Transcripts For BLOOMBERG The Pulse 20150318

Viewers in europe and those waking up in the united states. Guy we are here in london. Francine we have the news. We have protests in front of the headquarters in frankfurt. For more, we are joined by mike on the program. Great to have you. How much are you putting on the budget . This is the political budget and the elections are days away. We will get a budget after the elections and if it shifts the polls, how much . It looks like we are in a minority government and anything that shifts the polls would be good. Guy a has shifted since the autumn statement. As it stands, he will lower it for this year by a couple billion and it will lower inflation and welfare payments for the future years. He has 23 billion pounds and he has wiggle room. How much can he use and retain the argument that he is a responsible chancellor and that is the key challenge he has got. Francine the election is difficult to call. Is there something that would scare investors away . The market is aware the chances of a clear outcome are low and i think that you could argue the situation where Neither Party has close to a working government that is probably the worst outcome and you get another one within six months. Kind avoid you have got at the moment. You need 23 to get over the line and where we are now is pretty bad. That would not be a good one. Guy how does it move . What you have now is the way the politics is breaking down and it is similar to the way europe is operating for the last several decades. The minority government means Neither Party can put through any controversial reforms and a lot of other western economies have been there for some time. You look and the polls suggest no one will get anywhere close to a working majority. Your politics is moving to where western democracies have been. Francine what impact does it have . Guy the u. K. The u. K. Is the next closest economically and geographically. It is europe and european bond yields rallying and i think you are seeing the spillover with the economy doing well and rates being dragged down. I think there is an effect in the bond market. Guy we will take us from a different angle. My colleague is there with the buildup to the budget. Talk about the policy focus and what we will here today. Good to see you. Policy areas are in focus and i have a list of policy we may here. We could see things taking a political turn and we have heard they want to increase the minimum wage. Will we see action on the allowance before they have income tax . You can see the impact of the oil price and might we see a reduction of the tax burden on the oil industry . That will be a focus for the markets and investments. George osborne says he wants to tackle that and he represents a district not far from manchester. It could be mentioned and it is worth remembering this is part of what the coalition plans to do and the launch of the general Election Campaign by the party. There are two differences today. 0 Francine Francine this is a political budget. It depends on who gets it in the coming months. Anna we got a sense of how close it is overnight. One put labor ahead and another put the conservatives ahead. Things are very close 50 days away from the election. Interesting comments talking about the priority of voters. That will be at the front of mind for the minister today. One priority is for lower paid and the other one is the image problem. It is about an image problem the party has in being seen as the party of the wealthy. It is something the party involved will be marty will be mindful of. Guy in terms of the numbers, the Public Sector finance got a lot better. Anna you may get a gift. Watch for the uplift in the gdp forecast and the inflation forecast has been talked about. Perhaps borrowing less could be the amount of money he has to play with. It is a different matter. He is someone who talks about the austerity drive and this has to do with the Budget Surplus and it is that commitment that allows him to describe his plan to take public spending that and it has run with that consistently over recent weeks. Could we see the chancellor back a little bit and you will see how it transpires. It is a few hours until we hear from george ahs worn and we will bring you live coverage as we go through the morning. After 11 00, we will have live coverage of the budget and full analysis. Guy thank you very much. Francine we will bring you the budget. Going back to the budget, you laid out the scenario well. In terms of how we manage our money, the doubt we have is well telegraphed. You ask yourself if there is going to be a reason where we shift the goalposts. It looks like it wont be and the annuity thing will be called. Guy how would that affect the bond market . It is 200 billion pounds and if you allow it, it sells bonds and it has the Material Impact with a surprise if they do that. It looks like they will allow them to be sold into a secondary market. Obviously, selling back the bonds. You have the bonds that could console back. Francine everybody looks at what the fed is doing. What are we going to have today . We had a week economy data. It is a tricky situation and the labor market data has been strong. Some of the other damaging retail sales is relatively weak and the housing data has not been so strong. It gets better and the outlook with inflation. You have the balancing act and the u. K. Is the other one. It sets the world Interest Rate and we should all remember the inflation and that is the way it pulls. It will rise this year and it is when it does it. Our forecast gets up to 2. 5 and it is a benign rate cycle. Francine thank you. Mike stays with us and we will talk of the fed. Guy let me talk about the story. The central bank will remove the assurance that they are going to raise Interest Rates. It will be with janet yellen in full later today. Francine the price comes before u. S. Stockpile data that analysts predict a 30 year high. You can see it may start being in a bear market. When we talk about a bear market, we talk about crude. The biggest decline overall. Guy netanyahu set aside a challenge from his main rival and one seats in parliament. The results is leading from a government coalition. Francine inching towards a bear market and we speak to bloomberg first interview next. Guy we will head to the city to find out why the new building has been besieged by protesters. That brings us to the twitter question of the day. What do you say if he talks to them . Francine with the ecb, bring coffee if you are meeting protesters. Be a little more friendly. Hot chocolate. Francine welcome back. We are live on bloomberg. Com. Guy the ecb is inaugurating the new building. Protesters are trying to spoil the party. Garbage containers are on life. They are protesting against austerity and capitalism. Lets go to the protests. Walk us through the story. Some would say this is an interesting target for protesters protesting against austerity. You think about it more logically and tell us why they chose this. Guest symbolism makes it an obvious target. The coincidence is the current turmoil in greece and the fact that the ecb is intimately involved in what happens there. It makes it appropriate for this kind of dispute to come together. So, you know, people i have spoken to this morning and i mentioned the ecb and putting political pressure on the free government to conform to the austerity regime. It seems logical that this is happening here today. Francine who is rioting . What kind of people are protesting . Guy jeff you have people representing leftwing groups and groups that are part of legitimate unions. I saw a young man in black and a kind of permanent feature of political feature protest in this country is ripping up cobblestones and setting cars on fire. That has been going on in the city and the Police Spokesman described to me a cat and mouse game with the gangs of these kinds of demonstrators in the city and several different places with the Police Hunting them. It seems like the police have this under control. It is calm right now and that is because they deployed the water cannon and charges this morning. Serious stuff. Francine thank you. Guy that brings us to the twitter question. Given what has been said, should mario draghi go out and get the point of view of the ecb of cross . Across . Mike it is ironic that into the round of qe you have the protesters outside and, you know, if one was to throw a criticism at the ecb, it is too slow. If this is a criticism about austerity, they should be in brussels. Guy there is a lack of an obvious play to protest in europe. You talk about brussels being a place to go and this may be the problem europe has. The bucket does not stop anywhere. Mike you latch onto the ecb. It is interesting that the criticism is around greece and the austerity. The ecb is not really getting a choice because it has a role to play with the Banking System. They are technocrats. You cannot expect them to make a decision on the Banking System functioning or not because it is not their responsibility to enact policy. Francine thank you so much. It is something the ecb has never wanted to take responsibility for. There is a problem with communication and it will be a problem overall. We will continue the conversation. Guy we will speak to the shadow business secretary. We will take a break and see you in a moment. We find that they suggest there is nothing amis and it will be back to where it is. We do not think that will be the case. There are enough to subsidies and it should be addressed. Guy that was doug parker discussing the complaint u. S. Carriers have about state aid to gulf airlines. Middle east editors say they do not have it straight. Here is tim clark. Guy we need to respond we need to respond to the allegations and they released a report that we need to sift through. Francine coming up, we talked to the chief executive and they had some earnings out today. It will be interesting to have his take on the changes. For the moment, it seems that he will not. We will try to find out why. Guy we will find out what his take is on the gulf carriers. Maybe it is the u. S. Carrier business. What does he think about that auction market we are on the brink right now. The declines keep coming. Francine back in the bear market. We look at the budgets as George Osborne pledges there were no gimmicks or giveaways in the preelection budget. Francine welcome back. Breaking news out of the u. K. Guy we are guessing the average wage growth not good news. Unemployment rate stays at 5. 7. The estimate was that was going to dip to 5. 6. Boe numbers as expected. Francine if you are looking at the breakdown [no audio] lets have a look at the gilt but get reaction from mike amey of pimco. Wage growth is decreasing. Mike that is an important number. What we have been seeing is some pickup in wages. Surveys indicate wages are going up. That has been the case for 12 to 18 months. If you are the government, the story is so far we have done well with the fiscal situation and we are going to get earnings growth. If wages stagnate, that makes the message trickier. If you look at the more recent numbers, the threemonth annualized earning numbers are running at 4 . I have not seen the threemonth annualized on the back of that one but the 4 is probably down to 2 by now. That is an important number. The key strength of the u. K. Economy has been the labor market and the hope and expectation that we will get traction on wages. That pushed back and that pushes back any move from the bc. Guy anna edwards is standing by and westminster. Over to you. Anna lets see what the labour party wants to hear from the chancellor and look ahead to the election. We are joined by the shadow secretary, chuka umunna. As we look ahead to the budget is there an indication the chancellor has your supporters in his sight and tries to go out to introduce policies you might like . Sec. Umunna it is a preelection budget. We are 50 days away from the general election. What mike and vigilance want to see is help what my constituents want to see is help with wages. The council here, the reason the government completely missed the deficit targets, to eliminate our deficits here, this fiveyear period we are in, and to get debt falling by 2015 or 2016. They have missed that. Wages have been stagnating. National insurance and income tax receipts have not come in where one would have expected. People are earning 1600 pounds less than what they were. In london, it is much more. People will want to see action on that. In terms of power economy is balanced, we have our biggest current account deficit right now. We need to pay our way and export more. We need to better balance the economy geographically. We have different rates of growth in different parts of the u. K. They have failed to address that. Anna will you be pleased if we hear about plans for investing in other parts of the u. K. . Would you be pleased if we hear about an increase in the amount of money you can earn before income tax . Sec. Umunna the chancellor announced a few measures to power growth in the north of the u. K. The problem is, he has done nothing to do that. The flagship policy to grow the economy which has been the by chaos and delays since it was set up and strongly criticized by an office here. In terms of taxation i did not go into politics to tax people. We want to see tax at the lowest level possible. The chancellor can increase the threshold above which you start paying tax. He has dumped a vat tax increase on my constituents. It has taken away benefits and incentives to help people work. Anna the cost of living argument that the labour party has been playing for some time is that in danger of being undermined . Oil prices are 50 below where they were at the time of the statement. Are you in danger of your argument falling on deaf ears because it is not ringing as true as it did a few years ago . Sec. Umunna data is one thing. How people feel about their lives is another. One of our biggest selling newspapers we had an article saying it is all good. If he said that to most people in the u. K. , they would laugh at you because it does not feel all good. It is still a struggle. It is by no means easy. One of the biggest questions across the European Countries and in the u. S. As we see global powershift south and east, is, what are the prospects of the next generation . The younger generations would do better than the older generations. People do not have that belief anymore. They are looking for reassurance on that front. Anna thank you for joining us. Chuka umunna joining us here. 50 days to go until the election. A few hours to go until we hear from the chancellor. Back to you. Francine thank you, anna edwards at westminster. Guy lets welcome him an executive who joins us from hong kong. Any chance you need to change or hedging strategy . We are pleased to report improvement in the trading related to passenger we are seeing growth. Because of the field prices, nobody expected, we incurred some losses. The net benefit of business is always positive. We save a lot on the fuel prices. We hedge about 50 to 60 . The cost is always better than the after the hedging, we will still have positive contribution to the business. We would rather the fuel cost come down. We look at 2015, it is around 60 and we are beginning to see a lot of good positive benefit from a lower fuel cost. Francine iavan. You realize a hedging loss that was quite big. Will you get out of the hedged funds . Will you renegotiate . Ivan absolutely not. We will stick by a. Fuel cost contributors almost fuel cost contributes almost 40 of our cost. When fuel price is high and volatile, it makes it difficult to make services viable. Hedging, buying forward at a price which we know we can make a return on is important for us to control. It is a major part of our financial risk management. We need to continue to manage that. Fuel price went up by 20 in february. It has dropped about 5 to 10 . It is very high and volatile. Whenever there is a chance opportunistically we are quite happy with the current hedging position. We know if the fuel price goes down it will help. With net of hedging, there will be positive benefit to the business. Guy which side of the fence do you sit on when it comes to the gulf carriers . You agree with the americans when they think the when they say they think the gulf carriers get an unfair subsidy . Ivan we watch with a lot of interest. When you look at the Business Model of the gulf carriers owned by the states there may be suspicion of subsidy but it is very useful for us to understand what is behind this. Can such claim be sustained . We are watching with interest. Guy what is it you want to understand . You think there could be subsidies . What are you saying . Ivan the key issue is whether there is a fair trade. This is something we want to understand as well. The gulf carrier has been a big expansionary for us. We are keen to understand what is happening in that part of the world, the Business Model and whether there is unfair trading practices. Francine to make sure we understand are you investigating yourself or waiting for the u. S. To decide on an thing, and if it is unfair competition, does it make a difference to Cathay Pacific because you are directing competition with some of these middle east carriers . Ivan we compete with them on a lot of longhall routes. Longhaul routes. We are watching with a lot of interest. Guy you have any suspicions . Are you watching carefully, but do you have any views carefully . Ivan the gulf carriers are owned by the states. There are always suspicions about this kind of subsidy. Whether those subsidies, we have to find out. Guy you are going to be rolling off some of your 340ss. What difference will that make when you go to dualengine, wide bodies . Ivan we are a very big dual enginengine widebody operator. We have a very big fleet of the triple sevens. We are going to take our fleet and begin taking delivery of the 350 aircraft, a total of 48. We have committed to by the 777 9x. Guy that will make a difference. Would you buy a 380 neo . Ivan we would love to look at it. I do not think it is being offered now. Guy tim clark is putting pressure on john leavy to make that happen. Would it be something you take seriously . Ivan we would never say never. Neo, if it operates better, i think everyone would be interested to look at it. If it does one or two carriers interested, i do not think the idea would fly. Francine the outlook is very gloomy. I think around half the people that leave hong kong fly with Cathay Pacific. What is your outlook for hong kong . Ivan i do not agree. I think the Business Sentiment and the trading that we are facing is getting better. We were in the trough in 2013. We picked up in 2014. The second half, particularly. Grew by 20 . We believe this will be even better. Passengers business will be competitive. The growth is about 4 . It is not bad. Cargo is going up and benefits from the pop construction in the u. S. That will not go away in a short period of time. It is an issue that will help the air freight business that we have it we are exposed to the u. S. Market in a big way. We believe they benefit a lot. Fuel price coming down to around 60 certainly benefits the business. In general, the sentiment is good. Francine ivan chu, thank you for your time today. He is joining us for his first interview of the day. Guy with the current operating numbers, they feel they can make money. Coming up, a closer look at the impact of a year of conflict in crimea. Francine welcome back. One year after russias annexation of crimea, it is devastating ukraine. Reporter the lines are getting longer but these people are not homeless. War means tens of thousands of people now depend on handouts. The person who runs this season the elderly, families, and minors who are not getting paid. People are not living, they are surviving. They are close to starvation. Reporeporter prices are rising faster than anywhere else in the world other than venezuela. The supplies in her kitchen come from one place and one place alone. Only from russia. From the ukrainian side, we get nothing. Reporter russia is not only sending food to Eastern Ukraine but showing up in person and making a spectacle of it. A russian official tells reporters it is there on the personal orders of the russian president. State tv reporters broadcast the message across russia and Eastern Europe crane. The and Eastern Ukraine. This official tells me they are sending military advisers to the other side. Humanitarian aid is humanitarian aid. Food is food. This is not politics. I think you should not mix them together. Reporter he lost dozens of his men and a tragic accident days ago. This is a hearts and minds campaign. And all the years i have watched russia, this is the most vivid example of power i have seen yet. An official complains ukraine is locked in the supply of vital goods from russia. With all the weapons and troops russian soft power is the epitome of hypocrisy. Francine this is a series that ryan chilcote, he has been traveling in ukraine and he will join us today to tell us what he has seen. Guy news from the feds, a press conference. Are we going to drop the patient line . That seems to be the expectation. Mike amey is here from pimco. How big a move is this . Mike it would be a bigger move if they did not. If you look at where the first rate hike is priced in i think the market is expecting patient to go. If there is a surprise, my suspicion is they leave it in. I think of the other thing, we should all remember, dropping patient is just one step along the way. It does not the moment which we get the sign off on a first rate hike. We talk about volatility around the first rate hike and whether or will be on the event itself or a point on which it becomes crystal clear, it would be surprising if we get that one today. Our suspicion as they will drop patient but they will make it clear that this does not mean anything other than they are a step closer to moving. Francine what will they say about the dollar . Mike there has been veiled comments in the past on the outlook for the u. S. Economy and these kind of things but so far, they have steered clear of comments on the dollar. My suspicion is they will continue to do that. They may reference a week inflation profile a weak inflation profile. If they do reference, it will be in a bleak reference via a low inflation forecast. Gguy they just want to raise rates. Mike they should have done it by now. The core of that committee is still worried about the fact that the first rate hike would be a big deal because it comes after such a long period of rates at the lower bound. With wages at 2 , there is a nagging if i were a central banker, the doubt i would have is a 2 wage number indicative of the title labor market and in my running ahead of guy the 1930s. Mike exactly. Mi really going why would i not wait until i see the whites am i really going why would i not wait until i see the whites of the eyes. Francine you are expecting an Interest Rate rise in september. Mike it is possible they wait until december. Francine what does it mean on where you put your money from now until then . Mike the market, we think the terminal point would be benign. We look at the risk reward and we do not see a great risk reward. Lets call it one, maybe one and a half moves this year. 75, maybe 100 next year. There is not a lot of wiggle room around that. We look at the rate structure real yields are deflated. We think the curve is a better trade than the and the front and risk reward is nothing good as the risk reward in the intermediates. Francine thank you. Mike amey pimcos portfolio manager. Guy that is it for this hour. U. S. Viewers coming up. On this side of the atlantic another hour of the pulse. A lot of politics over the next 50 days. A critical election for the u. K. So hard to call. We will run you through the details. Frain is back in a moment. I will see you in an hour. Tom janet yellen holds a press conference. She will answer questions on patience. A stunning turnabout. Benjamin netanyahu a victory. 15 an hour to flip burgers . Yeah, right. This is bloomberg surveillance. I am tom keene. Joining me, Olivia Sterns and brendan yes, we had three irish martinis yesterday greeley. Olivia netanyahu has called leaders that share his skepticism about peace talks with palestinians. He says there are issues that must be addressed immediately. We are facing great challenges. I cannot elaborate on all of them,