Transcripts For BLOOMBERG The Pulse 20140711

We are live at bloomberg headquarters in london. I am guy johnson. And i am olivia sterns. We are going to get into our top story. It is a big tobacco deal. Imperial tobacco confirmed that it is in talks to buy some major u. S. Cigarette brands. Could spend 7 billion on the acquisitions. Lets find out. Caroline hyde has been tracking the story. We have a merger taking place in the states. The regulators are going to want them to spend some out. They have some interest. Exactly. Have speculated on since the initial share sale of logista. Today, they will raise about 4 Million Pounds. Everyone wondered what they would do with this money. Will they invest it or pay down some debt . Could be could they be putting some of this money into these American Assets . They said yes, they are eyeing certain brands that would likely have to be disposed of between reynolds and lorillard. They are looking to form the secondbiggest player in the united states. It will be the biggest m a deal ever in the tobacco industry. It would bring together the newport brands, camel brands, both of these stocks have risen more than 20 so far this year on the excitement surrounding those talks that have been going on. It has been taking them months because of the regulatory hurdles they are likely to face. Could sellrands it which would increase the market share of Imperial Tobacco. Maybe they could snap up the likes of cool, winston. That is about 5 of the u. S. Market, the brands that would have to be disposed of by reynolds. What Imperial Tobacco already have. Already, Imperial Tobacco has 3 of the u. S. Market. But it wants scale. This is what the chief executive has been telling us. We have positive momentum going on in the united states. They are looking to build on that. They want bigger scale and more brands. To 7 billion is what the actual value of these brands could be. Biggestuld be the tobacco deal, the second and third biggest players in america. Even if they do combine, they are still much smaller than the biggestltria, player in the field. It is interesting. Longterm trends, cigarettes and smoking, in a state of structural decline. Why are they trying to build up this business . You are exactly right. They are trying to get synergies, scale, and have money to be a will to put towards development and research into ecigarettes or new ways of taking in nicotine without having the negative side effects of tobacco. The dealderstand why would work for Imperial Tobacco. They want to build up in the united states. They see positive growth momentum and they want to get profitability. . Hy reynolds and lorillard it is about pricing power. Together, they would be the number two player. 13 billion worth of sales. They would have more costcutting initiatives, resources to drive road. To drive growth. As you say, it is in a state of decline. We are going to see consolidation within the worldwide area. Interesting that china is going slightly slower than the rest of the world. Likely will fall about two. 4 , more so in the rest of the world. It is all about consolidation. Also look out for British American tobacco. They hold a 42 stake in reynolds and they could win out he win out. M a. Kes sense, a lot of now it is time for a bloomberg exclusive. Jonathan ferro sat down with Ecb Governing Council member nowotny and asked about the strength of the euro. I think the markets understood the message. At least the appreciation of the euro has stopped. In that sense, this rogue rim has already proved to be successful. This program has already proved to be successful. We have looked at influencing the us change rate. The Exchange Rate. There is no prospect of intervening. On the other hand, i think there are a number of economic tend, inves that would a way, of a certain devaluation of the euro versus the dollar. Jonathan ferro joins us in the studio with more. A great interview. He does not speak to us often. What were some of your other big takeaways . Bond qe. Told me that they were overweight euro because qe might be coming. I asked him if qe was coming and he said not right now. That is where the ecb is that. On the issue of the currency, i found this interesting. Ecb, if they said they could not drive the euro down much more and they could define the notures because they were appreciating it anymore, and that is where they were. There are some deeprooted problems in europe and todays market events remind us us of that. I am fascinated by this. What i am really fascinated by was how cautious he was. Tough to get things to happen. Very much on message. If you are not familiar with mr. Nowotny, he has been very outspoken throughout this financial crisis. Touching, 15 minutes on every single base and towing the party line on pretty much everything. Me never giving me his view, his personal opinion, and that is very unlike him. I think the ecb is being very cautious and are very sensitive to the measures they have unveiled. Later, talking about budget flex ability and the like. Bondi asked him about yields at 3 in italy and spain, of course he is not going to say this is a big problem. Because when you get him saying things like do not worry what do you make of it . Why is he towing the party line . Is he about to support qe . Is he going to change his tune . I do not think it is on qe. A terrifically read amount into it. It is just an observation. Veryis a man who has been outspoken. The main man is mario draghi and he has a message. He is going to be the one that you listen to. And the question that i pose is, what can they do about the euro . It is not a lot. Just look at the flow. You cannot stop the flow. You can have low yields or a low euro. The mechanism does not work. On top of that, the euro weakening is not going to solve anything. Have got to reform the likes of france. You have to be more competitive against the likes of germany. You have got to do something about that within the euro zone. Best of luck. Thank you so much. Relations with germany have taken a turn for the worst after Angela Merkels government kicked out a double agent who was discovered spying for the united states. They are kicking out a u. S. Official who was potentially trying to turn german officials. Hans nichols has more from berlin. What we know about the individual that they are asking to leave german soil is the head Intelligence Officer at the u. S. Embassy. Cia reports have him as the station chief. We have not confirmed that here. Is angela is thing showing her outrage and trying to get the u. S. Attention on how upset she is. Not only the fact that her cell obamawas cap tapped, tried to make amends on that, but that the activity is ongoing , the spying on friends. A 31yearold individual set off these cases. He was apparently a double agent. He worked for the German Security agency and was selling secrets to the u. S. There is a debate internally in germany about how sensitive the documents were. It is a massive diplomatic issue. It is unclear how you wind down from it. It is going to be challenging. Tracks, we have to ask you about the football. A lot of excitement in germany now that they are headed to the final versus argentina. Productive, efficient, these are only we do not use to talk about germanys economy, but also the team. The team has been remarkably productive. Take a look at gdp correlation between goals scored. Germany clearly, you can see a correlation there. Their gdp blows its per capita gdp for argentina out of the water. You look at some sort of metric for efficiency. Labor productivity and argentina is around 13. 8. 57. 6 four germany. Goal, 62 us shots on of german shots are on goal. That is a productive team. Indeed. You very much hans nichols covering all the angles for us out of germany. The germans are fairly imagine it imaginative. They have found ways to beat teams and overwhelm them. My money is on germany. Really . Mine is on argentina. Well we will see. Maybe we can put some money on this. Very interesting. Moving on to israel, World Leaders are trying to persuade israel not to it invade gaza. Israel is staging more soldiers at the border. Elliott gotkine is live in tel aviv. Give us the latest. A number of developments today. First of all, israel has called another 30,000 reserve soldiers greeted the total is 30 3000 now. Three infantry brigades have been deployed around gaza. At the same time, a few minutes ago, before i came to sit here and read to you, the sirens sounded again here in tel aviv. Thatrmy spokesman tweeted three rockets were launched over central israel. All three were intercepted by the Missile Defense system. We also had our first injury here in israel after a rocket fired from gaza hit a petrol station, setting it on fire. One serious injury there. The death toll in gaza keeps rising. We are at about the 100 mark so far. Many of them women and children. In the talk about possible Ground Invasion, which these reserves are being called up for in the event that it happens, i do not think it is a move that president netanyahu will take lightly. Last time it happened, or than 1000 palestinians were killed. Frightening escalation, it looks like. We do hope you stay safe and thank you for continuing to upthe story for us. Next, more from our exclusive interview with nowotny. His thoughts on risk and growth in europe. We will be hearing from him when we come back. Welcome back. You are watching the pulse. You have been hearing from our exclusive interview with Ecb Governing Council member nowotny. He spoke about the limits of centralbank action and what Central Banks can do with her and see growth and risk in the region. Yesterday, the Parent Company of Espirito Santo missed a few debt payments. Of marketshead research at the bank of tokyo. Good morning to you. What lesson do i learn from yesterday . Well, fairly that there are still risks out there. My guess is that this could pass relatively quickly and one of the lessons is that relative to win this would have happened a couple of years ago, we do have a structure to deal with the failure of a bank and the fact that there has been worked on to put in place a structure for a failed bank. Good enough . Well, it is definitely progress from where we were two years ago. Given what we have gone through, i think the other lesson is that there is a huge amount of determination to ensure that whatever happens, the politicians will do whatever it takes to maintain the single block. That has reassured investors to some degree. The too big to fail problem is still a much bigger concern. A major were a story of European Financial Institution in trouble, like we had yesterday, then i think the story is different. Place,ucture in investors are assuming there is a credible structure to deal like whathing that happened yesterday. The structure itself is so confusing. People did not know how to price the risk. Gotten better. So much of the focus was to break that link between sovereign Balance Sheets and the bank Balance Sheets. You said there is progress being made. Your you think that if one of these banks fail, that could tip us into another contagion crisis . Over the shorter term, there is still the link between the Banking Sector and the sovereign. Primarily because the sovereign starts being created as a potential source of finance for recapitalization. It will take many years for that capital to be built up. There is still that link between the sovereign. Since the lows up point in june. There is certainly risk that still exists. The stoxx 600 over the last month, if you look at the charts was justes, yesterday an extrapolation of a trend that has already been in place for quite some time. You are starting to see european equities maybe tailing a little bit. There is a big flow out of the eurodollar. If you start to see that extending, where does that leave the euro western mark equities extending higher still . Extending lower. I think the parts of my forecast in terms of looking for the euro to be lower, a big part of why the euro has been so resilient has been flow from portfolios and the improved confidence stemming from that. Days, but werly have a very significant net outflow on the money market side onthe portfolio flows and the bond and note side in the month of april. It was a record outflow, the two of those combined. The equities are still fairly resilient. ,e do think that valuationswise, the idea that we will see substantial further equity inflows over the next tix months is certainly a lot more tenuous. I think the capital flow story is beginning to change and that could be crucial for seeing the euro finally moved to the downside. The market move was all reaction in portugal. Do you think that was really the case . Some say there was a lot of other weak Economic Data out there and some bad numbers out of france. The message from janet yellen was you are not pricing risk appropriately. Think novotny touched on some of those concerns. What the ecb did in june was more about buying time. In your interview, you mentioned that what they have done was stopped zero the euro from moving higher. That is all they can hope for at the moment. And the fact that the irony of aboutxpressing concerns the markets being complacent when it has been driven by their rhetoric is somewhat amusing. But i do think that the big change for the markets is coming in the rhetoric that we have is going to change. Semiannual next week is a little bit too early, but in september, when we have the new projections, i think there is going to have to be a more explicit acknowledgment that we are much closer to raising the rates. Where is eurodollar on the day of the first u. S. Rate hike . If we are correct and if that comes in q2 of next year, then i think we are high 1. 20s, perhaps. If the euro moves lower, we are probably done. We are not getting wanted native easing. The story is not going to flip. Some people think this 1 trillion injection of lt ros i think that is a bit optimistic. If anything, the Balance Sheet will remain stable. If the euro starts to move lower, the Market Expectations are going to shift. I think that brings in some degree of support for the euro. 1. 20s. Uld suspect high nice to see you. Have a great weekend. We are going to take a break. Back in a couple of minutes. Welcome back to the pulse. Time for a quick markets check. Equity markets are reviving. A little bit of a reprieve. Five Straight Days where equities dropped. A little bit of m a talk in the u. K. Stoxx 600 still losing over 3 of its value this week. To that end, it has been about the banks. There in burbank have written a note saying they should not be overly concerned about what happened in portugal yesterday. Wellbehaved country in portugal and if they needed any help at all, i mentioned some some of the m a theme. Markets moving higher as we hear confirmations about potentially getting some u. S. Brands. Relief coming in the form of the banks. A lot of the financials under pressure yesterday. That is dissipating. The initial shock. It does show you this. We still have got this big tie up between sovereign Government Bonds and banks. The slightest hints out there and that is what causes markets to move. Portuguese Government Bonds, as you can see today, rising just over 4 . After the break, we are going to get all foodie. It is 9 30 in london. Welcome back. You are watching the pulse. I am guy johnson. I am olivia sterns. Here are the Bloomberg Top headlines. Ewald nowotny tells bloomberg he sees no need for further ecb action in the near future. But the ecb governing body member did not rule out quantitative easing. Aspects ishe main the general economic development. What we see in europe is that we do have a recovery but it is not a very strong recovery. Banks,ing with central mike mckee calls up the chicago president , charles evans. He asked him about u. S. Unemployment and what rate may be sustainable. I think it is more like the normal rate we used to think of before the crisis, something in the 5 unemployment rate. That is what i take to be the sustainable rate. At six point 1 , we still have quite a ways to go. You see a lot of slack. I do. I think the low wage growth is indicative of that as well, plus the lower inflation. Some record labels are said to be nearing a deal for a stake in sound cloud. The german Digital Music company is negotiating with universal, sony and warner. This would be an exchange for not selling sound cloud for copyright violations according to people familiar with the plan. More on sound cloud. Thats had to hans nichols in berlin who knows a thing or two about this business. Guy, this is a relatively simple and elegant solution to soundoblem challenge cloud has if it faces legal action. The record labels have decided to treat sample out to a radio station. To treat sound cloud like a radio station. They will get equity in a company that hasnt popped yet. They will get a 3 to 5 stake for the licenses. That values the company in the someo 6 million range valuations have been as high as 700 million. Sam clout is this Massive Company where people upload songs. You look at how many users they have, 10 million by 2012 and 30 million by 2013. They register 70,000 people a day. Right now, up to 250 million users. They are backed by institutional investors. They have some big money behind them. If i were to upload say a favorite dylan song that i bootlegged somewhere, if dylan is covered under the license agreement, that can stay up there and other people can use it. The record label would get a cut of that. For the first few years before soundcloud is profitable, they get a flat rate. After a while, they get a cut of the profits. This is a great deal for the record labels but it also allows soundcloud to be viable. They could really take off. It is basically legalizing napster. Is this a model, something that others could use . Is this such a neat and elegant solution and so simple that we could see this replicated . Yes. You just have to renegotiate with any other and there are other competitors to soundcloud. The record labels would have to renegotiate with them. Whatever licensing fees, just like record labels negotiated in the 1950s with radio stations. You saw apple really shake this up when they went to the labels and said, we will pay you. There still isnt a store that quite rivals itunes as a place where you can buy music. Google might disagree with you. Samsung might disagree with you. It seems like most of the music is apple. Soundcloud wants to get there. The difference is that people upload the music, not the record labels. I would love to know what is on hans nichols ipod. You can find out. I want the ipod. You are behind the times. I appreciate that but i suspect so is hans. We will be on the same boat. He got into the hottest nightclub in berlin. For 20 minutes. [laughter] moving onto one of our other top corporate stories. Consumer giant unit letter is shedding more assets. This time, slim fast. Here with more on the deal is caroline hyde. Caroline, this was never a great investment for unilever. They have been losing money since they bought it act in 2000. It is less surprising the fact that they are selling it than they can find anybody to buy it. That is exactly it. They havent disclosed what money they have sold it for. We understand the speculation was unilever wanted about one billion pounds for the slim fast brand. Unlikely that it got that considering that it bought it in 2000 for 1. 4 billion pounds and had to take 600 Million Pounds in terms of writeoffs because the brand wasnt as powerful as they previously thought. Back in the 90s, slim fast was it. It was 45 of the u. S. Market. It dominated the fad in terms of slimming. It was all about frozen yogurt. That is where slim fast was. What is the current fad . Carbs, the paleo diet. Lake dinosaurs . Even taco bell is trying to go there. Slim fast is in all these 80s trends. We are also talking about the atkins. The five to is the one that has taken the u. K. By storm. We dont want these replacement drinks or the snack bars that slim fast makes. This is all just trying to get rid of the less profitable brands. We dont quite know how much they got for this but we understand that annual sales at the moment were about 300 million for slim fast. Probably not as much as they wanted. Even more importantly, unilever has to keep a Minority Stake in this as well. Think about all the money that is going into juicing. That is where the money is. Low sugars . , cold juicing, coldpressed. You dont want to jumbo juice,e was now there are things like the jews press. That is where the money jamabba juice, now there is things like the juice press. The money is in the 10 smoothies. Caroline, thank you. It is a business story. Here is so much money involved just not in slim fast right now. We are going to stay with the food theme. We are bringing a slice of the big apple to london. It is a big very challenged to do that and make it work. The mastermind is apparently attempting to do that. We are going to take it to manus cranny. Up on the 32nd floor of western europes tallest building. It is right down the road. Coming through your open kitchen is very important. It shows the customer you feel more proud. If something goes wrong, it is easier to rectify it. People say this is a new yorker inspired restaurant. New york is a multicultural city like london. This city is so important when it comes to food. More accessible. These are dishes i like to eat. I 10 years of eating thought it is time to eat efferent once in a while. Do you think this is a good city in terms of the availability of food . I think it is amazing. Withur cocktails are made purified ice. Look at this. They come out like this every morning . Every morning. It is purified. It is a slow freezing process. When you have a cocktail, the ice cubes melt very quickly because there is oxygen in the ice. [laughter] you use the best ingredients to cook. We use the best ingredients for our cocktails. Nighttime, you said here and listen to do you play . Unfortunately not. It is beautiful, you see her you have your whiskey sour. Ok, the ice saw. I am sorry, that saw . [laughter] is anhink actually, it amazing that was during the day. This guy, a fascinating chef. Races porsches, collects vintage porsches. We were walking through the restaurant talking about the design. Nip ond pick up a little the chair on the bottom. Great experience. London which is all about the grill. The beef cabinet. When you walk in, slabs of marble beef. It is absolutely beautiful. The chef cooked some duck for us. We tried that. They have lobster, sea bass. What did you think . I really enjoyed the duck. It was very early in the morning. The Cocktail Lounge is great. Remind us, what is the chemistry behind the saw . Why is that advantageous to cut the ice . You cut your way through it. It is very dramatic. There is a lot of showmanship area a lot of showmanship. It is all about the theater. The theater of food. I have a bit of a thing with chefs. Youre going to get a lot more chefs and a lot more food. A little bit of japanese and a little bit of english. Like olivias favorite movie. It is the purity of the ice block. Knew hisdnt think i name from frozen did you . Manus cranny, our markets editor. We are going to keep the focus on food. We get some top tips from the Tour De France cycling pros. See you in a moment. Welcome back, everyone. We need to get you up to speed with this years Tour De France. Stage six was a very wet one. 194, to ride. It was a fight to the finish. The German National champion was first over the line. , we arefood story today calling it new energy. Cycling is an efficient solution to cutting harmful exhaust emissions. But ditching your car and peddling everywhere requires something of a fitness overhaul. One thing that could help you is the diet of champions. Not the breakfast of champions. That is something completely different. We checked out some pro tips from the pros. The average person burns a couple thousand calories a day. 9000. 9000 calories . We have a mixture of vegetables grilled in the oven. Then there is sausages from a local butcher. Grilled salmon with basil and tarragon. Then there is some bread and of course always pasta. That is a lot of food. A normal guy for dinner would eat around 450, 500 grams of food. These guys, maybe a kilo. They eat a lot of food. A lot of pasta. We try to get them lots of vegetables as well. All that pasta. Foodat if it about this that is different . We dont beat fry stuff. We dont do fast food. Everything is organic. Everything is fresh. That is the most important. If you can get them to eat a lot of vegetables, that is good for them. Serving wine with dinner . [laughter] glass once in a while. A kilogram of food. A lot of carbs. You need them. When you are exercising, you consume a lot of calories. Carbs is what you need. It is when you are not running around. You cant diet and not exercise. We are going to get guy on the paleo diet. Eating like a caveman really appeals to me. Lets get you more from our exclusive interview with the Ecb Governing Council are Ewald Nowotny. You asked him whether or not investors in europe are complacent to market risks. Now on thehave International Scale is a discussion where there is one group at the last meeting of the see that balance may be and there is a tendency of increasing rates. We see on the other hand, the europe toemerging in be on the expansionary path. In that context, i see the policy of the ecb as a bit of Something Like middle ground. It inexpansion, but we do a cautious way. We are quite aware that in addition to monetary policy, of course we have the instruments of prudential policy. If there is consistency of bubbles that could emerge like in the housing markets, this is something where macro prudential instruments have to be applied. We have this discussion in the u. K. We have examples of it already in switzerland. We have examples in the netherlands. And you talk about the housing market, that is one separate area. When we talk about sovereign debt and see yields below 3 in spain and italy, it is that just unsustainable tomorrow at these rates as when they were north of 7 . I do not see this as unsustainable. There have been substantial progress in these countries. Obviously markets are honoring this progress. On the other hand, one has to be quite clear. It is not the goal of the ecb to have a uniform level of Interest Rates all over europe. Riskly there are different concerns. Think we have made quite a lot of progress lowering the spreads. To thes contributed stability of the eurozone. That was the ecbs Ewald Nowotny speaking to us in an exclusive interview with jon ferro. When we come back, was the world cup worth it or not for brazil . Stay with us. Welcome back. This weekend is the World Cup Final. Germany facing argentina. Brazil still reeling from that 71 loss to germany. Going to take a while i think. Was the world cup worth it for the host nation . Lets ask anthony, director of the Brazil Institute at Kings College london. The morning to you. Marks out of 10 . I would give it maybe a seven. People were full of gloom and doom before the tournament started. There were no major problems in terms of organization. If you look at polling, brazilians became more positive about the world cup after it started. Polling before the semifinal match against germany of course. People might have mixed feelings still. There is still some disquiet about spending overruns. Some of the infrastructure that didnt get finished. But i think it exceeded expectations. That seems to be what happens around a lot of tournaments. Sochi, the olympics. The loss itself, though, obviously tragic for brazilian fans the following day. All the newspapers said things like shame, tragedy. You see there crying. How devastating is it actually. Is this something they can shrug off . It is ironic in some ways. One of the hopes for brazil in this world cup was that they could erase the memory of the 1950 loss to uruguay and they have. [laughter] but not in the way they imagine. It does show that special bond between the brazilian people and their football team. It makes the match really interesting. A lot of us dont even watch the thirdplace match. Nobody remembers who finishes thirdplace. This match is going to be interesting. It is a final chance for the team to show what it is made of. Whether it was a bad day at the office or a sign of going down to argentina, that would have been really damaging. What we started, about the infrastructure, the money they have spent and how useful it is. Do we needf timeline to think about who judge that on . Yes, the games went well. But plenty of Olympic Games have gone well. They went fine. Obviously there were incidents but nevertheless, it is a longterm legacy that really is the important part of all this. When you look at what happened, the games went well, the fact that these Infrastructure Projects are late, does it matter . As long as they delivered. That is a good point. A lot of the things are in place now. You look at the brandnew airport, that is going to help in terms of tourism. You look at the metro line that goes to the new corinthian stadium in sao paulo. That is now better connected to the rest of the city. There are some things that have been completed that you can add value weight now. Within a year or two you will see other projects being finished. How political is this . Big dont think there is a direct impact in terms of what goes on in the pitch to the president ial election. It is a sophisticated country. Brazilians will separate what happens on the pitch. I am interested in the debate about whether brazilian football needs to be reformed. That will be affected by the thirdplace match i think. I think they are pretty independent things. Now the campaign is really heating up. We will see an interesting debate between the opposition and the president. We have to leave it there. We are going to take a break. Listeners,io antimark coming up on the first word. The pulse is up next for our viewers. Imperial tobacco lights up 7 million by big u. S. Cigarette brands. Ecb exclusive, as stocks rise after a fiveday drop, Ewald Nowotny tells us the ecb stopped europe from sinking into a depression. Tons of troops on the border, live in tel aviv with the latest. 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. It is friday, i am guy johnson. Isi am olivia sterns, this the pulse, live from london. Lets get you to our top story Imperial Tobacco has confirmed it is in talks to buy some major u. S. Cigarette brands. They could spend up to 7 billion to do so. Here with more is caroline hyde. We know reynolds has been reported to be in talks, it would be combining the second and third biggest Tobacco Companies. Is this imperial trying to pick up the scraps . Regulators will force it, the scraps are expensive. Brands that currently are held by reynolds at the moment such salem. , winston, i am sorry if i am pronouncing them wrong, i aint no smoker. U. S. Market is what inhaled tobacco could pick up, 5 billion to 7 billion. Much we understand Imperial Tobacco is lining up in terms of funds. Helped a very small degree by sale today, they are selling a 30 stake in a spanish this region company. This is about a much bigger deal going on in the u. S. Lorillard. Nolds and they have been debating teaming up these companies to have the number two player, 13 billion dollars worth of sales. Brands like camera, new poin pall mall. Newport, British American tobacco holds 42 of reynolds. They need to ok the deal for reynolds to buy up lorillard and become a big competitor. Froths a lot of u. S. Unding m a, two players having to get rid of some of their brands. Imperial tobacco winning two of their scale, they have currently got 3 of the market, they could get as much as 8 . Newport, that takes up most of the market. They are still it is amazing, these companies are pretty level with debt. This is a credit story. Many thought that the initial share sale would be helping pay down debt. They are leveraging. Analysts are saying this is going to be a stretch financially. It is so much in imperial to get a bigger presence in the u. S. And get more market share. Already the chief executive has been saying in june but they positive momentum in the u. S. Seeing the stock of Imperial Tobacco climbing today. Analysts and investors like this deal, they want them to get bigger presence. They can become more profitable. Why in the u. S. . Two companies, reynolds and put more, they can money into r d to combat ecigarettes. You can still make money even if the adjuster is in decline. Apparently because as they go up to the antitrust regulators, because Tobacco Companies pay so much tax, people think they will have a lot of leverage to pick and choose which assets they want to divest. Tobacco, its share price is amazing if you look at the longterm chart. Lets move on. Thank you, caroline hyde. An exclusive for you. Jonathan ferro caught up with ecb governor Ewald Nowotny. Hes also the austrian centralbank governor. We asked him about the potential for qe from the ecb. Theres unanimous support at the governing council to take extraordinary measures, unconventional measures if we see that our mandate demands it. Is that we arew not there at the moment. I do not see an immediate need. But within our mandate, yes, we are prepared to do some unconventional measures. It is much too early to discuss this in detail. Lets talk to jonathan ferro, he sat down with Ewald Nowotny. A number of takeaways. Some of them tacit, some of them not so tacit. Walk us through what you got from the conversation. Just from that, you expect ecb, but he does not see it right now. The segue for the morning the take away for the morning, it is like the ecb has played everything theyve got. Nothing left in their hands. Soon,not coming anytime they are talking about the possibility of an asset purchase program. Particularly on the issue of the Exchange Rate and the euro, how much more can the ecb do . Nowotnys position is that should not be a target of monetary policy. Move the goalposts. It is about stopping the initiation of the euro. The measures unveiled by the ecb have been successful by that. If you want the euro to go lower, look to the other side of the atlantic and that is what people have been saying. Is a story of dollar strength. Makes you wonder why they went for a negative deposit rate. Maybe that was to cap it rather than to stop it or make it go down further. The banking story yesterday plays into this. Stocks are suspended, nevertheless, it has been made clear by authorities that there is a sufficient capital. It reintroduces to weigh risks but it highlights some of the problems. Hearing from the bank of portugal, they say depositors can stay calm. It is never good when someone comes out and says stuff like that, you should not have to say it. The bank of portugal needs to put out statements like that. I do not want to talk about systemic risk, yesterday was an example that there is a thing called risk that exists. To weigh risk is helping. Risk is helping, every single bank wants to say it is a oneway trade, things are good. Portugal saying that when they have a common deposit guarantee scheme, etc. That was supposed to be the strategy of mario draghi, break the link between the Balance Sheet of the sovereigns. , the is still the story feedback loop. The sovereign up 20 basis points on the yield for the day. A lot of deja vu yesterday. Welcome back. Jon ferro there. Lets talk about germany. Are. S. Relations in germany at their lowest since espionage allegations started after the German Government kick out the top american Intelligence Officer in berlin. Hans nichols is in berlin with more. How bad is this . One German Government official has said this is a new low point between allies. Lowo one disputes it is a point, how far do you have to go back to get to an even lower point . Thetime maybe right after cold war there was some difficulty. This is a remarkable low point. Really, it is Angela Merkel expressing her frustration that a, she cannot get agrimmett with the americans. This activity continues. Heres a quote from wolfgang minister. The finance with so much stupidity, you can only weep. Their take on what the u. S. Is doing to the relationship. The intelligence i suspect everybody wants from germany is what formation is a play this weekend. It will be an attacking formation. A great deal of speculation in the press that germany will continue its attacking ways. They have had this remarkable team that in some ways is not a traditional, holdback german team. We did take a look at the economy as argentina and brazil argentina and germany, look at the differences on football and look at gdp two goals scored. An average of 2. 83 goals scored for the germans and look at the gdp per capita, compared to argentina. Heres my favorite, the overall labor efficiency productivity of the worker. Look at the difference between argentina and germany. It is about 13. 8 257. 6. The analog, the correlation in football, shots on goal, germany has a 62 , they are taking shots when they say good opportunity. Guy . Thank you so much. Hans nichols joining us live from berlin. World leaders are trying to persuade israel not to invade gaza. Israel is stationing soldiers on the border. Elliott gotkine is in tel aviv with the latest. More troops called up, what is the signal about the possibility of a Ground Invasion . That israel is ready to take that step. Whether it will take the next step we do not know. And inf people in israel the International Community are hoping that netanyahu is simply bluffing. The last time there was a Ground Invasion into gaza was in 2008 during which more than 1000 palestinians were killed. Both sides had accusations of war crimes against them. It has been no end to the rocket fire, there was a third serious injury in israel when a rocket hit a petrol station in the ashdod. City of death toll at about the 100 mark with dozens of women and children among the dead. There was some rocket fire from lebanon into israel in the north. Asael responding, no clues to who those missiles came from. I guess the prime suspect would be hezbollah. Against the backdrop, International Powers are trying to reachage the sides a ceasefire, something Prime Minister netanyahu says is not on the agenda. Yesterday he spoke with president obama, who, while supporting israels right to defend itself, also said that the u. S. Was there to help record a ceasefire and he was concerned about escalation. Israel is ready for a possible Ground Invasion but no sense as to if and when that might happen. Thank you very much indeed. Our middle east editor, elliott gotkine. Pulse, to come on the the bank of portugal has just said that one of the countrys biggest banks has enough capital. Will that be enough to ease investor concerns about banco Espirito Santo . We will discuss, next. Welcome back, youre watching the pulse. Lets look at whats happening in the currency markets. A twoday chart of the euro, a fairly big story yesterday, in the bond markets and the equity markets. The euro is still in a range. To be theseven seems story. Right in the middle of that at the moment. We might be seeing a change when it comes to flows into european equities. In april with some of the credit markets. Nevertheless, the euro seems range bound despite the story of the last 24 hours. Distressof financial in portugal. ster banco Espirito Santo Parent Company missed some debt payments. The bank of portugal has now just said that Banco Espirito has enough capital to accommodate any negative impacts. We caught up with portugals secretary of state to the Prime Minister, i asked about the health of the countrys economy. If you look from 2010 to 2013, you see that portugal. Ncrease taxes by 24. 5 that is more than france, spain, italy, and ireland. Portugal has been doing well in terms of exports. That has been the job of changing the economy from inside. We are in a very good position so far in terms of our external account and turning around the economy. On . S risk back greg, head of fixed income. Moedas had lots of statistics to demonstrate how far portugal has come and how much the reforms have made a difference. Twoyear bond yields are a great example, they were at 20 , theyre back down to about 2 . Do you think it is possible that if there was lets talk about anco Espirito Santo and second. If there was another crisis around a bank in portugal, could kick off another round of contagion and could we see the debt crisis flare back up . I dont think it will flare up in the same waited a couple years ago. It is rare that we see those kinds of situations occur in Financial Markets and repeat themselves on a regular basis. We all know that mario draghi has told us that the ecb will do whatever it takes to an sure there is not a risk of contagion spreading. We already have extraordinary liquidity within europe, provided by the ecb in terms of ,xtraordinary monetary stimulus refinancing rates going to historically low levels, negative deposit rates. There is a promise of more to come in terms of the potential for assetbacked security purchases. The ecb doing a lot of work on that at the moment. It is curious that a situation like this should flareup with liquiditylevels of being provided to the market. That is a concern for investors, who have become a little complacent about the risk around sovereign debt of the last few months. It is not a oneway bet. Why would i buy european Government Bonds at this stage . Easy money has been made, the spread tightening has happen, the front end of the curve has been nailed to the floor for a long time, the back end has come down a little. I am struggling to see risk and reward, where the upside is. If you are a silent investor where you do not have to invest in european Government Bonds, skinny you levels, you are going to avoid it and look for alternatives. Lot of institutional money, however, does follow european Government Bond benchmarks. If you look at the likes of portugal and spain and italy, they are providing a reasonable yield pickup relative to german bonds. If you can hold this to maturity, the potential for default isavis i dont think theres a significant credit risk anymore. Worstcase scenario we will still have a backstop of the ecb stepping in and allowing Government Bond purchases in europe. Yields thisontain is a good reminder that this is. Ot a oneway bet we can expect to see Paul Otellini and these asset classes. We can expect to see volatility in these asset classes. There has been too much complacency, as janet yellen noted. The dow has been recently at 17,000, it is a healthy correction. Why do you think we should be concerned about this selloff . Risk levelsok at generally, not just in the bond market but also in the equity we have seen volatility come down to very low levels, the lowest we have seen since 2008 and 2009. Risk that continuous markets are not really pricing and the potential for some situations occurring, not just in european Government Bond markets but also credit, from time to time. There will be risk that needs to be priced in that has not been priced correctly by markets of late. If you were a noneurozone investor and you were looking at the currency right now, is there a view, given what were hearing from the fed, just from a currency risk point of view, that now is the time to lock in profits as well . That that is certainly the case. If you look at the fact that the Central Banks are moving in Different Directions around the potential for Interest Rates to go up in the u. S. And markets are pricing in the middle of next year, it might be sooner or later. Clearly the ecb are on hold for the next couple years. Events in europe makes them more aware of underlying issues not having gone away. Rates might not hold for a little longer. That is positive for the u. S. Dollar versus the euro. Good to see you, head of fixed income at solid private investment. We will take a break, see you in a couple minutes. Welcome back him youre watching the pulse. New energy headlines. A group of tesla enthusiasts in china were frustrated by the lack of charging stations. They started their own using social media, along a route that goes by 16 cities. The network will open 6000 kilometers outside of beijing for electric car drivers. Crowd funding, i guess. The eu has threatened to renewed terrorist on biodiesel from the u. S. For another five years. Madeesel is a type of fuel from vegetable oils and animal fats. U. S. Exports to the eu were valued at about 1 billion a year but have come to a halt following the imposed levies in 2009. The Brazilian Development bank has approved a plan to make canebased ethanol competitive. Todays pulse number, 36,000 . That is how much shares have soared for a startup called cynk ofiving it a market value more than 6 billion. It is a u. S. Stock that sold for a few pennies for most of its existence. The company supposedly operates a social network but it appears to have no members, no revenue, no assets, and only one employee how could it have soared . Out, need to figure this incredible numbers. We will take a break. We will see you in two minutes. Good morning, welcome back. Youre watching the pulse, live from bloombergs European Headquarters here in london. I am guy johnson. I am olivia sterns. Ewald nowotny tells us he sees no need for further ecb action in the near future. But the ecb governing body member did not rule out quantitative easing. The main aspect is the general economic development. What we see in europe is that we do have a recovery, but it is not a very strong recovery. , mike mckeeanks caught up with chicago fed president charles evans. He asked about u. S. Unemployment and what rates might be sustainable . Normal ratee like a we use to think of before the crisis, something around 5 to 5. 25 , at 6. 1 , we still have quite a ways to go. You see a lot of slack. I do. The low range growth is indicative of that, plus lower inflation. Many signs of continued resource slack. Giants record label nearing a deal for a steak and soundcloud. Sony in with warner, exchange for not suing for copyright violations. Who is also familiar with this company is hans nichols. Lets go to berlin and find out what is going on here and why the deal is being done. First off, for legal reasons. For soundcloud to be a legitimate company, it has to have a solution to who gets compensated. It is the record labels, they will get a 3 to 5 stake in soundcloud that values the company at 500 million to 600 million. First they get a set fee, if soundcloud becomes more profitable they get more. Radions soundcloud into a station from the 1950s. Johnny cash has a new song, radio plays it. Youched in 2008, tell him 10 million users in 2013. Over 12 hours of audio is uploaded every minute. Now they are at 200 50 million users. Now they have this legal issue out of the way, this is not a done deal, according to people familiar with the matter, they can grow and potentially go public. Everybodys trying to figure out the streaming music revenue model now. Apples try and do it, beats, spotify, does soundcloud actually make any money . We do not know, i suspect not. They have the Premium Model where if you become a superuser you have to pay a premium. More hours more than two hours of sound a week or a month. Then advertising, will advertising sustain it to be profitable . You see the difference in the states with spotify and pandora. Pandora is all advertising. Spotify is Advertising Plus subduction, spotifys numbers are better. Hans nichols joining us live from berlin. Now, it isfrom surveillance with tom keene. He joins us from new york with a preview. Said moran. What are you looking at . , wells fargongs begins. 8 00 a. M. This morning betty liu will have that. We will speak with Charles Peabody, one of the great america. S analysts in Charles Peabody on the American Banking system. Comment on the ability of the Portuguese Bank to spread out across europe and america. Much more. Michael mckee will report from jackson hole, wyoming. He is speaking to fed governors and fed president s. We will look to the world cup, we will go to hans nichols in berlin. Not once but twice on the spying scandal. As germany prepares to take on argentina. Smart move, you cannot hear enough about football. Back to the banco Espirito Santo story, we are telling this like it is a Global Market story and the selloff we saw yesterday was all triggered by banco Espirito Santo. Is that your take . Healthy selloff, correction in markets that have been very complacent in the u. S. Ater all, the doubtless just 17,000 the dow was just at 17,000. We have worked our way to complacency. Yes, it was a significant move by all of europe yesterday. Within the scale of how ittions happen i was not a blip, it was just another movement. I know youre going to be watching football on sunday, soccer. Who are you rooting for . Argentina. Im a little worried. Said he isas throwing his weight behind lionel messi. You do have the best player on the Brazilian Team backing you. Surveillance from new york and 25 minutes. We will stay in the u. S. , disneys theme parks one of the biggest businesses in its empire. To bring these to life, disneyland on a group of employees called the imagine ers. Jon erlichman went to the im agineering headquarters in california to see what they have been working on. Hidden in this building near disney headquarters, a virtual room. When using virtual reality, you do not always think disney. This is pretty vr. Cool. Disney calls this the digital showroom, a place where it models park and resort attractions before they break ground. Ande brought the chefs in they have looked at preparation plates, we would like to move that over here. Virtually, we can take those elements up in real time and move them in a digital picture. The dish was created by disney imagineers. Than 1500 more artists, architects, engineers, and others who bring disneys park ideas to life. Like the new fantasyland expansion at Walt Disney World in orlando. Disneys parks and resorts generated more than 14 billion in revenue last year. Nearly a third of the companys total sales. The empire includes 11 parks, shanghai on the way. 46 resort hotels, four cruise ships. The imagineers are involved with hundreds of attractions and experiences. The best way to show you is to place this on your head and take you for a spin. Inside, sensors on the hat pick up your eye line, enabling employees to jump into a 3d version of the park. With a pair of 3d glasses, they can test out rise like the recently completed seven dwarfs mine train. What are you able to do now that you could not do before . Years ago, we would have to make this out of foam and look into it. In this environment, it is completely immersive. Parco is riding the train imagineers the question he worked, 3d audio animatronics. We m a the face and it is mapped to a projective form. Moreeir work has led to than 100 patents. As more brands come into d, mores fol opportunities have opened. We are partnering with marvel, pixar, and lucasfilm. Cool. Everything is in the future, you are going to be doing this. Think about all the ocular stuff, it is going to be like just play around with it and figure out where i want things. That is what we did with the show. You put on 3d glasses and see bloomberg tv and 3d. Lets not do that. One man you want to see in 3d jonathan ferro, very excited right now because of whats going on in the italian debt market. This face looks good in 3d, let me tell you. For people like me. A big move in the markets, highs went out, everyone looks at risk, sold off, everyone is buying again. Dax back about. 1 35, they sethe ibex banco Espirito Santo can fulfill capital requirements. Make what you will of that call. Aboutd rather not hear bank runs and anyone needing reassurance from the central bank within that country. Look at italian debt. This sums up the picture of europe. One day we are talking about risk and reassessing risk. Believe it actually exists. Today, italy fell at record low yields. Bonds back atr 33 . Down by three basis points, 2. 92 . I asked Ewald Nowotny yesterday whether those kinds of yields are sustainable. Guess what he said . , of course. If you are an investor in europe, why would you sell them, you have the president of the central bank saying they think that is healthy. Guess what they complain about . Investor complacency. And message for every central banker, the bank of england, the federal reserve, the ecb. The rhetoric coming out of your central bank. Is your calls and your policy that have pushed this reach for yield. Fsx, pound, in up by. 1 thanks. 1. 7148, you are going back to the states. Is getting very expensive to stay here. Imperial tobacco eyes u. S. Cigarette brands. We talk about that when we come back. Welcome back to the pulse, live from bloombergs European Headquarters in london. Im olivia sterns. Im guy johnson. Declines worldwide, Tobacco Companies are seeking scale and synergies. Imperial tobacco putting up 7 billion to buy u. S. Cigarette brands. Our next guest says this is the first stage in some big battle lines being drawn. Joining us now is chris wickham, an analyst. Walk us through the industrial logic of what imperial might be doing. In a strong position to access an ftc white knight. Just like they in the late 1990s were the catalyst for the p. A. T. Rothmans merger and australia. Imperial came and and ended up being the third player there. They got into australia on some very favorable terms. Theres a Great Potential for them to come into and be able to expand u. S. Business on favorable terms. As they end up being the ftc wh ite knight. They enable the deal to take place, lorillard and reynolds would be to concentrated if there was not the extra player coming in. Orillard, best known for newport, and reynolds, best assetsor camel, which are regulars likely to have them sell and which are less attractive for imperial to buy . Question marks over the menthol side. An important brand. In australia they ended up with jackson, you will end up with some decent brands, that will uplift and interest the commonwealth business. Muchare not under so pressure, they have a business in the states right now that has not had a great run since i bought it, they just got an opportunity to give that business some Critical Mass and wouldo that on what i expect to be good terms. Youre a credit guy. Are you worried . Not overly worried, imperial has announced they will get her seeds from the ipo. It will take its net debt and ebitda down. Times before adding any ebitda out of this business. I would expect, given they are pivotal, they will get in there on favorable terms. I would not be losing any sleep if i were a credit analyst. Typically a credit analyst loses sleep and they are worried about the availability of cash flow. Cash flow tends not to be the problem in tobacco. Where do you weigh in on ecigarettes . Huge disparity between analyst forecasts. Some people think it is going to replace the market for traditional tobacco cigarettes, others think it is a passing fad. Where do you way and in how much of a tail tailwind are ecigarettes going to be for these big Tobacco Companies who are in structural decline . Japan tobacco just paid a large amount of money to buy e sigs. Get theare rolling to checkbook out when necessary. It is unlikely they will be willing to do that if they had not made a clear assessment that have relevancy for the future. Igs, theirm with ec regulation has not been finalized. Lites that from cig look like cigarettes but do not rangey perform to st devices that do perform but do not look as stylish as cigarettes. A few things that need to be sorted out. It is likely that they all have some sort of future on the grounds that they deliver nicotine in a safe way. Thank you, chris wickham. Some other company news. Whirlpool is buying a stake in desit. The Company Makes washing machines, ovens, and refrigerators. Amazon has asked aviation regulators for permission to drone testing in delivery prototypes. The Company Wants to deliver u. S. Lawsy drone once allow. Amazon says 86 of deliveries are light enough to be delivered by such drones. Posted firstquarter profits that beat estimates. Costs and maintain its fullyear sales growth forecast. Next, it all comes down to this. As germany gets ready to take on argentina and the world cup, we will see which titan is poised for a win and which will go home. Morning, welcome back. Lets talk about the currency markets. The last two days have had turbulence in the european markets. The euro has begun to climb back. Yesterday. Really but a big move in Government Bonds in europe, a pigment and credit surrounding some peripheral banks. What we did not get was a big move out of the range for the euro dollar rate. 1. 3 seven is where we have been and where we are now. By. 2 . Two days, down we are joined by hans nichols, live from berlin. You are watching a News Conference in berlin by a spokesman for Angela Merkel. The chancellor herself has said the americans are wasting their time tapping her funds and spying on germany. What else are we expecting to hear . The chief spokesperson for Angela Merkel, hes the one who broke the news yesterday that the top u. S. Intelligence officer was going to be expelled. You are starting to hear some wind down from german officials, particularly the defense minister talking about how this is an opportunity to reset relations. The germans really want theent out of this germans really want aagreement out of this the germans really want a no spy agreement. I would think the only phone in germany you would want to tap would be the soccer coach. I thought you were going to st. Martin or jogging say mario draghi. The criminality, we would never advise criminal activity, that is what i want to listen to. For theare you thinking final, what is the mood in germany now . Whats the strategy . Worried, the strategy is to rack up goals. Only pointoal, the you need to win in tennis is the last one. Soccer is a little different. When you look at the productivity of this german team, the productivity of the German Economy hums along, we know that. It has been a remarkably productive goal starring team goalscoring team. Productivity on the german side. Look at their shots on goal, they have been efficient. I will feel bad for germany if they dont win because they feel like they deserve this one. Do they know how to celebrate or are they worried it will be too nationalistic . Have you talked about the some producers are hoping what does berlin look like, wheres the chance to watch this game . Viewer a mile outside the brandenburg gate. It looks like a giant drivein theater. The one thing you do not want to do is try to get on an airplane when the team is playing. Every taxi, bus driver, i dont know if they pull over to the side of the road they are italian. This place turns into roaming you cannot get a taxi. Looking forward to it. Cant wait for the World Cup Final this sunday. Stay tuned to bloomberg, surveillance with tom is coming up next from new york. This is bloomberg surveillance. America attempt to facilitate a cessation of activities in the gaza strip. The complex battle ahead. After in europe rebound the Portugal Bank shot. And germany, argentina, and the world prepare for sundays climactic match. Good morning, everyone. This is bloomberg surveillance. Were live from our World Headquarters in new york. It is friday, july 11. Im tom keene. During me scarlet fu in adam johnson. We get right to our friday morning reads. Europe rebound over the 2 plunge. It does have enough capital to survive the stress and requirements. That news yesterday is what took us down. Secretary of state john kerry meanwhile arrives in kabul. . Hat else we have go ecodata. Oh this will tell us where we are spending the money we dont have. Our chief economic correspot