Transcripts For BLOOMBERG Bloomberg Markets European Close 20240712

It will be interesting to see how that manifests. How are we going to deal these issues . We will talk about the aviation sector. Earlier, i talked to a ceo in new york. Jetblue is looking to start transatlantic operations. Next year,ng about we will see what happens. Seeuld be interested to what happens on that First Transit linick flight. Transatlantic flight. The hsbc strategist is joining us now. Do you stick with this equity rally . I think it does have legs. What does that tell us . That the rally has been so . Arrow, driven by tech if we look at the average stock 6 the s p, it is still down or 7 from the highest. It is not a broadbased rally. Sentiment and positioning indicators have become even more important. If we look at the sentiment, they are not all back to neutral. Quite astill stick to constructive stance. Alix are we going to be in a world where you can buy u. S. Equities, the neutral on european equities but spreads tighten . Been you look at what has happening to ig credit spreads here in europe and in the u. S. Dollar, you have seen a little bit of slowing of the spread tightening. That cant go on indefinitely. I would probably argue, it stops before the spread levels. We have these underlying issues despite the backstop by the fed. That means ultimately, it might become just like we had in 2019, a coupon clipping environment. You cant go short either. Perhaps the next few months are about coupon clipping. The case count is rising in germany. If we are going to see this continuing, do you think it reduces the case for money moving out of the u. S. And into europe . It is probably one of the most Crucial Point to be made about beer gardens in your munich. Perspective, i think the europe story has been a bit overblown. I cant see it outperforming massively over the u. S. In the next couple of weeks and months. We do know that really positioning and sentiment toward europe has become stretched. When i wrote a note on the end of u. S. Exceptionalism, i dont think we are there yet. Sentiment has become bearish around the u. S. Recovery, the dollar, the trajectory of the virus. That has been almost exactly the opposite for europe. At the end of the day, what you are buying in the eurozone is a load of financials and they are not in that good of a state. In multiasset, we still stick equities. Ght in its going to be tricky to see that going to 120 or 125. Almost like old prices where you see more and people coming out with even more exuberant dollar targets. The levels where we are right now, that should be the best is,ntum because my issue from a fundamental perspective, what does that mean . Paper in may. A that has gone down over the last couple of years but it is still significant. It will also hurt growth. If you look at u. S. Against eurozone, the higher euro hurts profitability. Calling for an even higher eurodollar here is very trigger tricky in my view. Do you sell gold in that environment as well . That is a tricky bit. I have to segregate that. And the short term, i would be more cautious. The correction has a few legs because particularly from the real yield plunge we have seen, that has been a little bit overblown because exactly what i said about the exceptionalism. If people realize it is not the end of the world for the u. S. Just yet, perhaps well yield has a little bit of upside. Go 612 months out, this is definitely buying territory. Alix i would to understand what is good to change that view. German cases are rising and the u. S. Isnt out of the woods yet either. If europe can prove it can do it better than the first wave, what is going to be the catalyst for rotation into Something Different . Thats a good question. Be one where receipt European Growth holding up much better especially with the written latest round of pmis. We do need to see that confirmed. That could be one of the catalysts where we see Something Like earnings revisions Something Like relative activity surprises. Seeing a comfortable gap between the u. S. And eurozone. I see that at risk at the moment. I see the people have become to giblet for the eurozone against the u. S. If we get a vaccine, the u. S. Has more to gain than europe. Vaccine, theets a Economic Impact is likely to be greater. If we get a vaccine before christmas, do you by the u. S. On the back of that rather than europe . I would say definitely. That introduces not only a regional picture, but at intersect or play. Buy,uld allow you to perhaps going down the rating stack in high yield for example. It would allow you to buy small caps in the u. S. More toward the cyclicals. More of a basis for a cyclical rally. I would say rather than just focusing on the regional picture, it is probably more interesting what will happen within the equity markets rather than just regions. Alix thanks a lot. Up, we will continue the conversation about gold. This is bloomberg. Alix this is Bloomberg Markets european close. The president says the uae and israel will agree to normalize the market. A broader picture, we have this news. We have iran reportedly overnight seizing a ship in international waters. Where are we with the stability or instability in the region . In terms of looking at the longerterm outlook, when we think about the need for supplies coming out of the middle east particularly given what is going on, the middle east supplies are more important to future supply security than i would argue anytime in the last 2030 years. Stability in the region is going to be critical going forward. When we look at this piece israel, it is a broader reflection of the gulf states like saudi arabia and uae growing closer to israel given the recent dynamics with iran. The question is what happens postelection come this november. What are the odds of seeing a deal between the u. S. And iran . In no way do we think its going to happen overnight. Importance ofhe the region, the need for stability. Broaden the discussion. Talking about the fact we are seeing gasoline coming back. We can all appreciate that. I was speaking to the leader of jetblue. His outlook does not look good right now. The other out airlines are saying the same thing. To remain alikely difficult place for quite some time. The key point is this market is in a global deficit right now. If we use demand numbers ,elative to precrisis demand you have more than half of it back. Most of that return and demand is gasoline. I am in europe right now. The returning gasoline demand ofht now and asia because Public Transportation has been significant. The key to getting jet fuel demand will be a vaccine. That is not one of the most optimistic cases First Quarter of 2021. Looking at our normalization in oil prices and inventory, we still think its going to happen First Quarter of 2021 before you get the vaccine distributed. In terms of getting the jet fuel demand back, you need to have the vaccine. Alix how bumpy is it going to be until then . The hurdle for china to buy is much higher. At the same time, refiners margins are getting really hammered. What kind of bumping this we have to look forward to in the next 12 months . The market is caught in a tugofwar between a weak dollar putting up with pressure on oil and Commodity Prices and in oil, you have weak fundamentals and its getting pushed back and forth. Once you normalize inventory, it could move up toward 50 per barrel. In terms of thinking about the recovery in demand, the low hanging fruit is behind us. Its going to be a slow slog. 1think you could get back million one Million Barrels per day each month through the end of the year. Thinking about the volatility, the fundamentals that gives you a point it would suggest Downside Risk but the weakness moree dollar starts to put upward pressure and you are caught between that tugofwar. Guy when we get a vaccine, do we get inflation . Presuming demand is going to pick up strongly in an environment where we have huge supply, do you think thats going to happen and if it does happen, what do i by in the commodity space to hedge my risk . It is unlikely going to happen tomorrow or within the next year. If you start to look out 18 months and beyond, our oil price target of the end of next year is 65 per barrel. That is a substantial increase and it could easily get up to 70 per barrel given the need to bring on new supply. Thinking about what is the best hedge for inflation, i could point out gold is a great debasement hedge. In this environment, gold is the best hedge against the accumulation. Word debasing come from . It comes from adding base metals into precious metals. Againsta hedge debasement would be the best hedge. Andrecovering economy, oil cyclical commodities like metal are the best hedges. Debasement does not mean equal. However it will make it to that environment, normalization and growth hang tight for one second. We are going to get right back to you. We want to go to President Trump is talking about the uae israel deal. My first trip as president was to saudi arabia in may of 2017 and my speech to the leaders of 54 muslim countries, every single one was with their number one leader. It was an amazing and incredible and vent event. I made clear that the problems of the middle east can only be solved when people of all faiths come together to fight islamic extremism and pursue opportunity for people of all faiths. When you look at what is happening, you see a lot of progress is being made that nobody thought could possibly be made. Things are happening that i cant talk about but they are extremely positive. I want to thank the leaders of israel and the uae for their courage and their leadership. To forge this tremendous agreement. It will be known as the abraham accord and i would like to ask explainssador to please why we are doing and calling it the abraham accord. Thank you, mr. President. Congratulations to you on brokering this accord agreement. Alix listening to President Trump discussing the uae israel deal reaching an agreement to fully normalize relations. We will bring you updates and headlines. We want to get back to jeff curry. We were talking about inflation hedges. I wonder if you think that gold is being bid up because of an inflation hedge or is there another reason and what does that mean for the next catalyst . If you look at the recent rally in gold, it is very much coincided with the interest rates. That goes back to the idea that gold is a hedge against debasement because as the stimulus creates supply, it puts pressure on real rates which lowers the opportunity cost of bidding up the price of gold. Given that sharp relationship between real rates in gold prices more recently, our 2300 target is based on our real rate forecast where we see the rate going down. I would argue so far, most of the rally in gold has been driven by real rates and the dynamic that is taking place. The swinging too far look like for you . There is a lot of momentum at the moment. I wonder what and overshoot would look like in gold. 2300, how much beyond that do we get before you start getting nervous . We took off, we closed our recommendation to be long silver earlier this week based on the fact that the gold silver ratio got completely dislocated. Theres obviously a smaller market with not the same liquidity with gold like silver could be dislocated which tells you the strength in demand. Cold is a much deeper market, more liquid, more passive investors in the market. As a result, it didnt exhibit the same type of volatility. The key point is a vaccine is not going to happen tomorrow. It is a First Quarter to roll it out probability. In the interim, we could see more stimulus. That puts more downward pressure on real rates and more upward pressure on gold. Its not until you get to the point of normalization in the economy that you see the potential to move into the cyclical commodities. Alix one more quick question on gold. Physically, pricesensitive buyers are going to have a problem buying at 2000. How long will gold have to stay at this level to bring in the likes of india and china . It takes a while until they normalize their purchasing power. One of the big dynamics that normalizes the purchasing power is the weakness in the dollar. That is beginning to see momentum. If we look at the most recent data in india, it was up yearoveryear. It was significant. We are seeing a bounce off that low, but in no way are we back to precovid level. One last thing about wealth demand versus fear demand in the developed markets. The wealth demand is usually a byproduct of that. It was being crowded out by the runup in prices. The fact that it was weak earlier this year is not a reason to be concerned about gold prices. Guy we always appreciate your time. Lets turn to what is happening in germany. Utility is increasing profits in the first half of the year. We spoke to the cfo earlier. I see the opposite because there is so much money around from the fiscal stimulus programs and also from the central banks. Prices are going up. Equity markets are a proxy for other asset prices at peak. I would not expect that we would see this unusual opportunity to buy existing assets for very low prices, not in our industry. Inflation basically there because of all the green new deals or the Fiscal Health being given to that side of the business. Is it becoming more competitive . On the one hand, it is becoming more competitive. You have seen the announcement of the big oil companies. It is a very attractive sector given Market Growth we can expect for the next decades to come. If you look at what is needed to be very successful, you need the expertise which we have. Need a pipeline. There is no scarcity of money. The Market Growth is there so i think you have a lot of players who are going to be in that field. I expect the competition will over time increase. We take it is a real challenge. Thats what makes the game fun. What about demand . You said there was a lull during the beginning of the pandemic. How does the man for power look now . In the court markets in europe, power demand is now down year on year by about 5 in some markets a bit more. It is too early to tell when we come out of the summer break where it starts again. 3 below year before. For the full year, we definitely see an impact of 3 6 . Volume and price hedged. Interesting to see what he said about the inflation story. Amount ofg the sheer money out there. Interesting to hear a german utility talking about the potential for inflation. Alix especially when part of the reason why we didnt get the stimulus from germany before now is because of that exact problem. To not go over on your fiscal deficit. Also inind interesting a broader look is i feel like that company encompasses why some people are bullish on europe versus the u. S. They can compete on Clean Renewable Energy and the money being thrown at it versus the u. S. , you dont have that kind of push. Guy you ultimately wonder whether this is the next phase. The u. S. Has dominated economically over the last 10 years because of the giants that have come out of Silicon Valley and elsewhere. You wonder whether europe will have the potential to deliver some kind of performance over the next few years. Europe today underperforming United States. We will see the details and just a moment. This is bloomberg. Stocks finishing the day in europe. We are underperforming the United States after a little bit of outperformance. This is the story of the day. It is august. We are seeing light value light volume. Trapped in a tight range. News of stock specific that has been driving the london market down a little more than most. We have seen underperformance from the Mining Sector today. We have seen banking underperformance from the ftse 100. In terms of the names that have been driving, it chases bc, glaxosmithkline, you get those kind of names underperforming in london people see disappointing numbers being posted at the headline level. In terms of a percentage downrmance, i tv, iag 4. 22 . Phoenix trading down as well. Difficult numbers being posted out of the u. K. ,n terms of the sector story every single sector has been in negative territory. Telcos has done well. We have seen some outperformance in the travel and leisure sector but not coming through from the airline business. We will talk about jetblue in just a moment. In terms of the single names, lets talk about what has been happening. Underperformance in the insurance sector. And some of the Industrial Companies as well. Theissen krupp getting hit hard today. The market not reacting well to the earlier numbers delivered by the company. You can see the market has taken that badly, as with aegon. Industrials and insurers under pressure. As we will discuss in just a moment, tui trading down. This is a paneuropean travel operator taking money from the german state. Aviation andith talk about what is happening with jetblue. Jetblue is considering the option of flying transatlantic. It is more than considering it. It is looking to potentially do it next year. Robert hayes is the ceo. Earlier on him and asked when we will see the flights across the atlantic. In 2021it will be later than we originally thought. I believe a combination of a vaccine, better therapeutics. I still expect leisure demand between the u. S. And europe to recover at some point in 2021. Goodnk our timing is quite and i think that for some people, flying in a smaller airplane with less people is going to be a benefit, and i 21. K will be flying through in thetblue is doing u. S. Is creating a real leader in safety. We are still talking middle seats through october 15. We are still doing advanced cleaning procedures. We are trying a uv light robot to clean the airplanes. I think as we start flying to europe, those things will continue to be very important. I have gotten on a jetblue airplane across the atlantic by this Time Next Year . Robert i do not want to put an exact date on that. My expectation is at some point in q3. I will hedge your answer because we are halfway through q3. I think at some point in q3 that would be a reasonable thing to expect. Guy that date has the potential to drift. I am assuming it has the potential to drift towards christmas. Robert i would say it is less about demand. I do feel pretty good about demand to europe. We have to get the airplane and then we have to complete our certification. What ive learned in this business is never get ahead of your regulator at announced dates before you have your regulator approve what you want to do. We are already partnering with the faa on that process. Can we get that in the are ready to fly. Guy the next question we always talk about is where will you be landing when you arrive in the u. K. . Are you any further forward in making that determination . Robert we have a number of options which is the answer i gave you the last time. Expect certain schedules several months out before we start flying. That is where we will share the exciting news of which airport we are thinking about. Guy jetblues ceo speaking to me a little earlier on today. Lets talk more about what is happening in the travel sector. We need to talk about tui. We need to talk about iag. Lets do all of that with mark manducca from citi. I want to talk about robert hayes. Many have tried to make the north atlantic work. They have tried to break up the lufthansa, and air france have on those routes. Does robert have a better chance in succeeding than others have and how would you rate his chances . You raised some interesting points when you ask the questions earlier. This is such a difficult beast to slay. Is of the north atlantic held by three alliance partners. One world, sky team, and star alliances, the three companies you mentioned make up the majority of those partnerships. These partnerships are happy to lose money on the economic caution to make the money at the front of the plane. The problem is in the north atlantic 70 people have tried to slay the beast. We have had a number of lowcost carriers. Cycle, we hads the max jets and the silver jets. The competition has always try to focus on the barbell at the extremities, either going mass economy, by it hi, sell it cheap, or the other end, which is just business aircraft. I think this is slightly different. This is the first time a wellcapitalized hybrid model will attack the market. It is an interesting time, as you said in your interview. It is an interesting time to be doing this. Aircraft are certainly cheaper now. Airport costs are cheaper and more available, and certainly the mint product, which he referred to in your interview, the mint product has had good traction in the defensive in the domestic u. S. Market and we will see how that fairs on the north atlantic. Not ruling out success but stressing the fact it is very hard to break the oligarchy. Ofx especially when all these guys need to be cutting costs for survival and monitoring their cash burn, im wondering who is doing that best and who is not and can we separate that from Government Support . Difficult, as he referred to in your question. We have all been saying for a long time. We have been saying we see a barbell between lowcost pointtopoint leisure traffic versus premium hub and spoke corporate traffic, which clearly the latter bucket will be after performing. I believe expectations of any robust recovery on corporate longhaul, and includes the transatlantic have all will all but evaporate in the next six months. Businesses and corporate gravel with the lack of employees at the potential litigation risks that exist at the employee level when so many people board in a pre, during, and post pandemic world. We do not know about second waves just yet. You need more than just a vaccine to solve these problems. This is going to be a culture shock. The punchline for me is if you look at the transatlantic and you look at corporate travel, i think you could easily see 25 orate travel impaired versus 2019 levels. Who is wellcapitalized . They are all wellcapitalized because they have good Government Support for good operational metrics. This is not european short market where there is a huge barbell. This is not about Companies Going out of business. This is a question of whether someone can disrupt the market. I think it will be extremely challenging. Guy lets talk about rights issues. We need to talk about iag. Lets first talk about tui. Trading down today. The market starting to price in a rights issue. You discussed that you think a rights issue is more likely than an asset sale. I am curious why you think that. There are good assets that could be sold. How deep of a discount do you think it would have to be from tui to make it worthwhile if they were to do a rights issue. Mark is a choice between worse and worse, between showing assets that have depreciated or writes on a stock that has clearly come down substantially. We heard from a company nervous about the pace of recovery as you hurting your comments about the share price performance. While tui makes a point about cash breakeven, as great as that sounds, it belies the pressure of this business and the broader sector going forward, particularly heading into a challenging winter, and we cannot see further more importantly, it is a winter where we would like to see consolidation. , as early to go early as early can be given the fact we are sixmonth into this crisis, get the money, go down and equity issue, and it will be a multibillion euro one, what most people are thinking. Are 1. 5 billion to 3 billion euros to get that debt load they are carrying down. That is what they are trying to pay down. Assets are probably the lesser of the most likely outcomes. Guy what does willie walshs rights issue look like at iag . What are the metrics there . Mark it is difficult. If you look at the spanish, you price a rights issue or an event that needs to take place in six weeks. My problem with rights issues that are announced ahead of time, unlike the u. K. Where you can do it relatively quickly come is you are pricing a market cap where you do not know what the market cap is going to be, and that opens you to a number of shorterterm hedge funds. Youre likely to take the other side of the trade, effectively the short side of the trade in the meantime, and that is the volatility you will be presented with. Unfortunately, it is happening at a time where the slope is getting worse and you will know this from what youve been reporting. The quarantine risks seem to be stepping up. They are very iag centric in the sense of the geography. We heard from spain. Fromuestion is who is next a u. K. To europe standpoint . France is obviously going to get some air time the next 24 hours. There is a slew of countries that for businesses like iags, the news flow will definitely have an effect on top of all the things that come from doing a 2. 70 5 billion rights issue on a four or 5 billion market cap. Guy it is interesting people do seem to be switching holidays. They want to go abroad. It is becoming more of the argument as to where you ultimately end up. If you cannot go to france, maybe you will go somewhere else. We will see what happens next 24 hours. The front page of the newspapers dominated by the potential for french quarantine. Mark manduca, thank you very much indeed. We saw a bit of a drop in the auction process on the london market. Light volume a feature of the landscape. We have been on a downward trajectory through most of the day. London down 1. 5 . Well carry on the coverage at the top of the hour with Jonathan Ferro in new york, i will be joining him in london. The cable show on dav Digital Radio indab digital the london area. This is bloomberg. Alix live from new york, i am alix steel with guy johnson in london. Roughly 3. 4 Million People in england, or 6 of the population have had the coronavirus. This is according to a new study by the department of health in Imperial College, london which surveyed more than 100,000 people and found the infection rate in london was more than twice as high. Joining us as one of the researchers involved in the study, helen ward, Imperial College london professor of public health. Great to get your perspective. I wonder what your takeaways were from the study and how that will guide future lockdowns . Helen thanks very much to be on the program. Good to talk about this. There are a few key findings will hope will inform the policy. The most striking is the one you started with, which is the difference between areas like london which are higher than other parts of the country, but between social groups. Thatstriking is the fact we found people of black ethnicity and asian ethnicity have a much higher rate of infection. Whites. Ared with 5 in many south asian populations in england, there it was 12 . Those differences are striking. Is a much difference larger risk of infection in people who worked in people facing jobs, care homes, residential care, and health services. Of people who work in care homes. These people have borne the brunt of the epidemic. Guy what is the overlap between those groups . Helen very good questions. Ours is one of the first studies that looks at that because we have such large numbers. There is an app and that is what we have found, if people of overallhnicity, their is three times that of white ethnicity. Once you control over where they work or their age or where they live and levels of deprivation, it reduces about 24. There are still increased risks we are looking to explain. There is an overlap. Alix how pervasive was the testing . How did people sign up and how broadbased is it . We wanted to find out what the prevalence of the population was. We do not want to ask volunteers because we know that would be a biased sample. A lot of people want to know if they have had this. What we did is took a random sample of the population and we mailed letters to them and then they registered by phone or the internet and then we posted our test and got a high response rate. Near as possible to representative sample of the population we could have. Guy doesnt matter that the tests are not that accurate and are antibodies the best indicator of somebody having had the virus . Helen antibodies are the only indicator we can use at scale to see whether someone has the virus. You can test of the virus itself but that is shortlived. This is giving a picture over what has happened over the last several months. You said the tests are not very good, actually we are doing a lot of Development Work on this. Accurate. 100 know is how much area there is in those tests. In a population survey, we can adjust that. Ofknow we will get some form negative. We will also get a few false positives. We know how many we get to we tested this extensively. We also tested on people doing it at home and quite happy to do it at home. We are clear it is not a test to be an individual to say i have had it or not haddad, it is a test across the population to see how common it is in this population or that population. Guy as we headed to the fall and schools are opening, what is the next test you are looking to do . Helen we will carry on with a few more rounds of this. One going on at the moment. This one i was just talking about was done at the end of june and the beginning of july. We have another hundred thousand people being tested now and we are going up to larger numbers sometime in september and will do another round later on. That way we can track what is happening over time so we can see whether or not there is another lockdown and whether or not we will see an increase in the summer and again when schools and universities open. We will be looking at those. We also know that some people, not everybody manages an antibody response, but some do, so will be missing some. There are signs the antibodies start to wane, and well be able to get some idea of how common that is by going back to some of these people that tested positive to see if they stay positive. Guy given what youve just said about the waning, what does this tell us about our trajectory towards herd immunity . Not know if having these antibodies protect you. It probably gives some protection but there is no evidence it will be lasting protection. There is growing evidence these antibody levels start to decline after three or four months. Whether that stops you being at reduced risk of infections, we do not know because weve not been following it for long enough. That is an important question. In terms of herd immunity, i am an Infectious Disease epidemiologist and we use that concept, but we use it in relation to vaccines. To have at least 60 but 80 to 90 of the people vaccinated to have immunity to protect the people who have not been vaccinated. If that was the case with natural immunity, we are a long way off. 6 is a long way off from 60 . Everyone in 100 people who have been infected have died. You have to have a lot more deaths to get to Something Like 60 of the population, even if it was true immunity which we are not convinced of. Guy that is why we need a vaccine. Professor, thank you very much your time. Helen ward of Imperial College, london. We appreciate it. This is bloomberg. This is a truly historic moment. Not since the israeljordan signed more was than 25 years ago has so much signed more than 25 years ago has so much progress been made towards peace in the middle east. That that was alix was earlier from President Trump speaking about the deal between the uae and israel, normalizing relations. The uae isthe uae is urging neg, significant step for the region. As we were talking about, you wonder how much instability this creates in the short term. Guy taking towards israel. It will be sure. Basically you have the signs. It looks like it is interestinge follow up with what the uae has done. The uae and saudi close when it comes to foreign policy. On the sheer side of the ball, on the sheer side of the ball, you look at what on the shia side of the golf, you look at what iran will be doing, and this will only enrage hezbollah. Alix to your point nonetheless, i should point to nonetheless, i should point out, the uae crown prince saying a full normalization may be a ways off. Not a done deal yet. Tempering expectation. That wraps it up for me and guide here in new york as well me and guy in new york as well as london. Coming up next is balance of power tv and radio. Happy thursday. Happy thursday. This is bloomberg. G. From washington dc to our tv and radio audiences worldwide, i am kevin cirilli. Taylor and from new york i am taylor riggs. Welcome to balance of power. It is all Business Today because the stock markets are still approaching record highs. The print we are looking for is 3386. For that we will go to abigail doolittle. We are just a few points away, but i have been saying this for a few days. Abigail it seems like we are stalling near the record highs is considered to be an important level of resistance where the sellers step in. In february that was a big moment where they stepped in. The buyer is having a hard time overtaking that level, especially right now the s p up slightly and the dow down slightly. This is the rotation into the stalled. Sectors the tech index, e