Transcripts For BLOOMBERG Bloomberg Markets European Open 20170125

See a significant selloff somewhere down the pike. Bank beats biggest estimate. Francine lacqua speaks to our guests shortly. Are less than half an hour away from the european open. Take a look at european futures indicating a strong open after a week or session. The ftse was down yesterday. Sending u. S. Stocks up to my asian stocks following through and european stocks will do the same. Talk about what is on the g a man. That is one of the big stories. The dollar setting the trend for pretty much anything. U. S. Equities had a solid day. Up by. 7 of one percent. Its being set. Two things to watch out for, what happens to the peso as we work away through the day. The other thing to watch out for is what happens to the lira. Many people think it got off lightly. It was a risk on kind of session. It did not get hit as hard as it may down the road. We will watch that very closely. Heres the bloomberg first word news with juliette saly. Trumpte president donald plans to unveil actions on National Security today including steps toward building a wall on the Mexican Border and limiting refugee inflows to the u. S. He tweeted overnight, big day planned on National Security tomorrow. Among many other things, we will build the wall. The mexican peso fell on the news. Picks of donald trump budget director. Debt that 20 billion needs to be addressed. He said he would push trump to break his Campaign Promises and cut Social Security and medicare. He said without doing something soon, the medicare and Social Security trust funds could go bankrupt. Goldman sachs to the Trip Administration is penthousem unlock bonuses and other investments. To help the former ceo avoid conflict of interest, the bank is letting him collect about 65 million in cash and stocks tied to its fridge or appoint performance. He was paid 20 million for his work in 2016. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Guy and matt. Staying are spains biggest banks. For more lets get out to madrid and our friend Francine Lacqua who is standing by. Francine thank you. We have some great set of results and i am excited to speak to the executive chair of santander. A great set of numbers, you are confident about the future. Next, what is the thing you worry about in 2017 . Ana i am pleased with the result. Very importantly lying at 20 sent 20 . We deliver all our commitments for the year. Looking ahead, as i said, i am confident in our team and capacity to continue to deliver. For the first time, i think it is in 2010, every single one of our markets is expected to grow. We continue to deliver. 2017 turned a corner . Ana we can improve our business. Has done it in a long way, growing income, the customers are increasing cost and the comp credit under control. You worry that the residency presidency the Trump Presidency [inaudible] ana usually that means inflation. So the question is mexico and the u. S. Are very close together. Theyre going to have to wait a way to [inaudible] done reforms. A mexico, if volatility will help us. Rofits are a percent there is lot of things we can do in said even if the economy is [inaudible] our model is a subsidiary model and we are [inaudible] the question is how long the economy does locally. We expect 10 markets to grow. This year we delivered double us double growth. Deliver inhey will the right way. It is important how we do things, we grow our loyal customers. This is our strategy. And this strategy is the same. Centralntinue to grow loyal customers. [inaudible]e the this should be for the six months. Inflation will hurt consumers obviously. We are expecting lower growth and 2017. Not as slow as we expected before. Growth, still to grow in this context, the u. K. Has done a great job this year and we totally committed to the business bank. We have grown customers. It will be less growth but positive and this is important. Francine does it make any difference to how you operate and manage the u. K. . Bank. E are a british we take deposits. What we care about is our customers and so it will affect our customers and this is what we need to think about as we work out what is going to be the new relationship between the u. K. And the continent. Were are lots of imports and have to think about that and the people. There is a lot of british people on the continent. About 15 Million People last year. Lets think about the people and as westomers, the sme, work out. Francine are you over the [inaudible] in the u. K. . Ana there is not a paper on that but that is what we do not expect much more. Demos, [inaudible] these have the same as bankers who have talent for madrid. Ana if anyone will move from london, we welcome them in madrid. We have great people, infrastructure and it will be a great place. Is [inaudible]on talk to me about the u. S. Bank. It failed the stress test from the fed. The rules are changing. Have you had any report from the fed . Are on the [inaudible] that was the main goal. Importantly the smaller tanks in the u. S. Will not be subject to qualitative. That is the news. We are upgrading how we manage the u. S. And we have some green shoots in the u. S. As i will say later on. We are growing our customers and our customers in the bank and very importantly the consumer has an a tangible equity. On the turnaround it is surely the bank that is a part of our business. Francine 14 of our revenues and spain has [inaudible] part of growth. Will that trend be sustained . Ana the government and spain has made reforms. We have [inaudible] from nine tos down 4 . Solid base for growth and what we need is the continue to that is the number one priority. Spain is doing very well, 2 over the last few years. Europe is some of the [inaudible] so we can create the jobs that Companies Need today. Francine do you worry about populism and the french elections, you had to downgrade some of your targets. The division is much more rosy but the eurozone is in the eye of the storm. Europe has been a great model for peace and prosperity. That doesnt mean it is the perfect model. We need to create better jobs, technology is what is creating disruption. In the short term, we need to retrain people so we can bring everyone with us for the weave of growth. It is sustainable and that means anybody. An appetite there in the industry, in the banking landscape for consolidation, we heard about news about generale. To consolidate . Have it isu difficult. It has grown profits by 40 . We have 19 billion dollars more capital. Obviously, this is the key question, it is profitability. That is what builds capital in the longterm. We have generated 3 billion this year. We have grown lending and we have creasing increasing dividends per share by 5 . Now not every banker can say that. The other alternative is the growth model like we have. It is consolidation and cost cutting. We are not in that game. With a lot ofm discipline. I think some banks would look to consolidation, not us. Francine what does it manage made for the landscape . But we want to be open have some capacity inhouse. We have 25 million customers. We want to offer them some kind of Asset Management. We are going to be open to other asset managers, who do not have this vision will have to get bigger. Francine do you are you concerned that banks will not be a in a [inaudible] ana we need competitive banks that can [inaudible] union. The european much more than the u. S. Banks. It is critically important that as we finish and where almost , the latest rules that we think about that and i believe on the table. S lets finish, lets see what the new system delivers, make sure that banks can support growth. We have been doing that with lending and we expect to see lending growing overall and that is what is important. We can support our customers prosper, that is our mission. Givinge thank you for us your time. That was the chair of [inaudible] he you heard from the chair, she is positive about the future. Bloomberg ist a this flash. Said 2017novartis has will be unchanged from 2016. Europes secondbiggest drugmaker proposed buying the 5 billion in shares and considered separating its division. As the ceo of a major Multinational Company like novartis, i am constantly looking at the environment of any country that we invest in. News about what the new administration is saying in the u. S. Is that they expect to create a lower Corporate Tax rate. That would be nothing but positive for investment. Is buying asco pdynamics. Been buyinghas software and Services Companies to fire up revenue growth. Toy are scheduled [inaudible] which will be the first offering. And fourthquarter profit fell 34 as investors pulled cash among lackluster performance. They sit in october they went to lunch with henderson to form a 320 billion asset manager. Posted profits that met estimates after labor starks hurt production at home and incentive spending in the u. S. Increased. South koreas against automaker said operating profit fell to 875 million in the three months ending in december. The average analyst confessed was 1. 2 billion dollars. And considering a merger with generale. Deal ite preparing a will. Combine it secondbiggest bank and largest insurer. That is your Bloomberg Business flash. Guy thank you. U. S. Stocks hit another record. Both reaching new highs and commodity stocks had the best day in a year. To matt miller. Based on what trump has done so far, should markets be hopeful are concerned . Am confusedally i and iamb not the only one. In late november, early december, the focus was on the fiscal stimulus, the Infrastructure Spending planned, the proposed policies and everyone said all those protectionist threats will be count down by the administration. Well have seen it the opposite. There is a focus on protectionism tomorrow on trashing tpp, threatening nafta, etc. And there has been little talk of Infrastructure Spending. The market does not price than in. Why are stocks doing well than if the signals are so negative, i am looking at the s p broken up by groups and since the election on november 8, every single group with the exception of utilities has climbed higher with financials up 6. 5 . Financials are good. Administration is cutting back regulation and a lot of their policies will support banks if they do come through with tax cuts. Part of the recent equities are holding up even though trumps proposals have moved more negative on the trade focused front is the fact that many other countries at the moment are not threatening retaliation. It is foolish to think that u. S. Policies will be [inaudible] for a long time. Other countries will respond. The reason we are not is everyone knows that trump impetuous. Te no one wants to risk challenging him first. Theyre giving him as much leeway as possible to backtrack and perhaps not impose these taxes. I am curious about what happened overnight. We did see the mexican peso weaken. But not by much. We started to see the dollar come down and the mexican peso rise. Does that fit the narrative as well . Surprised since i walked away from my screen. I was out the view that the shouldhad more that be another negative for the peso. I am surprised it is starting to rally again. Maybe the markets are pricing this theme hard. The markets are choppy. I have talked to a lot of traders and it has been a choppy start to the year. They are finding it hard to take on position so many people are bored of these themes. Matt thank you very much. I encourage you to take a look at live go. Away from the open. We take a look at the movers in todays trading. Novartis are two of the names. This is bloomberg. Valuations are very high and the direction the market will be a function of earnings, positive and negative. They will come from lower Corporate Tax rates as a key driver. That has come at a cost as well and some of the various proposals about removing the deductibility of interest expense with dashwood effect some companies more than others. That is the core of the discussion, how to position portfolios. Matt that was the chief equity strategy for the u. S. At Goldman Sachs, talking about valuations in the market. We are minutes away from the open of the European Markets and want to bring in a little bit of Goldman Sachs perspective on one of the big movers, beating analyst estimates. Goldman sachs saying the results are strong and they are pleased with core revenue that was 3 above the consensus because of stronger that Interest Income and fee income. Also 5 preprovision profit be what they were looking for and the longlost provisions of better than expected as they also brought their nonperforming loans ratio down to less than 4 . This could be a theme across europe. Guy that is interesting. A lot of people are kabul mentor he. That is another theme we have been hearing overnight. Novartis is another story. We should talk about 2017, topline being similar. The repurchase plan continues. Theyre looking for an ipo for that ipay unit. Ale could be gener on. We are about every shaping of the Italian Financial landscape. That is something that will have significant repercussions as we think about how the Italian Company will go forward. There is a lack of information out there but it looks as if we are to the point where it may be putting this into the water. Keep an eye on that one. The one thing i would mention is the dollar within the last few minutes countering encountering pressure. The market open is around the corner. This is bloomberg. Guy morning. Welcome. You are watching bloomberg markets. Open. S the european im guy johnson. Matt miller is in berlin. We are moments away from castrating. That has your morning brief. Matt President Trump is scheduled to announce plans to day to build the wall on the Mexican Border. Rally on. Asian stocks follow u. S. Equities higher after the s p hits the new record, but is the optimism wanted . A speak to two guests who see significant selloff. Get ready for some errors cause. Is not bearish. She has seen growth in every Single Market and is confidence pain biggest banks will continue to deliver. Guy let us talk about what is going to happen in the cash session. European equities fall flattish but positive. Let us talk about some of the stories that will be moving them with individual stocks. Ftse 100 going up by but not by much. How theyait and see open. Individual stocks stories are fascinating today. That is a market open, so we have a positive part, pricing in a little bit of what happened the site and in asia. Let us get the details with manus cranny. Manus there seems to be this wave of enthusiasm for commodities. Yesterday was about Goldman Sachs going overweight. You are seeing the price of iron or rock up to a twoyear high. Oil in the 50s. With that in mind, sterling impact on the revenue side and now we talk about the prices, holding back some of the london upket financial is a bit,. 76 percent, potentially around the italian story, which is taking risk out of the market. Industrials up by a half of 1 . As i say to you, there is a question on top life go, which , which live talks about the s p 500. Get thed is unlikely to exuberant. This is noise during the article 50 from the Supreme Court in the United Kingdom, ruling that how manyay amendments would be excepted, up to the speaker of the house of commons. We see how many amendments the Scottish National party put through, who would vote against the will of the british people . ,hey cannot get a decent bid and that is the viewpoint coming from socgen. We are stuck in that range. Can we break out of it . That is the man. Stocks are rising. Gilts are offered. Ratio, a 40 page paper. Punching out of the water. The demand was insatiable in terms of that auction in the United Kingdom yesterday. Is that translated into the gilt market . Really with the equity story this morning, gilts down. Stocks to watch, nejra has got them. Radio,ve just come from and now onto the movers at the open, im starting with the Fourth Quarter number, a beat for this bank. Nejra Francine Lacqua has sat down this morning with the chairman. A lot of headlines coming out of that interview. Comments on brexit, bank profitability, and santander itself. We will be playing a lot from it throughout the program and i want to move on to novartis as well, proposing buying back 5 billion of shares and considering settling its division after sales this year will likely be largely unchanged from 2016. We are talking about europes secondbiggest drugmaker. Inin, chp, we saw this rise the us really and trade as well, and it looks like it is up in theon, too, so it is worlds biggest Mining Company and reported secondquarter iron our production that rose 9 as prices soared on demand from china, the highest in more than two years. We have members from other minors, so i will be keeping a close eye on how they move as well, but this is the picture at the moment as these markets open up. Something coming across the bloomberg that is worth paying attention to, because i think it fits a broader narrative. A Chinese Insurance Company is expecting net income to fall by 40 to 50 on the year. Falling profits on investments in 2016. Various other assets as well. Something to Pay Attention to for the narrative that may be surrounding what is happening in china and the asset markets there, maybe reflation trades that need to be taken with maybe a pinch of salt. Rally on was the story yesterday. Soaring metal stocks posting the s p 500 to an alltime record high. Here in london, the ftse 100 having a positive session. The miners have been sensational performers of late. Let us talk to the chief investment officer. I have for 25 allocation, among them being minors. It is really the two areas im interested in. , a lotng the consensus of people are starting to compare the Trump Administration with the incoming Abe Administration in japan. You may not believe there are three arrows to the deal, but he will get one or two off and of course, that is where we see day by day, treatment tree, executive orders by executive orders. Three, youss the mean regulatory reform, Infrastructure Spending, and i dont want to save protectionism, because that is a loaded phrase, but a renegotiation of trade agreements. You do not see these things in a very positive light, and in fact, i think you put the possibility of a recession this year at 50 to 60 , right . That iseah, but independent of trump policies. I think trump policies will make it worse. The 50 to 60 rating is from a model we use, and that has been at 60 roughly for a long time. As we come into the year, we increase. Cost ofrget that the money, the cost of capital is increasing significantly, and as much as people talk about this reflationary trade, a lot of the deflation happening in china is actually negative. You may have noticed this , it wasby the pboc hiked, a clear indication that china is now probably getting concerned about the inflationary aspect in china, which means again, as i think guy was alluding to, we are probably overestimating the inflationary side of china, but also the world economy, so i do not think it goes down well, and i think trump really is just forcing the momentum forward. I have very smart friends who are starting to believe this is a real story, and i have to say as an economist, i remain skeptical because everything going on right now is building a wall not only to mexico, but around the whole of the u. S. , leaving a huge geopolitical gap that china will fill, and reduce the global trade volume massively, look at what europe has been saying. As europe hasng their own strategy and she has ed by trade protectionism. Guy 375. Steen the dollar collapsed. Famous quote. E into the recession that came in with 73, the oil spill and everything. The oil prices. I think it seems to be the platform that to some extent, that trump is using in the sense. He is very nationalistic, a very aggressive leader. Dont forget nixon was on the case of the Federal Reserve up a time to read he forced the Federal Reserve to change the policy at the time, and i think to a large extent, that except for china may be, where they are at opposite and of course, what was happening during the time of nixon, and i think to a large extent, this is really concerning. I think it is a big government. To a large extent, people talk about trumpeting change, but really, what he is doing is trump being about change, but what he is really doing is reversing policy to the 1970s, 1980s. Matt you mention the dollar during the 1970s. What do you think of the dollar now . Look at the index over the past couple of years, you see a 25 rally. Or do think that holds, you think trump does not follow a strong dollar policy and attempt to somehow weaken the dollar . All, i think for all trump policy to work, you do need a weaker dollar, but the drive high in the u. S. Dollar has not been about trump. Since 2014, it has been the cost of capital, the cost of the marginal u. S. Dollar, the cost of the dollar you need for funding in the u. S. Has been on an ever steady rise in terms of cost. It today, we have negative liquidity in dollar terms, in terms of dollar funding, and that is what has been dictating the dollar moved higher, not the policies of trump. Technically, we are on the fifth wave and we could see another tick higher, but it is essentially, for the reason that needs a weaker dollar to substantiate the large increase we have seen but also note that j j yesterday was coming out against pointing to the fact that their earnings were actually seeing huge headwinds from the dollar, translation risk into the u. S. , so it is clearly an issue even with the Federal Reserve which mentioned that one of the Downside Risks to this scenario was a stronger dollar. Corporations,. S. All of them are looking for a weaker dollar policy to be if not regularly implemented, then indirectly. Guy european open, the Deutsche Bank ceo working to revise the 800 billion asset manager on his books. What is being considered. It is interesting well talk about what is happening with the european banks. Sticking with germany, turning to chancellor Angela Merkel and a man who could block the path to a fourth term in office. We will talk turkey as well. Later on, iron ore prices soar. The rally is overextended. Minors are up strongly in london this morning and helping out. We have a great mining guest coming up for you. Commodities later on in this program. All of that, up next. This is bloomberg. Matt welcome back to the European Market open. Let us take a look at were the markets are trading 14 minutes into the session. We have gains across the board after a rise in u. S. And asian markets overnight. The ftse up. 4 . The dax up two thirds of a percent at 11,674. The cac up at 4856. Guy i have a bunch of things i want to show everybody right now. A fairly big move in the fixed income space. Yields are going higher. This is what is happening with of the german 10 year. I can run you through a whole bunch of other charts that will tell an interesting story. This is what is happening with the dollar versus the turkish lira, which is going to spike on the upside, keep an eye bang on that. Let us run you through the movers, show you what is going on on the s p on the stoxx 600. Bnp paribas, hsbc, glencore, bhp, bbva, some of the index points edition, vodafone, and nestle weighing as well. Big on proxy. Some of the telcos in there. Proxies. I want to show you what is happening with the u. S. 10 year. This is what we are seeing in terms of the u. S. 10 year, so it is spiking up towards 2. 48 right the and we are seeing again bond market beginning to sell off the little bit within the last few minutes. Let us get back and thought about what is happening with the pharma sector. Earnings to remain flat. A decline by low singledigit percentage points. 6 ,tocks trading up by looking the trend for some of the other pharma stocks. They spoke about the companys outlook under the Trump Administration. Multihe ceo of a National Company like novartis, im constantly looking at the environment of any country we invest in, and the positive news about what the new administration is saying in the u. S. Is that they expect to create a lower Corporate Tax rate. That would be nothing but positive for investment. Guy speaking to us earlier on. He is pointing to what is the advantage of the Trump Administration. Degree, novartis and other companies will have to produce in the u. S. Going forward, and to a large extent, most of them are, but a lot are not doing it. Steen if trump takes one step haveher, they should an advantage creating the jobs, but that is the next step, what really concerns me. You could take the auto industry. I would not be concerned. Im not saying its happening, but it could happen to someone like volkswagen ultimately saying we are going to forget about the u. S. Market. We are talking about a market that barely grows. There are bigger fish to be fried somewhere else in the rest of the world, with asia and everything coming online with the middle class, so i think a lot of the Big Companies like novartis are very concerned right now. They look at the tax reduction that is going to happen, and i know they are going to be in for a rough time in terms of us regulation, a close look at the thatcts, but also the fact having production, having investment in the u. S. Is going to be a bigger tie up of their capital relative to the rest of the world. ,att i mean, volkswagen right sells fewer cars than subaru in the u. S. , so some would agree with you on that point and be surprised they did not pull out rather than pay 20 billion to deal with the emissions problem except for the fact that audi and porsche makes a much money there, and especially high margins, so it is not just about the volkswagen brand. Let me get back to pharma, and ask you about i mean, the pressures there are twofold because they have pricing pressure to magically in the u. S. , and then the possibility of having import or export problems from here to there is growing, so are there any Pharma Companies that you like or are you down in all pharma . Steen no, i think a lot of the cancer,ompanies, parkinsons, all the diseases we have not been able to deal with for the last 200, 300 years, if you can find companies in that space to do it the generic ones, the ones that can be replaced by u. S. Manufacturers, they will be doing poorly, in my opinion, because the margin has been high, the pricing models for distribution in the u. S. , as you clearly know, has been excessively expensive on the ground that coverage and croquet and the likes, but also dont get from is part of evolution is part of making progress. I am not down on pharma, but i think there is a repricing going on, and certainly, the Earnings Growth Going Forward will be less than we deduced in the last decade. Guy stay with us. Plenty more to come. Of next, it Deutsche Bank to boost revenue. We will take a look at the options being considered. That is next. This is bloomberg. Matt welcome back to the European Market open. We are up across the board, including bankshares across europe. One of them here in germany, Deutsche Bank, is considering often to revive its 8 billion Asset Management is and. The unit management business. It has been eroded by misconduct charges. Steven arons joins us from frankfurt. Thank you for coming on this morning. Let me ask you, the ceo has ruled out selling the business, but there have been rumors about the possibility of an ipo of the unit. Why would you rather have fun it then sell it . Steven there have been movers about a partial ipo. Deutsche banks Capital Position has been in the limelight for a while now, and there have been a lot of concerns about it, and they have vowed to raise capital. A partial float would be a step in that direction. Rumors would, you know, it would make a difference. Questions of course, would it have enough capital to compensate for the shared he would have to give up . It has been the only unit consistently possible over the past few years and an interesting part of the business. Does he want to give up part of the control over it . Let us talk about outflows because we saw significant outflows last year. What caused that . What was the boss of the business need to do to turn the tide . What was going on . Is a difficult question to answer. You are right. There were strong net outflows last year. 29 billion euros in the first nine months of the year. More than at any other european competitor. Deutsche Asset Management says it is to do with the market situation. They have a strong etf business in equities, nothing much in fixed income, and last year, there was a big shift from equities and fixed income. They also say they are fixing it, but of course, it was stronger than at any competitors, so the question was the news flow allows negative news flow around Deutsche Bank last year, there was certainly an element of that, too. He stepped up in october and he is trying to turn this around. He had not said much about what he wants to do. He is conducting a review. What he did say is that stemming that outflows is a top priority, thathey have also said this year has come off to a good start, so we will see what it brings. Much fornk you so joining us. Steven arons, banking reporter on the ground, hounding those Bank Executives in the german Financial Capital for us. Still with us is the job of them still with us is steen jakobsen. Santander coming out with much better nonperforming loans ratios than the street was looking for. Is that happening across europe . Italy, are we seeing banks improve with the economy . Steen youre pointing to the right story. I think the nonperforming loans will improve because around europe and the different sections, it is clear that europe is doing just fine. Different santander entities, it is clear europe is doing just fine. We have good growth, and the internal devaluation in europe over the last five years has been massively constructive to the for the growth. Ande can keep it intact opted to much volatility, we are in for a couple of years were europes growth will where europes growth will catch up. It will come from a broad european delivery of growth, not just from the core europe we have seen in the past. A much better mix of will go to the bottom line of the xitaly, and pl, that should come down dramatically in this environment. Guy qe was changed in the eurozone, if it was, would it have an impact . Steen i think the fundamental story is the internal devaluation, not having the ability to use a weaker euro. We have seen massive improvement on the unit labor cost in places europeanugal and countries. They are becoming massively competitive, even with germany. The biggest story for europe, coming postelection, is the fact that germany will need to reduce in trade andboth vice versa, because it will not have enough impulse. Guy up next, competition. The german elections. This is bloomberg. Guy welcome back. You are watching bloomberg markets. This is the european open, 30 minutes into the trading day. The dollar is coming back down again. The pound is actually reasonably well bit right now. You are seeing treasury yields spiking higher both in germany and the united states. Minors once again on a tear. We will talk about them very shortly. Let us look at the stocks on the move. Here is nejra cehic. Nejra this is the first stop im looking at. Numbers from this company, Fourth Quarter koppel and copper and Gold Production for it up by. 6 at the moment. This follows news from bhp billiton earlier in the session, we thought rising in sydney and thisrising in london and after its iron ore production was up 9 . Gaining. Mbers it is a strong day for minors as you say. Sao paulo,ving on to these two connected in this perspective deal. It has said it is considering a merger with Jenna Raleigh wi th generali. This deal has prompted a regulatory inquiry. The italian stock market is gathering executives today and tomorrow and it prompted analyst skepticism about the value of this deal and that is why we are seeing it move lower on this. Generali rose the most in 2010 and this was after it purchased f of intel is a o f intesa. These are some of the big moves were seeing on the stoxx 600. Guy. Matt i will pick it up here. Im going to talk about the chancellor Angela Merkel. Her path to a fourth term in office just got a lot more obligated. In a surprise decision, said Marc Gabriele announced he would not run against her. That paved the way for former e. U. Parliament president martin to challenge her against populara much more politician. Those scholz make the spd a bigger threat . What he really brings is popularity. If you look at the sort of opinion polls on individual tz is moreul popular than merkel. Coattails and play where you have a popular person at the top of the ticket and in theory, that will lift the party as a whole. Let us talk a little bit about how much of a threat scholz is in terms of the fourth term. Give me the details. Schultz will be taking over the party and essentially running a campaign that is going to be more to the left than what gabriele would have run with. What is going for him is the fact that he is not part of the grand coalition that has alienated a lot of spd voters, so he will be focusing on sort of being this outsider, if you will. He spent most of his career in e. U. Politics. Chad he has been in the e. U. Parliament since the mid90s, so hell be able to come in, and we dont know exactly what policies he will be espousing, but certainly more to the left. Matt this is a huge deal yesterday when the news broke. I was in the taxi and it immediately came on the radio when i got home after coming back to work. It was all over german tv. Everyone seems fairly positive about this for the spd, and saying it will make the election were interesting, but doesnt salt have kind of a drag in that he is so closely connected with europe and theres this populist wave so antieurope . Chad that is true and the alternative for the germany party, populist party on the right, they came out yesterday with tweets and other messages on social media saying great, this is absolutely the kind of candidate we want to run against. They call him ultimately also, let us not forget that this is still merkels election to lose. Her party is still the most popular by far in germany. Whatll brings his momentum for the spd and perhaps some options in terms of Coalition Building after the election, depending upon how this plays out for the spd, but still, merkel is by far, her party is still the most popular in germany. Guy matt thank you very much, chad thomas, joining us on this story that rocked the german political scene yesterday, and continues to do this week as we hear the additional announcement coming on sunday the official announcement coming on sunday. Steen jakobsen, how do you see this . Of aschultz come out Bernie Sanders in the german election, trying to flank Angela Merkel or go very far to her left as she kind of tricycle right to fight the afd as she tries to go right to fight the afd . Steen the other way. Merkel is not very popular, but she is respected by all of germany, and i think that is the key here. We have a world where we have company wes, we have the turkish skirmish going on, we have a lot of uncertainty, and the germans are traditionally conservative. I dont see schultz having much of a chance to be honest, but i do agree, it will be far more interesting having him in the andlight than gabriele, they will have their day in the sunshine is all. German politics is changing anyway with or without salt and it will change in a way that the Coalition Government will be more difficult. Maybe germany is moving on to what we have seen in scandinavia that we have a more floating government relative to the traditional set up and i will be good for german politics. Guy is Angela Merkels biggest . Chilles heel Erdogan Steen she will be in a very trying to deal with that in a respectful humanitarian and political way. I think all of europe, the turkey risk is the immigration, the relative instability of the banking system. Those are the two keys we have and the trade issues with the u. S. , which i think is a slow grinding process if you take 2017 into respect. Matt turkey is your biggest concern . How does that way on what you do at the office . How does that way on how you direct investments . Risk. It is a it has not been doing anything to the actual Asset Allocation over the last couple of years, but maybe that is the major change that tail risk start to matter. Clearly, turkey is under some financial pressure with the turkish lira continuing to playing the game he plays. It is difficult. I think turkey has a great future. Do being the bridge between europe and asia is significant, but right now, it is a story that as i was saying, i mean, a worst case, they will fail to live up to the agreement with the e. U. Lot about the a german election within the last few minutes. Let us talk about what is happening. French election, concerned about what le pen is going to do. Is the dutch election something we are not something we are underestimating . This is the dutch 10 year versus the german 10 year spread. In many ways, the dutch are a better credit than the germans are, though the germans have liquidity advantage. How do you price little risk for the netherlands price Political Risk for the netherlands . The euro takes into much. You cannot do it via the credit markets, bond markets, because well, germany and the netherlands, nobody wants to buy an breakup risk, and the spread does not change very much. How do you price in dust risk into the financials dutch risk into the financials . Steen if you are negative on the Political Risk in the netherlands, you have to be sure some of the equities guy why not buy them rather than sell them . If i think another lens will take us in a different direction and it is largely antieuro, there is a weak denomination risk that is positive, not negative. Steen it creates uncertainty, and uncertainty is not good for stocks. My point is we do expect the netherlands, the election in the netherlands to be very contagious in terms of immigration. We have seen up Prime Minister increase his rhetoric to more antiimmigration, lets open to immigration. We do expect what is going to happen. I agree with you in terms of the outcome. I think in terms of the rhetoric and what is going on and the ability to see changes to the political makeup, but on the other hand, we are expecting something. That is probably the manner different major difference between election in 2016 and 2017. It is not even our register called le pen president and france anymore. This tells you how the of thental structure political atmosphere has changed in the fact that it is not outrageous to believe in the far right and far left coming in with populist votes and the market is agreeing with a lot of the populist votes. As an economist, i remain very skeptical that talk can replace action. Guy stay with us. Payoff . Will it pay off . We will talk about that story, next. This is bloomberg. Matt welcome back to the European Market open just 44 minutes into the trading session. You are looking at a live shot of the Brandenburg Gate as germany debates its political future. Look at the Bloomberg Business flash. For that, we go to sebastian salek. Sebastian let us start with santander, rose to 1. 6 billion euros on lower loan provisions and higher income from brazil. The result beat estimates. Francine lacqua spoke exclusively to anna about. Will hurt consumers obviously, and we are expecting lower growth in the u k for 2017. Not as low as we expected before. We still expect growth, lending grow less. To santander u. K. Has done a great job this year and we committed to the u. K. As a local british bank. Set out innovartis 2017 will likely be largely unchanged from 2016. Europes secondbiggest drugmaker will buy back shares, considering separating. The ceo joe spoke about the impact of President Trump. Of a majoreo Multinational Company like novartis, im constantly looking at the environment of any country we invest in, and the positive news about what the new administration is saying in the u. S. Is that they expect to create a lower Corporate Tax rate that would be nothing but positive for investment. Sebastian and that is your Bloomberg Business flash. Guy. Guy thanks. Our next get into conversation, to show you what is happening. Yesterday, some people thought that the turkish lira in some ways got away with it, because of the risk on kind of sentiment. Let me bring you the screen here. We are starting to reverse that now. The dollar is trading fairly flat against a bunch of things this morning including actually the mexican peso, but the lira is coming up the selling pressure. You can see that spike yesterday. Them a are pushing past little bit. We will continue to monitor what is happening with that story. I think it is important. That is hot about what is happening elsewhere. Surging Commodity Prices have helped spur a Global Market rallied. Basic resources today, one of the top leaders on the stoxx 600. While, the worlds biggest Mining Company, bhp, has reported iron ore production as they soared from demand on china. Talk about what is happening cio ofeen jakobsen, the sacco bank. It has been quite a run. It was a big selloff before that. But nevertheless, from the top to bottom, from bottom to top, has it still got legs . Definitely has got legs. You have got up at the context of the recent run and the history of what we saw in 2015, 2016, where we had that route in the mining stocks as people decliningact Global Demand for these commodities. A lackluster demand. People speculating it would last almost ad infinitum. They reverse quite sharply those expectations. Increasingly, as well, a sense of just what the potential was in terms of cash flow generation. These guys, capable of producing once those overaggressive capital plans we put in place in the early years of the super cycles, started getting reigned in. You take that in conjunction, Commodity Prices staying at relatively well supported levels and the inflationary environment at coming down, and you have got a situation where you can see some significant Free Cash Flow being generated by the guys. The question is, what do you do with it . You cannot turn the trigger on a 5 billion mine overnight. With oura leadtime, cash flow represents significant opportunity for income investors, for dividends and returns of capital. Matt so let us take a longerterm look. I mean, if i pull back and look at the stoxx 600 divided by industry groups, we can see the basic Resources Group over the last 12 months is up 120 . That is three times the secondbest performer, which is oil and gas, another commodities group. I know you are bullish on metals and minors as well. How much further can you go after this kind of gain . Steen well, it depends what side you are in. I would love to ask paul as well they continue to produce a lot of Free Cash Flow whereas the ones who are investing in new mines, still ramping up production because the cost of capital continues to increase in my opinion. The field is getting more split. Is a reallyk that important point. It is important we do not get too obsessed by some of these big numbers you can post whenever you come off a low base. It is important to remember that if you have a stop down 80 one year, what does it take in order to reach normal life that to its historic levels . Back to its historic levels . Ill be improving demand environment, growth is very low. You have had a decade of commissary notes being written by the management of the Mining Companies, justifying white as they are spending so much capex. People thought as per mr. He notes would never be repaid. They have an opportunity to do that so i think the credible question is who has up a balance sheet, who is improving their balance sheet, and who has the ability to repay shareholders for their tolerance . To go out on another spending spree . Let us take a company, 60 billion spending on capex. Forward looking to spend three to maintain production. That is the magnitude we are talking about. Steen that is one of the cheapest valuations. Paul absolutely. Very cheap. Of contextle bit here. This is the stoxx 600 basic resources index matt is talking about and your point, paul, you can see the downdraft and the updraft as we have come through this low. When i think about the minors, do a and during the middle of the super psycho, there was a phase where you were better off buying guys who made picks rather than used them just to spread it further. If you take the oil industry and analogy, i want to be buying . Steen when you guys are converting their outflows into capex programs and you have parallel projects attempting to be developed in sequence, in parallel, what that meant to say is that all of that wrench was being transferred out of the Mining Companies to the guys selling them the picks. The thing that really changes is that if you look at the proportion of the earnings, the operating cash flow, the Mining Industry was spending on capital during the period versus what it is spending now, you get a radically different picture. More and more of the earnings are being held by the companies themselves for the benefit of their shareholders rather than being distributed out into organic growth, which benefits the light of caterpillar, whomever, the mining world. Matt i wonder about m a because when the prices were down and when they were getting killed at the end of 2015, everyone thought it is the perfect opportunity for m a and we saw a pickup in m a action to some the pageut i have got here, so im cheating by looking at the bloomberg, and i click on mining, you can see the rosen the 2015, the volume rosen to when i click on the mining, you can see the volume rose in 2015. You can see what it was 12 months ago and you have a number of other. Does that mean big m a . Only a couple things you can do. You can either build projects, given about your shareholders. One of the issues you are dealing with, first of all, devaluations in the commodity. Paul what is it you have to pay . I also think, the other issue you are dealing with is a limited set of opportunities that exist now. If you take the last wave of m a through the super psycho, that was taking out a lot of the midcap juniors, australian and canadian players, and stocks. Those have largely gone. If you look at the big transformational deals, falcon thate, so on and so forth form the basis of some of the companies now, a lot of those, they are not that there is not that set of opportunities. They have valuations which will be more stress, and a set of minors you can go out and meaningfully move the needle or are just for sale, it is very tricky to find that. Guy either your picks for 2017, and a just, you cannot help but look at some of the numbers, particularly the bottom two. Somebody told me i should be buying into a stock that over 652. 73 . Year is up by i say you have got to make a pretty compelling case. Make that case for me. Paul we put out a 100 page case on exactly that stock. This is the latest venture into the drc. We had a 300 upset on the stock despite that rally. 0 upset in the space of three months, but critically, in terms of the inflation of the drilling going on here. You have got to stay phenomenal. It is probably the most important find in copper. We have got a 10 canadian price target on this stock. We think there is a phenomenal potential there. It is not about the percentage movement. It is about what is the opposite value here . Guy massive though . Paul absolutely. This is the impact of leverage in this sector. You say there is no value in any kind of copper growth or any kind of development. You take 7,000 return, and you can see prodigious value. Steen that is the appeal. Paul that is what makes it fun. Know, itat is, you cash flow forever. What you want as an investor is a cash flow that is somewhat predictable into the longterm future. If you have a product silo of seven years, medicine, whatever, you have a product go into the ground, you could get up, and can you shovel it into the market place. That is why we like this sector. Matt let me just ask quickly about china because i have got a tweet from somebody, jeremy blitz, who appears to be watching from the u. S. Either very early or very late. Asking about that. Is china here a worry because you need them for this kind of deflation . Or refaltion . Or are they a nonstory because they are out . On the broader macro, this is a sector that is very highly geared to macro growth, deceleration, acceleration, and china plays a huge role in that. Tol what you have got differentiate is that one does not need the kind of super cycle demand growth coming from china and indeed the broader emerging markets to justify the valuation in these sectors. You just need 1 or 2 demand growth and the reality is that we have not got the supply even to meet that on a trend view. So you do not need double digits, china going to 10 , 15 as it was in the early days, but you do need to avoid contraction in Global Demand. Guy paul, great to see you. Paul gait joining us. Thank you for joining us, steen jakobsen. Up next is surveillance on dab digital radio. Matt miller and myself. This is bloomberg. Boss is the santander bullish as the big bang comes in ahead of estimates. Time, i thinkst since 2010, every single one of our markets is expected to grow. So, you know, i am confident we are going to deliver. Francine the first break in the well the wall. Donald trump plans to unveil his famous plan for the national border. And brexit backl