Transcripts For BLOOMBERG On The Move 20141216

From the likes of china and europe, that has got to be the hope. Many have to cancel those christmas lunches. We have got so much on our plate. Russia hiking. The Interest Rate the most since 1998. You have got oil continuing to have got chinese manufacturing contracting. That was a surprise. We have got eurozone debt the later today. We have pmis from france. Hope is on the equity market. Lets look at what happened to the ruble. To theeeing a rebound russian ruble. The dollar is down. On a twoday basis. Yesterday we saw the u. S. Dollar up 10 against the ruble. Central bankhe stepped in. The emergency meeting at midnight, raising Interest Rates i 6. 5 . Ls economic growth. If youre going to support the ruble, what happens to growth when you have sanctions . You have oil continuing to fall. Be hurting the russian economy further. Look at oil. We are seeing it continue to drop. Clearly, there is a concern. Keep an eye on the euro. We have got moves coming out of europe. We have data, pmis. We are expecting overall expansion in europe, but france set to contract. Lets have a look at what that is doing for the search for safety. Money going into u. S. Treasuries. Borrowing costs coming down slightly. Coming out of spain, coming out of the less risky or dead amid concerns about russia, concerns about oil. Coming out of the less risky debt amid concerns about russia, concerns about oil. Hasnttral bank move given much appetite for those particular stocks. , keep an eye on that. Spains Largest Energy company pumping out 8 billion on that deal. Look at the banks after they pass the stress test. They say they are going to be ling their irish portfolio it seems to be on the back of their portfolio. They are going to be selling out, up 1 . Lloyds up 1 . Feeling ad to be little bit of positive reaction, even though it was just rbs past that particular stress test. The back of m a. They are going to be paying 12 and a half billion pounds of that goes through. They are in exclusive talks. Deutsche telekom is a part owner. Telefonica is unchanged. They did not get picked. A busy morning. But the ftse 100 up i have to percent. I half of 1 . In at 57. 9. Omes i am looking at service data. 49. 8. The survey is 48. 5. If you look at the opposite, 49. 1. The survey is 48. 3. Look at it down the board. All below 50. Thats a sign of contraction. There panic in france . Not quite yet. Is there panic in russia . They hit the panic button as they chase after the ruble in freefall. The ruble dropped 10 . There was a slight freefall. Its not enough to erase the weeks losses. This was after the Russian Central Bank responded at 1 a. M. By hiking Interest Rates by 17 from 10 point five, the biggest single increase since 1998. The first question is if it is enough to stop the ruble slide. Enoughthink it is still not enough to raise it . The ruble has been trading for 65 minutes. Slide. Stopped the we have heard from the very influential acts finance minister, and he is close to the finance minister, and he is close to the russian minister. He says, now they need to take steps to improve Investor Confidence. This is a just about sanctions. There is a lack of confidence in general. Whats the ruble, the battle for the ruble begins or resumes ruble. Watch the the battle for the ruble resumes today. Its not clear yet. Interest rate at 17 . Can the economy stand it . Short of a real rebound in the price of oil, we have oil going the other direction this morning. The only real question is how deep the recession in russia will be. We heard from the central bank of russia yesterday before they announced this rate hike that came late in the evening, saying they expected the russian economy to contract by at least four and a half percent next year if oil stays at 60. Went below 60 a barrel. The issue is perhaps they were prepared to make that sacrifice. The raterstand with hike of 650 basis points thats going to put a lot more pressure on the economy, but what they are thinking about is august 17, 19 98, the ghost of the financial crisis of 1998. They dont want that back. They dont want to run on the banks. The tradeoff between a recession next year and a financial crisis right now, they recessiono with a next year. Back to you. I am going to keep this conversation going. We have a guest. She is lucy mcdonald, chief Investment Officer of equities. Do we start . Lets start with the rate hike. We woke up to a stunning hike from the central bank of russia. 650 basis points. The hike last week was clearly not enough. Is this big enough . It will put a shortterm floor there, but the underlying issues were still there. Thats always been a problem. Banks tend to avoid this in, because they know it doesnt always have a shortterm effect. As one indicator, this balancing act between the financial crisis on one side, the recession on another, the recession a lesser people. Does this mean we are going to get a deep recession in russia next year . Does that mean i stay well clear of russian equities . We dont tend to spend much on russian equities anyway. We dont find Many Companies that are significantly competitive in the global context. We can buy oil if we want to buy oil somewhere else. From an equity point of view its less than an issue. From a bond point of view, it does raise risk, and is having a contagion effect. As does what is happening with oil price. Lets talk about the oil price. Brent is dropping. The central bank of russia must be looking at that chart this morning shaking their head. Russia ande pain for the big exporters of oil . How much of a good thing is that for the rest of the world . Its good for importers and bad for exporters. Although we dont spend too much Forecasting Oil prices, are best boxs is we are towards the our best guess is we are towards the bottom of a spike. And has to do with supply not really demand. We have had some weakened demand. Best guess we the can have of a pattern of what the price will do. If that is what happens, its not a bad time to begin looking at some of those stocks, which have been hit so badly, but i think you want to start with ent rather than Service Names, because Service Names will get an impact later on, which i think is nearly inevitable. Were going to talk more stocks specific after the break. Here is a look at a couple of stocks on the move. Rbs and lloyds. The banks pass the stress test rarely. Up. See rbs and lloyds taking adity market is headline. We will talk a little bit more in two. Welcome back. 10 minutes into the trading session. The ftse 100 opened higher. The ftse 100 up i17 points. By 17nd europe up points. Mainline europe trading higher. Once again the main story. What is going on is banks and stress tests. Passed theyds barely stress test. The Cooperative Bank failed the assessment. Manus cranny outside the bank of england. Im sure hes very cold. Lets get to it. A close call for rbs and lloyds. It was a close call. Pass or fail the right word, or is resilience the right word . Saysovernor mark carney this is a demanding test. Core of theshow the bank is significantly more resilient. Thats the point. One of them essentially failed. Looking at a word it is the Cooperative Bank. Mostnd lloyds has the exposure to the United Kingdom in terms of housing. In these stress tests, that is the core of the issue. They were extreme in terms of the demise of house prices. A couple of things i want to bring to the viewers attention. Rbs and lloyds have been raising capital. To a certain extent, they trumped what they were asked by the bank of england. In the body of the report, rbs and lloyds had a page per bank. They are susceptible to severe economic downturn. Thats the essence of it. Another question is Standard Chartered and hsbc. Traded at 360. Le i know the bank raised rates. The message from the bank is this. These things have been stress tested. Extremee a buffer in an financial situation. That is good to know. Lets continue that conversation. Where does this leave the u. K. Banks relative to their global ears . I think when you look back, the United States was first. They failed their banks and raised them made them raise 75 billion in capital. Is whatld argue that they do. Buffer zone r going to be required. The way in which resilience is measured will be looked at again. I think what this does is level the market perception. Cusp, but these are extreme examples. House prices down by over 30 . Interest rates over 4 by christmas of next year. Think of the average man and woman who took a mortgage in the past. They have already had 3 over that mortgage. Ve if rates did rise by 4 , you are at the average man or woman facing 7 Interest Rates. I will leave you with this. Juicy dividends. That is what the market had been hoping for some lloyds. Nextebate will take place year. Is this enough to warrant the board paying shareholders rather than protecting the British Public from another debacle, which is called bailout . Get a hot drink. Thank you very much. Lets bring in the chief Investment Officer. You heard all of that. Rbs and lloyds part with the skin of their teeth. You like financials, but you like those names . Not particularly in a global context. However, they are looking relatively more stable than they were. What is interesting in is you have aus starting yield that is higher than average, and you have the prospect of Dividend Growth, which is better than average. Bases are being rebuilt, and they are being allowed to pay out dividends again. We should see that over the next two or three years. Thats a phenomenon across the world in different stages. The u. S. Started first. It in beginning to see europe as well. When i look at the bank of englands assessment, they remain susceptible to a severe economic downturn. Rewarding shareholders on the one hand, protecting the British Public on the other hand. Does this threaten their ability to deliver on that Dividend Growth story . It has been delayed slightly. It will come. The capital cant be built up come out and not because that will destroy the returns within the business. It will happen, but i think it will take two or three years. Lucy, very quickly. We talk a lot about credibility. At these stress tests, a drop of 35 . Unemployment jumps to 12. How credible were these for you . They look quite credible. Certainly compared to the first rounds we had in europe a couple years ago. And more been harsher realistic, so in this case i think they will have some credibility in the markets that should be well received. Stay with us. We are going to talk about telecoms after the break. I want to talk about markets. Equities in london slightly higher. The move in de la rue ball you saw this morning in dollar ruble, you saw this morning, it dropped. An unprecedented rate hike, up to 17 , the biggest hike since 1998. You look at the dollar ruble right now. The ruble is up i only 1 . Quite a turnaround. Hike has not brought much of a rally. We will talk telecom deals. We are back in two. Welcome back to on the mov. Its time to talk about telecoms. On any other day this would have been the top story. Ap has agreed to enter exclusive talks to buy the mobile company ee. For more on the return to the mobile market, caroline hyde. I guess the big thing we want to know is how much have they got to pay . 12 and a half million pounds. Bp itself is only worth three times that. Clearly they are willing to step up the cash. They are paying eight times of of 26nings to get hold million customers. It is the uks biggest mobile network. Remember, it is that for your and Dutch Telecom orange andr venture Dutch Telecom put together. Focusing onabout the future. Keep talking about it. What is it . It is offering not only broadband, tv, landline, but also offering mobile on top of that. They will create the biggest player in the whole of the United Kingdom by getting its hands on ee. How do they structure this deal . They are paying cash and stock. They dont want to ramp up the debt. It is relatively near that sub investmentgrade rating. It is not the most stable in terms of debt ratings. They are not just the highest of the high. They want to keep the debt relatively low. How do they do that . They hand out shares to deutsche telekom. Able to telekom will be appoint a member of the board. Orange will take a 4 stake in the Overall Company and get a little more cash. Deutsche telekom given a vote of confidence. They say revenues will increase by offering mobile plus the broadband, the tv, the landline. They feel that will keep customer loyalty. People are liking this so far. The big loser is telefonica. 02. Own will it remain on the shelf for long . The key question is consolidation going to ramp up in the u. K. Could the smallest of the mobile networks, could they be looking to buy and the likes of 02 Going Forward . The key question of where consolidation goes from here. Lets talk to lucy. You like the consolidation story. You had your call on Telecom Stocks a while ago. Is bp getting too big too quickly . It causes a little caution, but it is logical what they are doing. I think we need to know a little more about synergy. They should have some. We really havent seen the numbers yet. We covered everything this morning. Telecoms, financials, the world. Lucy, thank you for joining us. Took the stress test by the skin of its deep. I am looking at equity markets in london pretty much dead flat. What does a 6. 5 rate hike by you . It buys you a rally and dollar ruble of 1. 16 . Not a lot. The ruble is up against the dollar by just 1 . Plenty of moves in the market to talk about. We can do that on twitter as well. In two. Move is back. You are looking at manufacturing coming in. Survey is that 50. 3 full 50. 3. The number one comes in at 51. 4. That comes in at 51. 4. The survey at 52. 3. It is lower. That is the move in pmi. We are looking at the bond and thet record lows eurodollar coming into this number. We look at it coming out of it and it is doing nothing. There is plenty to talk about in and its is going on in france . Well get more on these numbers and get out to berlin to hans nichols. What you make of it . The upside is almost a full point and clearly good news. Services are down and surprised on the downside. The composite index is coming and lower. Manufacturing is what we are really talking about. Were talking about exports and concerns over russia. This could be the silver lining. You have germany and france with dismal numbers. You have the eighth consecutive month where the numbers are below and they have a better than expected manufacturing and worse on services. That is the story in france. Look at the german numbers. You see the numbers coming down. July was a high point in where it with solid in the mid50s. Things have slowed down in germany and we will get more aid hours on the. 5 german economy. Tale ofy is the same, a two economies. Great work. Lets talk about something doing something. Is up against the swedish krona. It does nothing. They push out the forecast for the next rate hike and there is now a delay in the start of the rate increases. And you see push the reaction in the swedish krona. Where do i start . It is a busy morning. We have to talk about the stress test. The bailout. It barely passed the stress test. And people are expecting it it is something worth talking about. Outside. Nny is the just passed the extreme the scenario and joining analyst. A bank margin. D by a tiny did not make the minimum rate by much. There are management actions and house controls. It was ok. Not something they would be comfortable with. Nothing to worry about. They have been raising capital. Talk to me about the banking system. Andsystem is more resilient that is a key message. Would you concur . I would say. , the management of these banks is focused on core capital being strong and it is reassuring. Lets talk about that today. This is where the interesting part comes in. They came in with the number around 5 in that scenario. What does that do with the argument of restarting dividends . It is something we noticed. Results,ress test reductions of dividends was absent and i do not think anybody was expecting that. Was thataught my eye the banks are susceptible to a severe economic downturn. Oil is down again. Issues arek the big going to halt the ability of banks and the business they do . The message they are trying to communicate is that they are in ok shape. It begs the questions of the scenarios based on it and takes into account new risks emerging and growing risks of deflation in the eurozone. Obviously, there are likely deflation and what i call good deflation. Do you think it is a fair criticism that this is too much about the u. K. . There are considerable exposures that are not scenarios. They are caught between a chicken and egg. It has to be more backwards predict the unpredictable future. U. S. And a number of banks failed the stress test. They said they cleaned up their stress their Balance Sheets early. In ais the first stage progressive moment for british banking to reengage . Regulator is that the has taken a different approach predicts trying to specific scenarios in conversation with the banks and seeing whether or not they can. The context is that there may be some fear about the ability of the banks to recapitalize and raise additional capital. T may be less lets talk about raising capital. They have been progressive and have not asked for a new brand. What is the appetite like when you speak to investors . Where do they want to find capital . I will have to check. Thing i saw is that they are being encouraged to roll down the assets. That is how you get the percentage. What they are doing is a lot improveement action to the capital ratios and disposing of assets. That has been going on for years, obviously. They are issuing capital to help. They have been cutting costs. We have seen this with large closures and things like that. All of these things help the whenal ratio and will help we go through the next stress scenario. It will be an annual event and we will be here. Talk to me about your assessment of the positioning and these banks and with rbs and lloyds. Our overarching view is that we have increasing concerns that the Housing Market might reach housing prices, if they come down again, will be to a pullback in the market in the u. K. Or in property markets in general. What would that do for the banking team . It would mean less mortgage lending, one of the key engines of the recovery and, in in an prices. Ent with house about af the lines is slow progressive upward movement in Interest Rates. Have you heard about a slow progressive Interest Rate hike . Yes. We will leave it there. I will hand it back to you. At the end of the day, you have to show backbone. 1994, 2004, and a couple of points in time i did a lecture on when people should go and look at Interest Rates. Im going to head inside now for a cup of tea. Enjoy, manus cranny. Down. Se 100 is the dax is off. The ruble erases gains versus the dollar. Look at the russian equity markets taking a beating. This is the chart of the day. The Russian Central Bank puts ruble now takes at a 6. 5 again Percentage Rate increase. Look at brent trading below 60 barrel. R a feeding into it is a weaker ruble this morning. Plenty to discuss and we are back in two minutes. An welcome back. You have the ftse 100 down. The losses on the eurozone are piling up. Lower on my screen right now. Taking a beating right now and trading belowis 60 for the First Time Since 2009. Record lows. What does the 10 year give right now . 0. 6 . Plenty to discuss. Lets get over to the screen with anna edwards. We are going to start here and there is a broader story. Trading below 60 a barrel. These Energy Player Services Companies are Oil Companies themselves. There is more going on at repsol. They have taken the opportunity of the lower prices to do some deals and have announced one in canada. They may get higher reserves and production out of it. Talisman gets premiums. More than 1000 companies and assets to hone in on this one. Lets tie up a few loose ends on other stories. The game ofers in thrones caroline has been washing watching this morning. Buye are exclusive talks to ee. Stock is getting a boost. This is what release looks like in the banking sector. This is a bank that did ok in past the stress test. Sheetst the balance under stress and raised interest simulated a5 and crash in the Housing Market. Most of the banks past and some failed. That is what it looks like. Back to the get currency markets. The headline there is some the headline there is remarkable. Ruble make up some of the losses earlier this morning and has erased all of them. You hike the rates and it buys you a rally for 1. 5 hours. That is 10 00 in moscow and it is all undone. Not good news. What is your next step . Former heard from the finance minister was close to the russian president , saying that it is time for the russian government to introduce measures to raise Investor Confidence in the economy. They have to do something. This is clearly something they are not managing very well. You would think the rate hike would put a ceiling on the dollarruble. It is this balancing act between preventing a currency crisis in trying to prevent the recession next year. Theyecession understand what it means. It does not mean systemic risk. Russia defaulted on their debt and you had a run on the banks. They want to prevent that. What we have today is an increase in Housing Demand for foreign currency. Thele are lining up currency points. This is not a run on the banks. This would be a concern. People get so concerned that they pulled the rubles out of the banks like they did in september and october of last year. Say theyre on track for a contraction and now, they have done a rate hike that will cause a further contraction. If this stabilizes, this could be a temporary rate hike. They could lower the rates tomorrow. People are looking at rates of 17 . What does that do for the consumer . Economy. Ushes the you have less consumers involved with the mortgages. Be theuld pretty much end of the story of the United Kingdom. It is a little bit more and russia. All issues that are huge and will squeeze any hope of growth and cause real pain next year. Choice. E no other ryan chilcote, we had to the break and we will leave you with the stunning chart. The central bank raised rates by increase sincest 1998, in terms of rates. Look at that. Unchanged on the day. Down and thetse dax down 69 points. A little bit of trade as brent trades below 60 a barrel. Plenty to discuss. Welcome back to on the move. The pulses coming up. We are joined by guy johnson. Busy morning. Pretty epic. Not going well for the central bank in russia. Fail applies to this one. How much lowered to we go on the bridgnk. Some of the key breaks are are scraping through. Are we going to have to see further changes question mark weve seen announcement from rbs today. Coverage andome get back into the russia story. We will go to moscow and try to get the take on what happens next. What happened last night . The 6. 5 was aggressive enough. I would have thought it was aggressive enough. We think that was what undid them. There was the previous rate hike. The market was looking for 250 and got 100. This time around, they had two amp it up. They had to amp i9t up. Where do we go from here . Everyone is scratching their head, trying to figure this out. You have to bear the volumes in mind. Nevertheless, very aggressive. Plenty to talk about and the demand story is out there. Inc manufacturing contraction and is a miss, as well. You have french numbers and plenty to discuss. Bringing us all of the headlines. Looking at the equity markets. A busy week ahead. Beginning later today, the federal Market Committee for a two day meeting. Course, a considerable timeline. The firstround of greek president ial elections and the first chance for the Prime Minister to push through his candidates. Failure to doo could trigger the early election. Here is a picture of the equity markets. Brentd is trading below 60 a barrel. Lets go to break. Traded below 64 the first time in five years while crude is below 55. Losing control. Russian massive rate hikes. Scraping through. Ubs, though first public stress test. To hear from the bank of england in a few minutes and that press conference is slightly delayed. Good morning. You are watching the pulse. I am guy johnson