Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20170718

Have a stacked up show for you, were going to talk about the drug sector, i wonder what the ceo of nevadas is going to say about health care in the United States. In fact, it looks as though we are getting some numbers through right now. A fouryear numbers to be broadly in line and confirming the Group Outlook for 2017. They are a Second Quarter core eps, reading estimates, one of the biggest headlines. Broadly in line, that one seems to be. 1. 22, thenumber, estimate was 1. 18. Looks like the core number has beat the estimate. We will speak with the ceo later on during the program. This is the point from the analyst, this would be the trough in terms of some of the challenges they have from the generic competition, but they say year sales are broadly in line. They reconfirmed the core number, about. 2 on earningspershare, the estimate was about 1. 18. Lets talk about a we rating. The aussie dollar at a twoyear high. This is the blue line. The reserve bank of australia is the is using differently what. Is the finger on the trigger button, are we underestimating overestimating . This is a debate that will reach three europe. It is well above the market pricing, that is what commonwealth of commonwealth pick of australia says, but they are mildly hawkish. The aussie dollar at a twoyear high and the euro is also up. Conversation around wages has also gotten the market excited. There is strength in the jobs market and some of that has removed downsizing for wages, almost as if the phillips curve might still be lurking on the horizon. Lets bring up the wrist ratio risk ratio. Fascinating to watch the u. S. Health care bill, it seems to be dead in the current form, but a lot more to talk about where it goes next, and what does it mean for markets . There has been a bit of a resurgence he and the yen, a bit of selling in the dollar. We have the dollar index your across a broad range of currency, the dollar is is bit. D, down quite a lets look at the shanghai composite. There is a growth story to be had in china. It is about the risk aversion from the pboc. Extending the retreat. Down 1. 4 yesterday. The question for markets is this, is there a herd mentality . Yes, it continues to reverberate through the market, they want to lower the returns on Wealth Management products. This is the core of what theyre trying to do, reduce the risk in the market. S p futures down futures down, it looks like the Health Care Bill is dead and it will not go through congress in the current form. Two more republican senators are opposing the plan, and that takes the risk factor of what donald trump can deliver on tax and infrastructure out of the market. Some still believe, Morgan Stanley doubling down. That is a 10 upside from where we are right now, they believe the company should of trump delivering and profits could make a difference. Get the first word news. Chinas banking regulator has told some lenders to lower rates they offer Wealth Management products. According to people familiar with the matter, ranks including some big lenders received the order from the revelatory commission earlier this month. The move comes as officials try to reduce Financial Risks and stimulate the economy. Chinese home prices surged in june, even as property curbs drive down values in a larger market. Prices, excluding governmentsubsidized housing, rose month on month, up from 56 in may. Profits in fell in large cities that rose in smaller cities, highlighting the challenge. The u. S. Has said iran is complying with the deal to curb its Nuclear Program continues to be a malign influence the middle east. Irans foreign minister says its country remains committed to the commitment to not produce nuclear weapons. Iran is committed not to produce nuclear weapons. That never expires. The Australian Dollar jumped to a twoyear high after it was that the nations economy was improving. A neutral Interest Rate of about two Percentage Points higher from the Current Record low level of 1. 5 . Have been soaring in sydney and melbourne, and encouraging Residential Construction that soaked up many former miners. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Thecan find more stories on bloomberg. A very different day here in asia today compared to what we saw yesterday when the regional index hit its highest level since generate 2008. Today has selling across the board. The nikkei up one to the 1 after a long weekend of being sold out of the banks and carmakers. The hansen is also weaker. Extending their deepest retreat this year, a lot of concern about a dilatory woes regulatory woes. We saw a big spike coming through in the aussie dollar. Looking at stocks in detail, a lot of focus on these wonder wanda deals. Today, plunging on these fears, banks are worried about the risk. To fall. Tinues toshiba is having an ordinary day, its biggest jump since february. This after we heard the u. S. Hedge fund greenlight has picked up a stake in the company and also Western Digital to not gain an injunction to block the 18 billion sale of the chip unit. We were talking about china prices. This actually shows that even though the property curbs is not having property curbs is not having an effect in smaller cities, but it is in larger cities, they are all represented by different colors. 41 ll home prices fall by in beijing in june, the biggest decline in some time. 60 out of 70 cities reporting price growth. Thank you. Back to the top story, the u. S. Mitch mcconnell has abandoned efforts to pass his Health Care Bill. He will inevitably try to repeal obamacare, but without a replacement, it is almost certain to fail. If the gop is unable to deliver on its promise over the Affordable Care act, it would be the biggest failure for President Trump and the republicans the election. Treasury yields fell. Lets get to Jackie Edwards, who covers is for us in sydney. Tomakers have responded Mitch Mcconnells new strategy of a straight repeal of obamacare. I think the work we were talking about earlier is, is it the Nuclear Option in terms of what the gop can do . So far, democrats have criticized Mitch Mcconnells plan to have a simple repeal of obamacare. A plan chris murphy said to repeal obamacare without a replacement would kill insurance markets. Mcconnells announcement, and it is important to note, mcconnells announcement comes as some republican senators are calling for a new strategy on health care debate. Senator john mccain, who is in arizona recovering from an operation, called on republicans to work with democrats and with governors to have open hearings and a more bipartisan debate on health care policy. More will see if something Bipartisan Committee achieved because donald trump has found it difficult to appeal to both wings of the party. Is a possible for this to be successful in any way . What is the chance of success for repeal now and replace later . Jackie it has not garnered a lot of support in the senate among republicans except for the most conservative members. In 2015, the senate was successful in passing such a plan, at this was under president obama and under the expectation that obama would veto such a bill, and he did. This scenario is different, ause there is a president a republican president in the white house and he is called for a straight repeal, as well. Toh a plan, it is uncertain see where this would go because republicans have such a narrow majority in the senate and they can only lose a few votes for the bill to pass. Thank you very much, Jackie Edwards reporting from sydney. Joining us for the next hour, lawrence. Welcome to the show, great to see you. There was a line that, year, mccain calls for bipartisan. Inis a less like deja vu terms of u. K. , everyone link farms across the oil. Thisross the aisle youd is a failure of the gop, and this has ramifications for the fed. Absolutely. What we have is a key piece of evidence that the fiscal stimulus that was part of the trump election victory is going to find it hard to pass through the legislative process come up which means the extra stimulus that would be provided on the physical side is not going to happen, which means the fed has more time to move more slowly, and it ought to move more slowly. Will he be a big effect on markets . Arguably not that big, because this though. Com give this not come from nowhere. I think it is all been about the markets looking at the fiscal outlook and realizing it will be quite hard to get things done. This has significance for the fed and also Asset Classes. I was interested in Morgan Stanley doubling down on the s p by the end of this year. They still believe that donald trump can deliver enough to achieve that and earnings can achieve enough to deliver that. The Asset Classes your following, how much donald trump belief is based in baked in . Laurence i think less and less. We are not only thinking about fiscal stimulus, but we have the debt ceiling issue looming for autimn. For autumn. Uncertaintynormous and interactions in the market. I think from where we are, theres not much which the gop is expected to achieve, and therefore if they do start making things work again i know yesterday anna decided to talk about goldilocks, but have to give credit to the macro. An column what theyre talking about is the citigroup economic surprises. The white line is global, you have the United States and united kingdom. Were back to where we were a year ago. The point is, goldilocks has gone awol. , the data is disappointing, that helps the fed story. Have the bears really gone from the on market . She has left the building, she is fleet of foot, goalie looks. We got that growth number out of china. Laurence shes gone to europe, that is where she is gone. The worlds most popular tourist destination. , it isis doing very well true the u. S. Is disappointing in the Second Quarter, the u. K. Obviously for internal reasons has been undershooting expectations as well. But again, is this really a process . This is against an expectation of quite strong economic numbers. Some have done quite well relative to the expectation. That is the reason why we deliver that doubledigit earnings on the s p. Laurence we were very optimistic. If you look at the u. S. Line, that is what the dollar looks like. The dollar has become weaker and weaker as surprises have come out on the downside again and again. As we were saying, from an expectation there would be good fiscal stimulus, the republican majorities would be able to deliver some a genuine Economic Growth. We are retreating from that optimism. The bond market overdone in your view. How range bound are 10 year yields in the u. S. . Laurence weve been bearish, it has not been very fun the first part of this year. But we had a decent sized selloff in the last six weeks really driven by central bankers, by a slight change in central bank talk, which is that a massive change from what the market has been looking for. Weve had the selloff. It is typical of bond markets bearheir markets and market, the moves up our slowly move slowly. There are reasons why markets tend to drop quickly and rice slowly. It is much easier to be long than short on bonds. Shorts get punished every day. Weve done analysis on how bond market work, and even in the bear markets, basically have to date the market goes up and not dow come and not down, but everyone still you go down. So it has been quite nice. Stay with us. Coming up after the break, chinas stocks fall. Their biggest oneday retreat in seven months. It is after a regulatory crackdown. This is bloomberg. It is 1 20 the afternoon in hong kong. Hang seng is down. A little bit of shakiness in some of the equity markets. Lets get to your business headlines. Recordlix scored a Second Quarter, surpassing subscriber growth and growing its international audience. The provider side of 5. 2 million subscribers in the Second Quarter, 2 million more than analysts forecast. 4 million of those came from outside the u. S. Shares surged in late trading. Citigroup has settled on frankfurt as its newest trading hub in the european union. According to someone with knowledge of the situation, they are looking for approval this week. They look to expand in germany, 200250 neweate role there. Thank you. Has toldanking regular brokers to lower after themes presidency has told the central bank to defend against risk. Droppedghai, is it after its biggest oneday drop yesterday. Lets big two hour economic correspondent. So is china getting serious about curbing a financial rift . If they are, we could see what yesterday,the china chinext yesterday, or maybe that is a story for another day. The language for the meeting is quite striking. It was said it would be a dereliction of duty if they were not to tackle this. They are likening it to national security. Just say we had the front page. F peoples daily warning us i think the language is being ramped up and were seeing steps being taken. We are seeing a move on parts of , companieserates buying assets around the world last year on a record shopping spree here that is being reined in now. Wealththe move today on management products, trying to get yields under control. We are seeing definite steps, although overall tentative baby steps. They dont want to ultimately choke the economy. The president sibley does not want huge risk in terms of the president simply does not want risk in terms of growth. You have shares in Real Estate Company what was the backdrop to the move . They areckdrop is that involved in buying some of the weeks of wanda that last put a chunk of assets on the block to be bought i sooner bought by someone else. That was in response to a government investigation, the conglomerate had come under focus. Bought fromy have da, they are also in his under scrutiny. I think the end result is essentially greater scrutiny on big conglomerates in china, they can no longer go by assets whenever they want. The funding even from state banks will not necessarily be there. I think the message from the regulators is it is a level playing field, no more special treatment. I think that is why conglomerates are getting cut open. What does that mean for Chinese Companies buying Assets Overseas . Thanks very much, our chief agent economic correspondent. Lawrence as to what is. Chinasation story and contribution to the commodity market . Data in termsaw of the commodity market and gdp makes, it makes our us very confident. We could see a slowdown because of a tightening. It seems more and more likely it is the target the Chinese Government has for growth this year will be hit or slightly exceeded. What does that mean for us . I guess that means the potential disinflation or deflationary dangerous just arent there deflationary dangers just arent there. If we look at the bond market, the fx market, the dollar is weak. But this position you have in regards to be fed, it also gives the pboc a window to navigate, as well. It takes pressure off them, because the fat in your view, is a little bit slower to hike. Laurence i think that is true. I think where they have gotten to him according gotten to according to our economist, it needs slowing and tightening not just in terms of rates but regulatory tightening, is one of the ways they are good at finetuning their economy. Thank you very much. Stay with us here on daybreak europe. Next, brexit begins to bite house prices. White house price rises are expected to cool. We look at the data. Breaking news coming from erickson. Secondquarter adjusted growth margin a touch above estimates. Billion against an estimate of 56 point 67. Adjusted operating profit, 300 million. Accelerating their actions to reduce costs. Ericksons management would provide an update on the cost cutting times and asset disposal. Looking for any comment they have about selling assets. The company navigating a period of declining Network Equipment sales. That is something that has played the market. Ceo of the company accelerating plans to reduce cost and increasing reese see an risk of further project adjustments. Risks in the Quarterly Earnings this year with Market Expansion too optimistic, perhaps on the money with this great margin estimate. Yous analysts think that have seven buys, 17 amas holds, five cells and an edge lower as the days and months go on for 2017. Anna also, the adjustments would hit the results by three billion billion to 5 krone. Manus there is a new edition of daybreak here. It is on your mobile and your machine. This is what is making the cover story today. President trump health care, a break reports that the Republican Health bill is dead. Two more senators announced optimism opposition to the measures. Mitch mcconnell to begin a debate. Treasuries fell, mcconnell said the vote to repeal the bill instead and delay two years given that giving lawmakers that time to seek a replacement. That is the worstcase scenario. Anna the next stories european data, which breaks today. Daybreak says the data may underscore divergence in areas. British Consumer Prices helped cash held steady at 2. 9 in june. That is still too far ahead of wage growth to provide comfort to the bank of england. On the other hand, germanys survey is unlikely to offer a picture of solid growth. There is divergent data out of europe, something daybreak draws our attention to. Business hotspot. Final story as daybreak focuses on brexit and the bank citigroup. Frankford is its newest eu trading hub. U. S. Lender will add up to 250 new roles in the german city with a proposal expected to be shown to the board this week. Frankfurt will handle some of the activities currently done in london through the u. K. Though the u. K. Capital will remain the headquarters for europe. Citi was outlining how many people they employed in eastern europe. This is regulated and involves perhaps trading activity. Sticking with brexit, the second round of talks continue in brussels. Warning that uncertainty it is having on market. 3. 7 this pwc expect year, down from 7 last year. House price figures are expected to be released at 9 30 with cpi, ppi and rpis to dissect the eyes is. Mark carney and the Financial Regulation body will be happy. The momentum of house prices 50 , buted nearly still, inflation is up there, 2. 9 . That is what we are expecting today. Or are you in the balance of risks for the bank of england and the dissent westmark can grow . I think it cant shrink. The two voted for rate hikes last time are very unlikely to roll back and it is possible that mark carney himself becomes a little more hawkish. Isll, i think the core view that they are not going to get to a hike and this year. For the moment, the market is priced around a 5050, but it looks like the economy will soften more than is in the banks forecasts. Given what carney has said is that if growth delivers than perhaps they can raise rates. If growth isnt going to deliver, they wont raise rates. Our call is they wont go. There are is a 13 , 14 chance of being priced in for the next meeting. And for the end of the year, about 5050. Anna but this is an live in your perspective . Laurence know it shouldnt be. Anna do you think carney has flipflopped on this or in one conversation he thought what was going to happen, in another, he said if i am wrong about my growth estimates, we could need to raise rates. Laurence the problem is where rates are. Problem was the rate cut and the qb response to the brexit vote. Is, the mandate of the bank of england is clear. The mandate is inflation, not growth. Includingf england mr. Carney are inclined to say of course we can bring inflation down quickly, but it is not worth it given the damage to the real economy. That is not something you would hear from the old bundesbank. Not something you would hear from the ecb. Probably not even in the fed. This is how the bond market feels about the banquet of england. The bank notwithstanding its inflation target is happy to let the economy run hot or inflation run hot for a period of time as long as it thinks growth is slow enough. Anna it has done that before under other leadership. Laurence exactly, and that is why of all the places you can all the bond market you can look at, breakeven inflation is 3 in the u. K. Real yields, were buying in 1 fore insurance, 10 years. This is a market which believes that the bank of england is happy on the whole to let inflation run too high. To letif they are happy it run high, but that is butkely to make august, what does that do for your world . Guilt spreads versus german spreads . Lets talk about draghi a little later. This is the narrowing in gilts over bunds. Would you join the chorus . Laurence it is a very popular view. Theu. K. And other parts of curve have already gotten narrow as they can get, versus euro land. I think the big distinction and a lot of people would pay that for us, it is difficult because what we have a two parts of the gilt market. Inflation, where people are pricing a lot of inflation and there are real yields, which are not only insurance against inflation, but what we think real gdp growth will be in the coming decade. I somewhat got him banking the bank and blaming the bank of england, but the fact is the market is looking at a postbrexit world of uncertainty and i wouldnt say were pricing stagflation but the worst cases growth will be slow and inflation will be high relative to rest of the world, relative target. For the market come back from that, it is not just about the bank of england, but the brexit negotiations which have just started. They dont they said expect a recession, but things are dont worry, it will be a recession. What you just said in terms of negativity is the propensity for recession could be higher than we think. Laurence where less optimistic on growth. Do we get away without a recession . We should because in a funny way, the one thing weaker currency does is cushion the economy against shocks. In a way, that is how the u. K. Economy survived so well in the first three quarters after the brexit vote was all of the wealth destruction took place in visibly to the u. K. Consumer, or less visibly through the exchange rate. Anna the secret for the u. K. Economy is from washington to pass the Health Care Bill and stop the daughter falling. Laurence could be helpful. Brexit negotiations, this is day two of round two of the talks in brussels. David davids was there briefly yesterday. Told the importance of cabinet discipline, as all of the rest of the cabinet. That was the message over the weekend. What is the brexit risk for the u. K. Economy at the moment . Is it around the cliff edge, a is that were you focus . How all of these headlines get turned into negatives in the data . Is it around the consumer spending, the cliff edge . Laurence i think it is not the future, it is the now. The reason it is now is the future is so uncertain and it is not the outcome of the brexit talks if the uncertainty. This is nothing mark carney has highlighted another thing mark carney has highlighted, will investment pickup or not . We have no idea. The corporate sector doesnt have much visibility and it is the lack of visibility that is as much of a problem. You can speculate on will it be a cliff h, whether be a twoyear delay, the fact is you will be up to speculate that speculate on that for months. Laurence mutkin, you will stay with us. Second quarter earnings surpassed estimates. More details. Netflix announcing set a quarter Second Quarter results, but now a higher in violation. A positive sign for the company. They added a lot of subscribers. Forget the Free Cash Flow burn, the cash flow losses, the needle from profitability, the company added over 300 million subscribers. International subscribers are seen as the hope of this company. Competition from hulu, hbo, amazon prime, showtime, fx and many others, all of that competition is raising the cost of content. He still see a little profitability, that number really that jumps out is how many users they have. As long as services are adding users, wall street seems to like it. The concern that arises to me is it is the cost of content. The company had negative Free Cash Flow of over half billion dollars. A run rate of 2 billion a year going out of the cost of netflix. All those marketing costs to add subscribers also adding to their woes in terms of burning to catch. Wall street doesnt seem to care. It is getting this dock up stock up 11 in afterhours. They have successes with viewers, it is adding to the shares of netflix. Johnson, the overseas march of netflix continues. Manus i have to say, i am a customer of both services. Ethics and bloomberg. You can get more cory johnson if you want. Tv on your mobile. Youve got the chance, youve got the functions, you can even ask Laurence Mutkin a question. He is waiting for you. Guy anna coming up, little chance of a quick fix at qatar. This is bloomberg. 1 46 a. M. In new york. Futures a little softer this morning and the biggest discombobulated to u. S. Equity if the goplooks as may need to go for the Nuclear Option, repeal obamacare because they cant seem to get enough votes. Downs lower, but double 2700 is still attainable on the s p 500 index. Burgess or my attention to that. Lets get the first word business flash with juliette saly. Juliette shares and toshiba have in tokyo training is Green Light Capital took a stake during the Second Quarter. Wagering shares will rise after it exists its contract tied to westinghouse. Raised its financial forecast after operating profit doubled in the first half of the year. The airline said adjusted earnings before taxes in 2017 will rise above the previous year. Suisse has signaled the era of costcutting and job cuts mays in be over. That is as it employees have been told it would emphasize businesses that generate high returns is next strategic plan. Work on ato a memo, blueprint said 2018 to 202010 began this month after a strategy meeting between executives and directors to june. If the bank fails to keep its currency trading from using electronic chat rooms to manipulate prices. The fed said the languor lender constituted unsafe and unsound practices and ordered it to improve its oversight in the airline internal controls. That is your Bloomberg Business flash. Anna and manus westmark manus . Manus little chance of a quick fix with the gulf standoff over qatar. Speaking to bloomberg, he said the region needs a solution that will stick for a long time. Weeks, months, as long as it will take them to realize that this is not a crisis, but we are looking for a quick fix. This is a crisis that we want to get to the bottom of and want to supporty qatars huge for terrorism we are seeing everywhere. We need a solution that will stick, we need a solution that is longterm. Anna lets get more now with our Bloomberg Markets middle east anchor. Hes joining us from dubai. Yousef, good to see you. The uae issound like in a rush to and qatars isolation. Talk about a deal that could last but quick in the making. Yousef no and as you just pointed out, this looks like it will take more time. That is why the minister is pointing towards the interesting takeaway they are also arguing qatar needs to reexamine its soonish position when financing extremism and terrorism. Showing a lot of not a lot of progress has been made in finding a solution that caters to all parties in this standoff. And this isard, critical to the conversation, what we didnt get from the minister of state and Foreign Affairs is any indication about possible additional sanctions. They are saying theyre keeping the door open in terms of defending sovereignty but not specifying details and also not smith specifying what milestone qatar needs to hit for there to be any Movement Towards a resolution. Markets are taking all of this positively, qatar stocks continue the rebound and the trade against the qatari is stabilizing as well. What about the briefing that we had from the white house on iran and the nuclear deal . Every 90 days, congress has to certify that iran is in compliance with Nuclear Agreement and so far, that has been coming through. Interesting in the last few hours, we did get a lot of rhetoric from the u. S. Administration around an imminent announcement around iran is complying to the letter, but not the spirit of the agreement. Throughx tillerson statement pointing to the fact they are going to be looking to put in additional measures in terms of punishing iran, form malevolent behavior outside of the nuclear pact. We understand the secretary of state is going to prepare a to congress and given the numbers of companies that have increased exposure to iran off the back of the steel this deal, there can be ramifications on the back of any change in u. S. Policy position. Us fromusef joining dubai with the latest on that story. 6 52 in london, 7 15 in paris. Banks beginning a passwords normalization but for now, all roads go by from for it. Manus policy makers from stockholm to bucharest will be watching for new signals from mario draghi. Month, he hinted that the end of qe was approaching. Hint. Onth was a you have a view in terms of the slowdown in qe and it is a little more aggressive than the market anticipates. Laurence i think a bit more than the market, but still not very aggressive. What we are envisaging, more important than this meeting is the potential tweak to the language of qe. We dont think there will be a tweak to that language. Anna tweak or no tweak. Laurence the view that the tweak comes in september or maybe at jackson hole and the nash actual announcement of further qe after the end of this lower level, i. E. A taper, will happen in october. Manus can i clarify your lack of tweaks, because we have the fine print. You probably did this. And no tweakates on Downside Risk to the economy, paragraph one and two, will he hold back on either of these areas . Laurence i think it is the bias cutie. The idea at the moment is cute he goes on till the end of the year at least. What we will get later in september is more of a symmetrical talk about that. To, for get any change example, the sequencing, the foreign guides on rates. Is our baby steps. The are baby steps because taper tantrum that we had in 2013 in the u. S. , probably slowed up the natural progress the the fed had in mind for normalization and the end of qe and what the ecb would like to do is it would like to proceed without that many speed bumps. Anna in the link, we talked about other countries around europe waiting to see what draghi does and this has implications across Asset Classes, including those that the ecb is buying. Eu junk bond about markets on track for the busiest july issuance on record. You pointed out to me that is because there is a big by right now. Laurence it is buying out all of the other bonds. This is the portfolio balance effect. The more corporate that they buy, the more appetite there is for yield elsewhere. The more you get some Investment Grade come to market. Anna the tightening is coming, therefore getting now . I think so. In the borrowers point of view and the investors point of view, but what am i going to buy today . 1 , in 10 years, there is only so much derision, so im happy to make some credit risk, now the economy is improving. He Government Bonds chart, the last time the greeks were in the bond market was 2014. Look at this, we are now just over 5 . I know you dont like squiggly lines at the end, but when you look at this, this is a momentous moke meant moment if greece comes back to the market, what does it tell us . Laurence i think that the sovereign crisis is receding. Adont think greece has comfortable situation, but it is improved from where it was and as eurozone growth generally becomes more selfsustaining, and more domestically based would you pick up any Government Bonds . Laurence for greek Government Bonds because of the size of the market is not part of the mainstream certainly not g10, not part of the mainstream european Government Bond market anymore, but you can see as we were just saying, there is lots of appetite for highyielding debt. Anna lawrence, thank you for your time, really appreciated this more morning. Laurence mutkin from bnp paribas. Manus now, just over an hour to go until the cash market open. We will bring you futures. We will have a conversation with the ceo of novartis. It just had the numbers. Manus then and rival, the Health Care Bill facing more republican opposition. The dollar slumped and treasury yields fall. Anna china stocks fall further after mondays selloff on concerns of tougher regulations can to nearing to reverberate through the market. Manus mission currently hits a twoyear high after the economy outlook improving. You are welcome, it is bloomberg daybreak europe. I am manus cranny and i am anna edwards. It has just gone 7 00 in london. Coming up, we will be speaking to the novartis ceo. He joins us after the companys Second Quarter earnings. We will get to that conversation shortly. One or two other companies reporting, but lets get into the futures. No, 2. 09, nothing that prophetic. Generally the views health care is dead on arrival. What is the propensity for donald trump to deliver on the rest of his fiscal and in the structure spend. If you read, you read Morgan Stanleys note, they said. Said target of 2700, so there is a view out there that even though the health there Health Care Bill is dead on arrival, all indicated a little over. A lot of inflation data in u. K. , r. B. I. , ppi, cpi will come out ahead of retail sales, what you shopped during the summer. Data ahen we get german little later on. European contract. Here is the risk radar. The yen, theainst dollar index is weaker. The dollar down, broader trump agenda being questioned, the yen gets big on the back of the u. S. Health care bill seeming to be dead in its current form. A lot to talk about with regard to fx markets. With got an fx person in the house for this. Manus jordan rochester, we get to him in a minute. Lets talk about the closures in japan. Shanghai, what are they doing to reduce the growth Wealth Management problem products. You got a drop in the shanghai composite again, extending the steepest retreat this year. Download. 4 yesterday. Calls and question the down 1. 4 yesterday. Down over 1. 14 . This goes back to the australian language. A new terminal rate around 3 , nearly 3. 5 , nearly 2 above where we are on rates. This is being interpreted as perhaps the finger on the trigger. There is the market, equities down, bond markets up, boost trading up 13 pips. Some breakingve news. Keep an eye on these corporates, experian looks as if they are not keeping changing their guidance. Numbers that look interesting. A shared by that program, for Share Buyback this year opportunity returns are limited. Their state and a further 135 Million Pounds of assets. Lands focusing on what happens with the u. K. Economy among the brexit negotiations ongoing in brussels. Manus they talked about what they have 370,000 square feet of letting in the first quarter. That is up 7. 8 ahead of the estimate. Then you get the word that citigroups is moving another block of jobs from here to frankfurt. That calls and question the whole 30 minute propensity of the u. K. Market. Jobs for creating those perhaps, that was the line. Lets get the first word news with juliette saly. Juliette hannah, thank you. Chinas banking regulator has told some lenders to lower the rates they offer on Wealth Management products. According to those familiar, banks including some big lenders received the order from the China Banking Regulatory Commission earlier this month. The move comes as officials try to reduce Financial Risks and stimulate the economys. Surged inme prices smaller cities in june even as property curves dragged down values in larger ones. The National Bureau of statistics said new higher prices excluding government subsidized Housing Group on month by month in 67 cities out from 66 in may. Isis fell in beijing and shanghai, but rosen some smaller cities. Highlighting the challenge for limiting. The u. S. Has said oreillys is complying with a ill bill that is a malign influence in the middle east. Remains committed in the 2015 agreement to not produce nuclear weapons. Dollar jumped to a twoyear high after the missions economy was improving. The minutes of the central bank july meeting estimated a neutral interestrate about 2 points above the record low level of 1. 5 . Australias policy has sent house prices for soaring in sydney and melbourne come a but encouraged Residential Construction. Says there emirates is little likelihood of a speedy resolution to the car crisis qatar crisis because the saudis want a deal that will endure. Speaking during a trip to lender, the minister state for Foreign Affairs said the block need take their signal that qatar is willing to reexamine its decision regarding extremism and terrorism. As they realize that this is not a crisis that we are looking for a quick fix. This is a crisis we want to get to the bottom of and we want to take away qatars huge support for this extremism and terrorism we are seeing everywhere. That willsolution stick. We need a solution that is longterm. 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. The fact there have been hurdles to the u. S. Health reforms weighing on the dollar and some week is coming through from banking players in u. S. Right into the asian session, the regional index retreating from levels yesterday that it hadnt been seen at since january 28 2008. Japan coming back online after a long weekend and being sold to the tune of 6. 1 . You have seen chinese stock extend their steepest decline in the year. A lot of weakness and smallcap players. Australias market closing by over 1 lower. We did see the dollar hit that twoyear high. Having a look at stocks we have been watching, a lot in the hong kong session. Synnex plunging on banks are reviewing the wonder trying to buy german bond assets. One hotel falling further in the hong kong session because of a lot of scrutiny. Toshiba doing well. The biggest jump since february, we saw u. S. Hedge fund greenlight an ounce it had snapped up some of the toshiba stake. Also, talking about the china , you can seerices that even though we did see home prices rise in 60 out of 70 cities, it has been an impact to property curves on the bigname cities of beijing, shane jim shanghai, represented here. We saw home prices in beijing 4. 1 . By. 4 a little reprieve policymakers trying to rein in rising property prices and those toptier cities. Manus juliette, thank you very much. President trumps obama replacement is dead for now after a further two republicans sedated their opposition. Mcconnell abandoned efforts to pass the new bill. Anna instead, he will seek a vote on a simple repeal delayed by two years to get lawmakers a time to find an alternative. Failing to replace obamacare would be the biggest defeat of the Trump Administration since the election. Treasury yields fell. Manus are strategist for the obamacare, thel Nuclear Option, this is has popped sedan consequences for the fed, but all i. There is a lack of relief in delivery of trumps ability to deliver on fiscal and infrastructure. You sure that lack of belief . The demise of the dollar, or is it an overdone and oversold trade . At this stage, it has been a long trade the trump place in trump inflation and the reverse of that in q1 and q2. You are right, the dollar has come off a long way but it has a little longer to go in terms of dynamics. Not just trump, you have the fed and lowinflation environment. Questioning if they will hike in december. When it comes to trump and the Market Reaction today, i find it fascinating. The dollar suffered this morning on the fact that the Health Care Bill is going to be delayed again. This was already expected. You are he had two senators saying it would back the current form, but you have ted cruz saying it wasnt enough. Anna there is some trump expectation built into these currency markets. There was and that was probably the last little bit of it. Surprise this year is if you doubles down. If he does and says ok, we cant do health care, lets do tax reform. That is the same sentiment, there could be upside if the Trump Administration doesnt deliver on various fiscal plans. And it would impact the dollar a lot. Look at dollaryen, that would support the yield picture. For me once, shame on me. For me twice, that story would be happening. People about how much he could do. Without health care reform, the tax cuts he could do are limited. It is a smaller. Than before. , balancene you use sheet reduction by the end of the year. I wonder to what extent, if at all, does that though steep curve shape the theory in the u. S. You remain convinced it is doable, even though the veracity of the data is looking shaky. Jordan the feds message if you look between the lines, they will do this but despite with the data is saying. They need to normalize policy away from the emergency sentiment and you will are seeing that globally among central banks. They have to be forwardlooking, so the peak of policy impact is on a twoyear horizon. It is not yesterday. Central banks need to be forecasting for we can expected recently, but need to move on and make the adjustment. I read in earned editorial piece around fed policy and they make the point that gently dialing back a strong monetary stimulus instead is the tightening and ordinary sense. Absolutely. You are still at low rates compared to history. We are still up from her that is. For now, the fed is in a good place. Sidetracked. Here we go. It looks like they are talking about a terminal rate. The reason i think this closes in nicely as you have the fed reducing balance sheet, the ability to raise rates, anybody is going to discuss where terminal rates are. They are talking about the signaling of a terminal rate of 3. 5 . Above 2 where rates are. Does this start the discussion about terminal rates globally question mark it already has. On the r. B. I. , it is interesting. We are short aussie dollar right now. In next move from the rba the next 12 months is down rather than up. The hawkish central banks, but not so much on the commodity currencies. Some of the comp conversation seems to be a sense coming through in the jobs market has removed some of the Downside Risks for wages. It creates inflation. Not Strong Enough is the story from our side. Also, you have cpi, the core component compared to normal levels. Retail sales tomorrow, 2. 9 on the headline. Forindicated august is live the bank during the. A number of people we have spoken to have a moderate level of hesitancy, though it is not. Are you still convince the next move from the boe is up and in august . Jordan definitely up. I think the market under prices how close we were to 25 basis point hike in june. If mark carney had been more hawkish, his vote would have been the decider and we would at a rate hike. It has been ignored by a lot of people. Anna newcomers side with the governor . Jordan they can, who might turn a hike. To it is not august, it is november. It is that sort of story rather the move is cut. Interesting thing about the commentary is a lot of people say the bank of england will not hike until project. Strange toseems for me. That is probably when you have the uncertainty of when a transition will and we might have the cliff edge. Why would the bank of england hiking at the scenario . Anna thank you, good to have you on the program. Chinext. Ordan rochester of nomura manus novartis, amid early signs of a revival. We will talk to the ceo next on bloomberg. Anna welcome back. Bloomberg daybreak europe, 7 18 in london. Euro stocks 50, german tenyear yields and the july market. All of those featured on this graphic we have. Just a snapshot of where we are. We are expected to open weaker on the European Equity markets. Those cries when you consider the headlines around health care in the u. S. , perhaps there is still some trump expectation in markets and rolling through as we get disappointments like overnight on health care. This is the dubai equity market for you. Come by. 3 down by three point. 3 . Juliet has your business flash. Manus juliette toshiba shares have soared in tokyo trading as Greenlight Capital revealed it took a stake in the conglomerate during the Second Quarter. Wagering the firm is toshiba shares will rise once it exits its moneylosing contracts tied to westinghouse. Lufthansa has raised forecast after operating profit doubled in the first quarter. Adjusted earnings before interest and taxes in 2017 will rise above the previous year. That topped it earlier prediction the measure would be slightly below. That is your Bloomberg Business flash. Novartis has reported a smaller decline in Second Quarter profit than analysts had rejected. Early signs of revival in eye care division. Lets speak the ceo, joe jimenez who joins us. Great to have you on the program. But talk about how can this morning, you are expecting to deliver an outcome. Does this give you more options . How committed are you to spinning office fish in business. To seeleaseds is the turn. In the Second Quarter, a group 3 but it wasnt just the vision care business, which is the contact lens business, but the surgical side of the business, which is cataract surgery and lenses. They were also up. We never said we could predict which quarter we were going to start to see this growth, but if you look at the business, we are getting some good momentum back. At the beginning of the year, i said we were going to undergo a business,the everywhere from keeping the business to Capital Markets exist, and the beginning of the term, it improves options that we have available to us. Ar example, if we were to do Capital Markets exit, we would want see number of quarters of consecutive growth. We are pleased with the progress the team is making and hopefully, we can continue this momentum and drive additional growth in the back half of 2017 and into 2018. Morning to you. When you say it improves options, naturally we have to press you a little bit. Is that ipo, is that trade sales . You are halfway through the year, you must have a clear vision through your mind. Where you leaning at the moment . And the consequence in terms of what we do with the funds for shareholders, they are looking for better returns. Would you sell the other states you have, as well . Joseph let me talk about some of the options. It is too early for me to say, because we have not made a decision. I said wed get an update at the end of the year. Right now, we are doing the valuation, the carveout financials, looking at what it would look like as a standalone standalone company. One expense to shareholders where we give this business back to our shareholders and they are able to get the upside of what that means over the next few years. That would result in actually very little proceeds to novartis , but if you think about our from a shareholder standpoint, they would get the full value of novartis and people to get the full value of an independent outcome business alcan business. I will give an update when we get closer and we have seen a few more consecutive quarters of growth are volatile. I wish i could be more specific, but we will have to wait till the end of the year. Anna tummy tuck you about something else. Your relationship with glaxo. Glaxo wasggest a preparing to buy out the state that novartis holds in the Consumer Health business, the joint venture you have with them. You have an option to sell your stake back to glaxo in march. What is your thinking on that as it stands at the moment . Joseph we are very pleased with the way glaxo is managing a business. The business trendline has shown good topline growth and they are showing very good margin improvement on the business. As you know, when we entered that joint venture, we said our business was too small that the global scale we need to get margins up and get growth rates up. I think we are proving that combining that by these businesses, you end up with a bigger and stronger business. While it is true we have the ability to put our shares, 2018, we in spring of have made no decision to do so. That is because the value of this asset for novartis continues to grow. We are going to continue to watch the way that the Business Performance and we will make a decision as we go. Manus joe, Perfect Timing for you to join anna and myself. Obamacare come of the replacement of obamacare, looks as if it is dead in the water at the moment. Your take on that, the consequence of that, what is going through your mind as you read this story this morning on your bloomberg . Manus well it is unfortunate there wasnt the ability to progress the repeal and replace. At novartis and in fact, the entire industry, we are all about is insuring the patients have access to medicines, Innovative New medicines in the u. S. We want to make sure as many a people have axis as they can. I cant predict what will happen in the u. S. I read the reports as you did this morning, it is a volatile situation, we watch how it progresses, but we are going to stay very focused on advocating for the patient and insuring that patient has access to these new innovative medicines that are coming from these pharmaceutical companies that are extending life. That is really where we are focused. Anna what signals are you getting on drug pricing in the United States. Something that President Trump was vocal about during the campaign. More recently, it seems there have been reports that an executive order could ease the Regulatory Burden and are you more helpful than perhaps you are when President Trump was elected around the icing . Drug pricing . Early to say. Too were going to watch what comes out with the executive order. But we have been advocating for is a shift away from a transactional approach where we are getting paid by the pill, lets say, to an outcomesbased approach where we get paid for the results that our drugs deliver. We think this can reduce a criminal this amount of waste in the system if there are a lot of regulatory hurdles that prevent us from entering into those kinds of contracts with payers. We have been advocating for that shift from transaction to valuebased, not just informed circles, but also in hospitalization and physician care, because that is what we think fundamentally needs to happen in the u. S. For the sustainability of the health solid in theo be future. Were going to continue to advocate for that, we are going to react to whatever comes out in terms of an executive order, but we continue to believe that the u. S. Values innovation. This is an important industry in the u. S. , we spend about 70 billion , ceo at novartis. Thank you for joining us this morning. This is bloomberg. Guy good morning. You are watching Bloomberg Markets the european open. Ashes about open. Cash is about open. We start negative, but not by much. Im guy johnson, were watching health care flatlining. Saymore republican senators they will oppose Mitch Mcconnells obamacare replacement bill. To be honest, what does this mean for the rest of the trump agenda . Up down under, the rba saying Economic Growth is priced