Transcripts For BLOOMBERG Countdown 20140813

I am mark barton joined by manus cranny. Lets turn to all addicts. 200 lets turn to geopolitics. 280 russian trucks said to be filled with food and water are turned back from entering ukraine. The convoy left from moscow yesterday. It is getting closer to the border. The ukrainian say it is not carrying humanitarian aid. They believe it has military supplies inside. We do not know because we cannot verify it. It seems like an outlandish claim, but how do we know . ForInternational Committee the red cross seems to be getting cold feet on this socalled International Aid effort. At a listen. Have a listen. What we need to have is clarification regarding modalities, practical steps that need to be instituted before we launch and operation. There is a of concern about this convoy. I dont think i have heard so many World Leaders as gus one convoy. I heard the white house discuss how the ukrainians have a structure, a process in place so they can check the convoy. We have heard ukrainian say they will not allow the convoy in. The British Foreign minister said whatevers inside of those tocks should be transferred the International Committee for the red cross. It is something we will have to watch and see how it develops. Talk us through the market developments. There are various stories that nato is suggesting it is a trojan horse. It was quite a shockup Market Reaction. Horse,xplain the trojan the idea is that it would carry evans. Terry weapons. It would turn into a literal military invasion into Eastern Ukraine or it could serve as an example. If it comes under fire, russia could bring in troops. The investor reaction has been straightforward. The closer investors are too Eastern Ukraine, the more concerned. We saw investors dump yesterday. The National Currency of ukraine is down 6. 5 as of yesterday. Parliament said there is no reason for the National Currency to be this low. Three times out of the last seven, the central bank has intervened to try to prop it up. They are running out of money. They have 16 billion worth of foreign currency. That is not far off there and nineyear low of 14 billion. Ukraine is propped up by what . The imf. Where does this leave putin . The russian president is expected today in crime area crimea. As far as the russians are concerned, that is their newest region. He will convene the parliament and his cabinet there, and the security council. Reason, no proof to think the russians are up to something nefarious here, that they have no intentions. If they dont, that they have ill intentions. Russia dont, imagine cooperating with ukraine, the european union. Maybe not as the partners might want russia to. This could be huge for the russians and a way to deescalate. They are showing their support for ethnic russians, russian speakers in Eastern Ukraine. The domestic audience, he has an 87 Approval Rating inside russia. He shows not only are we going to be concerned about this , we are going to be the first to show up with a. Where is the eus eight . Aid . These people have been without water, electricity, and food for 11 days and the west will continue to talk about what to do because they are concerned we have weapons in the structs . In these trucks. If there is something nefarious here, you might be well devel oped to go further. Nouri almaliki has lost eight major a Major International supporter. Hass been the last been the latest country to back alabadi. Meanwhile, in the north of the country, the u. S. Has continued to attack militant positions and the u. K. s Royal Air Force has airdropped humanitarian aid to thousands of civilians displaced by militant advances in the north of the country. Japans gdp contracted the most since the earthquake of three years ago. We are in hong kong. Good morning. Talk us through it. These are concerning numbers indeed. Let me get you the numbers. Basis of thezed economy, the gdp contracting to 6. 8 . It comes after the april sales tax increase. To keepe not rising pace with the Rising Consumer prices. That is having an impact on consumers and an impact on the economy. Investment plunging as well as the sales tax increases. The government weighing whether to increase the sales tax again in october of next year. It highlights the difficulty for the shinzo abe government is facing staying on track with the third arrow ofabenomics. They have yet to deliver on fiscal and Economic Reforms and changes to the corporate scratcher corporate structure. We are seeing a modest Market Reaction in tokyo. The market is focused on what is happening in china. Numbersnomic num there. Of Prime Minister is traveling in japan. He made comments domestically save the government is analyzing the numbers. The economy minister said the government is ready to take flexible action if things get worse. On that matter of chinese data, we had news of a plunge in credit pot credit gauge plunge in the nations credit gauge. This is concerning for the chinese property market. We have seen the government taking steps to rein in excessive credit growth. It reveals it unexpectedly plunged last month. We have aggregate financing coming in at 44. 3 billion in july, well below estimates. Yuanbelow estimates, new loans and the end to money supply came in well below expectations. Reports on Industrial Production so it is an important date for the chinese economy. Stocks are falling on the news. We saw the shanghai composite falling the most in the week. Shares in hong kong are declining as well. Thank you. London, today here in bank of England Governor Mark carney will present his quarterly Inflation Report. The words he uses will be closely listened to. Any hint of dramatic changes in language. People are paid big salaries to listen. The nuance of all nuances with the Mansion House speech in june. It has all changed since then. It has. That is a fair point. The analysts are pulling for ir view on when the market the market has decided to rally after Mansion House. Give it all back. Have a look at dollarsterling. The pound is now where it was on june 12. Was 1. 6788 at the day of the speech. They really cant there is a lack of consensus in the amount of slack. They are going for the hike in the fourth quarter. Labor markets carney highlights a divergence of views on policy committee. That may give us a hint that one or two good people have dissented for a rate hike earlier than we think. Wages are the other big issue. Wages excluding bonuses in the last quarter had the slowest increase ever. It is the fact of the day. We are going to get the jobless claims. We will get the average weekly earnings. They are expected to drop. This combines the issue. Steady group would say the bank of england Inflation Report likely to support the case for an early increase. Why . Wage activity data has disappointed rate expectations only to a degree. The growth figures we expected to be nudged up today. Who knows what they will say about slack . 1 one. 5 . 4 maybe they will narrow it slightly. Another thing that caught my eye is u. K. Stealth employment, up 28 . 8 percent. Up more people working for themselves. Is that good for the labor market or does that reflect a somerset . My gosh, the labor market is not that strong. People are thrown in the towel for a historical employer they would have worked for and they are going in a long. We know the Technology Economy is the new economy. That is what i saw yesterday that come my eye. You wonder if the economy is showing signs of leveling out. We had manufacturing growth pace slow in july. That was according to manufacturing data. Industrial production rose less than estimates. Weekrong pound, by eurozone, it seems as if we are leveling out. We will know later. We get the forecast for growth and inflation and stock. Stay with bloomberg because we will be discussing this throughout our programming in terms of carneys quarterly Inflation Report. He starts speaking at 10 30 london time and we will bring you that purport live. Tipping point trains. Tensions in Eastern Europe showing no signs of abating. Willl geopolitics how geopolitics play out on the market . Todays company news. Alibaba is selling a Small Business, a company that already controls alipay. The moves show the company separating itself from its last financial units ahead of an ipo. That is expected next month. King digital lunch as much as trading afterours posting secondquarter sales that trailed estimates. The company cut its 2014 now 2014 outlook. Sonys global sales of playstation for game consoles have hit the 10 waystation four game consoles waystation at the 10 million mark. Microsoft xbox one sales. Phyllis, good morning. If we saw a russian incursion into ukraine, which currency should we be invested in . I dont think it is so straightforward. It is not a black and white situation. Been very much driven by the macro economics of what has been going on in the g 10. Geopolitics will be an important factor. Has largely been driven by the performance of the u. S. Economy. We think that the u. S. Will rd momentum gua against the euro. Against emerging market currencies . In the last month, the dollar is up against 21 out of 24 main emergent market currencies. Does that trend continue . I think so. We will see emerging markets outperformed but in a selective fashion. I think that will continue when it comes to the dollar. We will see it becoming increasingly broadbased as we head into autumn and certainly against against volatile emerging market currencies. We saw yesterday some. Went reaction some virulent reaction. Volatility in terms of the ruble. The you any perspective on currencies . Russia is under pressure. Have you look at those currencies . To related currencies as some of the flow. The Global Economy is picking up. Look at geopolitical risk in a broader fashion. We had geopolitical risk emerging in the middle east area we have it in ukraine. We happened in other parts of the world as well. In that context, the ruble does not look like it is going to fare particularly well. It is the currencies in emerging markets that are showing strong fundamentals, that have strong external positions that will outperform. It is not clear that the ruble meets those criteria. Probably not at the moment. We have had news from turkey. Ergo one. Ard where are you in terms of fundamentals . People say it has the marks of a currency that could come under pressure again because there has not been enough structural reform in turkey. , i think ittions was in line with what we were expecting. With elections, always the onus is on the incoming policymakers, if you like, to engage in those difficult reforms, structural reforms. Story withsame indonesia. It was the new leadership going to engage in difficult reforms which will support the currency . It remains to be seen with turkey. The leadership has just been reelected. It is a new opportunity. It is very important, especially with the Global Economy picking up, to see those difficult reforms be engaged. It is something europe is struggling with. It is not something that is just relevant for the emerging markets. We will talk about europe in the next session. We will talk about the quarterly Inflation Report. Back with us is phyllis papadavid. A big, big day for sterling. The quarterly Inflation Report released today. 4 against the big ten currencies. What can mark carney say to boost sterling today . A lot. Has beenmic data positive. For upside surprises in the data. I think what we have seen will give the mpc cause for comfort. One element of the data which has been weaker across the g 10 as in wages. Average wages have been week in the u. K. They could be concerned about. U. K. Continues to outperform. Fallbackeen sterling but that is because it was so hot. Was so high. Where is your position on sterling . It is not in their interest to have a highvalue sterling . Some people are saying you may well here carney talk about the division in terms of slack. Is that the key issue that drives sterling . I think the state of the economy is the key issue for them. Different mpc members will be focused on Different Things. Slack is certainly an important factor. The Unemployment Rate has come down. Concerned,terling is putting things in context, it is not overvalued. Cable has been trading well. Terms,eweighted sterling is not overvalued. The imf said that it was. If you look at a broader raft of models, it is still trading close to fair value but not overvalued. The most profitable short trade has been eurosterling. We continue to follow that . It was taking product on our short eurosterling trait but we are looking to reenter at opportune levels. The trade has worked well. It is an important macrostory in the g 10. Is the u. K. Outperforming the euro zone economy . It has done well but we are looking to reenter. Lets talk about japan. We had the biggest gdp contraction in three years. Since 1994. Decline what happens next . Does the bank of japan will they be forced to do more or do they look through the state at and say the Third Quarter will rally through . Posthike will be important. That will be important to look out for, not just the gdp numbers. What is going on in the Consumer Sector in japan. Sticking out, but with wages we, we need to see the earnings power, the wages kick higher to boost the economy. Until then, we will see the yen trade on the back foot. We will leave it there. Thank you very much. 6 26. E in london is market been bad for germanys biggest Utility Company . Welcome back. I am manus cranny. Lets have a Foreign Exchange check. We were talking about the yen before the break. It is going to be a tough call. The gdp contracts the most in three years. The and holds its losses. Dollar rising. Virtually flat. Somethingp has been the market has flirted with. A breakup that would reassert an open move for the market up towards the 103 level. Moving along with it are the euro. Number fourmagical 2014. Tomorrow you will get consumer prices. This market is so short, it will turn bullish. 21 billion worth of bets against this currency. We saw this twice before in the near past. In 2000 20, in 2012 when mary o drawdy said he would save the draghi said he would save the euro. Was it coincidence oh that it bounced in 2012 when mario said he would save it . 133. 33. In a rare agreement with the United States, iran has become the latest country to back alab new prime the minister of iraq. Almalikis refusal to leave office is problematic in part of the country. The reds it needs cross says it needs better understanding of what is in the russian a truck before it signs off on the mission. Ukraine says the boy could beast the convoy could be carrying weapons. Russia says it is a medicine, food, and water. Charges may be filed against former executives of deutsche bank. The charges are related to how executives defended the bank in an investigation over the collapse of germanys kirsch media group. The coceo was charged with attempted fraud. Another former ceo was indicted. They all denied wrongdoing. Breaking news coming from china. This is on the retail sales number. Foril sales rise by 12. 2 july. That is below the market estimates for 12. 5 . Where are the fixedasset investments . That rises. When you take out the rural area, it rises by some 17 . Over ¥5 investment just trillion. It is a miss on the retail sales mark and that come binds with the other views from china is that new credit plunged that combines with the other views from china that new credit plunged. That is the weakest annual new credit in almost 24 years. The property slump and you have a question of whether the target of 7. 5 this year is actually achievable. Maybe the government will have to change policy. Beckoning onready china to hold back from continuing to look at that 7. 5 . Retail sales is a miss and credit plunges the most in 24 years. Lets talk about e. On, germanys largest utility. The underlying net income for the first half of the year, 1. 5 3 billion euros. Estimated 1. 4 6 billion. We have a beat on the underlying net income figure. It is confirmed in its forecast for the year. That is for underlying net 1. 51. 9 billion. This is a Company Seeking relief from the energy of people by investing in emergent markets. Angela merkel has been shifting towards for knowable, await towards renewable, away from nuclear. That is cutting power prices in an already weakened economy within the eurozone. Is pushing, e. On into emerging markets, like brazil, turkey, and russia where it is facing headwind. On an underlined net income basis, earnings have beaten estimates. Lets go over to berlin. Hans nichols is joining us. Your early takeaway on those numbers . We are still looking at it. The beat is important but for context and perspective, last year, the first half was 1. 9 one billion euros for underlying net income. For the number we got this morning, that is what the company will use to calculate dividends. You may see a of in the stock. E. On has pushed outside of germany and to in into markets that are shaky russia, brazil, and turkey. They expect their noneu income to be down by almost 24 . Analysts expected to be down 24 . The top line number looks good. One thing we will be looking at is the what is the noneu income . Will it be around 100 million . That is the expectation. That is half of what it was before. First take looks better than expected. Forow wellprepared is e. On the winter given the situation in ukraine . You can run a variety of analyses of progression and you look at what they have on stock right now, which is a bit because last winter, in terms of natural gas, it was a like winter. In germany, if you assume supplies are cut off from , theye, from russia today would have enough gas in their storage tanks until sometime in february to provide heating. That assumes that half of their natural gas would come from lng. They would have to import more, which would mean much higher prices for consumers. Having thisare discussion, costing things out, looking over the horizon there is a great deal of uncertainty with Energy Companies how they will handle what may happen if the situation in ukraine continues to deteriorate. People are going to Energy Companies because they provide some sort of relief or steady income, given how bad yields are across the continent third one opportunity, but a the continent. One opportunity, but a great deal of risk. Hans nichols in berlin. Thatsolved many fear another cold war could be just around the corner. We asked one professor of economic whether or not anita was Strong Enough and what outcomes might be if the west makes a wrong move. As a result of what has happened in ukraine, other countries of Eastern Europe, particularly poland, lithuania, estonia, all members of nato since 2004, are theeasingly concerned about credibility of commitments made to them to protect them, particularly from the russians. Russia is a great power. It regards the incorporation of these companies countries into the eu and nato as a threat and it is determined to gradually roll that back. There is a great danger that if the west were to try to reassure its eastern allies by sending more troops, there could be a very violent response from russia. From the russian perspective, they were promised that nato would not expand eastward after the berlin wall collapsed. Take the example of south korea. The United States has 3000 troops. In therve as a tripwire event of a north korean invasion , in effect, the United States is at war. You do not have anything like that kind of a physical commitment made in Eastern Europe. Natouestion becomes, does have the wherewithal to defend these countries from russian invasion . The answer is right now, on the ground, no. The alternative would be perhaps to threaten the use of nuclear weapons. Quite frankly, i dont think that is necessarily that he necessarily very credible. It is not clear that any countries of the western alliance would Risk Nuclear War to defend the sovereignty of estonia. After the break, a datadriven decision as mark arnie gets ready to deliver his Inflation Report. What will he what will trigger a rate hike at the bank of england . Welcome back. I am mark barton. Introducing video advertisement as it seeks to broaden advertisement revenue. At drawingfective attention and interaction from users. It will allow marketers to pay each time someone clicks to watch a video. Pushingcustomers are update Software Networking instead of selling more hardware. Cocacola and Goldman Sachs say they will not pay for it quit meant for equipment such as routers when software can make more versatile equipment. They will report earnings later today. Cathay pacific affiliates have decreased. Time to discuss the british economy. We will have the quarterly Inflation Report later. Joining us is sam hill. Atis a senior u. K. Economist capital markets. The top line says that spur capacity not what it used to be, a bit like [laughter] mark barton. Everything i am reading is that everything is hawkish. If they do not revise down, thatapacity of 1 1. 5 , will be free reports and a row where it has been in that level. Of the economy growing, it becomes a poor indicator of when policy will change if the estimate never changes. I think the alternative is they the estimated see down. Given that you cannot be precise, that will be consistent for one member voting for hiking this is think the inflationhe last report where it gets as much attention as it has been doing. It begs the question, what will we be focused on in terms of rate . That is a changing landscape. Or will it be inflation wages . What is the line . Wages excluding bonuses lower than anything on record. The Earnings Data has been very weak. I think that will be one of the of tipping points in terms data over the next few months. Lets remember, this is an inflationcentrica central bank. We have been distracted away from that. I dont see why we should not be getting back to whether inflation will be above all are you bothered by inflation . Given what mark has just said, cpi is just touching the to prove the 2 level. I think there is a good chance by the time we get to the november report, cpi could be comfortably below 2 . I think in that scenario, there is every case of believing that that is too soon for the bank to go. At the moment, we are sticking with the february 1 increase in rates. I think it is dependent on how earnings and cpi and q3 gdp turnout in the next three months. I think the bank will use the data to communicate they have to not made up their mind. Who were the dissenters . You have a note about martin weill, who has been vocal, you say he might not be the first to center . Ian mccafferty has been mentioned. You are not going for weill. Why not . I think the default thing to do would be to assume that weill would be first but he, more than anybody in his recorded remarks, has said the Earnings Data could tip the scales in times of his oh. If my forecast is right, Earnings Growth will be negative year on year. If that does not tip the scales, i think he would have explained to do. Where i think mccafferty has talked about a more structural toto productivity hit productivity and spare capacity. In many regards, i can see how he might go first. Interesting we dont talk about geopolitics in u. K. Economy like we do with the eurozone and Eastern European nations, which are affected by what is happening between russia and ukraine. We trade with the eurozone. Should we be focusing more on geopolitics . Or is it not as important . It clearly could be very relevant. Im sure there are some auto manufacturers who would be concerned. I think at this stage, it would be difficult for us and the npc to quantify what the size of the trade flows because it isd it having an impact on germany and other nations. Is there a need for carney to cited . What he could do is raise it as a concern, as a way in which you could reinforce the idea that the next three months are the opposite of forward guidance. It is getting the market out of the habit of thinking that rates wont change. He did a Mansion House speech, which was to persuade markets that rates will change. He was the one that introduced it and now we are going opposite. Bring back voluntarily volatility. Question, dollarsterling has come back from the Mansion House speech. You think that will pump higher in terms of sterling . The market has given all of that back. Where are we with the debate in sterling in our economy and the u. K. Economy . Basis,adeweighted sterling is not that expensive or strong. There is potentially more on the upside. How do sterling play into the way you look at the u. K. Economy . I think if it appreciates much further from here, we are constantly out of the range that we have been in in the five years of the crisis. I think at this stage, the bank should be concerned about allowing it to a prissy too appreciate too much because of what it would do to external demand and the rebalancing story is a key part of the outlook. I dont think they want to let it appreciate too rapidly. That is consistent with their limited rate hike story. Lets see what those words of wisdom are from mark carney later on. Sam hill. Stick with us. We will be bringing you more from mark carney and the quarterly Inflation Report when he starts speaking at 10 30, london time. Up, Manchester Uniteds new manager is welcomed by adoring fans. What other fans do they have . Welcome back. I am mark barton. The time is 6 52. We are talking longer. There will lager. We cannot have it at 6 53 in the morning. There is no picture because they knew they would make me thirsty. A study done this week involving 138 very lucky volunteers tested distinguishy to between the big lagers. Ofy were given three glasses beer, blind testing. Two were identical, one was different. They were unable to distinguish. Shock horror. The reality is that in blind testing, taste pretty similar. I agree they all taste the same. That is why i am looking for english lager. Lager. Ish is there such a thing anymore . Yes, there is. I am not supposed to do product endorsement. They came to the conclusion that it is a commoditized industry. Big brewers are distinguishing themselves with labels. I will point out that this research coincides with the fact there is a big beer festival underway not that i have been there yet, but i intend to be there. They are celebrating real ale, surprise, surprise. Have you got your tickets . I was hoping i could say two weeks on the lagers. There has been lager involved. His family is away. King louis has arrived. Ofis van gaal, manager manchester united. His first home game last night. They love him. I love him. We are very happy. Valencia 21. The season starts on saturday. I will be harping on. Here we go. Are you ready . There was always a critic and football who have we got today . Mine is actually quite a songbird. The vast majority of the United Kingdom have been threatened with a have been told that they are threatened by islamic terrorists. Eight out of 10 believe there is a domestic threat. 40 of those polled say they isisto join in bombings on soames. We have a guest who says they risk is exactly that. Chinas credit plunges to be lowest since before the financial crisis. Standoff at the border. Ukraine blocks a convoy of 280 trucks that russians say are carrying humanitarian aid. Japan contracts. Most since 2011 as consumption and investment plunges after the sales tax hike. Clue. Rate rise the bank of england will reach will release its quarterly Inflation Report, giving us insight into mark carneys next move. Welcome back to countdown. I am mark barton, joined by manus kick joined by manus cranny. Saysrucks which russians are loaded with food and water are poised to enter ukraine. Ryan chilcote is here. Or are they . Towe are certainly poised see a standoff when they get close to the border. Ukraine says they believe that, in those trucks, instead of humanitarian aid, there may also be some weapons. The big concern from the ukrainians is that this is a trojan horse for the russians to expand their military presence or introduce a military presence in the east of the country. The interesting thing is that red cross,tional which was supposed to have been part of this russian arrangement with russia sending humanitarian aid to easter ukraine, they too are apparently getting cold feet. We said that we needed some theification regarding political steps that need to be implemented prior to a largescale operation. The russians have been clear. They feel that the people in the city of luhansk, a city that has been surrounded for 11 days now, without electricity or proper water, Running Water in their homes, that those people need this aid immediately. We shall see if the russians are prepared to wait for everyone to get on board, to check what is inside of the trucks. We heard yesterday the British Foreign minister say late in the day that what the russians should do is pass over the aid to the International Community for the red cross so that their convoy does not even go over the border. We will have to watch this one carefully. I was reading the stories this morning. , part of that alliance was this issue. What is this convoy . Is it a trojan horse or is it just aid . This kind of information sparked a veer let move on the ukrainian currency. Rulent move on the ukrainian currency. One treasury minister, central bank official, there was talk about war. People are equating the arrival of this convoy with the beginning of a proper war, if you will, between Russian Forces and Ukrainian Forces in the east of the country. Have 16 billion of foreign currency reserves in ukraine. Three times that in the last seven days. They are using their reserves to defend the currency unsuccessfully, as you can see. 6. 5 down, the worlds worst performing in bad shape. Worstperforming emerging market currency. It is in bad shape. You did see a little bit of a selloff on the back of the pressure. Too. Down ninemonth low. 109. The glut of oil. Micexhave just seen the open now. The ruble is self also begins trade now. Nothing like a little bit of current information. Up to date, on the ball. It is amazing. A fresh start market just opened. In the beginning of the day, we are talking about easing of tensions. We think markets are going to rise. You have been doing this 25 years. Things are doing things are happening so quickly. You almost cannot label each day. Yesterday, very hard to it was very hard. I love what you said earlier. It is either going to be the thing and it shows decent and it shows deescalation it is important to be fair about this. We have no proof that the russians have any nefarious or ill intentions with this humanitarian aid shipment. Certainly i providing the aid, if you think about it from a Public Relations perspective, it is helpful for the russians and the people in Eastern Ukraine, if need be. It looks good at home. I am saying that people, that perceptions are important. Everyone that is engaged in public activities always thinks about perception. This could be a Bridge Builder with the west. The west might not like how russia is going about this with the convoy. If it is seen as constructive, if it is not a trojan horse no smoking gun. This could be the deescalation that germany, the european union, the United States it would be wrong to jump the gun. But as you say, it is possible. We are just going to have to watch that convoy. If you want to watch something on the markets today, watch the movement on the convoy. If youfirst time there was aajevo, convoy of russian peacekeepers that was important as well. From one geopolitical hotspot to another. The iraqi Prime Minister has lost a Major International supporter. In a rare agreement, the United States, iran has become the latest country to back his successor. s resistance to the threemonth political stalemate in baghdad led the islamic militants to cross into iraq. Meanwhile, the u. S. Has continued to attack his positions and the u. K. Royal air force has dropped humanitarian aid to civilians displaced by the militants. Lets focus on china. Japans gdp as well. It contracted the most since three years ago. Zeb eckert is in hong kong with the details. I suppose the sales tax was behind the big plunge in gdp. And you guessed correctly a big punch indeed. We are talking about gdp shrinking at an annualized pace of 6. 8 . Through june, it shows the extent to which the sales tax increase impacted the japanese economy. We saw investment and consumption stalling. A key reason for this is the fact that japanese wages are not keeping pace with the rise in inflation. The government is working hard to try to pull the country out of the last decade, if you will. Andflationary environment achieve that price level. It is slow going and there are many skeptics that japan will not be able to achieve its intended goal. We saw output falling the most since march of 2011. Again, that is the time that the devastating earthquake and Nuclear Crisis hit japan. It is certainly worrying. The government is set to raise the sales tax again next october. That is not a done deal yet. A whole lot of data out of china. The one that stands out is news on the nations credit gauge. We saw a surprise plunge. Why . This one having a big impact on the markets today. Chinese stocks trading in hong kong are declining. The shanghai composite down the most in a week. Credit growth dramatically dropped in the most recent period. Financingggregate falling to a level of 44. 3 billion in july. It fell well below the economists estimates. It was not the only metric that fell. Andaw a new yuan loans money supply not at the pace that the government would like to see. Investors today responding with a modest selloff underway here. Zeb eckert in hong kong. Later today, the bank of england governor, mark carney, will present his Inflation Report. His words will be closely listen to for any hints of a rate hike. We have had this summer station with the rbc as we begin to focus our attention. One is about spare capacity. Sam hill said that is so hard to judge, how much time there is in the economy. I have read reports which say whatever carney says, and this is what ubs says, he could highlight that you have divergent views. You do. Martin well has already said there is less slack in the economy. The question is, is there another layer on top of that . Dissent . A myriad of that would bring forward the possibility of a hike sooner. Been 1 said, it has 1. 5 for 3 quarterly Inflation Report. Is it time to narrow the band slightly . Wages are the lowest they have been on record for the past quarter. Then you look at the inflation. Umber edging up where will they revise their Inflation Expectations . It is not a massive deal, is it . Citigroup said that even though wages have dropped and that is important, it is actually not enough. , have aon why he says look at dollar sterling. It is more or less that to where it was when carney made his speech and ramped the market expectations. It has come all the way back. It has come back since, hasnt it . I quite like this piece. I number of people working for themselves, doing it for themselves has moved. 14 of the economy is selfemployed. Is that a positive reflection or a negative reflection on the state of employment . Of course, we will get data today on wages and unemployment. Stay with bloomberg today. We are going to bring you mark carneys Inflation Report live and in full. Do not miss that. And ahead of the bank of england Inflation Report, we at what it would take for mark carney to surprise the market. Stay with us for that. Time for todays company news. Alibaba is selling its Small Business lending arm to the company that already controls payments. The move shows the company separating itself from the last of its financial units ahead of an ipo next month. It takes the risk of those operations off alibabas balance sheet. King digital falls 26 after posting secondquarter sales that trailed estimates. The company also cut its 2014 outlook. It is working to develop a wider assortment of games as the number of players of candy crushed declines. Sonys global sales of playstation 4 has hit 10 million. Earlier this month, theys they posted a surprise firstquarter profit as sales for game consuls beat Microsofts Xbox one. Joining us now ahead of the and as theeport geopolitical tensions continue to escalate is stephen is stephen cohen. We have talked about slack in the u. K. Economy. We have done that one. Lets say they cut the estimate to sub1 . What does that mean with regards to rate expectations . It mean the economy is plainly improving . Does it mean we will get a rate hike later this year . Will it mean a 2014 rate hike ahead of a 2015 rate hike . That was the first time that rate expectations shifted to november. Since then, we have seen rate expectations shift back. It is kind of a 5050 market right now. For us to shift back towards november, two things have to happen. You need to see some significant of a stance around slack and wages and is this temporary . Between aould expect stronger labor market and wages. Weakness in wages temporary . Some signs they think that might be the case. The second one is what is going on away from the u. K. Of ratesacross all markets, you have seen a more dovish stance on the markets. That is being driven by the geopolitical concerns. Are you a believer in the fact that wages will pick up in the second half of the year . Maybe this time it is different . That i cannot talk about. Potentially yes. There could be some signs. When we look at the surveys, they indicate that you should see wages start to pick up. I think there are a lot of changes going on around the economy. You mentioned selfemployed workers. We have seen a big increase in parttime workers. We are seeing the same thing in the u. S. As well. Record job openings in the u. S. And yet wages have not moved at all yet. There is a lot of change going on in these economies. Some of these historical things are not necessarily where they were before. On balance, we expect that we should start to see wages pick up towards the end of the year. Take what we have just discussed and put it into the context of high usage. You are looking at negative yields and treasuries. Backtrack and say the bond market is fundamentally being driven by low expectations in terms of inflation. Is that fair . I think they are being driven by a lot of Different Things altogether. If you put those things together, clearly you have uncertainty on what will happen around the u. K. I would very much distant which between what is happening in the u. K. , what is happening in europe. We are talking about centralbank convergence. That is a key theme as we go forward. We look at what is happening in europe, negative yields. Inflation expectations are collapsing. The search for yields come this is something that we heard yesterday. Negative rates in germany, declining rates pushing markets further forward in terms of the search for yield. You are going to grow more bubbles. I think this is one of the risks, yes, definitely. ,s rates and yields come down we are seeing investors move into credit. Yields everywhere are very low. ,t does push people particularly here in europe, which is the one area where it is difficult to see any shortterm or mediumterm change in the environment around Interest Rates and bond yields. As a result of that, it does push investors. We have seen investors going into emerging market debt as an example. I want to ask you about ishare flows. You are going to tell us where you are seeing money heading in your etf division. He stays with us after the break. Welcome back to countdown. Still with us is stephen cohen. Thank you for staying with us. We are going to get very american now. Alk to me about flow a lot of risks on the table. Everything is moving. Russia, ukraine, the fed. Where is the flow of money going . Equities, bonds, yields . Generally, we have seen an element of risk off. We have a lot of risk on the table. Volatility is very low. Liquidity is very poor. The combination of those factors, we have seen investors will money away from where money has been concentrated. U. S. Equities, a lot of money coming out of u. S. Equities. Some of that going into u. S. Treasuries. That is a natural risk off trade. Money coming out of high yields. Ask you this . The dax with its correction, paris as well. But the u. K. And switzerland and the americans have not had those kind of washout corrections. Is that something that comes in the second half of the year . Obviously, those markets are resolved more strongly. The europeans are a lot more vulnerable. Ofaine and the deterioration european data. U. S. , a lot of it depends on the fed. Fomc and the next round of payroll data, etc. Going back to what we said earlier on, with ukraine, we have seen this move down in yields. We are getting the same thing in the u. S. On the back of what is happening in geopolitics. That is going to determine more what happens. Outflowsaw the biggest for a year. Is it a oneoff or is this a realization that the highyield bubble, which many have called, is finally, whatever word you would like to use . I am not sure it is bursting, but a lot of investors have been heavily invested in high yield which can be expensive. The credit environment has not changed. Rates are as default low, we are ok. I think the fundamental credit cycle is still in tact we are going to be ok. I will be going to see more volatility in the spreads. What is happening is interesting in the context of this year. We are starting to see a lot more rotation. In january, we had a lot of investors heavily into japan. Japan, the correction. , but it is go on great at you with us. Stay with us. Welcome back to countdown. Time for a Foreign Exchange check. Where should we start . Lets have a look at dollaryen. Not a huge amount of movement. Has been declining for a second day. We are almost unchanged at the moment. The gdp data came down, the biggest contraction in almost three years. It has flirted with the 200 moving average. One thing to bear in mind is that the deflator actually rolls by 2 . 19 first increase in quarters. That might take a bit of pressure off the back of japan. We will cross over to the euro. 1. 3333. The eurodollar bouncing off of its lows this morning. This market is so bearish, according to pimco, that it is bullish. It is oversold, overdone. We have not seen positioning in junes since 2010 and of 2012, when mario draghi said he would do whatever it took to save the euro. Pimco saying it will rally. I am mark barton in london. Here are the top headlines today. In rare a rare agreement with the United States. Iran has become the latest country to back the next Prime Minister of iraq. It is a blow to almaliki who counted on iran as a major backer. The red cross says it needs a better understanding of what is before its aid convoy signs off on the mission. Hundreds of trucks from russia are near the ukraine border. Ukraine says the convoy could be carrying weapons. Russia says the trucks are carrying food, medicine, and water. Againstinal charges three current and former chief executives of deutsche bank. A person with knowledge of the case said the charges are related to having executives defending the bank in litigation over the kirch media group. Coceo was charged with fraud and former ceos were indicted. They all denied wrongdoing. Geopolitical tensions are driving sentiment at the moment. But how much of a risk does it posed for companies . The director of global risk analysis and controlled risks joins us now for more. Great to be with you this morning. When you look at the landscape of what is going on in the world, iraq, ukraine, russian , your centralrica tenet when it comes to risk is preparedness. Absolutely. Different Companies Face different risks in different markets. Different companies have different Risk Appetites as well. What they all have in common is that they prepare before they go in. That involves understanding the threats that face the business in that market. It could be an extreme risk in terms of securities, operating in iraq, libya, syria. Or it could be around corruption, bribery, social risk. It is about mitigating against that risk. Give me a sense of what that involves. Report collect a collate a report. I am a big business. I want to think about expanding my business and a variety of hot spots. What do you do for me . We help you map out your footprint and understand the risks that you face as an organization based on the industry you are in and based on the kind of partners you are dealing with. Public officials in certain markets would present a different risk for private companies than others. Obviously, there is a Security Risk in many markets. A lot of what we see in the news at the moment, we think about iraq, pakistan, afghanistan, those high risks, obvious threats to physical assets to your people on the ground. Risksk the longerterm might be less obvious. It is preparing yourself against those. What kind of risks are they . Oneorruption is the big which is on the radar because of legislation and tougher enforcement. Risk. Areas around social so your company is looking to set up in subsaharan africa, working in the energy, construction industry. You are going to need to work with local communities. If you do not engage them, that can present a Security Risk for you. Clients reassessing their exposure to some of the countries that are in the news . Ight now are they reassessing their exposures . I think those countries which are operating in iraq are some riske most obvious extreme jurisdictions and are aware of this and are prepared and have taken measures to mitigate the risk. This will have been something they have seen coming. The challenge arises when you have unforeseen events. Which throws everything out of kilter. It is how you respond to that. Will there be other groups, other countries that could pose the same threat to their craft at those sorts of heights . Exactly. That was an unforeseen threat, but it has prompted Many Companies and Many Industries to take a very quick and sharp look at the exposure they face to that risk. Typically, we are working with companies trying to understand the likelihood or the possibility that that could happen in other parts of the world. Can you tell us what you found or what you have uncovered . Is there a likelihood of it happening elsewhere . We think that it was a very unlikely event you have occurred. Probably some other jurisdictions around the world where there is the potential for that to happen. But the downside is so huge that, in many cases, it would be highly unlikely. There may be other groups out there which are looking to raise their profile in hitting soft targets. At the moment, we think there is a greater risk for other threats. Who are your biggest clients, the biggest users . It industry, engineering . Who need your input the most . Where are the voids of knowledge . If you think of the classic pest analysis, where is the biggest lack of knowledge . We work across all sectors. We tend to work with those companies that have a slightly higher Risk Appetite and have a more venture is geographical footprint a more adventurous geopolitical footprint. Ontend not to focus in some areas, but we do work with financial institutions. Can you tell us about ebola . Fear is thata, the it will spread. I sure you have done some analysis. What are the risks of its spreading through africa and further a field . As a company, we control risks focused on political, operational, and Security Risks. We have a partner who is one of the Worlds Largest medical providers. They provide their clients and our clients with medical advice. We see ebola as a huge concern because of the relatively low levels of awareness around sanitation in west africa. The virus it self is actually quite easy to kill and prevent. The worry is about travel and the movement of that virus. Across the continent and beyond. It comes on our news dealt very quickly and goes to the top of the news belt for two or three days, a lot of pictures. You were to rank the biggest risks out there that we have many,d, i know there are which is flashing the most . Please help us with this because we need insight. Many companies are just used to this. For example, they appreciate that the measures they can take are quite straightforward and simple. Placeave Good Measures in in understanding where people are. They will have some way of tracking their travelers. It is difficult to rank them, causedferent risks different problems for different companies. Do you have an overriding gauge of risk . We talk about geopolitical risk every day. If there was a barometer to gauge where we are when it comes to risk, would it be relatively high . One through 10. Perfect. We do not like numerical ratings. Give us a sense of where we are. It feels, at the moment, around a 7. 5 or 8. That gives us a sense. These are recurring themes. Israelpalestine, these are recurring, i crises. Was there a 10 in recent times . Probably and 11 for some countries operating in certain markets. It is a major worry. There is always something that companies are worried about. It is about being prepared. Preparation is everything. Tell me about it. Thank you very much that was a really insightful discussion. Here in london. We are 20 minutes away from the start of todays session. Germanys biggest utility reported earnings down by 20 . We will take a look at why next. Welcome back. I manus cranny. Time for some company news. Twitter is advertising is introducing video advertisements. Draw interaction from users. Will let service marketers pay each time someone clicks on a video. Customers are pushing to step up into the network. Instead of trying to sell more hardware, companies are telling cisco they will not be paying for expensive equipment such as software to squeeze out better performance and Bank Machines more versatile. Beat estimatess g4s. They say demand has been strong. They are the Worlds Largest security firm. Germanys biggest utility, e. On, reporting a 20 drop in profit earlier today. Hans nichols has the story behind the numbers. Talk us through it. Well, they were clearly hit by currency swings. Currency swings in russia and turkey and result. Yes, it is a 20 drop. The expectation was for a 25 drop, so it might not be as bad as many analysts were expecting. You look at underlying net income, which is what e. On uses secular dividends. To calculate dividends. Clearly, a beat. Sales down. Overall, slightly negative position. But it was not as bad as the expectations were. They confirmed their outlook for growth. It is still on the downside. Not as bad as many were anticipating it to be. What we have is a company in transition. They have tried to get out or expand beyond the German Market with all of the Energy Changes and a shift towards renewables. They are looking for areas like russia, turkey, and brazil. Thathappen to be countries have been hit by currency swings. Some say the growth will be slowing in turkey and obviously in russia. That will have a negative impact. The company is trying to make the switch. The numbers are not great. A are not horrible. The stock is up about 1 this morning. Curious to see how this trades this morning. How prepared is e. On for the winter given the situation in ukraine . Utility like a lot of companies in germany and across europe, are in a pretty good position if you consider it historically. A five or sixyear high in terms of their stockpiles. If the gas is shut off from ukraine, gas will run out in germany in february. Assuming you are able to get , but thatur supplies needs to be brought in by container ship and will lead to higher prices. The coming months, you have to look at the situation in ukraine and see how it will affect not just their earnings, but what the winter is going to look like in central and western europe. Thanks a lot. Hans nichols in berlin. What is the winter going to look like . That is the big question. Ahead ofthe futures one mans quarterly Inflation Report. That is mark carney. We will look at what else will drive the trading day. Stocks focusing on the positive. Welcome back to countdown. We are having a big discussion here. Word,k i might have said not page. Mark barton has been listening carefully. Mpc . About the it will be interesting to find out if anyone did dissent. You might get a signed if he talks about whether there is any division. Cut, it did it implies dissent. You talk about being data driven, what is it based on anyway . If it is driven by the data, what data . Just 12 months ago, we sat outside the bank of england talking about forward guidance. No rate rise until unemployment drops below 7 . He implied strongly that would not be until the middle of 2016. To be fair, things have moved on. But we have to learn that this man does not have a crystal ball to a crystal ball. This is one thing, dollar sterling had managed to go all the way up and trade back to house speech,sion which says that the market is not pricing in the near term. Say its for ubs, citi will be the First Quarter next year. Sam says february still. Thank you. Have we got here . The fellow we spoke to from rbc. Going to be a fascinating meeting. Should we talk about japan . Talk a little bit about this. We have a contraction. The biggest one since the only good news is that it was not as bad as many had predicted. Annualized, you have negative 6. 8 . Spending is a miss. It is down by a large percentage. This is on the back of the sales tax hike. I said good job of not having a big debt load because they might have to raise taxes again. The problem is, they do. To try tok to mr. Abe do something here . Not raise taxes . This will come down to kuroda again to do more. At the start of the year, the most every single fx strategist would say more stimulus this summer. Have not heard a word on that the last two months. With these numbers, you may start hearing that again. If the economy does not rebound in the cert in the Third Quarter, if we get a flat or contraction, possibly more stimulus and possibly no sales tax hike. It is a couple of percentage points. To 20 . That did not exactly endear a lot of businesses. But the economy did not drop off a cliff afterwards. They are horrific numbers coming out of japan. Net trade contributed to growth, contributed to the economy. Not fall ass did much. I have got to talk about this because i have a stack show coming up at the top of the hour. A man who mpc member, yesterday, hikes never mind early next year. What is the argument there . Butployment trending lower, wage growth is absolutely terrible. And what do you say to the doves . Who will be the first to dissent . That is what we want to know. I will put that question to him. Rbc, rbc. More action from the open. Stay with us. Welcome to on the move. I am Jonathan Ferro here in the city of london. We are minutes away from the start of european trading. I have a stacked show for you today. We know what he thinks about race. The bank of england is pushing for a hike already. He is talking already, nevermind six months. Is ryantalk with me chilcote. One of the Biggest Forces driving markets may be a collection of 280 russian trucks. The kremlin posture controversial convoy is getting closer to the ukrainian border. I will break down the geopolitics and what it might mean for you. Hans, over to you. We will be looking at eon, the German Energy giant. Their sales are down 13 . Their profits are down 20 . Expectations were down for 25 . It looks like they beat estimates. We will see what the stock does and we will look at their global strategy as germany moves towards renewables. Itkulik the data and you see japanese hopping gdp dropping the most since 2011. Futures are higher. The dax pushing forward from. 6 . Toi am going to go back dollarsterling. I think that is where the action will be. You see here at 1. 6824. Where we were when mark