quarter since we got those new targets. To give you more context, Credit Agricole shares have been outperforming its larger peers. And coming up on bloomberg, least to the cfo. Catch that interview at 9 30 a. M. U. K. Time. More breaking news. Its guidance to the upper half of the target range. It sees for your operating profits at the high end of the 11 billion to 12 billion euro range. This is key what is coming through here. In terms of what else im saying, Third Quarter revenue, estimate 32. 6 7 billion euros. Thirdquarter operating profits comes in, 2. 9 8 billion euros, estimate 2. 90 4 billion euros. The combined ratio, 94. 3 , estimate 94. 2 . That comes in stronger, as well. Just to let you know about assets under management and they come inlows, at 90 billion euros. A lot bettering in than expected. Coming up, we speak to the cfo on alianza. Lots of questions for him. Shortly after 6 40 a. M. You take time u. K. Time. Profits,f operating 1. 1 7 billion euros, the estimate, 1. 25. A little bit soft on the first half operating profits. The operating margin, 15. 7 , estimate 60. 6 . 16. 6 . Saying,hemont is difficult environment its talking about in hong kong and china. Interesting because elsewhere, weve seen some of the luxury sector whether some of the challenges. Richemont is saying its a difficult environment and it also says theres been a doubledigit sales decline on the protest. Lets get to markets. Lots happened yesterday. A big risk on rally and we saw a global bonds selloff on the optimism on progress we might be seeing towards this phase i deal. We havent heard from President Trump yet. Did we get ahead of ourselves . The s p 500 hit a record. We pull back on futures. The 10year yield had one of its first days since President Trump was elected. If we get to 2 , is that one buyers come in . We get a basis point to a 1. 91 handle. That might tell you something about treasury demand in general, as weve seen the backup and yields. It was a global bonds selloff in europe. We sell the yields in france and belgium turn positive. Whats been interesting, as weve seen risk on, the dollar hasnt weakened as much. We have seen havens crushed, gold heading for its worst week since 2017. The yen has taken a hit. The yuan still stronger past the seven handle, even as we see retracement of yesterday. Staying with our top story, there is talk of a tariff rollback. China and the u. S. Agreed to reduce levies on each others goods. Whether they are any closer to an agreement is in question. What has larry kudlow reformed disconfirmed a rollback, confirmed a rollback. Its dependent on the progress of talks. Weeks, the two leaders of the two sides have conducted serious and constructive discussions on addressing their concerns, and agreed to a phased cancellation depending on the progress of negotiations. Chinas trade data had bright spots as exports declined less than expected on rising trade optimism, but imports contracted for a sixth straight month is weakness demands continues to bite. Ning us is balentine valentin. Good morning. We take stock after that morning markets, the risk on alley rally. What are the prospects what we saw in markets yesterday bear out . Guest we do think we have made important steps to a deal of phase one of the trade negotiation process and we certainly think a meeting will take place between the two president s where were going to have that agreement finally put into play. We expect risk assets, even commodity currencies, exposed to china to hold firm or appreciate further into year end. The big part of that assessment is the markets are still hungry for good news. We had a bad year in terms of economic you news, in terms of trade work economic news, in terms of trade war concerns. Nejra interesting you say markets are hungry, because i wonder how much of the detail will matter to markets. Will it simply matter theres phase one and it doesnt matter the extent of rollback of tariffs . Is it just getting to that phase one thats going to push risk assets higher . Valentin the direct Economic Impact of the tariffs has been not as great as the overall impact on Business Sentiment in the u. S. , and china, from the prospect of further escalation in the conflict. Butdetails may matter, personal assessment would be what would matter more for markets, whether after the conclusion of phase one, they ll be further scope for renewed escalation between the two. Talking to clients, the assumption is once phase i is done, there may be a period of time before we get a renewed concern the trade tensions may resurface. That is really the key. From that point of view, what is quite important here is what the signal is going to be after phase one. What about the other issues . What about intellectual property . To what extent did the Trump Administration will be willing to revisit those before the president ial election . Provided those issues do not resurface soon enough, i think the rally will have more legs. We have further to go. Nejra how do you approach this if you expect tensions to resurface . Do you by the spot currencies of those risk on currencies you talked about, but protect further down the line . Valentin always, were having a hedge against return of those trade tensions. They will resurface. Its a matter of time, when rather than if. You mentioned gold earlier today. Theres always a useful hedge to have somewhere in your portfolio against that, maybe six, nine month horizon, rather than three month horizon. From that point of view, were having that. I have to say, talking declines, client talking to clients, they are undivided on currencies. The move may have further to go. We have an estimate of fair value if you assume trade concerns will abate further. Clearly, you mentioned the renminbi, which may have further to go to the downside if the phase one agreement is signed by the two president s. Plus, i think one important consideration is there is still the currency that has been hurt by both the trade conflict and brexit. That currency is the euro. I think that currency looks cheap, very oversold. I think now is the time to establish longs in the europe out,ting, six, nine month on the back of the assumption the trade war concerns will abate on a sustained basis for the next few months, but also because of expectations brexit risk may start debating, as well. Nejra based on outlook for trade, do you see yen weakness, but also brought dollar weakness . Valentin what is interesting about the end, unlike the euro, it held its ground quite well during all these markets selloff on the back of trade concerns. It started from august, and the fact the yen has emerged as the one safe haven currency or safe haven asset, next to gold, investors prefer to hold. Given those risks are abating, you could argue it would emerge as the biggest under performer. I think dollaryen is higher, but euroyen higher may be an interesting idea to consider. Nejra valentin stays with us. Lets get bloomberg first word news in hong kong. Good morning. There was a clear message from the white house to ukraine. Thats according to one Senior State Department official. He told house committees last month President Trump wanted ukraine to investigate joe biden. He says the three words pushed by the administration were, investigation, biden, and knudsen. Orest johnson announcing plans for visas for doctors and nurses. It would be introduced after the u. K. Leaves the eu. Health care set to be a key battleground. To be a key battleground. Opposition leader Jeremy Corbyn has accused johnson of trying to sell out the nhs to win trade deals. , in hong kong, a student who fell at a carport has died. The hospital says the victim was 22yearold chao. It was a second year student at the university of science and technology. Police say he fell from the third to the second floor. Global news, 24 hours a day on air and at tictoc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. Im one ha. This is bloomberg. Nejra thank you so much. Coming up, saudi arabia approaches its wealthiest studios citizens to buy stock in saudi aramco. Well bring you the latest. Traveling to work, tune into Bloomberg Radio. This is bloomberg. Nejra this is daybreak europe. Im eric a pitch in london nejra k pitch in london. Nejra k pitch in london. We have seen mixed movement coming through and we see the asiapacific index down 1 10 of 1 . Still on track for a weekly gain and that will be the fifth weekly gain in a row the longest streak since july. Still sing the bond selloff continue. Have a look at the yield inching towards zero, looking like it could exit that territory and watching the move and the offshore yuan, as well. The pboc leading the fixing rate past seven to the dollar for the First Time Since august. The rupee leading losses in asia fx and that is after moodys thegraded its call, raising outlook to negative siding growth concerns. Have a look at my chart on the trade front because we heard the u. S. Is a phase i china deal would include a tariff rollback. Exposedws you china stocks in october, up 4 against the world index and that is after a slight gain in the month of october. Compare that to negative trade headlines, such as in may when President Trump announced the 10 tariff until did billing dollars worth of chinese goods would increase to 25 and net similar headlines coming through exposed stocksna significantly lower against the world index. It looks like a lot more positive investor momentum as we hear they could be closer to this deal. Nejra . Nejra Juliette Saly in singapore, thank you. Lets get a Bloomberg Business flash. Thanks. Disney bringing amazon on board for the launch of its new streaming service. The partnership injures the company will have access to tens of millions of viewers when it launches disney plus next week. This alongside fourthquarter profits topped expectations fueled by the blanking and group lion king and growth at theme parks. The termination coming after years of struggles for the company. His turnaround efforts failing to reignite sales growth. The Apparel Company is bringing back pain member of the family founding family to lead while it figures out a longer term plan. Violating test firing 13 employees firing 13 employees. Its the first major action since softbank took control. Potentially dismissing thousands of staff. And thats your Bloomberg Business flash. Thank you so much. Thank you so much. Raphael bostic said he probably would have dissented against a rate cut. He isnt a voting member, but favors keeping rates on hold. It comes as markets are no longer pricing in a full fed cut. Futures show expectations that rates will bottom in the next couple of years, less than 25 basis points below the current fed rate. Goldman sachs president says the fed made it a busy interview period with more business conversations taking place. He spoke with bloomberg. You see a pickup and risk appetite. Whats happening with the Federal Reserve and inks around the world, and being relatively dovish has helped. Nejra howard marks says now isnt a time for investors to be aggressive and they should take on less risk than normal. He spoke with Erik Schatzker in new york. I think that the ultra low Interest Rates, the rates of zero and below, have worked a lot of cap warped a lot of calculations. So, of course, in the small picture cents, it makes sense sense, it makes sense companies have taken on more debt. Because its so cheap. Nejra lets get back to valentin. More conversations about fed calls. Not only that, some say they are going to start hiking. Why do you see the fed cutting in the first half . Valentin they have a below consensus outlook. We think the u. S. Economy may come close to stalling in the first half of the year. Where the trade war concerns may be abating as we speak, and potentially may not resurface before the election, i think they may be replaced by concerns about the political outlook in the u. S. Ahead of the president ial elections. Discussions with clients highlighted the fact senator warrens leading the field in the democratic caucuses, iowa, new hampshire, starting from february onward, is the reason for a concern, in particular the emphasis on protectionism on her side, weak dollar policies, and emphasis on regulation and fiscal spending that may have to be funded through higher taxes. At the moment, investors were fretting about trumps populist mix of policies, fiscal stimulus, and protectionism. Before long, they may worry about a mix of policies that include protectionism, but also involve fiscal austerity in the u. S. If indeed senator warren does emerge as the front runner in the democratic field of contenders, chances are that may weigh on business confidence. That may discourage business investment. That may even weigh on Consumer Spending next year. Taken together, i would say the cause of the trade war that may linger on the economy, we think the fed is not done easing just yet. Nejra does your weaker dollar call hinge on that cut coming from the fed . Or is the dollar poised full, nonetheless . Valentin we do think one important contributor to the dollar downtrend we envisage later on next year is indeed the erosion of the currencys great advantage across the board, a courtesy of the fed. We do expect two rate cuts next year, after the cyclical headwinds for the dollar. Theyre going to lead to convergence of the fed and other Central Banks and make the dollar a less attractive carry trade across the board. On top of that, we expect the political concerns intensifying political concerns head of the election, will likely impact the trade quality of the u. S. Assets. With that in mind, we think currencies like the euro, funding currencies like the yen, may emerge as the biggest beneficiaries of a potential turning in the dollar uptrend. Nejra turning in the dollar uptrend, you say you see two fed cuts in 2020. We get to a threemonth high, its going to be shortlived. Buyers come back and you see 10year yields moving closer to 5 . Valentin indeed. Thats longerterm forecast. The longerterm is lower still, 1. 3 . Part of the story is that there are gloomier outlook for the u. S. Economy compared to consensus. And consistent with that, ever weaker dollar call. Nejra valentin stays with us. More to discuss. Saudi arabia is pursuing a commitment from its wealthier citizens to buy into the aramco ipo. They are trying to shore up demand for the listing as investors balk at readds insistence it is worth 2 trillion. Joining us is stephen chicken skate in singapore Stephen Chesson ski in singapore. Who is capping for the aramco ipo . They are tapping a number of the wealthiest folks inside the country. One of them is a group that does a number of Business Inside saudi arabia, and was a precursor to aramco starting the oil business. It has since become a contractor. They also franchise burger kings throughout the country. Theyre a major player, one of the wealthiest familyowned conglomerates. An interesting part of this, also that aramco is looking to get investors from folks that riskheld up in the riyadh carlson amid an antifrom action corruption swing. They are going to attract investors, folks not on the best of terms with, to try to bring more money into this enormous ipo. Nejra and the fact that saudi is looking for these commitments, should be take that as a signal theyre really worried about demand . Stephen well, i think this is going to be a fundraising that has never been seen before in the history of ipos. Theyre targeting a 2 trillion ipo. Theyre going to need as much money as possible from everyone. When we speak to a resources, theyre chatting with not just sources inside saudi arabia, but also around the world. Theyre trying to Court Chinese investors, japanese investors. That said, the scale of the ipo warrants the amount of marketing that theyre going to be doing over the next weeks and months. Nejra makes sense. Thank you so much for joining us with the latest on that scoop. Coming up on bloomberg, we speak to raphael bostic, president of the atlanta fed. Catch that interview at 1 30 p. M. U. K. Time. When youre traveling to work, tune into Bloomberg Radio on your device or on dab digital radio. Blondin 500 in the london 500 hit a record around what we heard on a potential rollback of tariffs and a phase i deal between the u. S. And china. Futures on the back foot in europe, but also u. S. Futures as well. In terms of bonds selloff, the 10 year treasury yield edging down, but staying above 1. 90. This is bloomberg. Nejra this is daybreak europe. Chimeric a pitch in london. I am nejra cehic in london. Joining me is niraj shah and dani burger. Were seeing a pause in terms of risk rally and bonds selloff that we saw yesterday. The rupee leading losses in asia fx. What is behind that . Good morning to you. Behink the full reason would india. Downgrade in that has led to a reaction in the currency, but the stock markets arent reacting as negatively. Those markets are doing ok. I want to remind all our viewers this is a course correction from modis back in 2017. He was the only one that upgraded the reading of india. So the rating was above the other rating agencies on a global basis. Now theyve done a course correction. Thats a very muted impact, but impact nevertheless. Equity markets not deterred by this. Back to you. Nejra thank you so much. Dani, the 10 year treasury yields hitting a high yesterday, gold and silver the worst week since 2017. Havens got crushed. What is the story today . Dani i feel it wasnt long ago we were talking about old not having the effects of gravity hitting it at all. That narrative has gotten chipped away this week. Check out these havens, what theyve done. Some of the biggest losses since 2017 for some of these havens. The agreement between the u. S. And china yesterday certainly moving these markets. You were hardpressed to find a market that wasnt moved in assets that didnt move off the headlines. By far, the havens were the most impacted. 10 year treasury yields moving the most since the summer. I want to take you into the chart, just how drastic this move was. When we look at the Weekly Performance of gold, it fell nearly 3 . Two is a two sigma move, standard deviations from the norm, the biggest selloff since 2017. This shows how assets were priced for a recession for continued tensions in u. S. And china. Keep in mind, gold very close to 1500 an ounce. There are improvements in the Global Outlook and trade, this asset still has further to fall. Nejra standard deviations. You know how to capture might attention. Dani burger, thank you. Niraj shah, great to have you with us. Lets get a bloomberg first word news in hong kong. Thanks. The u. S. And china agreed rolling back tariffs will be a key part of any agreement. But the big question, is a deal closer to being done . President trump advisors dont sound certain. Talks are ongoing. The time and place for signing they packed are yet to be decided. And there was a clear message from the white house to the ukraine. Thats according to one official. He told has committees President Trump wanted the ukraine to investigate joe biden. The words being pushed by the administration were, investigation, biden, and clinton. Boris johnson announces plans for visas for doctors and nurses. It would be introduced after the u. K. Leaves the eu. Healthcare set to be a key battleground in this campaign. Opposition leader Jeremy Corbyn has repeatedly accused johnson of trying to sell out the nhs to win postbrexit trade deals. Global news, 24 hours a day on air and at tictoc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. This is bloomberg. Nejra thank you. The European Commission has cut its euro area growth and inflation outlook for 2020. The new projections reflect pronounced reflections in the region. Lets go to annmarie hordern. What are the details . Annmarie the worst may still be ahead for the European Union. The policy uncertainty means the resilience wont last forever and thats the morning from the commission, which cut euro area growth and inflation outlook yesterday. The risk, including possibility of a disorderly brexit, remain to the downside. While france and spain are proving more resilient, italy shows no sign of meaningful recovery and the commission predicts muted growth for germany and the latest Industrial Production data was another drag, output falling 6 10 of a percent, more than forecast. Next weeks gdp figures crucial for germany. They are set to slip and a recession after growth contracted the last quarter, and that probability for that scenario has been rising and spiking recently to about 4 . Nejra . Great work thank you so much. As European Finance ministers are in brussels, another key issue is the finance. Olaf scholz is seeking to break the deadlock. He says berlin may make concessions on the insurance game, a key pillar of the project. He told bloomberg integration is essential for growth. Building the Banking Union and completing it is key for growth in europe. We need the baking unit because we want to have more growth, more jobs. Demands isof the key facing opposition from italy. The finance minister rejected stricter rules on sovereign debt holdings. The Vice President told bloomberg progress is being made. We are making meaningful progress on the Banking Union. Slow is the european deposit insurance theme and germany has been among countries who have been skeptical of this proposal. We see this contribution as a welcome opening. It could be impetus to our discussions and hopefully will be able to arrive a balanced compromised. Nejra maria tadeo joins us from brussels. Great to catch up. We heard who is in and who is out on the proposal. How likely is it we will see meaningful progress on the Banking Union then . Maria good morning. Whats clear is all that he wants to change around the narrative around germany. He doesnt want germany to be seen as a country that always says no. This time were serious about this debate. Theyre running into hurdles. The italians leave some of those requests to reduce risk and break that relation between the sovereign and the bank risk is too much. They believe its a redline thats not going to work for them and you need to keep in mind this is something that it is something he is personally pushing. Its unclear how much support is Angela Merkel willing to throw behind this. It comes at a tricky time for politics. Youre looking at not just dissent and disagreement with in euro area members, but also the country that is putting the plan forward. Head of thet to the euro group, who said this is something we welcome, anything that can strengthen the euro is good news. But is not going to be easy and not going to be quick. Nejra germany was also in focus after persistent weakness. His berlin taking note here . Is berlin taking note here . Maria the sense here is that they are not. They are saying the country is in a technical recession. I spoke to them yesterday and i asked, do you agree there is something fundamentally wrong with the German Economy . And hes sticking to his guns. This is just external. Take a look. Slower growth in the World Economy today, which is mostly the result of trade tensions and uncertainties we have in the world. But anyone knows if we get over the situation and if the terrorism agreement between china, the United States, and trade, we will have more growth worldwide and this will have the european and german debt help european and German Economy. Maria they continue to say there is nothing fundamentally wrong with the european economy. When you ask them the crucial question, are you willing to spend money to work . They say yes, but wont go into specifics. We do not get a sense this will be imminent. Nejra maria tadeo, thank you so much. Valentin is still with us. Its interesting we got the European Commission cutting its outlook as some people are starting to say were seeing a bottoming in the pmis. Are we seeing that . Valentin i believe so. Theres a relationship between the pmis chairman, pmis in china. For some months, weve seen the chinese pmis already reflecting the cautious optimism that things between the chinese, between the china and the u. S. , may be settling. So, i think thats going to have a positive impact on the manufacturing pmis in europe, the ones that are suffering the most during the latest bout of escalating trade tensions between the u. S. And china. Highlighting following up on what schulz was saying, about the impact of trade tensions on the German Economy. I think an important contributor to the headwinds to the German Economy was also brexit, the fact being among the main trading partners, china, also the u. K. , and hopefully the brexit uncertainty will start debating before long abating before long, and that will prop up the growth engine. I would agree with the view expressed, abating global headwinds may indeed help the German Economy overcome that weakness were experiencing at the moment. Nejra how much are you factoring fiscal stimulus in germany . Valentin fiscal stimulus, at the moment, remains a contentious topic. It is not as bad. They do not warrant spending beyond the 50 billion or so everyone seems to be pricing in, really, or expecting from germany in the next five years. It is the case, i like to tell clients, germany, like any other eurozone economy, has a fairly stabilizer,omatic so even if the economy does go into a protracted period of weakness, uninsurance problems, things that are meant to stabilize the outlook automatically, much more generous, much more aggressive than the u. S. Or u. K. Were not so much worried about that. From our point of view, yes, it will have been great. We had a more concerted effort to introduce more fiscal stimulus sooner, but we may have to wait on that one a little bit longer. Nejra lets talk about the u. K. And the boe. When we talked about level trade tensions, it was interesting how much that was mentioned from the bank of england and factored into the guidance they were given. Ultimately, mark carney was pushed a number of times in the News Conference, including by me, whether there was risk of rate cuts coming and i asked him how high the bar was for rate cuts. Do you expect rate cuts from the boe in 2020 . Valentin not necessarily, and the big part of that is the brexit headwinds will start debating before long abating before long. Also, the overall assessment of the boe that the domestic economy, while weak, is not necessarily facing an imminent downside. At the same time, we do recognize the global headwinds may persist for a while longer. But i have to say, just looking at the 12 month horizon with the latest trade war developments, the answer is still no. Nejra well pick up on this in a moment. Valentin staying with us. Lets also get to an earnings interview. Allianz has raised Profit Guidance as inflows at pimco helped offset earnings and other divisions. It adds to solidarity, with shares up 20 to date. How is the company dealing with subzero european Interest Rates . Well get into that conversation with the cfo, joining us from munich. Pleasure to have you with us. Thank you for giving us your time. Looking at the numbers today, we just mentioned the Positive Side of the story, which of course is from pimco attracting 22 billion euros from clients in the thirdquarter. More than offsetting the 4 billion euros in outflows at allianz global investors. What i do want to ask you about first of all, is the 10 slump in the casualty business. Can you explain what was behind that . Morning, and as you said, we had very good results for the quarter. And when you look at the nine months, our results are extremely good, considering were in operating profit of 9 billion. Fundamentally, the business is doing very good. When we look at the pnc business in the fourth quarter, you can see in the Third Quarter, the combative nature is a little bit compared to the combined nature we had in the thirdquarter of 2018. This is also a little bit of a normalization. Last year, it was 93 , which was, lets say, a little bit better than our expectations. This year, 94. 3 , which is a little bit higher. When you look into the numbers, the results for the socalled accident here, very solid. We see also an improvement in the cost ratio. This year, what is different compared to last year, is a lower level of prior reserves. We had less compared to the prior year. Results i would say the are also very good, just a little bit less compared to a very good quarter we had one year ago. Nejra right. Let me then ask you about the asset management, which of course we just talked about did well. Is it going to stick to actively run strategies, given the challenges from passive investing . Definitely we are sticking to the strategy to be an active investor. For the time being, is pretty off. If you see, in totality, our results, they are very good. We have, this year, and totality, almost 60 billion a year in inflows. A few margins very stable. Also, we can see increasing operating profits. We have also to consider the majority of our estimates may be in fixed income, so not much as opposed to equity. From that point of view, we see a lot of resilience in the operation. I would say we see more costience, even increasing income ratio is going down. We are very, very pleased with our strategy, and also with execution of our strategy. Took this week, allianz a stake in about 40 of beijing left insurance company. What we were reporting at bloomberg was that you purchased the investment from Goldman Sachs for about 1 billion. Is that how much you paid . So, that number was a little bit lower. I can tell you we paid about 800 million euro, so not far from 1 billion, just a little bit lower. The idea is the financial investments, think about our general account portfolio, is about 800 billion euros right now, so its not exactly 100 billion, but almost. 10 basis points of our general account. From that point of view, we are well diversified. We are investing every 120 billion euros, and we look at different opportunities and weve seen these assets are quality assets. Thats point number one. We might potentially, have strategic opportunity in the future, that we might find collaboration. So as a financial investment, we have a very well diversified portfolio, may be in the future to find strategic operation. Nejra right, ok, thats clear. The China Investment is the fourth significant deal for allianz this year after two earlier transactions in the u. K. , one in brazil. Tell me if youre on the lookout for more deals and if so, what kind of businesses are interesting for allianz . Guest in general, the kind of businesses were looking at, more like pnc businesses or protection businesses. Clearly, as Interest Rates are very low, the appetite for investment in peer saving, is tsited pure saving, iut limited. So our philosophy is to look for pnc or protection. Investingis also is in areas where we can create synergies or where we can establish a footprint and then grow that footprint over time. Allianz, thankof you so much for joining us today. Always a pleasure to have these conversations. Alibaba said to target raising 15 billion. More on that story to come. This is bloomberg. Nejra this is daybreak europe. Im nejra cehic. Saturday marked 30 years since the fall of the berlin wall. Matt miller takes a look back at the journey since 1989. Matt 30 years ago, the berlin wall comes down. Germany unified for the First Time Since world war ii. The cost of integrating the former soviet satellite state doesnt come cheap. Growth picks up, Industrial Production takes off, and germany becomes the dominant economy of europe, in some sectors, the world. Full to argan, bmw volkswagen, bmw, siemens to name a few. The euro is born with the European Central Bank Headquarters in frankfurt. Berlin loses its deutschmark. But germany becomes the chief beneficiary of the common currency. As it grows, problems are emerging, euro reaching debt crisis, increasing hostile russia, the immigration crisis, dieselgate, brexit, and the u. S. China trade war slapping export dominance. Export slide and germany teeters on the edge of its first recession in more than six years. With merkel in the twilight of her power, germany is struggling to restore its preeminence. Pressure builds on the government to suspend its way out of the economic malaise. The question is, even if the physical taps are open, will there be enough to prime the onetime engine of your . Of europe . Nejra that was matt miller. Valentin is still with us. Im going to talk about your updated pound calling. It occurred to me, listening to matt and thinking about germany, the 10 year bond yields jumped. We got to 23. Could we get back to positive territory . Valentin im afraid not. They recently resumed its asset personages a few days back purchases a few days back. It is the case what may change is the appeal of another euro dominated asset, european stocks. Qe tends to do that. If youre a euro zone investor with a pile of treasuries, they may be fearsome, may be political outlook in the u. S. May be credit outlook. You may want to revisit your positioning and power into european stocks, especially if you expect for the lower end of the cycle. We could see a rebound in the German Economy. Meanah, that could also that some of the rebalancing could favor european stocks, but also work against bunds so yields wont have to go much lower from here. Nejra interesting. Talk about your updated found pound forecast. Valentin we recently upgraded. We think no deal brexit is off the table. The scenarios ahead of the election, however uncertain, certainly include a fraction of a chance of no deal brexit, much lower than what we saw before, in september or over the summer. Ende see cable, 1. 30 year heading towards 1. 40. Eurosterling 84. And these are certainly reflecting the confidence that whatever happens after the election, no deal brexit is not going to feature prominently. By implication, the pound remains an undervalued currency. Ntin, thank you so much for joining us as a guest host this hour. Coming up, we bring you another great earnings interview as we speak to the cfo of Credit Agricole. Check catch. That exclusive interview 9 30 a. M. U. K. Time. Bloomberg users can interact with the charts, browse the recent charts on bloomberg tv, and catch up on key analysis. Yesterday next after the selloff yesterday. This is bloomberg. Nejra good morning from bloombergs European Headquarters in london. I am nejra cehic. This is bloomberg daybreak europe. These are todays top stories. Havens crushed. The United States and china agreed to roll back tariffs in phases if a deal is reached. Treasuries tumble and gold heads for its biggest weekly loss in more than two years. Italy pushes back against german plans for a Banking Union. We are live in brussels as European Finance ministers meet with plenty to discuss. Pimco to the rescue. Alianza lifts its outlook for the full year and has a bond fund manager to thank. Allianz lifts its outlook for the full year and has a bond fund manager to thank. Welcome to bloomberg daybreak europe. A global bond a selloff that pushed the 10 year treasury yield to a threeyear height. The s p 500 hit a record on a risk asset rally, all on hopes that we could see some sort of rollback on tariffs as we potentially head towards a phase one deal. Looking at european equities, we have had five days of gains. We hit a 2015 high yesterday. The risk rally taking a bit of a positive date. We see a bit of red coming through on ftse, dax, and cac 40 futures. I said that the 10 year treasury yield hit a three month high yesterday. We stay above a 190 handle. Bund yield had is to jump since 2018 its biggest jump since 2018. We have already seen french and belgium 10 year bonds back in positive territory. The 10 year bund future not giving us a lot of direction but we will see if that selloff in bonds studies in europe. We saw some retreat in the yen and gold heading for its worst week since 2017. More data out of germany as well as we have seen some positive data come through, particularly in. Factory orders Industrial Production not looking so pretty. Lets check in on the markets in asia. Hows it looking . We are seeing a positive lead in the risk rally a pause globally in the risk rally . Msci asiapacific index ending the week lower but on track for a weekly gain of 1. 5 . In terms of the bond selloff, have a look at the yield on japans 10 year, inching towards exiting negative territory. Weekend are yuan has little but Still Holding below seven to the dollar. The pboc had its fixing midpoint. Has cast a bit of a damper on india, cutting its outlook for india, citing growth concerns. The rupee leading asian fx lower. The aussie has also been under pressure after we saw the rbas monetary segment a little dovish. In terms of the trade front, have a look at my chart, which shows a number of the major stock indices in the world are actually past that 70 line when you look at the rsi, meaning they are in overbought territory. The darker blue line is the euro stoxx 600 and the orange line is the s p 500 index, which is not quite yet at overbought territory. Compare that to make, when we saw may, when we saw stocks in overbought territory. Thats when President Trump said the tariffs on chinese goods would be increased from 10 to 25 and we had negative trade headlines in august as well. This investor optimism getting a boost to these indices, which are now many of them in overbought territory. Nejra yes. Did anyone same out up . Juliette did anyone say mel up melt up . Both china and the u. S. Have agreed to reduce levies on each others goods as part of a preliminary deal. Whether they are any closer to an agreement is in question. A chinese spokesperson said a rollback is a dependent on the progress of talks, which was also echoed by larry kudlow, who told the bloomberg it would happen if there is a phase one trade you. Joining us now is joubeen hurren. Great to see you. Given what we have heard over the last 24 hours or so, are you tempted to change or underway on euro cad and aussie dollar . Beenen markets have driven by sentiment on trade in the shortterm. Whether you think this move will be sustained depends on how much weight you put on trade or are there other factors going on underneath the hood . We think it is a combination of both. The current slowdown we are experiencing at the moment really started before this trade escalation happened in earnest. Primarily, a function of the deleveraging that took place in china in 2017. Thats when we started to see weakness in Global Manufacturing data. At the same time, which is slightly muddying the water little bit, we have had a material escalation in the conflict between the u. S. And china. The fact that we are looking at a more substantial rollback in tariffs is a reason to be more bullish. As it relates to trade, we know this is something of concern on a dime piece. Where looking at the data over the next few months to get more of a direction of where we think the Global Economy is going. So far, it is a bit too early to call a fall in this cycle just yet. Nejra in that sense, i am going to infer that you are not changing your underweight euro cad and aussie dollar. With the global bond the selloff we saw yesterday, would you see that as an opportunity to buy . Jub fixed income at the moment is trying to form a range. You can see a collapse in the fixed income space in u. S. Rates. Isbably between 2 and 1. 50 where rates will settle. If you think about what is priced in for the front end of the u. S. Market, we are pricing the fed to be on hold for the next couple of years, so less than one cut. That is really quite an asymmetric riskreward. The fed will be far away from hiking in the near future. They dont have the impetus to do that. If the economy continues to suffer from here, they still have a bias towards cutting rates. Nejra you have led us to our next conversation. Jub hurren from aviva investors is with us for the next half hour. Raphael bostic said he would probably have defended against a rate cut. He favors keeping rates on hold, as markets are no longer pricing in a full fed cut. Goldman sachs president says the Federal Reserve has a busy time for the group. He spoke with bloomberg. We actually see a pickup in appetite. I think what has happened with the Federal Reserve and the Central Banks around the world in terms of injecting more volatility into the system, being more dovish, has helped. Nejra Oaktree Castle founder has said it is not the time for investors to be aggressive and they should take on less risk than normal. He spoke with Erik Schatzker in new york. I think the ultra low Interest Rates of zero envelope have worked zero and below have worked a lot of calculations warped a lot of calculations. In a small picture sense, it makes sense that companies have taken on more debt because it is so cheap. Nejra still with us, jub hurren from aviva investors. You were saying that the fed will not be hiking anytime soon. We have fixated on the fact that we are now on pause. Stepe still, if we take a back, in this lower for longer negative written by . Jub we negative rate burned . Environment . Jub we think so. In the last two many cycles we have had, it has stemmed from china. We know that china has been very hesitant in terms of credit growth because of the previous issues in the shadow banking sector. We are not seeing that same sort of thing in china . You look at fixed asset investment, infrastructure spent are still at multidecade lows. We have not seen the rate of change in those data series start to stabilize yet. We would look for that to get more outright bullish in global growth. We do think that what we have seen so far in terms of using on china has likely been easing on china has likely been enough to stabilize things. Is probably something akin to stabilization. For fixed income, that is quite a bullish environment. Growth is low but not recessionary. We have Central Banks globally now in an easing cycle. It remains a very bullish environment for fixed income. Nejra do expect the fed to resume cutting in 2020, even if the market has begun to price out a full rate cut . Jub the probability of that is underpriced. We still remain in a late cycle environment. If you look at the big picture, the state of the u. S. Economy, we are closer towards the end of the cycle than we are to the start. We think it underpriced is the probability that through that period we go through a more negative period in growth. Would like Something Like curve steepness we like Something Like curve steepness. The fed will need to cut rates over the next couple of years. Nejra i was having a conversation with someone from j. P. Morgan earlier in the week who actually said the next move from the fed could be a hike. One thing he was pointing to was the gap between the onemonth Dollar Alliance rate, oys rate. He said that was about to turn positive and once it does, we can expect the fed to hike. Would that be your interpretation of that chart . Jub if we were sitting in the fed now, what would be the catalyst for us to coalesce around the idea of hiking Interest Rates . We just saw policy rates take into 2. 5 . That seemed to be too high. You have got a huge amount of fiscal deficit expansion, a lot of bond issuance coming down the pipeline. The fed have taken steps to address that liquidity drained by buying bills. We do not really see an inflation problem. We dont see growth accelerating much above trend. We need to get through this stage of stabilization, if you like, before we can talk about growth accelerating above trend and the fed needing to tighten conditions. Nejra jub hurren from aviva investors staying with us. Lets get the bloomberg first word news in hong kong. U. K. , Prime Minister Boris Johnson announcing plans for special visas for doctors and nurses. The new system would be introduced after the u. K. Leaves the eu. Health care is set to be a key battleground in this election campaign. Opposition leader Jeremy Corbyn has repeatedly accused johnson of trying to sellout to win postbrexit trade deals. There was a clear message from the white house to ukraine, according to one Senior State Department official. He told house committees last month that trump wanted ukraine to investigate joe biden. He says the three words being pushed by the administration were investigation, biden, and clinton. Former new york city mayor Michael Bloomberg is considering a run for president. An advisor saying he is concerned the current crop of democrats will not be able to defeat President Trump. Ha considered ad run earlier this year but instead decided to support other democratic efforts. Bloomberg is the founder and majority owner of bloomberg lp, the Parent Company of bloomberg news. Global news 24 hours a day, on air, and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Nejra thank you so much. Optimism may be taking hold of equity markets, but below the surface, stocks are undergoing one of the most violent rotations since 2002. Here with the moves of the week is dani burger. Dani 2002 exactly. That comes courtesy of wells fargo. It is the biggest rotation into value from momentum again since. 2002 a lot of this. Is what we are seeing in equity markets, renewed optimism. China and the u. S. Reaching a preliminary agreement. Investors feel safer moving into these cheaper value stocks. This is something we have seen really since september. That rotation really has taken hold as pmis seemed to bottom. I want to show you some of the top strategist calls as well. Aqr bernstein and barclays on the board. All of them are suggesting a rotation into value. It looks like yields are picking up. I want to signal aqr, because the cofounder is very much against timing the market. In a rare deviation, he released research yesterday saying that now is the time to rotate into value. You want to add more and maybe do a little bit of timing here. He sees value picking up steam. That just really shows you all of these strategies, these managers have high convictions on the value call. Nejra thank you so much. Coming up, friction in europe. Italy pushes back against german plans for a Banking Union. We are live in brussels as European Finance ministers meets with plenty to discuss. This is bloomberg. It is 7 18 a. M. In london , 42 minutes away from the start of cash equity trading in europe. This is bloomberg daybreak europe. As European Finance ministers meets in brussels today, a key issue that remains is the progress of a Banking Union. Scholz told bloomberg that integration is essential for growth. Olaf building the Banking Union and completing it is key for growth in europe. Need the Banking Union because we want to have more growth, more jobs. Nejra one of the key demands in the german plan is facing opposition from italy. The finance minister has rejected stricter rules on Bank Sovereign debt holdings. The eu Vice President has told bloomberg that progress is being made. We are making meaningful progress on the Banking Union on a number of elements in the Banking Union. Insurance andit indeed, germany has been among companies which have been skeptical of this proposal. Olafe this contribution of scholz as a welcome opening. We think it can give a new impetus to our discussions and hopefully will be able to arrive at a balanced compromise. Nejra maria tadeo is in brussels. It has caught everyones attention this week about how likely is it that we see meaningful progress on Banking Union . Good morning. It has made a lab headlines. Cholz is saying we do not want to be seen as a country that always says no and a country that stops further integration. That is something european officials tell you is really good news. Deeper integration is it really good news for the European Union and europe. This is already running into a number of obstacles. The germans are still insisting that there should be more action taken to reduce risk. They believe the connection between the sovereigns and banks is still an issue. They believe a sovereign debt should not be seen as a riskfree asset. For the italians, that is a nonstarter. It is a major redline for them. The timing of this is also strange. We understand that this is a planned foot forward by olaf scholz. It is unclear how much support Angela Merkel is willing to throw to this. Nejra germany was also in focus after the European Commission warned about persistent weakness, downgrading its forecast for growth for 2020. Is berlin taking note . European commission cut their growth forecast and also said the country is now probably in a technical recession. They mentioned that one of the victims of the trade attention. Whethersked olaf scholz he believes this is the right assessment, he told me the fundamentals are very strong. And exports are very good. If you look at the data from september, that seems to prove his point. Lets hear from him. Laf as we all know, there is Slower Growth in the Global Economy today, which is mostly tensions and trade uncertainties we have in the world. But anyone knows if we get over the situation and if there is an agreement between china and the United States, we will have more growth worldwide. This will help the european and German Economy. Olzia that was olaf sch speaking to bloomberg yesterday. Will germany put money to work in fiscal spending to prop up the economy . Germany will say they do not believe they are at that stage yet. Nejra maria tadeo, thank you so much. Jub hurren from aviva investors is still with us. With the 10 basis point jump we saw in the 10 year bond yield yesterday, so in two or three sessions we could be back above zero. You are underweight german bunds. Do you see it staying in positive territory . Jub it is not particularly attractive to be invested in negative yielding debt in europe, to say the least. For mandates not tied to benchmarks, we think there is better yields elsewhere. As i mentioned, this anemic growth environment. What we have from the ecb now is a statedependent policy where they are saying they will keep rates in negative territory, 50 basis points, and continue to do qe. That is a pretty loose term, sustainably at target. They have not spent much time close to the 2 inflation target in europe over the last decade. We are probably in an environment Monetary Policy is on a fixed setting to ultra loose for an extended time. That is likely to keep a pretty strong bid into european fixed income. Nejra a conversation happened over the past couple of weeks about a bottoming in global pmis, particularly in europe. Do you buy into that . Jub we are seeing a bottoming in the rate of change. European pmis, in germany in particular, they are bottoming out at quite negative levels in contractionary territory. To get constructive, you would want to see pmi, manufacturing pmi rebound back north of 50 and germany is still settling around 42. The way you could take a more optimistic spin on things is more in the service sector. Even in places like germany, we see Services Pmis roughly in the low sort of 52s. We see retail sales surprise to the upside, around 3. 5 , which is really good for germany. You can still compartmentalize the slowdown we have seen as being manufacturing led, trade led. Germany has the auto issues in the auto sector. Is that looks like it manufacturing led slowdown where the consumer looks relatively ok at this point. That is why all the focus is, do we start to see some of this weakness drift out of the Manufacturing Sector onto the consumer . So far, we have not really seen too much to report. Nejra we talked about the fact that you are underweight germany but you are also underweight the u. K. I am wondering what is behind that, particularly as we heard from the boe yesterday. It was an interesting News Conference in terms of talking about the global risk. Mark carney would not be pushed into saying the next move would be a rate cut but some are expecting a cut in 2020. Jub that u. K. Has extremely negative real yields. We think that is a pretty attractive short. We do want to find some markets where we like to be bullish and short. That is the function of the fact that inflation premium in the u. K. Is extremely high. The components of real yield is, inflation expectations, where normal yields the u. K. Has elevated risk premium. The market has priced in the bank of england are going to overshoot their inflation mandate by over 1 over the next decade, which we think is a bit too negative. If we start to see some stabilization in tradeweighted sterling as brexit risk resides falls you be tempted to go along sterling on the brexit outlook or any thing else . Jub if you look at where sterling implied volatility is, it is still very elevated. The market is still pricing a decent chunk of brexit risk premium. We think as we go into on election, that is likely to come lower assume that the polls stay roughly where they are today. Nejra jub hurren, great to have you with us. Coming up on bloomberg, we bring you another great earnings interview as we speak to the cfo of Credit Agricole, jerome grivet. Cache the exclusive interview at 9 30 a. M. U. K. Time. The european open is up next. Onterday, we had a record the s p 500 on optimism about potential progress in trade talks. The stoxx 600 in europe, five days of gains but taking a pause in the risk rally across the futures. The global bonds selloff from yesterday also taking a pause. 10 year treasury yield down a basis point but still above 190. This is bloomberg. Morning. Welcome to Bloomberg Markets european open. We are live from our European Headquarters in london. I am alongside matt miller in berlin. Matt back in berlin. Today the markets say, lets not get ahead of ourselves. Asian equities outside japan haltsand the haven exodus as the risk on the move fizzles out a bit. Europe points lower, so does the u. S. The cash trade is less than 30 minutes away. Anna