Transcripts For BLOOMBERG The Pulse 20140529

I am guy johnson. I am olivia. We check out the latest experiment taking root at the International Space station. Is in his shares are sliding today. We are live with the biggest Home Improvement retailer who will be up shortly. We begin with the latest from European Central bank. We are one week away from what will be one of the most closely watched policy decisions in quite some time. Bloomberg caught up with the Vice President. We have the details. What did he say . What we are witnessing is a shift in the debate. These guys are no longer into denial. It is about lower concerns. He addressed every ecb board member. They have pressed that. Take a listen. The greatest concern we now is you personally. I understand. It is the possibility of risk. Time of lowrolonged growth and low inflation will create all sorts of risk. So, are you concerned . What are you going to do about it . That is the debate. That is the proper debate. We know the concerns about low inflation. What are you going to do about it . Cuteconomist expects a rate next week. It is what you are going to do beyond that, as well. As you said, only one economist. What othermeasures, extraordinary measures might be introduced . They talked about qe. You only have to read the speech from monday to get his concerns. A rate cut, fine. I would be worried if they did not cut rates. You are talking about smaller and Mediumsized Enterprises that account or 80 of employment across the region. It is important. He is concerned from region to region. It is about the availability of credit over these next months. He wants to bridge that and you do that with a form of quantitative easing and longterm refinancing cooperation. That is what the talk is and that is where you could get the extra measure next week, on top of the rate cut. Thank you very much, indeed. That is the latest. Lets turn to kingfisher. The biggest loser on the stoxx 600 this morning. The Home Improvement retailer posted losses in china, russia, and romania. They missed analyst estimates. Joining me now is the chief executive. Thank you for joining us this morning. The markets have not taken kindly to the results this morning, i am sorry to say. They seemed to do quite well. The profit is around margin. Is this a sign of things to come . No. Look, profit increase. We have estimates and we may be missed by 3 million on 100 one 2 million. Million. It is the First Quarter and we think that is not indicative of the rest of the year. We have sales and a seasonal product. We have a regression of the kitchen promotion at the beginning of the year that is something that will not continue through the year. So, i think, you can have analysts not being pleased all the time. About how bad is france. Are you concerned about the u. K. Housing market . It is interesting. There is money in the u. K. , france, and poland. The u. K. And polish markets are in better shape. Only deal with the Housing Market, what is important is transactions and not house prices. It will continue to trend the right way. Prices are a function of the that we are not building enough houses. The concern is Consumer Confidence. France had a much better 20082011 through the strength of the state spending. It is now at a point where confidence would be restored if the government would communicate how unemployment would come down from 11 and how the economy can become more competitive. There was some good early signs from the new french government that was set up. I think it needs to go a bit further. In that time, we expect france to still be a flat market, as opposed to growth in the United Kingdom and poland. When you talk to your store managers in france, when they tell you about the mood that is within the country and i am using you as a method to extrapolate confidence there, how glum are they . There is a french phrase. If you are french, you armor roasts. Ose. Re mor what is unusual is that there is real uncertainty in french consumers and talking to store managers, recently. The french consumer has not got any debt, unlike the United Kingdom consumer. There is a confidence issue. They do not see how things will improve. And, it is a bit like the United Kingdom three years ago. They need some sort of significant intervention to produce a shift in the atmosphere. Right now, the french are saying that they are not sure what is happening. They are sitting on their hands and not spending money. If the french consumer is will the morose, government lending to buy help . I think, by contrast, the mood in the u. K. , to use a british phrase, is chirpy. People believe that they will have a job next year. The value will go up. I think they are beginning to think about the next year and coming out of the fiveyear tough phase. I think the benefit runway for the United Kingdom is looking in better shape and the confident trends are improving. Be a gradualwill recovery, rather than a fantastic recovery. I feel pretty positive about that stop the government has been pretty positive about that. The government has been going back. Funding for lending is critical. It is a helpful confidence issue. I do not think there is a massive volume shift and the fundamental issue is that we need to see more houses built in the United Kingdom to get back to precrisis levels. Million, how00 special is it . Are we going to see another next year russian mark we announced a Multiyear Program last year. It is less than will we see another next year . We announced a Multiyear Program last year. We return. Wehe company is good returned cash. The company is in good shape. Up next on the radar this morning, lets talk about what is. The former nsa special agent, Edward Snowden, says that the effort to label him as low level is misleading. He brought attention to the spying program. He held a senior position in u. S. Intelligence. It is no secret that the u. S. Tends to get more and better intelligence out of computers nowadays then people. Was trained as a spy in the traditional sense of the world. I lived and worked undercover, overseas, pretending to work in a job and being assigned a name that was not mine. Majorma is delaying a summer promotional push until after the world cup. Instead of paying for an advertisement, puma will unveil campaignrever faster in august. They cite a competitive media environment as the reason. Apple is buying beats. The deal is the biggest acquisition. The industry executive in september. N the first billionaire and hiphop, dr. Dre. With the u. K. Financial authority later on in this hour. He will be here. Welcome back. They missed a few estimates. The biggest date faces an economy that is slowing down more because of sanctions. Ons find out what is going with the tough times ahead. Hans nichols has more. On. I want to talk about the tough times ahead. So much of the reports that we do are lagging indicators. What is interesting about the report that we got just a couple of hours is that it goes forward a little bit to give a sense of what the economy in russia is going to do. That is what the provisions that they are setting aside for bad loans. It is doubling. We have a snapshot of the russian economy three months ago and it is bad. It is devaluing. That is what we have heard from the imf stop the economy is in recession. The official numbers put the growth that. 9 . Estimates in rubles and in dollars. The net income fell. 2. 1 billion. About,what i was talking in terms of the provisions for possible loans. About 2. 2 billion. Past. S up from the year you see them looking past and looking forward, saying that it could be worse. That is interesting to me. The data that we are getting out of russia, there is a delay on it. It is tough to understand what is happening inside. We know it is bad. It is a matter of how bad the numbers end up being. I appreciate you breaking it down in rubles and dollars. Lets talk about merkel and adopting a stance of a new realism versus russia. What has she been saying . It is a new resume and assertive. She is a student of russia. She wants to give russia a way out. She did have the Prime Ministers of georgia, moldova, and the ukraine here in berlin for dinner. They are going to be signing Association Agreement with the European Union and moving closer to the west. Here is the basic point. She does not want russia to think of any of the Central European countries moving to the west as in eitheror proposition. Russiae the point that cannot think of this as a zero sum game. She is trying to play both sides. We will see if they translate in russia. Let alone rubles. Im going to keep the currency thing going i am about to do a really tangential segue. Merkel. Tik from the brazilian currency. The real. Lets talk about it. I am still dying. I am trying to walk off the set and the cameras are picking me up. I am stuck here. Arehe Central Banks maintaining their rate. No change. Two words that bored me to death. It has not been boring. Back basis points. The big problems are inflation. It is running at 6. 5 and the other is growth, which is heading south. It is all heading towards an election in october where it is not good news for the electorate. Thing calledttle the world cup. Lets talk about the world cup. Kind ofexpecting the fervor and the buzz around these things to join the asset prices. The question is, is this actually going to deliver anything real for the brazilian economy . 11 billion is the price tag. Economy. Nd the they will be thinking, what is in it for me. Last year, the biggest noise came from the rioters. That is the way that the people in brazil feel about this right here and right now. The Consumer Confidence is at a low. They are feeling the pain. They feel that money is being spent and they want it on housing and education. They are not buying into it. . Uess who the pressure is on it is on the politicians and the football teams. Italy, spain, big expectations. Brazil. You have be a used to winning. She is clearly under a lot of pressure. Absolutely. Absolutely. How does that compare to the 11 billion . Maybe they have a stronger grasp on the decided. That is controversial. I will let you play with that. But still to come, a bloomberg exclusive. We are live with the financial conduct authority. They say that the industry has seen enough scandal. We will talk to him in just a moment. Welcome back. Lets see how the markets are going. Manus cranny has the esa checks. Hello. Of markets are closed. In the United Kingdom, we are for a third day. 1999 is the last time that the ftse 100 was at these levels. I do not want to shake anyones confidence. A few touchy years after that. The dax, when can a break 10,000 . The for a long time of low growth. All kinds of risk that the ecb will want to avoid. In the United Kingdom, they are talking about early rate hikes and avoiding the bigger issues going down the road. The sterling is unfazed. Not calling for rate hikes. Perhaps, the guidance that was given a gradual return to normality. What is that . The dollar sterling is unfazed. Theill go down to interference of weather. He futures do not forget the half. It is looking through the markets. We are trying to see where we are. There will be a slight contraction. Back to you. Like you so much. Thank you very much indeed. It is time for a bloomberg exclusive. E are joined by martin he says the financial industry has seen enough scandal. Good morning. Whats good morning all stop most people suspect there is plenty more to come good morning. Most people suspect that there is plenty more to come. Seen. Es that we have how far are we through this . But it would be nice to say theyre all behind us. I do not think that is true. The key issue for us is that we cannot. We have scandals that we are dealing with. The factors we are dealing with is how the consumers are. We want them to not be scared of making changes. When you look out there, where do you see the biggest pocket of unchecked abuse is going on right now . Is it in insider trading, markets, benchmarks . We haveve areas that looked at. The concerns that we have are the areas that work on the fringe of regulation. The libor was outside of regulation. Bold is not regulated. Born exchanges are not regulated. There are quite a lot of others. The question is, how far do they have to come into the markets. The trading activity that you saw and libor could have been replicated across a number of different benchmarks in different markets. For the feds is and the stabilities. It is not out yet. Can you give us a sense of the wind . At whetherooking Something Like libor could be sustained, given the market around it and the amount of unsecured lending going on in the market. What we have been saying consistently for a long time is that it has to be brought to a proper footing. There has to be regulation, records keeping, all of the things we usually do. And, some other things. The other things, i will not tell you today. It is about what we think we need in those markets. Any revolution . Is it evolution . It is all evolutionary. One of the big things with libors is the trillions and trillions of dollars that are run out for decades. You cannot throw it away. You can make a lot of change to it. One thing that has ticked up lewiss new book. Have had highfrequency trading in the United Kingdom for many years. The fact that a book came forward does not change the fact that we look at it and monitor it. It brings to light that there is an environment of multitiered pricing so that some institutions get access to data faster than others and that is not a level playing field. We do not have that. In a sense, the problems that ae books are describing is creation of the Market Structure in the u. S. And that Market Structure is not here in europe. Different markets, different regulators, regulatory arbitrage. How big of an issue is that . If you are looking at things internationally, how big are the gaps and where are the opportunities to take advantage . The gaps are becoming less and less. You have. Frank moving forward and the g20 commitment. You have the publication they came out last week. All of these are moving us to a space where we have broadly banks. Rules for they are not 100 the same. There is more. Stay with us. Martin, the head of the financial conduct authority, will be with us after this very short break. We will see you in a moment. Good morning. You are watching the polls. I am guy johnson. Here are the Bloomberg Top headlines. The missing Malaysia Airlines jet still has not been found. They are discounting a search zone as the final resting place of the flight. No trace of the aircraft has been down since the disappearance. Billion. It is the biggest acquisition by apple. A Music Industry executive will join apple. In september. The secretary of state to the Prime Minister. He weighed in on possible changes. A big meeting is coming out. It is widely expected that rates will be cut. You think that is the right thing . I cannot comment on that. I think that the ecb will make a decision that you expect and a lot of opinion makers expect. From the economic standpoint, what impact you think a rate cut would have . Look, for a country like portugal, it would be positive. That is for sure. I cannot measure the impact. Lets lets continue a theme that was brought up. Talking about what is happening with the ecb and extending into the United Kingdom. The chief for the financial conduct authority. The ecb has a big problem with the s mee sector. Area has been week. That area has been week. Been,ctor in britain has a little starved for capital. When you look at the innovation that you see in front of you and you look at the Banking Sector and nonBanking Sector, what can be done and how much is being held back right now . Whats one of the more interesting trends has been financing and the advent of crowd funding. You are starting to see the advent of that. It is an innovation. We have crafted a set of rules. They want credibility and respectability. That is an interesting development. It is very small. At the large end of the scale, you have major private equity firms. Offering a bit of a return. We are it happening in the nontank sector and some of it is outside of regulation. There is a question and worry about debt growing too big and systemic risk. Is that right now. Are you looking at these networks . Once we have brought up some rules last year on peer to peer look networks and, by and in large, we have taken a light touch approach. It is new and early. There are risks. When the products are sold to retail investors, we get more concerned than when it is sold to High Net Worth investors. Gap, theou look at the banks are nervous and we know that. You just made that very clear. How big is the gap for these guys to will . How big do these industries become . The big gap is the british people who are not in the High Net Worth category and should be saving. They are not getting products sold to them, at the moment, because of nervousness in the system about what has happened. Thent think it is governments fall. It is a combination of things. There is a lot of change, and terms of policy and, frankly, the penalties for getting it wrong have gotten large. I dont think they are too big. Some of the things that have gone broad gone wrong are pretty bad. As a resultnervous of that. That is right. They do not want to end up with another product like that. I do not think they will. They want to do the right thing now. Can you give us an update on the review into investments and the complex at investment banks . And that is the summer. We have something that, when you see our enforcement actions, recently with the gold trading, almost every large enforcement case, that is the issue. We are looking at how people are doing that and we will be doing that summer. But somewhat broader reform to the banks are still on the table. Are you thinking about changes to conference nation russian mark compensation is on the table. We will consult on that the summer. You have european rules that involve our United Kingdom c ode. We will look at other parts of the industry. Other parts are payment for research and how it is structured under today possible market and, however my feet structured under future european regulations. I think, yes, the issue has been, a misalignment between risktaking in banks in the short term and in the longer term. Yes, i do. Would be easier to regulate Financial Markets it United Kingdom was not in the European Union . It would mean that we would not have as many directives. Many people look at the directives. Page document arrived on their desk in the last week. That is a lot of work load. It was not coming from the European Union, we would be addressing these issues from the United Kingdom perspective. Would it make it easier or harder . I do not mean in terms of taking advantage of softer regulation or lighter regulation. Im talking about, from a red tape point of view, we would it be easier . The process would be quicker. You have a European Commission that develops and then you have the 28 countries that have the technical heads working out what the rules should look like. The rules have to work for 28 countries. Almost inevitably, it will be easier to negotiate. What is it like being on that committee . It is painful and technical. It is hard work. How much of the time is productive . That all of think my time is productive. I tried to waste my time. They are important issues and need to be debated. You are the head of a financial misconduct authority. It is something that people get upset about. Several years after the crisis, there is so global so little clarity. Who is actually to blame . What do you say to them . Is it a few bad eggs or is it a total problem . I do not think it is a few bad eggs. If it was, we would have weeded it out. It is a cultural problem that developed over a cold a couple of decades. I hope that we are getting to the end of seeing the legacy problems of misconduct with a big cases we have been running and, certainly, when i talk to ceos, i get the sense that they do not want to get it wrong. But one clarity as to how to get it right. How far down the food chain does this permeates . Ethics, culture, important things. Guys, dotalk to those you get the sense that it is further down . You asked about bonuses. I think the challenges, in incentivize parts of those banks, that would have been the proprietary desk. Culture that is more difficult to change. I think we we are seeing is in the retail banks that are further ahead than the commercial all of the organizations. Would britain be better off with fewer risktaking banks on our Balance Sheet. Essentially, that is what they will do. It will be better off, in terms of not putting the taxpayer at risk, that is one of the problems. The taxpayer was at risk. I think we will see a bifurcation of the markets. You have an economy supporting the Banking Sector and you are getting others. Who can fail . The too big to fail debate is around this. You will have others. Be a core driver of the british economy. I do not see that changing. The universal bank model is so popular. I think we will see that this appear. Will start not so popular. I think we will see that disappear. Competitive disadvantage, you can still have inclusive investment bank. But i dont think so. Obviously, the change is trying to do two things. Keep london competitive and have the taxpayer not bearing the burden for excessive risk. The Financial Sector drives the Housing Market and it is a lot of money coming in around london. A light touche of Financial Regulation in the United Kingdom. Talk to me about your fears of what that does to the Financial Sector and the stability of the british economy and the Financial Sector. You mentioned the Housing Market. We have underwriting standards and that is just in. I think it is artie starting to have some impact. It suggests that. We are starting to see some slowing down. We do not start from a macro point of view. We start from a conduct would of you. Where do the underwriting standards the two . Individuals are exposed. That has started to change the market. I think we have to monitor it will stop it is too early to tell. Ok. Iq to Martin Wheatley. Thank you. Thank you to Martin Wheatley. Thank you. A Million Dollars for a car that looks like this 1 million for a car that looks like this. Good morning. Welcome back. For the designminded car buyer, a company can meet your needs. They do not do anything outside of the car. They do is stateoftheart of the art upgrades on the inside of the car. They charge 1 million for this. We spoke to the ceo. The 1952 Chrysler Town Country station wagon. Me. Car inspired andidea was to restore it not do anything to the outside of the car. We are an alternative transportation company. The idea is to take the modern wonder of transportation design and marry it with older as fedex, back when automobiles were more designdriven. Automobiles have always been my main passion. Coming from classic car restoration, i said that i wanted something that behaved like a new car but had more character. Have Aston Martins and. Incoln zephyrs we have grown every year for the last 18 years. The problem for us is a tremendously complicated and timeconsuming process. A Diverse Customer base. The one consistent is that it is all guys. It helps them shed work and city life. All of that. It is a unique opportunity that is distinct and unique. It is not, high look at me, arent i better than you. As you said, i would paint it. It is kind of cool. But if youre going to spend all that money, get a paint job. Is like having a hamburger. You are learning. The bet on fitness is paying off. They have committed millions of dollars to fitness event. . Ave you tried those yes. They say this will revolutionize the industry. They have strong roots in fitness. You remember that, right . Yes. I remember the 1980s. This is totally relevant. Caroline, is reebok going back to their roots . Yes. 1890. Not 1980 . 1890 is when they launched a trainer. Revolutionized women getting into the gym and getting involved in products. Zing this wheni it comes to goods and basketball shoes. But, that is not the americans. Lets stick to the european roots. This is a company that was founded in the north of england and is looking back to fitness. They think that is where the focus should be at the moment. They can drive up sales. Sales have not been that good. Four out of the seven years, the sales have declined. Now, they are looking at yesterday and the Body Workout Program that they franchise. 360 have to franchise degree workouts, where you are surrounded i sunsets, mountains, and doing yoga. You are doing body jams. Dance workout. I spoke to the reebok president. He said this is so than they can move forward in western and international countries. There is a traditional market. This is also a global phenomenon that is growing. We are seeing this in russia, india, and it doth america. The business is booming. He told me that they are pumping millions of dollars in. They are also going to be number one. How was the class . It was really fun and it was dark. A lot of workout classes are like this. This follows the strategy that nike does. Communitybased Health Initiatives and you sell trainers. You inspire people to work out nd you in the dark. In the dark. It is light a boot camp. Have you inspired. Interesting, there are novel ways. What about a watch . They are not going down the watch route. Bei think they are going to accurate and a great measure of your fiscal activity. Is going to be something that you where it is going to be ear. Thing that you wher we are close to talking about things. Very close to announcing new products. Look for that. It is a lot of fun. We are not going as a group. Now. O were right we are taking a break and well be back in a couple of minutes. The Australian Government has proposed a budget cut to the renewable agency. What impact will that have . Lets ask richard. Thank you. Explain what it is and how it works. Sure. Nines for inviting me. It is thank you for inviting me. It is a technology. In fact, we have transitioned it to a solidbased solution. At thecan see that forefront of developments of athnology that is aimed this. The point is that this replicates the technology. You are replicating photosynthesis and it is inspired by nature. Sure. We consider ourselves the only company in the world that focuses on the commercialization of a technology that is aimed at addressing the opportunity of covering the entire building with materials that are photoharvesting. Or the entire exterior of the building. Yes. Turning buildings into power stations. How important is this . Look at three things. The cost efficiency and the durability. We are focusing on improvements to all of those. The building environment has challenges and, ultimately, if you are going to cover the building, you need the product for the life of the building. This is a seriously big financial issue to tackle and that is why they are continued to be considered to be the holy grail. Interesting. That theith the news Australian Government is scrapping renewable targets. How does that Impact Business watch mark in truth, little. Business . , little. Th we are skeptical about the role of government in the solar industry. There is so much change to government policy and their ability to fund the development of this industry. Most industry players have separated or reduced their reliance on government. I think what we are looking for with government is in relation to things. Relation to policy and relation to it is so fickle. I think that i have developed a cynical view with the role of government. Sure. We look to exist in the spite of government. Richard. Thank you for joining us. Lets go to the newsroom. Guy johnson is standing by with a look at what is coming up in the next hour. Yeah. What are we talking about. A big day. To talk about what exactly we can expect from the central bank in a moment. The ecb Vice President about next weeks highly anticipated rate decision. A bearish view. Rushs biggest banks profit dropped 17 as it faces an economy slowed by sanctions. Apples big bite. Snapping up needs snapping beats four 3 billion. Good morning, everyone. Good morning to our viewers in europe, good evening to those in asia, and a very warm welcome to those just waking up in the u. S. Morning, i am guy johnson, this is the pulse. Live from london. What have we got coming up food that is out of this world. The experiment that might have astronauts growing and eating their own profit their own cross in outer space. But first, another tasty morsel. Just a week away from what could be one of the most closely watched policy decisions in some time from frankfurt. Themberg caught up with Vice President. Jonathan ferro has details. First of all, i am excited. He is joining a chorus coming outside of the ecb at the moment. We were posing questions about deflation and they were batting them away. Now there is a feeling of risk about low inflation. Longterm low inflation. Is about the outlook for the medium to long term. Was adding to that yesterday. Take a listen. The greatest concern we have as not as you personally thatdeed the risk prolonged period of low growth and low inflation will create all sorts of risks. Low inflation, what are you going to do about it . Looks like a rate cut is on the table. He will take the deposit rate negative, with that be enough for this market . You think i negative deposit rate . Everyone thinks that. The currency this is not been priced in yet. We have gone from around 1. 40 to around 1. 36. Fxyou look at some of the strategists, a negative depot rate does not take as much to the low, it puts a cap on the euro. The important part is to stop the prescient shot the euro Going Forward. That is a vital part of that policy. Anything else . What happens if the ecb does not act next week . Anything . Not even a rate cut. I will talk about this next week. Heres the interesting part, in the last five years the most important policy that has come out of any central bank is not qe or forward guidance, it is whatever it takes. You did not even need to buy a single bond for that to be effective. I have got an unlimited bond buying plans. Game changer. Let me finish. Underlying that, the foundations of the promise is credibility and the power to elicit belief. He put expectations up so high that as the ecb if the ecb fails to act next week, it would kill the Central Banks credibility. Callrong for action is the that there is no stepping away from it. The market has moved in anticipation. 1. 36. 40 to below talk about pricing in, you get to the point where it is delivered and you get the opposite reaction than the one you would expect. You wonder whether or not the reality of a negative deposit chargeden youre being that is true i wonder whether that will be a game changer. I am not a fortune teller. But from the people i am talking to they are talking about capping the euro, not pushing it down any more than it has. About portugal, the secretary of state to the Prime Minister for portugal has been speaking about the ecb. Olivia sterns do the interview. He talked about policy changes and what he would like to see from the central bank. Ecb meeting is coming up. It is expected that mario draghi will cut rates. Do you think that is the right thing to do . On that as amment person but not a government official. I think the ecb will take the decision that you expect and a expect, ition makers is not a point for the portuguese government. The pure economics of it, what impact would a rate cut have . For a country like portugal, that would be a positive impact for sure. I could not measure that impact as a government official. There were no rate cuts previously because of the translation mechanism not working. You set rates in frankfurt, do they get disseminated to a country like portugal . If there are cutting rates, is there a sense that the transmission mechanism is fixed question mark when mario draghi talks about contractors, about the inflation across the eurozone. He wants to address that with rate cuts. When he talks about local factors like a transmission mechanism that works in germany but not spain, he wants a targeted measure. On monday he suggested you will get some kind of targeted measure towards sme, small and Medium Enterprises that generate 80 of employment across europe. In portugal, many are struggling to get financing. How he goes about doing that. Your point on the next deposit rate is really important. The only experience we have with a negative deposit rate is in scandinavia. No Major Central Bank has implemented this initiative and it would be very interesting Going Forward to see if this really is priced in. We will find out thursday. That is why for me it is so gripping, the buildup to this next week. Everybody expects this but who knows the consequences question mark do the central bankers know the consequences of a negative deposit rate in the eurozone . Outhe idea that everyone is of the woods happy, happy here. Thank you so much, jon ferro on the central bank story. Lets go to the commercial bank story. Profit slumping 17 percent and missing estimates as russias economy is hurt by sanctions. What happens next is interesting as well. Hans nichols joins us on that. A most interesting number we will do a lot of numbers, jon. Erro it is the forward looking numbers. That is the provisions sberbank has set aside for loan losses, they have doubled provisions. This is a barometer of the russian economy. It is difficult to figure out what is happening because we have only lagging indicators. The imf says the country is in recession. The First Quarter growth was at. 9 percent. Heres what we have from the biggest lender in russia. Last quarter profits missed by 17 . Fell to 73 billion rubles, that billion. Last year it was about 80 billion rubles. When you look at the provisions for bad loans, all the way up to 77. 1 billion rubles. That is almost 2. 2 billion. That is a remarkable set aside for an economy that was coming six months to eight months ago. A lot of pressure on the ruble. A lot of these figures are really before and a lot of the serious sanctions hit with regards to crimea and ukraine. How bad is it going to get . These are disappointing numbers that missed estimates, but can . Hey get worse and how much how far in retreat is rushs economy . Should we asked Angela Merkel that, how bad can it get . Shes concerned with the economic side because so Many Companies in germany have exports to russia, and export heavy economy in germany. She is trying to bolster and a sure neighboring countries that likee minister of the Prime Minister of moldova, georgia, and ukraine that they have an ally if they want to look to the west. This is not an either or proposition. A clear message to mr. Putin, yes, she is welcoming eastern European Countries in berlin but does not necessarily a zerosum game. Hans nichols, thank you very much indeed. What else are we talking about this morning . The missing malaysia and jet is not in the area of the indian ocean or ships have been searching for almost two months. Seems like stating the obvious. Investigators are discounting the searches zone as the final resting place for flight mh370. No trace of the aircraft has been found. No trace since the disappeared march 8. Former nsa agent Edward Snowden says the American Government wants to label him as a lowlevel System Administrator and that is misleading. Highlevel he held positions in u. S. Intelligence. U. S. Is no secret that the gets better intelligence out of computers nowadays than they do people. I was trained as a spy in the traditional sense of the world. I lived and worked undercover overseas and even being assigned a name that was not mine. In,alking of listening apple has agreed to buy beats electronics for 3 billion. It is the tech giants biggest ever acquisition. Beats founder dr. Dre will be joining apple. Coming up. Cutctations of an ecb rate next week are gathering. We weigh the evidence with the chief european economist at Deutsche Bank. Plus, growing vegetables on mars. Why extraterrestrial farming could be the next frontier for food. The assessments of the present situation of Financial Stability is that it has improved. It is not an immediate concern. That was ecb Vice President Vitor Constancio speaking ahead of the ecbs very much anticipated decision next week. The euro has been moving since mario draghi talked about the fact made it very clear we will see some sort of action at the frankfurt meeting. This is a session chart today, picking up a little bit. In his ascension day, that will take a little bit of volume out. That is the threemonth chart. You can see the impact of the words from mario draghi, jiving the euro lower in the 1. 36s. Are we going to go any lower . It is better to travel then arrive, we have priced in everything we are going to get from the ecb or are there still surprises . Mario draghi has the ability to do that, he has done it in the past. Gilles moec is the cut chief european economist at Deutsche Bank. Good morning. Gone high 1. 38 21. 36 euro dollar. Talk to me about how much the market is anticipating here. If we have a deposit rate cut from the ecb, would you expect even more to flow through in terms of Market Reaction or have we seen it all already . I dont think we will see that much more. Had during the Previous Press conference was a kneejerk or Quick Reaction to what we are seeing as a very forceful comment by draghi. Since then, a lot of investors have done their homework on the negative deposit rate. Bad reasons, it is seen as the natural instrument to try to curb currency. What they have discovered is that the impact that it would have today is much lower than it wouldve had a year or 1. 5 years ago. The realm ofin things that are not necessarily traditional. It is more about a natural things downtaking than directly taking the big taking then directly the Dividend Rate to negative territory. It is not going to flush that money back into the system or reduce the Interest Rate differential between the eurozone and the eu that much. When we have seen is that a lot of the flows that went into europe and that explained the strength of the euro are more in the equities space then fixed income. It is hard to think that it would have a massive impact on the currency. Why do it . Because you have to be seen as doing something. Were still within the realm of conventional policy. But if mario draghi stops there quarter down by 10 basis points or 15 basis points, i doubt there will be a positive reaction. The idea is that we will get some sort of patrick with the idea is that we will get some sort of package with a targeted ltro. What is interesting is a, the big problem with the eurozone right now is that it has a current account surplus. As long as you have a substantial and resilient currentaccount surplus it is hard to argue that you need deep depreciation in your currency. What external investors could say is that you need to stimulate demand. You cantimulate demand, try a few things and the ecb will try some of them next week. What we might have is something that is very much focused on the liabilities on the banks. Improving the funding of banks and not going into what i think is really the issue to get to the asset side of banking activity and to get to some sort of risk sharing of credit. There could be a few things i do not really see the ecb as crossing that rubicon and really putting its Balance Sheet there and really offering this kind of risk sharing. Demandhe problem of going to go away . Some stays as it is now, point theyre going to have to cross that story and get over the idea that they will have to put their Balance Sheet at risk. When does that come . If not next week, when . What we have been saying is that it is something we will need to get into by september or slightly later. In these that when sense that we might be a bit cynical but our impression is that rebound of demand is very the move from fiscal austerity to neutral policy. It would be very hard to think that right now we cant afford to move from neutrality to fiscal stimulus. If you are stocked on fiscal and you still have an issue with your currency, if you have lackluster external demand then you need to get into an extra bit of management that involves monetary policy. And you probably need to get into large scale assets. Big steps still to come. Thank you very much, gilles moec atochief european economist the shebang. Lets take a break. See you in a couple minutes. Welcome back. To talk technology, one of the hottest areas in the sector is the internet of things. Everything is connected, from internet. L. A. Can has more. Elliott gotkine has more. I am joined by the ceo and founder of telet. The internet of things calls to what you do. Tell us more about how you do it. We are definitely part of the internet of things re volution. We are participating in the subsection named by ge industrial internet. We provide a communication the new andll legacy products such as electric meters that want to become part of the smart grid. Cars that need to be connected. Point of sale that needs to go over the air. Video surveillance, alarms, security you name it. Your growth in revenues and profits has been pretty pa cy. You are in audi cars, garmin, tyco security. Where do you see the most growth . We have looked at the market in three subsections. The first is industrial m to m. You mentioned some players. Huge one, thea connected car has already been branded. We are a significant player there. Of course, the platform as a service we have introduced a year ago that is grown significantly. We are providing connectivity and cloud service. You announced you have increased your stake in telit. What is the plan for the company now . You are on the alternative investment market in london. Plans to move to the main market or list on nasdaq in the u. S. . A few minutes ago we announced an acquisition of additional shares, which i am actually buying from the partners. I did a management buyout seven years ago. I am doing chapter b on management buyout. Basically, the way we see the Financial Market from a telit point of view we are considering the move to the main market in london. I am not saying we will and i am not saying that we will do and is really Stock Exchange listing Stock Exchange listing. But that will enable us to list on the israeli exchange. Nasdaq is also a potential listing for us but not before we reach significant market cap such as 1 billion. When might we expect that . You are worth about 250 Million Pounds right now. We are worth over 400 million right now. Im obviously not able to say when we will be worth 1 billion. I can share with you the vision of becoming a 2018 a 500 Million Company with platform as a service to be about 100 million. Really appreciate you joining us, ceo and founder of telit. Bartthe exception of simpson, the man with the coolest name ive interviewed. Joining usgotkine from tel aviv. Time for todays pulse number. 2. 1 billion, how many people were obese or overweight last year. The worldsf population. Researchers estimate of the number after examining data from 133 countries. The u. S. Has the largest percent of the worlds of these people. China came in second and india third. Welcome back um youre watching the pulse, live from london. Investigators say the missing not in the area of the indian ocean where chefs hat where ships have been searching. It disappeared march the eighth. Edward snowden says the u. S. Governments efforts to label him as a low level employee are misleading. He told nbc that he held highlevel positions in u. S. Intelligence. No sacred that the u. S. Gets more and better intelligence out of computers nowadays than they do a lot of people. I was trained as a spy in the traditional sense of the word. I lived and worked undercover, overseas, pretending to work in a job that i am not. Even being assigned a name that was not mine. Russia calling for unspecified emergency measures to halt violence in eastern ukraine. This after separatist militias suffered the heaviest casualties since the crisis began. Dozens of militants were killed in a government operation to retake the Regional Airport in donetsk. Ascension day and many european markets have light volumes. Things are happening. One, spain is growing. Rajoy is delivering. Veyear bond issuance at a record low. Ust over 1. 62 is that correct . Is that the correct price for the italian economy, to be able to borrow money from International Markets . That is the fundamental question that will be asked. If you are going to have qe or credit easing, whatever it is that the essential bank decides to do in the next couple of months. Is it going to cause another wall of money to come into the markets and take already ultra record low borrowing rates is that the right price . Between germany and spain. I those two countries really that close together in terms of difference . I do not know, i do not trade bonds anymore and i do not sell bonds anymore. Inis a heck of a narrowing the gap. Dollar sterling 1. 6717. Big rate hikes, take them early, take baby steps. As far as the equity markets are concerned, day three of a rise in the u. K. With levels you have not seen since 1999. 1999 was the last time you saw levels in the ftse 100. That seems to be the fts article. Allreplacements, we will need them one day. Stoxx 600 just off a sixyear high. Praying,luxembourg perhaps where i should be as a good catholic. Thank you very much, not sure how to follow that. 25 minutes until surveillance with tom keene. He joins us from new york with a preview. Looking at what the president had to say yesterday at west point. A big splash at west point. Just north of new york city, it is a gorgeous setting come back to the graduating class of 18 oh two. What the president did was really newsmaking. We will speak with Ambassador Richard jairus from the council on foreign relations. He was respectfully critical of the president s speech. In the haas will join us 7 00 hour as we look at the president s view of how our Foreign Policy should project. We look at the bond market manus cranny was talking about. Olub from ubs will join us. It is a historic bond market as we look to the ecb and mario draghi. Looking forward to it already. Tom keene, surveillance shortly on bloomberg television. Talking of denver television, and exclusive. We spoke talking of bloomberg television, and exclusive. We spoke to the financial conduct demonstrations Martin Wheatley. He talked about peertopeer. One of the most interesting trends in smes has been peer to peer lending. It is an innovation, we crafted rules that bring it within the regulatory sphere. The Industries Want credibility and respectability. That is an interesting development. It is very small. Of the scaleend you have major private equity funds doing direct lending to smes as well, it has a better return on investment. Martin wheatley at bloomberg this morning. Calling for innovation within the Financial Sector, particularly when it comes to credit for individuals and smes. Lets talk about this subject. We have the cofounder and chief ofrketing officer the peer to peer lending marketplace Funding Circle. You have been through the regulatory hoops martin set out. They comes with some downside, the effort you have got to put in. The fact that the industry is becoming more recognized has huge advantages. Hugely. If Funding Circle is a way for businesses to borrow from people. Consumers lend money directly. They take a rest for doing that. In a world where there is a risk environment it is important that theres a regulatory environment. The industry is now worth over one billion pounds in the u k youre getting to the size, it thetill small within financial indices the financial world, but it needs regulation. It is a headache doing it but it is a headache we need. He was talking about the fact that banks are a little gun shy in certain areas of the market. They have been burned life things like ppi. Opportunitiesg for businesses like yours. You talk about besides the industry is now at. The growth rate has been extraordinary. You are growing very quickly. That gap is how big he is talking about . When you look at any industry, music or online , businesses, and challenge and it takes many years to get there. 15 years ago, no one had heard of google. It is very easy for big banks to be dismissive of small innovations. For the First Time Ever the last year, we have been having conversations with banks that say how do we work with banks. We developed, we believe it is a risk ofay of assessing businesses. A better way of lending to them. Doing that in a more effective and costefficient way. We believe in a future where we will work alongside the banks and were together to give more services and get more lending out to businesses. How do you reduce for action further . How do you reduce friction further . Think about our business model, we use the internet to allow businesses to register online. The ability to pull in data from different places. We are a Technology Company at heart. That reduces a lot of friction. About 55 of frustrations by businesses are in hours about 55 of registrations by businesses are in hours were banks are closed. I find it amazing that banks are for as long as other retail businesses. What has developed is a Better Service for that business. Therefore, i think the growth has been 200 a year for the last three years. In our minds, that will keep going. If you look at innovation across the atlantic, it is the u. S. Market more developed . What innovations do you like . U. S. Now as the well. We are excited. Went over in october. We got a business over there that is doing very well and similar to the business over here. 50 people there, 150 in london. The business is going well. The need for businesses come a Small Businesses to have capital to grow and employ more people is still there. The banking market is very different. It is less concentrated than it is here. The speed and the cost of finance is still an issue. Thehat is the potential for eurozone . We spent the morning talking about the fact that small and mediumsized business is in europe are credit safed. Are credit starved. Can you talk about that . Great question. Many companies are trying to do what we are doing. At thing that were looking challenges are regulatory. You have Martin Wheatley on the program. The u. K. Regulatory framework is different from italy, spain, etc. Not a Single Market from your business operating in europe . Isnot at the moment, the fca trying to lead the charge. Different european markets have different views of how it works. There are Different Things like credit data being different in different countries, etc. If you go back to what we are doing, it is very similar we are a new banking model, if you like. We are a london Stock Exchange of Small Business loans. In the same way someone can trade on the Stock Exchange across europe, in the future it is easy for you to open an office in the states, easier than madrid. Is theuld not say that case, they are both challenging. The u. S. Market is huge and it makes sense to do that first. The Business Community is going on. Nice to see you, thank you very much indeed. Joining us from the Funding Circle. We will take a short break and be back in a couple minutes. Welcome back, youre watching the pulse. At the has apple has agreed to by Beat Electronics for 3 billion. The tech giants biggest acquisition. Robert franco joins us with more. We have been talking about this story for some time. We have known that these guys are going to get pretty rich. Talk about how rich, where they sit in the pantheon of billionaires, give us a few details. It is a great story. In the pantheon of billionaires jimmy is richer than dre. Dre is not going to be a billionaire on this deal but he is getting closer. A lot of conflicting numbers. The stakes that they were in correctly reported, drew 15 and jimmy owns 25 . They own part of that in stock. Getting taxed at an when the deal closes, he will be just over 1 billion. Dre is a couple hundred million short. Give me some history. Brand, itw the beats is everywhere. What does the history look like . The history of jimmy and dre. Iovine was at the forefront of rap music. He got into trouble with bad lyrics. These guys have been partners for a couple decades. They created a partnership, aftermath records, they have been partners for a long time. This came out of the two of them wanting to do something different. Ownsally, vivendi, which universal which owns interscope where jimmy is. They said you can do this on the side, they got 14 for allowing jimmy to do this. I will make about 500 million off of this. Beats involves monster cable, it parts maker in california. They nailed it. They got the marketing bright and creative the right buzz. Dre has a huge cachet on the streets. It became a musthave product. Why now . What are they selling this business for and what do they do next . Their hugely successful, why the deal now . It is as good as it going to get or do they have Something Else . Whats the inside track . That is interesting, the why. These guys are not your classic entrepreneurs. They have used Corporate Cash to create assets that they have been built. Record labels and then this company. Jimmy has had a close relationship to steve jobs, who really tried to court the Music Industry when he was alive. Apple has courted the Music Industry. Andthe Music Industry then the Music Industry because of the structure of the deal. This is apple pulling in one of the most influential people. A guy who has immense credibility with what i am curious about. They are getting two employees that are hugely charismatic and influential. It is a bit like Angela Ahrendts in a way. This almost feels like a hire deal. They are buying influence, buying Jimmy Iovines influence. Talk about buying the value chain. They can create their own headphones, that is not hard. Is beats Music Service miniscule compared to spotify or itunes. Apple has, in a series of attempts, not created a streaming music business, this gives me another chance with an established brand. I think this is them bringing cool back tackle. Backb lowe frankel cool to apple. Thank you, rob. Reebok has committed millions of dollars in sponsoring Group Fitness event such as the spartan race. It has a new workout concept that it says will revolutionize the fitness industry. Here with more is caroline hyde. Fresh, not so fresh. I shower. Regard trying to get cool back a. D focus on its roots back in 1890, the original reebok developed trainers. In the 1980s, they brought fitness to women, particularly with the step. Getting everyone into the studio. Sales have not been great since in 2006,ught reebok sales have deteriorated four out of seven years. They are starting to get that back and feel momentum because of the focus on fitness. They want to be the number one key player in that area and they are channeling money that way. I spoke to the key person of reebok come up not as will i spoke to the key person of reebok, matthew otoole. Our marketing all efforts behind fitness. Hundreds of millions of dollars in activating this new form of fitness. Hundreds of millions on what you just saw behind Matthew Black boxes. You are surrounded inside by a 360 degree cinema. It is like working out in an imax cinema. I went in and tried the body jam, a dance workout. They put it together with les mills, known for body combat. They franchise these out to jims. They are trying to franchise these immersive experiences called the project immersive fitness. I was doing yoga surrounded by sunsets and i was doing a dance workout surrounded by a club with 20 other people. You can do dance workouts at a festival, there i am, luckily in the dark so you cannot quite work me out. It was really good and a lot of fun. Who else is in there . Other journalists, it is sort of awkward. But a lot of fun. They do have some spare laces lined up today. You could go. I left my gym kit at home, sorry. Break. Going to take a thank you very much for that, caroline hyde. Her best footing forward. We will be back in a couple minutes. Welcome that, youre watching the pulse. Nasa has spent plenty of monkeys and humans into space. They have been shooting plants into orbit since the 1960. Lets look at the latest experiment on the International Space station. Lettuce, sounds like something in the muppets here lets talk about the currency markets. We will show you how to get from one to the other. The sign that has been coming 16,k is the euro dollar, 1. 36 mario draghi having a big effect after the last decision by the ecb council. The question is, what happens next . Time get a big move this next week, how much further lower will be go . How vulnerable is this currency and how much is this priced in. Gilles moec of Deutsche Bank was telling us he thinks a lot of this is already in when it comes to the currency markets. 5 forgdp negative the First Quarter. The Federal Reserve seems to be looking through it. Low inflation environment continues to push down u. S. Yields. You see the 10 year down the low two point 5 . The five year, record low borrowing costs. Expected in a low inflation environment. You have the front page of the ft saying you need to go early and raise rates. And then the markets pricing in lower rates for longer. I dont know. Thats it for the pulse, keep it here on bloomberg television. Up next, live from new york, surveillance. See you tomorrow. Content is king. Apple acquires feed music. Beats music. Draghi will act. And a new asian society. China looks outward. Good morning everyone. This is bloomberg surveillance. It is thursday, may 29. I am tom keene. Joining me, scarlet fu and adam johnson. We have a terrific morning for you. First, lets get to our brief. Lets start with japan. Retail sales fell for the first time in years. You raise taxes on people and they will not spend as much. Spain, different story. Households spending up. They say they will postpone interest raises until after the president ial election in october. Here in the u. S. , gdp annualized. That will betive,