Transcripts For BLOOMBERG Bloomberg Markets European Open 20170502

Serious about 50 year bonds will there be demand . We will talk about that. Climbing crude prices and continuing cuts. The dividend can be maintained without increasing debts. Lets talk about the markets and where we are. Yesterday, quiet. A takeaway from the u. S. Session. Close had a Single Digits for the banks. See, bloomberg as you can strongly up by. 6 . Europe opening up. 3 . Lets talk about what is going on more broadly. The show you what is going on here. A couple of interesting things to focus on. Lets start off first of all by saying the yen is down. That tells you about risk this morning. At 1. 09. Bid the French Election coming up. A lot to think about. Beyond that, that provides positive momentum for the currency. Lets talk about what is happening elsewhere. With iron oreon as well. A solid bit this morning by 3. 83. The metals complex quite interesting. Iron or rebounding. Now beginning to find a fair footing with positive trajectory. Here is the bloomberg first word news with juliette starling. U. S. President donald trump has said he would meet with kim jongun amid hearts and tensions of the program if circumstances were right. He said it would happen if it was appropriate although his press secretary said conditions are clearly not right at the moment. With korea has become the most urgent foreignpolicy issue facing the president s during his first 100 days in the white house. Under the right circumstances i would absolutely meet with him. Wouldolitical people never say that i am telling you. Under the right circumstances i would meet with him. Alluded tomay has the details of her disastrous dinner with Jacob Juncker she alone is up to the task. The European Commission president left talks at downing street on wednesday shocked at mays reluctance to compromise. The pair disagreed about the complexity involved in agreement between the sequencing of talks and budget contributions. Emmanuel macron and Marine Le Pen kick off the final week of the president ial campaign with major rallies in paris after subjects ranging from euro to the environment. The centrist candidate defeating his far right opponent with 59 of the vote sunday. One percentage point from the previous poll. The imf said at spending cuts and increases in oil prices are helping gulf nations lower some of the highest budget deficits. Hailedds director also progress in efforts to transform economies as relied on oil and gas for more than 12 decades. One of main commodities. Yourhe good news is company has grown. Despite the fact that the government has done. Plans,s of economic progressively taking off. More of that will help diversify the economy. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries this is bloomberg. Guy juliette starling. Bloomberg spoke to President Donald Trump in the oval office on a wide variety of subjects. He addressed the possibility of breaking up the big banks. President trump we are looking at that. Some people want to go back to the old system. We are going to look at that. We are looking at it right now. Doddfrank is going to be very very seriously changed so the banks can go back to loaning money. The president meanwhile speaking to bloomberg in the early hills, california. Steve mnuchin weighed in on banking regulation as well mnuchin we are determined to make sure we have proper regulation so we dont but taxpayers at risk but we also dont have overlapping regulation and we have priorities. Banks and Insurance Companies know what they can do. In market from singapore. We saw a Market Reaction today, a bit of a kneejerk reverse when it came to the u. S. Banks yesterday. About tax, a bit of a struggle. How much of a political reality is glasssteagall . I think is not much of a political priority. Expectationsarket is that any action on regulation will be positive for banks in the short term. The easy games for them are to cut down a certain bit of the overlap in regulation Steve Mnuchin said. If they ever move toward breaking up the big banks that is a longterm project. And at theunlikely moment that is purely rhetoric. Any progress is more likely to be positive than negative. The data was not great. Data in asia was not great either. Most of the pmi threat the asian region was not particularly great. People are happy that congress has reached a tentative deal to avoid a Government Shutdown and at the moment geopolitics and micro factors are dominating the macro factors. We are trading each story he is incredibly. Idiosyncratically it is really affecting canada the fight despite the fact they have strong pmis. Every market trading more on its own. Not the big global macro factors. That is the current status. It is interesting to get the Market Reaction to this talk about the long bond 50 years. The markets are already struggling with this. You cannot see the logic behind it. Yes we have done it in the past, yes it happens. You think about the big Infrastructure Project delivered in the past. Nevertheless, liquidity, all kinds of factors make it different difficult for the u. S. To deliver a 50 year bonds. You have any sense that this is going anywhere . Is something they will continue to examine and i think it might go somewhere. It depends how they view the longterm situation for inflation. They may feel there is at some point a chance for them to put on a good longterm bonds, longterm pricing and they might feel they have the regulation to have the demand. They are not the first country to this end they will not be the last. While the long and term is flat compared to history, yields overall is relatively low. Can they go lower . Can they get better prices . Is there a demand therefor them to actually price this in and make it worthwhile . Chart that wece follow up even without talking about the bond. The average duration has been going up steeply since 2007. One final question. We nibble hattie we nearly had a single digit close. What do you make of that . It has become less relevant as a direct measure of the concern in the markets. As algorithms take over and people do more of the hedging rather than buying options to protect themselves, i dont think it is the best measure. It is more of a reflection of the positivity and at the moment they continue to do well. The s p is in 1 of the record high. Theres a good chance we might get one soon. We are trading micro factors and they are in a positive earnings season. We are in the geopolitics of congress so i dont think it matters at the moment. As long as we get no big surprises from north korea and continue to get good Earnings Results of well you could see a it going up soon. Few options for what that could look like. Thanks for a much indeed. The macro strategist, you can follow the entire team, it is really worth watching. You know what i think is a really nice line is welcoming out of that . The euro is weathering some of its biggest storms right now and next week could exit turnout to be the end of a phase that has seen a lot placed against the survival of the currency. Mliv. Estimates on higher crude prices and lower costs. The latest on the president ial election with less than a week to finalore the second week of voting. A fascinating week. The fed, payrolls ready as well. So much going on. This is bloomberg. The open 18 minutes away. To the Bloomberg Business flash. Federal prosecutors subpoena several banks as part of a criminal investigation into possible integration of the treasuries market. Ubs, the royal bank of scotland received subpoenas last month. One person said Morgan Stanley has also received a subpoena. Morgan stanley, the justice department, and the Treasury Department declined to comment. The chief executive of elians walking away with 99 million as questions remained about the shakeup to the asset manager. They agreed to purchase 4. 3 4 million stock units already beneficially owned at 22 98. 22. 98. They were awarded under his contract. A hundredw ceo employees over the next year in a push for growth. Speaking to bloomberg at the Milken Institute said that instead of focusing on Cutting Company intends to spend on hiring and technology to become better. That is your business flash. Twitter has said a bump in activity to trumps, but it would love other World Leaders to get more connected. Announcing an expansion of an existing Business Partnership for streaming video. , emily and interim cfo chang asked him. Sayhe first thing i would is i live with the leadership team. We approach running the company is a team and divide and conquer those priorities. Day, we dividehe of the priorities amongst a team and what is most important to a college. I would not want to work with anyone else in this team and getting jacked. He is an inspiration. Jack stood up at the end, no rehearsals. No script. He delivered the heart and soul of what twitter is. I live and breathe every day to help that vision come to life because that is what made it special twitter so special. Her teammates cannot be a stronger team. What is it like working with a guy who is ceo of another company . It can be daunting and inspiring. Jack is therefore 100 of the come decisions. He has license to make decisions that none of us could ever make. It is a powerful relationship to have a company. I think it made us better in the last two years he has been at the helm of twitter. We talk about the potential drawbacks of running into companies. Are there benefits that come with that . The media wants to ask us about that. I dont think about it until the media asks me. I have someone talked to jack, we talk about it. We discussed 17. What i said we are together for 100 of the decisions and that is what the company is all about. You are still looking for a cfo. Once we have news we will share that with you. Twitter hired banks last fall. What is the latest . We have not commented on that situation. They support the strategy we have in the plan we have in place. Activearters of daily users growth. I have been around the internet sector since 1998. I can count on one hand the number of companies that saw a deceleration likes twittered it and to reaccelerate in 2016 for four quarters is a huge a couple friends and i cannot be more proud of our design team and the employees that make it happen every day. We have a lot to do. We have not come back close to what we have and we are committed to that and be resilient along the way. Werecognize that missteps make and make sure we do not make them a second time. That twitter as a company can have the largest impact in the world that ive ever seen from any company economically and otherwise. Withthat was emily chang twitters cfo. First quarter earnings, beating analyst estimates. That sounds good. The chief Energy Correspondent in london. Good morning. The initial reaction is going to be a fairly good one. Nevertheless get the details for me. Tommy white is working fine line. It is 1. 5 billion better than expected but bp is not generating enough money to cover those three. One is the capital expenditure. The other is the dividends. You have the gulf of mexico payment that is a special situation. Bp is not generating enough money to cover those three and increasing to levels that are dangerous. Ratio that bpthe 26 . 8 atok at was the end of last year. , above 33 . Really trends, bp reaching his own limits. That is how close we are. They need to do what . Stay where they are. Election cards for bp to be ok. Certainly the second half of the year we are expecting bp will be able to generate more because several will come on the stream and the payments related to the mexico, the Company Expects to pay 5 billion in u. S. Gulf of mexico. They pay already 2. 3. They pay a lot. Its a Big International Company Needs opec to Keep Oil Prices round 50 that is bp. Bp is a very different place. If you look at exxon, chevron, they have already reported, a sense of relief from those companies. It is not that everything is fine but you can see those companies and the board getting more relaxed as the war is over for them. Moneyds to spend a lot of related to the gulf of mexico payment and were not really like to see that at that level above 30 . An extraordinary situation for the company. Because first, dividends, not the payments. , the gulf of mexico payments that is not discussing whatsoever. I think it goes the dividend and the. We will see more reduction in. I think they have already gone through very close to the bonds. Thank you very much indeed. Bp opening up very shortly. We will take a look at some of the other movements as well. Including Aberdeen Assets. Beating estimates. We will be talking to the loss later on in the morning. On thisoss later morning. This is bloomberg. Guy five minutes until equities get going here in europe and obviously an interesting morning to keep an eye on what is going on. Lets think about the sox we need to be focusing on. We are going to be watching very carefully, exactly how the stock opens. The numbers look good. We will be talking a leader later on. Conversation will be having that conversation 9 10 u. K. Time. We do have fairly good numbers. 3. 6 million and inflows. Merger with Standard Life very much on track. According tolve martin gilbert. Hour a quick a r. The stock is coming down. Thatthe merger, i think tells you everything you need to know for the amount of stability at the moment. He sees quite a positive story. Watch bp. We think that is positive. Averaging will be a positive story as well. European stocks open and four minutes. Guy one minute till cash trading in europe. Looks like a positive start to the day. This is the fair value calculations. Ftse will open up. 3 . London looks to outperform as does the cac. 5 addedobably see to european equities. Watch aberdeen, watch bp. It is a jampacked week. Apple later on, tomorrow, inventories. French president ial debates, final one before the weekend. , it is acebook, hsbc very busy week. Focus. In it looks like european equities start on the front foot this morning. Lets talk about where the Market Makers take us. I am watching bp like a hawk this morning. Lets go to the main chart. The friday into close. London and the rest of europe closed yesterday. Firming a little this morning. By. 3 . P expecting a little more on the frontend. We will see how bp opens. 7218 is where we are trading. Lets find out what the details are. Manus cranny, to you. Manus globally, equities are making record highs. Have apple, facebook, the fed and the jobs report swaggering in equal measure for attention through the week on what could drive the market higher or leave a soft. The shanghai composite, you can see a little dip. Question about the data. Manufacturing dropping orders and exports dropped. Still in expansion area territory. The pboc weakens the yuan for the fifth day in a row. The longest run of drops since november. In european equities, joining that course on a global basis. Financials bid, paris at the nineyear high. Toring if macron succeeds power, helping the banks. Financials are up. 3 . Energy up 3 10 of 1 . We will check in and in terms of oil majors. Exons, chevron, hotel and now bp at a nice comfortable beat. Has bp done enough to allay concerns . One is and one is the gulf of mexico. Depths ofinto the earning season, Profit Growth in European Companies looks to be the strongest in the Third Quarter of 2010. That is leading to a raft of upgrades in the markets. Reporting earnings per share at 24 higher. The data is adding to this fuel that we should have a rerate in europe. In the u. K. Market, sterling held up on the key shed he said. Seshe through thed up asian trade, the latter part, almost completely unperturbed by the difference in opinion in what really happened at dinner last week in downing street. The question to ask, is can sterling hold . It is hardly rocking on the downside, down 1 8 of a percent. Down. 1 . In dollar terms, we are on the ftse. In pound terms, fairly unchanged. In dollar terms, we are beginning to question where we are and where we go. On the markets, i am off to digital radio. Guy thank you, manus. Et me refresh my mov screen by two. 53 off the back of its numbers. Santa fee well bid. Ntofi will bid. Some financials trading higher as well. Downside, the dividend story is fascinating. I think stocks like anheuserbusch have gone and dividend today. Du have a number of big ex stocks in the market and the bulk of these i am looking at our ex dividend. A big factor in the market on the downside is the 10 stocks going ex dividend. Going onk about whats more broadly. Steve mnuchin has repeatedly bonds,ed ultralong something the administration has been looking at since taking office. He is taking it seriously. Speaking to bloomberg, he said that instruments could make sense. Studying ultralong bonds. We are considering that at treasury. We have a working group looking at it. We think it is something that could absolutely make sense for us at treasury. Is there going to be any demand . Is this a situation that will become real for the market . Lets talk to the head of. Uropean rate strategy will there be demand beyond 30 mark we have seen demand in europe, so i dont see why it cant translate into the dollar market. The question is whether or not the treasury wants to make that step . I think it is more a question of how much do they feel as the worlds reserve currency, they dont need to issue Long Duration are able to continue to assume a relatively short what advantage would they get going beyond 30 . What would be the yield gap between 830 and they 50 in the u. S. . Peter theoretically, not much yield gap. 50, you get beyond 30 to there is a lot of complexity that should mean it is possible to issue at lower yields to 50 than 30. In europe, we have learned that no one is really able to issue and offer all of that complexity to investors without offering some yield premium. I would suggest that if the u. S. Was to come out with a 50 bond, you would see more of a fair exity beingat conv priced. Guy give us a quick lesson in what convexity means. Peter it most represents an option. When you are comparing the price change in a 50year bond relative to a 30year bond, there is more of this ability to protect an investor against a yields when itin has an impact on the price. This is why owning a 50year bond is attractive in a lot of real money portfolios because in the event of a rate selloff, the 50year will have that and rates being low as they are, that becomes more interesting because as low as though, you get disproportionate effects as of where we are. Peter and it would be better priced by having better liquid benchmark. Guy would it be liquid . Peter the lesson is if there is enough demand for it, the treasury should create enough supply for it, then it would be liquid. The 50year is structurally cheap is there is not enough liquidity there. Investors generally are not all taking advantage of that conv exity. Do the issuance driver drive a fairer value over time . I believe it would. Guy before we go, i want to show you an interesting chart. You can find on the tv function. It shows we have seen an increase in duration, not to the levels we are talking about but we have seen the weighted average duration go up since the financial crisis. An interesting point as people have been pushed down the maturity story as the world has developed under a third qb. Lets talk about the fed does the fed want to change Market Pricing . 70 , do you think the fed wants to switch that up again . Peter there is possibly another shift that could come from being in that it within the statement this week because the way future Monetary Policy from the fed, i suggest they want to stopping the investment of the Balance Sheet and that could mean that the market has to substitute that stopping of investment by taking out another fed funds rate hike. This is the way i see Monetary Policy panning out. A shift from the fed. They will deliver less in terms of fed fund hikes, but more in terms of a more passive tightening of financial conditions by stopping the reinvestments. We need to think more less hawkish lee and rates, but more hawkish. It is steepen hers. Still the 530 steepen her. Ner. Teepenr most the real heat the real peak in the reinvestments is 20182019. That is where the bulk is. We should be pricing less in terms of rate hikes. We should be thinking more about the term premium signed to write, in the long end over that period and the fed is no longer at the auctions taking part in the fighting. Guy taking part in the buying. The fed ands of payrolls, if you look at how the phillips curve works and we get into understanding he can employment and as a result, maybe we see the wage story developing a little more. What would be a disappointing number and is it the headline number or the wage growth number four payrolls, and which is more important . Peter always the most sensitive number, according to our analysis is the headline number. That is the market mover, that i think what we should be sent ash spending more attention to is the average hourly earnings. Still looks decent and potentially shows upside risk, that is the one we should think about from our Macro Economic fixedincome in thesystem mark system . Peter absolutely, that is the most important data. We should consider the potential that trend is no longer linear and has potential to accelerate. That is the second round affects that a central bank would tend to be scared of and try to monitor policy more aggressive ly into. Guy these charts are all available on tv. Peter will stick around. There are top live functions for both the fed and payroll. Still to come, we will discuss oil after bp earnings. Extensions in International Supply gaps. That discussion later and the two candidates making closing arguments for the french presidency. Bloombergl to come on as well. We are 11 minutes into the open. European equities bid. Back, you are watching the european open. 14 minutes into cash trading. Lets figure out what is moving the markets. As predicted bid by your bloomberg, up. 6 on the ftse 100. 7243. There is a lot of ex dividend in the Marketing Market this morning. Anheuserbusch going ex dividend. That is acting as a drag. The cac up by. 3 . These movers i am looking at, some of the biggest movers in terms of percentage moves starting with the online grocer accardo gaining on reports of a possible tie up. 8. 7 , more than three months in session so far. Down 3. 38 . You have comments that operational issues are evident in the First Quarter. Lower, the most since june 2016. This dropping the most on First Quarter member numbers two. This is at the moment, the worst performer on the stoxx 600. Guy thank you very much. Lets get a business flash with juliette saly. Juliette take you, guy. Bp has reported firstquarter earnings that Beat Estimates as oil prices climbed and the company continued to cut costs. Profit adjusted and inventory changed almost tripled from a year earlier to 1. 51 billion. That should help these investor concerns about the ability to pay the dividend without increasing debt. Pimcos new ceo plans to add 100 employees over the next year in a renewed push for growth for the bond fund giant. Bloomberg, he said that instead of focusing on cutting costs to compete, the company intends to spend on hiring and technology to become better. We want to be the best at what we do. We dont think we can be the biggest, we think we can be good at managing complex fixedincome portfolio and deliver returns. We want the results of the firm to be focused. Juliette twitter wont attribute a bump in activity to President Trumps prolific use of the social network. Officer saysrating the company would love it if every world leader used tweets as their primary way to talk to their constituency. What a reported a jump in monthly active users last quarter, but admits that wont translate right away to increase revenue. We dont today have visibility on seeing the revenue trend improve. That is based on a number of factors. We need advertisers to recognize the increase. We are much more attractive than 12 months ago. Not only is our audience accelerating for the fourth executive quarter, our prices are down 60 . Juliette and that is your Bloomberg Business flash, guy . Mentioned it. The bp story, the oil giant has posted a beat since firstquarter earnings this morning. Peter chatwell is still with us. Jason, give us a take on bps numbers. Jason a strong set of results. I think not only did they beat on earnings, but the underlying cash generation was very strong. They came in it 5. 7 billion. It means they are pretty close to covering the dividend with free cash flow. Guy getting pretty close to the 30 mark, should i worry . Something thatly is a bit of a concern to us as well. Cap level is pretty high. The curing process is difficult to see because of the charges that will still be coming through. Nevertheless, getting to the point of covering the dividend is an important first step for bp. Guy how important is it that oil prices dont go down from here . It looks like bp is more geared to that story than rivals. Hasn i would agree that bp set themselves to break even and find the david fund the dividend. Oil prices need to state at the mid 50s level for these equities to have any support. That is a level where the group in general is pretty comfortable in terms of paying the dividend with free cash flow. They havent done that since 2011, so it is pretty important. If they cut any further, not they are cutting into bone. It gets crunchy. From a cap x perspective. Jason i would agree. Fortal spending has reduced bp and the group in general. The group is underspending in general by 25 relative to where they need to be spending if they want to replace their production and keep reserves at a fairly flat level for the next few years. Guy what do you think about the stock price . Should it be higher or lower . What is the rating . Have a hold rating, we see better opportunities in other parts of the sector. But we do have a five pound target on bp. That is a fairly reasonable upside from today. We prefer shell. To come back to that, i want to highlight this. Is, this ise jason the 502 where the market is. The price is 405. Factor . St the stability jason there is that. I think the leveraging factor ish story with shell there. While there are similar levels of debt, we see shell being able to pay down the debt faster than bp. Guy lets bring in peter c hatwell. Bp needs the oil price to be around [no audio] sloping, butupward i am concerned about the backward to 2019. That has been in place for some time. We had a period, where oil was rising at the same time as inventories going up. That seemed strange at the time, seemed to be driven by speculative movements. You can see it in the data. Now, i am not so comfortable with anyone who is making assumptions, including central bankers that oil is going to be going back up to the 55, 60 level until we get evidence this supply glut will be overcome. Guy headline inflation seems to be ignored by central bankers right now. And maybe what you saw in the core european numbers we have come to 1. 2. Maybe that is the derivative affect creeping out of the primary effect of oil being higher. Maybe we are getting effect come through . Into the eurozone. Is that what we are seeing . Are central bankers right . Peter it is important they try to look at all of the factors, depressed. E are just we would be thinking headline inflation is peaking but going yearbyyear1. 3 in europe. They havewere for potentialowth wage risks later in the year. If we can consider that we are moving away from the zero bound, maybe it is driven by the u. S. Economy, maybe it is driven by other factors, but still we have to consider there are upside risks to Monetary Policy on the basis of the firm growth in europe over the last x months. Six months. Guy i think this is a fascinating story. We have a little dip here. The backend does spoke up. What the shell guys are doing is hedging forward and with forward sloping curve, they are able to do that and can lock in their production and maintain that production. What that means is the supply store you are talking about becomes part of the picture for a very long time. Peter quite right. We have to lock in this suppressed belly of the curve on oil. Guy is fx capable of that . That would be one way of doing it. There i think this means has to be mean reversion. If prices get depressed by production, someone gets cutout of the supply side and that allows the curve to normalize. Guy this is another interesting chart. Positioning long positioning coming down and that tells you about what is going on as well. When you think about inflation when you are looking at the market and trying to understand the number last week from the eurozone caught a lot of people by surprise, but were in as period where inflation will seriously no. Has the market the market has priced out a lot of the reflation trade with trump. We are getting some inflation, that is that inflation priced inasmuch as i am wondering where the inflation story is versus Market Pricing . We have taken the reflation out, but where are we . Europe, the reflation story is considerably overpriced. You can see that in the long end of the swap curve in Government Bond markets. Markets are not concerned about current levels of inflation, not thinking forward and that these base fx are going to continue to fall out and inflation is going to be lower towards the end of the year. We should be thinking about whether or not this inflation does anything to Monetary Policy. That is where the risks are. I believe the ecb is not going to be able to exit its Monetary Policy over the next year longer than that, i would suggest. Really because of peripherals. If they move towards the exit now and i think they will start to try. Then you can see that translates into financial conditions priced to the periphery and bad for the euro as a whole. Guy we will stick with peter chatweell. We will hear from pimco next. Guy President Trumps is considering reviving glasssteagall, separating banking from retail but how much of a political priority is this . Says theve mnuchin government is serious about 50year bonds. Will there be demand . Prices, willde investors be reassured that dividends can be gained without increasing debt . The stock getting a nice pickup this morning. Lcome, you are watching Bloomberg Markets the european open. I am guy johnson in london. Lets talk about how things are shaping up. European stocks well bid. London outperforming, 7247. A few ex dividend stocks this morning so be aware of that. Anheuserbusch, big names in the market that are ex dividend. And causing a little bit of a drag to some markets. With less than a week until france decides on its president , the remaining cap have held rival rallies. While Marine Le Pen attacks mocksel macron, macron her plan to create a unique a National Currency as monopoly money. Macron leads the polls with 57 . Bloomberg spoke to pimcos ceo on the suspect at the global conference in l. A. Looks like mr. Macron will win the election, which will be good for france and democracy. Will need to form a government who can an act trade andarliament find the Prime Minister who can get that done. Guy lets cross to parrot. To paris. How important is this story around the euro in terms of Marine Le Pens prospects . It has been the one thing she has not convinced people on. It is popular with part of her base, at the idea of leaving the euro and the uncertainty that would cause, particularly the loss of value us of peoples savings, that has been an impediment of winning over voters of francois fillon. They share too many things on immigration and things like that, but voters tend to be have savings and just dont want to risk any adventures with a new currency. It is a major impediment for her she has soften her views, but doesnt want to give it up completely soaked is in a rather confused thing right now. Two currencies, a frankfurt daily spending, a common euro used for big transactions. No one really understands what she is on about. Guy if it is the money in your wallet, you take that seriously. The Prime Minister being so important, are people talking about this . Give us a sense of the importance of it. Much the is not so Prime Minister he picks, it is whether he can get a majority in parliament. Two times for president s is not enough, they have to go back in june to elect the parliament. Without a Parliament Shall parliamentary majority, the president doesnt have powers. Neither have established parties in parliament. Macrons party was just created a year ago. It is unlikely they will have a majority in parliament so they will have to cobble together deals with either the republicans or the socialist. What Prime Minister he picks is rather important in sending a message. Left and says he is right, the Prime Minister will let us know whether he is more left or right. He is certainly first we have to get through the elections but once through that, that is what the attention will be on. Guy an interesting week. Thank you very much, greg, joining us out of paris. Lets look at what risk reversals look like. Eurodollar risk reversals. This is the period after the first round, we went into the first round skewed to the downside. He popped back into positive territory. We come back down again after just one week. Are a bit more positive for the single currency but people are taking a little protection out on the options to make sure they dont get caught there is the, possibility of a surprise. We have learned that over the elections. Peter chatwell, head of european strategy at mizuho is still with us. Lets talk about the spread as it relates to booms. Bunds. You think we are as high as we can possibly get . Way i look it this is if we are working on the assumption that Emmanuel Macron is the next friends president , we should french president , the Political Risk in this spread vanishes. Most is gone by the first round, but we should think of the impact this has on the ecb Monetary Policy. I think for the june meeting in policylar, ecb monetary is going to emphasize a more hawkish shift. We are going to see the Forward Guidance becoming watered down. Francine the more negative position neutral position. Peter there has to be recognition of the strong Growth Numbers we have seen over the last six months and that will my moreback into of a widening dynamic. Policy Going Forward. The policy over the last three years has been the single dryer driver of Government Bond spreads. If we are edging towards the exit of that policy, we are going to have to have spreads pricing fundamental divergence that we have in the euro area and those divergent dynamics have gotten worse over the last few years. 62, absolutely, we are at where d. C. That going . The you see that going . Peter on a macron victory, you get the kneejerk rally. A selling opportunity to half the wid because we have to be thinking forward. I could see that trending out to 60 basis points and in terms of where 10 year italygermany goes, i think it will be more important. It would be pushing over 200, towards 200 who hundred 25 basis points because we have to be thinking that without there ,eing enough strong growth particularly without enough inflation in the weaker countries, and we have to be concerned about sustainability of debt once again. Guy you are not in the camp that believes the redenomination risk story is done . Listen to what greg was just saying about the fact that Marine Le Pen is backing off the commentary around taking france out of the single currency. That risk looks like it is fading. Peter i dont think she is going to take that risk away, but she is trying to appeal to a more centrist voter at the i think for the euro area, irrespective of if it is a , weon or le pen victory have to be reconsidering the structural components. Guy you have to be fixed internally rather than fracturing, which is the question a lot are asking. Are we going to leave that someone is going to lead question and allowing the euro zone to be fixed . Peter i do see what you mean, it is just that if it does become fixed i mean federal there has to be a federalization, a Central European budget that allows there to be a mechanism of effectually effectively fiscal transfers. That will be difficult to deliver. As we get towards pricing that, we are going to have significant ruptures. Receivedbe positively from a majority of eurozone countries. I think to get towards a stable United States of europe, we are going to have to consider breakup risks in the future. The divergence of spreads is going to be more of a representation of the fundamental economic divergences. Guy great stuff, thank you Peter Chatwell, head of european strategy at mizuho. It has been said that the investment valiance was a mistake and following the 2014 listing on the Amsterdam Exchange where raised 2. 7 billion. Analysts its shares on the london stock exchange. Francine lacqua caught up with the founder and ceo and asked about that listing. We are looking for more liquidity, to narrow discount and launched Pershing Square 14 years ago. Pershing holdings was a longterm plan of hours. We have been trading at a discount, 15 the liquid net asset value. More, heing to access come a ftse 250 Eligible Company as early as june. Francine you said in the past you have been unhappy with the discount. How do you expect that to be adjusted . There is more demand. As a ftse 250 company, if we coulde that potential, we advise as much as 12 incremental demand from funds. It is really a north american fund, an english language dominated entity. Weve had a number of people say we can invest in a Company Based butnswer dan, amsterdam, in the u. K. You have a lot more interest. Francine it is a broader type of investor that you are trying to go after . Correct. Francine talk about buybacks. Launching buybacks today. Anytime you buybacks are assets we own 12 very liquid large cap north american companies. It is not difficult for us to indicate their value every minute. We can buy them back in the market. They are cheap as is and we can buy them at a 15 discount. Guy if you are a bloomberg customer, you can watch the show and more on the tv function. Let me walk you through what the option now at he is. This is the landing page. Tv, what you get after a moment of buffering is the video stream but also this cool sidebar. You get the functionality, the headlines, architects. You want to pull out the charts as well. You get the charts on the righthand side and like what you are using. That takes your bloomberg straight to that chart out of the Bloomberg Library and there you go. There is the split we were talking with Peter Chatwell. The team as well, join the conversation. Please do. This is bloomberg. 8 45 in london, 9 45 in frankfurt and paris. Lets talk the top stories in the stock market this morning. Marriage age nejra cehic. Nejra bp thirdquarter profits easing investor concern about its ability to maintain dividend. We are seeing the stock rise 2. 3 . The most in two months, but bp has been one of the worst performers among European Oil Majors this year. Thing to note is net debt has risen to its highest level in at least a decade and gearing inching closer to the top end of its target range. Not out of the woods, but today we are seeing bp a trade higher. Aberdeen also higher after it outflowsook patch slowed. Another company on the cusp of a arger is bayer on the cusp of 60 billion merger. We got news that monsanto has abandoned a deal with dear on concerns it wouldnt get u. S. Objections. I am not drawing a line between that and the stock price today but thought it was worth showing. Bear in mind that yesterday, bayer was ex dividend yesterday. Guy thank you, indeed. Lets get a first word update. Here is juliette saly. Juliette thank you, guy. President trump has told bloomberg he is considering breaking up big wall street banks, reviving discussions of a. Epression era law the administration has reported a 21st century version of the glasssteagall law. Also, raising the tax on gasoline to raise funds for highways and there is support among truckers. There are some people who want to go back to the old system, right . So we are going to look at that. We are looking at it right now, and doddfrank is going to be very seriously changed so the banks can go back to loaning money. Manus Juliette Theresa may has eluded the details of her disastrous dinner with Jeanclaude Juncker to indicate brexit talks will be tough and she is up to the task. The European Commission president left talks at downing street on wednesday shocked at compromise. Ance to the pair disagreed about the complexity involved in any degree an and about budget contributions. Greece and its euroarea negotiationse about current bailout programs. After final negotiations that lasted into the early hours of this morning. Greece yielded to a number of demands, including pension cuts and a lower tax threshold. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Guy . Guy juliette, thank you. , president t hearing trump considering a breakup of the giant wall street banks, giving a push to efforts to revive the legislation separating consumer and investment banking. Ceon interview, citadels said he would be really excited. Fund. S a hedge the move would increase competition and boost the economy. It is way too early to tell. First, at 100,000 feet, the move in theease regulation United States, i applaud. This is the greatest thing they can pull to get our economy to go faster. As you recall, i started my business in a dorm room at harvard. Two hundred 65,000 and i could launch a hedge fund in 1987. You cant do that today with less than several hundred Million Dollars given the high cost of compliance and other regulatory matters you need to deal with. That is really has discouraged new businesses in asset management. It is the burden of regulation. The energy space, the transportation space, it is everywhere in america. We regulate is reducing business in america and that is a tragedy. Focus onistrations reducing regulatory burdens on the american who has a dream, i applaud that vision. The last administration was very interested in introducing more transparency to the bond market. What about this administration . I really hope they follow through on that. Transparency is what creates confidence that you have been treated fairly, that you understand what is taking place in the marketplace. Transparency is the underpinning of a healthy capital market. Opaque, market that is the incumbents enjoy the information advantage of that capacity. For a goodesnt make market. If this administration continues to carry that baton forward and shines lights on how treasuries are traded, that would be good for the entire market and if they dont . It is unfortunate. Looking at,are whether reform for obamacare, the tax bill, the infrastructure bill, we are taking our deficit higher. I think it is really important that we take steps to continue to drive the u. S. Fixed income market, the u. S. Treasury market to be perceived as the most liquid market in the world. That will drive down the costs of borrowing, which will benefit and save money for every american taxpayer. Today, President Trump said he is taking a serious look right now at steps to break up the big banks. Would you be in favor of that . I would. I believe when a market becomes overly concentrated, you reduce competition and competition is the lifeblood of what makes a free economy work. When you have many firms that are impeding to get ahead, that creativityeate happens, innovation takes place and consumers win. 2008, financial crisis of a number of decisions are made very quickly that resulted in a massive consolidation of the u. S. Banking system. I dont think that serves the interest of our country well. What i argue to break them into small banks, no. But should we separate investment banks from core , a new glassnks spiegel, i would be excited to see that. It would be great for the economy. Good for your firm as well . That is a mixed blessing. We would have more vigorous competitors, but i think that is good for america. When American Investment banks are at the forefront of innovation not all innovation is good but over time, the majority of innervation creates meaningful value for our economy. Ay but he still does run hedge fund. Interesting to see how this would work its way out. Fascinating conversation. Still with us, Peter Chatwell at mizuho international. I want to come back to the big events this week. We have what is happening in the states, but also europe on the political front. France. , how does itit respond to the French Election . Transfer ofnk this focus away from Political Risks to the euro area, to tighter Monetary Policy, means we have widening potential across all of the european spreads. That is the fundamental driver here. You look at how tight european credit is and how tight it has been over the since late 2014 when the market really started pricing qe. We have got to be considering that can unwind if we are starting to think about tighter Monetary Policy, not just on rates, but also potentially if the growth picture becomes stronger for the euro area it could mean qe does truly come to a stop. Guy and qe is part of the credit story in a big way. Peter undoubtedly. Guy give me a sense of the order of magnitude and how it compares with the states. Does there are another whole bunch of competing factors. Peter you potentially have a coincidence of the Market Pricing tighter Monetary Policy for the euro area and credit spreads. In june. We have the fed making a clear signal about stopping the reinvestment of their Balance Sheet around that time. Nevertheless, we have potentially got in dollars, widening credit spreads at the same time as widening credit spreads in europe. That is a potent picture. It tends to be the links between the two markets, there is a lag of about three months. Coincident move in both markets, the move could be quite significant. Ceo and ia u. S. Am seeing a change in the way of debt gets from a different tax point of view, and what does that mean for my issuance . What does the supplyside look like from the u. S. Point of view . Peter the focus will be more on spread and there will also be more demand to swap the rate paid from a fixed rate into a floating rate . That is going to mean there is more use of the swap curve more use of swaps and that should overall mean that bonds underperform swaps. Guy what about the bondequity relationship . Peter i would hope that as the market starts to realize that the Balance Sheet is reducing from the fed, there is going to be upward pressure on yields, the only thing that truly gives you the potential to perform Going Forward should be equities and inflationlinked products. There should be rotation into equities once again, assuming the earnings can justify the levels. Guy peter, thank you for stopping by and spending time with us. Peter chatwell headed european rate strategy at mizuho international. We just had confirmation in france and germany of the flash numbers coming to the manufacturing pmis coming through. Incredibly strong data being referenced at the moment. Upman manufacturing trading well north of the 50 line and into expansion territory. Up next, it is surveillance. Francine will speaking to the Aberdeen Asset boss. Anna edwards and i are going to be on bloomberg radio. This is bloomberg. President trump says he is considering a revival. Griffin gives that the thumbs up. I am really excited to see that. You thinking it would be good for the economy . I think it would be great for the economy. Francine the treasurys curve steepen. The alleged disastrous dinner. But they do not outright denied