Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20240713

Nejra welcome to daybreak europe. Lets get a look of the markets. Another day, another record for the s p 500 with communication and tech stocks leading the gains. The s p 500 riding rising above 3200 ever. 3200 for the first times ever. The 10 year yields steady. Still above that 190 handle. Could we push towards 2 on the optimism over u. S. China trade. Atexpect a deal to be inked the start of next year. Lets switch over the board. Yesterday, we touched 31 basis points, the steepest since october 2018 on the 210. That reflects the view in the market that we see a little bit more today. Recession fears receding for 2020. We speak to socgen this hour. They have gloomy forecasts out there. No deal risk has been coming to the top of investor minds again. Oil also heading for a weekly gain on optimism around u. S. China trade even if we are flat today. , andrew of england bailey has been chosen to succeed carney as governor. The chancellor could reveal the appointment later today. Governorrked as deputy and chief cashier at the boe. Joining us now is guy fear. Great to have you with us. Lets address the bank of england, first of all. What would somebody like andrew , a very strong academic record, mean for you looking at the u. K. And u. K. Corporate . Guy it is a vote for stability. Someone who knows the institution incredibly well. He has a very strong academic background and strong policymaking background. Seat is going to be dictated to by events. You talked about brexit at the beginning of your show. It will be seeing how the u. K. Economy and brexit evolves, also how it evolves in the context of a Global Economy. We think it will be more gloomy next year. Nejra the bank of england stood pat. We got to dissenters voting for a rate cut. In 2020ooking at a boe that skews towards an easing bias . Guy it will be the First Central Bank to have to ease in 2020. They will be dealing not only with a weaker Global Economy but also with the fact that they are a little bit behind the curve relative to other Central Banks, given they have had brexit uncertainty. Finally, they have the immediate brexit challenge. We will see how that goes. The nearterm impact will probably be a bit of a drag on the do u. K. Economy. Nejra weve had the uncertainty over brexit for three years. Arguably, some of that has dissipated now that we know that we are going to exit the eu on january 31 if all goes well for boris johnson. He has an 80 seat majority. Yes, there is still the trade agreement to be worked out. Surely some of the uncertainty has gone away. Maybe the bank of england should be on hold. Guy in the nearterm, it will be. We have replaced one kind of Political Uncertainty as to will we get a deal done, with a more economic insecurity. What is the actual impact . It is not just the trade to with europe itself. It is all of europes trade deals with the rest of the world that the u. K. Still has to replace. Thats an enormous amount of work. They are honest about that. They are optimistic about how quickly they can get it done. Most people are less optimistic about how quickly these kinds of deals can be forged. What we dont know is, once brexit does start, what the impact on the u. K. Economy will be. Nejra when does the market start to worry about what you are talking about . The third or Fourth Quarter of 2020 . Or at the start of next year . Guy to some extent, already. Ebola reflecting those concerns at the moment. It is probably a harder brexit today than they might have been a week ago. There was a lot of uncertainty after the conservative elections after about whether it would mean a softer brexit or pulling back from brexit. It seems we are dead set on the hard brexit. The real proof in the pudding will be seeing when the data comes in next year. Thats what the bank of england will have to react to. Thea in terms of government plans, we will get the withdrawal bill. Theres a host of other bills including spending on the nhs and other areas of infrastructure. Government, we mustnt expect a huge opening of the fiscal taps. It is the end of austerity. What does that mean for you . You be looking to position ahead of a government that is willing to spend a bit more . Guy in the nearterm, they will owes open the fiscal taps. How will they pay for it . Borrowing is the answer. We will see more gilt supply. Supply is much less of a driver than what the Economic Outlook is. The real question here is whether fiscal expansion is going to offset contraction in terms of trade, uncertainty with trade relationships, the way the u. K. Trades with the rest of the world, and how the u. K. Replaces the imports it gets from the rest of the world or if it does. Where is the pound going to settle . How quickly will we see import substitution . What are the uks new changes in terms of trading partners going to be . All these things are tremendously uncertain. You can build the situation for saying there will be fiscal expansion and a lot more gilt issuance. The economy will be week. There will have to be a lot of easing policy. We see a steeper curve. That is not a good mix in terms of what it quality or corporate quality in the u. K. Nejra you see a steeper curve. Do you expect the tenure to stay where it is or follow little bit . In the nearterm, you are still likely to see downward translation in terms of the curve. You are likely to see the long and come lower because of concerns of growth globally. The big question about the u. K. Is, in four years, whats going on with the pound . What is going on with u. K. Production and exports and imports . How does the overall economy look . What is u. K. Government credit quality like . These are longterm issues that have to be dealt with. Will the20, what pound get to 140 . Guy will be weaker. Nejra lets get to the first word news with Tom Mackenzie. Tom thank you. Leaders of the house and senate are in a standoff over the impeachment process. Nancy pelosi is holding off sending the articles of impeachment to the senate after Majority Leader Mitch Mcconnell indicated he wanted a speedy trial. That would include arguments from the two sides but may mean no witnesses are called. Those waiting for he throws third runway will have to wait longer. The project has been delayed by at least 12 months. The airport now expects to complete the project in 2028 or 2029. The third runway was previously planned for 2026. In spain, Coalition Talks on hold after the eus top court ruled a catalan separatist leader was immune from prosecution and should be freed from jail. The Prime Minister has been trying to persuade the Catalan Party to support him in government. This latest development could derail the talks entirely. In india, thousands are defying a ban on public protest amid continuing anger over a controversial citizenship law. It is being criticized for discriminating against muslims. Two protesters have died. More than 1000 people have been detained. Curfews have been imposed in part of the capital and indias most populous state. Global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. Nejra Tom Mackenzie in beijing. Coming up, until of two cities. President xi visits macau to celebrate 20 years of its return to chinese rule. We are live in my. In theo Bloomberg Radio london area. This is bloomberg. Nejra this is bloomberg daybreak europe. Heres what we will be watching today. The chinese president is in macau. Against the backdrop of unrest in hong kong, hes calling for them to diversify its economy. In the u. K. , Brexit Take Center Stage once again. The government intends to present the withdrawal bill to parliament today. We will get u. S. Gdp data. Economists expect growth to slow in the Fourth Quarter. It is quadruple witching. Expect elevated trade volumes. We have another record on the s p 500 yesterday. Lets stick with china. President xi is in macau. Carrie lam says the worst of the protests may be over. The city is seeing a lowland demonstrations after local elections and ahead of the christmas holiday. For more on the protest, Rosalind Chin joins us from macau. Great to have you with us. What is the latest . Rosalind he doesnt think that the largescale protests he thinks that smaller ones may still breakout. He also said that carrie lams administration is not willing to cede to the protester demands. Havef these protesters been a bit headache for beijing. Xi jinping has in macau to mark the 20th anniversary of the handover back to chinese rule. Executive. Ef the macau situation is very different to the one in hong kong. Macau has been politically stable compared to hong kong. The other two chief executives ran for 10 years he each. It has been stable compared to hong kong. Emphasizingas been praise on macau for being the shining example of how beijing systeme one country, two as running. He did say, he is stressing macau to diversify away from gaming. That has been a concern for beijing authorities for some time. He said that they will not allow foreign interference in hong kong and macau affairs. Underlying the issue they see in hong kong as foreign influences. Really, Holding Macau up as a shining example while rebuking hong kong. Holding up macau to be an example of economic diversification. Thank you for joining us. Sticking with china. Economic growth will come in at 5. 9 in 2020 as easing trade tensions and the prospect of lower Bank Borrowing costs boost confidence. This is an upgrade from the previous forecast of 5. 8 from november. The u. S. And china agreed to a phase one deal to lowest lower tariffs. Our guest is still with us. . Ow optimistic are you scenario ise probably fair to say we will have growth around the 5. 9 area. There is still a lot of risk in terms of the chinese Economic Outlook next year. The concern is really on the property sector. It is always on the property sector in terms of china. The growth there has been so phenomenal. The growth has taken place in the delta area, near hong kong in terms of shenzhen. Where we the areas still have a lot of concern that you could see prices decline and then a Ripple Effect through the chinese economy. Its interesting to note that when you look at the distressed ,rea of the u. S. Credit market theres a surprisingly large number of chinese Property Companies in terms of the dollar following from Chinese Companies represented in that area of the market. Its not a problem that people are not aware of. In the credit markets, people are aware of it. People are less aware of in terms of the old overall Global Economy. Nejra in terms of how policymakers deal with this, will they be able to actually offset the challenges you talked about with a mix of policy that is a little bit more skewed towards fiscal rather than monetary . Guy we hope so. The chinese authorities have done a tremendous job in terms of managing their own domestic economy. The volatility of the Property Market has gone down over the past three or four years. We used to have a pretty Predictable Property cycle in china. Now that property cycle has really been squeezed. Weve had more stability in terms of prices. They seem to have been really damping down the tensions. The question is whether they can achieve that in the long run or whether the tensions are building a. They will explode somehow. Nejra how important is the fact that phase one has been signed and will likely be inked in january . Tom it is psychologically significant. It is psychologically significant. The risen oh idea what phase two will look like. Nejra lets get the Bloomberg Business flash from mackenzie in beijing. Tom apollo is considering a bid for commerce banks you as unit. Back to put it in competition with polish lenders. For bidsnk has asked by midjanuary. It is gauging interest. No comments yet from commerzbank on the story. Morgan stanley has about a dozen jobs in asian equities, part of a year and efficiency push. It comes amid continued margin presser across the industry. It is coming about 1500 jobs globally. Alsong and research are being pared back. Morgan stanley designing to comment. Uber is facing another roadblock in germany. Banning it. Rankfurt the ruling says ubers Business Model is anticompetitive. Customers will still be able to order regular taxis through verse app. That is your Bloomberg Business flash. Nejra thank you. Coming up, a record high this week. Nike fails to keep investors happy. We find out why. When you are traveling to work, tune into Bloomberg Radio. This is bloomberg. Nejra this is bloomberg daybreak europe. Nike was out with results yesterday. Despite Quarterly Results soaring, it dip in late trading. Late hoursipping in trading. Traders are interest of losing money if the shares opened up lower again today. Look at this option market. History,hest in nikes twice as many bullish bets. A lot of momentum going into earnings. The earnings result did be the street. Two things weighed on those results. Shares dipped in afterhours trading. A lot of people hoping that this would be a different story. They could lose money today. Our producer says nike is the greek word for victory. Nejra thank you so much. Our guest is still with us. What is your outlook for corporate earnings for 2020 . What concerns you the most . Guy the big thing is Profit Margins. Nejra [laughter] that has been are at session as a firm. It can be a leading indicator for u. S. Economic growth. Profit margins happen declining for more than 18 months. Leaves us to think that Profit Margins compressed below the average cost of capital. Companies will be getting out of various businesses. Will be week. Thats what we are focusing on. The other issue is, because we are not optimistic about u. S. Growth, we think that corporate revenues will be soft. Weak revenue, times corporate it will be under pressure in the u. S. As well. Nejra lets stick with the u. S. And revise estimates for u. S. Gdp today. Bloomberg economics says the production halt to the boeing 737 max will impact a range of Economic Statistics in the coming year including u. S. Growth. Persiststhe suspension , it estimates of potential 0. 5 percent reduction in gdp growth. At socgen, its not just that you see a can turn to growth. You see a mild u. S. Recession. Guy that is correct. We are looking at a contraction in annualized gdp. Contraction in terms of quarter on quarter growth. The real issue is in terms of Profit Margins. Profit margins are being compressed. Companies will be reducing capex. What is fairly special about this slowdown in the u. S. Is, it is more corporate lead. Nejra if it is more corporate lead, does that make it better or worse . Guy worse in terms of the way we view the u. S. Credit market, which is my area of focus. It will be more under pressure. It will be more difficult in terms of thinking about corporate valuation. Nejra you know what is interesting . The yield curve touched 31 basis points. Highest since october 2018. People are seeing this as the market being less concerned about recession in 2020. Are you ignoring that the yield curve is steepening . Guy it is a good indicator of what people think. It doesnt necessarily mean that it will be right. It is very true that people are more optimistic about growth today than they were three or four months ago. There are some signs of things which have been good. The Housing Market has been good. There are other signs of things that have been relatively soft. November retail sales were iffy. You have the highest level of discounts during black friday since 2008. Corporate Pricing Power is pretty lousy. Nejra in terms of the move yesterday, there were other things to factor in like a large block sale in treasury futures betting on a steeper curve. Given that you see this mark mild u. S. Recession, socgen is calling for a 100 basis point rate cut from the fed. Does that mean that you . See a steeper curve in 2020 you see a steeper curve in 2020 . Guy eventually. The rate cuts will be a little bit slow, having moved well ahead of the curve in terms of responding to economic concerns. The fed will be a little bit slow in terms of its response. Probably the first move would be a flattening of the curve and a steepening of the curve when you see those aggressive rate cuts. Nejra fixed income is your world. At see the 10 year yield 1. 2 at the end of 2020. Does u. S. Equity still keep climbing higher . Guy probably not. You have concerns about the net value of future cash flows. It is going up. You have concerns about what they will be. It is the concerns which are really going to dominate. Up, india coming 10 year bonds rally after todays r. B. I. Action. We explore why, next. This is bloomberg. [ dramatic music ] this holiday. Ahhhhh ahhhhh a distant friend returns. Elliott. You came back and while lots of things have changed. Wooooah woah its called the internet. Some things havent. Get ready for a reunion 3 million light years in the making. Woohoo yeah nejra im nejra cehic. This is bloomberg daybreak europe. These are todays top stories. Andrew bailey will succeed mark carney as bank of england governor, according to the financial times. The announcement is expected this morning. He comes as the brexit bill faces its first vote. China president xi jinping says he wont allow foreign interference in macau or hong kong as he celebrates independence. The end of the saga. Goldman sachs is nearing a thelement with the doj over scandal. The fine could land at 2 billion. Nejra we drift in the asian equity market today. Soft on a headline level. The s p 500 hit another record yesterday, rising above 3200 for the first time ever. We get all the Market Action from around the world. Juliette saly is in singapore. Annmarie hordern in london. Lets kick it off with juliette. We are seeing softness and asian equities. No big move today. Juliette a little bit of, coming to hong kong today. I want to look at implied volatility. This has been really interesting. Not only is the gauge on the hong kong index back to levels we havent seen since july when the protester to wrap up, it as at level since we havent seen in 2018. We have seen this gauge of volatility, down 11 this week. Investors have been shunning hong kong shares. The outlook has been dimmed. Toestors dont really need hedge as much against further swings. A drop in volatility as carrie lam says the worst of the protests could be over. Nejra thank you. It might be quiet and asian equity markets. The roche, what a move in indian bonds. Yeah. Good morning. That thery big amount bank of and yet has announced. The longterm yields which have been stubbornly high because of concerns around to fit have come off in the session. The only piece i would want to add is that most experts we spoke to will track the bond markets in india, the market would want to believe that this will not be a oneoff. The trajectory of the yields would have been definitely changed in the near term for the downside. That is something you have to monitor. Back to you. Nejra thank you. Annemarie, you are looking at currency markets today. What are you focusing on . Annmarie im looking at currency moves. I have a new trade for you. Put this on your Christmas Shopping list. The Swedish Krona. Goldman sachs saying this is their preferred long going into next year. Risk bank raising Interest Rates, coming out of negative territory. Look at it year to date. It has been the worst performer out of all of the g10 for all of 2019. 2020 might be brighter for it. Nejra thank you so much. Lets get the first word news with Tom Mackenzie in beijing. Hey, tom. Tom Andrew Bailey will reportedly be the bank of englands next governor. Thats according to the financial times. He spent three decades at the central bank before running the financial conduct authority. The u. K. Is expected to officially announce the next boe governor today. Staying in the u k, Prime Minister Boris Johnsons brexit deal faces its first vote in parliament. Johnson has a majority, but its largely a formality. The legislation will pass through the remaining parliamentary saps integrate. He has vowed to take the u. K. Out of the eu on jittery 31st. The Federal Reserve is reviewing its forecast fees for possible weaknesses. Thats according to the financial times. It comes after the bank of england asked regulators to investigate the misuse of its audio. It potentially gave certain traders an unfair advantage. In spain, Coalition Talks are on hold after the eus top court ruled a catalan separatist leader was immune from prosecution and should be freed from jail. The Prime Minister has been trying to persuade the Catalan Party to support him in government. This latest development could derail the talks entirely. Global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. Nejra thank you. Looking ahead to the u. S. Economy in 2020, Societe Generale has laid out to scenarios. Lets turn to our guest. You talk about 2020 as being a tale of two scenarios. What are they . Guy the more gloomy and repairable probable is that the u. S. Economy slows down. We have a growth forecast of 0. 7 . That leads to an increase in default. We have a default forecast between 711 next year. That, we see a doubling in terms of u. S. Highyield spreads which would lead to wider spreads across the entire credit complex over the course of next year. Nejra highyield would lead that spread widening. Guy particularly u. S. Highyield. That is where the leverage has been building up. Thats where the biggest growth disappointments are likely to come. You can model defaults fairly easily using Economic Growth and Balance Sheet leverage. Debt assets tends to be a leading indicator. ,hen you put these two together you do get quite an acceleration in terms of defaults next year. Nejra that is the gloomy outlook. What is the other possibility . Guy there is a one in three chance that two things could happen. The strength of the Housing Market we are seeing at the moment could feed through more consistently to the u. S. Economy and lead to a Growth Scenario the people are forecasting. Lets say 2 growth. Scenario, you would still see defaults being higher than they are today because of the rise in terms of leverage. If you look at the valuations in u. S. Credit markets, they are already anticipating a rise in terms of defaults if you look at things like the distress market. I dont think that that would worry anybody too much. Theres another alternative. Even if growth is relatively tow, people will be prepared look forward to more fiscal expansion in 2021. When we get the next u. S. President , donald trump has been president ,missionary whether its a democrat or a republican, we could imagine that another wave of fiscal expansion kicks in. Therefore, people are prepared to say, the was economy is weak in 2020. We will give the economy the benefit of the doubt. We will continue to lead and keep the default levels low. The widening and spreads would not be as dramatic as we are anticipating. Nejra that leads to my next question. The fed has tighten so much. Can we actually see much spread tightening or is it simply less tightening . Guy in europe, you could. We will end the year at 100 basis points. We could get down to 80. That would bring us down to the tightness we saw at the end of 2017. Europe has more Capital Gains potential than the u. S. Market. If you think about probability wage and outlooks, theres a more probable scenario for widening. To be prepared for a more difficult 2020. Nejra what traits can you put on that would allow you to get either of those scenarios . Guy there are three things. If you are a european investor, you want to focus on european credit rather than u. S. Credit. European credit are bolstered by csp p. European credits are less leverage. , theysue with u. S. Credit are much more vulnerable to the weakness of the Economic Cycle which we think will be coming from the u. S. There are a couple of sectors which are relatively low beta. The first of these would be utilities. The second would be banks. We have a belief that we will move quickly towards Banking Union over the course of 2020. That will help the Banking Sector turn out well. The third thing is, there are individual credits. They are credits where the government has been weak in the spreads her white. Our wide. Theres more of an opportunity next year. Nejra a couple of those . Guy volkswagen is a credit quits trades at wide levels. The issue regularly. You are being paid for the risk. Something else would be like atlantia. We have opportunities there. These are just examples of these types of credit. Nejra our guest stays with us. Coming up, four people have been arrested in hong kong on suspicion of Money Laundering linked to the ongoing antichina protest. This is the story you need to know. This is bloomberg. Bloomberg. Nejra this is bloomberg daybreak europe. Lets get the Bloomberg Business flash with Tom Mackenzie in beijing. Talks tokrock is in start and Asset Management business with one of chinas biggest banks. The Worlds Largest asset manager and singapore state investor have entered a nonbinding agreement with china construction bank. Its part of the u. S. Froms goal of becoming one of chinas leading asset managers. Is selling 60 of its stake in Meat Processing brand hurt her. It is part of this was giants plans to focus on faster growth in its portfolio. Nestle will maintain control of the vegetarian businesses that focuses on plantbased foods. It has been valued at 600 and 90 million 690 million euros. Bbva is taking a 1. 5 billion hit from its u. S. Unit. It is blaming the fall in Interest Rates for the charge. The american a business accounted for 13 of the groups and come in the first nine months of the year. The division has proved troublesome. They describe its push into Consumer Lending in the market as a learning curve. That is your Bloomberg Business flash. Nejra Tom Mackenzie in beijing. Heres what you need to know today. Four people have been arrested in hong kong on suspicion of Money Laundering linked to the antichina protest. Police say the syndicate is part of an online fund rising program. Persons for arrested persons. [inaudible] nejra joining us to discuss is bloomberg Senior Writer shelly banjo. How significant is this . Shelley this is pretty significant. These Funding Sources have been key to keep the protest going. We have been looking at this for the past few months. But amount raised got up to 33 million to support the hong kong protest. Groupsthose two largest is called Spark Alliance which is the group that the police singled out yesterday and arrested the four people with what they are saying is financial fraud. Thank you so much. Lets get back to our guest host. Generale does it prefers u. S. Eurozone credit on the supply outlook. Our guest is still with us. In terms of credit for 2020, europe is a better opportunity for you even if youre Growth Outlook hits europe harder than the u. S. . Guy in terms of relative to the consensus expectations, nejra you warm are positive on europe . Guy expectations are higher in the u. S. Our growth figures are lower in the u. S. Than they are in europe. The disappointment level will be bigger in the u. S. Keep in mind that u. S. Companies have been increasing leverage more than European Companies. We get in a credit crop credit problem when we go into a low growth environment. When you are stuck in a low growth environment, you never push the boat out in terms of leveraging the Balance Sheet. That has been one of the saving graces for european credit. We have to be careful when we talk about european credit. What we typically think of as euro denominated credit, the size of u. S. Companies in the euro dominated market has been growing and growing. U. S. Companies are now the secondbiggest part of the euro denominated market after french companies. It is not that the euro denominated indices are going to be immune to whats going on in the u. S. There are so many u. S. Companies and those indices. What you have to do in the euro denominated indices is focus on European Companies. Nejra it is interesting that you talk about European Companies not leveraging. The scenario that we have different in europe to the u. S. Is negative rates. Yesterday we saw the riksbank move out of negative rate territory for the first time in five years. In your outlook, you talk about a credit cycle, a credit spiral in europe. Is that because of the negative rate environment . Guy absolutely. The really critical thing here is, it is a negative real rate environment. That leads to more volatility in terms of credit cycles. A typical credit cycle last for eight years. That was true in the 80s, the 90s, the 50s, the 60s. In the 1970s, the credit cycles were shorter. We had negative real Interest Rates. High nominal rates but higher inflation. Situationa similar now in terms of quantitative easing and pushing down the structure of nominal yields. That has led to more Rapid Movement in terms of credit markets. We get the spiral rather than the cycle. Nejra how do you position . Is it just, by europe versus the u. S. . Do you have to be more strategic . Guy it is about timing. The one critical thing to keep in mind, when you go back 10 or 20 years and credit markets, people say its all about security selection. Choosing the right gains and use it on those portfolios and thats what you do. 2008, it hasince been more about timing the market, organizing your beta. When are you long and short . Bait19, if you had enough in your credit portfolio, you did well. The excess returns were strong. In 2020, it will be the opposite. If you have enough to send defensive positions, you will be able to do well independent of what you have because you will be holding little risk in a market which is going wider. Nejra how much risk do you see of higher sovereign yields in europe in 2020 . Guy guy Central Banks would love to exit negative rates. They see all the other ramifications from that policy. When growth is going to be week, it will not be the time to do it. They will always be feeling, we would like to do it but now is not the time. I think we are stuck in an environment where we keep replaying what we saw in 2018. We had to the exit and the economy slows down. We cant do it at this point. Nejra that the gravitational pull on sovereign yields. Coming up, as people finish up the christmas list, Morgan Stanley has a list of its own. The first tally of macro risk. When you are traveling to work, tune into Bloomberg Radio live on your mobile device. This is bloomberg. Nejra this is bloomberg daybreak europe. Heading into the new year, Morgan Stanley Wealth Management is out with its list of risks moving looming over the market. Last year, they got for out of the 10 right. It is something we should Pay Attention to. Concerns their top 10 and likelihood of it happening. The first one is the perfect leadership storm. Get a change up Prime Ministers and president s from different developed nations. That regime change rattles markets. Nine and 10, more futuristic. They include ai versus ai where fair warfare and gene editing going wrong. Theres a lot to keep you up at night. Nejra our guest is still with us. Lets focus on some of the top five, the less esoteric calls. ,ut of the five you just saw which of those would keep you up at night . Guy the most interesting one is the second one in terms of trade will trade blocs competing. That is how the world is going. We have this phase one agreement between the u. S. And china. As we are ready talk about, it is obvious what it is not obvious what phase two or phase three will look like. We are seeing that also in terms of the eurozone. Our view on 2020 is that europe gets more cohesive. We start to see more european political cohesion and Movement Towards things like Banking Unions in europe. The world is kind of fragmenting into blocs. It will be interesting to see how the u. K. Deals with the situation. Deciding to say, it is a global world. Alliances everywhere. It will be tougher to make alliances in a world that is fragmenting. Nejra what does that mean from an investment point of view . Doesnt make it harder to invest or is it actually easier to get out the if you identify the areas that will outperform . Guy it means that correlation should go down. Diversification should become more significant. There are bigger opportunities for alpha overtime. Different performances between blocs. If you have trade frictions, you normally end up getting capital flow frictions. What we could see is if the world continues down this path, it ends up being much more difficult to run global portfolios. Capital flows preclude you putting money from a to b to c to d. We will have to see how things pan out. That should be something that people reflect on over the medium term. Nejra that is interesting. Looking at what you were saying about correlation as well, 2019. We saw equities rally. The s p 500 gaining 27 this year. What does that look like in 2020, the equity bond market correlation . Guy things will look less correlated between the various groups. The thing which drove 2019 was the switch of valuations. The tone a time where of the Central Banks release which. In 2020, it will be more difficult for the Central Banks to surprise on the upside. Central banks will be much less important in 2020 than they were in 2019. If we see weaker growth, bond yields will decline. Stock markets will do more poorly. You will see a diversions between riskfree assets and risky assets. Nejra if Central Banks are not as important in 2020, what will be the most important driver . Geopolitics . Guy Economic Growth. If we see the u. S. Economy slow down. That will be the one thing that will drive the markets next year. Nejra thank you so much for joining us this hour. Thats it for bloomberg daybreak europe. The european open is up next. Features not giving us a lot of direction. Flat after thee s p 500 hit another record yesterday. When you are traveling to work, tune into Bloomberg Radio live on your mobile device. This is bloomberg. Beyond the routine checkups. Beyond the notsoroutine cases. Comcast business is helping doctors provide care in whole new ways. All working with a new generation of technologies powered by our gigspeed network. Because beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected. To do the extraordinary. Take your business beyond. Good morning and welcome to Bloomberg Markets. Im anna edwards live from our european headquarters. The cash trade is just an hour away. Anna threading the needle. Andrew bailey is set to succeed mark carney as bank of england governor. The announcement is expected later this morning. Or as Johnsons Brexit bill faces its first vote in the house of commons as the Prime Minister pushes to take than u. K. Out of the eu by the end of the month. Roman sax is said to be nearing a multibilliondollar settlement with the doj over a scandal. Malaysias attorney general tells bloomberg negotiations arent making any progress. Around have been negotiations but they have not gotten anywhere. The wrist a late Pacific Ocean gulf between malaysia and goldman sachs. An hour away from the start of equity trading. Good morning, everybody. Welcome to Bloomberg Markets european open. Futures are fairly muted once again. We are not expecting to see big moves at the start of the trading day. Lets flip over to the u. S. Futures. Movespecting any outside as we start trading. Downside bias to some of these markets. We saw global stocks hitting new record highs. Keep bearing that in mind even if we are melting up in Global Equity markets. That is the backstory. Session, weuities are a little bit weaker in asia. Down by 2 10 of 1 . Not big moves for the markets. We are little bit weaker. We have a little bit of news on trade. Secretary mnuchin saying that they will sign the trade deal, it is an technical review apparently. It to be signed is january. Perhaps that is one of the missing parts of the puzzle that many in the markets are waiting for. If we flip over to the other side, just want to see what is going on in government tech. A sizable move in india. A lot of appetite for indian debt. They have a different situation in india to what we are seeing in global bond markets. The indian market is trying to steepen the bond curve a little bit. Something of an operation twist going on. Even thoughg down what they are talking about is something at the short end versus the 10 year. That is something to be aware of when we talk about global bond markets. Broadly speaking, the story has been a recent evening of bond curves in the United States. Lets get to mark cranfield, our mliv strategist. Very good to have you with us. Lets talk about what is going on in the bond markets. India aside, we have the 210 spread in the United States showing its steepest this year. The highest, steepest curve this year. What is that telling us . Is Recession Risk over . Mark yes, certainly. You did see that curve went briefly inverted around august this year when there were fears that the imam American Economy was slowing so fast that it might go into recession. That hasnt happened. The outlook is a lot better. The curve is now resteepening. The curve is steeper. Points is nots really a particularly exciting number in the context of where that curve can go. If it continues to steepen and it gets to Something Like 150 basis points of steepness, that is a very big number to be watching. At that point, it will become a headwind for equity markets. When we get 200 or steeper, that starts to hurt equity markets. Not particularly at this stage. In some respects, its a recognition that things are looking better on the Global Economic front. That is why we are getting modest deepening at this stage. Equities can live with that. It endorses a shift towards stock markets. If we get a lot steeper next year, we need to rethink that. We may need to put it down as a negative factor for global markets. I just want upon that thought for a second and we will come back to you on the global rate story. I want to get the audience aware of lines coming out of shell. The oil giant giving an update this morning. A posttax impairment charge of 1. 7 billion dollars in the Fourth Quarter. The macro outlook is the reason for this impairment charge. On the more Positive Side of 2019 ifll sees that macro outlook got people worried about overspending on capital expenditure, they are paring guidance a little bit there. The fullyear guidance at the lower end of the range. 2420 9 billion. They are giving us some numbers on q4 upstream production. We will leave there for the moment. We will return to that in our next conversation about stocks. Lets get to the overall picture around Interest Rates. Negative rates are part of the narrative away from negative rates for this week. Dayow what question of the is, which assets welcome the end of negative rates . The Swedish Krona is one that springs to mind. What are you expecting to see in terms of the thoughts around this question . Mark yes. It is a medium to longterm story, thats for sure. Europe, japan and probably quite slow to do that. There are indications that both countries see the end of negative yields at some point. It has done as much is it can. They may need to rare reversed that to help the Banking Sector. Certainly one place where you would expect to see some changes if we do get back to the more positive shortterm yields. Emerging markets would certainly be a place to expect to see some flows in that direction. When you have a currency like the euro which has been used as a funding tool for a long time because of the negative rates being put in by the ecb, that could change the dynamics quite a bit. You get people having to unwind those big positions theyve had using the euro as funding. That is something which could play out. This will be a gradual process. Its interesting that sweden has gone back to the zero rate. They may no longer ever want to experience the idea of negative rates again. Its a signal that things are changing. It is definitely worth talking about. It is a subject we will be returning to several times over the coming year. Other parts of the world look more towards fiscal policy and less towards monetary policy. Anna we will see whether that actually takes place and gives Central Banks globally that headroom, that cover to depart from negative rates a little bit. Let me ask you about emergingmarket fx. We have seen the story around the china and u. S. Stabilizing with the phase one trade deal announcement. Mnuchin saying it will get signed in january. Where did we see emerging markets had a fx heading . A lot of it is to do with an improvement in exports. We are starting to see some revising upwards their expectations for china exports in the first one or two quarters of next year. Thats a significant change. Throughout most of this year, people were pretty negative on the direction of the chinese economy. Ony are more optimistic where the trade negotiations are going with the United States. They will revise their numbers for the early part of next year also, a slight improvement in china gdp. Typically when we see a rebound in the chinese economy, that is very good across the emergingmarket world, particularly in the rest of asia. People getting more confident that they will see flows coming in to asian markets. When we look ahead to where portfolios are going to go for the First Quarter of next year, there must be a lot of optimism that vanguard in the emergingmarket world will have a close look. People will say, it is fine for a catchup. We expect to see some of that money moving towards asia in particular. Anna thanks very much. You can join in the debate on todays question of the day. Anna welcome back to the european open. Over 45 minutes to go until the start of cash equity trading. At this stage, we are not expecting to see any Great Movement in terms of the European Markets. He futures also flat. Lets get a bloomberg first word news with laura rice. Laura Andrew Bailey will be the next bank of england governor according to the financial times. At thet three decades central bank before running the financial conduct authority. The u. K. Is expected to officially announce the next governor today. In the u. S. , leaders of the house and senate are in a standoff over the impeachment process. Nancy pelosi is holding off sending articles of impeachment to the senate after Majority Leader Mitch Mcconnell indicated he wanted a speedy trial. That would include arguments from the two sides but may mean witnesses arent called. Those waiting for heathrows third runway will have to wait longer. The project has been delayed by at least 12 months. The airport expects to complete the project in 2028 or 2029. The third one rate was planned for 2026. The worst of the hong kong protest may be over, according to a top city official. It comes as the chinese president xi is in the cap. Fors praising the colony bringing attention to the differences between the two cities. Macau as a gambling hung. Best hub. Gambling hub. Global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. Bloomberg. Anna thanks. Lets get to our stocks to watch. Dani burger is looking at commerce bank. Annemarie is on that news release from shale. Filter fino is talking about nmc. Dani apollo is interested in buying commerce banks polis unit. It is not just apollo. A polish state back bank might be interested. There is potential for ing to get into the mix as well. Commerzbank has asked for the bids to come in by january. One thing is clear. Theres lots of interest here. Perhaps a little bit of price war. Anna thats the story out of germany on banking this morning. Lets come to you on shell. An early announcement from shell with regard meant best regards to impairment. Annmarie they are blaming it on macro problems. 2. 3oks like it will be billion. That will weigh on their cap x. Its a tough way to end out the year for big oil. We will likely see shell and others like bp coming under pressure after this result. Anna thank you very much. We will keep an eye on the whole sector as a result. Phil, nmc in focus this week after we see some activist investor interest in shorting the stock. What is the latest . Phil nmc came out with a detailed rebuttal last night to the muddy waters report. The stock is down 41 since mondays close. Huge volume. Investors found a lot of credibility in that report which criticized the companys accounting and transaction it has done. Last night, they came out with a detailed rebuttal. They say their accounting is fine and they are reporting everything the way they should. This should be a test of the credibility of the company, whether the stock rebounds. Volume has been huge all week. Theres a big Short Interest in this stock. If investors believe what the company is saying, you could see a big bounce back in the stock today. Anna thanks very much. You can get all of the stock news from are Equities Team by going to your bloomberg. Coming up, the bank of england after mark carney. The head of the Uks Financial Conduct Authority is set to replace him. We expect to hear the news around mark carney successor later on today. We will have a look at the latest. This is bloomberg. Anna welcome back to the European Market open. Little bit of weakness at the start of the trading day. Lets catch up on one of the stories you need to know this morning. Has been chosen to succeed mark carney as bank of england governor according to reports from the financial times. The chancellor is expected to announce the appointment later on today. Bailey worked as Deputy Governor and chief cashier at the bank of a look. Nejra cehic joins us now. Lets talk about his credentials and who the other contenders, white he why he might come out on top. Somebody with policysetting experience. Nejra on the other side, he is seen as a safe pair of hands. Three decades at the bank of england including the Deputy Governor and chief cashier. Hes the head of the financial conduct authority. Someone with a lot of experience and a respected academic background. People might have thought he might be appointed as head. You talked about the policymaking. Some have criticized that he has a soft touch on financial misconduct. There has been criticism about the lack of females in top jobs. The fact that we could have another male accounted as governor appointed as governor could be an issue here. There were women as other candidates. Helena morsi was touted as a potential candidate. Also, gerard lyons. He was a candidate because of his probe exit pro brexit fees. Anna you have to wonder how their pronouncements on brexit affected their race. Whoever is appointed, the challenges that they face during a year of brexit progress and uncertainty. Nejra whoever comes into the role will have 40 days to prepare for it. That is a quarter of the time that mark carney had. That is one thing. Having to hit the ground running. The challenges of the uncertainty with negotiating the trade deal with the eu, we have the bank of england decision yesterday. We have two calling for a cut. Thatis a bank of england needs to go into 2020 with a bit of a more easing bias . Some others are saying that now way,brexit is out of the they should be going back to what they were saying before. If we have a smooth brexit, it is time to start hiking rates. That will be the dilemma faced by whoever succeeds mark carney. Anna thank you very much. Cehic with a look at who could succeed mark carney. As carry on this conversation with george buckley. Good morning. We will talk about the rate outlook in the u. K. Lets dwell briefly on what is required from a central bank governor. We dont know who will be appointed. Andrew bailey is the front runner this morning. What are your thoughts on the type of appointee that would be appropriate this time around . George you hear about people talking about Andrew Bailey as a safe pair of hands. That is what he would be. You dont have a great deal of time between announcing the governor and the governor taking over. It makes sense that youll point somebody who has been within the bank of england for the past 35 years. He does have macroeconomic experience. He has regulatory experience. He has been in the bank for a long time. It will not be new to him. He will make a very good governor. Anna in terms of the rate outlook in the united kingdom, no change yesterday. I have a chart that shows the extent to which markets are pricing in a cut from the bank of england by the end of 2020. It will depend on the Brexit Development and the global outlook. You are expecting a cut as early as january. This will be a last hurrah for mark carney. What is the thinking behind january . George it has been done before. Mario draghi did a huge package before he left. Out thet rule possibility of them doing that. The reason why they think we think they will do that, we have a recovery in academic growth of 2020. 21 course inflation getting back towards target. In the interim, we are unlikely to see Economic Growth recover that quickly. Weve had bad retail sales numbers. It has been another load of week data. That is reason to think that an insurance cut would not be that misplaced. Especially when they dont think inflation will be very high. They think it will go down to 1 . Anna inflation is expected to fall close to 1 over the coming year. Is that driven in a recovery in the pound . George its probably temporary. Its not an inflation environment where they need to worry about the possibility of one more rate cut doing a huge amount of damage on the upside to inflation. They should be more concerned about the nearterm Downside Risks we are seeing an economic data. We are seeing some possible green shoots. Look at the data in europe for example. We are seeing recovery in the surveys, generally. We saw the iphone this week. That is encouraging news. Europe is our biggest trading partner. Anna we will talk more about europe specifically in a moment. In terms of the u. K. Picture, some of the data has been recovering. Where do you see pockets of for the u. K. . This will be a year of uncertainty. Maybe we see a wait and see mood from the nbc. Where do you see it going for 2020 . George improvement in investment if the reserve of brexit bounces. Im not sure how long that will last. You have to be worried about the potential for a cliff edge at the end of 2020. Retail sales have been weaker. The consumer is relatively well underpay. Wages still rising. You have unemployment at record low levels. Unemployment at record high levels. Inflation is not very high. Buying power is still there. Anna we have to wait to see what the government is planning. Inflation in february. That is a missing part of the jigsaw. What are the fiscal plans of the government . How expansionary do they want to be . George fiscal expansion will be greater in the u. K. Than it is in the big for in europe. Given what the governments already planning on doing. We will see in the budget which is meant to be in february or march. As soon as we get that, we will have absolutely. The bank of england doesnt like making decisions based on hunches about what the government might do. They will be wanting to wait to see exactly what the government is planning. Anna thank you very much. Things for your thoughts on the u. K. Economy. Our guest is with us. We will talk more about europe and recovery and greece shoots. Up next, a look at the main event we are watching for today. Assident xis visit to macau the city marks the 20th anniversary of its return to chinese rule. A lot has been written about the different picture we are seeing in macau versus hong kong, some that president xi is aware of. We will talk about these highlights for the day ahead as well. This is bloomberg. Here, it all starts with a simple. Hello hi how can i help . A data plan for everyone. Everyone . Everyone. Lets send to everyone wifi up there . Uhh. Sure, why not . Howd he get out . a camera might figure it out. That was easy glad i could help. At xfinity, were here to make life simple. Easy. Awesome. So come ask, shop, discover at your local xfinity store today. Anna welcome back to bloomberg. 30ets european open minutes to go until the start of cash equity trading for this friday morning. We are expecting things to be weaker at the start of the trading day. Ftse futures pointing down by 0. 2 . Lets check in on what you should be watching out for around the world today. We are across the globe, of course. We are live from bloomberg ,rry, with bloombergs where president xi celebrates the return of that territory to chinese rule. Our editor joins us in london