Transcripts For BLOOMBERG The Pulse 20160502

Just getting some pmi data on euroacturing for the area and the figure is 51. 7, a slight uptick from the earlier 51. 5. 51. 7 showing the Manufacturing Industry is expanding. Any number above 50 shows expansion. Economycourse is an that grew 0. 6 in the last quarter. Still, inflation is a bit of an issue. Lets get to the bloomberg first word news desk. Nejra halliburton and baker hughes have called off their 28 billion merger, citing challenging regulatory conditions. The proposed union between the oil Service Firms admit antitrust resistance in the u. S. And europe. Halliburton must pay a termination fee of 3. 5 billion. Puerto rico will default on a 420 million bond payment today, escalating the biggest crisis ever in the 3. 7 trillion municipal debt market. The governor warned the itsrnment would miss obligation, saying the commonwealth needs to focus on providing essential services. Investors hold 900 million of its debt. Creditors would accept a potential haircut according to the bank. Warren buffett has taken aim at hedge funds. At the annual meeting of his company, the billionaire said that wall street salesmanship had masked returns for years. He said that managers as a group under perform what you could get sitting on your rear end. Global news 24 hours a day powered by 2400 journalists in more than 150 news bureaus around the world. Mark thanks. Japans 20year bond yield sliding to a record. Stocks sinking with the topix tumbling the most in 11 weeks. Lets get to tokyo. Kevin buckland is there. The yens latest gains follow the treasurys decision to put japan on a watchlist. Does this make things harder for japanese policymakers, kevin . What do we think . Kevin it certainly does. Stringst the latest in a of signs from the u. S. Side that they are not going to tolerate or at least not going to be happy with or condone any kind of yen in for mention intervention. U. S. Officials are quite happy to have a little rest bite in Dollar Strength now. It is good for their recovery. Making it very clear again that they are opposed to this. As much as japans finance minister saying after that that it doesnt impinge on japans ability to act in the market, the fact is that intervention is a twoway street. It requires both sides to be behind it. The u. S. Side is not. Mark so with intervention, kevin, seemingly unlikely for the time being, what is driving the Exchange Rate right now . Kevin well, there are a couple things. One of them is speculation. Yen nets have noted, longs still near a record high. So there is definitely speculation in the market headed towards yen strength, but beyond that, we have some fundamentals. The boj on the sidelines and u. S. Fed on the sidelines. Monetary policy is not the driver now, which leaves disinflation. The fact that Inflation Expectations are rising in the u. S. And inflation is stuttering in japan as it has been for more than a year, its latest reading was the worst since the start of program. Stimulus with that, it really is a question of Inflation Expectations rising against no Inflation Expectations at all. That is keeping the yen under pressure to rise against the dollar. Mark japan leading stock Market Action today as it kicks off may trading, one of the few equity markets that are open. No trading in much of europe and asia. China and the u. K. Among the markets closed. It may be a quiet start to the month, but its looking like a busy week. Among the data we are watching is the European Commission spring forecast. We will hear from Central Banks in australia, mexico, and poland. On friday, the jobs data. For more, lets turn to our ,uest today, ashok shah director at london and capital. Thanks for joining us. I want to start with the yen. Highest level against the dollar since october 2014. What can stop the rise . Ashok it is difficult to see what happens. The Market Expectations were for a small move from bank of japan. You have trading on a dictation of that. Failure for bank of japan to come up with any extra measure means that people are wrongfooted in terms of shorting the yen. In the shortterm, youve got the closings of the positions. You have oneway traffic in terms of the trades. That cascades into the equity market, because the japanese equity markets are very sensitive. That you have a he there impact in t is a rise in the yen. What you get is increased volatility and that creates another risk off almost situation in the japanese assets right now. At the same time, if you look at what has happened, the yields continue to come back a little bit further down. You are talking about around 3. 4 . Factis also driven by the that the economy is probably slowing and the deflationary pressures are becoming to build. You have too low prices on Energy Despite the rise in the oil price. It is going to have very little impact on inflation in the shorter term. The pressure is for inflation to subside further into negative territory. Respond to stop that inflation expectation. Mark was it a communication issue . For as you say were primed some kind of move last week, but the boj didnt deliver. Is the video at fault for misleading Market Participants . Ashok i think it could have given more transparency. If you look at all the notes that come out, there was a concern about the fact that they are alert to the contraction of the margin for the japanese Banking Sector if the Interest Rates deep in negative further. Which makes the situation that much more difficult. Er spending cycle must then be aborted. [indiscernible] but i think they could have done something in order to probably be much more clear about the interest deposit structure, about what goes in for negative rates and what doesnt. Now,ay it is working right going into the negative rate structure has not had the desired impact. It is already becoming a failed strategy and the market has responded by taking the longer dated bond yield structure down further. That theying you really need to respond very fast before they get into a stalemate which they cant get out of. Aeyve already been in stalemate for 1520 years. What the market is saying is that agony is going to be prolonged for a long time to come unless they start taking dramatic action. Mark which leads to the big question, what can they do . Stay there, ashok shah. Stay with the pulse. Should you sell in may and go away . After a turbulent start to the year, we focus on the prospects for investors in emerging markets. Plus, balancing the books. With crude hovering around 40 a barrel, we speak to the head of nigerias pension fund. And we look at why halliburton and baker hughes have called off their 28 billion merger. Mark lets get the Bloomberg Business flash. Nejra cehic is here. Nejra shares in airbag maker have plunged again. The latest move could affect more than 100 million the a goals worldwide. No decision on the recall has been made. Justicesepartment of Criminal Division is investigating jpmorgans hiring practices in asia. The bank admitted it is facing inquiry by the sec. Regulators are trying to determine whether the bank violated antibribery laws by hiring children and relatives of wellconnected politicians and clients in china in exchange for having business steered to the firm. Standard chartered investigating bankers over padding expense reports and improperlyt lending money to colleagues. Two people with knowledge of the tter say several employees have left as a result of the probe. Mark thank you. Lets talk more about emerging markets. By humphrey in abu dhabi. Mark mobius from templeton has been in town. What did he have to say . He was in town on his way to saudi arabia for a big investors conference tomorrow. What he told us was that hes confident oil is going to reach 60 a barrel. He thinks it is a derivative play, not a supply and demand issue. He thinks theres no need for a freeze on supply. Hes confident about the economys in saudi arabia, in the uae. Hes not so confident about egypt at the moment. He also is confident overall with emerging markets. Manus cranny put to the executive chairman of Templeton Emerging Markets why so confident about emerging markets . M. first of all, continued deterioration of the u. S. Economy. Continued weakness in the u. S. Equity market. What you are seeing after three years of underperformance, now you are seeing a flow back away from the u. S. And you are seeing that with some of the emergingmarket currencies getting stronger. I believe we are at a turning point for emerging markets. Mobius, theark executive chairman of Templeton Emerging Markets. Very confident on emerging markets and very confident in the gcc region. B. thanks a lot. With us now, ashok shah, director at london investors and capital. Emergingmarket turning point, yes or no . Ashok not necessarily. The core driver for equity markets are the direction of the corporate earnings cycle. What we are seeing right now is the rate of return on equity continues to update. Corporate earnings last year were down big time. Expectations for this year are probably very lackluster growth. Of course we have had emerging markets being sold off for a number of years. They were looking very cheap. If you looked at the price, they were looking very bombed out. The fact is that they were a very outoffavor asset and all you needed was a few drivers in the shortterm to turn the sentiment around. The drivers have been the delay in the u. S. Interest rate cycle. That has been very helpful to emerging markets generally because of the indebtedness in the corporate sector. Cycle or the default eliminated if it is delayed long enough. More importantly, the u. S. Dollar strengthening, had positive correlation to the emerging markets. Dollar giving back a little bit of strength in the last few months has allowed emergingmarket currencies to recover from very awful positions. The money flows into emerging markets through the mutual funds and so on. We have had negative outflows from both the equity and bond funds in the emergingmarket universe. That has slowed or is just turning positive barely. The it is more to do with the fact that emerging markets have had a very strong correlation to the energy and oil prices, which have turned up a little bit. Mark mobius says 60 by the end of the year. What do you think . Ashok a little on the optimistic side. We have a fundamental imbalance. Fastd is not growing as at supply continues to grow a high level. I think that perhaps in the fullness of time, we could get 60. The good news has been the rebound we have had in the chinese economy in the short term. That has helped emerging markets dramatically. Theres a strong correlation with the export cycle and chinese growth. That has been a very positive driver for the sentiment and for the bottoming out of the export cycle. There is a complex of good news coming out temporarily. We just about emerging markets to gain some poise. We have had a fairly significant recovery. I think we need that turn in the corporate earnings cycle to allow the sentiment to continue to be strong. Mark stay there. Ashok shah from london and capital. Up next, markets in the green in germany, in france. No trading in london. We are here on this bank holiday monday. Mark time for a market check. Nejra . Ve you got, nejra last month, we saw european stocks reaching their lowest level in more than two weeks, and today, we are seeing further declines on the stoxx 600. It is bank stocks leading the losses. In particular, italian banks. Drop afterthe stoxx the government orchestrated atlanta a fund looks for a share sale. This is amid weak demand. Unicredit down 3. 5 . It is one of the banks backing atlantic. We are seeing into the sao paulo fall intos us and paulo fall. Valued at 1. 2 billion. Deutsche bank also falling today after u. K. Regulators faulted in bank for serious lapses efforts to thwart money laundering. This is according to a person with knowledge of the matter. , let methe bloomberg show you currency markets. Fatheryen unchanged, but they yen still near an 18month high after it climbed as much as 0. 3 earlier. Dollaryen, definitely one we are keeping an eye on. The best performer among g8 and currencies. What is that doing to stocks . Tumbled theopix most in 11 weeks over in japan. Also, nikkei volatility, that rising as the yen has been strengthening, widening the gap with the vix index in the u. S. In the currency market, it has also been about dollar weakness. If we take a look at the dollar, the dive has been giving gold a bounce. Gold is trading near its highest in 11 months. It is closing in on that psychological 1300 an ounce level. , hedge funds have been missing the party. Theyve been cutting their holdings by the most since they turned bullish in january. Mark thanks. Lets get more thoughts from ashok shah. Big day on friday. It is jobs data day in the united states. Growthe. Ake where does that leave us in terms of the amount of rate hikes from the fed . Ashok the expectation of the rate hikes have been coming down all through the year. We started the year with the fed wanting four rate rises and we are down to two at the best from the fed. The Market Expectations continue to flow. That is on the back of the fact that there is really no impetus on the inflation rate at all. The wages are not picking up. The rate rises we have seen are in the lowest paid segment of the market. That is more to do with minimum wages, which are going to be raised. Despite the unemployment levels falling and participation levels beginning to rise, there is a lot of latent, hidden unemployment in the system. I think it will be sometime before all of that is used up. If we continue to monitor the rate rises, that is the most important thing. The second thing to remember is that the change in the dynamics of what happened to inflation with regards to the stronger u. S. Dollar last year, that had the impact of lower imported prices. With the recent dollar weakness, that perhaps gives a little strength to the inflation rate, but nothing dramatic. Without any inflationary pressures, it is difficult to see why fed would want to raise rates this year. Mark great to see you. Ashok shah, investment director at london capital. [ soft music ] e. T. Phone home. When you find something you love, you can never get enough of it. Change the way you experience tv with xfinity x1. Shoah, ha ha. Ew artist. Show me top male artist. My whole belieber fan group. Its not a competition, but if it was i won. Xfinity x1 lets you access the greatest library of Billboard Music awards moments, simply by using your voice. The Billboard Music awards, live sunday may 22nd, 8 5 pacific, only on abc. Mark welcome to the pulse, live from london. Lets get to bloombergs first word news with nejra cehic. Nejra thanks. Halliburton and baker hughes have called off their 20th billiondollar merger, citing challenging regulatory conditions. The proposed union between the second and Third Largest oil Services Firm that antitrust resistance in the u. S. And europe. Halliburton must pay a termination fee of 3. 5 billion by wednesday. Will default on the 420 million bond payment later today, escalating the biggest crisis ever in a 3. 7 trillion municipal debt market. Warned that the Government Development bank would miss its obligation, saying the commonwealth needs to focus on providing essential services. The gdp reached a tentative Framework Agreement with investors, who hold a 900 million of its debt, late sunday, under which they would accept a potential haircut. Warren buffett has taken aim at hedge funds again at the annual meeting of the company. The billionaire said that wall streets salesmanship has masked poor returns for years, adding that poor results has steered pensions funds and others to highspeed managers who underperformed what you could get sitting on your rear end and index funds. Global news, 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. You can find more stories on the bloomberg at top. Iraq,as all exports in opecs sickest bigoted producers, manus cranny caught up with mark mobius. D what action needs to be taken to stabilize the market for crude. I dont think you need a freeze. I think the market will handle it. You muster member that the demand for Oil Continues to rise it is not going down. The recount globally in the u. S. Has gone down precipitously. This only means that the supply has got to diminish, despite what is happening in the middle east. Demand will continue to rise 1 or 2 a year, and the combination of this means were going to see a higher price for oil going forward. Mark mark mobius of Templeton Emerging Markets. Lets stay with the theme and turn our attention to nigeria, africas biggest producer, joining us now for an exclusive interview. Thatdirector general of year is National Pension commission, overseeing its 25 billion pension system. Thank you for joining us today. Youve been part of this massive overhaul of the countrys pension system. Tell us some of the measures you have implemented. Thank you very much, mark. I think the main thing with the departure from the nigerian pension deficit system to a similar area where you have 25 billion in assets ready for investment, the protection of the workers Retirement Benefits through their own individual Retirement Savings accounts, which are completely accountable and get quarterly statements. This is done by professional savings account managers who our administrators. Reports to thed pension commissioners and regulators and this has gone a long way to streamlining the pension administration. Mark how important is the pension fund to boost development in nigeria . Because you have this deficit when it comes to infrastructure that needs to be filled. Well, the Pension Funds in nigeria that it is one of the biggest Institutional Investors and it is very important, especially with a 25 billion pension and asset which are slightly under 7 million contributors, meaning that when we get through 14 million working populations that have yet to come under the scheme it is clearly the biggest source of infrastructure. Thesed to make sure that funds are invested in structural vehicles to bridge some of this deficit, and we are hoping to do that by making sure that the Pension Initiative was launched which then brings and not just the formal efforts but those who are informal and have no employer. Tok how long will it take get those not contributing to the scheme on board . Its a work in progress. We will launch the micro Pension Initiative what we need to do is to make sure there is massive and sensitization because it is key. If you dont understand what youre being asked to do it is harder to do it stop the only its justping us to go out there and incentivize those who want on board. Mark what are you doing with ghost pensioners . It is more what was done. What you have with the new system is to ensure that everyone has biometrics. There are no ghosts with biometrics and once you make sure that people come in and are opening their account right now those at have done that in the past mark for people that dont know, these are people who has staked names and are collecting salaries and pensions of times over stop how many people were doing this . Well, we are still going through the backlog. Im not sure it is still ongoing with the new reform how many people did this in the past, that is what we are working , even with bring out the new system. In, started sending funds like before. Itst do this and all in the past and what we are what wee we stand are doing is to go back and make sure that those who are doing this have their funds returned to the federal government. Mark you started interview talking about oil, and all of course is very important for nigeria, 90 of your export. Can you tell us the impact of the slumping oil price, what it has been on the pension fund . What is having on your Investment Decision . Is everyone talks about the slumping oil prices. For someone like me who was a big fan of deficit is good news, because now we are forced to look at other avenues for income and nigeria is huge in terms of agriculture and mineral impacts, stop the apart from the obvious decline, is that need to look into things that are a bit more sustainable in terms of agriculture and all of that. Which isension system, why its good we talked about the micro pension industry you come to lie on the oil prices. They are more interested in what its can do in nigeria from that news for the oil industry because there is a decline buffer nigeria it is good news. Mark the businesses are wary. It was weaker last year. Some are saying that nigeria should let its currency weaken, following the likes of russia and other Oil Exporting Nations who have allowed their currency to weaken. Is the artificially strong currency deterring investment from outside . I wouldnt say so. What it is deterring are those whom we call portfolio investors, interested in making money off the stock exchange. But those who are in for the long term our Pension Funds, the longest Institutional Investors, we get a lot of interest in those who are interested in investing in nigeria and the longterm, and that is quite different from those looking to make a quick buck, as it were, and take it away and go places. Those who are interested in developmental investment, they havent been away. What we have is a momentary shore. Its not flowing like it did with the oil boom, to what we are looking at is something that will be more entranc instrumentals nigeria. Mark thank you for joining us today. Its been great talking to you. The director general of nigerias National Pension commission. Up next, halliburton calling off its 28 billion merger. Why is that . We will discuss after the break. Mark be wary of hedge funds, consultants, and the derivatives timebomb. Those are some of the takeaways from Warren Buffetts annual shareholder meeting. There are change has more from the oracle of omaha. What was his biggest investment . Nejra he called this the most important investment liste lessn in the world, to put your money and he funded tracking an index like the s p 500. This isnt a new idea; it is one he has been saying for years. What he did on saturday is given update on a bet he made to make his point. This is in the vanguard grou p fund, beating a basket of hedge funds. Proceeds go to charity and the update he gave was that the bundle had returned 28. 9 through 2015, whereas the s p 500 soared 65. 7 . What he is doing is hitting hedge funds while they are down. We have seen as investors pulling money from hedge funds while investors moving into index funds has increased. Those who recommend investors invest in a type of fund. Nejra precisely. The other thing he talked about was derivatives, saying that it is a potential timebomb in the system. He said if you look at the 50 largest banks in the world he was in touch about 45 of them. Cocacola in one corner, broccoli in the other, Warren Buffett in the middle as the referee who wins . Nejra what do you think . Who eatthe guy strawberry cheesecake and drinking cherry cola. He is very much on the side he is one of the biggest shareholders and cocacola, and he has been criticized, saying that at least of the obesity epidemic that his response was health is about happiness and im happy youre drinking soft drinks. In terms of longevity, he said women live longer than men, so if you are a guy and you want to live longer, you have to have a sex change. Mark [laughter] and he said it would be unlikely. Nejra i think so. Mark ok. Well all consider that. Thanks for joining us. Wonderful piece on Warren Buffetts annual shareholder meeting. Halliburton at baker hughes calling off their 28 billion merger after resisting stiff resistance after meeting stiff resistance from antitrust regulators. Elliott gotkine is our middle east editor who has been following this. Slumping oil prices, not helping. Elliott they have certainly not helped. It, andbeen following we are slumping. Oil prices are roughly half of where they were in november of 2014 when baker hughes and halliburton announced their intention. Lower oil prices have been hitting the countries and companies that do the oil x ration and pay the oil Services Firms they have been slashing spending to the tune of 100 billion and have also been cutting jobs. The leading oil Service Firms saying this is the worst financial crisis ever to hit the industry and on the antitrust side, the European Union recently launched an investigation. The u. S. Justice Department Filed a lawsuit warning against the declining competition and headtohead competition in 23 products and services and Oil Exploration in the u. S. Is clearly quite content to see this deal falling apart. Saying that general the ending of this intention to join the companys was a victory for the u. S. Economy and all americans. Mark baker hughes could still have something to cheer about despite the deal hospitalize . s demise . L possibl yes, halliburton has to pay 3. 5 billion. Its almost the equivalent of always debt. They reckon that kind of cash could improve the pressure pumping business which has helped them get to the hardtoreach intensive oil and existing oilfields and could also help it to cut costs, making an attractive suitor to another potential acquirer. Butiburton has got the cash this is going to hurt as well. 1 10 ofsents halliburtons market value. Next, is america still hiring . We look ahead to the data, culminating the jobs report on friday. We are life in new york. Mark lets get the Bloomberg Business flash with nejra cehic. Nejra shares in japanese airplane maker takata plunged the nikkeias newspaper said u. S. Regulators plan to push for an expansion of recalls that are already the biggest in automotive history. This move could affect whether than 100 million vehicles using the companys airbags worldwide. Takata said no official decision has been made, but it plans to book an additional ¥16. 6 billion for the Fiscal Year Ended in march. The u. S. Department of justices nl division is investigating. Pmorgan hiring in asia the bank admitted it is facing an inquiry by the. People familiar with the matter have said they are trying to determine whether the bank violated antibribery laws by hiring children and other relatives of wellconnected politicians and clients in china in exchange for having business. Ferrari is set to appoint a new chairman to replace amedeo for lisa. According to people familiar with the matter, he will probably announce his intention to retire from the post when ferraris new board of directors needs to determine foursquare results. They will take responsibility for expanding the luxury sports car maker. Representatives declined to comment. And that is the Bloomberg Business flash. Mark digging at his last wideout correspondents dinner, president obama made it clear who he thought was going to replace him. Time, someonehis else will be standing here in this, spot and it is anyones guess who she will be. [laughter] however, obama also poked fun at Hillary Clintons efforts to reach out to a younger demographic. Hillary trying to appeal to young voters is a little bit like your relative who just signed up for facebook. [laughter] america, did you get my poke . [laughter] is it appearing on your wall . Im not sure im using this right. Liveove, aunt hillary. Mark making those jokes at the end of the road to the white house. Party domination is close on the republican side. 10 states have yet to vote in primaries, with indiana scheduled for tomorrow. Ryan chilcote has been watching the race. Trump said it is all over if he wins indiana. Is he right . Ryan hes not entirely correct. In terms of delegates, he is just short of 1000. 1237 to clinch the nomination. Indianakes all in tomorrow, then he would still need just under 200. Technically, he would have to wait until june the seventh, which is when you will get about five of the remaining half of california,s, and which has a huge treasure trove. The reality is that if he takes indiana, if cruz doesnt do well in indiana and cruz should have the kind of conservative support kasich has agreed not to run, it really makes it difficult, i think, for ted cruz to launch a serious challenge to an undisputed clinching of the nomination. Mark the final stand of the antitrump the grade. Hillary says obama is trying to poke the youth of america. She seems almost certain. Ryan she looks closer than trump. Just yesterday, we had Bernie Sanders on television, saying that he is not going to resign just yet. His one supporter in the senate said june 7, when we have the final five primaries, that is when he should, if he doesnt have the necessary votes. A lot of people say they know themselves, that they cant win the nomination; its too difficult. But what they want to do is go to the delegation, if they can, go to the convention at the end of july, and say local we have dubbed the democratic party. Not win the nomination, but change the party agenda. Mark thanks a lot. Good stuff. Lets turn to politics to the economy. Big data from manufacturing. For more, mike mckee joins us. Mike, we could see more volatility in the markets. We have data, fed speak leading to repositioning. The jobs report is the key, isnt it . Indeed. The jobs report is what you always need to see, and that is what the fed is looking at. Theyre looking for straight, 200,000 jobs, which would tell in the u. S. Is on track. Although the current manufacturer number is also key. If it is strong, there will be more of a feeling that the Second Quarter is going to have a decent rebound and if it is week it will set off Additional Market concerns and keep people from thinking the fed will do much. Mark we spoke to a fed policymaker on friday, another fed officials speak this week. What is the tone, the message from the fed . That officials would like to get across that they are dated and, not worried about the major , overarching problems of china in the dollar spot they want to see what happens to the u. S. Economy and if the u. S. Economy does perform as they expect in june is very much on the table but markets havent priced that it. It will be an interesting week to see if we get some volatility is the numbers come in all caps. Come in ok. Mark thanks for joining us. Michael mckee. Stay with a with surveillance, next. Tom keene is back. The yen staysing, strong as japan fights deflation and the failure of abenomics. As anticipated, puerto rico invokes a debt moratorium law. The panel in san juan versus the hedge funds. And the consideration of blue chips. We begin the week with Michael Holland in john herman. Good morning, everyone; this is bloomberg surveillance, live from new york. It is monday, may 2. With me is vonnie quinn; Francine Lacqua is on holiday. Vonnie yes. Tom