Transcripts For BLOOMBERG The Pulse 20160126

In london. U are watching the pulse Francine Lacqua on assignment today. Lets get you up to speed. Nejra thanks. European stocks are following for a second day on growing concerns over china and the continuing oil price rout. The shanghai composite slumped by 6 . At the same time, crude has plunged below 30 a barrel. A Hedge Fund Manager who is chinese stock thats returned 6000 says investors should sell their shares asap. Hes carried a winning streak into 2016 returning 35 so far this must. But now his adv cash, wait and watch. The Federal Reserve says its it is meeting to decide interestrate policy will proceed as planned today is tomorrow. Fed officers in washington as well as the federal government were closed yesterday following a severe winter storm which had distracted travel in the region. News 24 hours a day powered by our 2400 journalists around the world, from the bloomberg first word desk,. Guy another busy morning. Risk off the theme. This is the picture across europe. Markets are trading lower. We firmed a little bit. Half. Percent and a let show you what is happening around the world. Shanghai trading down by 6. 5 . The brutal last hour. Crude probably the catalyst for some part of that. Heading into the Lunar New Year for the chinese. Records new records is that an indication that ghi is 81. 75 is where we are trading. The composite close down 6 earlier on. Lets get the details on what happened. Enda curran joins us out of hong kong. What happened in that last hour . Enda it is another negative day in china. A big selloff on the china boards, partly because of fears with capital outlook. Yesterday showed around 1 trillion the left china in 2015 alone. And that is the kind of pace of money that would upset and worried both policymakers and investors alike. Will were is the yuan weaken further. If china weakens its currency, people want to shift into hard currency. As another day of negative sentiment on china and no let up in that cycle yet. Guy a incredibly shortterm measures being used here. How effective are they . Enda you can argue they were not getting much bang for their buck. What theyre trying to do is jam money into the system directly. Theyre pumping money directly into banks. Ahead of the big Chinese New Year holiday. To get money into the banks directly and hope that circulates through the economy. There is no doubt it are shortterm. It is shortterm. Guy always great to see you. Thank you very much, indeed. An investment director in London Capital is with us. Good morning. Oil goes down. Why are investors using oil as a proxy for Global Growth . There is the increase in supplies as opposed to falling demand. It is not showing any signs of pickup. The reason for that is the continue slowdown and china because china at the margins was the largest incremental consumer. Guy it is a china story. On the whole. The problem with the china story that the capital continues to flow out of china. Capital flight is on. Because investors are concerned about the continuing depreciation of the yuan. The money leaving the system causes tightness in the banking system. The Interest Rates are rising. All the monetary conditions are tied in. Are tightening. China is injecting liquidity into the banking system. And resulting in the further economic slowdown. The main point is they will have to reduce requirements and Interest Rates and introduce more countercyclical measures to stabilize the growth rate. Guy is the right place to hide out from all of this in the yen . Is the right place to hide out in the german take your pick. We have already seen in terms slightly farnd yen more the last two months because of the delay in the Interest Rate cycle in the u. S. I think most of those strengthen those currencies are already on the table. In terms of hiding in the german bond market, the yields are so very low. Other than a short period, it does not make sense to continue to buy bonds on a negative yield. You have a mandatory requirement to buy those bonds, for most investors to stay away. For now, i think cash, despite the fact and many places, cash has a negative interest. The markets are pricing a 10 basis cut in the repo rate. For the shorter term, that i ss no return. Guy people are trying to look for assets that are less volatile. They are starting to look for infrastructure deals because you cannot have them market problem. Is that a sign we are getting are the bottom, people bailing out and going for those ultra, low volatility safe trades . Away you could argue that the flight to safety is maximum when those efforts are put on the table. If there are no other opportunities available. Allowsortunately, what the turn to become more sustainable and more stable is the corporate earnings trajectory. And we are not getting much draw individualpt some companies. Across the board, i think the corporate earnings trajectory continues to ebb away. We have known that the stronger dollar took out a lot of the Earnings Growth. And low Commodity Prices also has an impact. But more importantly, the nominal growth you have a lot of competitive pressures. And Capital Investment that has gone in the last few years. Margin pressures coming across the board. That continues to hamper the profitability. Guy domestics, we will do that in a few minut time. Hes going to stay with us throughout the hour. Also coming up, after china selloff, we bring you the latest on the european markets. An update from phillips and siemens. Alos on today show, the future of cyber technology. Live in israel with the ceo of one of the Worlds Largest leading Cyber Defense companies. We will look at the challenges facing the ecb president as he faces critics that the bank muscle fill its inflation mandate. Aghi talking the same kind of language. We are back in a moment. Welcome back. You are watching the pulse. 9 12 in london. European stocks getting hit. Mark china setting the tone for todays trade. The shanghai composite plunging 6. 4 , the most since the first week of january, declining to a 13 months low. Showing capital outflows totaled 1 trillion last year. 2006, there is the shanghai composite yeartodate, down by 22 . The biggest declining primary equity Stock Exchange in the world in 2016. The man of the day has to be the man which nejra was telling us about. He says slowing Economic Growth and the weaker yuan will fuel capital outflows. Some of the most accurate forecasters say the index may not bottom until it falls until the 2500 level. It could fall another 15 . Stock index future wager year made more than 6200 . The fed will be worth listening to. No press conference tomorrow, the beginning of the two day meeting today. But the accompanying statement will be pored over ferociously by investors. Noteield on the 10year has fallen to 1. 97 . Well below the level when the fed raised Interest Rates on december 16. The rate 2. 26 . Money moving into havens, falling out of equities. Guy thank you. Companyurged after a posted fourthquarter results that beat estimates. The ceo told us hes optimistic about the future, despite the slowdown in china. We had a very good rebound in the fourth quarter. The strong order intake and good sales growth. With that came on the back of several weaker quarters. I think what we are seeing is a more bumpy road in china, where growth is still possible. Maybe not every quarter but certainly over one or two years, m optimistic about im optimistic about our opportunities in china. With us. Line hyde is sounding upbeat about china. Live earnings out from other companies. Caroline the analysts are really invested in order intake in china. Growth of more than 10 . It is all about body scanners at philips. Clearly, china is managing to weather the storm. The actual products that phili ipps is offering seems to be some desired so desired that they will outperform the market. The Health Care Providers and hospitals need data. We wanted to analyze our own data on our mobile phones. Earnings up 30 . The u. S. And china outperforming. The china story not so good there. They could not sell their lumiled unit. Process is ongoing. Siemens outperforming the market as well. Outperforming in terms of share price because once again theyre managing to weather the chinese storm because they are making products people want to buy, focusing in technology when it comes to siemens. They also want to be looking as health care at health care. One is to wrap up following philips. They just made that acquisition cd adapco. Looking into getting into software focus. This is a company, too, managing to whether the oil and gas and china storm is still post sales outperforming. Earningspershare up 46 . So good they race their overall forecast for the entire year. How long will it last is what analysts are wondering. How long will the lower euro help them, too . Guy lets get more with our guest. Do you believe those guys . Do you believe phillips and what they are saying . The stock is up nicely this morning. China fears unfounded. Partly. The Consumer Retail sales are still running at 10 . The wages are still rising. In that sense, the concessions is the consumption cycle good. If you go to Companies Like siemens and phillips the point is that the earlier weakness of the euro we had in the laasst year against the renminbi means valuethey competitiveness. It takes one or two years until you see it come through. Can they repeat this . I think it is going to be much more difficult to repeat the performance on the table unless lessig another leg down in the euro. Guy mr. Draghi. So, is the market mis pricing . Companies like this . I think the companies that are able to grow corporate earnings, able to grow their free cash flow, other companies are the companies that will do well. Investors will continue to be attracted to them especially when there is a risk aversion was seems to be going on for a long periods of time. Technically, they are risk on since 2010. And we still were still in the world of q. E. And a larger months of liquidity. The first coming to stages when the total amount of excess liquidity is going to start and its going down a little bit and more discrimination is being used. Thehis long journey, equities have been dramati cally. And the increases in corporate Earnings Growth has been a reasonably large increase in market multiple expansion because markets are fairly fully price in terms of the multiples. Unless we get corporate earnings, chances are there rating. Some de ssa ween if draghi are going do more, d you think the central bank story is not going to be enough to get these markets elevated again . For the risk markers to make further progress, we need improvements in company for chris and that means that corporate earnings have to show and cash flow has to grow. The companies that have difficult of doing either of those two, will be d rated we have a significant number of sectors beginning that journey of getting derated. Guy are we in a longterm bear market . We are not in a bear market. It is just that the markets are becoming more discriminating. Their sales and cash flows and corporate earnings. Those that are unable i think the ones that are unable to were found to be too expensively rated. Morenk one needs to be far careful about which Companies One takes. Guy we will come back and discuss this further. Thank you very much. Up next, a hard time for easyjet. The airline tightens its belt as a terrorist act in paris in the middle east hit fares. Guy welcome back. You are watching the pulse. Nejra thanks, guy. The easyjet has missed firstquarter revenue estimates as sales were impacted by the paris terror attacks and the downed passenger jet in egypt and the airline expects fullyear profit to be in line with markets. Visa europe says revenue jumped 25 in the year through june as more customers turn to alternative payment methods. The company ceo says that growth in Contactless Payments is off the chart. The volkswagen ceo has called the emergence emissions test in europe to be reworked. He has also announced a recall of 8. 5 million affected cars in europe will begin this week. That is your Bloomberg Business flash. Guy our guest still whether this. L with us. L lwit how much of your activity is based on credit . It is incredibly important so good because what were seeing is large chunks of the market sectors are seeing a credit downgrade cycle already in it or beginning to start, the commodity, the energies, the emergingarkets and retail and so on. And credit downgrade cycle means the. Cost of capital is rising for these companiesthat cost of capital rises it basically means there is pressure in terms of corporate earnings cycle turning a little bit lower or negative, but to make matters worse, what happens if the sales are not rising right. So you have to double down on the way down. But the cost of capital is rising. Has sufferedold twice as much. The sectors are what are leading the sectors down. In sectors were companies are in real problems. Are declining in the cost of debt is rising dramatically. This is a lag effect because the real effects are felt later. The second half of this year, a lot of restructuring of the companies. Guy which sectors . Retail is the one that people look at. Largere going to find a number of Companies Involved in the energy sectors. Are hopelessly out of sync now with the oil price well below 40. Willmeans these companies have to have a lot more risk capital injected in the debt levels have to be lowered. There is a rationalization to go a lot of m a activity. A very similar dynamic operating through the rest of the commodity spectrum in mining or coal and iron ore. Guy does that restructuring signaled the bottom . Is that all we have to wait for for the commodity cycle to bottom out . I think so. Lead to consolidation and then there will be discipline in terms of the supply. Then we end up with a better supplydemand dynamic. Which restore stability in the pricing as the first step. More important, really, is the fact that we have had emergingmarket we put a lot in the last five years because the cost of capital was so low. All of this capital is coming online. Demand is not expanding that fast. Guy leave it there. Claim 17 up the worlds top 20 banks of their customers. We will speak to a top security company. Welcome back. Youre watching the pulse live in london. Im guy johnson. Lets get a bloomberg first word news. European stocks are falling for a second day on growing concerns over china and the continuing oil price rout. The shanghai composite slumped by 6 overnight. At the same time crude has plunged below 30 a barrel. A Hedge Fund Manager whose chinese stock bets returned 6000 last year says investors should sell their shares asap. His winning streak into 2016 returning 35 so far this month. His advice is to hold cash and wait. Itsederal reserve says meeting to decide interestrate policies will proceed today tomorrow, though participants unable to attend in person can take part via videoconference. In washington as well as the federal government were closed yesterday following a severe winter storm that disrupted travel. Global news 24 hours a day, powered by a 2400 journalists and 150 news bureaus around the world. Guy thank you. On the bloomberg first word news. Mentioning what is happening with stocks this morning. European stocks getting hit hard. Oils down, china was down. Mark have a look at the price of wti. This is a fourday chart. It shows you the type of volatility we are seeing right now. Thursday, we rose by 11 . On friday by 9 . 6 and 3, huge volatility. Tomorrows u. S. Inventory data is important showing supplies could rise by 4 Million Barrels last week in the u. S. Keeping it Million Barrels above the fiveyear seasonal average. The sliding price of oil has not deterred saudi arabia. It will reduce its spending on energy products. Part of the reason why we saw this selloff yesterday and the continued decline today. Oil has fallen below 30 a barrel once again. 29. 64. It is not oversold. The rsi is back above 30. Moving intogain gold. This is the gold chart for 2016. Remember, were coming off the back of three years of declines for gold. One of the reasons why it has been declining in recent years is the expectations for policy tightening in the u. S. It comes as the fed begins his two day policy meeting today. Will we get some suggestion from s a companyit statement tomorrow night that the expectation of four interestrate hikes this year is maybe a little bit too bullish . If that is the case, you could see further gains in gold, why ounce, which is at the highest level since november last year. Money moving out of oil and into gold today. Guy the safe trade is definitely on the way. Mario draghi had hit back at his critics. Theecb president says that Central Bank Must fulfill its inflation mandates to maintain credibility. Big words. Lets get more from our reporter in front for. In frankfurt. Draghi is talking the talk. Ill do whatever it takes. But he is putting the ecbs mandate front and center. Yes, indeed. Euro area inflation has been below the ecbs target of just under 2 for almost three years now. Clearly the ecb has to do something. It has been doing a lot but mario draghi has been making the case to do more and get inflation back to where it is supposed to be as fast as possible. Guy how threatened is ecb credibility right now . Aboutt used to talk having a single needle and the compass and therefore we need to make sure that is what the focus was. The ecb has not had inflation at target for a very long time. Yes. Yes, indeed. This is not helping. At the same time, it can be clearly argued that a lot of this fall in inflation is viewed to the oil price love which is do littlethe ecb can about. What is more worrying is that inflation expectations, the prices people expect to have down the road, are also u becoming unstuck. They are falling more and more the path of oil price. Market start to believe less that the ecb can keep euro area on track. This is what is worrying mario draghi. Guy thank you very much. Joining us from frankfurt ahead of what s going to be an interesting meeting on march 10. Andrew bailey will be the u. K. sca. Hes bee moving over shortly. Stay with us. Deliver . Aghi going to we know the markets are pricing in a cut in the repo rates, but more importantly, last time, the market does not expect there was an interest in the monthly rate of purchase that back should put on the table. The reason is that even if you projections,cbs inflation is still below 2 . You have high unemployment. And you got housing markets which is pretty flat. Energy a lot of falling prices, falling Commodity Prices. We can look forward to when there is going to be exported or deflation in china and most of asia. Which means inflation worldwide will remain under severe pressure to stay low. That means the time horizon before inflation gets to 2 is going to get longer and longer. Unless it increases demands of q. E. On the table is the fact that the expansion of the assets its going to be buying in terms of the marketplace, there is a lot of speculation whether the Corporate Bonds is going to be something he was open to buying. That would be a very positive move. Chances are thats increasing the probability as days go by. B you could argue is its own worst enemy. It is trying to do everything it can to deal with inflation, but it is making it harder for banks to lend. If you look at the weightings, the whole issue of the Banking Sector is problematic. Thehand desoes, other hand the gates. Europe isblem with that 80 of the credit that is transmitted in europe comes from the Banking Sector. Only 20 from the market side. This is worse in the u. S. Where 80 of the china comes from the market and 20 from the Banking Sector. In terms of the banks are having to obviously strengthen their Balance Sheets and because so, they have no choice but to strengthen their risk capital base. That means theyre lending very easily because more risk capital is needed. Capital has come down significantly. New mortgages and spain are now 2. 25 . The lower Interest Rates that is why it is going to the smes. This stabilizes the consumer balance sheet. In thereduces the stress Bank Balance Sheet and we get nearer to the time when the banks can begin to lend more aggressively because the customers are much better able to afford lower Interest Rates. Another few quarters and we will be in a position that bank lending begins to lift off significantly. Weve seen the lending standards have easily but. Have eased a bit. Do why should draghi anything . The inflationt is if target is not going to be met for years to come, they need to increase the help they are giving economies. Coming, but it will be another year or two years before we see it become sustaining. Higher implement creation as a result of that. This is a long, slow guy thank you very much. The investment director of London Capital. We are going to take a break. Up next, we talk Cyber Security with a company thats really embedded with the banks. 17 of the worlds top 20 banks are their customers. In london. Youre watching the pulse. It is quite a morning of the markets. It started with oil overnight. This is what the effects have been in europe for equity markets. A rally being stalled right now. The stoxx 600 down by 1. 5 . Worthasset classes are paying attention to. Shanghai one of the big names and numbers we are focusing on. Shanghai down by 6. 42 . Market really selling off aggressively within the last hour. Crude has been suffering. But below 30. 29. We get data out of the u. S. Later on. Pay attention to that. Curveend of the german continues to be in focus. The market seeking safe haven status. The german curve has been moving slower. Plus a bit of draghi in the mix. Dollarruble 81. 23. We are not back at the 85s, but interesting. Interesting to see the treasury stats out of the u. S. The russians reactin to that. The kremlin saying this morning this is a headline you do not see very often. The kremlin saying the Vladimir Putin does not own a yacht. Stay with us. An investment director at London Capital. He has a big navy there. Lets talk about emerging markets. You talked about the commodity stabilization and the credit market impact. We need to see the cathartic moment coming through. As you look into 2016, does the em story look further and further away . I think so. The reason is that the emerng highlyhas become leveraged. They took advantage of low Interest Rates we had in the last five years. And all of a sudden a large number of them are going through a downward cycle. Of capital will be rising substantially. Which means the profitability will remain under sustained pressure for some time here to come. That means if youre going to be involved in emerging markets you need to focus on inward looking companies which are much more insulated, much more servicing the domestic Consumer Base where they can protect their margins and protect their volumes. All across the market it is very difficult because we have seen a large number of the emerging market currencies have fallen dramatically. The terms of trade have been declining. Forave not reached a level many of these currencies to stabilize because many countries where the currency devaluation is taking place in a negative feedback bloop. So, i think we need to wait for all of this to clear out of the system which might be a few more before we come into stability in the risk markets and emerging markets. Guy do we need to see the dollar come down . It was the middle of last year updrafted to see a big of the dollar. Does the dollar index at 99. 34 four rate hikes . We have seen the last few weeks the yen and the euro has strengthened. It is indicating the market is reducing the Interest Rate rise expectations. The probability for the march rate rise is around 25 only. You can pretty much say it is not going to happen. I think the dollar is already of the delayedse interestrate expectations the u. S. Economy is the strong as of the major economies. And that is what is driving the dollar. I do not think that is going to change for some time yet to come. Sometime before the japanese economy gets into a growth trajectory. In the case of europe, we a miss growth trajectory but we need more to make a sustainable. There is nothing to hold back the u. S. Dollar for now. You get temporary corrections like the one weve had in the recent past. In terms of the pain that is inflicted on the emerging market because of the stronger dollar, i think it stays with us for most of this year. Guy thank you very much for your time. The director of London Capital. Thanks for joining us. Finishing up on the dollar, day one of the fomc meeting. We will have plenty of coverage on that story. Right. Lets talk Cyber Security. Lets go to tel aviv. Lets join elliott gotkine. By one ofm joined the biggest cyber companies. Great to have you with us on bloomberg television. Lets get this out of the way. Reports of israeli crackdown on a checkpoint. Jp morgan has said is there any truth to those reports . As a public company, we cannot respond to humans. Just back from a keynote interview where i talked about building a large Global Information company. That has always been our mission. Its going to do whatever is the right thing for a shareholders. Where on a mission to secure enterprises around the world. Elliott let me rephrase it. Cyberark thatout would be appealing to potential acquires . Ofits getting a lot attention because of our combined growth we do something that every enterprise and government needs. We have 2000 customers. Were just scratching the surface. Are embarking on global expansion. Elliott youre not the kind of perimeter fence and the way that checkpoint is but you assume the bad guys will get in and you protect them. He attacker made it into the inside or is inside, we prevent them from getting strong access to the i. D. System. A layer on the inside of enterprises. Elliott you have made a number of acquisitions. Are you in the market for more acquisitions . We made two acquisitions in 2015. Both are israeli related. We are at an israeli conference and we are excited about the opportunities to innovate but also we continue to look at nonorganic options as well. Elliott you just appointed a new bp for sales and markets in asia pacific you just appointed a new vp. Cyberark was always proud of taking a global approach. We have customers and 65 countries. Apec has always been a strong region for us. The appointment is a statement of continued investment in expanding in the asiapacific. And japan, we see a great opportunity there. Similar drivers to what we see in other economies. Elliott we have seen a lot of volatility and lower oil prices. You as a Cyber Security company, introducing a new layer of protection, are completely immune to the broader economy . There is a growing budget and information security. If they do not grow them themselves, they take or from other i. T. There is high demand for information security. I would not say anybody is immune, but this is a layer that every enterprise needs. Elliott there seems to be a lull in high profile data breaches. Target and others. Does that mean that less people are panicking and your phone raining off the hook . One thing that is very active security measures. Our customers do not need to be breached for them to call and place. Put a layer in theyre also regulations that force these companies to put these kinds of layers in place. More and more companies are being corrected. There are continued breaches that are happening whether they are high profile are not. Elliott we are here at cyber tech. There a bigger companies. Is there a danger that a new Cyber Security company, Technology May came along and that means that yours is obsolete . The layer we have built actually requires a deep understanding of how Enterprises Work and integration with the layers of it. T. On the inside. We are not an overnight company. A are a company that built missioncritical software that allows our customers to focus on what they need to do and supplement other security. Were very in tune to the high tech scene in israel. We innovate in israel but we have a very strong advantage. We thank you very much for joining us. In an hours time, well have the ceo and founder of checkpoint joining us. Back to you in london. Guy looking for to that conversation. In tel aviv. Up next, the shanghai slide. We will look at the impacts of 6. 4 plunge in china stocks. Guy welcome back. This is the pulse. Lets find out how the markets have been trading. Determiningand oil the mood of investors. This is the shanghai composite dropping 6. 4 , the biggest lights is the first week of gender. Of january. Capital outflows reached 1 trillion. Man last year made a lot of money out of future wages with earnings more than 6200 . His equity gauge could fall on another 15 in the first half. Already it is the worstperforming Global Benchmark and 2016, falling by 22 . The yen is the bestperforming currency. The beneficiary of risk aversion today. The fortunes of the yen in Global Stock Markets are becoming entwined. The 120 day correlation between msci standsnd the at a near record high. Money flooding into treasuries once again. As the fed kicks office today policy meeting. Kicks off its policy meeting. Guy up next, bloomberg surveillance. Tuned. Re you stay london looking lively this morning. A lot is going on. The only way to get better is to challenge yourself, and thats what were doing at xfinity. We are challenging ourselves to improve every aspect of your experience. And this includes our commitment to being on time. Every time. Thats why if were ever late for an appointment, well credit your account 20. Its our promise to you. Were doing everything we can to give you the best experience possible. Because we should fit into your life. Not the other way around. Stocks slide. 6 at thelunges close. Oil below 30 a barrel. The ecb president said the Central Bank Must fulfill its inflation mandate. Its credibility is on the line. The Federal Reserves first meeting of that year. A hike off the table . Good morning. I am jonathan ferro