Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20170815

Welcome to bloomberg daybreak europe. Im anna edwards. Manus cranny. A couple of push and pull factors in the market. Last week volatility was surging. Anna i noticed. Manus was that your opportunity, maybe, to sell volatility . Yes, we flagged those massive warns, its game on as north korea strikes guam. What does that mean . We had the biggest jump in volatility in three years. And they piled into an Exchange Rated fund that shorts volatility. The fund gains if the markets get coma. Anna investors are aware of the fact that when the vix rises, it typically falls afterward. That is reflected in the appetite. Lets look at the risk radar and show investors had that translate into headline stories around north korea how this translates into a risk on atmosphere. Asian equities, up by 0. 5 . On the one hand, you have these comments coming through from jim mattis, who says it is game on. But the wall street journal cites north korean media, saying kim jong un wants to watch the u. S. A little more. That push and pull has gained the attention of the markets. Manus this shows you the whip and bang you have in markets. The markets have checked the perspective, and they are going with the loswall street journal article. The yen is getting sold. Anna the yen is getting sold. Dollar is also getting a boost from the feds dudley, talking about interestrate increases in the feds cards. We are back to talking about the fed as well, alongside the geopolitics. Manus and of course, the other comment coming from dudley. We will talk about that. You dont need a phd, do you, to run the fed . Anna we will get a further update on the Asian Session in just a moment. For the bloomberg first word news now, lets get to sophie. Reporter donald trump has called out White Supremacists for their role in charlottesville. There was an initial failure to peopleese accountable. Racism is evil and those who cause violence in the same are thugs, including the kkk, neo na hate groupser that are repugnant to everything we hold dear as americans. Ceo to the third quit Donald Trumps panel in 24 hour. It has become a meshed in the political fallout. This came just hours after Kenneth Frazier stepped down, followed by the ceo of under armour. President trump has asked his officials to investigate how china handles intellectual property. He directed u. S. Trade representatives to consider investigating chinas i. T. Policies, especially the practice of forcing American Companies to operate with their technological know how. Worlds two biggest economies are working to contain north korea. The u. K. Government wants to maintain bureaucracylike trade after brexit, and perhaps, pertinently. The proposal is likely to raise eyebrows on the continent, but has been shared by british businesses. Shares accounted for 5 of his fortune have been given out. The billionaire donated 64 million of the shares, valued at 1. 6 million. Gates has made the majority of his donations to the bill and me linda gates foundation. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. You can find more stories on the bloomberg at top. Markets a look at asian lets go look at asian markets. The nikkei 225, rising for the first time in five days. Gaining over 1. 3 . This is a safe haven. Dollar, back above the falling along with gold. Financials are leading gains and chinese markets, and in hong kong. The hang seng continues to recover from the worst weekly drop this year. Column ofe the green. We cannot neglect the earnings we have gotten out of this region. Highlights, wee expect to turn the First Six Months profit since 2014. The stock, mmg, hit a fiveyear high just this month. Jump they must than 18 months after the First Quarter results. Dominos pizza though, falling almost 18 there. We see a broad risk on theme in the markets. But this chart shows you the korean bond risk. Korean debt risk, the line in white, that has jumped the highest level since february of 2013. That is rising above chinas for the First Time Since 2013. This is in despite of koreas debt being rated two levels moodys. Ina by manus the mood can shift quickly. Jim mattis has warned it would be game on for north korea, game on for war if north korea hit america, for its territories, including guam. Anna this came after the top u. S. General assured a diplomatic solution was Donald Trumps top priority. Kim jong un had discussed plans for guam with his Commanding Officers during an inspection of military forces. Manus for more, lets bring in Jodi Schneider from hong kong. Here we have the defense secretary using phrases like game on. Where are we . What do you make of the secretary of defenses remarks . Clearly, the defense secretary of the north koreans are reaffirming some of the statements they had made earlier in terms of their willingness to seek reprisal if any missiles are fired. However, we have heard a number of things, including just recently from the south korean president moon, saying he wants to avoid an all otut war. There is this back of fourth and clearly, the war of words has continued, but there is the attempt to calm things down. The markets are seeing that now, trying to take some of the more heated rhetoric out of the equation. Anna National Liberation day takes place, celebrated in korea. This anniversary today, is that significant . Is that tied in with further testing . Theell, so, this is anniversary celebrated by both south and north korea of the end of the Japanese Occupation of the peninsula. They basically, both sides, use this as a way to basically do some kinds of military style kinds of events. We may see some testing. We may see some drills. We might see some of japan as well, with the u. S. In the incoming weeks. This goes on regardless, but much more attention is being paid now given the heightened tensions in the world and the comments donald trump made last week that set off this war of words. Manus Jodi Schneider, thank you very much. Onset for the next hour is Nicholas Gartside. Anna goes away for a week, the world goes on fire. It is all your fault. What we have here, jumping on the fact that it looks as if we seem to be stepping back from that brink. Is that a moderate interpretation of the news flow . It is. As we look forward, expect probably some more quiet, as we look forward, when you think of these geopolitical flashpoints, the fact is, they are not unique. Whether it was brexit or the french elections, they will be much more looking forward. When you strip that away, the key is to look at the underlying economic fundamentals. When you look at those, they are pretty robust right now. Anna but you do have to deal with the geopolitics to the extent that it increases appetite for bond investment and dress treasury yields down. How does that impact your quarter. You have been talking about a range of 2. 5 to 3 by year end. Are you concerned that we will not get up to that because of the safe haven flow into treasuries . That is courageous, lets be honest, 2. 5 to 3 . That key dynamic is going to be september when we get a radical reaction function change from the fed. Of course, they are likely than to be selling bonds, not accumulating bonds, for the first time in nearly a decade. Thats unprecedented for the market. Manus that is what could bring the market into that bandwidth but there is one issue for the fed, inflation. It is not hitting the target and the debate on mliv, why would you buy protection . We have rick rider over a blackrock. Do you think that lack of inflation is a reason to be treasury heavy . We have had five inflation prints. So, every bond investor will it knowledge that. Itn you look at structurally, inflation is likely to be lower, not higher. The key question for treasuries is we still have this emergency level of military policy. Does that look suitable for an economy that is probably going 3 to 3. 5 , in the cawse of the u. S. . Anna you can use that argument to argue that we do not need to pay too much attention to gold prices, where we have seen a surge. We have had paulson, and others, talking about appetite. But they have been rewarded if they have been holding gold recently because of the geopolitical tensions. Moreinvestors are concerned about geopolitics, then they are that Interest Rates are going to change. I think you are right. Its just that, though. It is effectively a hedge for those environments. Manus it is a magic moment really, for tesla. In terms of dieselgate, battery park. They flogged bonds last week. You could not give enough of them last week. But is there anything going on . Do you see any canaries in the junk . Is there a warning sign . This market has all the indicators of a mishap waiting to happen. Investors are climbing the wall of worry when it comes to highyield. Strip it back all the way to fundamentals. Your risk with the junk bonds are the default rates. If economies are growing, and that exerting rates of growth, rates go down, not up, from here. The reality is, that spread is likely to test the lows. Thats around 0. 5 from where we are now. Anna looking at the politics, we have talked about north korea. President trump though, being criticized and he has now come out and criticized the altright and kkk. We have seen members of the Business Advisory Council Stepping away. I ask this because it goes to the question, how much is priced into markets . Because all of that is looking increasingly difficult when you see donald trump falling out with members of his own manufacturing council. Markets are looking for some form of deregulation and for tax cuts. We are very early in, lets be honest, to the trump administration. Thats what mark is will focus on. Over that time period, plenty of time. Or deregulation, and that is what markets will focus on. In terms of the impact on the economy, both of those things could be powerful. Manus dudley, the new york fed, actually said that gary cohn is a reasonable candidate. Gohn in charge of the fed . With that shift the bond Market Dynamics . A faster acceleration of Balance Sheet reduction . Perhaps, but if you think of institutions like the fed, they are anchored in regulation and they are anchored with two anchors that look at inflation and employment. That will be the way to unlatch the fed. Manus nick, thank you. Toa as the u. K. Seeks smooth brexit, we focus on the british governments move to remain close to the eu Single Market after 2017. This is bloomberg. Manus it is 1 20. Hong kong. Day in volatility dropping for the second day in the hong kong, 5. 05 . Lets get to the business flash. Corporate management viewsilt danum because it the company as undervalued. Danones u. S. Traded stocks rose on the news. The cofounder and chief strategy airbnb says asia is the companys biggest opportunity. Tobe theas fastestgrowing region. This has been a story now for three years. Its been our top region. If you look at all the industry numbers, it is the biggest opportunity on the planet. Reporter the chinese businessman has taken charge of the English Premier Football Club in southampton. He had agreed to take an 80 stake in the club. His daughter will also become a partner, alongside the existing swiss owner. That is your Bloomberg Business flash. Anna thank you. Now, the u. K. Government wants to maintain tariff free trade with the European Union after brexit. A series of papers aimed at fleshing out the brexit plan. Eu said it would seek for a close relationship with the u. K. Manus meanwhile, the u. K. Cpi data will likely show that it will fall back in and annual inflation last month was a blip with the weak pound continuing to add pressure. Lets get the thoughts of Nicholas Gartside. Summer is over, big ben is silent for our years. But inside westminster, theres a lot of chatter. The lines we have gone at the moment, this is one of the first papers. We looking for a Close Association with the blocks custom union for an unspecified amount of time after it leaves in march 2019. That is pretty wide. When you get to negotiations, there are two side. S this is aside from the british government. From the European Union side, they will have a different interpretation of that. The key is to look at sterling, which is the lightning rod. When you look at sterling this morning, absolutely unchanged and that is correct. If you look at things like the fairlyerling, you see a pronounced euro. Manus this is volatility dropping away. Is that where the risks comes from during these trade discussions . See a lotikely we more volatility going back into the pound as those negotiations certainly comean attraction. Is expectation from the u. K. To Start Talking about the future arrangement with the European Union in the autumn, which could be premature. Anna politics can move things. At the moment it seems there is a lot of talk about a lot of things, but we will not get facts. The market will have to interpret what they think is the most likely path for outcome at all stages. If you go back to lessons before where we had big political events around things like the Scottish Referendum , the reality there is,the focus becomes laserlike as you get close to that mandate, which is march. There will be a lot of noise there. It is reasonable that the sterling quality and goes up. Looking this morning of the probability of a rate hike fades away 23 in december. We get the cpi data today. We in the u. K. Are suffering the same global phenomenon, but it is a sterling phenomenon, not a domestic inflation phenomena and that gives the bank of england in check. Do you agree . No, when you look at the bank of england, the risk is they hike rates. When you look at inflation, it is likely to stay at elevated levels of 2. 7 . Against a target of 2 . When you look at underlying rates of economic activity, they are ok. There is a risk in the u. K. Of gdp growth, and its stronger, not weaker. Anna so, is the bank of england about to make a policy mistake, if itd oet does that . No, because ultimately what they are doing is reversing that postbrexit cut they made. Manus but is that all you see them doing . This is just off emergency. Absolutely. And when you look at the u. K. , doesnt need emergency levels of Interest Rates . Clearly not. Anna do you expect them to do more than just that, reverse the emergency come they 25 basis points . That is the first step and then you see how the economy copes with that. And then it does shift here. In the future you would expect more in the way of rate hikes, but this is underpriced. Anna we will be speaking about brexit more. The former u. K. Chancellor joins us at 10 30 u. K. Time. Manus up next, australian citizenship confusion. We talk about the politics of australia and good government. Anna welcome back, everybody. 6 30 in london. The pound against the dollar, 1. 2965, pretty much unmoved by the announcement from the uk. Government seeking an interim customs union, or some Close Association for an unspecified amount of time. We will return to that subject during Early Morning programming. The new edition of daybreak is available on your mobile. Manus interesting picture on the start of daybreak this morning. Moderately treasonous picture. Im not sure. Is for anybody who has not visited the outside of buckingham palace. This is the beefeaters hat. Down ofws the slow nothing more than a temporary dip, though it is well ahead of the bank of englands 2 target, but it is unlikely to shift the monetary policy. The boe will announce its latest inflation figures at 9 00 a. M. This morning, but Nicholas Gartside has decided, in his wisdom, that it could mean a rate hike. Anna we discussed that, didnt we, manus . As tensions between the north korea and the United States, both sides play a waiting game. Expressed he would watch what the u. S. Is doing a little more. Meanwhile, jim mattis said they could take up any missile from pyongyang. The market is focusing with a risk on attitude, focusing in on the lets wait and see message from kim jong un. Manus we are focusing on William Dudley from the new york fed, signaling another rate hike this year, looking increasingly likely. You he will outline his plans next month. He also expects an increase in inflation as labor markets tighten further. Anna gdp data from europes biggest economy is due in 430 minutes. Lets focus on the european outlook. Still with us, Nicholas Gartside from j. P. Morgan Asset Management. Nick, we are looking at the growth story around europe and how strong it is. This ties into the german politics because Angela Merkel is looking for another term. What are your expectations around German Growth, and what that tells us about the european recovery story . If you look, it is on fire, isnt it . The momentum is very strong. When you look at that , it has a fair bit of attraction. Lets talk about that. Manus they are at 40 basis points. My question is simple. Is that emergency setting, and what does a reset look like for you . A reset is when you get that 40 back to zero. There is a cost of running a negative Interest Rate in terms of capital, in terms of the impact it can have on stopping banks lending. The secondary thing should be to do with the Balance Sheet. It looks like the ecb will do the opposite. Firstly they will deal with the Balance Sheet and then to Interest Rates. Arguably, they should do the reverse and deal with that negative Interest Rate initially. Anna did you have any quest to change your assessments of where the ecb goes and when . We heard a reiteration from the ecb. In. ve left that what does that tell you . They have been a little bit all over the place when you look at the ecb. Yet again, the difficulty has been inflation, or the absent of inflation. Looking forward at mario draghi, at jackson hole, will be critical. What we have seen their since we last spoke is a fairly strong euro. That sucks deflation into the eurozone, going against the ecbs policy objective. What we need to watch at jackson hole anna yesterday we were having this conversation about how draghi had avoided saying too much about the euro over the summer, times when other central bankers might have tried to talk down the currency, and he has not done that. Do you think he might decide to do Something Like that . Absolutely, think of just the eurodollar move to date. Level,et to that 1. 20 that becomes increasingly uncomfortable for the ecb. Sent tois is one anna me yesterday about credit. Basically, we are trying to find the litmus test of risk. The high yield runs through rest. Anna this is the credit default index. It had its worst week in a ye ar. What does this say to the corporate universe, what do the geopolitical vengeance do in the shortterm and how do you play it in the mediumterm . This could be entirely coincidental look north korea. You could see a lot of supply in places like europe. The market has got to take down a lot more in the way of Corporate Bond risk. It could be reacting too bad earnings from certain companies. When you strip away all of this, the key is the credit risk rhenium overtime is going down, not up. Anna but it matters which of those is driving it, but south korea manus it is almost as if last week was a mask in terms of something more subtle and the markets. Anna the other things you mentioned sound more fundamental. May become we are in august as well. Maybe, we are in august as well. Investors should use opportunities like that to accumulate more credit. Manus we will break the gdp germany. We are touching on the election fever. The growth will be strong, but the debate is the economic surprise theres have been lackluster in the u. S. Economic surprises have been lackluster in the United States, versus europe. Have we passed the peak in terms of economic surprises for europe . Probably, and there is a definite seasonality here. Second quarter data is always weak in the u. S. The second half always tends to be stronger. The greater surprise is likely to come from the u. S. We are likely to see that from central banks. The fed doing Balance Sheet reduction and then increasing rates later this year. Anna Nicholas Gartside stays with us and we get his thoughts on another subject in a few moments. The Australian Bank release the moments from the policy meeting. The outlook for the economy improves. Manus meanwhile, the company is gripped by politics. Be barredyce could from serving in parliament. He had been advised by the new Zealand High Commission that he could be advised by dissent. Anna lets bring in michael heath. How much risk then, lets talk about the politics here. We have the news around the rba. It might have gone under the radar. How much of a risk is this to turn the government . He does not have a huge majority, does he . It is potentially very serious because he only holds a majority on the parliament by one seat. The case hasnt referred to the higher court to make a decision. In the event it has been found that he held dual citizenship while elected, he would have to resign his seat and recontest it. It could lead to quite a chaotic situation. Potentially, depending on what the high court says, it could be significant for the government. Disruption, lets see what it does to markets, but in terms of the detail on the new zealand Opposition Labor Party alleged involvement in the case, whats happening there . Its quite extraordinary. The Oppositional Party in australia has contacted somebody in the new Zealand Labour Party to check in on joyce, and what appens if your parents is new zealand citizen. The automatically inherit their citizenship, which is aims you seems you do. Thee government is talking of a state interference into australias affairs. He is the train the australian interests by threatening the stability of the government here. I mean, very overblown rhetoric, but it highlights the extreme nervousness in the Turnbull Government about what could come out of all of this. What we are seeing is quite unprecedented. The new zealand new Labour Party Leader said she actually knew nothing about this and highained to australias commissioner about some of the language our foreign minister used. These are two countries that are pretty close friends. To hear this rhetoric is quite unusual. Anna the heightened rhetoric continues. What does this mean then for the path of Prime Minister turnbulls economic agenda . Where does this leave it . At risk, i guess. It is very difficult for this government to get clear air. Yoseems to lurch from crisis crisis. To be fair, who could have seen this coming . I think a lot of people have sympathy with the deputy Prime Minister. It is not an oversight, just an extraordinary situation. It seems either they should themselves in the foot, or something it seems either they shoot themselves in the foot, or something comes up. If you get to a situation when they lose the majority on the floor of parliament, there is nothing to talk about with an economic agenda right now. Manus michael heath, thank you very much. Nicholas gartside is with us. It is fascinating. This is tit for tat at an extreme level between the australian and new zealand government, but from a market point of view, where will it be most manifest . X,ll it be in credit, in fix in the equity markets . Probably currency markets. When you look at australia, in a sense, and comes back to the outlook for Interest Rates and monetary policy. When you lookis at australia, it is this economy of two halves. It has been the International Success story for well over a decade. You had this commodity boom, but at the same time you have this buildup in terms of household debt, which constrains the rba in terms of what it can do. What they have done to dampen house prices is a lot of macro measures. When you look at the commodity prices, the key there is china. China surprised with the upside. You look at a lot of commodities, whether it is copper or iron ore, effectually at recent highs. You mesh that together and they are probably on hold in terms of the rba. Anna we have the rba minutes overnight and they put the spotlight back on the household that story, but you think they are on hold . They are on hold because they macroith that with measures. Manus thank you very much, Nicholas Gartside, our guest host. A reminder, if you are a customer, you get tv. You can stream everything, all on the right hand side. You can also click on the bottom left hand side. You cant see any of this, can you . Anna no that is. 6 43 in london. We break down the latest report from the iea. We have an exclusive interview with the head of oil industry markets. Neil atkinson joins us next to talk oil. Manus 1 47 in new york. Futures are up 0. 25 . Lets get the Bloomberg Business flash. Reporter thank you. Corvettes management has built a anone, because they viewed the company as significantly undervalued. The activist fund owned shares in danone worth about 400 million. The stock rose on the news. Representative for corvex and yogurt maker declined to comment. The chief Strategy Officer of airbnb that asia is the companys biggest growth opportunity. Asia is the fastestgrowing region for us. From a low base, although quickly catching up. This has been a story now for probably three years. At all the industry numbers, it is the biggest opportunity on the planet. Reporter chinese businessman gao jisheng has taken control of the english premier foot volley in south london. Football league in south london. He will become a partner alongside the existing swiss owner. That is your Bloomberg Business flash. Anna thank you. Oil output from u. S. Shale producers is poised to reach a fresh record next month, further public getting opec efforts to support prices. Lets get more from tracy alloway, joining us from abu dhabi. Good morning. What does this tell us about the resiliency of u. S. Production . Good morning. I think it tells you that the resiliency of u. S. Shale has been stronger than analysts and opec members anticipated. You can see that in the production forecasts from the iea. That re productiv predicting production will be taken to 2. 6 Million Barrels a day. There are a couple things contributing to that resiliency. The first has to be prices. We have this dynamic happening where whenever opec reduces its own output, this lends a hand to the shale producers and they are able to stay alive for longer by heding their future output costs. The second factor has to be the overall Capital Markets. We see this environment that is conducive to any company wishing any debt or equity. The Capital Markets have essentially been wideopen for the last year. Manus thank you, tracy alloway. Joining us there from abu dhabi. Lets get more on the oil stor ies. In Neil Atkinson to make some sense of oil this year. Hes part of the markets division at the International Energy agency. Good morning. Listening to tracy, talking about shale and the reduction of the iea numbers, is this the biggest challenge for opec . The constant banging and clanging of the frackers in the u. S. It is not the only challenge, but it is one of the biggest. The resilience of u. S. Shale producers are on their way back up, and would prices fell to 150 per barrel, their resiliency allow them to stay in the game by cutting costs and improving efficiency surprised most people. Now that production is rising, we should issue a warning. Prices are stuck around 50 a barrel, slightly less for u. S. Crude prices. It is not as if the production is roaring ahead. It is growing fairly strongly. There are signs that the rate of growth is beginning to ease back. So, we should not get too excited about it. The other challenge facing opec on the production side is the two countries, which are not part of the agreement, libya and nigeria, which are both seeing production rise rather faster than most of us expected, diluting the impact of the opec cuts. Anna can opec achieve the rebalancing of this market with the current compliance levels that we have seen from opec . You are getting this market back into balance. That has been the goal of many. Is opec on the right path . The compliance rates for the period of the deal as a whole 80 , which by historic opec standards, it is pretty good. They met last week in abu dhabi. They will have other meetings were they will try to remind members of their obligations to ensure that compliance rates remain high. Part of the problem has been that while they have been complying to greater investment extents with their output caps, the libyan and nigeria surge in what they diluted have achieved. Anna do we need further cuts pledged . It depends how quickly you want to achieve rebalancing. What we read in the oil market last friday is come if for the sake of argument, stocks continue to fall at the rate they did in the Second Quarter, even by the en of the currentt opec output deal, stocks would still be above the fiveyear average, which is the target that opec themselves assessed as being the one they wished to hit as a sign of rebalancing. Manus what is the worst Case Scenario then, when this deal runs out in march of 2018 . From what you just said, i would walk away. It suggests 30s to be an extension after 2018 to get rebalancing. It suggests that threre needs to be an extension after 2018 to get rebalancing. Unless there were to be a huge increase in the oil demand, he would have a big increase in supply and prices would come under pressure, but a lot can happen between now and then. To sit here in the middle of august and know what the position will be politically is a difficult stretch. It seems likely that if they wish to achieve the reduction of oil stocks down to the fiveyear average, they will have to dig in for the long haul. We said in our Oil Market Report last friday that rebalancing is a stubborn process. It is taking time and we will have to see. Anna would you define rebalancing in the same way that opec does . Do you think that fiveyear average is still the right target . The fiveyear average, in terms of volume, is what they said was the target. What we see at the moment is very Strong Demand for oil. We increased our estimate for demand growth for 2017 in the last report. Demand is going pretty strongly. As demand picks up and gets even stronger, as you look at the terms ofoil stocks, in the days of forward cover for demand, the stock picture starts to look rather better. Perhaps, the target they are looking at is perfectly sensible in some respects, in terms of the sheer volume. But in terms of forward cover, perhaps the situation is not quite as bad as it looks. Manus is there any reason to believe that the oil can go much higher than the 50 level we are at, given the picture you just painted . The reality is, any sign of tightening of the markets for whatever reason, that comes back to the point that tracy was making. The resilience of the u. S. Shale producers and the flexibility, the ability to bring on more oil at relatively low cost and short notice means any signs of life, as far as the price is concerned, encourages more u. S. Shale. The price is self capped. Manus where does that slelf ca p come in . Is hard to say, manus. The beauty of the shale production is, with the costcutting, we cannot really be sure what their ability to ramp up production is. I suspect you are right, somewhere in that mid 50s range. Anna thank you, Neil Atkinson. Fascinating conversation around the oil story. Manus south koreas president says the military action against kim jong un requires his nations approval. This is bloomberg. Manus u. S. Defense secretary james mattis ones that north could strike on guam quickly escalate to war. Asian stocks rally as kim jongun says hell observe washingtons conduct a little more. Anna in could quickly escalate to war. Washington, the third ceo to quit president s Business Panel has been a class over handling of the riot. Opposes. K. Government it. Of tariff free trade after brexit. And serving the part. Investory act best sending the stock surging in the u. S. Manus welcome to bloomberg daybreak europe. Welcome to the program. ; k london, lets talk about the German Growth story. We have Second Quarter earnings through june germany. Grew by 0. 6 , to estimate was 0. 7 . Forla merkel, bidding fourth tour is german chancellor. Europes largest economy, not growing as much as analyst estimates, but in line with what we saw in previous quarters. In the First Quarter, 0. 6 , as well. In line with the previous quarter, but not as bullish as some estimates have led us to believe. Germany entering the final stretch into the election. Merkel benefiting from the solid growth story we have seen in germany. Points clear of her arrival in some estimates in the latest polling. Recently estimating an optimistic outlook for the german economy, saying they probably eke expand in the Second Quarter, perhaps 0. 6 is still robust. Not quite what economists were looking for, but not a million miles away. See what marios draghi has to say at jackson hole, whether he goes to the conversation around the value of the euro. Futures, suit issues at play two issues at play. Warm, but astrikes wall street journal report drew up aongun careful plan but they will watch a little more in the United States. You have us stepping back from the brink of anxiety at the prospect of war. European equity markets are higher. Global equities are now within one percentage point of their alltime high last week. This all transfers into the ray risk radar. Markethis battle for the when you look at the war of words between the United States and north korea, which comments are the market attempt to . To what extent can they set that aside and focus on other matters. Over the weekend, comments from a charming pastors that downplayed the risk. Angle,attis with another markets are little risk on and state media stories from north korea talking about watching the u. S. A little more. As a result, the s p up a little. Manus gold cross a little, it is dollaryen. Moreuggests on a slightly risk on. By 30nd market is down pips and the debate is you still have reinvestment from the European Central bank. 36 picks on burns. This is a real shift. Pricearkets are lower, higher in terms of yields. Anna mulligan with german economic data, we will see how that plays through german assets later on. Skip to first word news with juliette saly. He was president. Gov has called a White Supremacists for the role in the deadly violence over the weekend in charlottesville, virginia. The comments came as the blackhawks saw it to counter the damage of outcomes failing to hold groups accountable. Those who cause violence in its names are criminals and thugs. Including the kkk, neonazis, white supremacist and other hate groups that a republic are repugnant to every we hold dear. Brian krzanich has become the third ceo to quit Donald Trumps seat council of Business Leaders within 24 hours. That is members of the panel become enmeshed in the political fallout of the weekend final riots in virginia. The move came hours after Kenneth Frazier stepped down followed by under armours ceo. U. K. Government has said he wants to maintain tariff free bureaucracy like trade with the eu for a period after brexit and perhaps permanently. The idea is part of a series of new papers aimed at fleshing out britons and asians for relations leavese eu after it march 19. It has been cheered by british businesses. Bill gates has made his largest gift since the turnofthecentury, giving away microsoft shares that accounted for 5 of his fortune. A filing shows the billion or donated 64 million of Software Maker shares valued at 4. 6 billion. The recipient of the gift wasnt specified, gates has made the majority of his donations to the bill and Melinda Gates foundation, a charity he and his wife used to direct their philanthropic efforts. 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. Asia marketsisk in today. The nikkei closed higher by over 1 , the topics also having a solid session on the back of this tumbling in. Fears receding about a potential conflict between the u. S. And north korea. Also, some solid buying coming through in australia. He asx closing higher by. 4 consumer and financial along with tech players rally in the hong kong session, the hang seng in the rate of by one third of 1 . In detail, i mentioned financial players rallying in hong kong. China Merchants Bank coming through sending first half profit from big banks in china should be quite strong. Rcb jumped high. Good, risinging the most in 18 months on its firstquarter reassurance in tokyo today. Dominos pizza was one of the worst performance in the region. It has seen a slowdown france really affect its for your profits and Australian Shares underperformed the u. S. Due to slowing growth in its aussie business. Chart, itk at this shows that while china alumina production has increased, were seeing overall exports of aluminum and associated allies by china start to decrease. Total imports by the u. S. Of chinaum and aluminium have been decreasing, but displaying into the trump trade fact. The u. S. Administration is considering imposing duties on imports of aluminum foil from china. Interesting to see as we see the decrease coming through in some imports. Manus thank you. Looking good in singapore, by the way. Isnt she . Lets talk about the south korean president saying military action against the north korean regime requires the nations approval. Also to prevent war at all costs. Anna this comes after jim mattis said it would be game on for war if north korea hit the u. S. Or its territories. The Korean Central News Agency reported that kim jongun had discussed plans for guam, but watch you must conduct and little more. Guy for more, lets bring in Julie Schneider Jodi Schneider. How seriously should we take the defense secretarys remarks at what are we seeing today. Because there have an attempt to cap down the heightened tension. The street journal report and this comment. What is the risk fall politically customer politically . Comments of the defense secretary, these are statements reaffirm the earlier threats to seek reprisals if ,hey there are attacks missiles and the directions of the territories, including guam for the rest. Networkthat was part of performance. A reaffirmation of those comments. What was interesting is the comments from south koreas moon of ad to be somewhat rebuke of the u. S. Comments, saying we control our own country and we do not want there to be more. He basically said he will do whatever we can to avoid an all out war. What he is trying to do is not only, waters, so to speak, but also to make it clear that they are a sovereign country, we are south korea and will take steps ourselves to try to cap down these tensions. And the markets are not reflecting that. Anna meanwhile, todays date quite symbolic. An anniversary in south korea, a nationalon of liberation day from the japanese. How significant is that has a date . Jodi it is significant. The dateight, it is celebrated both north and south end ofhere they mark the the Japanese Occupation on the korean peninsula. But they usually do it in somewhat of a military fashion, parades, that kind of thing. Also, the u. S. And japan will be doing some military drills in coming weeks. These were planned before and they have been around this time of year, but now they have taken on added significance given the word for and back and forth between the u. S. And south korea north korea over the past week. Manus Jodi Schneider with the latest on north korea. We are joined now by the monday Asset Management head of global equity. Week to ader, last certain extent, it masked an opportunity for everyone to take some money off the table. What we have got is markets are no longer stretched, if anything, what we learned last global stress index. What did you do last week . Very little. High, so itre quite is pretty unlikely that the geopolitical escalation that we saw last week is going to bring this momentum to an end. We have seen it already subside this week. I think everyone is wondering what is going to bring this particular cycle to an end. Personally, i think it is unlikely. In the shortterm, these risks will pop up. We have seen it with this spot with north korea. There isnt some dramatic event, and i think that is , ultimately, the market is going to shrug these kind of events off. Anna in terms of where the markets head with his information, with the geopolitical news flow we have seen, if markets are looking for a reason to sell, if investors think we are seeing late cycle evaluations, this act has a time to do that. But do you see that . Nicholas i think valuations are quite toppy across asset classes. U. S. Equities do look relatively expensive. But even within the u. S. Equity market, you do find pockets of value. We are three quarters of the way through the cycle situation where from the headline perspective, everything is quite expensive, but underneath surface, you still have a lot of pockets of value. Recently, European Markets look better value. In japan they are at attractive. U. S. , u. S. , retail in the for example, where people are concerned about disruption from people like amazon, valuations are extraordinarily low for some companies that leave their sect is. Anna and not with number good reason . Nicholas with some potentially. At what isok discounted in these stocks, you tend to find it business will evaporate five years. That is unlikely. You see that with Car Companies in europe, where people are beginning to worry that the future of the internal Combustion Engine post 2025, which is possible, are daimler, bmw against others, theyve got some catch up to do. His business going to evaporate . I doubt it. You suggest the Economic Growth will surprise in the second half of the year. That probably has not to do with tax, but sentiment. What im reading on tax reform is that will continue by 2019 and only by. 2 . What will shift the dial . Nicholas nothing to do with tax. If you look at the pattern of gdp in the u. S. , and you look at the city index or bloomberg index, there is no surprise in the u. S. , but people tend to be optimistic at the beginning of the year. You tend to see a lot of disappointment. Manus you speak and we deliver. That is the way anna and i run. This is u. S. Economic surprise. This is European Economic surprises over the u. S. You say that will possibly turn in the second half of the year . Nicholas in the u. S. , we have had a period surprise has been negative in the first often, because last year we set ourselves up for this. We had President Trump in, people expected me Immediate Tax reform that we have all the good stuff and none of the bad. As is typical, that isnt how it plays out. We have seen little happen from a policy per spec, it is what is going on in the economy. The first half of the year was a bit disappointing, q1 particularly, and it is likely that as we go through the second half of the year, you see better economic performance. Anna thank you, nicholas stays with usundi on the program. Manus we will talk about the equities story in your nicholas. This is bloomberg. Welcome back. It is 7 19 in london. Eight 19 in berlin. We had the gdp data come in at 0. 6 , but eurodollar a Little Movement there. Check on theck markets. We havethe last hour, had risk on attitude coming through from the Asian Session. Stoxx 50 looking a little unchanged. In contrast to what we expected to see in the United States. Pretty unchanged. You us futures pointing higher. Should be mindful of that. German bund movement. Manus puts down by bunds down by 30 six. The dax has indicated to open up. The bunds are lower. In the middle east, they werent that driven by the wall street article. Anna no, slight on equities in dubai. Lets get a business flash with juliette saly. Manus juliette the cofounder and chief Strategy Officer of airbnb spoke to bloomberg about the companys reaction to the deadly riots in charlottesville, virginia. Why bit airbnb band white supremacist from the service. When we were aware there would be a gathering in charlottesville, by white supremacist, we took action to actually cancel those reservations and ban those users from the platform. We felt that was completely incompatible with our values and we took a strong stance. Juliette chinese businessman has taken control of English Premier League football southhampton. The chairman of landis sports said he had agreed to take an 80 stake in the club. His daughter will also become a part alongside the existing swiss owner. Cormedix management has built a stake in french yogurt maker because it views the company is undervalued. According to those familiar, the worthst fund owns shares 400 million. Stocks rose on the news. Representatives from both companies declined to comment. That is your business flash. Manus a story that is hitting the most read on your bloomberg, ne, run by cormedix european investment. They have gone after danone, they bought 400 million, created the state. What does he want . Does he want to be a real activist investor . What does he want . 22 times theirt earning, what does he want that is the question . Anna interesting to see he doesnt publicly want to push for management change. That is one tactic that activist investors can use, another is trying to guide the management in a strategic direction. He wants the business to make the most out of health and wellness trends. Lets talk more about activist investors and the row to role they play. Nicholas melhuish is still with us. And the best investor homes his sights is that something of interest to you . Closely at that business and expect higher returns to be delivered because of this fire lit under management . Nicholas it depends on the activist investor. In some cases, possibly. I think really it is incumbent on all of this as investors to be activists. If you look at the stewardship code in the u. S. , all of us should be engaging with companies. Activists often end up just verbalizing a debate that has been going on behind the scenes between other investors and the company. They do it in a more dramatic weight because it gets picked up by you. Anna biggest seem to be a lot of u. S. Interest in european businesses in this format at the moment. U. S. Act invest investors trying to get more of european corporate management. Nicholas a lot of what they do is the analysis you have done, and you just looked at valuation. More often, what an activist investor does is look, here is american company, here is european company, American Companies are doing margins of percent, the European Market is doing companies doing 7 . Sometimes it is down to the company, they managed differently and there are clear things that can be none to close the gap. Sometimes the businesses arent as similar as you think they are. There is simplistic approach often taken, sometimes it can be appropriate, sometimes i think it can have adverse consequences for the company because you end up forcing the management to take shortterm decisions which may benefit the share price this week, this month, but over time, optionsow the strategic available to accompany the future. It really depends on a casebycase basis. Manus we have just had 6 10 of 1 from germany this morning, you look at eurozone continuing to deliver 2 overall. I would call this a moderately bullish outlook for europe. Your business created equal so where do you want to take your most exposure . Financials, based on the ecb, manufacturing . Where is the biggest upside for you even though it is a consensus trade at the moment . Nicholas in the traditional cyclical area of the market. Industrials, i dont think all over there is a lot of operational gearing there is loss of expectation built into those companies. The outstanding sector from a value gap perspective is the financial sector, obviously been through a trip difficult. Bengal in the last decade. There is a big value gap i am doing what an activist does. There is a gap between european financials and their u. S. Counterparts. Admittedly different regulation and economic background, but you can really see some attractive values, particularly amongst the peripheral financials. All of this is a little dependent on decent gdp performance, 2 plus would be good enough, and it would be good to see bond yields move up a little bit, which is helpful to financials. Anna you also like some Energy Stocks at the moment. We had a conversation with Neil Atkinson, oil prices are sort of self cap at the moment because of this between opec and shale producers come how does that play in . Nicholas i think that is true. I spent some time in texas in march and was shocked by the amount of oil that was about to gush out. There is this mix supply in the wayd advances people drill for oil onshore in the u. S. Have meant that the breakeven is has come. This is a big problem for opec. That said, with an oil price that surrounds 50, you can find value in the sector. Manus nicholas melhuish, that is it from us. This is bloomberg. Guy good morning, welcome to bloomberg markets, the european open. Cash is about opening 30 minutes. We will bring you that first trade. Im guy johnson in london. In berlin. What are we watching . Steps rally as pyongyang back from its aggressive rhetoric. Will the u. S. Follow suit . A walkout in washington. The third ceo to quit president s business council