Transcripts For BLOOMBERG The Pulse 20160412

On the european stocks. They are retreating. Investor confidence remaining uncertain. I wanted to show you Retail Stocks because they are down 0. 5 . Lvmh leading some of the Consumer Companies to the worstperforming groups that make the stock 600. Stoxx 600. Halting a sevenday advance against the dollar after the japanese finance minister said that authorities are ready to act. Wan as a in the korean weak dollar boosted inflows. Has confirmed it will close certain businesses in europe and rationalize price of its operations in the americas. Tradingesearch fails, and underwriting for european japansill be shut, but largest brokerage says operations in asia will not be affected. The firm released its Strategic Plan when it reports earnings on april 27. Brazilian lawmakers have pushed a step closerseff to impeachment after her committee voted for her to go in the first formal test of sentiment in congress. The real has had a high on speculation that rousseff will b e ousted. She denies wrongdoing and says impeachment would amount to a coup. David cameron has defended his to parliament. He delayed response to questions due to his anger at seeing his late fathers name attached to stores about tax evasion. Prime minister cameron since 2010, i have not owned any share investments. The publication of a prime ministers Tax Information is unprecedented but i think it is the right thing to do. Let me be clear i am not suggesting that this should apply to all mps. Nejra global news 24 hours a days powered by our 2400 journalists in 150 news bureaus around the world. You can find more stories at top. Francine italian telling officials have agreed to create a multibilliondollar fund to support the countrys banks to tackle the 360 billion euros in bad debt italian banks are carrying. Dan, thank you for joining us. What do we actually know about the fund . We finally got confirmation late yesterday that this fund, this private fund, is going to be set up. Twos going to address the fundamental issues hitting the Banking System right and. Andned ed to raise capital try and reduce the massive level of nonperforming loans. 5 billion, it is a big number but the question is is it big enough . Clearly right now, it is a stopgap measure. You have got regional, mediumsized banks in northern italy that are preparing capital increases. This might help. It might reassure investors about the capital situation. Credit, italys biggest bank, acting as a guarantor, leading the rtium. Riting conso a question mark whether this is the ultimate, Game Changing measure to reassure investors longterm about italian banks and the risky situation. Doncine the problem is we not really know how to resolve nonperforming loans, and as you y, 5 billion is probably not enough. How big does it have to be to put most of the concerns to one side . Dan that is a great question. I think we will see in coming days, the reaction to share prices. The italian banks have rebounded a bit in the last two sessions after underperforming. Wouldk investors probably be happier for a bigger number, but the fact is how do you get to 200 billion, 300 billion euro s. Out overnight. The other problem is the solution that italy has come up with has to meet the approval of regulators in brussels. It cannot be construed as a bailout, state guaranteed bailout. That is why they design the solution so it is being managed by essentially a private investment fund, which will have probably a shareholder such as state lender cdp. Much. Ne that you so we will talk more about this. Keep us posted if anything breaks. Our mialan your truth. With me is Richard Jeffrey. Great to have you on the program. We have this news about nomura cutting down her equity operations in europe and news about italian banks. Were resolving is slowly but there is not a kind of stopgap am i right . I think that assess the right is absolutely right. If you look over the whole u. S. D of the crisis, the is much more on the front foot and trying to resolve the problem within its Banking System. That has got the American Economy back on to a Sustainable Growth path. You look at the lagging countries and i think it is in europe. If we had other problems, not just the banking problem, but that southernar european economies are still struggling, and the Financial System may be is not providing the right supply of credit to finance a new growth path. Francine are we concerned about possible shock . To forget it is a transmission mechanism. The lenders but also the guys that need to be healthy. What are the chances of a shock coming from the Financial Sector in europe . Richard there is always a potential for a shock. Its unlikely in the shortterm. But what could unnerve people would be crystallization of bad than to a greater extent it has been seen today. And therefore, people realizing the banks need a lot more capital. You will guess they probably need 10 times this amount. Francine are we in a better place now than we were two years ago because we have the ecb stress test for the banks . A little bit more reliable. Richard i think it is genuinely the bankinghat system is stronger. But expectations can lead the reality. The problem is the bank system is still not as strong as we would like it to be in the longer term. So, it is somewhere between, were not in any sense and a crisis in the Banking System. We have left that well behind. Are your favorite opportunities, given the volatility we have seen the last couple months, given the movement on yen. Do you have to play longterm, do you look for cheap valuations, possibly some of the banks, or do you look for safe but boring . Richard i think it almost is safe but boring. The key is safe and growing dividends. Our focusery much in because if youre thinking about markets which are providing a much lower total return and that is going to be true for quite a long time going ahead, that a much greater proportion of that total return may be 50 or more is going to come from dividends. Dividend is the key growing income. Francine whos giving dividends . It is not the Oil Companies, not the commodities anymore. Richard some of the financials are going to pay dividends. They are going to grow their dividends faster than the markets. The question is, is now the right moment . Always the right moment. There are areas of the market where there is good income. And i think if you take the bottom line for markets as a whole, income looks quite attractive. Francine i spoke to about a month ago, does anything need to be changed . I know were looking at earnings season this week but yet the markets feel different, it is much more jittery. Richard i think when we were speaking a month ago, you are asking me just how weak are things . Everybody was getting nervous about the outlook for the economy. It was negative noise. Are things slowing down . I think we have moved on from there and actually people have got a slightly better picture of what is going on. It was noise. Underlying growth rates are not excited that they look fairly secure. And i think that is key. At the moment, and all the focus is on earnings. And the United States, there have been a lot of downward revisions to peoples earnings expectations. Probably earning seasons will look ok but there is always a potential for shocks. Francine Richard Jeffrey stays with us. Well comeback and talk about that more about centralbank policy. Plenty coming up, including bad as impeachmentff looks more likely for brazils embattled president. The country stock market soars. Plus, after a year of noflation u. K. Crisis looks set to tick upwards. We look at the outlook with or without a brexit. The end of sanctions will see the unlocking of more than 100 billion of iranian assets. Well ask about opportunities and infrastructure in the islamic republic. Francine lets get straight to the Bloomberg Business flash. Nejra thanks. Alibaba has agreed to take control of indonesias ecommerce operation for 1 billion. For it will purchase stock from existing investors. Lazada sells clothing in six southeast magasian markets. The slow down his claim another victim as lvmhs sales trailed estimates on a decline in tourism following the terror attacks in europe. The Company Shares are trading lower on the news. It is one of the worst performers at the moment on the european stock 600. Is blaming a supplier for a recall that will affect to repair the cars third row seats. Nomura has confirmed it will close certain businesses in parte and rationalize of its business in the americas. Equity research, sales and underwriter european stocks will be shot. Japans largest broker says operations in asia will not be affected. The firm will release its full city to plan when it reports earnings on april 27. Its full Strategic Plan. Francine lets get to our chart by the hour. By one measure Market Expectations for inflation rose last month for the most since 2011. Traders reckon that the outlook for Consumer Price gains has soared from post crisis lows as the Oil Price Rebounds. Lets get more with richard jefferies. A reallywe gave you nice chart looking at inflation and linking it to Central Banks. I you nervous inflation will pick quicker, because of the price of oil . And Central Banks are going to be on the run for it. Corerd i think inflation is picking up. And what we are not getting is the second round effects through nergy prices. Everybody who has been using energy gets those cheaps costs coming from a pass those on. Core rates have been picking up. It is evident in the United States that the core rate of inflation is at or above where the fed expected it to be at the end of the year. I worry about Central Banks because they have lost the initiative. Francine to normalize . Started they shouldve normalizing early. Their opportunities last year or perhaps even earlier francine janet yellen said she wanted to normalize. She was itching to normalize last september. She must be looking either at a picture that is ugly in terms of world growth or she must be feeling a lot of pressure from youpboc in saying if normalize we devalue. Youard that is because make the assumption that Central Banks always know what they are doing. They try to. And everybody and Financial Markets try to but there is this assumption that Central Banks have more information than we have that does not mean to seen they have to say they have better information or are better able to interpret it. Nothat were truly would have the financial crisis we did happen are the Central Banks wandered into that. Im afraid we are still following them now. I think they have lost the policy initiative. Lost the economic debate. Along itself to be hostage to the markets. The markets shout in the Central Banks look up. Francine the problem is we have changed chairs. Is it a problem with the way the janet yellen sees the markets or a problem with the mandate . As soon as you have a mandate on inflation, which as the fed, and to abandon, you need that mandate and focus on something else. Richard i think Central Banks are able to take a longerterm view and they are able to interpret the mandate. And Federal Reserve is not just looking at headlines and cpi. Rates ofing at core inflation, including Consumer Price, sorry, pce. And those rates are looking they are not looking worrying, but they are picking up into me they are saying they should be the moment which you are beginning to tighten monetary policy. Not taking one step and getting scared. Francine is she worried about Dollar Strength . Because i think it is they are listening to much and watching too much what is going on a Financial Markets. I think every time the Financial Markets wobble a bit, the fed steps back and other Central Banks do, too. We dont want to go there. I think they need to lead the debate. And that is really important. I think when the ecb announced its latest piece of easing, mario draghi should have been standing up and saying, we dont need to do this. The european economy has been gaining the mentum. We do not need to take this action. They need to provide confidence. Confidence by taking the action they have to. Francine we need to continue this conversation, because i do not disagree with you but as a central bank you do not want to see the economy fall out on your watch. Up next, brazilian bravado. A vote pushes president rousseff one step closer to impeachment. Can she hang on . Francine grizzly lawmakers have pushed president russo a step closer to impeachment brazilian lawmakers have pushed president rousseff a step closer to impeachment. This government has run out of atmosphere, has no political base, no more credibility, nobody believes this government anymore. Leaders said during this debate, this government does not know how to have a dialogue. It is arrogant, authoritarian. It does not accept a versioned options. Divergent options. Francine that was the opposition leader. Justin, whats the likelihood that this will end in impeachment and what timeline are we looking at . Justin were looking at about 70 likelihood of an impeachment stage, but the key point to look at in this whole saga is the momentum. Ive been saying for some time it is really the way in which this process is unfolding. Were seeing increasingly now the pressure building on rousseff. Last nights vote that went larger degree a than many expected, and put pressure on her. What happens now is we go to a vote in the lower house. Last night was a special committee. We have a lower house vote likely on sunday but there is not a foregone conclusion that we have the 2 3 majority needed there for it to go to the senate. So, there are a lot of things that have to follow to place for the proimpeachment cap. But this is not good news for rousseff. Proimpeachment cap appears to be gaining ground but what obstacles does it still face . Istin rousseff herself mounting a challenge in the Supreme Court against the impeachment process. Thats one major obstacle that could unfold at any time. And, of course, the other main point that she needs to get is to increase her, her power base, her support. Shore things up and make sure there are not more defections entourage her n into the impeachment camp. Still a 30 probability she will hang on. That is key to keep that and prevent that momentum im talking about. Francine they do so much. Our emerging markets editor. Othere brazil on a couple cases linked to the price of oil, does it feel like we are in a better place . Richard we are certainly in a better place than we were. Emerging markets have done better this year. Francine thank you madam yellen. Richard evidence of performance numbers. But if were looking for a period in which Commodity Prices are going to start to recover, no, i do not think we are there. I think we are in a stable period. There are two sites the commodity producers and the manufacturers. Is still aas, there lot of excess capacity. There is going to be a lot of competition. I do not think we are going to see significant price recoveries. Against low world growth, it remains a difficult area. Francine thank you for coming out today. Now, coming up next, we talk iran and u. K. Because we have cpi figures for the month of march. What does it mean for mark carney . Then we talk infrastructure in iran as well. Francine welcome back. You are watching the pulse, live from london. Were just getting some figures. The u. K. Inflation figure for the month of march, rising to 0. 5 . Better than expected; they were expecting 0. 4 . That inflation rate is rising a little bit. Across the world, we have had concerns about inflation. Let me quickly check on the pound. 142. 93. We will get plenty more on this figure and what it means for mark carney, and also we will talk brexit. We are obsessed with brexit. Lets get straight to the bloomberg first word news. Nejra thanks. Brazilian lawmakers have pushed the president a step closer to impeachment after a committee in the lower house voted for her to go to congress. The brazilian raieal hit a high. In denies wrongdoing economic and corruption scandals and said impeachment would amount to a coup. Officials and Financial Firms have agreed to create a multibillion euro fund to raise capital and unload bad loans as the nation tries to assuage investors to avert a crisis. One ceo, speaking on the sidelines of the meeting, says it may be worth about 5 billion euros. News of negotiations were taking place, which led to a surge in italian bankshares yesterday. David cameron has defended himself against parliament, saying he delayed the response to questions about the Panama Papers due to his anger at seeing his late fathers name attached to this story about tax evasion. Owednce 2010, i have not any shares are any investments. The publication of a prime ministers Tax Information in this way is unprecedented, but i think it is the right thing to do. Let to be clear i am not suggesting that this should apply to all mps. Nejra global news, 24 hours a day, powered by our 2400 journalists and more than 150 news bureaus around the world. You can find more stories on the bloomberg at top. Francine . Francine markets are down this morning. Lets head to mark barton for an asset check. Mark let us start with that inflation data. Its rising. 5 on the year ahead of estimates, ahead of the previous months. 3 . This is the biggest rise in 15 months, boosting airfares in closing prices. The core rate is also rising to 1. 5 from 1. 3 . Still an is moving up, far cry from the bank of englands 2 target. This is the cpi level today; it was at. 1 . Breakeven the difference between a 10 year Government Bond and 10 year inflation bond. It has been creeping up since february as the Oil Price Rebounds and as sterling weekends. Weakens. The bottom chart is as interesting, because this is the mortgage that tells us how many months there are until the next hike in u. K. Interest rates. Back at the beginning of the year we were at eight months, and now we are at 45 months. Were off the highs of a few months ago, but still almost four years, if Morgan Stanley is to be believed. Lets have a look at the Banking Industry on the news out of italy that has created this multibillion euro fund to help weaken bank said raise capital. This is whats happening. Standard chartered rising; you can see the splattering of italian lenders. Have a look at how they have fared. This is the year to date chart; the was performers are on this index, predominantly italian and greek this is a great chart. It shows us all the big luxury goods players in 2015. Burberry shares are up by 5 ; the others, little changed. Lvmh is the country a want to focus on; sheriff year to date down by 5 , firstquarter sales rising by 3 . Trailing analyst estimates because of a decline in tourism halloween terror attacks. Revenue unchanged its biggest division. It missed estimates. The bestperforming luxury hermes, this year, is the worst. Francine you havent bought enough handbags,. Mark handbags, mark. U. K. Inflation has increased to 0. 5 after a 15 month high. We will hear from mark carney on thursday, when the uks central bank is expected to leave rates at 0. 5 . That is despite inflation undershooting their target. Here to talk about the u. K. Economic outlook, david owens. Great to have you. Thank you for coming in. U. K. Inflation is at a 15 month high, but if you look at the underlying causes, easter was in march. We had an early easter, and would boost in inflation figures was airfares and closing prices. Is that inflation of mark carney would welcome . The figures are undoubtedly noisy, let cord inflation still picked up. If you are going back to february, the mpc had the biggest inflation overshoot on target over a threeyear horizon. Memory, 2005. If you go back earlier this year they projected it would pick up and go above target, and that was paving the way for rate rises. We are encouraged that it should pick up. Francine how much do we need to look at these figures to figure out what mark carney will do next . It seems that brexit is front and center, and depending on what happens, it could make a difference in 100 basis points, if not more, on what mark carney does next. Absolutely. Everything pivots around that bank,ndum; not just the but also the ecb and the central reserve. In terms of the rbov, if the u. K. Votes to stay in, the u. K. Nevertheless has slowed sharply. Were francine is that your base Case Scenario . At the moment. The u. K. Is losing momentum. The question is how much. If it stalls or even picks up momentum into the second half, it will be difficult to raise rates. Potentially november, the first rate rise delay into next year. If we leave, all bets are off. They will probably be doing qe in the first rate rise will be delayed. Francine is there a danger that we underestimate the strength of the u. K. Economy . That even when the u. K. , if they decide to stay in, investment hasnt been pulled back by that much and therefore they need to raise twice . I think most people we meet will still think it stays in. Close call, but most think it will stay in. That is a reflection in asset markets. Decision,f the right if you are a finance decisio minister, you put the decisions on hold. It is rational to think they will stall in the second quarter. But it is already losing momentum. The u. K. Was in clear contrast to germany. The u. K. So, even with some. Could ben, the u. K growing less on average than 2015. Its a difficult backdrop to raise rates. It depends how quickly. Francine how much of pound weaknesses already priced in . I think the current account figures to meet suggest that they welcome a weaker sterling. Francine how much . 20 . Probably not that much. 15 since 2007, what we were tradingut is still on an effective measure upward since 2012, and the u. K. Will probably go back towards a recession. It will probably for a period get worse, and i think the bank would quite welcome a weaker currency. A control depreciation. Somewhere around 10 15 would be a good number. Francine i know we are speculating, but lets say brexit happens. The beer we will have to do more, were qe, cut rates. What does mario draghi do . He has are you done quite a lot. He went to the ecb website and has said its on the floor. You know they will cut rates. Not in june, because their june meeting is ahead theyre putting in play other measures in june, the Corporate Bond buying Program Kicks off then. If we get a brexit vote, theyll be cutting rates again. And theya target 75, will be doing qe for longer and speeding up the pace of bond buying. Investors are concerned about the eurozone. Theyre aware that it will pose a major problem. Francine very quickly, if inflation is picking up, core inflation, and we at most get a cut, are you concerned that inflation overshoots . Not the first one or two years following a brexit. U. K. Inflation it would pick up again. Francine great to have you. David owen. Coming up, the end of sanctions. We will see the unlocking of more than 100 billion of iranian assets. We will ask an investor about opportunities for infrastructure in the islamic republic. Francine you are watching the pulse. Breaking news we understand controlsmpany that chinas largest logging company by market value is considering nc increasing its stake in in accor. We understand that jin jiang already owns about 20 and they could boost it. Accor is gaining 5 . The nuclear deal signed with the unlock more than 1 billion of frozen assets, one quarter of its gross domestic product. But this return from exile comes as its biggest export, crude oil, hits low prices. In the year ahead, they for more on the outlook for irans economy in the opportunity for investment, i am joined by the director at the Main International airport. Thank you for coming in. When we talk about iran, we often talk about Oil Companies, and is the Oil Companies that take up our attention. How much investment, is looking for infrastructure including airports . What president rouhani aboutced was iran needs 250 billion u. S. Dollars for investment. At the moment they are so many opportunities for infrastructure and one of them is free trade there are so many that have been designated francine . I stick to a lot of banking ceos and they will often say they would be happy to come in, but it is still early days. They want to make sure the sanctions wont come back. There are still risks. Reforms, we have to bear in mind that the yankbas they need reforms, and governments have been working hard to reform all those to make it asues safe haven for investors. Francine for our viewers who are less familiar on the timeline, will it be contracts that are awarded for infrastructure . Will it be joint ventures with the rainy and companies . We always suggest people to have a radio local partners. Its easier for them; they understand the culture, they have been in this project for so long, its easier when new commerce at the moment, there are so many contracts. Netherlandsrt, the has signed a contract to review what they have done for the Airport Security and terminal. Buoygues has signed a contract, vinzio signed a contract for expansion and development. Thencine you mentioned french and iranians have had closer ties than they have had for many decades. Would it be easier for a French Company to come in rather than an American Company . I donterican company, think they are ready to come in because of the sanctions. But British Companies are more than welcome to come, but they are lagging behind. I think because of the link u. S. Marks aand rapprochement between the u. K. And around which is a bit harder. Francine you mentioned airports. Are we talking also about toll roads, highways that need to be built, or the need up keeping . Yes. Iranian local companies have done a great job of starting the whole infrastructure needs of the company. All of them have been designed, and so many of them have been executed, especially road and there are so many free trade in the north of all the feasibility studies have been done and they are waiting for anyone who is interested to Bring Technology into that sector. But we were just thinking for finance, take a little bit more time. Francine great to have you on the program. Thank you for coming in. The director at thanks for joining us. Next, japans largest brokerage confirms the disclosing some businesses in europe. We will discuss the European Equity exit, coming up next. Francine this is the pulse. Lvmh shares have fallen to a twomonth low after reporting lowerthanexpected revenue growth. The worlds biggest luxury goods belowannounced a 3 rise, the 4. 1 estimated by analysts. Before that, they had proven resilient. Alibaba has agreed to take control of indonesia ecommerce operator lazada for 1 billion. It will pay 500 million in new shares of the company, as well as purchasing stock from existing investors, including the german rocket internet and tesco. It sells goods like clothing and six Southeast Asian markets, including malaysia and singapore. Salesesbenz boosted twice as fast as bmw and first quarter. The luxury unit delivery soared 13 through march compared with a 6 increase of bmws namesake brand, which helps them move closer to clinching the lead in the worlds luxury car market for the first time in a decade. Tesla is blaming a supplier for a recall that would affect 2700 model x suvs. Thirdre repairing the row seat which failed a strength check. Thats your Bloomberg Business flash. Francine thank you so much. Largest Brokerage Company has confirmed it plans to close all of its businesses in europe. They say full details will be explained on april 27. Lets find out more from our finance reporter, michael moore, who joins us on the set. We had a great bloomberg exclusive saying that they would retrench from the equity business that would lead to a thousand jobs and then a cairo this statement what did they confirm . They confirmed they will be cutting jobs in europe and the u. S. I guess we will learn more later this month during the earnings season, but this is certainly a big scale back for them outside of japan and in businesses where they havent been that profitable and had been more bearish. Francine what prompted the withdrawal . Michael part of this is the lehman business that they bought several years ago. The business they have been trying to scale up, and it hasnt been that profitable. They have not been attacked by a player, which you really need to be, given were European Equity market is. And the ability to make money there is tough if you are not one of the top players. You have seen a lot of banks across the globe scale back into the businesses where they are good, and this is number of doing the same. Francine is this surprising . Is that once again a backseat for europe, because we are already losing a lot of investment banks . We expectedhael to see some capacity out of these businesses its definitely one more domino in the thing we may see more on this front because a lot of the banks we talked about, the only way to increase the returns is to have some of the banks get out and return the Pricing Power to the banks left over. Francine talk to me about the u. S. Banks. We are in reporting season; a lot of the u. S. Banks reporting this week. Yesterday, we had Goldman Sachs settling. Michael yes. The Justice Department put out the details. Goldman had told people that this was coming back in january, and they had reserved for the last year. It was really a big hit to their earnings in 2015. But this is definitely one more bank settling on the mortgage front. It has been a number of years since the Justice Department has an working for you said jpmorgan go first, and now all of the big u. S. Banks are done with that stage of the investigation. There are still some europeans who have this as ending francine Deutsche Bank and rbs . Michael yep, those are the primary ones. And we will see others, but certainly those the numbers have been quite large for all the u. S. Banks. Certainly the investors in european banks will want to see what the flow through is. Francine michael, thank you so much. Michael moore from the finance team. Stay with bloomberg. Tom keene will be joining me for new york. Well be kicking off with eric nielsen. Later, we will speak to Goldman Sachs head of commodities. Dont miss this conversation. We will be talking about Central Banks, emerging markets, and about the yen. I want to get his thoughts on why it is pretty much flat. Yesterday we spoke to mr. Yen, seki so if you look at my data board, i put yen, because it is the only game in town, and it has been the only game in town for the last two weeks. European stocks are falling, but less than the opened, then Retail Stocks were disappointing with some figures that are weak in asia and that retail index is down. We are back in a couple minutes with surveillance. Francine the european shakeup. Japans largest brokerage scales back its business. A deal to calm the doubts. Can italy short confidence in its Financial Sector with a 5. 7 billion fund to back its banks . And a vote in the lower house pushes brazils president a step closer to impeachment. This is surveillance. Tom, we have plenty to talk about. Thats a lot about the banks. We also need to talk about the find tgo