Transcripts For BLOOMBERG Bloomberg Markets European Open 20170718

The pressure of her treasuries continues to widen and getting good momentum back, novartis ceo tells bloomberg about the improved outlook for the outcome unit. Alcon it gives them more options. Performings is better than anticipated. We are going to get an analyst opinion on this stock at 8 30 u. K. Time. Less than half an hour to go until european equities open. We have already got what is an interesting future story developing. It is picking up from what we saw yesterday in united states. Naked this morning, we saw a selloff post the failure in its current form of the Mitch Mcconnell bill to replace obamacare. It isnt going to happen. What happens next, market is still conjuring and trying to extrapolate this. Does oppose a problem for the rest of the trump agenda, what does it mean about mr. Menu shoulds ability to avoid a debt ceiling. Lets move on from there and talk about what we are seeing around the world because the aussie story is interesting as well. Talk about the gym this morning, the function. Big down day for argentine yesterday, but australia, up 1. 44 . A solid performer of the next past few days. Yield differentials are where the story gets interesting. The bloomberg dollar index index down. 4 . Keep an eye on the euro s1 well. Australian equity market down by 1. 2 . The aussie bond market on the move, there is the front end of the aussie curve, yields climbing. Something to Pay Attention to. European bond market interesting as well. With what is happening in with greece. As far as commodities, not a big in u. K. Net gas. Lets catch up on what you need to know. Heres the first word news with juliette saly. Chinas banking regulator has told some lenders to lower the rates they offer and Wealth Management products. Banks including been lenders big winners lenders. The move comes as officials try to reduce risk and stimulate the economy. Chinese home prices surged in smaller cities in june, even as property curbs dragged values in larger ones. National bureau of statistics said new home prices, excluding subsidized housing, grew in 67 cities. They rose in smaller cities. Highlighting the challenge for authorities trying to limit double risk. The u. S. Has said iran is complying to the deal to curb its Nuclear Program but continues to be a malign influence in the middle east. Meanwhile, the foreign minister says his country remains committed to the 2015 and agreement cannot produce nuclear weapons. Iran is committed not to produce nuclear weapons. That never expires. Castro in dollar jumped to a twoyear high after the rba said the nations economy was improving. The minutes of the Central Banks july meeting estimated a neutral Interest Rates about two Percentage Points above the Current Record low level of 1. 5 percent. Australias easing policy has sent house prices soaring in sydney and bell been an encouraging residential construction. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries this is bloomberg. Guy thank you, juliette. That skipped in the main subject of last 24 hours. Obamacare replacement bill, looks dead now. Two more republican senators announced their opposition to the health plan. Which mcconnell said he will instead seek a vote on a simple repeal, but this is almost certain to get blocked as well. Lets take it to the Market Reaction. We are joined from singapore. The Market Reaction is not just about health care, is it . What we are seeing is in establishing an extrapolation of the republican party, which controls every lever of government and its inability to get anything done. Extrapolate this out for us. Which dots are being connect by the markets . Failure, basically. Investors in the u. S. Dollar looking at this and saying, is there anything they can get done . There were so many promises at the beginning of the year, some of you expect nations and so far, very little has been produced. Very little has been an active. Sign ofyet another major failure from u. S. Policy. Such a contrast from the optimism sweeping run europe. Reflected in the u. S. Dollar. Absolutely crushed today. Guy are getting to the point this is getting slightly overdone . And thiste possibly, is a good week to find out if we are in that situation because the ecb meeting on thursday was already a big meeting and it has become absolutely huge. Turn thisg can around, it would be a word from mario draghi. If you are a dollar bear going into the ecb meeting, youd will have an interesting day. Why are we buying treasuries . Well, if they cant get these things passed in united states, it probably means things like infrastructure cant get past. Maybe the tax bill is never going to get done, either. Any stimulus to the u. S. Economy is not going to come because of what the white house is doing. It will have to come from somewhere else. There is no need for them to worry too much about inflation from the area. Guy clearly a big move in the aussie. Cadaw some catch up on the story in the bond market. You see that working its way through the market over the last week. How much more run do you think the aussie has to go . Statesferential the as is growing and it seems the rba is a little concerned, but how much more can this be pushed . The handseally is in of the rba. If they dont come out and tell the market this is overdone, but we want the currency back down, it to go a very long way. The u. S. Dollar is just so weakened the aussie looks like a reasonable alternative, plus today, the Interest Rate market seems to have decided that that the next move from the rba is a hike. Putting those things together, it is in the hands of the rba. They need to knock back down if they want to. Guy mark, thank you very much. Mark cranfield joining us from our mliv team. He is a macro strategist there. It is an ongoing blog that circles the world. s to watch this week with big numbers being reported. Pick events coming up. Mark was mentioning the ecb, that will be one to watch as well. Reporting numbers on friday. If you are a bloomberg customer, tv is a fantastic functionality. This is the landing page. Tv, radioractive events coverage coming up as well. A featured event here, treasury upstions, policy russians front and center. Does seem that theresa may tries to find position to reassert her authority. Also, the mostwatched videos down here. Happening at is about what is happening with tom keene. Some of the mostwatched videos on bloomberg. Up next, live in sydney. Why is it looking up down under as the aussie dollar surges to a twoyear high. More and that story when we come back. This is bloomberg. Guy 7 42 in london. Lets get another Bloomberg Business flash with juliette saly. Guy, shares and toshiba have soared in tokyo trading as Green Light Capital revealed its stake in the conglomerate during the second quarter. To rm is wagering toshiba shares will rise once it exists contracts tied to westinghouse. Quarters second profitability and sales have come in weaker than analysts estimated. Closely watched growth margin margin shrank while revenue in the three months into july fell 7. 8 . It highlights the challenge facing the ceo who took over six months ago to improve performance. Ethics has scored a record secondquarter, surpassing expectations and boosting subscriber totals. 500 million subscribers in the second quarter, 200 million more than forecast. Or than 4 million of those new viewers can from outside the u. S. Shares surged in late trading. Citigroup has settled on frankfurt as trading hub in the european union. Bank plans to present that option to its board of directors this week for approval. They said the choice to expand the banks existing brokerdeal in germany will create between 150 and 250 new roles there. Lufthansa has raised financial forecast after up operating profit doubled in the first half of the year. The airline said adjusted earnings before interest and taxes in 2017 will rise above the previous year. That topped earlier productions the measure would be slightly below. That is your Bloomberg Business flash. A guy . Guy juliette, thank you. There is little chance of a quick fix of the gulf standoff over cap are with countrys they want a solution that will stick. Uaes Foreign Affairs minister said the fournation bloc wants to know it can be trusted and is transparent. A says they are ready for process that could take a very long time. Weeks, months, as long as it will take them to realize that this is not a crisis that we are looking for a quick fix. This is a crisis we want to get to the bottom of and we want to take away qatars huge support for this extremism and terrorism we are seeing. We need a solution that will stick. We need a solution that is longterm. The gethe uae, more analysis on this story. Lets speak to yousef gamal eldin. It sounds like this is turning to a war of attrition. Yousef that is what it is looking like. He will notice from the comment, but in terms of progress. Of should,ed, a lot but very little around progress. They are insisting qatar needs to reexamine its position when it comes to its support for alleged support of terrorism and financing extrusions and extremism. We didnt hear any further escalation, which the market will be kinkier. It kept the options open they could it add additional sanctions, but nothing six the specific. The other element to see here is that turkish troops continue to arrive entire that qatar and are pushing onwards despite objections from the saudi led bloc. What is happening politically. Give us the economic reaction to all of this. How would a long, drawnout process affect qatar in terms of its economy. How would the market react to that and how with the market react were broadly around the rest of the region . In terms of the Broader Market pulse, you are seeing traders pricing in the scenario for this to be drawn out. That could be arguably a good outcome, that there is and a further escalation, which at some point, appeared to be the case or at least not imminent escalation. Atari stocks have continued to rebound, a little bit slow on profit performing, but it is no longer worstperforming in part of the world. It gives you some context of how traders feel. Also if you take a look at how the traders expect the qatari reality to trade reality to trade real to trade 12 months from now. Where weou a sense of are at with the latest moves. Guy yousef, thank you. The latest issues surrounding qatar. Buts move on. Lets talk about what is happening in australia. A twoyear high, this after the rba says the economy is improving. Also estimated that the Interest Rate would be around 2 points above the Current Record low level. Joining us now is dilbert michael heath. Bloombergs michael heath. Michael, lets talk about the Market Reaction. I. E. , the currency. You anticipate the already rba will be comfortable with this and if not, will it react . The markets certainly like the more optimistic tone and in particular, the r. B. I. Removes rba removed some of its Downside Risk compared to times past. There is still he waited go with cash way to go with what is going on in terms of policy in australia. We still have weak wages, we havent got much inflation, but the rba willing to see more of that. As to the dollar, the last thing the central bank would have wanted in fact, they were counting on u. S. Federate brackets rises depreciating the australian dollar. Theave had three rises and aussie has gone up. They are a bit confused about what is going on the moment. The market likes what it saw. I also think alike the mutual rate discussion because the thinking was they extrapolated that 3. 5 , talking about it means maybe policymakers are discussing hikes and for the net, just showed how loose policy is now and how they do that is the perception which fuels the dollar. Guy can we come back to the issue of the dollar. In a little more detail, do you think the rba clearly is looking at the currency and thinking, maybe this is a factor that we can live without. Appreciating currency is not the Central Banks prime outcome at the moment. These think we get a commentary now from elsewhere within the policy establishment saying just be a little careful, dont over interpret, maybe we need to finesse the argument around this. Kind of walk market back in little bit . If we dont, and we talked about this earlier, the market may decide that is another green light and we can actually take this one step even further and see further appreciation. Governmente deputy used to handle the markets is speaking on friday. It is almost certain he will be asked and at least mention the currency in his statement. I expect that will make feelings known. Even when it has risen, they have hedged bets because Commodity Prices have gone up and the economy has looked a bit better. And you start to approach, it is significant and they are relying on tourism and education and all of these Service Exports to tide the economy over after the mining boom. You put out the currency on that, it makes evident much harder. I expect weezer later in the week from policymakers. Guy michael, great to hear from you. Michael heath joining us out of sydney on a big move in the currency following the rba. , a look at the moves in todays trading. Novartis one to watch out for. A drop in secondquarter profits, less than analysts expected. Also, good news on alcon, which is great to hear. We need to watch ericsson, as well. That could be a massive mover in todays trading. The market open is eight minutes away. Stocks to watch next. This is bloomberg. As we approach the market open, lets talk about stocks on the radar screen this morning. Of our kiss, we were speaking to the ceo earlier in the program. , seems to be in a better place. Couple of highlights. One is alco, which has been put up for review. Numbers better than anticipated, which gives management Better Options when it comes to that business. Keep an eye on alcon and novartis. We will be talking to an analyst to get his take on whether we should be thinking about this business breaking up or sticking together. Ericsson is another company. A new ceo for around six months. Numbers havent disappointed. Pretty much all across the board. Questionsing to raise about strategy, about whether he has the ability to deliver for this business, whether or not we need a different strategy Going Forward from here. Stock is called sharply lower this morning and on a when your come already down by 5. 36 . Aboutw ceo in place for six months. Flying higher, the fonseca, the german lufthansa, looking good and much better placed than it was a year ago. Plagued by strikes. Another interesting sidebar on this story is we continually get headlines at this point about people tomiciling frankfurt, one of the Main Operating hubs for lufthansa. It seems marginal but every little bit helps. Frankfurt is going to become one of the more frankfurt Global Financial hubs. Look at the Stock Performance over one year, up by nearly 85 . European markets called a little softer. Interesting stock stories out there. This is bloomberg. Remember, the legacy from the states, not exactly great. The story surrounding health care did throw the markets and to reserve on the equity front yesterday. We were down a little but yesterday in the u. S. , certainly we are not expecting ia great open this morning. The ftse 100, down, 0. 2 . The dax, a little softer than most. Stocks tow watch this morning. Keep an eye on ericsson. Lufthansa, a slightly better open. Slightly positive news coming from barclays. More broadly, just in terms of the numbers, they look like they outperformed ok expectations. They have definitely done better. The European Market is just about to open. We are anticipating a soft start. 74. 04. 100 cannotftse make up its mind as to which way it will go. Other European Markets are expected to be down similar amounts. You might get a little bit of an underperformance from the tax this morning. Couldfthansa account affect that. Down 0. 2 around europe. What else do we need to know, manus . Manus the debate is this. You could potentially lose momentum from the House Health Care bills. Could there be a surprise in the second half of the year with regards to tax . Yes, equities are lower. There is a little bit of risk of sentiment in the market. Larry fink is warning on global growth, of being 2. 4 . We wait for the u. K. Inflation data. Industrial down 0. 2 . Financials, down 0. 3 . The 800 pound gorilla in the room is the euro. Here is where the top of it was in 2015. Here it was again in the latter part of that year. Socgen says you could retest the 2016 level. Reflecting back on the conversation we had back on daybreak. Lawrence doubts the ability to tweak in this next round coming from the European Central bank and the discussions on thursday. Little i. B. Hat darn the world is tortured by i. B. If you stand in front of it long enough, it disappears. This is the giltbund spread. We went for the various inflation details to come a today, but if you believe in a slowdown in the u. K. , no rate hike to come from the u. K. Nomura with still say august is live. Nomura is with us this morning. Gilts will be the winners, but what does that do to the compression of this spread. We are tracking between the gilt and bund spread. Can that compress further . Gilt yields open this morning at 1. 28. Talk about what is happening with the move screen. I have not seen a price on ericsson yet, which im intrigued about. Imsorry about that. A Fertilizer Company ironically, is trading down by 6 this morning, missing estimates. Onm yet to see a price ericsson, but look at lufthansa. The market call that stock higher this morning, but it is trading down by 2. 3 . Lets move to the other side of the fence l and show youa what isn going on. Britishd up by 2. 73 this morning. 2. 0 3 . Ish land up by nericsson has just opened up. Lufthansa, down by 7. 47 . 7. 5 on then by back of its disappointing outlook as well. Morgan stanley expects the secondquarter earnings season to be the consensus stateside with reinvigorated faith in the from policies. Faith in the trump policies. Lets take a look at the key earnings. Bank of america and Goldman Sachs both announced the numbers. Wednesday, morgan stanley. Thursday, visa joins the course of financials. We also round off the week with General Electric as well. So, full range, in terms of the story this week from tech to financials to engineering. The chief Investment Officer at saxo bank is still with us. The expectation is that the Trump Administration can pull something off. The republican party, with all the levers of power at their disposal cannot get it done. , he is one of the reasons why it is difficult for the republic to stand behind him. That is creating this animosity and these fringe gop guys better joining the other side. Overall, this is terrible for the tax. Dont forget, you need obamacare to be adjusted to get some additional revenue to take into the tax reform. This has wideranging applications for people who are Still Holding up the card that says trump reflation trade. I think he is becoming more dangerous. Unfortunately, he could be looking for his victory overseas, rather than domestically. Guy lets back up and start with health care. Health care was always going to be controversial and difficult, particularly when the headlines scream, we are lowering entitlements. We are taking away your ability to access cheap and Affordable Health care. That is something that is politically difficult to do. Can i isolate health care and say, the mistake they made was going after it too early in the administration and not prioritizing things like tax reform, which would have been an easier win . And letave it there. Do i have to extrapolate . Should i just say, i will put that in a box. The administration can do that as well and move on. That would be very nice, but ofis not practical in terms politics because you need the Additional Savings from obamacare to use in the tax reform. You had this move first on the health care. Basically, the amount he wanted to cut in taxes had to come from the obamacare appeal. Now it is not happening and he looks like he did a huge political suicide to some extent. Guy do you think life will be tough for Steve Mnuchin Going Forward . The big question coming onto the radar screen almost every day, the issue of the debt ceiling. That looks like it is increasingly on the radar. You wonder whether or not, with dysfunctional washington, the probability of a failure to get something done and some sort of problem around the treasury market emerging. Well, we have been there before. I dont think it is a major issue. I think it is far more of an issue that trump is unable to move the agenda forward. It is really based on the fact banks are up 30 since he was elected based on the fact that there was going to be reflation. The yield curve was going to march massively more steep. Look at the incoming data. It is going to get worse. By the end of the year we could have the u. S. Facing recession low rates. We see the adjustments already happening to q2 core. We started at 4 and now we are at 2. 6 . If you look at the lending numbers, they are collapsing. If you look at inflation numbers, collapsing in the u. S. Guy is that slightly overplaying it . Are they collapsing . They are collapsing. The huge move in cpi is coming down. You have gold, down 7 over the year. Orrgy has moved down to 5 6 right now. This is correlated to the higher inflation rate that the numbers that ms. Yellen look that. Here. 1 inflation guy the markets have one price hiked in. It cant happen. Guy the fed has got four. The fed is always wrong. I have a labrador dog that does a better job of predicting rates. Guy you should bring that labrador in. Lets talk about what that means for the u. S. Dollar. The dollar has come off pretty sharply. We are looking at positioning off the back of last week. The leverage funds were short, when it comes to the dollar. Again, is that overdone, for does the dollar have further to go . We know how that ends. That doesnt end well premuch prettyy much in any cycle. You have effect that technically the dollar has been trading very weak. And incoming data. I think shortterm, i dont know, but mediumterm, the dollar will be weaker. I think we will be able to argue that we have seen the high for the dollar early in the year. Guy lets come back to the u. S. Data. Thexpectations of being pretty much ground down for the u. S. , to the point at which that is now happening. Your expectation is they get worse from here . Yes because the primary driver of growth in the u. S. Is the credit multiplier. And if you look at the credit impulse, it is falling. It has gone to 1 to 2 . Demandon comes from net lending, and that is coming down, despite the reports from some of the financials. The fed data is actually coming off. In an economy like the u. S. , where we are 66 off the consumption, look at the Retail Sector of the u. S. Holiday. Possibly because of the internet. Look at car sales in the u. S. , it is also on the defensive. The only things that remain very high in terms of survery in the u. S. Are survey. I. E. , people who ask, mr. Johnson, do you feel better or worse than you did yesterday. Guy i will say, ask steens labrador. If you are a bloomberg . If you are a bloomberg customer, you can watch using tv. There is yousef on the show a little bit earlier. Up next, plenty more on these markets. We focus on the ecb as well. That could be one of the biggest events of the month. This is bloomberg. Guy 1 minutes into the4 cash session. 14 minutes into the catch session. The equity market moves are not going anywhere ina hurry. We are not looking at exactly big drops, but we are down by a little bit. Lets show you what is happening within the individual stock stories. Here is the move screen. Ericsson is down by nearly 9 now on the back of those numbers. Lets change this two Percentage Points and see what else is on the move. Yara, pretty aggressive. Lufthansa, i am fascinated by this move lower. Lufthansa, trading down by 3. 5 . The earlier calls we saw were for moves up 1. 5 to 2 . Isthe up side, connecticut up. I. G. Is up. Fraport is up. But the big loser is ericsson. Lets turn our attention to what is happening in the u. K. The Housing Market is expected to cool as uncertainty around brexit hits the market. Inflation is going to slow to 3. 7 from 7 last year. Many argue this is a good thing. This reflects the wider economic picture as inflation and brexit take their toll on consumer spending. 9 5umer data is due out at 0 a. M. London time. Us onjakobsen, still with set. You have in the past been positive on pound. Do you still feel that is justified . I think to some extent, it is. Ultimately you get a solution, but the earlier talks are not encouraging. The eu is pushing back on the u. K. To be more serious about what is going on here. At the end of the day, we will have a compromised deal. The Economic Data is looking a little nervous. I will reiterate again that i value of0 is the fair sterling, but it will probably be driven more by the dollar. We are looking at 3 inflation in the u. K. , and falling economic activity, combined with lower growth. I am in the shortterm, we would probably reach the high end of sterling, but i still think 1. 40 and we get nearer to the actual deal done on brexit. Guy that could be a year away. Right now i think the market is looking at the bank of england. Dissent on the august side. I think inflation is coming down in every single country, including the u. K. , due to the economic activity. Guy is there a sense as well that we have now got another factor in the mix . The politics in the u. K. Is centered on the machinations of the conservative party, which again, if you are trying to make business decisions, investment decisions, speaking of brexit if not have a clear understanding of what the outcome looks like an now i am looking at the political story and i dont have a clear understanding with the outcome here and what kind of government we end up with. We could end up with a labour party government. And i am looking at the bank of england and thinking, i dont understand the outcome here either. What is the inflation outlook . Why are these people talking about raising rates, and if they are, how serious are they . Everything you look at in terms of the big levers in the u. K. , you dont know which way they will be pulled. That is why businesses focus on what they can do. That is why, to some extent, for business ceos, they do really care about politics. They just want the boat to be rocked too much. Everything you just described his nervousness, but as he also stated, we have two to three years to adopt here. If you are domestically focused, you should be concerned because the real disposable income is going down. Higher inflation and lower growth is not good. If you are an expert company, you still have sterling to link ean on. Yes, there are concerns, but they do what they do best, which is to control what they control best. Guy should we spend more on Public Services at this point . That is almost a political question, but that would improve the infrastructure. I think london as a city is underinvested in infrastructure. You get newer and newer real estate, more capacity to put people in the city of london, but worse and worse have you been on the tube recently . It is not a pleasant experience. You should invest more in infrastructure. But if you do investment in infrastructure, you should do them. Guy what about paying nurses and doctors, firemen and policemen more money . Is there a point at which the u. K. Have got to where they say, the debate is debilitating from a which point of view . And from a societal point of view, and what we need is stability. What you dont want is Monetary Policy that prices the policemen and firemen out of the Housing Market, at the same time fall. Ing the euro to free so, clear the policy right now is actually pretty more any quality than positive, but the response in an economic sense would be to be more productive to have more investment. It is not an easy decision, either or. The first Monetary Policy is not equal in its results. It might not be intended to be so, but it is. What needs to be replaced is the productivity. Which to some extent, the u. K. Has been able to do. London is the capital of the world for a. I. , artificial intelligence. So, there are new branches of jobs. There is still a huge intellectual capital in this country. Guy steen jakobsen, cio of saxo bank. Up next, why hes big on japan. That, still to come. This is bloomberg. Guy 24 minutes into the market session. Lets talk about what is going on on the other side of the road. Bank of japan officials are concerned about the sustainability of the bojs etf purchases. A big chunk of this market now. That is according to people at familiar with discussions of the central bank. Steen jakobsen, the boj is in some ways, the outlier right now. At the moment, it feels like the outlier. It is not turning in anyway hawkish, we will stick with our policy and keep the bond market with its hand out. , weill continue to buy etc already own a big chunk of that market. They are not letting go. Does that feel like an outlier to you . How does that start to manifest itself . The german curve is steepening and the japanese one isnt. What are the derivative fx for what the bos what are the derivative effects of what the boj is doing right now . You have one of the biggest positioning in a long time, in three years, i think. I also think about Monetary Policy. You are putting everything into the same basket. A close of japan has and approach with the 10 year being fixed. They have a slightly different approach. In terms of the Monetary Policy, i think it is a concern. It is the same concern that is the aired in china with the pboc focusing on the Wealth Management products. So, yes, it is a concern that Central Banks beco increase ande net purchases of these assets increase. I think the bank of japan is the Oldest Central Bank in allowing this policy. They have the most experience. Has it worked . There is always the question of, where would they be if they had not done it . Basically in japan, the private sector started owning part of the Public Sector through issuances of the jgbs. What is not working is the fact that the Stock Market Index in japan remains very cheap. In the immediate future, we have the olympics in 2020. It will be a huge fiscal impulse to china and the activity level. Guy steen will stick around. Plenty more to come from him. We talk about the ecb next. Guy u. S. Health care flatlining. Two more republicans will oppose the bill. Mitch mcconnells obamacare replacement bill. What does this mean for the rest of the trump agenda . The rba says Economic Growth is brighter, sending the aussi dollar to a two year high. But is there more to come . Will the bank start to walk the market back in little bit on this one . And getting some good momentum. The ceo of novartis says the momentum gives them more options with that business. Will they dispose of it, put it on the market, or keep it . We will get an analysts opinion. You are watching Bloomberg Markets the european open. European equities, they do not have a clear sense of direct and they are softer than they were this morning, down by 0. 5 around europe. The german market, underperforming. Lufthansa, the standout story, consideringrprise the numbers it has posted. Erickson is off pretty sharply this morning. Yara is off pretty sharply this morning as well. In terms of where we sit, the equity markets are interesting, but i think the big story Going Forward continues to be what is happening with the Central Banks and the influence they are exerting. Yesterday, the dollar was sent down. The big factor that could reverse that is coming up on thursday, the ecb, europes central bank forging a path out of the Monetary Policy. Policymakers from stockholm to bucharest are waiting for the ecbs next policy move. Remember as well that we have got jackson hole. So, mario draghi booked an appointment to jackson hole for the kansas event. Is that where he starts to point us in the direction where he wants to take the ecb . Steen jakobsen, still with us. The ecb looks like the pivotal event of the week. We have seen what has happened with the dollar and the only thing that could turn that around is draghi coming out and saying, look, we are nowhere near the exit. We worry about the inflationary impulse and that growth is not as good as the market thinks it is. Is that pretty much the only thing that could change it . I think so. But i also think that is the line draghi will toe. He is very concerned about his legacy. Think draghi like yellen wants to steer the ecb and centralbank into smooth waters by trying to normalize, to the rhetoric, but do as little as possible, in terms of actual changes to the policy. Guy he is running out of finished bonds he can buy. He has got to change the policy. Yeah, he is already reducing the amount. He can further reduce that amount. In terms of the steering in six to 12 months, he will be talking about the Downside Risks to inflation. In the past, when you look at the inflationary aspect on Central Banks, the eu has always said, we need to go through the summer months to see where we are on inflation. My opinion is that inflation pressure is coming off and dropp ing sharply. I think he will dilute to that i think he will allude to the and say that inflation continues to be a challenge for the ecb. Guy the market has been front running this. Weve gone from. 25 on bunds to just shy of 0. 6. The euro has appreciated pretty quickly. I think he is more happy about the fact that italian banks trade on par with the rest of europe. From a overvalued now . And how much more do you think it could run . The momentum of the etf flow, and the momentum of investors will have carried the market to an overvaluation relative. Basically, from underweight to overweight, the momentum continues for a while. Traditionally when i talked to investors around the world, they are not bad at investing, but are very slow to react. I think already what we see in terms of the incoming data changes is to the negative, both from earnings, corporate profit. We have maximum levels were profit margin, and that will be very difficult to retain and improve the margins we have. So, the incoming metrics are negative. Guy what a my selling, emerging markets . What am i selling, emerging markets . In asia, everybody wants to stell emergingmarket bonds. But i think right now you buy a little bit more of the bonds. You allocate little more to fixed income for two years. Guy d. M. And particularly u. S. You have incoming slower inflation. The inflation trade with trump will somewhat disappear and indirectly you have the third option on the equity market as well. 30 getting paid 2. 3 in years is a pretty good place to be. Guy do you not think the fed will roll out the Balance Sheet . I dont think you can actually decrease the size of the Balance Sheets, unless you get a shock to the systems. The last time the feds Balance Sheet was this time was the 1940s. It was a very steep recession, which may people which may people buy. The fact of the matter is, even if the size goes down, the bank of japan will remain at that level. I saw this morning researchers said there would be 5 trillion worth of excess capital coming from the central bank. Meaningful a meetin amount of capital. Lending demand is very low across the world. Guy going to leave it there. It has been great to see you this morning. Steen jakobsen, cio at saxo bank. If you are a bloomberg customer, you can watch this using the t < function. We have got a bunch of events coming up. You can watch these live. You can also access these at live on your bloomberg as well. We have the schedule down here, in terms of what we have coming up on bloomberg surveillance, bloomberg tv, and bloomberg radio. You can click into the video stream, plus the radio stream. Turnaround. We will discuss the pharma companys future. This is bloomberg. Guy welcome back and you are watching the open. We are getting a big move on erickson, a company with a new ceo in place. The market was expecting a little bit more not delivering. This stock is now down by 11 . When it was down by 10 it was the biggest move since october 12, 2016. The stock is continuing to struggle. The ceo is still targeting double the margin. So, trying to at least alleviate some of the move this morning, but the market continues to drop this stock pretty hard this morning. 54. 90 is where ericsson is trading. Lets catch up on some of the other news we are focusing on with the bloomberg first word news update with juliette saly. Reporter u. S. Senate Mitch Mcconnell has abandon efforts to pass a republican only replacement of obamacare. He will instead seek a vote on a simple repeal delayed by two years. They are delivering on seven gop promises and this could be the biggest failure for donald trump since the election. Chinas banking regulator has told some lenders to lower the rates they offer on Wealth Management products. According to people familiar with the matter, banks received the order from the China Banking Regulatory Commission earlier this month. The move comes as officials try to reduce financial risk and stimulate the economy. Chinese home prices surged in smaller cities in june, even as property curbs were dragged down in larger ones. Prices, excluding governmentsubsidized housing, rose month on month in 60 out of 70 cities, up from 56 in may. This highlights the challenge for authorities trying to limit bubble risk. The australian daollar jumped to a two year high after the rba said the nations economy was improving. The neutral Interest Rate was estimated at two Percentage Points below the Current Record level of 1. 5 . House prices have been soaring in sydney and melbourne, while also encouraging residential construction. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. This is bloomberg. Guy thank you. Novartis posted a smaller than expected decline in the second quarter. The companys ceo told bloomberg momentum is a game growing within his business. I think what this beginning of the turn does is it improves the options that we have available to us. For example, if we were to do a Capital Markets exit, we would want to see a number of quarters of consecutive growth. We are pleased with the progress that team is making and hopefully, we can continue this momentum and drive additional growth in the back half of 2017 and into 2018. Guy lets talk about why this stock is outperforming, up 2 i n a market that is struggling. Berrigaud joins us this morning. The stock is up performing and the market is pleasantly surprised. Which areas do you think we should focus on . Which areas are mr. Jimenez and his Team Delivering on . There is a good surprise in the quality of the numbers. The numbers came out slightly ahead of expectations and they are doing well, both in pharma alcon, which is under strategic review. Year, wee end of the will see if they keep it or sell it. But in pharma as well. Novartis is a diversified company, but pharma is the bulk of the group and will remain so, maybe even get bigger in pharma. New products are fueling growth, such as some other drugs. Guy lets break that down. Lets talk about alcon first of all. As you say, under reviewed. Manus has always said at some point it is going to bounce back. My question is, were you expecting into bounceback this early . Yes. Well, we already had some signs of recovery in the contact lens business in the first quarter. In the second quarter, we have alcon also part of back to growth, the surgical business. And oil at 3 . Off. Not a one theyroof of tahat is increased the guidance for the year and now they expect alcon to increase to singledigit where they expected it to be flat. Guy that is good news. Does that make a market exit more likely, do you think . Yeah, i very much think so. Three years ago, novartis made a very significant asset swap with gsk. They swapped two businesses, vaccines and consumer health. In a giant agreement, they also gave the health care business. It was a conglomerate at the time with six different businesses. They came down to three. Now, i think they are ready to take another step in the same direction and take alcon out. You also have to remember that they took the pharmaceutical part of alcon out of alcon to be included within the Pharma Business of novartis. Now contact lenses and surgical have no synergy with the rest of the business. I believe that one way or another, it will move out of the novartis group. Guy going from a three leg it ged stool to a two legged stool, and you think that will work. Lets focus on the pharma side of it. Do you see enough in the pharma news this morning to say, they are going to be Strong Enough in that space, they have the kind of pipeline that is necessary to deliver . Is the pharmaceutical unit Strong Enough to justify the two elements of the business. Yes, definitely. Decisioney take that you have to remember, the decision to go into alcon was made by the previous financial owner at the time. It was not easy to fund innovation. Insure they had medium growth, they were diversifying. So, alcon today is less relevant to the group because the two oth theusinesses are at beginning of a new growth phase. So, the answer definitely is yes, we have not seen that specifically today. We over the last few months, have had a lot of positive news coming from the pipeline. A lot of positive phase three tr ials, a lot of filings. By the end of the year and next year there will be a handful of new products that will definitely fuel growth at the pharma topline level. Guy what is the impact of the u. S. Senates inability to pass legislation to repeal and replaceguy obamacare . What does that mean for the european Pharma Companies . This remains a massive market, with politics incredibly confusing. Yes, correct. Without anyed 2017 sense of what was going to happen there. As aTrump Administration w big connoisseur for the industry. As time goes by, the feedback we had from managements interactions with this that theation suggests worst is not going to happen. So, what we feel from those recent interactions is that probably there will not be a new , big disruption in the u. S. , which is bringing a lot of relief to the Pharma Industry and to european players in pa rticular. Price pressures are here to stay. The good news is there is no further significant downside to expect, at least in the shortterm. Guy eric, great to have you on the program, Eric Le Berrigaud f rom bryan, garnier and co. Joining us on the latest numbers from novartis. Up next, we take a look at some of the movers this morning. Ericsson, front and center, falling the most since october from last year. The stock is trading down by 11 this morning. Absolutely smashed by the market on the back of that update. That is next. This is bloomberg. Guy the cash equity open for nearly one hour now. Lets talk about the stocks we have been focusing on. Ericsson, certainly one of those, coming through with a disappointing update. The market is not reacting well, that is pretty much of an understatement. 70, stock now trading at 54. Now down by over 10 . We have not seen the levels by quite some time. The ga of the markett has delivered. That is a two day chart. So notdown by about 10 , exactly a favorable outcome for a guy who has had the job for six months. Clearly, expectation was mounting that he would be able to deliver. One of the stocks on the move this morning is the german online retailer. Down pretty hard this morning. The most i in six months, actually. A bit fof a miss this morning. What is making the markets nervous is the concern surrounding margins. It does seem that is where the market is focusing this morning. Some precious on markets, rippling through. Teh she stock moving aggressive. This is anational, Fertilizer Company, down by 5 this morning. And keep an eye on what is happening with lufthansa, down by 2. 06 . European equities are not going anywhere in a hurry. The interesting story is a running the individual names. Surveillance is up next. Im off to radio. This is bloomberg. Who feeling the squeeze. Will u. K. K inflation continue to steam ahead. We have the latest readings in a half hour. Brexit negotiations carry on in brussels. As a Republicans Health care bill strikes out, what now for the rest of president trumps agenda . Show for youked today. Let us get quickly to the data. 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