Transcripts For BLOOMBERG Bloomberg Markets European Open 20170601

Paris climate accord. We will get a view from the chairman at the same peter st. Petersburg economic form. Theresa may gets lambasted by other Party Leaders for her decision to skip a televised debate a week away from the election. Will it matter to voters or have traders priced in a may majority here question mark we are less than half an hour away from the start of european trading. Lets take a look at futures. Little change on the dax index urostoxx upu do see er cnd the ftse and cap up ca up. Take a look at what we see happening in forex. The aussie dollar is dead, the british pound is bid create after caution data out of china that goes the way of the positive pmi data that we saw yesterday, telling two different tales and the pound were watching very closely ahead of this u. K. Election. Also if you take a look at the commodities, you can see that lean hogs are ripping faith might you love your pork here in britain and in germany. 2. 5 and we do a c we do see a big move in bonds. This blackbox mean it means it is more than three standard deviations away from the average. If you have a gmm on your bloomberg look into that panel and get the top stories as well. Lets go to hong kong where we will get bloombergs first word sophiecivic kamaruddin. Sophie in the u. S. , President Donald Trump will announce at 8 00 p. M. U. K. Time his decision america will leave the paris climate agreement. According to two people familiar, he has not yet decided whether to stay in the landmark deal but is leaning toward quitting. Tesla and spacek ceo elon musk america will leave is leading corporate backing for the accord and said he will resign from white house Advisor Council if the u. S. Abandons it. China and the European Union plans to commit to free trade and the paris climate pact in a sweeping rejection of Donald Trumps protectionist policies. The two sides up. The document to give additional heft to euchina talks including the chinese are mere today and tomorrow in brussels. Angela merkel suggested the u. S. Had become an unreliable partner. Fired u. S. National security advisor Michael Flynn and donald longtime personal lawyer has been subpoenaed by the house intelligence committee. The panel is investigating russian efforts to influence the u. S. Election as well as leaks of classified information and reports that identities of Trump Associates captured in spy intercepts may have been improperly unmasked. The u. K. Prime ministers decision to skip a televised Election Debate threatens to rebound on her as other Party Leaders say she is unfit to lead. May decided to stick to her decision not to take are given the Labor Party Leader Jeremy Corbyn announced earlier yesterday he would appear. Leadership is about understanding the people you represent. It is about being compared to learn. It is about not being so high and mighty you cannot take advice. It is also about bringing people with you. That also about ensuring your responsibilities to protect the safety and security of everybody in this country and to lead a government that cares for everybody in the country. Is next. Rudd the Prime Minister is not here. She cannot be bothered. Yourself . Ke you are not worth theresa mays time. Do not give her yours. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Is bloomberg. Matt lets get more on the u. K. With just a week to go until the election. Mark cudmore from our mliv team in singapore joins us. Wash watching the pound every day as we get closer to this election. What do you think about where we see in trading with regards to what we are seeing in the polls noshow at thes debate last night . Mark there seem to be a lot of despair at the debate by the fact that she had not turned up and it seemed like another blow for the conservative party and it seems like their large majority is eroding as we move into the actual election date. Most polls, all polls still give the conservatives the majority but it is getting narrower. There is more certainty. At the moment all these headlines about the election are an excuse to trade the longterm fundamentals which remain very negative for sterling, that is a large negative yield. As long as there is increasing certainty, anything can be skewed as an excuse to act against those fundamentals. Matt there are a number of other things outside the u. K. That you guys cover on mliv and i wanted to touch on them. One of them is what is going on in japan. Is the nikkei flirting with omics working . Ben mark there is some evidence it is working. There have been 2. 5 million jobs added sinceomics working . Abe took power in december 2012. That was a multiyear low, that month he took charge. He has added a lot of jobs to the economy and there is sounds of a signs of a growth pickup. They are not getting inflation but many countries are struggling to generate inflation and that seems to be due to structural issues. Japans economy seems to be doing relatively well. Maybe we should stop focusing so much on this inflation number as being the ultimate goal for central bankers. U. N. Let me ask about the yuan. What is going on with the chinese currency . Mark the u. N. Has been one of the big themes. It is starting to strengthen properly. The market tends to have an. Nordinate focus on dollar yuan it is stored by their bigger dollar moves. The yuan is starting to appreciate against the official Chinese State basket. The yuan is strengthening on a broad aces and it seems the whole regime around the yuan is changing. So far we have seen the yuan in a gradual, steady downtrend for all year and it shifted this week. It does seem that the moodys downgraded has been one of the catalysts to spur the pboc to make the yuan stronger and send a message that they are not going to let it weaken any further and perhaps hopefully attract capital inflow that will make up for the liquidity they are taking into their you leveraging drive. Matt one final question on our tour around the world. I love how mliv is able to cover all the regions so well. We have been talking about russia this morning, the ruble has caught my eye. Over the last year it seems to be in a trend. It has the ruble continue to come back, have we seen continued strength there . Mark the vrable has been one of the more reliable appreciation trends. It has kept on going and it has been solid no matter what happened elsewhere. That may be about to end. Ruble has appreciated beyond where oil has done. Oil has stopped appreciating. The ruble has done well. Inflation is under control in russia but they still have a growth problem. They will need to cut rates aggressively in the months ahead and that will remove that pillar of support and the ruble will stop outperforming oil. There is room for a two way trade. You. Thank you can follow live Market Insights on mliv. The blog has been on fire lately. I recommend checking it out. Coming up on the program, we will speak exclusively to the European Commissioner. That interview next as there is so much swirling around relationships with russia, relationships with the u. S. , relationships with china. Were back at the saint heres break international forum. We are talking renewables and energy. This is bloomberg. The open is 20 minutes away. Matt welcome back to lumber markets, the european open. Good thursday morning. I am matt miller live from london this week. I want to go to hong kong because we got we want to get you your Bloomberg Business flash with Sophie Kamaruddin. Sophie barclays is increasing the size of the stakes it is selling in its south african unit to raise 2. 9 billion dollars. The londonbased lender is offloading 285. 7 million shares of Barclays Africa equal to a 33. 7 stake create it has plan to sell a 22 stake as part of a plan to shrink operations and bolster capital. And agreeing to sell nonperforming loans with a value of 2 million euros. According to two people with knowledge, the sale was in line with the net assets and has no Significant Impact on the italian banks capital ratios. Mitsubishi motors may have to abandon one of its bestknown models as it tries to recover scandal. El economy speaking as closely to bloomberg, the carmakers ceo says he plans to increase spending on r d well considering whether to keep making the likes of the pajero suv. Whether we continue with the model depends on whether there is a market for such a vehicle. We need to decide if it is worth investing a huge amount of money and Human Resources to prioritize its development. Sophie apple has started manufacturing a competitor to echo and google home speakers. Could see theer speaker later but it will not be ready to ship until later in the year. It will have virtual surround integration with apples product lineup. That is your Bloomberg Business flash. Matt thank you. Lets talk the u. S. And banking. We caught up with Morgan Stanleys ceo james gorman. We started by asking him about the strength of the Worlds Largest economy. James everybody is adopting a wait and see in that is part of the positive market and part of what explains the lack of activity. The administration came out with a very bold agenda. Obamacare,replace introduce major tax cuts, redo naftanegotiations across and china and the European Union, reassess nato in defense spending, reassess Climate Change and the imprecations for the u. S. , encourage companies to bring jobs back to the u. S. Rather than off shoring, this is a world of legislative and regulatory change potentially. Four aprisingly them a new administration, it has been tough sledding. They have had to get their own house in order and i think the disappointment of the replacement to obamacare, the fact that there was more work done on the repeal than on the replace has set back the agenda a little bit. For the broader economy, we hope the administration can polson of this stuff together because we need progress on some of these legislative programs. Are you concerned about the u. S. Economy . No, i very encouraged about the u. S. Economy. The dirty little secret here is the u. S. Economy is doing just fine. Fullve we are at almost employment, 4. 6 on appointment rate. There is very little inflation but we started to see early signs, we have been doing to rate increases and expect to have more. The Consumer Debt is a little high but housing prices have recovered from the crisis. State and local government deficits are better and good are better under control. If you look objectively the u. S. Economy is doing fine. Not great, but fine. Next do you think markets are pricing in political risks, are they overvalued . James they are trading at a relatively high models but look at the earnings. I do not know the earnings numbers but they are 10 or 12 . That is pretty sporty. The market look at future cash flows. They suggest a growing economy. In that environment, people are surprised the market reaches all time highs. With the same multiple and the growing economy all day you should every day you should reach an alltime high. That is not a surprise, it is it an expected outcome. Are we getting there because the multiples are inflated or because earnings expectations are growing or because there is a lot of froth in the market and i think right now, i do not see tremendous upside without further confirmation of the earnings story but i do not see [inaudible] that is our exclusive interview with james gorman. We will get you more of that throughout the day. We are minutes away from the open. Up next, we will give you some of the stocks it you want to keep your eye on this morning. One of them that could be interesting, today is the forline day for ppgs bid akzonobel. We have a couple of banks saying that trading was week this quarter. We will have your stocks to watch next. The open in 12 minutes. This is bloomberg. Back to Bloomberg Markets, the european open. I am matt miller in london. The chinese pamir arrived in brussels today. He is expected to discuss trade investment and Climate Change. This as part of what could be a private from german chancellor Angela Merkel toward asia. What is the future for europe and the euro . Services policy chief joins us where he is a speaker at the economic forum. I want to ask you about the german chancellors comments on sunday. That europe has to decide its own destiny and maybe can no longer rely on the u. S. As the partner it that it has been since world war ii. How do you feel about europes relationship with the u. S. Under President Trump . Guest as regards the euu. S. Relations, we have a longstanding Strategic Partnership which is lasting for decades so i think this Strategic Partnership can also survive somewhat Turbulent Times and still, we believe it is important that the western democratic world is cooperating closer among themselves. Matt how do you feel about the seemingly protectionist and that concerned the other leaders at the g7 and sicily last week . Guest the point wasguest mader from the eu site that we remain open for trade and remain open for Economic Cooperation and four other partners to follow similar policies. What othersee partners would take in terms of concrete steps. So far, we have had a lot of political rhetorics, but then we need to see what really that concrete steps and assess our direction. Matt if you look at the that other members of the g7 had last week, ranking top among them was Climate Change and i want to give it to china here. I have that a chart, you cannote it but it is pretty clear, china is the biggest polluter in the world, country in one third of Global Carbon emissions. If you look at it per capita, the u. S. Is a massive polluter. The only bigger polluters in the world are austria and some of the emirates. How important is it that the u. S. Stay in the paris accord . Guest we believe that this is one area where the eu can take a lead globally. We address this decision of the u. S. To leave the paris agreement. We note, however, that legally, it requires certain steps and it takes time. It takes years to quit the paris agreement. This will be one of the topics also in youchina summit, how we can cooperate closer to tackled the Climate Change. Two can you bring those issues together we have discussed . I mean trade and Climate Change. This is not just an issue of pollution. This is a financial issue. The strength that the german economy, for example, has shown because of it Clean Energy Initiative is impressive. Can you also bring those two issues together when you talk about china, clean energy, building up a stronger economy, using that kind of investment . Absolutely. Europes example has shown it by taking the lead in developing clean energies. Many of those were noble energies, clean energies are emotionally viable. They are creating many new jobs. Currently also looking to address Climate Change issues by putting also more Public Finance into the work for Climate Change, for green purposes. Level groups high working on those. Also how we can put Public Finance to support the grading of the economy. Greening of the economy. Matt as far as europe is concerned, do you expect we will see European Finance minister anytime soon, is this necessary . Just yesterday, European Commissioner published its reflection paper on deepening economic and Monetary Union and longerterm a part of the reflection paper, we are assessing the idea of europe area treasury and euro area finance minister. This is a topic which we are putting up for discussion in an way and now we are willing to listen to what member states, what other stakeholders would tell to our initiatives. Way and now we are willing matt ford a lot of europes problems be solved if we had a more federal model for the eu . Yesterday, the reflection paper is andentrating on economic Monetary Unions, this means the eurozone. We are not building a federal model. We are rather concentrating on what shortcomings the current institutional architecture of economic and Monetary Union has. And how we can address it, how we can start the process of convergence in the eurozone, how weekend support countries facing how we can support countries from facing economic shocks, and a stabilization function. How we can streamline social concerns in our policymaking, and a number of other areas. It is a matter of addressing the remaining weaknesses within economic and Monetary Union. As theozone considers euro has been a success, it has had a high rate of approval among eurozone citizens, 72 of the euro area citizens are supportive of the euro, and we must ensure that the euro and eurozone continues to exercise. Matt without we would have a deal on may 22, do you think we will have a deal with the junior group on greece . Do hope so, because from the European Commission side we have made an assessment of greek compliance with Program Commitments and greece is delivering on its side in terms of fiscal targets. Greece is substantially over performing as regards last year and is on track to meet this years and next years primary surplus targets of 1. 75 of gdp at 3. 5 percent of gdp correspondingly. We believe it is time to move forward also for the Program Partners to conclude the second interview and disperse the next tranche. Matt we appreciate your time this morning. Chief coming from their economic forum. We are just matt let us take a look at how markets are trading at the top. I have dies threeday chart. Guys threeday chart. Canftse index in white, you see a climbing a little bit. We saw a positive future to the ftse and very little change for the other european indexes, but we are seeing the blue line is cac, climbing a little bit. We are waiting for the dax to open. It looks like it is opening positively as well. At least, writing after the first trade down. Let us go over to manus cranny to help us sort out these lines of spaghetti. Manus thank you very much. Love you too, in fact. The markets are open. They are batting away an index in china. What is the real impact . Financials are up by. 8 . It. S a mixed opening around Energy Strong this morning, up by. 5 . We see a small reprieve in the oil market. Take a look at iron ore in singapore. We have gone from 95 all the way down again, the big contesting market is how strong in china . Whatever way you cut it up, the authorities are taking the yuan by the scruff of the neck. You have the conversation with mliv. We should be looking at the basket of currencies. Iron ore is the backdrop of what goes on in rio and metal stocks. The pound is never far from machinations. Spot pound in white. Tough to getg it any sort of strong momentum here in the pound. The polls with back showing the at onehad a 15 lead point. As you can see, we dipped into the red. The last time we saw this kind of move, it was 3 lower. A bit like something in las vegas. Fear and greed, fear and loathing in las vegas. The shanghai, down. 5 , the lowest part of that investor and we wait for the european pmis to come out. That will someway verify the president of the the institute told me euro has a multiyear reprieve. I am off to radio with caroline. Matt i wanted to did deeper into the stoxx 600 and see which into the stoxxr 600 and see which movers are pushing the needle. Right now, it is on the downside. The losers on the left. You can see Deutsche Telecom taking the most points off of the stoxx 600 index. National grid as well. Like nestle,ks when we see defensive stocks like this on the downside, it almost makes me think you know, maybe this is a little pauseof the a little or breather that investors need to take because they need to get into something more interesting. On the other hand, one of the winners at the top, British American tobacco, i do not think it gets any more defensive than that. You see bp and total coming back from losses yesterday and hsbc one of the gainers, adding two points today. These are very big stocks, so they are going to always be on one side or the other of this mov screen. Those oil stocks, after crude rebounding from the lowest close in more than two weeks. Industry data shows the u. S. Stock wild extended decline and extended thepiles client. It has been a volatile year for oil and oil stocks. Our next guest has said that he these oild about producers prejoining us now is william hobbs, head of Investment Strategy europe at Barclays Wealth and investment management. Thanks for sticking with us. Why dont you like these oil stocks . Is it that you do not see the underlying commodity price rising . William the way i would put it is that we have not got a candle to burn with regards to oil. We have conviction on other sectors. I think the oil market probably looks like you are going to see an increasing drawn inventories going into the second half of this year. The demand story is part of that purity opec agreement is another part of it. Further out, this looks a fairly well supplied market your that is the point we are making. Curve,look at the cost it has plummeted in 2014, and it is not just shale, where people are talking 35 costs. Even on some of the more complex geology, deepsea stuff, i heard from the bps mad dog two. There are a lot more producers able to make money at these levels than we thought imaginable. The further out, you are pretty well supplied. Matt is that why we have not seen m a action we expected to see . William there might be nerves further out than that. Some of these Oil Companies will have to go through some fairly seismic changes about what they are actually going to do in their daily activities going much further out. There are some people now you saw the imf paper what if instead of a linear implementation of electric vehicles, what if you do a more exponential adoption by society as cars due to cart horses, for instance cars d d id to cart horses, for instance . And that may be getting people a bit more nervous. Matt i pulled up the tesla stock. It is interesting to look at the comp page. I love to put it up against ford and gm to see how tesla has done to compare to these stocks. It has a market cap of that size now, and you can see tesla is the white line. In orange and yellow. It is hard to see because they are so low there. Do you like plays like this . Maybe not talking tesla specifically, because obviously, the pe is off the hook. Do you like plays on things like self driving cars, electric cars, clean energy that is something we have been focusing on as we make for trump to make his decision. William there are two ways to play it. Generally, when you talk about the initial adopters and inventors of Technology Come often they can be very extensive, very quick, and hard to get onto the writing. In into theride. Ride. One of the easier ways people seem to be looking at the industry is how people lose. That seems to be more on the short side than the long side. That is when people seem to be thinking about it. Matt what do you think about the tech stocks . We had amazon bill of the 1000 a share. It is another company that does not make a profit unless it feels like showing you a glimpse of the possibility that they can if they want to turn it on, but , theych stocks especially are on such an amazing run. William we like the tech sector in general. It is kind of a call option on futures and human productivity. The call option is not unattractive at the moment, high teens instead of my 20s. People talk about stocks being expensive, if you have apple i cannot member with the latest multiple is it is not quite expensive. You have an Elephant Learning to dance. There is growth. Topline,at googles all of its top line, that is deserving of a decent multiple. There is a lot of big growth stories. If you believe the World Economy is ok and you look at the recent korean trade data, that suggests, if you look at the details, there is a good story to tell with regard to demand. We may be entering a phase where technology should do all right. Matt i mean, since i moved to berlin, and i am just in london for the week, i look at european stocks. At barclays. What do you think about europe versus the u. S. . It has almost been kind of a sea change as far as Investor Sentiment in the past month to three months. Larry thinks European Growth story is much more promising than the u. S. Growth story. Do you like to invest here rather than there . William we like both. In the tactical asset allocation, our two favorite locations are developed equities in like them an front. The u. S. Recovery is more plausible on a further along him a you can believe it more. That is what the upside story is. It is probably more little bit got a less confidence. There is some things worry about in europe. There always will be. Matt i want to talk about some of those things. William hobbs, we are going to talk about the u. K. Election and possibility for an early italian election, and even the german election may start to stir up some tears. At the st. Are live Petersburg International economic forum. The chairman talks about renewables and energy with all this news swirling around the Paris Climate Accord. Is trump in or out . The chinese want aps of this action. More from our exclusive interview with james gorman. This is bloomberg. Matt welcome back to Bloomberg Markets european open. Thismatt miller in london week, filling in for guy johnson. Dont worry, he will be back. Let us check in on the markets. Gains across the board after a little bit of a lackluster open. We came back from losses for the frankfurt. In the cac up in paris. The for the up most. 5 in london. The ftsehe gainers up for the most part,. 5 in london. The gainers telecoms and utilities down. The defensive stocks are losing today as investors look to make more risk. All day from the st. Petersburg International Economic forum, which kicks off as russia continues the negative effects of the sanctions are the e. U. And thate chairmanere with the of a French Energy company. Thank you. Good morning. It is in the midst of a transformation. You are exiting fossil fuels and embracing renewables. Climate policy is a tailwind. What happens if President Trump pulls the United States out of the paris accord and the agreement starts to unravel . First of all, it will be a great disappointment, because the u. S. Is a very great in co2, very important emissions. Absolutely, i am convinced that in the mediumterm, the movement will not be stopped. To a new energy decentralizedn one. This is due to digitally pollution and also to culturally pollution in the minds of people if one country decides not to do, not to stick to its commitment, all the others, more than 190 countries will go on, the face of this, the corporations will go on and progress. You reporter are not concerned that the policy framework and depending the economics of your Corporate Strategy will weaken . Gerard frankly, no. I am disappointed because the paris agreement, after the cac mores at a historic level, than 120 countries had agreed on a longterm vision of the planet, and for our children , that was very important. It is a pity to see the u. S. Doing that. Reporter it has not happened yet. Gerard no, it has not happened yet. The government, the state, of course has that essential role. But all the other stakeholders in europe have also their own decisions to take, and all the u. S. Corporations which consider reducing emissions is a duty we are continuing. Reporter here is another question about Corporate Strategy. Ngie and, the idea of e germanys iw arre combining makes so much sense. You have had to consider this. What are the pros and cons of such a combination . Gerard i will not comment on that rumor. I will not comment on rumors. Perhaps i could tell you what is our strategy. Onave no comment to make iwre, which is a company i respect. Reporter if you think about that idea in principle, what is attractive about it, and what is not attractive about it . Gerard im sorry, i will not into the question. Our strategy is to become the world leader in energy transition, which makes, in on which we want to build our future. Is power pillar generation, renewables, and natural gas. Natural gas is part of the energy transition. Secondly, second pillar, and natural gas third pillar, customer solutions. Energy solutions. Reporter does consolidation make all of those three pillars stronger . Gerard um, i do not want to comment on that. I do not have the right to do that. Reporter france has traditionally taken something of a corporatist approach to the states role in industry. Now, france has a reformist and more freemarket president in president macron. Would you welcome the move to mr. Macron to reduce the state holding of engie . Gerard i do not know what role mr. Macron will do on that. We have a very young president , a very businessminded, businessoriented, probusiness president , so we welcome that very much. Now, he has a program that he will reduce the state that the government has in reporter in a number of companies. Investments. Eate reporter do you want to see that they produced . Gerard you know, we are managers. Shareholders make their own decisions. That will be the governments decision. Reporter about the gas market, yours relationship with russia, as you will mail, has been strained by the conflict in crimea and the middle east. Gas prices remain low. How can you explain that . How long can it last . Gerard i think it will last some years. Why . Because, you know, there is a gas in the gas market. Online. A is coming europesumption in has been declining because of efficiency. U. S. Is now producing. In the u. S. Market, natural gas is still three u. S. Dollars. 2008. 12 in so the prices are low. Nevertheless, we consider, that in the long run, the prospect for natural gas the prospects are very good. Depending on the world, we see the coal declining strongly. We see oil declining significantly. And natural gas to keep to maintain its share in the Global Energy mix, will increase natural share will increase market share. , generation hydro will increase. Gas will decline strongly. Reporter matt, that was the at the st. Engie petersburg economic forum. See you in london. Matt thank you, eric shafter in st. Petersburg. Sophie kamaruddin. Kicking off with barclays increasing the size of the state and selling in its south african unit. The londonbased lender is equal to a 33. 7 stake. It has previously planned to sell a 22 stake as part of a plan to shrink operations and bolster capital. Deutsche bank is stepping up hiring for its asian wealth and management business. Multiyear of its expansion to bolster a unit that has lost Key Executives and assets in recent years. 50 clientlans to add facing positions, including relationship managers, after hiring 14 and blow his last month. That is your Bloomberg Business flash. Matt thanks very much, sophie. Theresa mays decision to skip a televised Election Debate threatened to rebound on her as other Party Leaders lambasted her absence, saying it proved she is unfit to lead. She is not the Prime Minister. The Prime Minister is not here tonight. She cannot be bothered, so why should you . A brew. Make yourself you are not worth theresa mays time. Do not give her years. Is aboutship understanding the people you represent. It is about being prepared to learn. It is about not being so high and mighty that you cannot take it rise. It is also about bringing people with you. It is also about ensuring that your responsibilities to protect the safety and security of everybody in this country and to lead a government that cares for everybody in the country. A vote for anyone other than jeremy may is a vote for corbyn and that coalition. Our government needs to be at its strongest to take us through brexit. It is only theresa may that can deliver that leadership. Still with us, william hobbs, head of Investment Strategy europe at Barclays Wealth and investment management. I noticed on his mliv blog this morning, mark cudmore said may is doing her best to lose this election. But none of the other candidates are managing to inspire a significant chunk of the u. K. Population. How do you think this plays out . I should be wary of trying to make too strong a political forecast. Polls,ut you read the and that gives you absolutely no direction. Right . William no direction. The victory the polls implies is large enough to overcome any statistical error. You are still the books seem rightly placed in that there will be a conservative majority, probably a smaller one than made planned on. We can get carried away with the political analysis in here. Markets may not matter that much. From brexit perspective, we would argue that, you know, a specific form of e. U. Assessment is not through the government anyway. Facty be decided by the that there has to be an explicit downside. On the other side, they probably do not want to trash a Major Trading partner. Lizahere in between that brexit budget deal. That is probably the dominant factor. It is becoming a motto of this show. How does the boundary at the pound react to that inevitability . William by now, we have low conviction in currencies. The multiyear view i think sterling sticks out as pretty cheap. If you had that, it would be sterling would be somewhere near somewhered renminbi near the bottom. If, for instance, you got a labour government, there is all sorts of conflicting forces that might be put on the currency at that stage. You get a softer brexit and there is more fiscal spending. Is there going to be deficit spending . Will that be good . Inflation, the can of things . That is consideration you need to take into account. It looks like a conservative majority, just a smaller one than planned for. You may see the resignation of theresa may, which would create more currency uncertainty, so that is way, technically, we are less confident in the direction of sterling. Longterm, it is evidently, to us, underestimating the fair value. Matt we have certainly seen baltic up there. Ofliam hobbs, head Investment Strategy europe at Barclays Wealth and investment management. Up next, u. S. Rate debate. The dallas fed president , Robert Kaplan, stick to the Central Banks forecast, while John Williams says a fourth hike would be appropriate if the u. S. Economy strengthens. This is bloomberg. Matt topline troubles. Tells usanley ceo secondquarter trading revenue 10 , pace to drop at least echoing similar concerns from j. P. Morgan and bank of america. We will bring you James Gormans outlook. Polar opposites. President trump is said to lean towards pulling out of the land barth paris climate agreement. His decision, tonight at 8 00. Plus, a noshow. Theresa may gets lambasted by other Party Leaders for her decision to skip a televised debate. Will it matter to voters . Have traders already priced in a may majority . Hello, good morning, and welcome to Bloomberg Markets european open i am matt miller. We are 30 minutes into the trading day. Let us see how things are shaping up. Gains across the board. Futures. Icture in we did see strong asian trading as well. Now, you see the ftse up. 4 . The cac up. 3 . The dax up. 2 . Let us talk about the u. S. And focus in on the fed. After a string of speakers this week, Robert Kaplan has stuck to his outlook for two more interestrate increases this year. He said inflation will slowly reached 2 , and the central bank should tighten its policy patiently and gradually. I still believe fed funds rate should be the primary policy tool, and letting this Balance Sheet runoff it should be happening in the background. Having said that, i am sensitive that in the early stages of this, there will be a lot of market sensitivity, and we are going to have to take that into account and manage the choreography of how we manage fed funds rate as well as the Balance Sheet. Matt meanwhile in seoul, the president of the San Francisco fed said the u. S. Economy is doing well, and if it strengthens, four rate hikes would be appropriate this year. The beige book sees the economy advancing at a modest to moderate pace. Still with us is william hobbs, head of Investments Energy europe at Barclays Wealth and investment management. Speakers we got at the beginning of the week, it seems they are getting more dovish. Lael brainard said if inflation doesnt pick up, they may have to change their course. Williams on for four rate hikes. Williams calling for forming rate hikes. What is going on . William the growth data is ok. We are seeing that coming in. The beige book is talking about it. You are not seen much evidence of checkout inflation through the pc data was pretty soft. Now, there is transitory factors in there, but generally, the headline inflation recorded a was not forcing the fed or the bond market to do anything to wild. Intermediate price pressures are picking up. You look at ppi and put prices and they show that price pressures should be picking up. You mentioned the beige book, and there is a dimension of labor shortages which are multiplying in that book. The prospect of more wage pressure should be coming through. Matt but it should hit . William it should at some stage. Matt to be fair, we have 2. 5 wage inflation, stronger than we see here. William there are other factors going on. I think the point, you know, you would make is that the u. S. Economy looks ready to handle more Interest Rates, and they have some way to go to reload the monetary gun anyway, so they probably want to get on with it. If you look at the fed futures curve, out to jan 20, you have three more hikes priced in. That seems way too meek. The bond market has somewhere to travel. The interesting thing about the bond market at the moment is yesterday, you had that forced release of the chicago pmi, saying it was down. And then they changed the really said that it is a threeyear high. It did not matter. In a sense, you are seeing there is bond market balls that are not throwing out the towel just yet. On market bulls that are not throwing out the towel just get. This is a big debate at the moment, isnt it . The first point to make is valuations. They are not that important. If you look at trying to explain the moves of the s p over a 1, 3, and fiveyear period, valuations seven valuations explain the moves. Five to seven years, you are looking at a fairly odd percent of the moves being explained by valuations. Your shortterm problem is how do i decide what valuations are appropriate . Most people look to history, but how much history do i incorporate . Do i incorporate the worst recession in living memory . The last 50 years, when i look at the 1970s . And then you look at 100 years, and then held comparable is how comparable is it . It is a much messier debate. I think it is muddier. In the context of earnings, it looks like were not expecting valuation multiple expansion from here. Probably see a bit of traction. Dividend growth and yields should give you plausible, nice returns from here. Matt it is a fascinating debate on valuations. William hobbs, thank you so much for that. He is head of Investment Strategy europe at Barclays Wealth and investment management. He is going to stick with us. If you are a bloomberg customer, and you want this show, you can use tv on your terminal as a means of interacting with us. Any of these panels here, interactive tv, radio, and event coverage, will get you deeper into the terminal and at least the first to bring i know will give you the first two will give you a blue link. You can take part in the show and see more of what we do. You can see all of our charts of have a rolling ticker News Headlines as well. Next, more from our exclusive interview with james gorman to read his take on Good Housekeeping and why he is cleaning up expenses. This is bloomberg. Matt welcome back to the european open on Bloomberg Markets. I am matt miller in london. We are seeing gains across the board in stocks and european stocks. The indexes are all up with the ftse the strongest. Let us get to our top stocks stories. For that, we go to nejra cehic. Nejra my first stop moving on potential m a move. It is really extending gains, up. 3 up 30 at the open. A person has said softbank has entered into talks are a possible deal with in my set inmarsat, one of the best performance on the stoxx 600. And i am looking at barclays. We heard yesterday that barclays will sell 100s 187 shares. The africa stake sale has been approved by south african authorities. The point of it is to boost capital, so we are seeing barclays move a little higher in todays session. Finally, i am looking at bingo popular. Banco bankse considering the sale for 55 cents per share, below the initial target, by the way, of 1. 2 euros per share, set executives,ar according to the reports. They are selling a stake for 65 million euros. The sale impact is not material for capital or earnings, probably why we have not seen a lift on the back of that specific news. This bank has been struggling. If you want to know more about it, there is a great summary about the implications for spanish banking. Matt thank you very much. I will hit it. I want to get you bloomberg first word news and Sophie Kamaruddin has that from hong kong. There is no sound from sophie. We will get back to her in just a bit with your first word news. By now, we want to talk about something we talk about a lot here, and that is morgan stanley. How they are doing. It has been a really hot issue. A lot of the banks have said their trading revenue will be fairly weak in this quarter. Let us get more from our exclusive interview with Morgan Stanleys ceo, james gorman. We are well towards the goals of that, but we will continue to be disciplined in managing expenses, but i would not see that as a core strategic driver. It is frankly Good Housekeeping. Part of that was coming out in a fixed income trading. Earnings have been pretty strong. How did you manage that with your staff . Business,is a tough fixed income. It is probably the most volatile business any Investment Bank has. It is one of our smaller businesses it with the amount of Balance Sheet capital and expense against what we saw in the revenue opportunity, they are out of balance. We made a very aggressive move. At the end of 2013, i think it was, to cut 25 of the head count. Our target was 1 billion a quarter. I frankly do not put too much stock in that and i am more interested in how the business performs over the longterm. If we consist me generate 1 billion in revenue quarter, we will improve the concept of what we want in terms of their business. Is that a template for other parts of the business . Their every business has own economic drivers to 12 management is essentially a has her own economic drivers. Skillbasedop business. It is critical. Capital markets are about placing distribution, brand capability, and experience. Alibaba, facebook. These are huge transactions you cannot think. You have to look at each business and what are the economic Drivers Behind its performance. In fixed income, Balance Sheet, capital, headcount, all of those things had to be put against the revenue opportunity. Is this further scope for headcount reduction . I do not think so. We have 55,000 people, so on any given day, there is ins and out s. I just got an email from our new summer interns. We have 1300 summer interns starting this week. I am addressing them next week. We will be bringing in over 1000 analysts and associates fulltime. We are constantly looking for talented people, but the basic reshaping of the firm that is that has taken place over five to eight years, that is essentially done, and we feel good about that. , still withm hobbs us. About not specifically about morgan stanley, but in general. How do you view banks as an investment, both here in europe, and in the u. S. . William that is one of our favorite sectors. Financials, industrials, amtech are being singled out and tech are being singled out. The Interest Rate stories key to it. If you look at european banks, the overwhelming majority of is interest income. We need the yield curve to change its shape. We think that is happening. In europe, the ecb has got to move. It will probably Start Talking about it at the next meeting. Matt do you expect the change in the emerging june . And the activity next year. There seems to be some difference in opinion. Have got some sympathy with this. That seems to be the bit that has punished the bank the most. Rather than doing his own bridal rather than doing it hanzel go to the banks first pure there are banks with variable rate mortgages. Mario draghi has made it clear he does not want to do it like that. William that means you have a bit longer to wait. In european banks, you have had a very good recovery. There are those in february last year. Valuations are not anymore ridiculously out of sync, so youre looking for the earnings story to come through. We may have to patient for that, but the economic backdrop in europe, record highs. The pmis, generally. The activity data is following through in your. That suggests the backdrop will be helpful to the european bank. Matt will brexit be a difficult the for the financial stocks . William potentially. There are disruptive scenarios butcould have with brexit, generally, you know, we have got to remember about the u. K. Is an important part of europe. It is a regional player in the scope of europes business in general. They are insulated from that. It concern you as an investor if these banks have to suddenly move offices are is that not a big enough expense to bother you . William it depends on how much you are in we are talking about the london move, i guess, and it depends how much operations, they have to move. Thatour opinion is a sense london is a Financial Center, and the primacy as a Financial Center predates the industrial revolution. Regimes. Rvived many englishspeaking, common law tradition some of these kind of things. Very good institutions and a clustering of associated services that is not replicated anywhere else. New york seems to be the plausibl place for forle plausible ways businesses to flee. With regards to europe specifically, a lot of them were troubled banks are mainly domestically focused the more troubled banks are mainly domestically focused. That will be hopeful on the nonperforming loan situation and help force the yield curve higher and help profits. There are generally more things going in their favor that against. Matt does the npl parliament for for banks give you a bargain . Do you go does the npl problem in florida banks give you a ball and william there has been authority in speeding up Civil Justice and some of the associated measures, and that is helpful. There is much more work to do. Italy, the political system suggests you will not get anything done until you saw was going on there, and there is a lot of work to do. The italian recovery will be more sluggish compared to the rest and that will continue to be a problem in the nonperforming loans. Matt it has been a pleasure having you here with us today. William hobbs, head at barclays world and investment manager. He will join me on bloomberg onios daybreak europe live london dab digital after this program. If you have any questions, go ahead and click on tv. Touch the blue link and message our producers. You could also just i. B. Personally and i will ask william. Of next, climate quittedr . The u. S. President will announce his decision on the paris accord. We cross to berlin, next. This is bloomberg. Matt welcome back to the european open on Bloomberg Markets. I am matt miller in london. In paris, we are getting the pmi numbers. French manufacturing pmi coming out a little bit weaker than the survey. We were looking for a reading of 54, and we got 53. 8. It is better than a stick in the eye. You are not seeing negative reaction from markets. Let us take a look at how markets are shaping up. We are up across the board when you look at the indexes. If you did down into the individual stocks, you see a very interesting story, especially on the downside. Here, you see the gainers. B. A. T. And nestle up right now. Points adding to index to the stoxx 600. If you take a look at the laggards you see defensive stocks. Telecom deutsches telecom. They are buying into pretty much everything else. Those are the only two groups down only stoxx 600. Here are some of the highlights for your day ahead. The st. Petersburg International Economic forum is underway in russia. We will continue to bring you a host of exclusive interviews from that event. Also today, the chinese premier continues his trip in europe with meetings with Jeanclaude Juncker in brussels. Have a. Get gdp data something to watch for as they are mired in scandal. That is with president michel temer. We will keep you updated on the economy as well. Back to china, that nation and the European Union plan to commit to free trade and the Paris Climate Accord in a sweeping rejection of President Donald Trumps protectionist policies. That is according to a joint draft statement that bloomberg got a hold of. Ahead of the brussels meeting, Angela Merkel met with premier lee in berlin. Joining us from berlin is alan editor. , the government are we expecting merkel and lee to discuss that trade and the climate . Are signing business deals as well. They have a lot of business to be done. They are arranged a long time in advance and will sensibly, it is ahead of the g20 summit, which germany is boosting in hamburg and july. It is taking on a huge amount of added significance given the events of the weekend, g7, and the announcement that we are on Climate Change. So, free trade, but specifically climate, i would imagine are the biggest issues on the table today. Matt we have almost seen kind of a new world order shakeout since that g7 meeting in sicily. How has this week shaped up for donald trump . Well, i am not sure to what play intose events his calculus. Certainly on this side of the anantic, we are seeing acceleration of the agreements of the common values being expressed between india, germany, and china, and the e. U. As a whole is specifically on Climate Change. There is an opportunity to capitalize on the green , and whichtechnology china is developing as well. From theuite apart climate consequences of any decision to pull out. Matt thank you so much for your coverage, and on crawford ala n crawford. We are getting economic numbers out of germany right now. And germanyme manufacturing pmi data coming out. Weis actually stronger than have been looking for. City 9. 4 these are was the survey. Bloomberg television have surveillance. I am going to london dab digital radio. This is bloomberg. The secret is the u. S. Economy is doing fine. Update loomberg his upbeat about the u. S. Economy. Meanwhile, the u. S. Weighs stay with the paris agre