Transcripts For BLOOMBERG Bloomberg Markets European Close 20170705

Have a look at where european equities are trading now, 30 minutes away from the finish of the wednesday session. Stocks are rising, shrugging off geopolitical tensions. Awaiting the release of the minutes from the fed meeting which we will speak about with our next guest. Currencies are falling against the dollar and yields are rising in europe with commodities moving in brent crude down 3. 5 . We had pmi data out of the eurozone for manufacturing and services. Expansion of. 7 to the Second Quarter this by a slight slowdown. Fromauge dropping 56. 3 56. 8. For the first time in more than three years, output increased and all nations, covered in the survey. That is significant as the ecb policymakers prepare to meet in the coming weeks. Talking about portugal, portugal equities could climb 35 by late next year as violation benefits from the countries improving macroeconomic fundamentals. It says the head of equity strategy, the benchmark 20, which is at about twice as much as the stoxx 600 this year, still traits half the book pricetobook ratio of broader gains and the portugal economy forecast to grow by 2. 5 this year versus 1. 4 expansion. Next year, a king and Angela Merkel met in berlin today. Chart aheadk this of the g 20 meeting in hamburg later this week. An Informal Alliance to pick up the leadership bastion dropped by donald trump in the wake of his election last november. The yellow bar on this chart are german imports from china and the red bars is the german exports to china. Thing, we heard trade is one thing, we heard they will see i to i on one thing. Eye to eye on one thing. Not a lot of conviction on investors in the u. S. Mixed trading with the dow down slightly in the s p 500 up ever so slightly. The nasdaq is up 4 10 of 1 . We have seen intraday volatility and at one point all three averages were lower. Leaving the nasdaq higher is technology. The nasdaq gains would be more if not for a few correlated stocks, starting off with oreilly automotive, shares , onging, down nearly 21 pace for their worst day since 1993 after the autoparts Company Posted secondquarter, of of 1. 7 , versus the forecast about 3 to 5 . Their ceo saint april started strong but the environment was challenging. Saying april started strong but the environment was challenging. Tesla. Ess for down 5 , their worst day since february and the second biggest rack on the nasdaq after the Company Reported vehicle sales and deliveries for the Second Quarter up up 22,000, down from the First Quarter of 25,000. This ahead of the release of the somewhat mysterious and exciting model 3. Goldman is saying they think this could be somewhat of a move , and Inflection Point in demand the other way. Chart, theat a great big story on tesla is the fact that the stock has gone up side a much and the ipo in the spring of 2010. Ago,e point, not so long 35 , it declines as the company has met forecast and expectations. Down at a 22 , a pretty high shortage but relative to tesla, not so high. Best as they put out a somewhat negative data point with some of the shorts not in this stock to the same degree they had been. Oil is a big story on the day. , on paper, its worst day since june 7. Puzzling as the worst what is happening, it says russia has said it is not supporting they are opposing the production cuts. Someone is wondering who said that, that goes against everything they have been talking about recently. Having a drag on the oil sector overall. Vonnie so many dynamics at work in the market. Thank you. Lets get to the first word news. North koreas leader called the countrys first launch of an Intercontinental Ballistic Missile a fourth of july gift to america. The Trump Administration calls it a new escalation of the threat to the u. S. And the United Nations security counsel meet today on the issue. U. S. And south korean troops held drills today, the leaders of both countries signed off on the exercise. President trump expects expressed frustration with china , he said trade between china and north korea grew 40 in the First Quarter, so much for china working with us, but we have to give it a try. Two more Airlines Says they have been exempted from a u. S. Ban on laptops an airplane cabins. Emirates and Turkish Airlines joined another in satisfying American Security concerns. In march, the u. S. Band laptops with fear of devices could contain bonds. The European Union and japan have agreed to an agreement to a new trade real set to govern overwhelming majority of commerce between them and the japan gas japanese Prime Minister with the leader was a cans on the deal shea cans on the deal shake hands on the deal. Global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. This is bloomberg. Mark investors watching hints for the fed to begin their process of triggering the 4. 5 trillion Balance Sheet and the feds raising rates in june, signaling one more rate hike in 2017 in the face of low inflation. The debate on inflation is interesting. Given that the readings are showing inflation is dropping further and further below the fed 2 target. What will we learn from the minutes . They will discuss inflation quite a bit. We do not think it will reach a final conclusion around that. What they have been arguing and highlighting is that there are some components of that which are transitory. That will be a debate and the conclusion is telegraphed. The interesting thing they will decipher will mostly be about the Central Market debate, which is do they pause in september and discuss announced be reduction announced be production or hike . You may get some hints. Mark what happens to the dollar . That is a difficult question, the dollar has mainly been weakened. Earlier Balance Sheet and the later the hikes, the steeper the curve. The slightly stronger the dollar. Our main forecast is that they probably deliver one more hike. And then they do the Balance Sheet at the end of the year which we will talk about a roughly stable dollar in the next few months and a flatter curve. Vonnie higher front in rates. What were the conditions have to be to have to change . When what a tapering have to begin, for example . When youtions talk about the drivers, together with slightly soft inflation numbers, you are seeing good growth and easing in financial conditions. That may be driving the decisions from the fed. With respect to the talent sheet, an issue board Balance Sheet, when it comes to actual hikes, we will remain to be seen. An earlier hike around september is more likely. Most importantly, regardless of the timing of the hike, the Balance Sheet unwind issue is to a large extent in the price. What is not in the price is a reasonable basis tightening over the next couple of years. The fed is confident the feds confidence may force repricing. 1824 monthsgher ahead. Vonnie speculation in the market that, given how the chairperson ship of the fed may change i february, along with composition, the fed is eager to get this policy normalization underway and well underway by february. Where may we be by then . I think they have telegraphed their intentions. Clear. Iscussions are we think that they will probably start unwinding. The unwind of the Balance Sheet will end up with a larger Balance Sheet than what the market expects and allow 3. 3 trillion, that is in a long horizon. After 2020. That is priced on the long end of the curve. In terms of rate hikes, assuming that the conditions are easier, assuming that equity markets do not selloff, you are looking at one more hike this year and three more hikes next year. Mark lets talk about potential hikes in the u. K. In probability, 50 december. 7 in the middle of june. How things have changed given pockets shipments by various officials. The date continues to come in, it wast was services and manufacturing two days ago. Does the data more it a rate hike . Warrent a rate sayse data at the moment and what the bank of england is interpreting, a big question about whether the easing on extraordinary conditions is still warranted. The bank of england says given the resilience of the economy, that easing, the past easing is not worthy. I think we need to move away from this he said, she set of the central bank which is so popular and look at the underlying trend. You hit the nail on the head, that cap is not something that will fade, it will probably extent and the data will continue to soften. We do not think the data will warrent tightening from the bank of england side. Mark moore to come on what to expect from the ecb minutes tomorrow. Ater, monte paschi givien lifeline from the tying government, why somethings the Restructuring Plan is a turning point for the bank. This is bloomberg. Vonnie live from bloomberg World Headquarters in new york, im vonnie quinn. Mark i am mark barton, 60 minutes away from the european close. Lets carry on chatting and talk about what is happening today. Lets talk about the ecb. Mario draghi, did we misinterpret him in centra . He has one of the hardest jobs trying to communicate. Markets. Not upset the ecb is facing three difficult parameters. The first, inflation rates will remain low. Thatecond grandmother is best parameter is that they did not parameter is they did not extend qe. The First Quarter or half of afterwards, other countries ownership. They need to given the fundamentals are improving, they do not need to increase but they have to communicate in a way that the do not undo what they are trying to do we do not have that much space. To 118, the delta in terms of the the inflation, would be meaningful enough to affect the inflation forecast and a downward fashion which would need to be recognized. They need to because since not to trigger hiring cautious not to trigger highly yields higher yields and play the balancing act and allow themselves likes ability. Flexibility. Vonnie now that brexit is to be considered, we have one year of negotiations and that is supposed to be at. It. The euro forecast against the pound can be quite meaningful. Ishink that the main issue that the euro is quite cheap. Across most of the fair value models, everyone is aware that the euro is well below what fair value. The logical explanation goes up over the next few years. Part of the reason it is so cheap is because of the huge gap between european Interest Rates and global, including u. S. Interest rates, particularly real rates gap and as the ecb normalizes on the fees, that will close the gap and bring the euro slightly higher over the next two years. The challenge for the ecb is they track the base so they do not undo progress on inflation. They have to adapt to the circumstances which is why they probably need to maintain a label of flexibility. Mark whose job you in the least . Yellen, draghi, carney . They all have ethical jobs and are capable people. Difficult jobs and are capable people. Draghi needs to manage the pace in a welldefined direction. In the u. S. , still questions as to how far we go. We no longer at a zero balance and we can drop or down from here, the cycle will determine these things. They need to be cautious in a different way. When it comes to japan, an interesting view, our economist has an interesting view, he sees underlying signs of price pressures. Coming up very gradually. The bank of japan will probably come in the face of that, stay dovish to foster further inflation. Which probably makes them more comfortable. At least the way they are forecasting. Mark thank you for joining us. Conversation. Still ahead, u. S. Payment Processing Company vanity has made a play for world bank, shares of the u. K. Firm are after jpmorgan step aside from a potentially competing bid. Not back obligated and we will discuss next. Not that complicated and we will discuss next. Vonnie live from bloomberg World Headquarters in new york, im vonnie quinn. Mark live from london, i am a mark barton. U. S. Payment Processing Company e a great to buy welfare welfare. Him jpmorgan stepping aside from a potential bid. Roots david has the details. Details. Avid has the does not seem like a preliminary offer unless the speed of negotiation has been so fast. We are calling it the Amazon Effect because when amazon but fell foods, vantiv shares as they had all transactions for whole foods and a lot of their business comes from brickandmortar retailers and they are feeling the pinch from online giants like amazon. Mark why the jpmorgan walk away , what is this conflict of interest talk . They goes to the heart of how u. K. Companies do business, they have corporate brokers, something you do not see in the u. S. A corporate broker is your bank, which advises you, they are on the register. They are typically supposed to defend the company, and now you have the situation are you are supposed to defend the company but also your parent business is making a potential bid for the company. I think the market thought jpmorgan would stay in there and that is why the shares have fallen as much as they did today on the back of a bid. Vonnie it is the perfect beenny for vantiv who has looking for Something International and well experienced in making acquisitions. This is perfectly placed and sterling is way cheaper than it was. Yes, it is a great time to be doing business in the u. K. You have the currency differential. Ld bpay has always been pay has always been in demand. Over the weekend, they had received an approach and think it is a space where we expect ande will be more mergers there has been so much m a interest in them and investors were expecting there to be a bit a bidding war which is why the stock went up nearly 30 yesterday and today when jpmorgan said they are walking way, it has gone down a decent bit. Mark could someone else come in . It seems like they have already reach an agreement and jpmorgan said no and made it a point to mention that they look at this because worldpay and divided them to look at it which is unusual for a potential acquired to save when walking away. Unlikely. Mark thank you. With bloomberg mergers and acquisitions. Where european equities are trading, the close in five minutes. This is the picture, stocks up, they were lower, down for the sixday in seven and investors shrugging off geopolitical tensions. In the eurozone and the u. K. At the forefront of investors minds and i will finish up with the bond board as we had that head to the close as we head to the close. Whoooo. Youre searching for something. Like the perfect deal. On the perfect hotel. So wouldnt it be perfect if there was a single site where you could find the right hotel for you at the best price . There is. Because tripadvisor now compares prices from over 200 booking sites. To save you up to 30 . On the hotel you want. Trust this birds words. Tripadvisor. The latest reviews. The lowest prices. Live from london and new york, this is the european close. Wednesdayishing the session higher for only the second day in seven with Financial Services, technology, retail leading the event and oil lower, oil and gas stocks down 1. 5 . Earlier the index was down. We had some data out of the u. K. , services tmi extending the recent four months in june, adding to evidence the economy is weakening as brexit negotiations start in earnest. The survey follows data on construction, manufacturing that showed both industries cooling. Says all threest services. 2 growth of. 4 in the Second Quarter versus. 2 in the First Quarter but says momentum was ebbing. The economic surprise index which measures where the data is missing. Economists expectations in the figure below zero does you it is missing. 18. 6, almost at the lowest levels postbrexit referendum. Look at where we have come down from since the highs in february. That charge chart tells you everything you need to know. Anniversary since the bank of england last raised Interest Rates. On this day in 2007, they raised rates to 5. 75 . Breaking news. Vonnie you know how banks have been pressured to come up with plans for what they will do in case brexit does not go very smoothly. Deutsche bank said they are preparing to move. It will move its booking center to germany. The asset move would affect the Investment Bank and trading. Germany probably meeting frank for which is where the regulator is based, one attraction for major banks but not the only attraction. One of the reasons why frankfurt is getting a lot of attention from these banks. We had a wonderful piece yesterday on the bloomberg which frankfhow frank for urt is benefiting from a number of banks, showing it there preferred location. Many say it is a city of just two banks. Still way down the list of financial locations, preferable financial locations. London is still top, followed by is wayk, frankfurt down the list. Banks are making these alternative plans. The big question is can frank ankfurt become the next new york and london . Vonnie it seems like it will not just become one city that emulates what london has been, but the strategy, according to the plan we have heard about being finalized and if brexit changes, it will change that something may have to put together for regulators. We havent a look at the oil slide. I will put this into perspective. Lets look at the two week chart, oil down for its first day in nine and we spoke with ise you motto saying every time a low price rises, there seems to be a seller. That seems that leads me to talk about commodity related currency, focused on dollar ruble with stronger weaker ruble as russia announces they will not support more cuts and want to stick with the current opec plan and see how that turns out as to not confuse markets. All of that is leading some of the largecap u. S. Equity Companies Heading lower. Xle,ted to say that the somebody from military back said Energy Equities underperforming, especially when he looks at the xle, that is the Energy Sector fighter. Spider. On a monthly basis, i know the month is early, but stick with that, in july,e oil is down for a fifth straight month. Mark thank you. The Deutsche Bank news, preparing to make large part of its trading and investment baking assets, currently in london, to its hometown of frankfurt in response to the british exit from the eu. The germany benda biggest lender what amazed move most of its business from london to urt, it would be reviewed if the brexit scenario changes and probably be implemented over the next 18 months. Frankfurt is emerging as a slight winner from brexit. Some banks said they are weighing a similar move. Frankfurt is gaining in prominence in the wake of the brexit vote. There are many financial hubs like paris, dublin, even more so in poland that are trying to take some of the Financial Services pie in the wake of the brexit referendum. Lets turn to italian lenders because monte paschi announced a fiveyear Restructuring Plan with the help of 6 billion injected from the italian government. We spoke to their chief executive and he said this is clearly a turning point. This will be a good case to see to what extent the overall scheme of the precautionary actually works. As far as the bank is concerned, i think that for us, for me, for my management team, for all of the employees of monte paschi, this is a turning point. The dust has settled and there is clarity and transparency on what the capital structure of the bank is and will be going forward. What is the impact of the final disposal of 26. 1 billion of gross npl. And the line and come up find out whether the rules as far as the overall european scheme do work. I think we need more time to see how it will be unfolding. Before we get into the targets of your bank currently, i want to reflect on the following, it looks like the Institutional Investors got burned and the Retail Investors got protected. What do you say to people that say with this kind of this situation, the domestic investor is protected by the International Institution investor is being burned. Do you say there is a hierarchy within the capital structure that the Retail Investor will be protected before the Institutional Investor . Said, we ares i bill approved by the italian congress. I am not in a position to come up with opinion on the treatment of different bondholders. Andeed to stick to the low behave accordingly law and behave accordingly. Plan, as farin the as bondholders, institutional bondholders are concerned, i think the plan is such that the trajectory and projections on the revenue side are quite conservative. There is once and for all a solution for the stock, that is the largest sale of a stock. The cost this up when, which cost discipline, which will be held to the management team, is quite severe. There will be a strict monitoring. I would guess that bondholders who are going to be converted into ordinary shares may get some satisfaction throughout the plan horizons. You talk about cost discipline, what about lending discipline . The problem is in making loans that should not have been made. You have a clean start, terrific for your bank, are you changing the weight you do business to make sure you do not make more nonperforming loans . I think we did change. Featuresone of the key in the plan we presented in october. We changed substantially the responsibility of the new credit flow throughout the network. People we have credit who are going to be in charge throughout the italian territories for new lending. For new approvals. And the commercial people will work along with them without any real responsibilities in terms sealciding and putting the on a given file. That is a radical change in terms of monitoring the new flows and we are already seeing returns in terms of the new flows of deterioration in recent weeks. When do you expect the bank to return to profit as you have a 1. 2 billion euro profit time in 2021. I think the process of getting back to a sustainable topline trajectory, sustainable operating profit line and a sustainable net profit bottom line, is something which will require time. Mark the monte paschi chief executive speaking to bloomberg daybreak americas. Preparing to move large part of its asset a currently books in london. What is it doing and why is it doing it . The starting point is that a lot of the banking business in the u. K. And the trading business is booked through a u. K. Branch. Once brexit happens, assuming worst case scenario, that branch will have to turn into a subsidiary of the german lender theyre will is what trying to avoid with a potential move of the trading business back into frank for francine lacqua. They are having to put the other plans to satisfy Central Banks and let regulators and regulars. Is focused on regulars back home and in terms of what the actual effect on operations, it is too early to tell and will depend on how much of the Risk Management and Front Office Staff Deutsche Bank will choose to move alongside that business which remains a question. Mark is this a win for frankfurt . I am being the devils advocate. Was emerging as this destination for banks postbrexit and they said it is just a two bank town but frankfurt has emerged as a seek otherther banks locations postbrexit . Absolutely but in terms of actually numbers, how much are we talking about . It is hundreds and not thousands, in part because of a housing shortage and a shortage of the infrastructure the type of business youre talking about requires. Mark is there a cultural shortage . On ane going to frankfurt friday night. Is the article been that read the article. That is not me. We will continue to follow this story on bloomberg television. This is bloomberg. Live from london and new york, i mark barton. Vonnie this is the european close on bloomberg markets. From the g20 meeting, donald trump will face World Leaders and trade will be a key topic. North korea threatens to overshadow it all. Lets bring in our Foreign Policy reporter from washington, d. C. It is unlikely that this is a random missile test on the part of north korea. This seems to be well placed. Is there a danger of them talking too much about this and giving it too much weight . I think this is a significant escalation by north korea and shows they are capable of doing something they have never shown they were capable of before which is firing and intercontinental listing missile capable of hitting u. S. Territory, alaska or hawaii. They are not at the ability of being able to hit the continental united states. This is a significant step and likely to dominate this meeting. Rightly so, because President Trump will be meeting with key players, the chinese president and he sees china as the main conduit to exert pressure on north korea. That is likely to be his focus. Vonnie he could not help needle china in a tweet about trade. Angela merkel is also meeting with xi jinping, should there be a trilevel agreement between germany and nato countries, china, and the u. S. . The question is how much pressure those countries can exert on china. The issue for decades has been that china is not willing to totally strangle the north korean economy because it fears the repercussions and fears if korean unifies there is a potential u. S. Ally on its border with u. S. Troops stationed there. That is a concern. If the u. S. Does marshall support from other countries such as germany, that could be one way to exert the pressure on china. You have the trump tweets suggesting that the u. S. Could go back and pressure china and other ways that he suggested were not going to be so important. For example, on trade or currency manipulation. These things are coming to the table and hamburg and it will be an exciting couple of days. Mark the excitement will culminate on friday. To be a fly on the wall of that Vladimir Putindonald trump meeting. Says that no formal agenda but we know Vladimir Putin is a master when it comes to political manipulation. We have a piece that talks about the art of deception which he is wellversed in. Talk to me about the dynamics of the meeting and what can come out of this meeting for both sides . It will be fascinating to watch because this tape of the meeting, if there is a camera spray at the top, the body language of the men will be so scrutinized. Whether they are seen as being very chummy or standoffish. The u. S. Side is downplaying the significance of this meeting from a policy perspective. They say there is no set agenda, which is another way of saying that they want to use this to feel each other out and get a sense of each other. A sense a measure of the man. This will not be a detailed detail oriented meeting, just, lets get the first meeting out of the way and proceed from there. If you sayn is Vladimir Putin uses these meetings to exact elements against an adversary. He may try to get something tactically out of this, the danger is that the u. S. Is exposed giving something away if President Trump is not prepared for the chess game that Vladimir Putin will be playing. Vonnie thank you to our Foreign Policy reporter from washington, d. C. Mark time for the biggest business stories in the news. Deutsche bank responding to brexit by preparing to move large amounts of trading and Investment Banking assets from london to frankfurt. Probably will be implement and over the next 18 months and the plan would be reviewed if the brexit scenario changes. Deutsche bank chief executive expects to post a profit this year. In an interview with a german newspaper, he said the bank would be in much better shape if it had done six years ago what it did in the last couple of years and rejected rumors he will stay at Deutsche Bank for only a short time. Volvos in 2019, all of new model will have an elected motor. New models will have an electric motor. They say the policy reflects the wishes of customers. That is related Bloomberg Business flash. Text stockslobal face off against china. This is bloomberg. Time for the global battle of the chart where we look at some of the most telling charts of the day. Access these charts by running the function teacher at the bottom of your screen. Starting things is joe. We all know that tech has been selling off. Big stocks leading the way of are now fading up are now fading. This has been a global phenomenon on the way up and the way down. I have three lines here, the blue line is the s p 500 tech index and the yellow line is the stoxx 600 tech sub index. The white line is the Hong Kong Market tech index. That has crushed europe and the u. S. Over the last year, a much better performance and a lot of internet stocks. It has come sharply lower. This is a Global Economic on. Global phenomenon. In fact, the u. S. Stocks have underperformed on a home currency basis. Some of their competitors around the world and now all selling off together. Mark a correlated selloff in tech stocks. Can you beat that . Vonnie i think maybe, although it is joe weisenthal, so im not sure. My is china and energy consumption. China the Biggest Energy consumer in the world. Gas consumption is increasing quite a lot. The last few years you can see just how much. Prices need to drop for china to consume more gas. Already now supplying enough of its own gas. Prices need to rise for suppliers to produce more. Typical crude Oil Commodities type conundrum. This is what is happening now. We shall see what happens in the future. It is killing its citizens, literally. Said,i like the way you did you know about this . Except as up nicely. It sets us up nicely. I like both charts. Bringing something new. It is a tie. Two excellent charts. Both brilliant. See you tomorrow. Vonnie it is noon in new york at 5 00 p. M. In london. Welcome to bloomberg markets. Vonnie from bloomberg World Headquarters in new york, here are the top stories we are following. Investors await the release of minutes and look for clues when the central bank may reduce its Balance Sheet holdings. Oil snaps his longest winning streak this year as russia says it opposes deeper production cuts. Consolidation in the electronics payment space, u. S. Based vivint worldpay. E a buy in politics, at the United Nations security council, they will hold an emergency meeting after north korea tested this first Intercontinental Ballistic Missile as President Trump goes on his second overseas