Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20170322

Welcome to bloomberg data rate europe. Daybreak europe. I am anna edwards. Matt i am met miller in berlin. Really exciting time following the d g20 two in Bodden Bodden badenbaden. And here onn berlin their daybreak show, good to have you on the program. Lets characterized we saw in u. S. Equity markets. Substantial loss of 1 coming through on the major u. S. Indices you do you say this is a questioning of the reflation trade, a questioning of the trump trade . It depends on a extent to which you think the trump trade was priced in. You saw indices to look at help here. De us through this is companies that have high tax bills and in the blue we have companies that typically benefit from share buybacks which might get a boost and he might see that repatriated. Neither of those categories are stocks have been doing all that well since the middle of january. Neither of those are what you might call trump trade have benefited in the month and a half or so. What has been doing well are the companies with Big International businesses. Interesting question to what this buildup was a out in the first place and is it being unwound . Lets recap on the risk rate or. What happened in the u. S. Yesterday . Investors is where can get that. Take a look at this drop. S p 500 falling 1. 25 . First time it has fallen more than 1 since last october. We had the financials leading the way, the Biggest Industry Group on the s p down almost 3 . The 10 year yield is unchanged, 2. 41 . The 10 year yield has fallen for basis points each of the last three trading sessions before this. The yield has come down on u. S. Debt. Speaking of coming down, crude 1 atlow 48 a barrel off 47. 85. Lets get the bloombergs first word news. For that we go to Juliette Saly. Hasette China Central bank rejected funds by open Market Operations for a third day. That injections to around 16 billion. That is after the benchmark money rate climb to the highest since april 5 15 and smaller lenders are making payments in the interbank market. Japans exports rose for a third consecutive month in february beating expectations as they grew by 11. 2 from a year earlier. The increase was the biggest in two years reflecting the timing of Lunar New Year holidays in asia. At the same time, imports increased by 1. 2 leaving a trade surplus of 7. 29 billion. That is as strengthening Global Demands continue to help the nations moderate economic recovery. U. K. Has joined the u. S. In running laptops and other Electronic Devices in airplane cabins from middle Eastern Countries and it concerns of their security. Flightsnt inbound will be affected by the ban on laptops and tablets. Phones larger than normal sized bubbles or smartphones will also be forbidden. Neil gorsuch has said he would not hesitate to rule against president donald is the lot required it. He refused to say whether he would uphold trump spanned on travel from the six predominant muslim nations. Gorsuch told a Senate Confirmation hearing he has made no promises to about how he would rule on any issue. No one in the process for the time i was contacted with an expression of interest for a potential interview for the time i was 20 the time i was nominated. No one in the process as me for any commitments or promises about how i would rule were in any kind of case. Juliette global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. Not a great day for asian equities when we woke up to that selling that we saw on wall street, it was going to look fairly ugly. Stocks in hong kong also being sold off ahead of some important pingans from tencent and insurance. A lot of analysts saying this was the correction that we had to have because the regional index yesterday was trading at a 21 month high. Many markets including korea with multiyear highs. Lets look at some of the stock damage in the region particularly saw the chinese banks under pressure. I mentioned the story about the pboc flooding the market with liquidity. First check a Korean Defense start rising on reports that north korea fired a missile that failed early this morning. Fortescue metals group is falling the most since december. We see iron or tumble although analysts are saying it should not fall much further below 90 a ton. Having a look at these this g chart, i mention that big rise that we saw in exports in japan. That is how you stay on the graph the third month of prices of exports. As we start to see offshore demand for japanese exports start to come back in. The biggest gain in two years and snapping that 14 month losing streak. Anna and matt. Anna thank you. It was a rough day for u. S. Markets. We have been discussing it. We saw the biggest selloff in equity since the election of donald trump. The of for a over the trump trade may be beginning to wear off since investor attention is uncertain about the policies. Down into therill sector moves on the s p 500, the grr function, the hardest hit were the banks. This is a teaching moment for this are you the bloomberg. The s p is woken up into 158 groups but if you type in the x andall terminal sp break it down. I will choose a oneday here and you can see financials the biggest losers, material, industrials and so forth. The only gainers were the utilities. Cio at j. P. S the morgan. What do you make of it and what do blame for it . Just the equities have had a tremendous run your today. Some consolidation is frankly inevitable. It, investorsat are little bit concerned, i am waiting for some of the details about u. S. Economic policy but this should be seen firmly as a very any correction. Anna does that mean theres a bigger one to come . This is your bread and butter in aroundets, expectations trump influences all assets. Guest it is a step back. Of flight inflation is robust not just in the u. S. But on a global basis. In fixed assets, investors should be buying them, not selling them. Anna lets talk about where the fed story goes. Trying to work out where the trump policy is going to had an and loretta masters said she a high at every fomc meeting but expects rates to increase. Lets have a listen. View, i would be comfortable changing our reinvestment policy this year. Reinvestment is a step toward reducing the size of the Balance Sheet and returning its composition to primarily treasury securities overtime. Anna loretta masters there talking loretta master talking about ellen sheets. What are your expectations around the fed and the Balance Sheet specifically . Guest we think the fed will move rates four times this year. They have done a brilliant job. The cap the option audi. Of 4. L be a minimum so three more hikes. Think how they repriced the march. Expect the same when you look at the june meeting. Rate hikes, then they will start to think about the Balance Sheet and probably the first thing they will look at there is the reinvestment of mortgages. Maybe that is the first thing. Are why is it if we increasingly convinced the fed is going to raise rates and i am looking here at just three days is,he 10 year yield which the slope is down at least and the real rate here in white which is obviously very low when you take at inflation, why is it that the yield comes down and we are sure that they will raise rates three times, is it more of a supply issue for bond wires right now . Guest i think markets are pricing a little bit of concern about clarity, Economic Policy in the u. S. There is still that worry list when you look at europe, treasuries are the flight to safety asset. It also reflects the fact that when you look at policy in the u. S. , it is still too loose. And policy should be tighter. When you look globally as well, treasuries are still a highyield asset. Look at that treasury yields versus the year yield on the 10 year bond. When you look at that treasury yield where do you expect to see it by the end of the year . Test by the end of the year it will be around three. 5 . That sounds super aggressive today. , strongerhe outlook growth, stronger inflation, a fed that will hike four times this year. Probably other Central Banks by the end of the year thinking of raising rates. Together, around 1 higher. How does that influence the forecast, how is that influenced by how we see fiscal policy paid for in the united states, is this a part that we do not know about yet . Guest when we look at fiscal policy our expectation is around 1 to u. S. Gdp. How is it paid for . Probably debt. You could have the u. S. In nominal terms, gross and inflation together growing around 5 to 6 . So of course that is an economy that can easily cope with more debt on the fiscal side. Anna a little more debt would not worry you. Absolutely. Our guest stays with us for the hour. It is 12 minutes past six and london. Later in the show we will be joined by the chairman of bt. Very much looking forward to that. He had a lot of experience in a lot of companies that will be useful for our viewers to hear about. I want to talk about exports and this time not the u. S. , i am talking about japan. Drum, banks the trade what does it mean for its recovery . It is big. This is bloomberg. Anna welcome back. This is daybreak europe. A 16 a. M. In london. That is not the worst of the lot in the asian session. We have japanese markets down by 2. 1 right now on the back of some of those moves exacerbating they weakness we saw in u. S. Equities that have spread to the asian sector. Here is Juliette Saly. Juliette Goldman Sachs and Morgan Stanley are preparing to shift operations as the u. K. Readies for brexit. Goldman sachs is considering making frankfurt its hub inside the eu and could move as many as 1000 employees. Morgan stanley is scouting for office space in frankfurt and dublin for an enlarged eu hub. People with knowledge of the matter said last month. Shares have fallen in afterhours trade after posting sales that trailed estimates in the third quarter. Revenue rose 5 to eight i 8. 43 last quarter, 40 million less than what analysts expected. Nikes losing market share to under armour and adidas. Shares have fallen five more than 10 in the past year while the benchmark s p 500 has risen 14 . Ibm the ceo has highlighted its cloud business, china, and the changing American Workforce as key Growth Opportunities for the country. Sees Government Policies. The Current Administration sees workforce develop men as important so i am pleased about the focus theyre putting on this. Takata shares are falling. According to people familiar with the matter, it will respect customers recommendations including whether filing for bankruptcy is part needed as part of the restructuring process. A spokeswoman declined to comment. That is your Bloomberg Business flash. You, Juliette Saly with everything you need to know about what is happening in business news. Lets talk politics in france. After the third tv debate, polls suggest that macron was the winner. He gained slightly while le pen fell slightly. Newspaper published details of his financial ties to the russian government and prosecutors broadened a probe into his affairs. Our guest is still with us on daybreak europe. Looking to the French Election trying to work out what kind of government we will get in france, what kind of threat that might pose to the existence of to overstatethat things a little bit. This is a chart that is available on eu go. Macron the polls have ahead of le pen. We seem to be making the most of things. What impact does this have on your world, on the fixed income world . Guest a thing a few things to watch. French bonds by the thing to watch and so is their euro. That was the big mover yesterday. A big part of that you can tied back to the French Election polls right now. Anyeuro will swing but increase in macrons support will be positive. Anna is it waiting until we get definitive results from the election . Guest 110 seems to be on the cards right now. Matt i am looking at the frenchgerman spread here. It is blown out, this is over the last year. Come back in just a little bit and markets think it is less likely that le pen will win so that asymmetric risk is a little bit less important . Guest it is very much so. When we look at this program out one of the lessons we saw from 2016 is it gets a lot more intense as you get to the poll which is a the 23rd of april for the first round. Why investors should be looking at buying them. When you look at french bond relative to germany they do look attractive. Matt japans exports rose for Third Straight month in february, a boost from that Lunar New Year holidays, increasing by the most in two years to 11. 3 , beating the median estimate which was at 10. 1 . The reading will come as welcome news for Prime Minister shinzo promote a touring to trade you with the eu. I saw him in brussels yesterday. We are joined from tokyo by brett miller, bloombergs head of japan economy. Talk to us about in this world trade, fallingt global trade, what is behind the growth in japanese exports . Brett the chief source of growth for japan has been china. Strongeally string increase in exports to china. When we look at february we saw exports of order parts going up and computer circuitry took to hong kong increasing. We saw some increase in sales to europe but they were quite weak relative to what we sow is china. We do hear a lot of talk about protectionism and it is a risk for japan. The last four months seeing increases in exports to china and that is helping the economy. Can we flesh out a little bit more the risks on the horizon for japanese exports . Does it depend to the extent that they can we balance out any sluggish exports to the u. S. With bigger exports to china to china . Bret right they will be looking to increase experts to the uris the u. S. And europe. The risk of protectionism and that talk to me from the Trump Administration is a big issue for Prime Minister shinzo abe. We should see some further developments. We will have mike pence coming to tokyo and he will talk to the deputy Prime Minister about the economic relationship and we might see more developments there in terms of the trade relationship between two nations. That i want to i doubt japanese exports have not always been soaring, they broke through in december. I have a chart here, you can see it yourself on the bling chart. Rg to access this we have been in negative territory for all of 2016, it was recently it came back. How important are exports for the Overall Economic picture for japan and four of a for abe . Brett theyre very important. We look Weak Consumer Spending and poor wage gains. Businesses are not looking to invest in Domestic Production for japan. When we look at growth were looking at the export markets so japan needs the experts to continue running through 42017. If we are to see the modest economic recovery continue this year. Anna thank you very much, brett miller, head of japans economy in europe. Lets talk about trade. When you look at japan clearly the weakness in the and helping to boost the exports story. Which isout the ectr the trade port, this is from a japanese contact, the trade relationships they have very strongly with china and the u. S. And others in the asian region. The weekend boosting trade in this case, is that always the case, it doesnt always seem to be that a week weak currency boosts of the Global Supply chain world . Guest it is a powerful factor in terms of making exports more whattitive with but youre chart shows is the reflation trade in action. This is effectively a proxy for double growth. That is the big change, it is a big chain change relative to a year ago. China looked a little fragile year ago. Stability. If you look at the export markets they are growing at rates above trend so that is great news for a place like japan. It has come a little bit cheaper because of the currency. Matt with the u. S. Looking inward and britain breaking its trade relationship off with the eu, there is a new paradigm in global trade, is there a new paradigm also in global sovereign debt . Does this change the way you look at your investment portfolio . Atst no, when you look global sovereign debt it is interconnected. What investors want are the yields in assets. When you look at countries like japan you have capital outflows into higher yields and bond markets such as the u. S. And there is often a lot more liquidity in those markets as well. Your time. You for great to see you on the program. The ceo of International Fixed income. The continue conversation continues on our radio europe daybreak program. More to come from nick this morning here at bloomberg. A. M. Ime in london is 6 26 and 7 26 a. M. If you are with matt in berlin or paris or brussels. Plans for a second referendum but with growth flagging, could they have a bigger fight on their hands question mark we will talk scottish growth and brexit. This is bloomberg. Matt welcome back to bloomberg a break, our flagship show on bloomberg. Youre looking at a shot of seoul, south korea. We are gaining a little bit here about one third of 1 , some respite for currency that has fallen so much over the last three months. Trading at 11 point 1123. 35 per dollar. Anna lets have a look at where the kospi has closed. Index closing down by just shy of. 501 . In the context of the msci pacific which is falling following on u. S. Weakness. We have the msci asia down by 1. 6 percent also today. Lets check out the other Market Action we need to be aware of. Seeing those losses in asia, the question is is it a true unwinding of the reflation trade or is it profit taking for today . We are seeing asian stocks following the u. S. Session were we saw the s p 500 fall the most Donald Trumps election. You can see the losses across asia, the nikkei down one and 2 . There is risk of a cross asset. The dollar is steady after a fiveday decline. Youre seeing yields come down across asia, 10 year yields down more than one basis point. Metals tumbling, gold higher, oil down for third day. Lets talk about volatility. We have been saying volatility is remaining low but we are seeing it jump back up, look at vix,ove index, look at the nikkei volatility set for its biggest percentage jump since november. Definitely something to keep an eye on. Lets take a look at the yen. The yen is on its longest winning streak in two months strengthening for seventh day against the dollar. Point 55. 111 where is the next stock to fall this currency pair . Equities may have been resilient so far this your but the dollar has not been, it has been steadily falling since the beginning of the year. The dollar index has fallen almost 4 from a 14 yet 14 hit high. Look at the real yield. I have the u. S. 10 year real year spread. The growth in treasury yields in recent days coupled with higher inflation means the u. S. Real yield advantage over its peers is falling, does that make the dollar less attractive . Bank of America Merrill lynch has compiled quite a bit of data showing dollar positioning is fairly neutral. Any upside does hinge on those fiscal stimulus measures. Anna thank you. A new edition of daybreak is available on your bloomberg and mobile. Lets look at the stories that have made it into this mornings edition. The cover story is the trump trade phase, the stock retreat continues in asia. Led by japan and hong kong equities after the s p 500 fell the most since Donald Trumps election more than 1 for major u. S. Indices. His proes among concern growth policies will not go through congress. Matt the next story is the french president ial race. Emmanuel macron rose half a point to 26 according to a survey. Marine le pens support slid. So macron is had. Anna daybreak focuses on north korea. The country tested a missile that appears to fail. Thisefense ministry gave information according to that defense ministry. Laying out the plan to Legal Process for another scottish referendum. They are expected to give their consent low met theresa may has rebuffed the proposal. She prefers to trigger article 50. Prelude tomay be a another fight lying ahead and that is the economy. Since scotlands referendum the economy and government finances have weakened relative to the rest of the k. Grown but moreas slowly than britains. Ets talk to Scott Hamilton bt among chairman of many other hats he wears. And are the main economic fiscal differences between 2014 and now and the scottish conversation . I am guessing that oil will feature. Biggestne of the differences between the 2014 referendum and now is the price of oil. Impact onad a big economic activity. It has affected a lot of downstream industries from the oil and gas industry in the north sea. What we have seen is the scottish economy has grown more slowly relative to the rest of the u. K. It has grown 0. 0 0. 2 while the u. K. Has grown further. Anna how much does that undermined the move for independence . There are other factors here at play. Can trumpitics economics. As we found with brexit and donald trump. While the economy and the fiscal situation has weakened relative to the rest of the u. K. , whether that will play in the minds of voters is yet to be seen. It seems that since there were signs since last referendum that independence has hardened if not increased since the last referendum. The economics the role that economics played is to be seen. Factors will play into whether we get another independence referendum. Other4 et along with Many Companies in the Telecom Sector said it was up to scotland to decide but they warned that the cost of for you for doing with as in scotland challenging topography, that would be an issue and could bring up costs. Guest absolutely. If you look back to the referendum the cbi did report that pointed out that the risk on 90icated oil prices was extremely optimistic. Those at things have changed. For joining us. Lets continue our conversation with what is happening more broadly in the u. K. , brexit is one of the big issues on the agenda, one of the big items to deal with. Your ability to recruit talent and hold on to them . We have said that the impact on us would be in direct area our business benefits to a degree on the weakness of sterling. Depend a lot on people coming in from europe, immigrants from outside europe, with their skills and abilities and we people. N semiskilled i think we see everywhere that that is beginning to happen. The weakness of sterling does not mean in euros, people are not convinced they are welcome here and that is the problem. Wonder what you think about the weakness of sterling here. It has had its worst month in 30 years as far as an absolute level and the shorts are big there. Making it possible that there could be a bounceback if all the bad news is priced in. How do you hedge against the move . Guest it was entirely predictable as the cbi and many other commentators said with the decision to leave the eu, there would be a significant devaluation of sterling. It seems to hold pretty steady. I think there are two scenarios. If i think the market sees that we are getting to engage practical discussions and negotiations with the proper transition time and trade stayingents i could see where it is and strengthening. On the other hand if people feel that the negotiations are not going well or not engaged and i think there is a risk that there is Downside Risk on sterling. Matt from the outside for other companies this may be a great buying opportunity. How do you see consolidation in the industry being affected by the moves and currencies . Guest obviously we have seen some, one or two big acquisitions, one or two attempts at acquisitions, they are looking from an opportunistic point of view. It could be a good moment. As we have also seen, the have annt wanted us to industrial strategy and does want to make sure that Certain Key Industries remain in britain and controlled in britain. I think most people looking at acquisitions are aware that there is a political dynamic to this at the moment. Will talk more about dt bt and where you are at the moment. Financial Services Industry wrestling with what brexit means. What is your latest assessment given we are a week away from the day on which the premise to her will trigger article 50. What is your assessment about Financial Services jobs, they will have to leave in some cases. Guest things are turning out as was predicted. If there is a situation where they are not in a single market, we will not have free labor, it is possible we will be granted a passport. Now. Seeing that obviously banks of had to make contingency plans, people are starting to move to different locations in europe and the u. S. And that is going to be the increasing trend and that will depend a lot on what if anything can be done on measures of equivalents in terms of access to european markets and vice versa. Anna we had a story around Goldman Sachs and Morgan Stanley and others. Other voices tell me there might be some back often movement in a dispersed fashion to various parts of the eu but in terms of the heavy lifting parts of the banking Balance Sheet, certain bank regular readers around europe will not want to have that as an issue on their doorstep and that will they will stay in london. Guest london will remain a Financial Center but the question is will it be the one of the leading centers and that is a big question. ,ill that continue in the u. K. If that car if not, that could have a big impact. We will be less attractive as a base for upgrading and the big american banks have to create scale in the European Union in order to have the passport they need. Has been u. K. Economy resilient more than many had expected in the wake of the vote. We have not triggered brexit yet. What evidence do you see of strain on consumers at the moment, we look at retail Sales Numbers and Consumer Sentiment numbers and there does seem to be a downward momentum, do you see that on the front line in the boardrooms . Guest the economy has been more resilient than most people expected. In terms well prepared of reducing Interest Rates and confidence. We saw that continue. Now we are beginning to see a slowdown in confidence and prices rising, wages are not rising and we are seeing quite a lot of uncertainty that is going to be there in the next months or couple of years before we know exactly what the deal with europe will be. Anna inflation seems to be coming in strongly, perhaps faster than people anticipated. Do you see higher Interest Rates ahead . Guest if inflation is a one off and if we do not get into continuous inflation, wage spirals taking off, then you can hold it down. If at any point in time it looks like inflation is taking off they will have to increase Interest Rates. Anna thank you very much. We will talk more about dt in our next conversation here on daybreak europe. Matt if you are of bloomberg customer you can watch this show using tv as well as the video stream which you get if you click here. You can follow our charts and functions and reach out to the shows directly by clicking send ib to show producers. That is a blue link that you see here at the bottom of the screen. You can be part of the conversation. If you have a question for mike you can click in here, message to our producers, anna and i will evaluate your question and see if we decide to use it or not. Next, the laptop ban. The u. S. And the u. K. Are barring people from caring large Electronic Devices on the flights if they are traveling from certain countries. We will tell you what the new curbs will mean for airlines and global travel. This is bloomberg. Matt welcome back to bloomberg daybreak, the flagship Bloomberg Markets morning show. It is 2 47 a. M. In new york, 7 47 a. M. Here in europe. Lets get a Bloomberg Business flash from Juliette Saly. Juliette thank you. Goldman sachs and Morgan Stanley are preparing to ship staff from london to elsewhere as the u. K. Readies for brexit. According to a person familiar with the matter, Goldman Sachs is considering making frankfurt its hub inside the eu and could move as many as 1000 employees. Morgan stanleys scouting for office space in front for it and dublin for an enlarged eu have. People with knowledge of the matter said last month. Ubs is extending charges on Cash Holdings to more of its customers. Of. 6 onced a charge euro denominated accounts with Cash Holdings exceeding one million euros. Grapplingng those with headwinds on negative Interest Rates and introducing fee reducing fees to clients. Nike shares fell in afterhours trade after posting sales that trailed estimates through the third quarter. Revenue rose 5 to 8. 43 billion last quarter. That is about 40 million less than what analysts expected. Nike is losing market share to under armour and adidas to especially in the u. S. Shares have fallen by more than 10 in the past year while the benchmark s p 500 has risen by 14 . Akata shares fell in tokyo. Collarilling to let makers decide on the companys restructuring. According to people familiar with the matter, it will respect its customers recommendations including whether filings for bankruptcy is needed as part of the restructuring process. A spokeswoman declined to comment. That is your bloomberg is this flash. Anna thank you. The u. K. Has joined the u. S. In banning large Electronic Devices on flights from some middle Eastern Countries. Tablets and laptops must be checked in. Washington soup suggests that terrorists are planning innovative attacks. What has been the reaction in the region where you are . The first reaction is the reaction of compliance, they are identifying a Security Threat and theyre saying we will adhere to that and they have until march 25 until the us to enforce those restrictions. The second reaction has been the reaction of bewilderment. If you can bloat electronics in the cabin what is going to stop you from blowing up the electronics in the hall the hold . Curvesws is saying these are at odds with basic computer science. This is the other element. If you fly to new york them a youre not allowed to take your ipad but is it ok to take your ipad from dubai to london to new york question mark you should not be allowed to board it anywhere in the world if it is a Security Threat. They say the ban will not necessarily make flying any safer. There is a lot of concern that this is going to increase delays at various airports in the middle east especially around check in and security screening so there is that as well. Matt those all seem like negative things, is there any positive out of the story, are there potential gainers as far as the investment landscape . Yousef there is a lot at stake for gulf carriers. If you look at dubai, 80 of traffic does not stop in dubai, it goes through to estimations onwards from here. They had a rough year in 2016 and so they cannot afford any more trouble on that front. Emirates said who needs laptops and tablets anyway . We have great entertainment. This rings of the concept of the idea of protectionism. If you are going to go around trying to lobby against tearing up the open skies agreement that is for more complicated and far more quickly involving. The easiest thing is where you can take away from that connected traffic and point it to frankfurt or london and other European Networks and hubs and american hubs as well. There is that angle to the story. Anna thank you. Here, the chairman and formally on the board at barclays. Lets talk about the busy time you have had at bt, you have been dealing with a lot of issues, the italy situation, rebidding around [indiscernible] as well. A number of issues for shareholders, do you think you will manage to win back shareholders trust . Guest the first of all the agreement is important for the country, very important for bt, it took a while to get the balance to make sure that all the other commercial providers who use or networks feel come to pull about the transparency and investment profile about open reach. That is an important step forward for the country and it is a good arrangement. Our shareholders are happy that was dealt with. Investigationse ongoing. Have you changed in any way already the way that oversight happens on the international to stop this happening . Guest all i would say it is it took 45 months to work out what had happened. We rethink the quantum of that. Why was it that the government cost for seizures, the financial control, analysis, and audit failed to take this up . We have crosschecked various aspects across our international operations. Anna any change in your auditing practices . Guest we have to look at all aspects of this. At various levels it is more difficult to pick up, this was a fairly major front so we need to understand that. We will look at all of our analysis procedures and internal procedures. We have to review our external audit anyway and we will do that. Matt let me ask you about your stock performance, we show this chart a lot when companies underperformed so it is fair to show when the over perform. Tocks the screen on bt s compared to the ftse. Haswell over perform, what bt done differently from other companies in the index . Guest we had a lot of we had the global crisis, we rebuilt the company strongly, we reinvented our company and an improved our credit rating. We were successful in getting into sport content and our retail business, we were able to buy ee at a good price. We maintained dividend profile, we restored confidence in the company. That supported the stock during this years. And a you have reached a deal with the government, is this going to be enough to satisfy those who call for a full separation of overage, is this where the story ends . Guest . Ration would have been damaging. The question is to find the right balance. We are committed to ensuring as has been the philosophy, there should be equal access to all customers of our networks whether it is bt retail or the major or the major smaller providers. We are determined to do that. We have an independent board. They have more freedom of operation and op and. To customers we are able indicate what set of investments they would like to see. We do not believe that we ever interviewed diversely. Confident we will make this work. Number that you flagged was concerns around Public Sector spending on large contract. How much move ability have you had . We have always had a lot of visibility. Given the events of brexit and fiscal riddance and relation to the treasury, we have underestimated what would take up in the quarter. In doing that, there are a number of major contracts unwinding so we are on top of that right now. Anna thank you. Matt thanks very much for that. Great dane great to get mikes perspective. We will be joined by mario monti. T 9 30 a. M. U. K. Time the great guests keep coming. This is bloomberg. Manus the trump trade fades. Follows the u. S. Lower. A trade boom in japan. Exports jumped more than 11 , the most in two years. Can the momentum be sustained . Anna excess baggage. The u. K. And u. S. Ban laptops from several middle Eastern Countries on security concerns. Canada considers the measure. Matt welcome to bloomberg daybreak europe, our flagship morning show. I am matt miller in berlin. Anna i am anna edwards in london. Breaking news. Numbers coming out. Let us get to the french luxury goods company, saying they are confirming midterm goals for revenue growth. Income. Ion net i they are publishing this on their website. 220. Timate was. Et us get to kingfisher they are talking about the e. U. Referendum having created uncertainty. They remain cautious on the outlook for the French Business but looking back in terms of what the numbers are they have given us, adjusted sales of to be exactly in line with estimates at 11. 2 billion pounds. Adjusted pretax profits, 743 million pounds. That is out of the estimate. Basic eps comes in ahead of estimate at 24. 4 pence per share. Daniel bernard will be retiring as the chairman in june and they are giving us more details of this change over at kingfisher. There has to be concerns for business on the high street about what we are seeing. We will see how that fares. Let us check the features. Matt let us look. Less than one hour now until the open of castrating in european markets. We can see that futures are down across the board for europe right now. Ftse futures off. 6 . And daxask off cac down. 5 after big drops in u. S. Stocks. The s p following 1. 25 . This is the first drop of more than 1 . Anna interesting how you characterize that. Trade. On is it something else, just a temporary pullback . Of futures giving us an idea houses deigned the negativity will be in the united states. A bit of a recap on what happened yesterday. S p 500 financials for you from yesterdays move in new york down by 2. 9 so that was the eye of the storm in terms of where the losses fell heaviest. U. S. 10 year in there for you. 2. 41 . Loretta mester coming into the mix talking about when the Balance Sheets should be unwound and we have nymex in there for you as well. Matt, we have the shanghai closing up so let us look at what is happening in the market. Matt one door closes, another opens. We are looking at closures in chinese equity markets. The sam shanghai, down just. 5 . Not bad considering the volatility of the index and what happened overnight for them. Then we have the door opening, which is the bund trades in germany. We are seeing bunds trading once again. It looks like yields are trading higher here after two days of writing yields, so rising yields. Only four minutes into the bond market trade so far. Investors selling off german debt. Let us get to the bloomberg first word news with Juliette Saly. Juliette thank you. Chinas central bank has injected funds via open Market Operations for a third day. The pboc pumped 5. 8 billion, net injection to 16 billion. That is after the benchmark money rates climbed to the highest level since april 2013 and some smaller lenders failed to make debt payments in the interbank market. Japans exports rose for a third consecutive month in february, beating expectations as they grew by 11. 3 from a year earlier. The increase was the biggest in two years, reflecting the timing of Lunar New Year holidays in asia. At the same time, imports increased by 1. 2 , leaving a trade surplus of 7. 29 billion, as a strengthening Global Demand continue to help thes moderate economic recovery. The u. K. Has joined the u. S. In banning laptops and other Electronic Devices in airplane cabins on flights from several middle Eastern Countries amid concerns over security. Inbound direct flights from turkey, lebanon, jordan, egypt, tunisia, and saudi arabia will be affected by the ban on laptops and tablets. Mobiles and smartphones will be forgiven. He willsuch has said not hesitate you will against donald trump if the law requires it. He also refused to say whether d the ban onol travel. The constitution has many protections for religious minorities. Gorsuch said he made no promises about how he would rule on any issue. The belize, 20 were hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. We are rounding out the asian equities session and of course, as we saw, was all risk off across the board today. The nikkei closed down by 2 about one hour ago. 1 . Losed by awaiting earnings from the likes of tencent. The kospi coming off sixyear highs and commodities hurting asx 200. S 200, the i talked about that interbank lending and the liquidity in chinese markets. You have seen banking stocks under pressure. There was reports of a failed Missile Launch from north korea today. South Korean Defense stocks getting a by. Fortescue metals falling the most since december in australia after we saw the big plunge in the Iron Ore Price tracking below 90 per ton. Were talking about japanese exports, the biggest increase we have seen in two years. 6993 really shows you the big increase we saw in the month seeing a lot of demand coming through from japans trading partners really boosting that export story. Imports were stronger, but certainly not as strong as what you saw in january. Match and anna. Anna Juliette Saly in hong kong. It was a rough day for u. S. Markets as we have been discussing. We saw the biggest selloff in equities since the election of donald trump. The euphoria of the socalled trump trade may be beginning to wear off as investor attention turns to uncertainty over the president s policies. And if you drill it down, sorry, into the sector moves of the s p 500 grr function, you will find among the hardest hit were banks. I have got the grr screen up right now and here you can see financials down, hardest hit. Materials, industrials, also taking a hit. Materials, the only gainers we saw in the u. S. Trade among the 10 s p industry groups. Joining us now is the head of asset allocation. What do you see as the spark behind the selloff we saw in the u. S. Yesterday . Christophe im seeing concern about the Economic Policy driven by the Trump Administration. For the time being, we know the Political Animal regarding donald trump. What we are waiting for is i nickname at the situation like dr. Jekyll and mr. Hyde. Mr. Hyde is a Political Animal, creating a lot of uncertainties about the future in terms of Economic Policy and by the Trump Administration policy driven by the Trump Administration. We are waiting for the Economic Policy. 100 days after the election, we do not have any clue about what will be this Economic Policy and we are expecting a lot from the Trump Administration in terms of economic boosts coming from it. Anna we are waiting to see ho mo economicus. We are seeing that on twitter. As we wait for that, how much of the rampup in stocks do you think were driven by the socalled trump trade and trump expectations . If you look at the selloff today, we saw a selloff in financials and method just a be treat from financials and that suggests a retreat from trump trade. These in yellow have high taxes. Have expected those to be lifted in january and february by the trump trade and they were not necessarily. What has been driving is higher . Christophe globally, the u. S. Equities, which are leading markets. It is driven by two things. The first one is reflationary trade. You mentioned in your introduction, that is absolutely correct. It is to shift away from depreciation, a world of deflationary pressures. Things to a rebound in inflation rates thanks to a rebound in inflation rates. So it is a global reflationary trade indeed and that would serve a variety of equity markets. The equity markets since beginning of the year are driven by reflationary trade, and the second half is explained by expectation about the Trump Administration in terms of fiscal trade and nothing has been coming yet for the time being, so this is a worry we are now entering anymore concerning period regarding what about this fiscal trade. Matt whered you put your money then, christophe . Where do you think investors are putting their money as they take them out of u. S. Equities . Is that all going into fixed income . Christophe i think we are in a balance where the bilateral are ready to you take some risk to prepare for example of fiscal trade which we were discussing since the beginning of this interview, when you invest in u. S. Equities equities,argin when you have doubts because of tensions, political tensions, your political tensions or concerns regarding the Trump Administration in terms of investtrends, you in protection assets and u. S. Treasuries. Anna invest in u. S. Treasuries. 6972, this chart, btv which talks about Foreign Investors shunning u. S. Stocks and talks about their appetite for bonds in the blue. Relative to other treasury u. S. Euros at the levels they are, 10 year, 2. 4 , relatively high compared to 10 years. Ets so you say you are buying u. S. Treasuries, what else are you buying at the moment . Christophe we in fact buy we have balanced for four years either way. We balanced portfolios either way. We are ready to take some risks. Invest inortfolio, we european equities. For u. S. Portfolios, we invest in u. S. Equities. On the other hand, we are trained to balance the portfolios. We have an investment in bonds, but what i mean by bonds, i mean two things. Any protection from bonds like u. S. Treasuries or german bunds, and the second thing is highyield to get attractive yield because the difference from today compared to the past decades is that when you invest in u. S. Treasuries, you get the protection but you do not get anymore the yield, and to get the yield, you have to take some risk in the bond market by investing in highyield. Anna highyield relative to germany, but not enough. Matt. Matt i want to point out, Loretta Mester has said she does not expect a hike at every fomc meeting, but she still expects rates to gradually increase and possibly more importantly, she calls it a central bank to begin shrinking at 4. 5 trillion Balance Sheet this year. If the economy continues to improve. , if Economic Conditions evolve as i anticipate, i would be comfortable changing our policy this year. Ending reinvestment is the First Step Towards reducing the size of the Balance Sheet and returning its composition to securities overtime. Christophe, we have had indications of this over the last couple of weeks from different said voices fed voices, but isnt it aggressive to start shrinking the Balance Sheet this year as investors expect a couple more rate rises . Christophe no, it is not aggressive. You can shrink the size of the Balance Sheet by just avoiding to reinvest. By doing so, you do not put a huge pressure on the u. S. Economy. The u. S. Economy is Strong Enough to support the beginning of a shrinking of the Balance Sheet of the fed on one hand but on the other hand, what we have to also mention is of course the Interest Rate hike and normalization of a Monetary Policy driven by the fed anna how much of that kind of pressure can the u. S. Economy take . Christophe we expect two more. One in june and one in september. Anna Christophe Donay, thank you very much. Up next, a new poll shows a macron ahead in the race. H fillon is facing more headwinds. This is bloomberg. Matt good morning. Welcome to bloomberg daybreak. Frommatt miller, live berlin were the sunday shining over the brandenburg gate. We are 32 minutes away from the open of Equities Trading throughout europe. Let us check in on what the bond market is showing us and we have a little bit of a reversal first off in the ends here reversal of bunds. Unds,tors are buying b jgbs and the 10 year in the u. S. You see yields down across the board, though not for very low levels. 8 19 here in berlin and across europe, 7 19 in london. Let us get the Bloomberg Business flash with Juliette Saly. Juliette. Juliette thank you. Goldman sachs and Morgan Stanley are preparing to shift staff and operations from london to elsewhere in the e. U. As the u. K. Readies her brexit. According to a person familiar with the matter, Goldman Sachs is considering making frankfurt its hub inside the e. U. And could move as many as 1000 employees. Scouting fory is office space in frankfurt and dublin for an enlarged e. U. Hub. People with knowledge of the matter set last month. Said last month. Ubs is extending charges to markets customers. The World Largest of manager has introduced a chart of. 6 on euro denominated accounts with Cash Holdings exceeding one million euros. Ubs is among lenders grappling with the headwinds of negative Interest Rates and introducing to the clients. Some banks started charging clients depositing large amounts of euros rather than paying interest. Have fallen in afterhours trade after posting sales that trailed estimates in the third quarter. Rose last quarter. Lessis about 40 million than what analysts expected. Nike is losing market share to under armour and adidas, especially in the u. S. Nike shares have also fallen by more than 10 in the past year while the benchmark s p 500 has risen 14 . Ibms ceo has highlighted its china, and the changing American Workforce as key Growth Opportunities for the company. She sees new Government Policies under donald trump supporting that view. The Current Administration absolutely understand and sees Workforce Development are important things so i am pleased with the focus they are putting on this. Juliette takata shares have fallen into your trading after the troubled air bag maker is said to be willing to let carmakers affected by its recalled decide on the companys restructuring. According to people familiar with the matter, takata will respective customers recommendations, including where Bankruptcy Court is needed as part of the restructuring process. Eight takata spokeswoman a takata spokeswoman declined to comment. Anna after the first tv debate between the leading candidates, macronling shows was higher in the polls. Francois fillon has fallen further behind in the race. A satirical newspaper published details of his financial ties to the russian government and prosecutors brought in a probe into his affairs. Christophe with us. And if your experience and expertise in terms of the french story here. When you look we are watching the spreads in the bond markets and every day, whenever we see macron doing better in the polls, we see tightening in french spreads and italian and peripheral bond spreads. How safe is the euro portfolio for europe the moment given the sort of existential threat that le pen is talking about . Christophe regarding the political trouble, we are discussing about political trouble is safe as long as you have a reasonable exposure to europe and equities on one hand and a balanced approach and new portfolio with some u. S. Ies to protector portfolios in some way. If you do not believe in the fact of the le pen election, even when we have macron versus we consider that is probably too soon for the pen to get power. Maybe next time, but not this time. Macron is proeuro, proeuropean commission, so european organization. From his perspective, it should be or could be reassuring for markets. Anna wide use a next time for le pen . Christophe for the next president ial five years from now. Anna do you see that is likely . As likely . Christophe it is likely. Writing populism everywhere in every country, especially in europe, it is just a matter of time to get a populist politician in power somewhere in europe. That is fascinating. A lot of people look at the dutch elections as maybe the end gameis populist dominoes we have seen across the globe, but you are saying you think it could continue here in europe, what, if inequality continues to develop the weight have . The way it has . Christophe that is exactly the point i would like to come to today with you. Populism is rising because people are in poverty, especially in developed countries. In europe, in france, we lack growth since two decades and because of that, people are losing confidence in traditional politicians from the left and the right and they are ready to test Something Different at the extreme far left or far right, depending on countries. Christophe,eless, you do not see a path to victory for le pen in this election and investors have priced in that risk, even if it is unlikely. If she were, it would be catastrophic to the french economy. Could you get assets out of this assets out of could you get assets at a discount . Christophe youd be pricing by investors. If you take the opposite of the french bond markets, apart of the le pen election as we know is already priced in. Just a part of it. Le pen is elected, contrary to what i am saying here, you can expect something dramatic on the french markets. By extension, for the rest of europe, especially on equity markets, and we could have a segregation or discrimination in germand bucket with bonds versus the rest of european bond markets, especially italy, spain, portugal, and france. Nna Christophe Donay the conversation with Christophe Donay continues on Bloomberg Radio daybreak Europe Program on londons dab digital radio. Matt. Matt that is it for daybreak europe. I will see you in london tomorrow. Right now, i will stay in berlin for Bloomberg Markets, european open. This is bloomberg. Morning. Guy good welcome you are watching Bloomberg Markets. Your first trade of the cash session coming up shortly. I am guy johnson alongside matt miller in berlin. Dump . A trump headwinds for the gulf. The u. S. And the u. K. Ban Electronic Devices. We are in dubaio e