Transcripts For BLOOMBERG Bloomberg Markets European Open 20170411

Remains weaker. Is the party over for the british consumer . Tillersons mission to moscow. The secretary of state arrives later today as the Trump White House steps up warnings on syria. Russian equities continue to weaken. How real is the risk of further sanctions . Matt less than a half an hour from the european open. Lets take a look at where futures are pointing, slightly weaker over the course of this morning. 4 ,stocks futures down led down by dax future almost off by down by. 4 . Ftse and tax still doing better but firmly in the red. The bund trade is at two day chart. Last nights trade and this morning. Investors are buying booms bunds but the trend is off. 0. 0 0. 025 . Guy the german 10 year being the center of gravity right now for the global bond market rather than the u. S. Treasury. Its talk about the gmm and around the world. To be honest, these markets are a sense of direction. Doesnt seem to be much to drive things at this stage. A few things we can pull out. Lets talk about what is happening with russia. The micex down from yesterday. , it is bring you a chart underperforming the yen trade as well. You are starting to see risks surrounding syria into russia, being priced into overseas market there. Market had a solid day as did the South African market. Also what is happening with the japanese yen being something of a trade right now. Performer, standout the argentinian peso. Lets get a first word news update with Sophie Kamaruddin. The white house has warned syria to stop using arrow bombs against civilians. Donald trump may expand the criteria for u. S. Accident against bashar alassads regime as trump and the uks Prime Minister theresa may said tillersons visit later today provides a chance to persuade russia to cut its support for the syrian regime. Ahead of that, tillerson meets with his counterpart in italy. The United States have already imposed extra sanctions, we will be discussing the possibility of further sanctions on the Syrian Military figures and indeed on the Russian Military figures who have been involved in coordinating the Syrian Military efforts. I camp housing as many as 1500 migrants in france has been destroyed in a fire. At least 10 were injured when the blaze tore through shelters near dunkirk. During suggest it began a fight between afghans and kurds. Officials said the camp would be dismantled because of unrest. South korean president ial hopeful says he would confront north Koreas Nuclear ambitions through direct talks with kim jongun. The leftwing candidate told the the south is currently a spectator to the actions of china and the u. S. The United States has diverted warships to the region while seoul says it would conduct tests in the upcoming days. United has come under fire, afterrrier called police a seated passenger refused to leave a light from louisville, kentucky. Officers then violently pulled him from his seat. The man wasnt being ejected for behavior, but to make space for one of uniteds mode on employees. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more. Han 120 countries this is bloomberg. Matt . Thanks, Sophie Kamaruddin with your news. The Federal Reserve is easing back this year on the level of support the central bank is providing the u. S. Economy as it closes in on its goal of full employment and 2 inflation. Yellen says the task has shifted from a post crisis exercise to one holding of holding on to the progress made. Whereas before we had a foot pressed down on the gas pedal, trying to give the economy all of the umf we possibly could. Now allowing the economy to keel and remain on an even , to give it some gas, but not so much we are pressing down hard on the accelerator. That is a better stance of Monetary Policy. Matt joining us now is the bloomberg mliv reporter. Yellen says she is no longer putting the pedal to the metal, but isnt reducing the Balance Sheets and raising rates to more times this year slamming on the brakes . Mark no, you cant really describe it as that. What she is trying to describe is the fact that the super easy Monetary Policy which was put in place after the financial crisis is no longer necessary. At the same time, the fed is not really ready to completely remove all kinds of stimulus. They want to do it in a gradual way. Something that will happen over a period of time and has already started. We have seen Interest Rate hikes already but there will obviously be a couple more to come. Lie andre is neutral where do we get to the point where we are we going to get to the point where Monetary Policy goes from being accommodative to being restrictive . Mark restrictive is a very long way away. Im not even sure this current fed even thinks about restrictive. They just think in terms of slightly less easy. Ask 10 different economists, they will give you 10 different answers on what neutral is. If you look at Something Like the taylor rule, neutral could be as high as 300 basis points above where the current fed funds rate is. But some people think that is too extreme. It may be 100 basis points above where we are, but certainly not 1 . That is far too low to be neutral. At least it is a higher number, whether 2 or 3 we will find out in due course. Guy has the bond market given up on the reflation trade . Mark not completely. There is obviously a lot of question about it because we havent seen too much on fiscal yields but treasury intot really broken, back the lower range, still hovering in the higher range since the u. S. Election. There are still people out there who think there will be some kind of fiscal stimulus coming, but it wont be quite so much this year as was expected. Matt mark, thank you for joining us. We highly recommend you check not only in the morning, i look at it throughout the a day. It gives you great insights into and asset class movements as they are happening, as things are unfolding, especially as news events break. Check out mliv go on your bloomberg terminal. Tomorrow, we will be speaking with Christine Lagarde at 11 30 a. M. You take time u. K. Time. It is an interview you dont want to miss. Something else you dont want to miss. A big day for the u. K. As we get inflation data this morning. What will be the boes next move . It could be guided by this data point. Later, we will be live in paris frenchthe latest on the election with less than two weeks to go before the first round of voting, as the far left candidate catches up. This is bloomberg. Welcome back to the European Market open, just about 17 minutes and 30 seconds to go until the start of trading in the u k and across the continent. Thats get the business flash with Sophie Kamaruddin. Sophie toshiba faces its third deadline reporting its thirdquarter earnings if it doesnt file today, it can seek another four week extension. If that is rejected, it has eight Business Days to submit results. To the soaking tokyo stock exchange. Spokesperson said it will report when auditors approve the final figures without specifying when that would be. Leader lcm age has reported firstquarter sales that far exceeded the estimates. 9. 88 billion to euros. That is in both the fashion units benefiting from a rebound in demand. Gucci inrivals like reporting a turnaround after of slowdown in travel to europe. Shares in Whole Foods Market surged the most in two years after activist investor jenna partners acquired steak and suggested the grocery put itself up for sale. The Investment Firm announced it stake in the8. 3 supermarket chain, which has suffered its worst slump in more than a decade. That is your bloomberg is this flash. Guy . Guy thank you, sophie. A big day for u. K. Data. A major miss on retail sales coming in at 1 in march. We get inflation at 9 30. And the bank of england is looking at what is happening with endearing of the u. K. Consumer, is the party now over . This chart probably tells you everything you need to know. This is wages, that is the blue line. Cpi headline is the white line. Area good chart if you looking for consumer expansion story, which you may need to continue the postbrexit run. Joining us now from london is the companys chief u. K. Economist. Talk me through if the party is over. Has the consumer taken this one too far . Is a lotk there further to go in this story. Inflation likely to peek out at 3 if you believe the bank of englands forecast. Has been very difficult to explain at these levels. Just over 2 . The bank of england for revised down it estimates of equilibrium unemployment, simply because they could not explain why wage growth was so weak. Wage growth, the answer is weaker Consumer Spending. Guy are we mispricing what is going on here . There is still some expectation that the next move from the bank could be for a rate hike. Next movethink the will be a hike, but i dont think it will be soon. The bank will have to sit on its hands until a couple years time and we see the result of brexit and the assumption we dont see a cliff edge and a big negative hike on Economic Growth. Will be sometime before the bank of england will raise Interest Rates when you have an environment of higher inflation, eroding real wages having a negative impact on Consumer Spending and Economic Growth. To beis there a reason optimistic we wont be a cliff edge with brexit negotiations looming and some pretty fundamental disagreement between how the eu wants to do negotiations and how the u. K. Wants to do negotiations . I think there are a lot of ways you could avoid the cliff edge. You could have some sort of agreement, some sort of zero to zero tariffs, temporary membership of the European Economic area even. There are a lot of ways to avoid the cliff edge. I have assumed in my forecast that we will avoid the cliff edge. If you do have a cliff edge, all bets are off. You are looking at something more pertinent permission us for the u. K. Economy. Gilts are trading 126 over treasuries right now. Will echo higher . Rge the interesting rates way to look at that as house believe the bank has moved in response to the Federal Reserve in the past. They have tended to move pretty quick after the fed. Typically you would expect in the reason of one and seven months after the fed. This time around, we have gone 16 months since the fed first raised Interest Rates, no response from the boe. This through the lens of what we expect the bank of england to do and Economic Growth the point is we have an idiosyncratic shock in the u. K. , which is brexit, it is not being felt around the world. Global Economic Growth is recovering. I think we are likely to see treasury yields remaining rising swiftly than gilts because at the moment there is very little evidence that bank of england will raise Interest Rates. Dont see wage growth, which is enough reason for them but imaise rates, wondering about the uncertainty. So much has been said in the midst of brexit as we see negotiations unfold. Is that affecting u. K. Consumers . U. K. Small businesses . George i think it is affecting consumers, or starting to. The point is when you look at the national accounts, the figures for the Fourth Quarter of last year, they showed Income Growth much weaker in nominal terms and it was a year before. That is even before we think about the rising deflation. We havent actually seen in the full numbers, this big increase in prices due to the weakness in sterling and the impact on Consumer Price indices. That is starting to be felt and as it does, more significantly 2018,h 2017 and possibly and you are starting to see wage growth in real terms even softer. I think the slowdown in Consumer Spending we have seen so far in the surveys has yet to come through in the official evidence, but will do in a matter of time. Guy can the u. K. Consumer borrow much more . George there are a couple of side,s on the positive banks are certainly able and willing to lend more than they were a few years ago. That is on the positive side. On the negative side, we are at levels of the saving ratio which we havent really seen much lower for the last 60 years. Is it reasonable to expect consumers to borrow and save less than they have ever done before . Interest rates are very low, there is no support for the saving at the moment. I would say that if the savings ratio is so low, consumers have to be careful about building stocks of reserves for the future and i am not sure there is a vast amount of room for consumers to borrow aggressively and reduce that saving ratio even further. Guy thank you for spain spending time with us and sharing. We are minutes from the cash open. Lets take a look at the movers including luxury retailer lvmh. Top beat, how will the stock react . This is bloomberg, the open is nine minutes away. Welcome back to the European Market open. We are just six and a half minutes away from the start of trading. You are looking at a shot of the Brandenburg Gate right before it starts raining. Lets look at some stocks poised to rise this morning. , the makingh lvmh of maker of hennessy cognac. Rise in sales beating analyst estimates. Up 15 , 10. 5 billion in the quarter. Strong sales for lvmh. I know guy has one of those totes he takes on his manly vacations. Also want to talk about a smaller stock. Jd sports also put out sales ahead of estimates. Raising its outlook for further possible growth. I have a shot of the last five years of jd sports going from less than 50 to more than 400 in five years. Jd sports is a stock trading in london that has done incredibly well over the past five years. Guy i am just backing up to the point that cognac is a fragrance in your world. Matt delicious. Guy get that strong perfume spreading out. Strokes three stocks. All going ex dividend today. Stocks to Pay Attention to. Where futures stand. The fair value on your bloomberg pointing to a negative start for european stocks today. Down. 4 . These markets like it since of direction. Lacking a sense of direction. Nothing in terms of where we are going to be in a few weeks time from the market moves we see at the moment. More interesting traits around what is happening with france, pricing in bold spikes there. Those are the traits you want to focus on for price action. Elsewhere, it is remarkably calm. We will find some action for you, have no doubt. The market open is coming up in four minutes. Cash looks to open a little softer this time. Minute into the cash open and where do we expect it to go . Markets looking for a sense of direction, which way will they take us . We will talk about that, but at the moment we are down. London looks to outperform, the cac looks to underperform a little bit and the dax looks a bit like london. The politics may be at play here in terms of market moves. What do you got, matt . Matt i am looking at the russian discount relative to the m stocks. Wer the last two years, havent seen russian stocks this cheap relative to em peers since the last two years. Rex tillerson gets ready to leave italy and go to moscow, we had a guest earlier with me and manus who said if you are going to buy russian stocks at all, this might be the time to do it. Guy we will see if the effects of the story developed. The market opening. We think cash will be a little softer. The white line is the ftse 100 and it is beginning to soften up a touch. Not expecting big moves for the get go. More and youopping can see we are once again getting relative underperformance from the cac carol. Manus i just want to know, do you have a Louis Vuitton handbag . Is guy johnson supporting Louis Vuitton . This is the chinese shanghai composite. We are rising despite the fact that the underbelly of the Chinese Consumer may well be called into question. Timeesults for the first in 17 you results 17 years. Kia, every single car sales dropped except for the suv. And for the car designers. Ist happens next with you on another deliberation for the market. Euroyen,oking at something that has an interesting story and in equity market impact. Longest losing streak, 11 days in a row. Think of the host of issues. We are below the 200 day moving average. Do you continue lower . Does euro continue lower . The longest losing streak for your all on record euro on record. This is undeniably a risk off sentiment indicator. This is how european equities are opening. Falling, financials falling, industrials there is no doubt there is a decided risk off sentiment. We see what Rex Tillerson says to the russians. He was awarded one of the highest honors by putin, with ceo credentials on could ceo credentials on one shoulder help them with his ambassador roles . Manus cranny, i wont answer your question but will tell you the luxury sector is on the move this morning. The stock market in aggregate is lower. The reason for that is softness in oil socks stocks, banking stocks as well. A mixed bag for where money is rotating. In terms of the index point story, where the weight is. Here. S a weighted story this is the index points in terms of the 600 and you can see draggingh Lvmh Christie and your with it. The luxury sector very much on the front foot. A resurgence then for luxury goods and luxury retailers. Janet yellenshe comments yesterday, the fed chair said the central bank cap had shifted from a post crisis exercise healing the economy to one aimed at holding on to progress already made. Yellen and hurt colleagues hope to ease back this year on the level of support the fed is providing the u. S. Economy in terms of qe as they close in on their goals of full employment and 2 inflation. Yellen spoke in ann arbor, michigan. With the economy operating e to our objectives. We want to make sure we maintain the progress we have achieved and take the appropriate policy of stance right now is closer to neutral. Whereas before we had a foot pressed down on the gas pedal, trying to give the economy all could,oomf we possibly now allowing the economy to kind of coast and remain on an even keel, to give it some gas but not so much that we are pressing down hard on the accelerator. That is a better stance of Monetary Policy. Guy lets get some analysis. Year 2. 9 by. S. 10 year end, 3. 1 by march 2018. What gets us there . It is the gradual increase in Interest Rates in the u. S. That is particularly reaching full employment. There is also a bigger force at play, which is simply the great rotation. Today in an environment where bond yield is expected to go higher, there is a rotation out of bonds into equities and that real count rio reallocation is likely to drive bond yields higher. Matt what about u. S. Equities . From the records we are already hovering at right now, is that an engine to push them even higher . Kokou this is a very good point because over the past five years, one of the things driving u. S. Equities have been or provide backs. U. S. Iggest buyer of equities have been companies themselves to the tune of 400 billion a year of share buybacks. Today the question will be whether they are able to create or invest and create growth. This will be a question of the Trump Administration tax reform andhe taxability of cap x the taxability of interest expense in terms of their debt amount. Saying you would be a buyer of u. S. Equities only if you thought trumps tax rate arm plan had some reform plan had some legs . Kokou yes because there is about 1. 5 trillion of cash sitting on corporate Balance Sheet in the u. S. And whether that cash can be invested into productive capex. In which case you can create foremental enterprise value shareholders and if that is not the case, then we could go back in an environment of diluted share buybacks at much higher valuations, unlikely to create the earnings increase over the past five years. Guy this is a chart that gundlach has been talking about. It is duration. Since the financial crisis since qe, the market has pushed down the curve and is now the yellow line is the average and precrisis, that number would have been lower. The number is so long duration. The front end of the curve is so anchored on the floor, if that starts to reverse, how aggressive does it get . Kokou this is clearly a reflection of the distorted effect of central banks. Mathematical a dynamic, as the level of Interest Rates go lower, the duration mathematically increases. We saw that with taper tantrum, an important shift in Asset Allocation. Why the shift, almost like tectonic plate dynamics, is the key driver between bonds and equities, and we think we should see more duration reduction in favor of equities. One last thing, it all depends on the prospect and uncertainty with which investors assess Earnings Growth Going Forward. Uncertainty goes back up, we should see a reversal of that rotation we saw ins the trump winning the election in the u. S. Matt what do you think that trump the reality of the trump reflation action on congress is going to do to the flow of money inside equities . As far as industries are concerned, where people going . Kokou this is a excellent point because one of the Market Dynamics we saw was sector rotation out of bond proxies, who have done very well, into the value of banks and more cyclical stocks because of the expectation of fiscal stimulus. Since the failure to repeal and replace obamacare, there is more skepticism with respect to how quickly we can see the border adjustment tax reform, for example, and we could see a reversal of that rotation out of those highly geared stocks into more defensive. Way, that sector rotation, the equity market. Is a proxy of great volatility. Has rates go up, you get more volatility, and as fear increases, you get more rotation back in. Guy looking forward to many more conversations over the next hour. He will stick around. Still to come, just 12 days until the french go to the polls. We will go to paris and see how the racist shaped. Race is shaped. Still coming up, this is bloomberg. Welcome back, you are watching the european open. Headline levels, not a lot going on. The low the surface, plenty. Lets find out from those midcap movers. Nejra plenty going on in the midcaps starting with jd sports where shares have hit a record high. Fullyear revenue beat estimates. We are seeing it up 3. 4 in this session. On to another gainer, balfour neutralupgraded from and we have seen it rise the most since november 2016, almost 5 for the u. K. Homebuilder. Finally, another gainer, de la rue specializing in the cash handling equipment and security product. In line with estimates, a aboveear operating profit the top and the consensus. The coo is to step down, all of that combined has meant the share prices moving up more than 5 and shares have hit a 2014 high. Mayra thank you. 12 days until the first round of voting amid tightening polls and the absence of a clear front runner. Bloombergs composite of holes show Marine Le Pen still leading by one percentage point with a 2 margin of error. A reporter in paris standing by, caroling caroline, how has the campaign changed . It seems like the tone of the campaign is changing, with more and more of the candidates doing personal attacks at each other, macron attacking melenchon directly. He said yesterday during a conference on terrorism that melenchons idea of peace was the one of vladimir putin. As you can see, a lot of them are directing their attacks on melenchon, who is gaining momentum in the polls and macron aso attack Marine Le Pen on over the weekend. She said trump was not responsible in the arrests of 13,000 jews in 42 1942. Macron said that revealed her true face even though she is defending herself from the racist comments of her father. Over the past few days, some of these personal comments are going back in the headlines and i wanted to mention as well that last night, we had a giant fire in migrant camp in the north of france. Migrants, Marine Le Pen the chaosed, saying caused by immigrants in france the focus of the Campaign Today might be back on immigration. Guy thank you very much. You work for a french bank, what are you guys talking about . Kokou it is an important topic for all investors and a global topic. One of the key interesting you havethere investors looking to protect against downside in eurodollar matt has something to say. , you arere not saying seeing the Options Market and to the skew for you aredollar eurodollar. Options more aggressively to hedge risk. Kokou we saw that after brexit, with a u. S. Election, it is difficult to see how asset price will be hedged. The balance flow. In the past, we had more protection interest from investors but today, seymour upside because the view is the base Case Scenario is best Case Scenario is to have macron winning and we should see a relief rally in european equities. Matt is the ascendance of melenchon taking away votes from the center, from macron and fillon and making a Marine Le Pen victory more of a risk . Kokou one other thing you see usedthe polls is at it to be a two contender raced to a more four contender race and you have the polls for melenchon going from 10 to over 18 today. One of the key elements to remember here is it is difficult to predict how things will pan out. We saw that with brexit and the u. S. Election and two weeks is a long time in politics. One thing to bear in mind is that a lot of the key risk here is when it comes to the european project and the impact it could have on the eurodollar and also the redomination risk that the far right party has been pretty vocal about. Investors are really wondering how to protect the portfolio, both on the downside but also take advantage of the fact we could see it quite significant relief rally in european equities, should the base best Case Scenario proved to be the case. Guy what about the euro . How much of a discount is being priced in the euro . If you look at everything going on, you would argue the single currency should be more expensive, it looks more cheaper. Do you get a big pop . With one of the things the euro is it is also a dollar story. Trade, theumpflation euro has essentially suffered. Unwind ofly, bc and the trump trade which has resulted in a weaker dollar, therefore a stronger euro. Your chart when it comes to risk shows the downside in terms of distribution of outcomes is quite significant. You can see the euro below parity, for example. Of flowobal head strategy and solutions at stockton will stay with us. Up next, we will break down big movers in the tech sector are, a huge drop. More than 14 . We will tell you why. This is bloomberg. Matt welcome back to the European Market open. 22 minutes into trading. He have breaking news here on chipmaker Dialogue Semiconductor , absolutely tanking in the early trade after a note out by Bankhaus Lampe the downgrading, the stock is down 18 . Dialogue here in white. In blue, i couldnt imagine out of london because the first thing happened to this stock last week. Lampe say there is a chance of the apple apple doing its own chip and replacing the one by dialogue. The drophe reason for in dialogue. Apple was also the reason for the crash in imagine shares last week. Interesting to look at what is happening in the tech sector or are. Tech sector. Apple is moving a lot of european stocks. Guy supply chain is one of the things to look at with this. Represents, apple 74 of Revenue Growth right now for this stock. , if it turnso see out to be reality, how punishing it will be. Maybe the drop today is just a warmup. Up. Ogue certainly softening kokou stay with us. U. S. Stocks versus european stocks . Kokou we like european stocks because of valuation, issue, positioning and number three, the geopolitical. There is an opportunity to buy up cycles in european equities and finance those on the snp forex s p for example. Matt i am looking at european stocks in the form of the stoxx 600 and use the grr function to break down the moves. Tech one of the biggest gainers up 12. 1 usehold goods, year to date. Has it run too far back . Kokou this is part of the reflation trade and the theme around more Discretionary Spending when it comes to Consumer Spending. You need to look at in aggregate sector in europe versus the u. S. , the valuation discount is still quite compelling and i think there is still a ways to go for that valuation gap to close. Therefore, i would be overweight european sectors versus their u. S. Peers. To, if there back is a repatriation of the home investment act, money will flow back into the u. S. And a lot of that money belongs to u. S. Tech companies and could be spent on buybacks. Why am i not buying the heck out of the u. S. Tech set . Repatriation act does not occur, a lot of that youtting offshore have seen a massive trend in acquisition because this is the to create given some of the capacity constrained u. S. Enemies have. I also want to highlight that that cash could be bought back, but could be used to reduce the amount of debt u. S. Corporate have, particularly if interest appears, it will make holding debt very expensive for u. S. Corporates. Matt a lot riding on that. Global head of flows strategy stokjenutions at g will stay with us. We will be talking to Christine Lagarde at 11 30 u. K. Time. Matt the fed shifts gears, yellen says the central bank is shifting out of Crisis Management mode, but are we still on track pursue she more hikes this year . Plus, the boe Inflation Task to get cpi for the u. K. While the headline figure is said to fall, wage growth remains even weaker. Is the party over for the british consumer . Tillersons mission to moscow. The secretary of state arrives in russia today as the white house steps up warnings on syria, russian equities continue to weaken. How real is the risk of further sanctions . Welcome to Bloomberg Markets the european open. I am matt miller alongside guy johnson. Guy 30 minutes into the trading day, lets talk about word equities are. Sense of direction being demonstrated by european stocks right now. London is outperforming a little, but where we are seeing outperformance this morning is in the luxury sector. Dialoguewnside, getting hammered on the apple story. Aat is an index point, so huge chunk of this companys value has just this appeared. Nearly a quarter of its valley value. Anheuser, that is where you are seeing weakness in the wake of money. On the upside, the top line beat from lvmh having an effect. Also, the rest of the sector trading higher this morning. The luxury sector is getting well bid. Hsbc on the upside, mining stocks trading higher. An interesting start on mliv this morning shows what is happening with freight traffic in china on the chinese railways hich could be on indicator an indicator that the commodities story is one to keep an eye on. On the downside, the rolloff coming through what is happening in iron ore and metals. Thes get back to one of headlines matt mentioned. The pricing of u. K. s cpi, having fallen back a little, but the change in direction is likely to be temporary. Easter to be a factor in this. The drop in oil prices, these petrol prices have come off a touch. The broader trend is still for rising prices. A selloff in sterling. The data on cpi. Global head of flow strategies at stock to end his still with us. Is the party over for the british consumer . Kokou it seems like it is starting to be the case because you have imported prices going up. Companiesings taking a hit in profit margin increase but now they are forced push inflation to the customer. Matt so how is that going to work out . Is the consumer concerned about that and cutting back on spending or is the problem that the consumer isnt getting any more money from his boss and so cant spend any more . Kokou it is a combination of both because in the next two years, you are going to have the brexit negotiation. But in the meantime, it is clear that income is a key driver and that will have an impact on Discretionary Spending. One thing we have to focus on is the prospect for nominal gdp growth and to see whether there could be wage growth offsetting these higher cost of living. The evidence today seems to morest employers are cautious when it comes to investing and job creation. Guy lets talk about where breakevens and gilts are. Breakevens all the way up here. The u. K. 10year all the way down here. How does this resolve itself . Kokou this suggests negative real Interest Rates are the status quo because the bank of england still has fairly acclimated Monetary Policy. Stagfla lead into a tionary environment, which could be disastrous for the consumer. Could actuallyt create more pressure when it comes to negotiation process with europe, through the brexit because this is if these two curves were to diverge more significantly from here, i think the impact on the lives of the consumer will be so acute that you could see pressure on government. Matt are you concerned about the negotiation process, because britains seem to think they can negotiate a freetrade contract at the same time as negotiating brexit, whereas people in brussels are saying that is definitely not going to happen and they arent even planning to go that route. Kokou i mean, this is a key problem because if you look at the eus positioning so far, it has been to maintain those four freedoms. Goods, services, labor and capital. It doesnt seem to be something they are willing to budge on and on the u. K. Side, it is a tedious process of negotiation with all of the major Global Trading partners and you have to ask yourself what level of Bargaining Power does the u. K. Have, versus the other International Trade partners . There is clearly a lot of uncertainty, but i want to highlight an element, that eventually the interest of both parties being at stake should lead to something more rational than a referendum that has a lot of the emotional data behind it. Guy what i was always talk about game theory is it seems rational behavior doesnt always turn out to be the case. I want to talk about another conversation we had earlier, european versus u. S. Equities and you said european equities. What about the story in credit . There is a lot of to be said about q1 into the u. S. , investmentgrade dry up Going Forward from here because of the way the Trump Administration is going to behave. Is u. S. Credit looking like a nobrainer . Kokou this is a key point and goes down to the capital structure Asset Allocation from a corporate standpoint. Today, the key points when you look at the tax reform is to favor investments, more tax advantage of capital investment. Whereas that is going to be taxed more with the end of taxability. The first reaction function for corporates will have to be paying their debt. If you look at credit, you could see a positive data over the next years should this reform go through. U. S. Corporates have essentially paid every leveraging of their Balance Sheet. Of the at the highend trading range over the past 10, 20 years. If the Business Cycle were to theand we see a decrease in nominal gdp, those very highly geared leverage ratios could be letters for those credit and the credit quality. I think there is a keeping point between when whether we see more Economic Activity which could sustain those levels of leverage, or the change in the tax policy will create a deleveraging of Balance Sheet through more favorable tax terms for capex and less for raising debt, and the key argument is repatriation of that cap cash. Matt there is a great chart here from the bloomberg in our library, 3345, the Bloomberg Barclays corporate highyield total spread over the Bloomberg Barclays total return. You can see over the last year, it has really come down. What does this mean and is that a kokou this means there has been a massive amount of liquidity and as a result, you see a massive tightening in the risk premium between high yields and treasuries. One of the elements here is that the keeping point in terms of how nominal inflation is likely growth,f we see more the investment allocation or investment choice of investors will be to go for equities that yield better returns than sitting on highyield, which so little caution particularly if the Business Cycle were to end. The strength with which the u. S. Economy can recover, and number that theact of Trump Administration can have in the decision led by cfos in most u. S. Corporates. Guy you are going to join matt and i on bloomberg radio. Looking forward to carrying on the conversation. Talking of all things french, lets take a look at where the spread is this morning. You continue to see risks surrounding the French Election being priced in. To 75 now gapping out over, a period where we got comfortable with the idea that macron was going to be the winner is coming out. At periodeeks to go, you start to see real action coming through, matt. Matt i just want to point out one other thing. If you are a bloomberg customer, you can watch this show using tv. If you click on the function and going to the Bloomberg Television box, you get video, but if you go into the bloomberg box, box and click on that you get an audio stream, which a lot of very important people listen to and you can click this blue link at the bottom. Ask a guest a question. If you send us a question for kokou, you can become a part of the conversation and make our jobs easier. So thank you for that. , how will the French Election face change the face of the german a former member of the alternative for deutsche land, this is bloomberg. Guy you are watching the open. 44 minutes into trade. Getting commentary coming through from Angela Merkel and her view of what is happening with syria. Telling the president of the United States, saying russia must be involved in the syrian settlement. Her goal is a peaceful syria, how we get how merkel gets moscow into that position is the question i think they will be talking about today and taking that conversation with Rex Tillerson to moscow later on today. Certainly that story front and center and you are seeing it priced into russian asset or it assets. Nejra interesting moves in the markets. Lets start with the gainers. 5 increase in average over also wants to increase dividend traction and maintain its 2020 ambition for further growth. P 3. 2 , then lvmh sales exceeded estimates. A 13 rise in the First Quarter organic revenue versus estimates of an 8 rise, with particular strength in the passion and drink unit. Some seeing this as a biggest sign yet of the rebound in the luxury industry. Other Luxury Companies rising as well. But the not look huge, shares have actually hit a record high and it is one of the biggest gainers on the stoxx 600. Dialog Semiconductor Shares have tanked over half an hour ago when we got headlines saying there was strong signs that apple could replace at least partially the chip made by dialogue and that could affect. Its rating from hold to sale. This stock has dropped the most since 2008, down almost 32 . Matt . Matt thanks for that. The german election will have an unprecedented year of Political Risk in europe with populism influencing events from the uks decision to leave the European Union last months vote in the netherlands. Say, since the Second World War unprecedented. A second round of voting in the french president little president ial election. Marine le pen is on course to reach the runoff on may 7. With us from brussels, a member of European Parliament from germany and a member of the liberal conservative reformers, now a former member of the afd. Why dont we address that first . The afd has taken a turn since you left. Explain the path that extreme right party has taken and why you joined the liberal conservative party. Been good success in the european elections. Seven members of parliament, five of which left because of the tremendous terms of the right. It has become a populist aversion of the Marine Le Pen party in france. I personally wanted to have nothing to do with the party which is following that kind of program. Matt you have an incredibly strong business resume. Whenre the head of the bdi i was in university, until recently you are on the board of continent tell many other companies. What has driven you into the political ring here . What do you hope to achieve in the september elections . Quite frankly, i have never been in politics. All my life, i was in ibms. Career in ibm,y i was the chief executive officer of ibm europe, middle east and africa. About 90,000 employees and the only reason i went into politics was i tried to influence the euro policy of the German Government, because the euro policy in my view, had a tremendous number of side effects. One is that it led and will lead to unwanted centralization of the eu. It will lead to socialization of banking and government debt, and it will lead definitely to an unacceptable europe. Certainly,or of eu, with a concentration of finishing the Common Market. One of the sad side effects which has been overlooked in the thatcouple of months is policy of the europeans, especially the German Government, has also contributed to the brexit. To influence the German Government to change its euro policy, so far without success. Macron looks as if mr. Will win in france, though it is looking tricky at the core. We will have mr. Scholz in germany. Is that a recipe, if we get a groupingrkel or scholz in france and germany that we will see more europe . A push for deeper in the integration . Definitely. I am in favor of monsieur macron rather than Marine Le Pen. But lets face it, macron is an ocate for a stronger socializing state that, eurobond this. Eurobonds. He would pursue a policy that would make the eurozone less competitive in the next couple of years. By the way, the policy between and mr. Macron is not very different. What are in favor of the United States of europe and that, in my view, is not a good sign for the competitiveness of the eurozone as a whole. Speaking of the competitiveness of the eurozone, as someone who ran ibm, how do you think trade should be dealt with during these brexit negotiations and postbrexit . The best thing the European Union has ever achieved is the Common Market, and the Common Market is the basis of everything on which Everything Else was built in the European Union. Britain andh, great the rest of the European Union, contributed but also benefited from the Common Market. My position is very clear. Closeuld keep britain as of a Common Market as possible. We should refrain from punishing britain because they have decided to leave. I was certainly against frexit, but i think it is not good either for europe or britain, but now that his has been public, i the british think we should make sure that britain stays as close to the European Union as possible, and i will do Everything Possible in this parliament together with my party and Political Group to avoid any idea of punishing britain for that decision. Matt all right, thank you so much for your time. Member of European Parliament as well, we appreciated from brush brussels. Hislays jeff bailey is on final morning of facing significant pay cuts. His offense, trying to root out the identity of a whistleblower. , 28 millionoard from former ceo john stumpf after reports on the bogus Customer Account scandal and even more from one of his deputies. We are on with bloombergs bank editor michael moore. First, lets talk about what jeff daly will lose. We talked about a significant pay cut, how significant is it in comparison to the clawback we saw at wells fargo from those two executives . Fargo one iswells in a Different League at this point. Jeff daly was given a 1. 3 Million Pound bonus last year and some portion, even all of that could be taken away. The bank is going to wait and fca comes up with before deciding how much of that bonus to take back. Guy where does this leave bank ceos . Weare in a place now where saw a huge rotation of bank ceos, a lot of bank ceos seeing clawbacks. They are in a different place right now. What is their motivation . Their motivation changed as a result of what the regulators are doing . Michael i think it has and you have seen, because you have this sort of change and new generation of ceos come in, there certainly is a more risk averse personality in top jobs. Thesemore about getting banks back to profitability, not taking too much risk and trying to keep it between the lines, but even with someone like jeff bailey who since he has come in has talked about restoring trust in banks, you still manage to have some of these issues pop up and just when you think the banks are out of the woods on the legal front, Something Else pops up. Credit suisse was huge and q1, that is something we will talking about. That could be negative u. S. Banks Going Forward. What will we learn this time around . Michael people are very interesting interested in how trading holds up after a tough first half of 2016. The banks were pretty bullish in january and february, it sounded like march was a little more difficult on the trading front. That is certainly something to watch and just the impact of Interest Rates finally creeping up a little bit. The yield curve getting a little steeper, what did that mean on the lending side . Guy michael, thank you very much indeed. It is going to be a busy week for the Banking Sector, matt. It will be busy for the Banking Sector and also for Board Members at bhp billiton. Bloomberg was reporting that bhp had hired Goldman Sachs in defense of its defense versus the Elliott Management shareholder proposal that we talked about yesterday to sell off its u. S. , gas and oil unit and give money back to shareholders rather than using that money for acquisitions. Aberdeen Asset Management is the third shareholder, it is too early to say if it will support the elliott plan and needs to hear more details from both. This is a story that continues to build up interestingly. It will be great to see how this goes down over the next days and weeks, for sure. Next, bloomberg surveillance. Guy johnson and i are headed to the radio. Please join us. This is bloomberg. Francine Thatcher Janet Yellen says the bank is shifting gears as the economy recovers. Our two are two rate hikes still ahead . Rex tillerson those two russia and the white house steps out warnings on syria. Are there further sanctions . We get the latest u. K. Inflation data this hour, ahead of wage figures tomorrow. How is brexit affecting spending . Marine le pen brings multiculturalism a weapon