Transcripts For BLOOMBERG The Pulse 20140922

Good evening to those in asia. A warm welcome to those waking up in the United States. Im guy johnson. This is the pulse. Exclusivebloomberg with the worlds youngest central bank. Withll be live with ahead the head of the National Bank of georgia. Four tesco executives have been asked to step aside. Month after than a a profit warning at the company. There is an accounting investigation. Externals are coming in and looking at the statements. There was more his Caroline Hyde here with more is Caroline Hyde. Messy, messy, messy. Is how muchpounds the firsthalf profit has been overstated. We understand this overstatement of profit is linked to the income from suppliers. They are going to dig into the business. To be making an independent, comprehensive review. They have lawyers involved. They are delaying the statement to the firsthalf to october the 23rd. Understand that four executives have been asked to step aside. Ago, he who left months has not been seen for several weeks within the office. They are now thinking whether they transition to a new cfo that much faster. Will we see the cfo starting before december . This is going to be a really tumultuous time. There is some upside to this. The downside to the new Management Team is that this is not a great way to start. The upside is that maybe all the bad news is outoftheway in the early part of the process. We said that last time. , the profit forecast was left in less than analysts thought. We all thought, they are clearing the deck, theyre getting it clean. Then the poor man comes on board and discovers this on friday. He does not say anything illegal. Things have been overstated. The poor man has to get his hands around this. He has come from unilever personal care to tesco in intensive care. They are flabbergasted by this statement today. Analysts upgraded the stock because of the joy of a new chief executive coming on board. They say this raises much more fundamental questions about the position and the board composition. The chairman clearly wants to stick around. This going to try to drive and steer the ship. At the moment, the market share is on the downside. Capital expenditure is on the downside. The ceo is promising to change the reputation of tesco. He has a lot to change from the investor viewpoint. Shrankcapitalization more than one billion pounds just today. There are an awful lot of assets here. A little bit of good news can have a positive effect here. We will see when that news actually comes. Thank you very much indeed. Caroline hyde. Lets go to company news. Alstom butsed out on it has agreed to another deal. Dresserrand. Hans nichols joins us from berlin. There are a few losers here. The Swiss Company also interested in buying d resserrand is seeing shares under pressure this morning. This is a simple story. Siemens wants a piece of the shale boom in the u. S. They buy dresserrand. It is up 35 since the summer. Siemens gets this bit of energy assets. They did not get alstom in france, that is going to g ge. Bothave siemens and ge buying up sectors of the energy sector. Start extracting oil, you have to service those machines. That is a longterm contract. It spins off a lot of cash. Shedding assets as well. Siemens is getting out of the joint venture with wash bosch. This is household appliances. We saw a similar story with ge last week. You basically have siemens and ridearing down and getting of Consumer Products and focusing on the energy sector. They believe that is their future. Hans nichols, thank you very much indeed. The u. K. Labour party is getting to work. , this ofl conference course the last conference before next year posture and role election in may. Years general election in may. Lets talk about the devolution that is dominating the front page. It is the english that are causing the trouble. Action to getw used to. English votes for english laws. Are many english voices asking for further english votes, english laws. Alex hammond has been promising if wrath of con khan westminster politicians dont deliver on their promises to scotland. Are asking for similar commitments. Ed bowles was talking this morning and john was pressing him on some how can you have a certain level of devolution to scotland and not for england . We had a u. K. Parliament for hundreds of years within which scottish mps have sat because we make u. K. Decisions on the frontier, corporate tax, public spending. Where the legal system in scotland, the criminal Justice System him of the University System were devolved and decisions were made in a different place, that is how it has been for a very long time. They are really striving to be on a different time frame. There is that angle to it. Exchequerpoke to the and he said that he thinks there has to be devolving power to cities and regions. Call fortrying to increased levels of say in how things are managed and how things are done on a regional level . That seems to be one of the areas. Scotts get the devolution they want. , it it comes to the english happens on a more metropolitan level. Yes, maybe. This is a really fast evolving story. There was a lot of ground to cover between now and the election. This could crystallize things earlier than we thought. Thank you very much indeed. Anna on the devolution question. What else is on our radar . Bankers and finance ministers are warning of an increase in Financial Market risk. Major economies rely on monetary stimulus to boost growth in low interest rates. Speaking after the g 20 meeting, is imf messenger manager confident. We believe Central Banks do have the tools, the macro prudential tools, to react to the potential excess valuation in the market. Committed to potentially use them if necessary. We believe they are equipped to deal with some of those potential risks. Air france has entered a second week of pilots protesting the lowcost operations. Crews pay fright fly cruise less. Ws less. Cre Milan Fashion Week ends. Italy real strength of his family. Growth withe family. That is the strength of italy. Thate we will never miss even though from the one generation to the next, it becomes much more difficult to rid difficult. The devolution discussion has changed the playing field. We will talk about that when we come back. Welcome back. You are watching the pulse. We are here in london. Mrs. Eurodollar. This is where we are trading right now. Beio draghi is going to speaking at little bit later on. The committee that deals with monetary policy. The tone of the conversation is going to be fascinating. How close are we to qe following the failure of the targeted longterm financing operations which were designed to put money into the european economy . The failure of that in its first incarnation. Does that point to qe . That is what everybody is going to be looking at later on. These things can be really dry. Monetary policy is getting more and more interesting by the day. Talking of which, lets move on and talk about the story in the u. K. And a compare and contrast with france. The economies of the u. K. May look like theyre going in different directions. There are interesting parallels. There is a crisis of sorts at the leadership level. Good morning. Nice to see you. You when i have talked about this in the past. Were that use its within the where the eu sits within the complexity of british politics. It changes. The story of the last year has been an upping of the antiabout aboutthe u. K. Ante where the u. K. s relationship is going with the European Union. It has now changed again. How has the devolution question changed the eu . It has changed the whole timeline of reform. The idea was that leading into the selection, there were be a lot of focus on europe. They wanted to push forward with that in 2016 and 2017. Now, we have seen the runup to the election conversation be to do with the devolution. How devolution happens, where the power lies. The European Union has taken a backseat at the moment. If we do have a referendum in 2017, that is a tight window in which to get things done. People are unclear with what the u. K. Wants and what the labour party really wants. This is really changed the approach to the u. K. And europe over the next year. Do you think they will focus and access about this issue instead of the European Union . The key is to get it all done in the short term. Scotland wants to know how many powers it will get back. Is the end of january. You cannot answer that without these other questions. The hope is to get that tied up or have a clear plan before the election and then there will still be time to focus on the eu. At the moment, it is very much taking a backseat. If they dont deal with this clearly, deal with this in an expedited fashion, the fringes of the Political Parties here in the u. K. , they drift further and we could end up in a situation where this plays into the hands of those that want to see the exit story. Very much. We have already seen the groundwork for the english nationalism or democracy, however you want to phrase it. English have to be fairly represented in the new system. While that is true and we can see that leading into, if you give the english power and devolution, why give away power to brussels . You can see that strategy. They have positioned themselves already very well. You will see the conservative backed benches who have become increasingly vocal become a bit more disillusioned with the leadership. And that plays into the narrative. How will the spanish be viewing this . They will be looking very carefully. The fragmentation of a country at bay if you promise make promises. I think the first thing they will learn is they do not want to give the catalan members about. A vote. Smp over the the past decade since devolution first started, it was only a matter of time before the issue came to a head. They may be able to resist for a while, but at some point they do have to deal with it. The situation is quite different a much morelonia is important part of the spanish economy. They cannot afford to let them go. There is a different conversation to be had there, but they will try to hang on as long as possible. How will the conversation have changed in brussels after this . You look at the need to keep europe together. Been a rearguard action to hold the eurozone and europe together. They look at the scottish story and say that is a victory. On the other hand, the closeness of the vote, do you think that encourages them to be more forward minded or the opposite way . It is very early days. It is hard to say. We have heard mixed voices. Some are quietly pleased that u. K. Attention away from the eu and they will be focused on their own problems. If you look at the problems for the European Union right now, foreignpolicy problems among monetary crisis problems,licy monetary crisis. Are changes that need to be made. Theyd need a strong u. K. For that, particularly on the foreignpolicy side. They want the u. K. To be leading the way with france. There are mixed feelings in brussels. Given the mixed feelings, how does the timeline work . How do you think progressive do you think brussels will be willing to be . The u. K. Is moving in one pace, the European Union, history that it moves at an incredibly slow rate. They feeling ago, was that the European Union would drag the timeline out as long as possible. Now we are seeing deflation threats. Germany is coming up with renewed pressure for desire for treaty changes and new structure on the table. The plays into the hands of u. K. s reform and renegotiation. These two are coming together a bit more. If the u. K. Continues to focus on scotland, it can never make its case. Fortunately, the new commission looks a bit more forward minded. The u. K. Has a good position in that. It is a good start. It will be interesting to see how the timelines come together. Air is no guarantee that they line up. There is no guarantee that they line up. Interesting time. Nice to see you. We will be back in a couple of minutes. See you then. Good morning, everybody. You are watching the pulse. Energy top headlines. The new york city mayor has ordered sweeping changes to keep the city greener. He has promised to make public buildings more energyefficient. Plans to decreased Greenhouse Gas emissions. Hundreds of thousands of people have marched through cities in the world to demand action on climate change. India is looking to expand solar energy by a factor of 10. Plans are being drawn up to established on the five solar plants 25 solar plants. Right. Lets talk about hot shots. Prosalias top windsurfing chase down the biggest waves of the season. They practiced pretty big air jumps. Tough landing. The windsurfing world championships. Dancers took vertical choreography to new heights when they performed a waltz on the wall of oaklands city hall. Fans can mount to see thems viral across the building. Spiral across the building. An extreme display. From thatook at her angle, it looks pretty normal. From the bottom, it probably looks very different. The bmx champion turns out in dubai. A middle eastern backdrop. He travels from the desert to the urban city center on his probike. Doing his tricks. A bloomberge, exclusive. We will speak to the head of the National Bank of georgia. We will ask them how sanctions against russia are impacting the georgian economy. We will find out how bankers find out how the public operates. Good morning, everybody. Welcome back. You are watching the pulse. We are right here in london. Im guy johnson. Here are the top headlines. Four tesco executives have been asked to step aside as the company investigates irregularities. Alibabas ipo is the biggest ipo. Alibaba jumped 38 on their trading debut. The former president of france Nicolas Sarkozy says he cannot stay out of politics because he has never seen such despair and france, speaking on local Television Last night. He is running to lead his political party. I dont want my country to be condemned. Condemned to the humiliating show which we see today. Right. To the markets. To jonathan ferro. Jonathan sarkozy rescuing french politics. He cannot do anything about the markets today. China is dominating sentiment. Is down by 1. 43 . Iron ore is getting crushed. Commodities are slipping. Luxury goods makers. In theg slipping sales likes of asia, china. You ask the question what is going on with chinese growth. New stimulus, more qe, that is not going to be our policy, they say. Some of the big miners are taking the heat today. Tesco, down by 8. 2 . They have said they overstated the prophet by 250 Million Pounds. They cannot admit that 250 Million Pounds will be the highest overstatement. I dont like what i am seeing. The stock is down by 10 this morning. Pounds over 1. 5 billion value of tescos company. Look at eurodollar. Draghi, the ecb president , has told us that he would like to see the ecb Balance Sheet back to 2012 levels. That implies growth. They have got a new funding program. The takeup was not good at all. The moneytrip out being paid back, that Balance Sheet is not getting big anytime soon. What is he going to do next . Are they going to be pushed down the qe route . The man speaks today at 2 00 p. M. U. K. Time in brussels and we will be watching every single word that leaves his mouth very carefully. Are we from qe . Is that the question . If you want to make your numbers, how are you going to do it . The Balance Sheet was your message. That is what you and i discussed. Thank you very much indeed. 25 minutes until bloomberg surveillance. As ever, tom keene at the helm. What do we have today . We have a lot of things going on. What we are seeing on the border with turkey is front and center. We will speak about not so much surge in the the Technology Industry and how difficult it is to find warm bodies. Perkins, one of the head owners in Talent Acquisition in San Francisco will join us. Frank keating will join us as well. Of oklahoma. Vernor we will talk to Frank Keating about republican politics. We will talk to him about the banking business, which really has regulatory challenges in washington, as well, with doddfrank. To the midtermok elections. It is not as big as scotland, to be honest. But the midterm elections are in seven weeks here. Asnothing was as big scotland. The ramifications of scotland are still going to be felt for quite some time. But we will be watching the midterms. Tom keene joining us from new york. The french Prime Minister makes his First Official visit to germany today. The eu needs to resolve political differences and improve the economy. Quickly, please. Hans nichols joins us now from berlin. The big question is who is going to blink first. Clearela merkel has been that they will not be spending any more money in germany to boost demand to juice the economy. Parliament and said they will not change their 35 hour workweek. Theyre going to miss the budget deficit. It is a standoff. It is a crossborder standoff. In some ways, this is the latest iteration of the same conversation we have been having in different capitals of different cities all across the world. We saw in australia over the weekend. What do you do to boost domestic spending in germany . What do you do to boost aggregate demand across the entire European Union . We are stuck on a fiscal level. On the monetary level, it seems like we have the same split. Theyre worried about quantitative easing. The ecb wants to figure out how they can inject money into the economy, whether that is through the banks, or directly. It seems like we have a standoff. Are the diplomatically nice to each other . That is what i will be watching for. Nice, the of being United States said it is not about playing nice at the moment when it comes to European Union politics and economics. The u. S. Is increasingly calling a germany for not doing more to boost spending. It was a little but failed, but jack lew gave this statement. If the efforts to boost demand are deferred for too long, there is a risk that headwinds get stronger. That is his way of saying to the germans come of the clock is ticking, you need to do something. Yes, he is talking about the entire European Union, but in some ways, the rest of the European Unions hands are tied to the germans. It is a clear message to the germans, loosen up a bit. [laughter] i think that is probably a decent message. Interesting how it is being delivered. Hans nichols, thank you very much indeed. Up next, a bloomberg exclusive. As tensions in Eastern Europe grow, we will be live with the head of the National Bank of georgia. Welcome back. You are watching the pulse. We are live from london right here on bloomberg tv. Lets go to the ukraine. Aregovernment in kiev createand accusations to ceasefire negotiations. We sent Ryan Chilcote to the front lines. He reports from what is effectively a new frontline in ukraine. You could forgive the soldiers outside this town in Eastern Ukraine for failing to be friendly. Last time strangers made an appearance, the locals say they came with 100 tanks. This frontline city was saved by the ceasefire. Is in the industrial heartland of ukraine and this is steel country. Is owned bylant ukraines richest man. More than 50,000 people toil around the clock at two plants in the city. This one plant can produce a quarter of all ukraines steel exports, enough to make 100 aircraft carriers. But production has nearly halved thanks to shortages of coal from rebel territory. The owners appeal to his workers not to join the rebels is credited with keeping some of these under kievs control. Is good money here. Many factories on the other side of the front have shut. Factory workers also take part in Police Patrols to maintain order. Not to stop an invading army. During our short visit, one checkpoint was shelled, three ukrainian soldiers wounded, another three suspected separatists arrested. , the city iswhere keeping its eye on the truce. What happens in this frontline town matters far beyond its borders. Ryan chilcote, bloomberg, ukraine. Ryan chilcote, great reporting there. If you want to see more, go to bloomberg. Com. What matters in that part of the world has a big impact elsewhere in the world. We are now joined by the governor of georgias central bank. Good morning. Welcome. Very nice to see you. What happens there matters to you in what way . First of all, it is my pleasure to be here. Secondly, we have gone through that in 2008. Day, it in one disappeared out of the embargo of georgian exports. It was hard. Are in a much more healthy situation than many other countries in the region. Course, the conflict in ukraine will affect the whole region. Obviously. Is a slowing your economy down . Not right now. A forecast of 5 growth this year and most likely we will have a little bit over 5 . We planned to have the growth of 6 next year. It is very hard to predict now what is going to happen next because it is so close and i doubt that there is any country in the region which will not be affected. We are a little bit luckier because we do not have dependence on russia. The sanctions story on russia. Does it create a Ripple Effect that works its way out . Say, despite the separation that has happened, there was a level of interconnectedness that exists. Definitely. One thing i can say is that opportunity is the Biggest Issue now. Even with the sanctions and the settlements, nobody really knows how it will work in real life. Is big question right now what is happening with all the players. I am receiving calls from commercial banks, how it will k like, should we stock stop corresponding accounts . All of this today with the Global Economy and everything being very integrated. One of the things you first think about is the possibility of further escalation of sanctions and the possibility of those sanctions being applied to the sectorhich is which is the key mechanism in which global banks connect themselves to each other. You have all kinds of relationships that still exist with russia. How would those be affected if that system were to be turned off . Nobody knows, to be very honest. In todays world, to totally close Financial Systems is very hard. If not impossible. We have remittances from russia. Not only through Banking System, but mainly through different systems that operate like western union. You could cope with this . Definitely. They will switch off larger banks. Where they do the netting, basically. It being topped. Have you plan for that . Have you figured out what would happen if that would be the case . Remittances are a big chunk of money. Definitely. We do different stress test scenarios. This kind of sanction will basically have a huge amount of backlash on the russian economy itself. Georgian economy does not have a lot of dependence. We are relatively independent. Geographically, you are cried interesting, and as much as you sit between turkey and russia. Turkey has aspirations to be an energy hub. Given the increasing tension within the region, are your expectations for how you develop economically and take advantage of the geographical situation that you have been put on the back earner a little bit more . Definitely. The whole idea of the georgian , basicallythe future are neighboring countries landlocked. It another four neighboring countries are landlocked. To use georgia as a corridor for trade is the main idea. Is that being hurt by what is happening . Are your plans being slow down . The whole reforms that have taken place for the last 10 years, they have had a tremendous effect on the european economy, they have had that in mind. We have billed built the country with a low tax environment, totally premarket. Especially for that purpose. We want to turn to a healthy economy, so that regionwide, hub,ia becomes a logistics a touristic hub, a cultural hub. If the situation carries on getting worse, if the ruble, the volatility, the russian economy is a big part of this world, it is slowing down fairly are yourlly how models being affected by that . Impact that the rate of deceleration of the russian economy is having are you having to go back and think again . A year from now, the situation could have significantly worsened. Definitely, there will be an effect. Countriesst, if invest in the region, emerging markets, it will compensate a lot. We have gone through that in 2006 when the forecast was the doubledigit contraction after the collapse of trade with russia. But due to the very strong reforms that our country carried out, we managed to have Growth Without economic dependence on russia. One final question. You have a relationship with the head of the central bank in the ukraine. You guys talk. What do they tell you about how difficult the situation is . How much information, knowledge do you share . How much advice can you give her about the lessons you learn from your economy . Definitely, we all support ukraine in all possible ways that we can, especially with our experience we had. She understands the situation very well, she has a plan she wants to implement. A lot will depend on the International Organizations like the imf, the world bank, and other stakeholders that need to support the Ukrainian Central Bank as of today. It is very crucial that the Banking System will be saved and should be saved. It should be reformed in a way that helps the country develop. Thank you very much indeed for stopping by. The governor of the National Bank of georgia. We are going to take a break, but coming up, find out what is on the agenda at the u. K. Opposition leaders. This is their last conference before the general election next year. See you when a moment. Welcome back. You are watching the pulse. We are live on bloomberg television. Your tablet. Ing on we are talking about the currency markets. , the president of the European Central bank, will be giving testimony to european lawmakers. They will be asking him a whole bunch of questions, one of which could possibly be, how close are we to qe in the eurozone . There are a number of different ways to get money into the system here in the eurozone. The Balance Sheet has gotten smaller. The ecb would like it to be bigger. Maybe they are going to have to find another way of forcing it into the system. We will watch eurodollar and little bit later on. Lets look at what else we are watching today. Now by ourd International Correspondent hans nichols. He is in berlin were later on, the french Prime Minister will be as well. What is the subject of conversation going to be . Spending. They are having lunch. My most important question about the lunch that they will have today, how long will it be . Is this going to be a short working lunch with a pick through the agenda or will it be a long, leisure, more french lunch . That is at the core of things. He would not change the 35 hour workweek. Germany wants france to get more in line with structural reforms. About 4. 4 of gdp on deck for spending this year. The question for merkel is, can makee flexible and can she an exception for france . There was a broad recognition within the german political elite that france needs to be put in a position to succeed. Notharshest austerity may be the best medicine for them. Valls reconfigured his government to keep the germans on board. How much credibility do you think that will have won him . Be in aould not position where he was working with germans and there were members of the french cabinet where who were outright hostile. Little bitthe trip a easier. The previous situation probably would have been untenable for frenchgerman relations. Thank you very much indeed. It is coming up in little bit later. We have mario draghi coming up in little bit later. It is going to be a busy day. Keep the action here on bloomberg tv. That is it for the pulse. Bloomberg surveillance is up from new york. Tom keene and the team. We will see you tomorrow. This is bloomberg surveillance. Turkey checks in. The Islamic State adds to its caliphate. Silicon valley looks for warm bodies. Americas Oil Renaissance runs up against a law of the jungle. Good morning, everyone. Bloomberg surveillance. We are live from the World Headquarters in new york. It is monday. Im tom keene. Joining me, adam johnson and scarlet fu. I want to start in china. The economy is slowing, but the government is not necessarily going to do anything about it. That is not what we have been hearing out of china for the past umpteen years. That is why futures are flat. What do you need . Just looking at the screen. It is an interesting monday. I hear that