We are live in brussels. Manus warm welcome to daybreak europe, from london and abu dhabi. One thing we have to get our heads around, have we got a little overly exuberant about riskon a little too soon7the world bank comes out with their growth report. Looking into the depths of it, it is a world we havent seen since 1990. China, under 6 growth. Nejra good morning, and great to see you. We got factory numbers from germany causing some concern. The eurozone, another flashpoint. Going back to jim littell risk, geopolitical risk, it looks like for now we will not see further escalation between iran and the u. S. , but the risk of proxy war is still there, and as the investigation happens into the boeing crash as well, if that becomes a clinical headache for iran you wonder if they could feed into wider risk in the region as well. Manus yes. The question for markets here is whether there will be plentiful supply. Headlines,e, red well delve deeper shortly. Innate pharma, a big miss. The market was looking for 275 billion. Lets take you quickly to the markets. Rip it up and start again. The oil markets, up by five, down by 3. 5, an 8 whipsaw. Turnday brent market, 8 yesterday. Is trump really backsliding away from the precipice of war . The oil market for the moment seems to be stable. The bond market, s p 500. S p 500, analysts are the least bullish for this year on record. 10year Government Bond yields, a feast of fed today. Nejra and a little bit of a feast of riskok. Riskon. I asian index rebanding rebanding from losses. The yen retreating, 109. 29. Yesterday was the most volatile day since august for dollaryen. Gold study, but yesterday steady, but yesterday dropping 1 after the general calm for now around the u. S. Iran story. Holding fire. The u. S. And iran seem to be stepping back from potential war. President trump indicated he wont respond militarily to the missile attack on u. S. Bases in iraq. He says no american or iraqi soldiers were killed in the strike, but the president said he will announce new sanctions. The United States will immediately impose additional punishing economic sanctions on the iranian regime. These powerful sanctions will remain, until iran changes its behavior. Nejra joining us is Jim Mccormick, global head of debt strategy at natwest markets. Happy new year. And you come back to drama at the start of the year. Ar are you reassessing your strategy based on the u. S. Iran tensions . Jim no. I think obviously we will be on high alert, since it came out of nowhere, but it is pretty encouraging to see deescalation. Encouraging pragmatism from both sides. Good to see you this morning, happy new year. For us, for markets, what we need to try to understand how too have we become too accepting of a lack of change in risk . I ask that question because we reverted, we have given back all of the losses, recouped all our reset the tone of markets. Are we being too preemptive . Happens whenwhat Central Banks continue to provide support every time things go a little awry, so realized volatility, Foreign Exchange as of yesterday was the Second Lowest it has ever been. So clearly this is the wrong volatility dynamic for markets, but hard to see what will get us out of it. Nejra if the volatility continues, as we were talking about, there seems to be deescalation but that doesnt mean that the risk has gone away a further escalation through the year. If that happens, what trade would you want to put on, oil, fx, elsewhere . Jim if you talk about geopolitical risk, it is probably best to be done through volatility. I wrote about this last week. The vix curve is very flat, levels are low, indicative of a market that doesnt seem to want to worry about anything. Are reallye worried about the flashpoints, looking at volatility is obviously the main focus. Manus speaking of volatility, one of our writers looked at four key products in 2008. They looked at a two month period in 2008 relative to the tradend the triumphant was dollaryen. For them, still dollaryen. Would that be part of these hedges for you . Jim i think thats right. The actual reaction at least initially to what happened last week was pretty normal. Dollaryen lower, gold higher, volatility generally higher. That suite of products proved a good hedge for a moment when it didnt really need to hedge. Offeels like the halflife these super bowl flashpoints is shortening by the day. It worked, but it wasnt necessary, as we found out. Nejra in terms of the relationship between any price spike in oil and inflation. One takeaway i was reading yesterday, higher prices on the back of a supply shock rather than roaring factory and consumer activity, which we are necessarily seeing now, ultimately hurt companies and households and keep a lid on broader inflation pressures. Is the inflation market correctly reading the feedthrough from an Oil Price Spike . Jim i think theres ultimately multiple things going on with inflation. Supply shock should be less inflationary than demand shock. But looking at inflation markets, most are priced towards timeowest in decades, at a when unemployment globally is that 50 year lows, a time when we do have geopolitical tension, it looks to me like inflation is an accident waiting to happen at least in terms of the markets. Manus interesting, because James Mccormick at fitch, i was reading some of his paper. He said this is an enterprise risk underpriced risk, it could be a big surprise and the labor market is very tight. Your notes, what i find interesting, you want to be fiveyear inflation in europe, and 10year real yields. So, are these oneyear trades . Slightly longer than that . Jim i think they are longer. Fiveyear european coretion is lower than inflation for the first time in the history of that index. It doesnt take a lot over the next couple of years for inflation markets to realize above where inflation is, so it looks to me like a good hedge against something that happens latecycle that nobody seems to worry about anymore. Jim will stay with us. A lot more to do. Strategist with us for the next hour. President donald trump is vowing more sanctions on iran. What does that mean . Annmarie hordern has a look at how the maximum Pressure Campaign has been working. Annmarie the first thing to look at is how the maximum Pressure Campaign has been working. Looking at the oil sector, it has really crippled the economy, oil exports coming to unprecedented lows. You can see throughout the world have a sanctions have worked on the iranian economy. Now the Trump Administration says they vow more sanctions against the country, and a close sources that will be focused on the metals industry. In may we already saw the administration hit the metals industry. Copper, aluminum, steel. The Administration Says outside petroleum, it is the biggest export revenue for iran, about 10 , and a big workforce in iran around the Metal Industry. It remains to be seen what is left for the Trump Administration to sanction. But it does seem that will be the new focus, the Metal Industry doubling down. Nejra lets get to the first word news with Annabelle Droulers in hong kong. Contradictory reports emerging about what caused a ukrainian boeing 737 to crash in iran. Tehran initially blamed a technical issue and then an engine fire. The Ukrainian Embassy ruled out terrorism but in a further statement offered no comment on because. All 176 people on the plane were killed in a crash. Hong kong is preparing a bold fiscal plan to boost its economy according to the citys financial secretary, who is pledging to maintain spending on infrastructure and public services, saying the government has the resources to offset recession. And the world bank is cutting its outlook for Global Growth due to worsening prospects in china and the year area. Gdp might pick up a little, due to better prospects in some emerging economies. Global growth forecast at 2. 5 in 2020. Global news, 24 hours a day on air and at quick take by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. Manus thank you very much. This will set the tone pretty much for all of retail around the world, certainly in the u. K. Fast retailing, operating profit increased. A large drop in hong kong, korea sales. Specifically, which will impact the marketplace, down 5. 3 . In december, domestic uniqlo sales fall 5. 3 . Ill leave it there, but coming up on the show, its daybreak for Upcoming Airline sales. The latest on the brexit story. We bring you that, and a look ahead for the day. Nejra and war of words, carlos ghosn strikes out at the japanese government and nissan. Were live from beirut with that story next. This is bloomberg. Nejra this is bloomberg daybreak . Europe. Manus lets talk about the story. Nissans former ceo carlos ghosn, in his First Press Conference since his arrest in 2018 which he described as brutal, and he struck out at japanese broadcasters and managers. A im here to shed light on system that violates the most basic principles of humanity. Im here to clear my name. Latest, lets get to yousef gamal eldin. Good to see you. What a press conference to be part of. But we also heard from the japanese government. What was their response . Yousef well, it was a dramatic day. Conference, a press in many ways more of a monologue. The important take away here outside of what happened of course with the allegations, his dramatic escape, which he didnt go into much detail of, approachssage and around the treatment he had aere, and the lack of hope or prospect for a fair trial in japan which met him to make the difficult decision to escape japan. He is a citizen of brazil, of france, and of lebanon, and said he could have a fair trial there. The prosecutors in the coming hours are going to be speaking to him, to try to get a better understanding about the red notice that is out on him on interval. Lets take a quick on interpol. Lets take a quick listen to the Justice Minister from japan. Comments made by carlos ghosn give the wrong impression of the japanese legal system. I will work to clarify and spread the correct understanding of japanese laws. Yousef that was one of the important voices there. We had reaction from corporate officials, including the former ceo of nissan, who made it clear that as far as he is concerned, this is a man on the run and he wont waste much time with it. Nejra thank you so much. Lets get the Bloomberg Business flash with Annabelle Droulers in hong kong. Annabelle apple shares hit a new high after the company says customers spend a record amount on its app store during the final days of the holiday season. 1. 4 billion dollars between Christmas Eve and new years eve. Is again rejecting the unsolicited takeover offer from xerox. It says the potential deal significantly undervalues the personal computer maker, this after xerox committed 24 billion of financing for the deal. H. P. Says that its planned restructuring will provide more value to shareholders. Stoppingza startup making pizza, cutting its business. The company is known for make pizzas, butotmade now they will instead focus on Food Production and delivery. Nejra Annabelle Droulers, thank you so much. In the last few minutes, we had iran release the initial report on the boeing 737 crash near takeoff. Iran says no radio signals were sent from the plane that were unusual, and the crash report says the plane went off radar at 8000 feet. The flight data recorder, the cockpit voice recorder has been recovered, and we will keep an eye on that and bring more lines as we get them. The events to watch out for today. Airline december sales. Scandinavian airlines will announce numbers at 10 00 a. M. U. K. Time, followed by air france klm. Pedroin, Prime Minister sanchez is expected to name his cabinet. Manus in the u. K. , closer to law for you, brexit proceeds to number three in the house of commons. And later, the fed chairman speaks to the council of Foreign Relations in new york, and James Bullard speaks at the Bankers Association in madison. Yuang up, the onshore trading at its strongest in five months, but has it gone too far, too fast . We explore. Its your chart that matters. Manus it is bloomberg daybreak europe. Im manus cranny in abu dhabi. Nejra and i am nejra cehic in london. The yuan strengthened against the dollar, but how much further can ago . With the answer and the chart that matters is dani burger. Dani coming off of two highvolume days for the yuan, opening at a 6. 93 handle, significantly stronger than where the pboc says it it last fixed rates, so an increasingly popular trade. When we look at the technicals, it has dropped below 30 rsi, putting it in overbought territory, although this may not be a death knell for the yuan. We expect to see a lot of foreign inflows into shares and local bonds, which should be a boon for the yuan as investors cut dollar longs. Nejra dani, lovely chart. We want to bring in Jim Mccormick from natwest markets. You say here clearly its not really tied to trade wars or trade angst. Run us through your thinking . Yousef theres jim theres two things going on. The Exchange Rate in china is close to the 95th percentile for the last 25 to 30 years. You have the central bank that is going to opportunistically continue to ease policy, so netnet what should be a weak dollar environment in 2020, we should see the yuan underperform. Underperforming, nejra and it is that combination of targeted stimulus from the authorities and easing of u. S. China trade tensions meaning you expect some modest upward momentum in the chinese economy in 2020. What would that look like . Jim if you look at chinas credit inflows, it has been going up for the last year or so, and that has continued to point to stabilization of the economy. The easing policy is going to look very similar to the last couple of years. A little bit of rate cuts, a little bit of fiscal policy, not as big as the last two or three credit cycles. Netnet, china becomes less of a story this year, and that is probably good for Financial Markets. Manus translate that into the rest of emerging markets. If i have a short position on yuan, more stimulus, what does that mean for e. M. . Spot. M. Is in a sweet we talked about e. M. For a long time being fundamentally cheap, and that is still the case despite the fact we had a small rally in 2019. Now, you have a macro narrative that has turned. The Business Cycle is turning. The Federal Reserve is telling you that almost no matter what they wont hike rates, so e. M. Looks like a cheap play in a low volatility market with the macro narrative turning more positive. Nejra within that emergingmarket space, is it emergingmarket asia you are particularly focusing on . Jim it is a general story, but veryyear we were not positive on asia in general. Now, because of the u. S. China trade relations easing, the Global Manufacturing cycle turning, we tell people to take a look at asia. The korean won is one of the currencies we really like this year. Manus i want to take you back in 1991. The Office Vacancy rate in japan is the lowest since 1991. How long do you want to be japan with a bucketload of stimulus and a healthylooking number there . Jim listen, i think japan is one of the greatest underappreciated stories of the last couple of years. I look at japanese equities, and the p e ratio relative to the u. S. Is the lowest and probably a decade. Were coming off of that increase. Year with a into a lot of spending around the olympics, so japan looks like a pretty good story next year, or this year i guess. The world bankp, trimmed its outlook for china and the your area, but global gdp made the cut this year. Manus we will debate. This friday, bloomberg tv and radio, wall street week. The perspective of a panel of influential voices joining the team. David westin, from new york every friday, they will debate the data, the politics, the market moves and volatility that matters for your trading week. 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. Nejra good morning bloomberg world headquarters. This is bloomberg daybreak europe, and these are the top stories. Menace President Trump delivers a measured response to iranian strikes on the u. S. Bases. He does, however, promise sanctions on tehran. Fighting back, japan calls itsos ghosns criticism of legal system absolutely intolerable. Are live in beirut. And Boris Johnson stresses britain will not extend the transition period in a meeting with urszula delay in urszula ursulain urszula von der leyen. We are live in brussels. Nejra signs of deescalation for now between the u. S. And iran, leaving Global Equities in the green. We see dollaryen on the front foot, but the yen retreating after the biggest jump in realized volatility yesterday since august and gold steady after the biggest drop in two months. We get all the action from around the world. Manus we do indeed. The question we need to ask ourselves is how will 20 20 shape up, and do we really need to have some hedges in place . You first, what weve got as developed markets rally, data to deal with on the inflation side from china. What does all that mean for the pboc . It could mean we have the door open to monetary easing from the pboc. You did see the cpi read coming through for the prior month outside 4. 5 matching what we saw in november. Half of the drop in cpi was much less severe than what we saw in november. On ae up 97 in december year ago, but reportedly price fell quite substantially and we are expecting cpi to moderate to baser and core price somewhat. We are expecting the economys momentum in china will be tricky, especially given the time of the lunar new year, which will be earlier than normal, starting on january 24. Nejra you got your eye on Steel Companies in india. Yeah. Good morning. Pm ws are doing well, but one new course price rise, not very well for itself, and back home in india, the government has removed a hurdle for supplies, which would have caused a disruption for the companies. Now that that is out of the way, most people believe the same thing will continue, so stocks are not likely to just react only today but over the course sothe next few days, positive for today and maybe some positivity in the nearterm as well. Manus how could you dare not to believe this outside . Thank you very much. What does new oil and Gas Exploration mean . The timing is interesting because it comes, of course, ahead of next weeks signing of the phase one trade deal, so maybe concerns about access to the industry, opening up the oil and Gas Exploration to private and foreign firms, so no longer just stateowned companies. After this, we saw a swap with companies that had to do with cooperation in production in the exploration space. These companies in asia jumped on this news. Its really going to be opening up to Companies Net assets, at least 42 million can get involved. This really is interesting about the timing because it is starting to ease concerns ahead of next weeks signing. Also much. K you lets get to the first word news from hong kong. Thanks, nara. The u. S. And iran have backed away from direct conflict but tensions still remain high. A pentagon report indicates missiles targeting a were aimed to avoid u. S. Casualties. Hong kong is preparing a hold fiscal plan to boost its economy according to the citys financial secretary, who is pledging to maintain spending on infrastructure and public services, saying the government has the resources to offset retention. If we can stop the violence, restore law and, people would be willing and feel more safe to come out and spend money. Japan pushing back against carlos ghosn, its Justice Minister saying the criticism against the countrys legal system is intolerable. He also accused him of spreading lies. Carlos ghosn blamed emmanuel setting off the chain of events that led to his downfall. Manus thank you very much. One of the Federal Reserves top the u. S. S said recession could leave short and long term treasury yield. This could limit the tools the central bank has to the economy. Meanwhile, the world bank has cut its outlook for Global Growth due to worsening prospect in china and the your area. Area. Euros Downside Risks abound starting with a potential reescalation of trade tensions. Jim mccormick of network markets is still with us. We already talked about china and when we have spoken previously, you have also been upbeat on the euronet area and quite bullish on the era. Been upbeat on the your area the your the and quite bullish on the euro. In terms of manufacturing data, you have to remember that the manufacturing data, the hard data, ordering numbers have been running above pmi for some time, so if you look at pmi numbers, it does look like we are starting to get modest improvement and that is where we are focused in terms of the economy. Us modest improvement lets talk about the fed then. Short and longterm rates could go to zero. They look to recessions between 1990 and 2001, and if you get a moderate recession, rates dropped by about 1. 7 , so there you go. Oderate recession what is the risk in your view or thatgo to zero again 00 bind again . I think if europe gets even close to recession, you will get close to zero pretty quickly. This is a fed that is fundamentally dovish. This is a fed that told you they want to be getting inflation much higher than it is today, so i dont think it will take much for the fed to start cutting rates again can getting to zero, we would only really need to see some signs of a possible recession. We sort of saw the rest of the world, europe and china picking up versus the u. S. Ism manufacturing data, and a lot of people pointed out a divergence between the ism and ihs. What is your reading of how we should view these data points and what they tell us about the risk of recession in the u. S. . If we look at the u. S. To a lens of three components, theres big companies, small companies, and the consumer. Bigcompany confidence is very clearly week and has been for some time. You see that in ism numbers. Small companies and households continue to do very well. What we need to recognize is that every recession in the last 30 years has been preceded by bigcompany confidence going first. You do not get a recession until Small Company and or household confidence start going down, but the Company Numbers matter and the ism is a reflection of bigCompany Numbers. Guests haveber of talked about Balance Sheets and Balance Sheet strength. Can i ask about the credit market . My last guest in the last hour says youre going to get paid and get paid handsomely for going into higheryielding assets and those spreads will continue. Way, he warned of illiquidity risk. That is a whole other story, but you,s and reaching for will that dominate 2020 . I think the way credit markets have evolved in the last five to 10 years because of a lot Us Central Bank liquidity, they have become very expensive, but they keep getting more expensive. I think the call has to be if you dont think there is a recession or a default cycle, you have to be in credit, even though spreads are very tight. Our base case is we are not going to have a recession. We are going to have a reactive fed that will cut rates quickly if things go down. It probably will be an ok year for credit. I would probably argue it will be a better year for equities, but credit could have a good year depending what were looking at. For credittter year than equities. What about equities versus bonds . I think it will be a better year for equities versus Government Bonds. The story last year was a weak Global Manufacturing cycle that should have brought equities down but did not because Central Banks were easing. Our view is that Central Banks are going to be increasingly reluctant to ease policy from here. Government bond markets are flat to down probably in 2020. Can i jump forward from that thought . We were looking at the political skew. If that is your base case scenario, equities over bonds, is it too dangerous for me to continue to sell volatility in 2020 . You know, listen, i have an fundamentally bullish at times on volatility at times over the last couple of years and we are back at a point where macro volatility across Financial Markets is close to alltime lows. It is a very dangerous place to be. It is difficult to call what will be the trigger to get volatility higher, but, you know, small levels are not very attractive. Manus that is an understatement. Thank you. It. Are rolling with more on what to do and your outlook for 2020 including Boris Johnson and his meeting with urs ula von der leyen. The stories you need to know. We set the agenda right here on bloomberg. Its daybreak. This is bloomberg daybreak europe. Nejra Prime Minister boris and ursula von der leyen have set out rival views for their separation. It seems like that aligns for the trade deal have been drawn. What are they . They have and it is significant because we now see what the negotiation will focus on in the next few months. Wasnow ursula von der leyen in london yesterday and met with Boris Johnson. She was very explicit about the fact you cannot get a big comprehensive deal done in one year. That is simply impossible. According to her, it is not going to happen in the u. K. Will have to decide if they just want to get a very basic deal or agrees toson actually negotiate with more time. This is something i hear time after time in brussels, but we heard it from ursula von der leyen yesterday, that the europeans believe the u. K. Needs to stay closely aligned to european rules and that will be problematic. Yesterday we heard from downing street he still wants to get the trade deal done in one year, though the Prime Minister has no intention of extending that transition period beyond the one year and he Still Believes he can get a deal similar to that of canada where most goods are tariff free, though that was a deal that took years to make. Europeans at this point are skeptical this can get done in such an ambitious way in such a short amount of time. I take it from that it is not a question of copy and paste the text onto a u. K. Document. Doesnt copy and paste anything. He is an original thinker. Can you square this away for me . Of 2020 was about an improvement in the economy. You want to be long the currency , but you are worried maybe the best of the story has been and gone, so please tie that together for me. It does kind of look like a the took place over 48 hours in middecember. We are basically sitting around waiting for that recovery in the economic cycle, which has not happened. The fact is that the numbers in the u. K. Continue to be fairly weak. I imagine if we do not start to see confidence pick up in the next month or two, we will get very worried, but we are already at the point where people realize that this is a government that is fundamentally set on something that looks harder than what the market really wants to see. If you get that improvement in the economy 35 should be a short target. If you little bit higher want to dream, but 135 to 140 was where we expected it to go. We got there, but we did not last very long, as you know. Lot. i dream a you want to own guilt but you want to own treasuries. Some would say this would be a tragedy coming for the gilt market is the additional issuance. By the way, oversubscribed bund orso in that gilt treasury spread, where do you want to be positioned . I think if you look at it through the lens of treasuries, we should see higher yield relative to the u. S. The u. K. , you should have an economic recovery, at least in the first few quarters of the year. In the u. K. , youre getting probably a significant physical loosening, already starting to see some of that supply coming through. The fed will probably be easing sometime again this year. Boones bunds, i think it is 50 50. By the endconcerned of the year . When does the market really start pricing this back . It was always a concern to us. As i said, the concern has come a lot more quickly because the government has decided to make it an issue earlier in the year. Our base case is not going to get a new deal brexit, but you will still get something very skinny when it comes to a trade deal and that trade deal will be pretty hard brexit relative to what people would have thought a couple of years ago and even a couple of months ago. Jim mccormick staying with us. Lets get to first word news. Annabelle apple shares hitting they say customers spend a record amount in the app store during the final days of the holiday season. Bed, bath, and beyonds new chief is setting expectations low. The u. S. Retailer withdrawing Financial Guidance for declining sales. It says performance underscores the imperative for change in the company. Bed, bath, and beyond says it will have a turnaround plan in the spring. And looking for a pay rise in 20 . It might be worth looking at these jobs. Recruitment website indeed has put out a report on the highest payrolls in the u. K. Chief Financial Officer tops the list, but also consider a career in health care, accounting for almost half the job in the top 20. Manus thank you very much. Coming up, move over chipmakers. Details on new morning calls. Nejra this is bloomberg daybreak europe. The Auto Industry is grappling with job cuts. One Analyst Thinks 2020 will be a banner year for the industry. Who are they and why . Danny bergen. As far as who this is, the brokerage arm of japans secondlargest bank, and i strategist thinks 2020 will be the year for global auto growth. In the u. S. Specifically, they point to better financing, easier financing, as well as growth in disposable income, so that should help support the u. S. Industry. In the rest of the world, specifically china, japan, and europe, so they developed nations, they will see economic recovery according to strategist, and that should help spur the industry in those regions. He specifically points to china, saying there is a low rate of ownership, so lots of room for growth. Bmw yesterday did say that 2020, they see record sales. Nejra thank you so much. If this call turns out to be right, this supports one of your big views of 2020, which is by growth. The auto sector has been an anomaly in the last couple of years. The Global Economy has been strong, but auto manufacturers have been in pretty dire shape. If we see an upturn in autos, its good for growth, specifically for germany. If you get the auto sector improving, you certainly make that case much stronger. Manus very quickly, em was one of the things we talked about earlier. How do you want to play that . I think this is an environment for em currency, em equity. If you look at those Asset Classes relative to pretty much everybody else, you find when they outperform is when the Global Manufacturing cycle is turning up. This is a sweet spot for em currency, a sweet spot for em equity, particularly if we get a little bit of dollar weakness, which is something we are expecting in 2020. Manus its one of those classic communication moments. Never, taken away. Nejra, taken away. Nejra thats it for daybreak era. The european open is next. We have been talking about the fact there is a little bit of risk on coming through these markets. Asia has been in the green. U. S. Futures have also been pointing higher along with european futures. What i want to know is what did you find me in the app store . Were you part of the 1. 4 Million Dollars spent for christmas . Good morning, welcome to bloomberg markets, the european open. We are live here in the city of london. Im anna edwards alongside matt miller in berlin. Matt the markets say dont be too cautious. Stocks look set or a positive open as the u. S. Combed tensions with iran despite the cut to Global Outlook from the world bank. The cash trade is less than an hour away
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