Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20170406

President trump. Anna a very warm welcome to bloomberg daybreak europe. Im anna edwards. Matt miller here in berlin. Anna lets start by talking about what we saw in u. S. Equity markets yesterday, partly because of what the fed said about equity prices. I have a chart here, a valuation of the s p versus various Global Equities. Think it about what the fed said, they said levels look high relative to standard valuation measures. Putting it in the context of Global Equities, the s p over to 2008,is going back not a benchmark people want to revisit too often. If the u. S. Is 11 more expensive than the rest of the world, can it be explained away rationally . Concerns about what the fed said about the Balance Sheet and what it does to the rest of that policy, driving things in the u. S. Yesterday and the Asian Session as well. About the u. S. , not just because of what the fed is up to or the ecb, not because of centralbank policy but because of whats going on between president xi and donald trump. Take a look at the Asset Classes most likely to move. You have the s p after that wild up. 8 and down. 3 on the last two hours of the trading session. And you have the u. S. Dollar as well. It a come off and his backup little bit. The bloomberg dollar index with a slight gain,. 1 , but keep your eye on that and also oil. We had some bullish tacticals yesterday but inventories were little heavier than investors may have expected. 5 , waccrued come down t i fell as well. The 10 year yield of 2. 33 will be susceptible to risk your science we get out of the u. S. Lets get the bloomberg first word news. The u. S. Has deported a former new york banker to russia who allegedly tried to recruit an exit visor to president donald trump. He was convicted and imprisoned in 2016 for being a spy for moscow. In 2013, he and two other russian spies targeted for recruitment u. S. Energy consultant carter page. Is one ofd by trump his foreignpolicy advisers. President trump has said an apparent poison gas attack in syria that killed more than 70 people has changed his inking on the sixth year civil war as the u. S. Signaled it would take action against the Syrian Government as well as targeting Islamic State strongholds in the country. Has boosted special forces to fight Islamic State, but its not clear how much further he will go, given the Russian Military present. President trump it cost a lot of lines for me. When you kill innocent children, innocent little babies with a chemical gas that is so lethal, people were shocked to hear what gas it was. That crosses many lines beyond a redline. President trump has shaken up his National Security council, removing steve bannon from a Key Committee and restoring the roles of top intelligence and defense officials. His public views were sometimes that audits with those of steve bannon. The white house portrayed it as a progression rather than a demotion. President trumps had a 35 minute call with the pans shinzo abe, discussing north koreas latest missile launch. Saying we will defend our allies with the full range of military capabilities. Tokyo said the president agreed, saying all options are on the table regarding north korea. U. K. Prime minister theresa may headed to saudi arabia with a clear goal, convince saudi aramco to pick london for its initial Public Offering as it seeks to remote britain as a Financial Center after brexit. She met on tuesday with the Energy Minister who also heads aramco. Ateat yet was also present the meeting. Argentinas president says his government has no plan b for the he can and is confident slow inflation and stimulate growth at the same time ahead of key election midterm elections in october. He was speaking exclusively to bloomberg. Towards beinging toward predictable and reliable countries, but still thinkare minorities that Something Else works better. Global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Find more stories on the bloomberg at top. This is bloomberg. Much. Thanks very lets check in on the markets and asia. Is standinguliette by in hong kong. A lot of analyst saying the last thing we need to hear with those minutes from the fed saying they could be reducing their Balance Sheet. So investors selling out of equities today. Off kong and china coming the gains from yesterday as well and australias market down by. 4 . Lets look at some of the stocks where are watching in the region. A couple of hong kong starts coming back online. Imax china falling the most in over year on news that chilies private Equity Investors will sell their 6 stake. In japan, salt lake under pressure, down by 1. 3 . It could meetrt resistance in the debt market. And the measure the india rate coming through in a few hours time. Is the repurchase rate from india. No change expected but look at an the rupee has been on absolute tear. Analysts say were probably meet resistance at the 64. 7 level when we hear from the r. B. I. Later today. Watch out for the fact that they can be tinkering with some of their tools to keep excess cash in the system. That will probably be the main takeaway from the Interest Rate decision with no change expected to the cash rate in india. Anna lots of impact from the. Ederal reserve minutes according to the minutes released by the Federal Reserve, most officials back policy change that would begin banks 4. 5central trillion dollar Balance Sheet later this year. They reiterated their outlook for gradual interest increases. The question for investors now is how will sinking the Balance Sheet impact the fed . Program have the on the. The key question for investors after these minutes, how does it impact the Interest Rate path and how much runoff in the Balance Sheet is the fed proposing as well . Thats a really big question. From the minutes, its not clear what kind of speed, whether they would just put it into an autopilot mode or stop reinvesting altogether or do it in a more measured pace. Theres still a lot of questions out there in terms of how much the fed will tighten the Balance Sheet. Its a slightly more hawkish tone that the market at previously been discounting. The market is struggling to fully price the two rate hikes that the fed is also signaling for the rest of the year. Clearly we gone back into that mode where the market is not like believing the fed. The key will reside with what happens on the fiscal policy side. I think the balance will be between a more aggressive fiscal policy, and we had some comments coming out from paul ryan overnight where did sound a bit more dovish on the fiscal side and that may make it harder for the fed to deliver a fully hawkish year. How much Balance Sheet reduction do you expect, if they start the second half of the year, how far can they go in how much tightening is that worth and Interest Rate increases . Stepthink the fed will very carefully once they start reducing the Balance Sheet. Its not easy to just give a hard numbers say this will give you this. Theres a perception that the Balance Sheet is more towards the longer end of the curve. I think at the end of the day youll see that most of them will interact in a big way. What i think is key for the fed is that if we look back in time, we were in a much lower inflation environment. Youve seen a lot of inflation normalization in the u. S. So the tradeoff between price stability and Financial Stability may have gotten a little harder, which means the fed would find it more difficult to step back from tightening at the first sign of market jitters. Anna i pulled up this chart on the bloomberg just emphasizing the rate or the case in which the Balance Sheet of the fed has grown it where it stands at the moment. In leaking in with thats question, the fed and economists will have to make assumptions about when we know how much the Balance Sheet is going to run off, what it will do to financial conditions more generally in the u. S. Economy. How will mortgages and credit rates be affected . I think theres a lot of uncertainty around exactly how those effects will play out and for that reason, i think the fed will tread carefully when they start to unwind the Balance Sheet. We have to remember its not just about the u. S. , its about with going on in Monetary Policy elsewhere. If you think about the global Monetary Policy picture, discussing when will the ecb taper again, we are discussing when will the boj look to hike their target. We think thats a little far off still in 2018. But the pboc tightening ever so , all the major Central Banks are gradually tightening policy. Thats a really big change from where we have been previously. So i think the fed is going to test the waters and do it gently and they will need to see how the markets react. There are too many factors in play to save his much of the Balance Sheet is you this much on the yield. I have a more simplistic ,uestion and a dueling chart for those of you with a bloomberg at home or work. His is the u. S. Treasury curve if reducing the Balance Sheet works on the long in and raising rates is obviously a tool for the shorter end, where should your rate desk go in terms of investment, how do you see the curve flattening . If we look ahead, i would expect to see an ongoing flattening of the curve. The key point is to say theres an awful lot of actors that will be impacting over the coming quarters that will influence the u. S. Yield curve. I would be very careful on the idea that its just one or the other and that it works in such a way. When we look at the correlation , the clearly has been an influence from whats been going on in europe in particular on to the u. S. Term premium as well. The effectention fiscal policies going to have an a lot of that depends on the Trump Administrations ability to pass legislation. We heard overnight from gary cohn, according to bloomberg to ing that he is said the socalled bringing back of the classical rule. Is that a material factor for the u. S. Economy . Are you really focused on the tax cut story . You have to focus on all aspects of the program but changes in the financial regulations based will probably take more time to come through, by the time they get it implemented and put in place, were still just getting to talk about exactly what is going to look like. That will be more of a slower moving one. However, once something specific comes out, we tend to see the market discount it quite quickly. It could have big implications for the markets even if it doesnt have such big implications in the real economy immediately. When it comes to the fiscal policy, thats going to be the very important one. My view is we will see a more modest lift from the fiscal side. We will see what happens today with donald trump and president xi. That could be a huge event for markets, especially in the shorter term. To dissonance end after a month of mixed messages from the ecb. Will mario draghi offer any clarity on the road ahead to raise qe on this side of the pond . This is bloomberg. Anna welcome back to bloomberg daybreak europe. Of murky looking victoria harbour. The hang seng down by. 6 . It is 6 19 in london. Thats get the bloomberg flash with debra mao. Gary cohn is said to support a policy that could see wall street firms suffer in their Consumer Lending businesses. According to people with direct knowledge of the matter, the comments were made in a private eating with lawmakers. They said executive, generally favors banking going back to companies such as citigroup primarily issuing loans. Deutsche bank is poised receive orders for almost all of the 8 offer touros of stock investors as the sale draws to a close. According to people familiar with the matter, investors are pledged by more than 95 of the stock on theyll in the offer which ins today. One person said about 80 of investors decided to participate in the Capital Increase with some offering to boost their exposure with new investors buying the rest. China soared as it the exact chain help earnings be estimates. Samestore sales for the First Quarter climbed 2 . Analysts had expected growth to be flat. It signals a strong start to the company. It looks like from our point of view that things have improved a lot in china. Where were sitting right now were seeing good primary consumer demand as well as good instructor build out and substantial possibilities of telling new building new restaurants. A Flagship Hedge Fund lost 2. 5 in march, erasing all its gain from the start of the year. 10 master fund that managed . 8 billion as of february into the First Quarter down about 24 . The macro cta index has lost almost 1 in 2017. A spokesman for the Investment Firm run by billionaire allen howard declined to comment. Thats your Bloomberg Business flash. Much, deborahery mal with the business flash. Mario draghi kicks off a twoday with the speeches Central Bank Heavyweights this morning. Investors will be on the lookout for guidance on the biggest Monetary Policy decisions of the moment. How to manage the end qe this year and when and if a rate hike will come. The global head of economics is with us. When you expect a rate hike . Michala our view is they will wait until after the end of qe. Were looking toward the ins of next year. We expect the ecb will announce another tapering as early as september. Anna what will that do to Market Expectations . Do you think the market is behind the plan of the ecb . Anticipating a big qe coming . Michala the market has been running a little head of the market but recently the market came back on that. It has beentime, interesting to see the markets being a little bit opposite to the ecb itself in some aspects. Ont is key is what happens the economic fundamentals at the end of the day. At the moment weve seen strong survey data coming out of europe , Economic Activity is looking very good, but the Inflation Numbers continue to be quite modest. Anna i have that chart here. It dropped a little bit. Michala what we seen in the run up on the inflation chart is related to the energy sector. As we look at the core measures, there was an effect coming in but if we look ahead, core inflation still remains very modest. Over time we will see core inflation creep up over 1 and that should give the ecb room to tighten ever so gradually. So that will still be there. From you consider a drop 80 billion to 60 billion a taper . That they wouldnt have ended their intervention any time anyway, so now they are at least reducing it. Michala i think we can argue about the semantics around it, but the message from the ecb when they made that move is clearly not to run of the expectation of a continuous protest. I think thats what mario draghi meant and explained that this was not tapering, it was an initial move and that the ecb would then come back later on with the next move. Whether we should call it tapering or not, we can argue about, but i do think the ecb will start what will prove to be a tapering process in september. Anna warning about a cacophony of noise from central bankers. Are we in danger of getting that over the next 72 hours . Some of the big names will be speaking. Of a all going to be on the same page on all of this . Will be. I think that when we listen carefully to the ecb and the board members, the overall message is we are looking to tighten, it will be a gradual process, and the message has been our guidance, what were telling you is not something we are moving away from at the moment. Those are the things i will be looking for and we will see if there are any crack in the eyes, but i dont think so. , do from the speech today you expect mario draghi to give us any hints about when a rate hike will come, considering that the of the governors in the last month have dropped hints on that . Michala i think he will reiterate what he told us on previous occasions. I think a rate hike is still quite far out there on the horizon. Anna we are now in brexit territory, how is this going to weigh in here, there is a busy political calendar in europe and we have a reference this morning. Others suggest that perhaps that keeps the ecb from doing anything this year. Michala the ecb has been telling us that the policy uncertainty is certainly a factor they are watching. When you look at various metrics of policy uncertainty, they are asked quite high. At the same time its almost as if things like the pmi and other survey data completely disconnected from the policy uncertainty. Its not something that seems to be slowing down the euro area economy at the moment but clearly the ecb recognizes some of this uncertainty and its a reason for caution and gradualism. Anna thank you very much. Hearing, we will hear from mario draghi later today. He speaking at a conference in frankfurt from 8 00 u. K. Time and we will bring you that on Bloomberg Television and radio. Weeks away from his meeting with donald trump, argentinas president tells bloomberg why protectionism is not the road ahead. This is bloomberg. Ive spent my life planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. Ways wins. Especially in my business. With slow internet from the phone company, you cant keep up. Youre stuck, watching spinning wheels and progress bars until someone else scoops your story. Switch to comcast business. With highspeed internet up to 10 gigabits per second. You wouldnt pick a slow race car. Then why settle for slow internet . Comcast business. Built for speed. Built for business. Anna welcome back to bloomberg daybreak europe. That is sydney and its 3 28 in the afternoon if youre in sydney. The aussie dollar against the u. S. , 0. 75. London and ae in new edition of daybreak is available at this hour on your bloomberg and your mobile. Lets look at some of the top stories that made it into todays edition. The cover story, trimming back the fed leans toward a policy change it would begin shrinking its Balance Sheet later this year. Officials reiterated the gradual showing a split over inflation risk while projection a median of three increases this year. Questions remain around the timing and the size and what impact it would have on Interest Rate quality. Matt i did like the picture on the website. The ecb march meeting account may give investors insight into policymakers views on the end of qe and eventual rate hikes. Dont miss our coverage of Mario Draghis speech at 8 00 a. M. U. K. Time, 9 00 a. M. On the continent. You can see it on Bloomberg Television or your bloomberg terminal. Anna daybreak focuses on the story that gary cohn has saying hepeople generally favors banking going others helmet was and issuing loans. Perhaps surprising from someone with a background that gary cohn has. To be whats taking people by surprise because other members of the Trump Administration have talked about the bringing back of glasssteagall. Lets talk about latin american economies. Argentinas president has told bloomberg when it comes to u. S. Relations, its cooperation first and competition second. He spoke to Erik Schatzker about his vision for closer commercial ties, despite President Trumps protectionist stance. Discussing the future relations between both countries. Withlieves we have started and wema administration should believe we have a space to deepen our relations and find ways of mutually benefiting future operations. He is a protectionist and you are at free trader. A freeuld not say trader. I believe in limitations and i ways ofwe can find increasing the relations between argentina and the state. On what basis . Where does argentina fit in an America First Foreign Policy . Of we have to talk about it. Quick so you need to have a united front. Togethergoing to work in that future relation and i expect that we will find ways to improve and increase our commercial relations and together with any other corporations. For example, against drug , and we are in favor of peace. There are many ways in which we can cooperate. That there are many ways in which you can compete as well. America wants some of the same export markets as you want. We can focus first on which areas we can be complementary and to compete, there is always time. Matt that was Erik Schatzker with the president of argentina. We will bring another exclusive withview later today, former u. S. Treasury secretary jack lew at 6 00 p. M. U. K. Time. Mission to maralago. Andese president xi President Trump hold their first facetoface meeting today. It will cast a long shadow over the meeting. In the wake of american protectionist rhetoric, president xi has cast himself as a champion of free trade and globalization. Its a delicate time for the chinese president and what is the equivalent of an Election Year and one party china. How can both leaders save face and leave the meeting with a win . Economics isad of still with us, do you think is more important shortterm at orst then the fed minutes what we hear from mario draghi . Michala i think its an incredibly important meeting because it will tell us about the status of the worlds two largest economies. It will be key in shaping what happens to Global Growth over the medium term. How much we see out at meeting today is another big question, but there is room here for what i would call a positive compromise, which could be something along the lines of china promising to open up more softening its. S. Stance on some of the technology at ports, and at the same time tona offering some support infrastructure programs in the u. S. So you can imagine something very positive coming out of this, but on the flip side, theres a concern that more protectionist noise would be coming out from washington. I think thats really what the market will be focused on here. Interesting to see how it goes domestically for President Trump. Ofres been a big rampup expectation around how the u. S. Administration deals with china and around the trade deficit. I pulled this up on the bloomberg. The u. S. , china trade balance and trade deficit with china. This is what donald trump and navarro and wilbur ross. 2 often, as being the source of tension between the u. S. And china. Should we focus just on a trade deficit without or is that only part of the story . You have to look at the imbalance in savings globally and thats a bigger story. Michala there is a long list of things. When we look at the u. S. Economy theres a question of Income Distribution and equality. How technology has influenced whats going on in the u. S. Economy. I dont think is just about globalization. The ironic thing on the chart that we can see is the point at which the trade balance is at its very lowest is when the u. S. Economy was at its weakest. So just reabsorb in the trade through lower chinese imports to the u. S. Is probably not the best idea. Its clear that opening up china would be a very positive trend for trade globally. That it is interesting countries with massive trade surpluses like china and germany are big fans of globalization, and countries with massive trade balances are starting to ask questions. Itsere some simplistic, but isnt there some logic to it . Itsla as i say, i think very important when we talk about global trade, there are important questions that come in. Globalization does give rise to winners and losers in societies and those are important questions to address. Is aer shutting down trade solution, thats where i would argue against it. Its important we have a platform where trade is governed by rules and the rules are respected around the world. Your notesng at before the conversation, what you call contrasting inflation pictures between china and the united states. Flation andout trump also xiflation in china. When we look at whats been going on in china, we saw quite a significant reflation for the credit cycle which gave a lift not just to china but had global ramifications. Were seeing the credit cycle slowing down so the reflationary impulse coming from china to the rest of the world is slowing. This is where the crossing over was what happens to the reflation policies in the u. S. Becomes important. If reflation is slowing in china and trump doesnt deliver on his couldion story, then we end up seeing some disappointing growth dollars coming out would end upthat with the Central Banks not having the same route to tighten policy. What happens on both sides is a very important. Is there a way for donald trump and wilbur ross to renegotiate trade deals with china, to renegotiate deals like nafta, without starting trade wars and stopping global trade . Michala i think there is, and as i mentioned earlier, i think its really about opening up markets and other countries, getting access to service sectors. Its really about bringing about special rules and respecting those rules. Ints the theme that we hear european policy debate. Is not just something coming out of the u. S. , the idea of respecting the rules. What would be a loselose situation for everyone is if we see slapping on tariffs and much more protectionist measures. That would be negative for everyone, first and foremost the u. S. Consumer who would see much higher import prices from such a move. Been one of the missing ingredients, the opening of the Chinese Markets to western service companies. You suggest that they something the chinese give a little bit of ground on because theyre trying to do a lot of m a at the moment. When we look around the world, you can see room for lots of compromise. Thats why i think there is a potential upside story on the global trade picture. Obviously theres a Downside Risk but theres a potential positive story that we can see in many of these negotiations. What is clear is that this era of rampant globalization is clearly coming to an end. Rules are being applied more strictly and thats where the change is coming from. Anna thank you very much for your time this morning, great to speak to you. Lets talk about global trade from another perspective. Theresa may has met with saudi arabias Energy Minister as she tries to convince aramco to pick london for its initial Public Offering. The sale could value of aramco it more then 2 trillion. In abu Tracy Alloway dhabi. The u. K. Government is aware needs to try to show how global a nation it is at a time where brexit has just been triggered. What were the two sides hoping to get out of this meeting . You put it very well there, this is more about the London Stock Exchange getting a slice of this highly anticipated ipo and maybe demonstrating to various critics that the u. K. Does have potential to go out and build bilateral ties with other nations. Saudi arabia would be a big coup for her in that respect. Its important not to forget what saudi arabia is also hoping to get out of this. The aramco ipo is a huge centerpiece of its ambition to diversify its economy and open it up through various reforms and get more private investment in. That means the ipo is its sort of coming out party and it needs to be carefully orchestrated. The kingdom wants to get as much out of it as possible. Its hoping to build political and economic ties that will last well beyond the time when the oil reserves run out. So its crucial for both sides. Matt what better way to do it than the biggest ipo in history . Give us a sense of how in demand saudi aramcos chairs are expected to be. Shares are expected to be. The fact that you have theresa may, the Prime Minister country traveling to saudi arabia with the ceo of the London Stock Exchange to try to get a piece of the action says a lot. Weve had overtures from stock , singapore andia tokyo offering a raft of incentives. The consensus seems to be we will get a mix of listings across various stock exchanges. On the investor side, much is going to depend on the valuation. We heard the 2 trillion number over and over. Some analysis saying it might come in lower but we did have a big clue this week in the form ofsaudi aramcos first sale bonds. They sold 3 billion worth of bonds. Of thes you some idea sheer size of investor demand for aramco at the moment. Ust Tracy Alloway joining on what is likely to be the biggest ipo in history. You can watch the show using tv on your terminal as well as the video streams and follow our charts and functions and reach out to the shows directly. There is a blue link at the bottom of the screen. Contribute to the conversation and we will throw them out to our guest. Coming up, thank to the future. A return to glasssteagall, could this be the beginning of the end of the onestop shop financial beast of wall street . This is bloomberg. Matt welcome back. Its 1 49 in the morning in new yorks 80. Youre looking at a live picture of the big apple. Lets get the Bloomberg Business flash. Is poised toank receive orders for almost all of the 8 billion euros of stock on offer to investors as the sale draws to a close. The rights over ins today. 80 of investors decided to participate in the Capital Increase with some opting to boost their exposure and new investors buying the rest. Tradinga soared in late as pizza hut help the estimates. Samestore sales for the First Quarter climbed 2 . Analysts expected results to be flat. It looks like from our point of view over the last year that things have improved quite a lot in china and where were sitting right now we seeing good primary consumer demand and very good infrastructure buildout and substantial possibilities for building new restaurants. That your Bloomberg Business flash. Anna thank you very much. Economicumps top adviser has privately told lawmakers he supports separating banks Consumer Lending businesses from their investment banks, according to people with direct knowledge of the matter. The policy could radically reshape wall streets biggest firms. About where this leaves the Financial Services sector and how much appetite investor should have right now. Great to have you on the program. You quite like financials at the moment. When you hear a story like gary cohn backs something that looks a bit like a return to glasssteagall, does that give you more reason to be optimistic about financials . It gives me optimism for several reasons. The first is that there are many areas that could be finetuned within the financial sector. That is probably one of them. Publicly not a priority but generally speaking, the deregulation is probably the priority thats being pushed and we will see weve heard what , his dimon has been saying annual letter that came out a few days ago. The idea here is that we are trying to bring a more friendly environment for financial theseutions, and because institutions have been doing so much good work since the crisis, room for further finetuning in the sector, yes. Matt if you look at this chart of got here, it shows you that u. S. Banks price tangible book value is approaching 2, whereas u. S. Banks is just that one. With this kind of discount, if we get a return to glasssteagall or more regulation from wall street in the u. S. , does europe look cheap . Oneurope does look cheap many measures, certainly because two times book is probably the top end of the range. Banks are ahead in terms of restructuring and repositioning. Crisis,that since the profitability has been much higher in the u. S. As well, so we can certainly say there is quite a lot more being priced in to u. S. Financial stocks. Certainly with the last six months with the elections the election of new President Trump and his promises on Infrastructure Spending and also deregulation and tax reforms. So its reflecting good news. Europe about a year ago was still talking about potential implementation of negative Interest Rates. Simply notns have improved over the years and are probably a few years where u. S. Behind where Financial Markets are. Anna interesting to look at that transatlantic comparison. There was a recent thing going on in Financial Services to try to separate out parts of the business. What do you think of that in light of what the united states, and i appreciate gary cohn mentioning he might like that the idea but my like the idea but is a long way from implementing it. Its a simple discussion at , if thege, but clearly sector is healthy enough, perhaps contemplating the risk attached to retail investors. Matt would it make things easier for investors going back to glasssteagall, breaking up these onestop shops, would it make it easier for to assess the value of these institutions . I suppose you will try to isolate the notion of bailouts and also the fact that the states would have to be involved in some of the institutions, in the case of another crisis. But yes, i think it would be easier, the simpler the models are, the easier you can value them and decide whether you want a premium or discount on them. But the complexity of a conglomerate is already telling parts areome of the difficult to put it premium or discount on it. That i pulled up the chart compares the nonperforming loans to the rest of the area and shows the problems italian banks have at the moment. Saying theyica dont comply with what weve seen in italy, and when will they . That makes some of the italian banks look a little more attractive very italy is attractive because we are progressing. On thesing means that stress test of last year, we know that the Central Bank Authorities are now allowed after imposing haircuts on junior bondholders, they can institutionsthese and i think that is a great step forward. Anna thank you so much. Up next, trimming the Balance Sheet, the fed saying its cutting back its Balance Sheet at the start of the year. This is bloomberg. Matt trimming ahead. That officials favors shrinking the 4. 5 billion dollars Balance Sheet this year. Equities fall in asia. Qe in question very the fed tightens. What is the ecbs next move . Investors look for clues from Mario Draghis speech. We await the march account later this morning. Returning to glasssteagall . Trumps Economic Advisor has set his support. Separating the Consumer Lending business from lending units. We are talking about gary cohn. Seeing a rise in the xi arrives in the usa, touching down to begin his first facetoface meeting with President Trump. Good morning and welcome to bloomberg they daybreak europe. I am matt miller in berlin. Getting some news on the german economy. Lets do that briefly. We have these numbers on investment goods orders at 0. 2 from the previous month. The factory orders numbers well, through. 4 , an estimated gain of 4 . Not quite as high as had been estimated. Factory orders recovering as economic momentum stay strong is the headline coming through from my number news colleagues. We are getting news from unilever. Raising their dividend by 12 . Combining their foods and refreshment businesses into one organization launching a Share Buyback of 5 billion euros. Ceo of unilever given a bit of a kick i that bid approach that he received from craft. That got management minds focused on how they could use the Balance Sheet on what they want to do in terms of strategy and what it means for the spreads business. All of that going through the managements minds. They are saying they are starting this 5 billion euros Share Buyback and raising their dividend by 12 . Taking some Strategic Decisions to combine food and refreshment into one organization. We will be speaking to the ceo. Lets check on the futures. We have been tracking a week session and to a weaker session in the asian Equities Trading day. We will be weaker at the start of the european trading day. What i am focused on happened in the usa yesterday, when it means today. 1 cash trade was up. 8 of and down and listen to ours. The massive swing we have seen since february of last year. The dollar also came off, you can see the bloomberg dollar index. Take a look at oil. Bullish technical signs yesterday and inventories that came in a little bit heavier than analysts had been looking for. So crude down to my branch down. 5 of 1 . Global barrel is the benchmark. The 10 year yield, you could get them risk on or risk off sentiment depending on how the i meeting goes. Anna a quick update on unilever. They confirmed that the theyre saying that the future of their operation lies outside the group so they are looking to sell that, that had been widely speculated about. They are maintaining their fullyear outlook of 3 to 5 . Share buyback clan from unilever and raising the dividend. Lets get to the various markets that are closing. We close up for business in japan and australia. And some of closing the markets aggressively reflected. The s p asx 200 retreating down around. 5 . The bloomberg to first word news. E the u. S. Has deported a former new york banker to russia who allegedly tried to recruit and advisor to donald trump. He was imprisoned for being a spy to moscow. There were other spies recruited. President trump has said an apparent apparent poison gas attack that killed more than 70 people has changed his thinking on the six year civil war. This is the signal that could take action against the Syrian Government as well as targeting Islamic States stronghold in the country. Trump has boosted special forces numbers but it is not clear how further he will go given the Russian Military presence. Across a lot of lines for me. When you kill innocent children, innocent babies, babies, little babies, with a chemical gas that is so lethal that people were shocked to hear what gas it was. That crosses many lines my beyond the red line. Many, many lines. Trump haspresident shaken up his National Security council remain removing steve bannon from the Key Committee and restoring the roles of defense officials. Of h. R. Es the influence mcmaster. The white house portrayed the changes as a progression rather than a demotion. Said hiss president government has no plan b for the economy and is confident he could slow inflation and stimulate growth ahead of key midterm elections in october. He was speaking exclusively to numbered. Are leaning in argentina reliablee digital and countries. Maybethey think that [inaudible] 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. We are rounding out the session in japan and also in australia. It has been a risk off a four asian investors. The minutes from the fed not giving a lot of Investors Sentiment boosted. No one wants to hear the fed is going to shrink its Balance Sheet. Annika has closed and the hang seng weaker in late trade. Some conviction on the chinese sharemarket. Adding to yesterdays gains up thene third of 1 ahead of xitrump meeting. Unicom falling after rising on the open. It is chinas second largest mobile carrier. Imax china falling by the most of a year on news that private Equity Investors will sell their 6 stake. Softbank falling in japan down by around three quarters of 1 . There is a concern that its merger could face opposition with some bondholders. We are awaiting the decision from the r. B. I. Coming through. No change expected as reflected by the blue line to the reserve bank of indias repurchase rate. We have seen the rupee on this terror so watch that when the r. B. I. Comes to her with some of its commentary. Theysts say it will hold at resistance level but the r. B. I. Could tinker with some of its tools to keep some of that excess cash in the system and not expecting any change to that official cash rate. Anna thank you. Breaking news coming through from the Retail Sector in japan. Sonicos some of stores for 3 billion u. S. This is a Holding Company which 711blished a merger of japan. Have Convenience Stores and independent dealers. We are getting some breaking news coming through. We will watch m a story. They are talking about changes to their profit outlook. 7 09 a. M. In london. President trump hosting his chinese counterpart at his maralago resort. It is the first meeting between the leaders of the two largest economies. Correspondent joins us from beijing. Great to have you on the program. What are the risks for xi in this meeting . This gets close to what could constitute an electoral year. Absolutely. Some have described this as the riskiest and most unstable moment for president xi and he is taking a gamble because of those domestic political concerns. The party and leadership reshuffle that will crystallize toward the end of this year. The horse trading is underway. And president xi is under pressure to show the political factors and that he is in control not just domestically but internationally. Given that trump is unpredictable there is concern about the optics of this. Trump orght tweet from a dodgy handshake. The chinese cannot control everything. Theyre are going into this to ease the tensions around trade. They do not want a trade war with the u. S. In the runup to this big clinical event at the end of the year. They want economic stability. We spoke to one chinese official who has been in charge and involved with this meeting set up and arrangement. He said to have a giveandtake list they can show and present to the americans depending on what the americans ask for. They are aware that trump may be looking for a visible economic win. There is a potential opportunity from the chinese side and they say to us that david is a successful talk they would see that as a success. Has not followed through on his threat to label china a currency manipulator. Does that mean it is off the table and will it, at the meeting, do you think . Interesting. Standard charter put out a note saying that china will be labeled despite the fact that most economists would say that the opposite is happening that china is making steps and taking big steps to shore up my burning through its fx reserves by putting in Place Capital controls. Others would point to the fact that over the last two decades the renminbi has strengthened against the dollar by 16 . What there is consensus on here and among the western Business Committee is there is a lack of a level laying field. The u. S. Chambers of commerce saying that sectors need to be opened up, they need more transparency and there is a feeling that if trump can push on that, that will be a success rather than focusing on potentially a misinformed or erroneous decision to label china a currency manipulator as some economists see it. Matt thank you for your time. Tom mackenzie in beijing having us a preview of what to expect from this meeting. According to the minutes released by the Federal Reserve on another you are subject most officials back a policy change that would again shrinking the Central Banks four point 5 trillion Balance Sheet later this year. They reiterated their outlook for gradual interestrate increases. The question for investors now is how will shrinking the Balance Sheet impact the feds right path . Ask first what you expect as far as increases, fed three arehave said still to come this year. Toa thing it is important continue to push on the message that we are on a rate increase path in the could be a major change from where we were three to five years ago. Rainitative easing has to be reined in or stopped and we have to focus on whether fiscal policy can be pushed in a successful way. Generally speaking the fed is pricing in or taking into account that there is some sort of fiscal policy coming. I would say there is some more coming into next year. Matterow much does it what the fed thinks about equity markets . Yesterday the fed saying in the minutes that stock levels were quite high relative to standard valuation measures. That is something they are not expected to target. I have a chart of the s p comparing the valuation on a pe basis suggesting that it is expensive compared to Global Equities but maybe that is justified. Last 10 remember the former fed chairman greenspan talk exuberance on the market. Im not sure they are trying to push through the same type of comment. There is quite a lot being priced in going into the rest of this year and next year especially when they come back to fiscal policy and tax reforms and Infrastructure Spending. I think maybe the fed is trying to remind the market that there fortill a lot to be done valuations to be justified. We will seenk substantial reduction of the Balance Sheet, how far can they go to attack this 4. 5 trillion behemoth . They have to do it gradually, and itve to find a buyer will be interesting to know and understand how the process is going to come forward. That is something they have to do. The Balance Sheets have grown so much that we have to start to address this problem. It will be another important and among important Central Banks around the world. Anna thank you. A quick recap of breaking news we have had out of unilever. The company will buy back 5 billion euros of shares, raise its dividend by 12 , and aim for 20 underlying margin and a vested spreads unit. That has thought to be on the block for some time. The Company Confirming that is the case. Interesting to see what this rising rates environment will do to appetite for m a while companies rush to get those things done and what that mean more for that unit . We will speak to their ceo on Bloomberg Television later so do not miss that. 7 17 a. M. In london. Davosl held had to speaking to pimcos chief economist. That is with manus cranny. That is next. This is bloomberg. Anna welcome back. The leaders of the two biggest economies will meet in florida. President trump host president xi at maralago. The stakes are high for both eaters. Trump has spoken out on china on many issues including trade, currency, and north korea. In a landmark speech president of theed up the mantle champion of globalization and free trade area pursuing protectionism is just like locking oneself in a dark room. While wind and rain may be kept outside, so are light and air. No one will emerge as a winner in a trade war. Anna what will he say about that dark room today . That was in switzerland this january. Lets go back to dallas where manus cranny is joined by guest at the investment summit. Manus in the middle of this we will bring in a couple of umbrellas. The timing could not be worse. We have the global chief economist at pimco. We will start this interview. Jinping will meet. The potential for a full trade were is dissipating. What are you looking for today . Today is the first day, i do not think we will get any Big Decisions made. Trump does not want to start a trade war. I do not leave that we get any major decisions today. They need to get to know each other first. Know you andg to getting to know all about your policy is the thing. We saw last night a shift from the fed. A manner to reduce the Balance Sheet. How do you interpret a passive and predictable manner question mark i think if they go about it cautiously and take out the reinvestment and do not put the market on cold turkey. They are keen to hedge talk the exit but the risks arising that policye making a hawkish mistake. Stick debate is can they to three hikes and reduce the Balance Sheet at the end of the year, what do you make of that as a proposition . Is there a potential interruption in the high path . They will cause after hiking into more times that they will announce in december that they are being from, they are reducing the Balance Sheet and you will get a slight pause in the rate hike cycle. I think that they are quite keen to get away from that zero for Interest Rates. And again i think this raises some risk because whenever the fed in the past has taken their foot off the accelerator or slammed on the break, someone goes through the windshield. From a risk perspective, from the fx perspective, where is the biggest risk from this potential policy mistake by the fed . The biggest risk is for the riskiest assets among for equities and high yields. They benefited from qe when they went into qe. Ofhad investors went out bonds and went into equities. When the fed reverses that policy the biggest risk is for equities and highyield. Manus get her thing is the bond markets, we are seeing a slight flattening. Were seeing this slightly more aggressive yield. What does that say to you . Steepening, we had the market was starting to get worried. That is why we had a flattening in the yield curve. We startme comments if running down the Balance Sheet we may not want to hike rates aggressively further so the market is reassessing that a little bit. Manus it will hear from mario draghi. I am fascinated to see how much he gives. K draghi need to be to reassert the ecb . Think he very well understands that if the ecb starts to hike Interest Rates that would anchor the curve, you could get a short backup and yield spreads could widen. This is why youll hear a dovish speech and he will reemphasize the sequencing which is gradually taper the bond purchases then reassess and at 2018 orge later, late 2019 start hiking Interest Rates. The fed asdo not see having gifted an easier path . I do not think so. It depends on how the currency acts, if the dollar were to strengthen, the euro were to weaken it would be easier for the ecb to exit. Yesterday the exact opposite happened. Manus thank you for joining us. That is the latest from pimco. We deal with everything live, unscripted. We do it all for you and with a little bit of love. Anna love. From mario draghi in about 30 minutes. We will bring you his speech live from brentford at 8 00 a. M. U. K. Time, that 00 a. M. Europe. [ engine revs ] [ screams ] [ shouting ] brace yourself this is crazy [ tires screeching ] whoo boom baby rated pg13. [ screams ] ive spent my life planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. Guy good morning and welcome. This is the european open. The first trading cash session coming up. Im guy johnson. Matt miller is in berlin. What are we watching this thursday morning . The fed minutes points toward policy change. Officials warning that equity prices are quite high. European shares called firmly low this morning. The spotlight turns to the ecb. President mario draghi set to speak at it 00 a. M. U. K. Time. What clues will he give