Dijsselbloem in brussels today. Can a greek deal get done . Matt we are less than a halfhour to the open of european trading and it is going to be an exciting day after a surge in asian stocks. The nikkei up 2. 5 . The s p 500 rose to a record on optimism for president trumps tax plan. Now we see european stock Index Futures pointing to a positive open. Also on optimism for that one china backing we got out of the white house. Ftse futures up 0. 3 . Dax futures up 0. 5 . Guy it is a fascinating friday. You can see it across the gmm screen. The nikkei up 2. 49 . The real blowout performance coming from japanese stocks today. The yen is down 0. 4 . In the sbr in abe u. S. Today. Hazmat was saying, equities bid, bonds on offer. The other thing i want to show you, iron ore. Very solid week. That is great news for rio tinto. We will keep talking about that. The bund yield this morning, weve seen a tracking lower, trending sideways. Yields up, prices down. Lets get a bloomberg first word news update. Here is sophie kamaruddin. Sophie happy friday. A federal Appeals Court has refused to reinstate Donald Trumps ban on travel from seven muslim majority countries. The ruling concluded the government failed to make its case that the ba. Tweeting, seeant, you in court. Global equities have gained after donald trump promised what he called a phenomenal plan to overhaul business taxes in the next few weeks. He offered no details about the plan. White House Press Secretary sean spicer later said it would be the most comprehensive business individual tax overhaul since 1996. Greeces government may present a framework of measures for the bailout review as early as today. This comes as a prolonged deadlock has raised doubts about the countrys ability to repay debts due in july. It hopes progress can be made before a scheduled meeting of finance ministers on february 20. South african president jacob zumas state of the nation speech descended into chaos yesterday. Opposition lawmakers brawled with security guards. Police fired stun grenades. Rival Party Supporters clashed in the streets of cape town. The speaker summoned the guards members of the Freedom Fighters after they repeatedly interrupted proceedings. News 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Guy thank you very much indeed. The china trade back on overnight. What hasolid data and been going on in the political sphere. Donald Trump Holding his first phone call with chinese president xi jinping. Requestreed to xis that he honor americas longstanding one china policy. Lets get the latest. David tweed is standing by. Donald trump had already called about 20 other leaders. Why did this call take so long . It seems to have gone so well. Got toi think youve look back on what trump was talking about last year, saying he couldnt understand why the one china policy and the u. S. Recognition of it shouldnt be linked to other issues, including trade. This is what got into chinas gall. They were not going to link the one china policy with anything else. There was going to be no dice in terms of talks. What we get now is, you see Rex Tillerson who said in his confirmation that the one china policy should be acknowledged by the United States. I imagine Merck Tillerson was talking to donald trump and saying, theres not going to be any deal with china. This is the most consequential relationship. You need to be able to talk to them. This was clearly a way in which donald trump saw a chance to bargain for negotiate with the chinese. He prides himself on that skill. What do you think is going to be his next bargaining chip . Will he threaten sanctions . Will he threaten to continue a trade war . Yuid i think that geoffrey from ubs put it well. It looks like it was donald trump who was acquiescing on this one. The bargaining chip didnt come out in his favor. In terms of what is probably going to happen, now that we just have single issues to deal with, and the chances that trump is going to put them into one bag are pretty slim, one would think, know that the one china policy has been dealt with, it looks as though they are going to be able to start coming up with particular demands in the area of trade, which is why you are seeing asian stocks go up so high. They see a diminished chance of a trade war. They think xi jinping is going to be able to deal with donald trump one issue at a time. What does donald trump one out of china and what is china willing to give . Guy thank you very much indeed. David tweed with the latest out of hong kong. I want to show you an interesting chart on your bloomberg. This is the offshore yuan versus the dollar. Youve got this narrowing wage formation. The dollar just beginning to pop out a little bit of that range. Maybe what we are going to watch as well is some currency action. Customer, a bloomberg tv , go to your bloomberg, this is what you get. You get the bloomberg tv option, the radio option, some of the charts, and you are going to be able to reach out to the shows directly. Send us your thoughts, comments, questions. Matt questions, that is a key. When we have interesting guests, which is often, it would be great for clients to send us questions so they can be part of the conversation as well. Coming up, we are live in rome where we break down the challenges facing italys banks as unicredit and monte paschi pose massive losses. Plus, the auto sector. Renault reports earnings that beat the street. And a new olive branch for greece, possibly. Creditors may present new terms for a bailout as soon as today to break a deal deadlock. We will get the details you been waiting for on the greek bailout process. The open is just 40 minutes away. 20 minutes away. Guy welcome back. We are 18 minutes away from the market open. Lets talk about italy. Monte dei paschi has posted a second straight quarterly loss on higher bad loan provisions, steepening its travels. Lost 87 of its market value before shares were suspended. A 13. 6it has recorded billion euro loss in the Fourth Quarter. Marco elser joins us now, the head or folio manager at london capital. Lets start off with paschi. Nationalization inevitable . Is this bank done . Marco theres a big difference between monte paschi and unicredit. They both announced massive losses. The outlooklts, but for unicredit is much better than before. The outlook for monte paschi is worse. I dont think it is for financial reasons. It is for political reasons. Monte paschi is going to get a significant in flow ofi dont tr financial reasons. Cash, not from outside investors, but from the government. The government is still discussing. Dropped. Ows have the situation is still quite alarming. Just earlier this week, i discovered a very significant building in rome, which hasnt been paying the owner hasnt been paying any interest for four years, hasnt even gotten a notice. As far as the headquarters are concerned, the loan is still in bonus, where in fact it has been in default for a long time. That is the concern for me. I think there is a strong likelihood that monte paschi is going to be nationalized. Two months ago, when the referendum was supposed to take place, where renzi lost, that was one of the things that was going to move forward. Two months have passed and nothing has really happened. French]ill [speaking as they say in france. I think shareholders are going to get clocked. Their investments are going to become bagels. It would not surprise me, even if politicians have said bondholders will be made whole one way or another, i dont see that likely. The canary in the coal mine is to look at the subordinated debt of monte paschi. They have a bunch of issues. Those will tell the thermometer of the bank. Matt what about unicredit . They came out with a fourthquarter loss of 13. 6 billion euros, 14. 5 billion dollars. Big loss for one quarter. Third annual loss in six years. Going to cleannk up its balance sheet, cut costs, get back to its fighting ways . Marco bear in mind that a lot of unicredit thankfully, through previous management, diversified its holdings. They had significant presence in Eastern Europe that has been providing fantastic results and has saved the skin of unicredit. The big difference is that unicredit has some very strong professional management, and most importantly they have a timeline. In four weeks, they get an injection of 20 billion euros. That is a very significant amount of money. Italian big as the national transaction. Add to that that with all this money, there is a very strong likelihood that unicredit will start paying dividends in 2019. What that means is that a lot of investors who are precluded from buying securities that do not give dividends will be able to come in. It is still a very large market cap. Unicredit today has a market cap of about 14 billion euros, significantly higher than monte paschi. Theres a lot of wealth still. Guy how when you value the atlanta ii fund . Marco wow. I dont think half an hour would be sufficient. I have to do a lot more due diligence. It is a very complicated story. Unicredit has written down a lot of its npls to absurdly low levels. I think theres going to be recovery for these nonperforming loans. Theyve sold off nonperforming mortgages. Theyve sold off nonperforming unsecured loans at prices which are really rockbottom. As they say in new york, crazy eddie prices. I wouldnt be able to comment on it. I think only people from that company were very professional analysts would be able to do it. Possible is it possible to have a proper market for npls in italy right now . It guys that are running dont seem to think so. It really is you are playing hide and seek in the dark. The person who is doing the hiding isnt finding other people either. Everybody is blind. The lights arent on and your guess is as good as mine. There are some very significant inconsistencies. Weve seen transactions here, which in a normal environment would make no sense at all. Weve seen real estate being priced at prices which would not make sense anywhere in the liquidity,because of people are having to take the pain and get rid of it. Theres always going to be a price at which a transaction will take place. Whether it is the right price, i dont know. But the transaction did take place. That remains the new benchmark. That is going to be temporary because there are some very low prices at which transactions are taking place. Matt if visibility is that difficult, where do you see unicredit shares . Can you even say that you would buy them or sell them or do you just have a neutral on those . Areo unicredit shares unquestionably undervalued right now because of the fact that they are going to be getting a very significant in flow of cash. That is going to get them out. Theyre in mind that unicredit has done, i think, as good a job as most banks. I think the only bank significantly better is some aloe. Its market cap is three times the size of unicredit. There subordinated debt is still , and that really is a signal. I think what you should look at is see read the subordinated debt, the contingent convertible debt is, and that will give you a flavor of where the values are. There was an interview a couple days ago with david, i think made a very important point about making a texas hedge. I think it is a valid point. You have to close your nose, close your eyes, weight, and see the results. The results are going to be good. You just dont know what is going to happen between now and 2019. Guy taco, throw an italian election into the mix. What difference would that make . The italian political situation as always is three ballerinas and no music. They are trying to all dance and theres no rhythm, no rhyme, no nothing. Within each of the political parties, theres larger and demagoguery. Es of the roman mayor is attacking the person that they hired. Nothing is getting done. Thatly saving up is theres a very large transaction that is supposed to take place in italy which is being mired down by political instability, which is this enormous stadium. Rome is the only city in the world that doesnt have a beautiful stadium and it has already been shot down for the 24 candidacy for the olympics last fall. Politics are really unfortunately a way of life in rome. It is very frustrating to see people cut their nose despite their faces with such regularity. If they simply decided to get together and move forward, italy would be in a class of its own. They would overtake germany, france, because they really are a ferreri engine. It is just that they have some godawful designer. It is very sad. But the power is definitely here. Guy back to the stadium, i thought you guys had a pretty good one, the coliseum. Maybe a little bit out of date. Marco the coliseum has been around for 2000 years. Guy may be in need of a little renovation. Marco exactly it. Like most of rome. Guy marco, always a pleasure. Thank you very much indeed, marco elser, joining us on the italian banking story. Minutes away from the market open, lets talk about some of the stocks. Those. Certainly one of the one im excited about is renault. Theres lots going on with the auto sector in france. Marine le pen saying she may change the tax situation surrounding imports. Weve got what is happening with the euro, donald trump, dieselgate. You can feed them back into volkswagen. Matt,iming is good, turning up here. Matt ive got to say, this is one of the few companies that manages to avoid almost all of those problems, with the exception obviously of the french problem, which lets face it, the redenomination risk isnt exactly 50 or more. So that is unlikely to happen. Renault looks good right now. Their profit was up 38 last year. They are breaking into new markets that arent the u. S. Or russia. They are looking into india, iran, believe it or not, a great opportunity for them. For renault, the future is looking bright and it is only helped by the design, successful design, of their cars. By the way, those renault earnings coming as Marine Le Pen said cars made overseas by French Companies and sold in france should be taxed. Lets dig into that, no matter how unlikely it is. Joining us on the line from france or is kevin kuhl. Kevin, how much are carmakers sincerely worried about Marine Le Pen actually winning the french president ial election . Kevin good morning. I personally think that carmakers are not that concerned about this scenario at the moment. They are more concerned in where the Automotive Industry is going in general. Lots of interesting things are going on that they have to establish themselves more as mobility providers than just producers of cars. There is lots of different topics they have to take care as well. Marine le pen is of course an important topic for french carmakers, but for the time being, other topics are more important to them. Guy how is renault set up . Is renault in a good position . Matt was talking about its car design. You are talking about a shift to a servicebased model. They produce good small cars, mediumsized cars. Give us a sense how this company is set up. Does it have the scale with nissan to do what is needed to be done . Kevin that is for sure. Renault is set up very well. For all the new, innovative trends we are seeing, they are the leading producer, together with nissan, when it comes to achievable electric vehicles. They are also doing lots of research, lots of investments into the connected car, mobility solutions, and also investing in strategic partnerships. I recall their investment in krystle campbell, a startup focusing on autonomous driving. Together with nissan, renault is very well set up for the future challenges the Automotive Industry will face. Guy guy matt kevin, thanks so much. Kevin kuhl joining us on the phone. Very interesting earnings that beat expectations. Renault has just overtaken peugeot as frances biggest carmaker. What a company to watch right now. Were going to be speaking exclusively to Renault Nissan chairman and ceo carlos ghosn. You can see that from 3 00 p. M. U. K. Time on bloomberg tv. You can also check it out on bloomberg. Com, our mobile apps, or tv. Coming up is the market open. Futures pointing up. Guy morning. Welcome. Happy friday. Youre watching bloomberg markets. This is the european alpine. Im guy johnson. Matt miller is in berlin. Miller has your morning brief. President trump reaffirms americas support of the longstanding taiwan policy and wereiffe xi jinping fears of a trade were overblown . Phenomenal cap plan phenomenal tax plan. Is the reflation trade back on . Back to brussels. sey are set to meet as greece creditors are set to hand athens a new set of bailout demands. . Go much higher will they guy we have seen what wouldnt futures have done bund futures have done. Let me show you what is going on here that is how we were position yesterday. We are up by. 1 and expecting more than that. 7234 is where we are trading. Higher. Cted to open let us see how that settled down a little bit. Settling down a little bit. 4826 is where the cac is. Manus guy johnson, there is no doubt about it. There is an audible sigh of relief if you can get your head around that in the world. Donald trump will honor the one china policy and indeed say that manipulation is off the table. Number dollar index is up. 8 . Bloombergs brother, dollar index trade. Day eight of a rally on the dollar. Dollaryen being knocked off its peg down. 5 . How do you look at the european continent . Banca monte dei paschi numbers did very little to make people enthusiastic that italy financials up. 5 . Very much an aggressive move of reforming comes onto the agenda in the United States of america. What does that mean for europe . Adding fueldata is to bullish tone on the markets, but there is of course one issue. Mr. Schaeuble made it very clear. A haircut, goodbye. Get out. We are below 10 . As you just said in your hand they think they have got france and germany in their crosshairs . Could they get a better . Deal because of politics a better deal because of politics . Nejra cehic. Nejra manus, im looking at this moving on m a moves. They agreed to by johnson. We are talking about the u. K. Consumer products maker trying to move into the Baby Food Market for the first time and increase its presence in asia. Johnson does provide a means of stoking growth. Its sales are dancing at the slowest space in more than five years because of test conditions in europe and emerging markets like brazil. Some analysts say a counter offer is possible. Benckisering reckitt down a little. Gaining profits surging 38 in 2016 after the french carmaker gains market share in europe with an extended lineup of suvs and also upgraded some of its models, so we are seeing the stock price with higher on that and the net income or operating profit number was a beat as well. That was aet income, beat. 57 increase in the Fourth Quarter. Higher Investment Banking revenue and onetime gain more than upset lower Asset Management sales. Guy. Guy thank you very much indeed. U. S. Treasuries on offer at the moment with yields rising. What is happening with the gmm . 5 this is up by morning. Flip the screen and we are going to show you what is going on elsewhere and show you what is happening with the mov screen this morning because it is interesting in terms of the risk on, risk off sentiment. Let us look at what is happening with respond here to be a, Massive Player in iron or, biggest index gainer on the stoxx 600 this morning. Well bit. Are all as are some of the risk on kinds of trade. Risk off today, the bond proxies. Loreal, anheuser, trading off, trading softer. Let us get back and talk a little bit about the dollar. It is up against most of the majors. President trump promised to overhaul business taxes, bolstering fiscal stimulus back on track. A borderthe issue that tax strategy would have on the dollar. Let us kick all around this story and find out which track we should be taking. Matt and i have been talking about this all morning. The border tax story, the dollar, if we end up with a border tax strategy, and if we end up with that kind of strategy, paul ryan kind of plan, how much do i need to bid the dollar from here . Kevin our view is the dollar does continue to rise, so reasons we discussed on this program many times before. The border tax is an additional reason to buy the dollar. We actually did a piece on this last week and published it. Bnp paribas, if this port affect does come in, it raises the level of the dollar between 15 percent and 20 . It is quite significant. Steven that does not mean it immediately comes to the dollar going up by much, but any overvaluation of the dollar is mitigated. So wens it could increase could see a stronger u. S. Dollar environment. Remember, as the market is going why does the border tax push up the bow you of the dollar the value of the dollar . Is basically this tool tax change where you expect something comeing from donald trump. Adjustment actually improves the terms of trade in the United States, and that is the mechanism that allows the dollar to reach a higher equilibrium level. The dollar more broadly. Is there any more nuanced ways of looking at it, individual, pair by hurray . Steven this comes down to trade pair by pair . Steven this comes down to trade. There is a meeting with Prime Minister abe and donald trump. This is interesting because earlier this week, japan announced a very large current account surplus for 2016, however, they went to Great Lengths to highlight the bilateral surplus with the u. S. Is actually down somewhat, and also they highlighted that mr. Abes approach would be to discuss some of the benefits japan brings to the u. S. Economy and remember, japan is a huge investor in the u. S. Many years ago, because of the strength of the yen, most of the japanese Car Manufacturers set up manufacturing plants in the u. S. And argued employers. When donald trump talks about an american car, is that toyota camry made in the u. S. An american car or a japanese car . From an employment and content perspective, it should be an american car. Guy thats right. Matt they have 70,000 u. S. Employees and honda build most build most of the cars in the u. S. Andd salo will stay with us continue to talk about affects which is driving a lot of the asset classes. Speaking of, switzerlands future as an attractive base for companies hangs in the balance. We will discuss a swiss referendum on possible tax changes. Washington. Will the leaders of japan and the u. S. Come to a consensus tomorrow . Marine le pen says the euro is killing periphery nations. More from her interview on french tv, still to come. This is bloomberg. Matt welcome back to the European Market open. I am matt miller in berlin. I johnson in london. Markets in across the board after rallies to all new highs in the u. S. And big, strong gains in asia prompted by Donald Trumps top tax reform. Reform, of tax o switzerlands future as an attractive base for companies hangs in the balance. Swiss voters will decide whether to accept or reject a government plan to replace the special tax brea, Multinational Companies enjoyed. A yes vote would bring and tax cuts tax break Multinational Companies enjoy. A yes vote would bring tax cuts. Is the chiefw economist at a bank. Still with us in london is bnp Steven Saywell. It is complicated, but tom he tell mevote means what a yes vote means this weekend. A yes vote first would mean that switzerland again complies with e. U. Rules that they do not have to complain against, so that would be a positive thing. Yessecond thing is that a vote would mean lower taxes for all companies and would make switzerland even more competitive, more attractive for foreign direct investment. The if it goes against governments will, any of the big multinationals or any of the multinationals, or any of the Mining Companies based in switzerland think about leaving . Karsten well, i guess they would. Not instantaneously, as the government would have to come up with a new plan. More or less, it is a yes or no referendum. There is no alternative. If no wind, the government has findnd an old or native an alternative. Im sure they would wait before they leave the country. After all, it is an extremely attractive destination. Very innovative, competitive, highly skilled workforce, so all of those are pluses for switzerland besides the tax issue. Skiingnd obviously, the is unparalleled, but let me just repeat guys question was specifically, because if you cannot hide your money there anymore, there is no more bank secrecy, and the franc is so expensive, so your employees have to spend 17 francs to buy a big mac, you have got to have good tax policy to stay, but there have not been any specific companies that have threatened to leave. Do you know of any that have . Karsten no. In thedo not know end, we have other companies that are concentrating in the swiss market like googles headquarters that have expanded costsely despite the high , so yes, it is true. It is a high cost destination and a highcost country. The flexibility of the workforce , the skills are something that count besides taxes, and skiing, as you mentioned. Going veryiller is shortly to ski in switzerland, so he has a vested interest in what im about to talk about. Saywell, euro is trading 107. When does the smb step in in size . Did they change the policy to significantly policy significantly . Steven euro swiss has fallen below that seven level for the first time in many months. The longterm chart, we can see the and calculate how much they are intervening by the figures released each month. That in january, they spent somewhere approaching 5 billion intervening, which is fairly average for the last year or so. For example, in november, we published we thought it was closer to 14, so from that perspective, we think there is a lot of pressure on the Swiss National bank. The question tags, what is driving this . Europeanargue it is stress. Again, there is a very nice relationship emerging between european for a spreads, so what is happening in a chilly, and spain, in italy, portugal, france, with the widening of spreads versus germany, and this correlates with euro swift. Once again, probably like 2011, the swiss franc is being used as for stress in the eurozone and this puts more pressure on the Swiss National bank to prevent curtsy appreciation. Currency appreciation. We believe the swiss franc is the most overvalued currency. We have the bnp paribas fear model, and it tells us normal levels for euro swiss is around 140. It is a very overvalued swiss franc. Guy first of all, do you think the government will lose the vote this weekend and second of all i think the two are related do you expect the swiss franc to make a big move soon . The smb is going to do something. What is going to happen . Give us the shortterm next few weeks view of what happens in switzerland. Ok, so, let me first say that i do not believe the government to lose the referendum, but honestly, i have been wrong. Im very cautious about that. On the swiss franc, yes, i would argue the currency is overvalued. That might be true, but there are other good reasons besides the swiss franc being the safe haven of europe. Tight betweenmely the bund curve and the swiss curve. [indiscernible] this drives the value of the currency up. We see the swiss franc is appreciating even more. We target 105 by the end of the year. Matt let me ask you a question n can chime in as well. Seen the swiss franc for safety reasons. Donald trump threatened this and that with executive orders every day. Goeshappens if everything well with french and dutch elections and the swiss referendum and donald trump you know doesnt ban half the world from flying to the u. S. The swiss franc lose some of the holders and drop in value . Karsten sorry, that is going to me . Not at all. I do not think it is a safe haven argument only. The swiss economy is as strong as other economies. They have shown how well they can adapt to new circumstances like a High Exchange rate. No matter what all these referendum and elections do, we believe in a stronger swiss franc. We can even imagine that the government has the lower Interest Rates again in order to prevent an Even Stronger appreciation. That might come we have longterm political induced, economically induce in the eurozone, but for us, it is fundamental over evaluation that is not going away, and that not only can be explained by people being scared in other parts of the europe. Guy come back and see us. Well might if you join us from switzerland, germany, or at london. Junius. Steven saywell will stick around. Preview president Trumps White House meeting with japanese prime and assertion though abe and what that means for the yen and Prime Minister shinzo abe. What that means for the yen. This is bloomberg. Matt welcome back to the European Market open. Quick check on how markets are faring. Equity indexes up across the board, at least for the core countries of europe. Here you see the u. K. Is still a core country of europe in some ways. Is that even the case . Guy no, core kind of sort of does refer to in political terms, i would disagree. In economic euro terms, definitely not. Thinking ofs i was the major countries. I would think of only france and germany as the core countries of europe. In any case, those markets are up and so is the u. K. Guy can we talk about japan . We can deal with the semantics in the periphery later on because we are going to. The u. S. President meeting shinzo abe later today. They will hold talks at the tohouse before flying the white house. According to a japanese official, abe will urge the u. S. President to take a multilateral approach to currency issues. I guess currencies are multilateral, but it is kind of again, where is the semantics . Trump has accused japan and china of devaluing their currencies, but the chinese conversation went well last night. I doubt the conversation will be in japanese. Steven saywell joins us now. What should these two guys be talking about . Steven i think they are going to be talking about the bilateral trade surplus between japan and the u. S. , which we spoke about earlier and has actually reduced. Part of the reason that has reduced is the car industry as we have been talking about. Almost all the major japanese manufacturers are now producing and have been for many years, producing cars in the United States. From that perspective, it is a little bit tricky for donald trump, because he is going to have to knowledge that japan is contributing quite significantly to u. S. Growth, u. S. Jobs, u. S. Output, and particularly this point he likes to focus on of manufacturing jobs in the united date. One point, however, may be interesting. There is an increasing trend for japanese and you factor is to move to mexico, just like the big three in the u. S. There could be potential pressure from donald trump for japan not to do that. If they are going to sell cars in north america, the pressure could be to continue in the United States rather than moving to mexico. Matt i think it is also interesting, that although it is true, the japanese employ tens of thousands of people in the u. S. , u. S. Carmakers always complain when the yen is weak, saying it gives japanese carmakers an advantage. What do you expect from the dollaryen trade over the next year as trumps policies come into effect . Steven two points on that issue. The first point i would make is the japanese manufacturers have had to deal with a very strong yen for many years, and you could argue that the reason they set up manufacturing plants in the first place was to try to insulate those businesses from a strong yen and you could argue they have done that very successfully. As far as the outlook for dollaryen, we are extremely bullish. Is 128 ford forecast dollaryen at the end of the year. Key point, we would say to investors, is this pullback we have seen in january does not seem warranted. Look at inflation, current growth, donald trump throwing fuel on the fire, dollaryen is set to go higher. Guy up next, redenomination risk. What is happening in france and the view from germany. Marine le pen gave a twohour interview last night and well talk about that. [ alarm clock beeping ] weather. [ laughter ] cartoons. Wait for it. [ cat screech ] [ laughter ] [ screaming ] [ laughter ] make everyday awesome with the power of xfinity x1. Hi grandma and the fastest internet. [ girl screaming ] [ laughter ] guy 9 30 frankfurt and in berlin. 30 minutes into the trading session. Day istalk about how the up. We are in the green. Stateside let us deal with some of the stops on the move. Here is nejra cehic. Nejra net income was upbeat. Profit increase in the Fourth Quarter he is what we saw for this french bank. The earnings, after bnp paribas and socgen. A higher revenue and onetime bauerore than upset assetmanagement sales. Now, the ceo of texas of natixis is seeing positives in the u. S. The beginning of this year, they have gone very good now, so yes, we start to see flows coming back to our u. S. Affiliate. It is a very large bond asset manager, as you know. Nejra it is one of the best performers on the stock x 600. Stoxx 600. A lot of this down to rising steel and iron ore prices. 80 lasted at least thisand also higher demand year. The company decided not to reinstate it dividends. Numbers seem to have given the share a boost today and then finally, looking ng, sales rose at the pas fastest pace since 2012. Part of this is due to the recent rebound. Up 21 percent, almost twice as fast as analysts expected despite the end of markdowns. It climbed the most in more than three month in paris trading. It is following some of its latest luxury Goods Company to report improvements in asia and europe. Matt. That thanks very much for run down. Criticism of germanys role in the euro amplified last night as Marine Le Pen ramped up calls for redenomination during a twohour interview on france to television. Leadernt national denounced the single currency as a continuation of the deutsche mark. Many countries will have introduced their National Currency because italy is dying from that european currency. Spain is dying from the european currency. Greece is dying from the european currency. The northern countries have built the euro in function of their own mark. Germany is doing very well. Meanwhile, all the other countries are dying from the National Currency. That is the reality. Still with us is Steven Saywell from bnp paribas. What do you think of the important that is being put on everything Marine Le Pen says . How relevant is it in the currency market . Steven the key answer to that question is there is a strong focus on all elections coming up in europe this year, but particularly the french election. The market is focusing very much on what she is saying. Having said that however, i would focus on the polls. There is a sense here to suggest that because we were surprised by brexit, because we were surprised by trump, we are going to be surprised by france. The polls are quite in a different place. Remember, the brexit polls were close to 5050 running up to that. If you look at what pulls in france are saying, Marine Le Pen is not a front runner, so you could argue we are in a very different place than we were before brexit and the u. S. Election. Of left fieldnd events in europe as we get through all this that goes to the point youre making. Stuff is being priced in and the market is getting nervous. It has backed off a little bit, but nevertheless, you are starting to see some risk being priced in. It is not as big as brexit, but it is still there. As you say, unlikely to happen. Aybe they will not get in maybe the german election, Angela Merkel keeps coming through. Maybe we do not get a greek election or italian election this year. Are we going to be sitting here going, have you seen the european data, it is amazing steven that could be the case. That is our best Case Scenario based on the polls. To theturn about economy, growth is looking better, particularly the bugbear that have been damaging the ecb for the last few years, inflation or lack of it, is starting to turn around , too. Risearibas inflation will and have an impact on ecb policy, albeit with actually the ecb will announce more tapering later this year and will actually end qe in the first half of next year, 2018. That will have quite a Significant Impact it we are markets, butncial also on the Euro Currency as well. Matt when you think the ecb is going to Start Talking about tapering . When do they address the subject . Steven probably no time soon. The reason we can say that is had two recent speeches where he has been a extremely governors and spoke about the need of ongoing stimulus. The euro goes down in the shortterm, but ive we go into q4 this year, i think you may start to see things turn around if inflation continues to rise. That is our best guess at bnp paribas toward the end of the year. We may start to see another round of tapering from the ecb, but remember, they are committed through to the end of december and they are likely to honor that. Guy kelly talk about risk and probability . The probability of Marine Le Pen winning is low, but the impact of her winning is high. How do i kind of build that in to some sort of risk model and figure out how i should price it, because the asymmetry of it is a enormous. Steven this is a good point and i would make the comparison with brexit last year. Going into brexit, very few of us thought brexit would happen. It was a left field events, but if you are the big corporate treasurer, particularly of a u. K. Company, where sterling, the exchange rate, yields, are very important, you cannot really afford to go into this naked. You need to take some guy if i am running airbus and i have got a hedge book on the number of planes i have sold and Marine Le Pen is talking about redenomination, how do i go and have a conversation with my treasurer and say, the hedge book is mindboggling. Tell me how i figure out if this were to happen, we are going to be able to cope. Steven im sure there is many corporate treasurers around the world and europe who are facing the situation at the moment. Most corporate treasurers have you think of the black swan events, something that can happen, and you may find there are some very out of the money hedges in place to look at this. Guy just starting to rise. The out of of the money hedges are definitely going on. Steven this is the case. It happens with these events. You have got to differentiate between what we think will happen, what is likely to happen, as opposed to a tail risk hedge where corporations or investors need to protect themselves for the unexpected, and that is something that can happen in financial markets, but again, very different to what a base Case Scenario is. Matt you are going to stay with us. While we take a break here, i just wanted to encourage customers and viewers to use the tv function on the bloomberg. I have got it up right here. If you click into this Television Box here, not only can you watch us live, but there is a blue link at the bottom of the screen. Us, and take part in a conversation we are having on bloomberg. Two companiesls, are set to meet and greet his creditors are set to hand athens a new set of bailout demand. Our european government reporter breaks down that story, next. This is bloomberg. Matt welcome back to the European Market open. We want to get straight over to Sebastian Salek for your business flash. Have agreed to by johnson nutrition for 16 point 6 billion. The move takes the Consumer Products maker into the Baby Food Market for the first time and increases its presence in asia. It says it expects 250 million in cost savings by the end of the year. Operating profit increased. The french carmaker gained market share in europe with an expanded lineup of sportutility vehicles and models like the hatchback. You can see that at 3 00 p. M. U. K. Time. A 20 decrease in annual profit after deal or and iron ore prices gained. Ore and iron ore prices gained. That is your Bloomberg Business flash. Guy the greek finance minister and the euro Group President are set to meet in brussels today as greeces predators present athens with a framework of measures needed to do the bailout review again. That is according to two people familiar with the matter. Joining us now is iain wishart. Walk me through the meeting with this new set of proposals on the table. The european creditors really are giving it a bit of a take it or leave it offer, this package of measures they want greece to implement that would be triggered if greece does not meet its budget targets. Iain we reckon it will be worth around 2 of gdp. They want greece to accept this in order to unlock the latest payment of funds to help greece make it payments in the summer, because if they do not, then we are back in this old greek races thing where we take it right up to the limit and greece cannot pay its bills, so they want to get that out of the way early. Matt are we getting close to a solution for the next this person rent of emergency loans . Is there ever going to be a time when we do not . When the boy who cried wolf is right about greece . People in thethe corridors in brussels and various capitals around europe, and they say it does not look like we are ever going to find a solution. This is going to go on and on for years and years, but all that can be approved is greeces as greecesy economy slowly improves. One, there is a massive row going on between european creditors on the one hand and the imf on the other hand about the strength of the Greek Economy and a must they agree, the imf is not going to take and unless they agree, the imf is not going to take part. The other variable is what you were talking about just a few minutes ago. These elections in europe this year, le pen perhaps running in france and the dutch election coming up soon, things mean that are not therey anymore. Nd thaties that makes things difficult for greece. The uncertainties are not there anymore and that makes things difficult for greece. He signed up to this bailout agreement and did not like it, but he signed up to it. If there is another election in greece, it means all these unpredictabilitys again. Once you get up and markets as we know, they do not like that kind of uncertainty, so they really want to work with greece and they really want to give thatoffers they can use they can do, and if not, we are back like we were in the summer of 2015 where we were really taking greece to the brink again. Thank you indeed, iain wishart, right european government reporter. Matt. With us is Steven Saywell, global head of ethics fxategy at bnp paribas strategy at bnp paribas. Steven look, it is quite a small market and i think the way i would characterize greece at the moment is europe has bigger problems. There does not seem to be an appetite to allow a greek blowout while there is strong focus on expanding in other nations, so our view is that there may be some turmoil that unsettling, but nothing really crisis. The second point i would make is to continue with the when that happened, there was not a spillover effect to the euro and the point being that the market was taking the view that there was a chance greece would take itself out of the eurozone, but the market you with that that would not affect the euro the market view was that that would not affect the euro. They were Strong Enough to stand together. As far as greece is concerned, it seems to be quite contained these days. Guy the thing that always scares smart investors is the unknown unknown. The market can price known unknowns. Is in that. Is europe capable of producing an unknown unknown . Steven clearly, but it is not coming from greece. Guy that is known. Steven thats the point. The market views, that even if greece did take itself out of the eurozone, the rest of the eurozone could continue to function as it is. I think more of a risk of these elections coming up, and that is why we are seeing spreads widening versus germany and other countries that have not been widening for sometimes. This is what the market is focusing on. This is what the market is nervous about at the moment. It does not seem to be affecting the euro. The euro does not seem to be undervalued. In 20102011alued relative to what fundamentals would suggest. Does not seem to be that case at the moment. I would argue the opposite. Slightly overvalued. So the market is relatively sanguine about prospects for the euro Going Forward. Matt the currency market. Do you think the currency market is the smart money here, ste phen, or do the spread tell the better story . Think there is lots of themes to focus on at the moment, and much of this is that jesting the surprise, the political shocks we had last year, so that is coming into markets at the moment. The big one i think is still the u. S. And the dollar. Are we going to get the fiscal stimulus coming through in the u. S. . What is the implications of any changes in trade policy . Europe is more of a tail risk, not a base Case Scenario here. The market is really more focused on those two main factors in the u. S. , donald trump and the dollar. Lets kind of put this all together. You think the euro is not undervalued. The problem with the euro is, it has both sides and it, sides in it. It is the only way you can value the euro via the swiss franc. If you think about a pair that defines risk in europe, where the smart money is in the fx trading, is euro swiss the only it . You can fin define steven what that tells us is there was a significant risk attached to the euro back in 2011 and 2012 where it was significantly undervalued, deviated from fundamentals. That is currently not the case. However, in addition to that as we said, when you do have stress in europe, which we have seen, with peripheral spreads, it changes through the swiss franc rather than the euro. What the market is telling us is that they are fairly relaxed about prospects for european integration Going Forward. There does not seem to be stress in the markets about that. It is more of a shortterm quality, and the swiss one is taking up that flat. For a moment. Ht Steven Saywell will stay with us. We are going to talk about the outlook for the rand. Speechfrican president descended into chaos on the parliament floor. This is bloomberg. Guy welcome back. Interesting in south africa for the past 24 hours. The South African president s state of the nation descended into chaos, but you can see it is more than chaos. Guards,s with security stun grenades outside the parliament. Rand weakened amidst all of this going on. South africa is a difficult one to understand in terms of the way politics are going to develop from here. You have a strong party that is being weakened, clearly under pressure, not going to stand, and economy that is in desperate need of help. You have a current account deficit. None of that is a big recipe for owning South African assets, but the yield looks all right. Steven i think the way to look atsouth africa is to look emerging markets currencies and how things are panning out. The key trend is a stronger dollar across the board. So as you said, relative yields in places like south africa are less attractive as you see higher yields in the u. S. Having said that, the dollar weakened in january and the rand depreciated against the dollar. Key point Going Forward is inflation is not looking particularly fantastic in south africa. The readings are coming out above Market Expectations and as you said, it is against a backdrop of fairly poor market fundamentals, so our view at bnp paribas will look at the world of emerging market currencies and we picked out three that are likely to be relatively weak Going Forward against the resurgent dollar. Turkey, mexico, and south africa. We think it is going to weaken. Matt how important is the effect of iron ore the iron ore prices on the South African economy . Really good is a one, and i know we have got a great chart here of iron ore that has come up. I think again, to probably expand the question to the commodity producers globally, they are doing pretty well as a result of this. If you look at that surge in iron or prices, the big move in october and then maintaining the highs, and this morning, a new move higher, it does help currencies. I would argue the currency helps even more is australia. No surprise we are seeing the us trillion dollar at very strong levels and we had a reserve bank of australia the Australian Dollar at very high levels and we had the reserve bank. You cannot short it. Surveillance is next. This is bloomberg. See you in court, trump s responds as judges refused to reinstate his travel ban. The u. S. Leader reaffirms his support for the one china policy in his first phone call with president xi. Will he play nice with the worlds secondlargest economy . During le pen says many European Countries are dying as a result of the euro as germany thrives. This is bloomberg surveillance. Im Francine Lacqua in london. As the u. K. Governments brexit bill clears the house of commons, i will be joined by nick clegg
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