Trading uities stocks down for the fourth day in five as investors digest the speech from President Trump yesterday with all these currencies rising against the dollar today, euro continuing its descendents. Bond yields are falling. An appetite for the haven assets with commodities the final column appeared one of the final two columns appeared one of the final two columns. The euro rose against the account and is rising against the dollar. No big hint ahead of the ecb meeting. A brilliant chart which shows you various measures of prepares to the ecb meet at the beginning of next month with core inflation the blue line feared the yellow line is super court cpi. The white line is headline inflation. Well below 2 . The ecb target. Fiveyear forward inflation is the purple line. All four measures are below 2 , which makes it easier for mario draghi and his ecb colleagues to be cautious. Be gradual in their normalization of Monetary Policy. The taylor rule gives an estimate of one of Central Banks Interest Rate should be. The eurozone is a bunch of countries. With different economies. Look at the estimated rates the ecb has to deal with, a wide range of economies. According to the taylor rule, poland, the white line, should have an Interest Rate of nine point 51 in the germany is the yellow line at 7. 25 . , tworeen line is Ireland Point 6 and the blue line is the euro area as a whole, 2. 3 . Much five and rates are today. 1. 33 , the peripheral euro area economy. Abigail, a i go to look at the ruble, three years since the Russian Central Bank abandon currency interventions, price swings in the ruble have abated onemonth volatility which this is the chart has dropped to the lowest level since october of 2014. A month before the paint was removed as russia rebels with sections and a slump in the price of oil. Abigail, how is it looking in the u. S. . Excuse me, risk off tone for the markets in the u. S. With modest declines in the major averages, the dow, s p 500, and the nasdaq all over by one quarter of 1 or more with the tech heavy nasdaq down the most, down to the 4 10 of 1 . Going back towards the lows, investors are trying to digest President Trumps speech last night . , what does it mean lots of uncertainty and moving pieces. A bullish tailwind for stocks. An intraday chart of oil, after trading about flat, we have oil up 4 10 of 1 . Spiking higher on a bullish inventories report. A drawdown of 3. 3 Million Barrels in oil and a drawdown of 1. 2 Million Barrels for gasoline. A bullish reaction for oil. This is helping to some extent for the major averages. Energy is the secondbest sector for the s p 500. Trying to help the declines be smaller than larger. Lets see how the day plays out. Oil on a monthly basis, we may have more oil spiking modestly higher today but on the month, the biggest monthly decline since march. Into the bloomberg and looking v9008, oil down 4 . Its biggest drop since june, paring the losses a little bit. Oil now down six out of the eight months in this year so far. On pace to match what we had in 2015 around the time of the big oil crash. The declines are much smaller than what we had back then. Rounding it out with two movers, shares of Fiat Chrysler going higher on the news it is said the company is considering spinning out to of its luxury romeo, maserati and alfa and it parts business. Shares up about 6 . Ally financial, up 2. 5 . They are the biggest car auto loners, surpassing wells fargo. 15 , the fed is lifting at tier one leverage constraint on its main subsidiary, allied back. Shares are rallying. Down wpp shares were still more than 10 , earlier declining by 13 . Since octobere 1998. I will speak with Martin Sorrell next on the european close. This is bloomberg. Vonnie live from bloomberg World Headquarters in new york, i am mark barton. Vonnie quinn. Mark i am mark barton. Challenges facing the advertising business with shares of wpp plunging for the most in 17 years, cutting it revenue forecast and client cutting market spinning. Marketing spending. Joining us is wpp chief executive sir Martin Sorrell. Smacked by the size of the decline in wpp shares today . Sir martin i never comment on share prices. It is a bad thing, whether they go up or down. Lets talk about the reason come in the investor meeting today, you listed micro reasons and macro reasons, talk about activist investors focusing on cost, leading to declines, which leads to the you,ion, to what extent do masters of your own destiny, are you at the mercy of these external factors . Sir martin every business is at the mercy of macro and micro practice. , from try to simplify it 2011 toehman, from 2016, a low growth, below trend gdp growth world. Very little inflation, very little Pricing Power for our clients. An environment that we could work with successfully and , 12, 13, 14, 15, 16 record results in each year. Passporting to 2017, the Fourth Quarter of 2016 and into 2017, there has been changing and forces have become very important. The first was digital disruption, whether consumers consume media or our clients distribute goods, ecommerce, brexit and clicks, or whether how they produce things because of changes in 3d printing, digital production. That is an opportunity for us. Because our business is over 40 digital. 20002002,rned since that the digital changes in google and facebook are our biggest and thirdbiggest investment in terms of Media Investment with our client. Billion portfolio we invest in media around the world and number one and number three last year or google and facebook and probably this year, they will be one and two. They are the duopoly and digital. Best in digital. In digital the challenges are activist investors, they have been using lowcost capital, Central Banks have been running the economies of the world on loose Monetary Policy to avoid the negative affects on employment in society of austerity postlehman. Hey have been buying bonds with cheap money and Interest Rates have been low. With cheap money the activist investors have been able to establish calls of capital to make investment. The third of similar force has been zerobased budget ares who have been buying companies are investing in companies with the low cost of capital. And that has put tremendous shortterm pressure, particularly in the Package Goods sector, about 30 , one third of our revenue. We have seen, in the first half taking cost cuts, we have announced the results. Packages companies have discussed how they have been cutting their Media Investments or cutting their agency fees. In order to improve margins and profitability. Mark what do you do to combat what do you do to combat those issues . All, in first of focused on the best people in r business, not working agency brand but by horizontal across client and country. , by extendingng the presence in the fastgrowing the next billion consumers will come from, digital is already 40 of our business, we want that at least to be 45 , 55 of our business in the future. Plating grazer greater emphasis in data because the rise of amazon and google and facebook, the control of our clients have on their data is much diminished. Those are the areas we are working on, the critically important one is the first one, t we call for his ontology horizontal, not approaching our clients as silos, approaching them as a fully integrated whole. U. K. ,we talk about the the Advertising Market has been hit recently because of brexit but you whether that. The u. K. One of your stronger performing regions in the last quarter, how are you weathering that . Sir martin something to do with more of the micro level. Very good people and a strong market share. The other thing is, maybe, just a hypothesis, with the uncertainty, fixed Capital Investment is under pressure, there is data to indicate fixed Capital Investment is under pressure. And the Brand Innovation and brand in the context of this uncertainty, as we may or may not go through a transition time in brexit after march of 2019, that may be putting more pressure on and people may be taking the other route of variable investment in marketing , which you can very vary and plug and play as you wish, rather than having fixed investment. The irony is that our strongest region is the u. K. Mark given brexit and its various publications, i am interested to know, given the news today, the u. K. To use the words you used, speaking in part of relationships with the European Court of justice. If signals another retreat from the government on his previous rhetoric. Are you changing your assessment that businesses are changing their assessments, your clients of what brexit will look like . Are we looking at a softer variety of exit right now . What are you hearing and what are your thoughts . Mark it is obvious what is happening. The hardline does not work. It has to be negotiated settlement. There were hartlines drawn at the beginning. Maybe rightly hard lines drawn at the beginning, maybe rightly or wrongly, they have to be solved, we do not have enough date marche dropdead of 2019, the rules of procedures. We probably have to have a and we wouldriod welcome that, it would give us time to adjust. The critical issue for us is 16 , 70 of the 15,000 people or so that work for us in the u. K. Are from the eu. It is critically important to have Diverse Talent and france, germany, italy, spain, are our biggest top 10 markets and we do not want to lose influence in those markets. We have had very strongly Business Success in the last three or four months. A lot of that success has been in europe, Continental Europe itself with Companies Like psa, lvmh, and others. This might brexit, our ties this might brexit, our ties with the continent are increasing and we are investing more money in germany and france and in spain than we would have if we had stayed in the u. K. That eu or were planning to do so in thehe u. K. Stronger Second Quarter with the u. S. Having a weak year. If you look at the hard data or the survey. The economy looks to be in pretty good health. Why are things tricky for you right now in the United States . Sir martin not just for us, there are five of the six Major Holding companies that are reporting and the u. S. Has been weak across all of them. , theyf them are japanese put together the americas, latin america, america, down 4 in the americas. And quarter to. Two. It is a common issue. The donald trump economy, it had legs, reduction regulation, we are seeing a bit of that and infrastructure spending, that takes time, we have not seen a lot of it yet. Third was tax reform, simplification and reduction of tax rate, that will take some time because they have not gotten Health Care Reform through. There is a stuttering and the implementation, which i do not think is helpful. Mark do you think he will be able to push President Trump will be able to push through his agenda . The issues you talked about, tax cuts, infrastructure . Sir martin regulation i hear reports of that. Infrastructure they are trying. The one that is most immediate and when Steve Mnuchin again treasury secretary, he indicated august was the date and we are in august. Then it was delayed until the beginning of next year which looks like it is too hectic a timetable. It will take time. The Business Community hopes there will be simplification and reduction but we have to see how it plays out. All the rhetoric today around government shutdowns, unless budget fund a wall, that does not help or reduced levels of uncertainty. The u. S. Economy is still a ,ellwether and the bellwether 18 trillion, 19 trillion out of 72 trillion of worldwide gdp. Lemonis what 10 trillion, trillion . An absolute terms, the key to worldwide growth. One can only hope that at some point in time, some of the programs that were promised can be of limited effectively. Mark the final question, with the success succession issue elephant, is more transparency needed . You are not planning to leave soon but some investors have stipulated maybe there is not enough transparency around this, can you put this to bed . Sir martin read our annual report, there is tremendous transparency, the chairman has made clear on many occasions. It has been transparency for a number of years. All you have to do is read what we say in the annual report and how we present the company in various occasions. Has wasen though hermes concerned about one of your shareholders and concession planning at wpp, have you spoken to them . Sir martin yes, i have spoken to them over the years and it is quite clear and laid out in crystalclear form. What our succession planning, we do it every year, comprehensively, not just for me but i would say the top 150, 20 0 people in the company. The top of the agenda in every Board Meeting that we have. Years do many moores you how many more years do you have left . Sir martin as long as you let me. [laughter] mark thank you, joining us on the london stock exchange, Martin Sorrell. Vonnie coming up in the next half hour of the european close, more insight on the european economy from a Portfolio Manager for pimco portland. This is bloomberg. Vonnie not one but two beautiful shots. Live from bloomberg World Headquarters in new york and london, i am vonnie quinn. Mark live from london i am mark barton. Seven minutes until the end of todays session. Lets look at the biggest stories in the news. The u. S. Real estate market took a breather last month with new home sales falling 9 to an 571,000. Te of the lowest this year and it may reflect a lack of affordability with the median sales price increasing more than 6 in the 344 314,000. Considering a major hole that would focus on massmarket cars. Italianamerican company may spin off the upscale maserati and alfa romeo brands and its parts operation here they say he would make Fiat Chrysler more attractive or a possible combination with a competitor. Investment banking executives at whetheramerica debating eu trading desk where there eu trading have should be after brexit. The equities frankfurt or some are in the league and Trading Operations will have to leave london after the u. K. Splits with the eu. That is the latest Bloomberg Business flash. Takeawaysys two from the paper about britains relationship with the eu. You have the what looks like a retreat from the government, cooperative relationships with the ecj is necessary, at the same time, you have the government paper ruling out the idea that the ecj will have direct jurisdiction over the u. K. It seems there is something for everyone. Vonnie yes, one of the complaints labor leader Jeremy Corbyn has. He is happy to see it but saying that theresa mays socalled red line is completely untenable and accusing her of repeating the rhetoric that is empty. The upshot is that while theresa may is adamant britain is taking control, there is wiggle room if you look at the fine print. , the exactly, wiggle room third round of talks kick off next week. 40 minutes away from the end of the wednesday session. Stocks are down. This is bloomberg. Track your pack. Set a curfew, or two. Make dinnertime device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. Introducing xfinity xfi. Amazing speed, coverage and control. Change the way you wifi. Xfinity. The future of awesome. Live from london and new york, this is the european close. Stocks managing up the wednesday session down just three Industry Groups are rising today. 16 others declining, the fourth day of declines in five as investors digest President Trumps speech yesterday. Slight toing a defensive asset. A tale of two regions in the smallcap universe. European shares resilient as the u. S. Counterparts have slumped the reaction to currency moves army behind their divergence with the weaker dollar acting as a headwind. Euro region small caps relatively immune to the euro depreciation because of the strong domestic focus, according to an investor group, the white line is stocks europes small cap versus vstoxx europe 600. And the blue light is the russell 2000, relative to the s p 500. Interesting data out of the u. K. , Companies Getting worried about the economy, feeling less confident in spending money on hiring or investing, according to a new report by an equipment federation which as an index of Economic Conditions has fallen to the lowest level this year with a greater proportion of respondents saying things are getting worse as employers look to hire but their confidence is doing so has diminished while easy access to eu markets is one worry weighing on companies. The other is the ability to tap into the core of the eu workers they say they need. That was an interesting survey. The rally in Industrial Metals recently. To get a sense of the moment the behind the rally, look at the relative performance on the commodities in the last 12 months. The Industrial Metals index is. He white line, over 25 gauges for energy, agriculture, and Precious Metals have all declined, all in negative territory this year with a weaker dollar efforts to rein in supply chart. , when you lookng at the commodities universe in its entirety, there is divergence within the sectors. Fascinating, you mentioned the dollar and all of the run on implications. Each day we see the dollar giving back a little bit and taking a little, giving back a little, the short dollar is one of the most crowded trades and it is giving up a little, 93. 23 and terms of the dollar index. Gold futures towards 1300 per ounce, how many more times do i have to say that before they get. Bove, if they do Nymex Crude Oil is 48. 27 a barrel. The 10 year yield, going nowhere. Gmm, looking at the second page of emergingmarket movers, that is because look at all this green, it has to do with Eastern European countries. Look at thisve a one day soon, Eastern European countries like poland have been having a good time, their stock markets are all up. Phenomenal amounts. The polis index was in the euro is benefiting and because of the euro, other currencies like valero are benefiting. We will be talking about this in a little bit. Mark . Mark right. A big week for central bankers as they head to jackson hole tomorrow for the annual economic symposium, hosted by the kansas city fed. Mario draghi will be there before he flies across the atlantic. He spoke in germany, repeating the old playbook is out the window when it comes to Monetary Policy. Policy actions undertaken in the last 10 years, Monetary Policy and regulations, supervision have made the world more resilient. But we should continue preparing for new challenges. Us to break down the cap forward for mario draghi and the ecb, and a look ahead to jackson hole is a pemco Portfolio Manager. Pimco Portfolio Manager. Thank you for joining us. Lets talk about mario draghi. He did not talk about the euro or the impending ecb meeting which takes place at the beginning of next month. It leads us nicely to his speech on friday in jackson hole, wyoming. Nuggets mightwhat he giveaway on friday about potential ecb moves, or even talk about the euros recent strength . I think that what will be discussed at jackson hole, while the title of the symposium suggests important things for the World Economy and Financial Markets to be discussed, i think what will be common terms of the financial market, the outcomes may be a bit flat and not really causing much in the way of volatility. With all due respect to the ballot very talented speakers i look forward to, the flyfishing conditions around jackson hole are going to be equally engaging in terms of relative to what will be said at the symposium. Becauseat not flyfishing is not only interesting but also it has to do with qe and the theory of qe was that the compression of risk premiums would help the real economy through the portfolio channel affect. There seems to be reasonable evidence that that could happen. Amplifiedeven larger effect on asset prices. That is what happened when qe wasnt limited. Death was limited qe was implemented. There could be an increase in this dreamy him and it might be detrimental impacts on risky asset prices. Position,lf in their that means the central bankers will want to be very gradual and very careful in both signaling and implementing the withdrawal of this extraordinary accommodation put in place over the last two years. Mark is it worthy noting that some asset prices, yellen alluded to this, is it worth warning for various quarters that assets are looking rich, to use words often used in some quarters . Can frame that in terms of , it is very difficult to find a cheap asset these days. Be that in real estate, equities, fixed income, fine art, you name it. That has to do with the liquidity Central Banks have put into the system. Central banks will want to avoid an unwanted tightening of financial conditions. They do not want to be pricking bubbles. The signals we will see out of jackson hole may tend to be on nonexcitingy level in terms of the effect on markets. We will have to wait a couple of days. Vonnie lets move ahead to when we will get some kind of announcement. Back in the fall. Enough to do much more than it has been doing. At some point, the ecb will have to stop buying the bonds of certain countries. When do we get that announcement and how does it come out in the marketplace . To theywill have have two dates in the calendar, september and october, suggested we might have information on those dates. I think we will see something along the lines of september, the euro system working groups have been charged with looking at ways to wind down the program and we will get details in october. I expect we will see tapering next year. That we will be heading towards the zero line of monthly purchases of government bonds in the second half of next year. We are probably looking on our baselines, at least the first moves in policy rates somewhere in 2019. Vonnie what countries are most at risk . Have been the caps met for several of them by now. Just in terms of reaching the caps, the important one is germany. Maybe a stretch to say that german assets are at risk. I would tend to think it is more the periphery. Assets from the periphery countries, they have benefited disproportionately more in terms of their price increases, certainly when we measure from 2012 onwards. They will have to prove they can stand alone, without the support of Monetary Policy. We have seen some changes on the fiscal front, on the way governments operate in these countries. The real test is ahead of us when Monetary Policy is run down to mark given that assets are youing rich, how have tweaked your portfolio recently . We have been saying for a factorsat a number of in the Global Economy and on the policy front, geopolitics, trade policy, monetary, fiscal, there could be pivot points that could turn markets. This is taking place at a time when we have some pretty mature business cycles. Our general direction of travel has been to reduce a little bit of risk. They go up in quality and liquidity. We have been scrubbing our portfolios. The last thing, when you are investing from the wrong side, you want to avoid that price action we saw yesterday with provident financial. Mark where are the biggest risks . Which assets . Which areas . Which sectors in the bond universe could be hit the hardest and the quickest . Crisis occur,ial they usually occur with a parallel buildup of credit. That was the case with the subprime crisis. Look around the world now and look where credit has taken off. Some of the emerging markets and in china, that is the classic case of where risks may emerge and therefore the assets positively correlated to this growth in china. There is areas that are on our radars in terms of portfolio construction. Mark great to see you and see you soon. Lets check in on the bloomberg first word news with Courtney Donohoe here with more. President trump Emergency Management director pushing for an overhaul of relief. He tells bloomberg that cities and homeowners should bear more of the cost and says taxpayers should not be on the hook for homes that keep on flooding. Frances interior minister says some of the men suspected in the last week deadly attack in spain visited paris area two days before hand. He says officials are working to determine why the suspects were in paris and what they did when they were there. Leadingish alltime scorer has announced his retirement from international soccer. Wayne rooney says it is time to bow out and he will still play for his premier league team, everton. He scored a record 53 goals in 119 appearances for england. Global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. I am Courtney Donohoe. This is bloomberg. Vonnie talk about the end of an era. Star your engines, quite shares a Fiat Chrysler are moving today and it has something to do with this particular sports car. This is bloomberg. Live from london and new york, i am mark barton. Vonnie i am vonnie quinn. Shares of Fiat Chrysler moving today, reaching highs not seen since october of 2014. Making it our stock of the hour. What is behind the big move . This is down to news that we are hearing that Fiat Chrysler is considering spinning off its Luxury Brands maserati, alfa romeo, and its autoparts business and refocus the company on the massmarket of brands fiat,he art, chrysler chrysler, and jeep. You can see the Revenue Breakdown between the mass market segment, the big green line, and maserati, the smaller blue line, and its component, a small part of Fiat Chryslers revenue. Maserati is about 3 of revenue and 5 of profit. We are hearing that these Luxury Brands could be worth about 9 billion is it spun off the parts unit, 6 billion. An opportunity for them. Mark if the brands are doing well, why bother selling them . It is all about unlocking value. I have another chart. I will pull it up on my bloomberg. Now, the white line, the bottom line, their estimated price to earnings ratio. It is below the blue line, meaning it is undervalued compared to its peers. Goldman sachs estimates Fiat Chryslers are worth 50 billion euros, twice the current enterprise value. This is all about trying to get some value not reflected in the stock price. Remember that the family who founded fiat, on 25 , just under that, all there Fiat Chrysler s ceo owns shares and he is planning to leave. They have done this before with ferrari. Vonnie thank you, our stock of the hour. Ceo,versation with the ibm sheets is down with David Rubenstein she sits down with David Rubenstein. Here is how she characterized how over 100 years the company is reinventing itself. Lets talk about ibm. It is a hardware company, a software company, a consulting company, what would you say it is today . Keep going. [laughter] it is an enterprise company, we uniquely live in the intersection of tech and business. Built over time, hardware, we layered it with software and built integrated onto that services. Now we are becoming a cloud and Cognitive Solutions company. There will be another reinvention of ibm one day in the future. Today, it is about that. Not about the technology, it is about cloud, Artificial Intelligence, the why. As i say to my colleagues, i feel like we are the champion for business, the champion for business. Will take what i mean by that if you asked me to pick one word about what ibm is in is a route is data, gold in the data. We are on the verge of companies being able to use all that. Companies to go on the offense now against startups and disruption. You do it with that data. You will need new tools and that is where Artificial Intelligence comes in. Watson is named after our founder, thomas watson. Watson got attention because of jeopardy. Funny how many people remember that, i give us credit for having rel the world ofit ai. The world of ai. Is brandnew, ai there are things that make it different at this point. Jeopardy, we had been working with ai, gives you the idea that if you move for you think there is value in tech, there will be time in the data. We have to be prepared to do it costeffectively and you would have to have technology that did not get program. That is the difference that is what watson and ai is, what watson does, you do not say do this, every device has been programmed and says do that. Somebody has to tell it what to do. Watson takes data of all kinds and understand, reasons, and learns over the data. That will help make better decisions. This is an interesting stat, in the world, we think there is a market of 2 trillion for making Better Business decisions. Some of it is rooted in lane fundamental facts that when you and i make decisions, you may be better at this, a third all right, a third are not optimal, and a third are wrong. Executive, catch the full interview tonight at 9 00 p. M. Eastern on the David Rubenstein show. Botc coming up with european stocks against the cost of sanctions. In venezuela. This is bloomberg. Mark time for the global battle of the charts where we look at the most telling charts of the day and what they mean for investors. You can access them on the bloomberg. Kicking things off, it has been a longtime. Hello. Thank you. Today, my truck conveys that optimism on the sell side is returning bigtime in europe. Strategist predicting a 4 to 5 upside for european stocks between now and the end of the year. It has been difficult this summer to be optimistic about european equities because of the strength of the euro. That has been a significant drag on the equity market. Going into the fall, strategists are becoming more optimistic on the buy side and hearing good things. Hearing that the investors think the drag from the euro will taper off into september, october. And european equities may have strength left in them to rally before the end of the year. Mark you can find that chart at 2072. Mark she has the regional bias didnt she is fine she has the regional bias. She is point to the judge. Playing to the judge. Vonnie maybe nothing i can do. This is the venezuela threemonth bond, the shortest term bond available. Prices tumbled with investors not able to stomach the Political Risk and turmoil they are seeing. Particularly when it comes to the venezuela posed the potential of sanctions. When sanctions when the potential for sanctions a potential was announced, that is when this happened. A selloff right then and there, bringing these bonds down to . 71. Possible the white house may ban trading in the securities, maybe not these ones, but some venezuelan securities. Way, none of this has happened, but things are deteriorating from the market perspective in venezuela. You can see that chart on the bloomberg. Mark for thinking outside the box and bringing something new to the party, i will award this a tie. Vonnie i thought you were going to set me up and cut me down. Mark a tie is fair. Well done, both of you good eight well done, both of you. That is it from the european close. This is bloomberg. Itis new they knew in is noon in new york. Welcome to bloomberg markets. Vonnie from bloomberg world figures in new york, here are the top stories. Trump threatens to bring the u. S. Government to the brink of a shutdown is needed to Pressure Congress into funding the border wall. We will look at the growing divide within the gop. Plus, losing patience for the president s antics, why our next guest is not ready to throw in the towel yet. Deregulation is going to washington could add 27 billion of gross profit at the sixth largest u. S. Bank. A lot to cover in the next 60 minutes but first we have abigail doolittle. A little bit of a selloff. Nothing too
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