Transcripts For BLOOMBERG The Pulse 20160517

This is the markets we are looking at in terms of global equities. This is a second straight day of rallying, s p 500, futures advancing, crude oils advancing to levels we saw back in october. Jumping,s dollar also and the nations bond following after the nationsbank released minutes of the latest meeting. Lets get straight to the bloomberg first word with nejra cehic. Nejra thanks. Broadbased a weakening of inflation pressures was behind this months surprise Interest Rate cut. The australian Central Banks first reduction in a year came after cpi fell on the First Quarter for the First Time Since 2008, even as the Growth Outlook remains steady. Still, the aussie dollar jumped, as they said the deal wasnt viewed as a slamdunk, reducing the likelihood of a followup move in june. George soros has cut his funds in u. S. Stocks by more than 1 3 in the First Quarter and bought a 264 million stake in the worlds biggest bully and producer. Hes warned of risk stemming from chinas debt fueled economy. He thinks a hard landing for the country is practically unavoidable, and that such a slump will worsen global deflationary pressures and drag down straps. Darren berg plans to increase , bettingngs in gold demands will be lifted by uncertainty surrounding the outcome of the u. S. Election and britains eu referendum. The chief Investment Officer expect gold, silver, and platinum markets to rebounded by as much as 40 of the next two years to a level last seen in october, 2012. The u. S. Has finally revealed how much of its debt is owned by saudi arabia, after getting the figures a secret for more than 40 years. The Treasury Department says the king has had a stockpile of about 117 billion, putting saudi arabia among the top dozen holders of u. S. Debt. Is only 1 10 of chinas. The u. S. Released the data after bloomberg submitted a request under the freedom of information act. 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. Francine thank you so much. We should all be worried about chinas debt. That is the message from larry fink, the ceo of blackrock. He spoke to bloomberg earlier. We all have to be worried about it. But keep in mind, if the economy continues to grow 6 , you cant grow at 6 and have your Balance Sheets grow faster. Muche future, i would prefer seeing the economy grow at 6 , without the same time some form of deleveraging. Francine larry finkcommentss malcom scott joins us. It seems the pboc is gearing up for a bigger world. It does. It seems the pboc is among those people who are worried about chinas that. Broadening, looking at areas of formerly didnt. Little nittygritty instances. Credential framework it has set up in december, it has already been brought and to bring in new areas of formerly didnt look at, areas that the Securities Regulator would typically look at, like bonds and equities. Its also looking into crossborder flows, something that the banking regulator might not normally look at. The peoples bank of china is taking on those things. It doesnt want these things to blow up. Francine malcolm, why are these reforms so important . If we assume regulations are up to scratch, what can improving the picture me for the economy . Well, chinas economy last year was the case in point. It has proved to be a little bit too bubble prone, whether it is ; months ago we were worried about declining Property Market and now we are worried about overheating. The stock market can go from these huge bull runs to bear runs. We saw that last year with 5 trillion wiped away. If you can get rid of some of these speed bumps and start to hit the economy eating their investor confidence, if you can smooth this out with better macro credentials, may the economy can grow more smoothly. Maybe that 6 he was talking about could be more sustainable, and with that debt overhang, sustainability is so important to chinas future. Francine thank you so much. Lets continue the conversation on china with peter dixon, the Global Financial regulator at commerzbank. Great to see you. There is nothing fundamental that has changed, apart from this extra stimulus, giving a little bit of impact on growth. And i think china has been a source of concern for policymakers for a long time. We are now talking about debt. Numbers,k at the chinas debt to gdp ratio is on par with that of japan. That if there is some form of correction deleveraging, it will have a far bigger impact on the economy. Obviously the authorities are trying to make sure that the degree of the collapse is far less brutal than perhaps it might otherwise be. I am not sure that i witnessed a silly think we could escape the isd landing and larry fink right to raise concerns. Francine when . 12 months, two years . Think always been led to if it was managed in the right way it wouldnt manage boom and bust. It may not, but it couldnt be the kind of correction we saw in 2008. By chinese standards, it could be quite nasty. Francine but a hard landing is a huge deal. That is something that could be systemic for the rest of the world. Indeed. Its up 3 . In china that is half of what we are getting now,. Lets keep it in relative terms. Nonetheless, you are quite right. Is asive chinese slowdown rip through the rest of the world. The Banking Sector and other parts of the world, which is exposed to china, the links are relatively limp, and it would get ian important transmission. Francine this is our chart of the hour. Properties become the bright spot, Real Estate Investment expanded at the fastest pace in 13 months. Meanwhile, fixed Asset Investments slowed growth of 10. 5 . When you look at that chart of the hour, and you believe that we could see hard landing, what does it tell us about construction . What does it tell us about commodity producers that are very linked to china . Lets look at the construction sector first. Obviously people have been putting their money into the sector because they believe the recent correction is over. Property is still probably overvalued in some cities. And i think there are lack of alternatives, which is why there has been a dash to property. But this will not necessarily be systemic. We need to keep an eye on it , but you are absolutely right. The impact of the rest of the world, commodities in particular, could be quite brutal. We have rd already seen that. Moment, growthe is so fragile around the world. Inflation is almost nowhere, maybe a little bit in the United States. Could this hard landing from china bring the world into recession . Well, potentially it could. Of a crisis that has washed throughout the years. In many respects, emerging markets that could easily turn around. As you have seen, the chinese search has been driven, at least in part, by rapidly rising debt. If we do get this third leg at a time when the rest of the world hasnt, it doesnt bode well. Francine peter, thank you so much. He stays with us. We will be talking about the fed and some of the other commodities. There is plenty coming up, including Aberdeen Asset management ceo brad gilbert, and the toughest job in european banking. I think john cryan at deutsche has a tough job. I think tijian has a very good wealth manager that he can fall back on. Barclays has a very good retail bank, with good return on equity. I think they have all got good bits, and they have all got investment banks that they are probably trying to downsize. Francine and after its best quarter since 1986, can gold continue to shine . George soros think so. Plus, it has been secret for more than 40 years. We reveal how much of the u. S. National debt is owned by saudi arabia. Francine welcome back. Lets get straight to the Bloomberg Business flash with nejra cehic. Nejra vodafone shares are higher this morning after reporting Quarterly Sales growth on its network that be estimates. The wireless carrier said organic service revenue, which includes customer fees that excludes handset sales, rose 2. 5 in the threemonth period through. March 31 analysts surveyed expect it will. 5 . That was helped by improve results in several key european markets. Shares in Taylor Wimpey have junta this morning after the u. K. Housebuilder set its plans to buy a special dividend of 300 Million Pounds of july next year. The company also said it will increase its regular payout as it generates excess cash. Bridgewater associates has become the first Foreign Hedge Fund to win approval to set up a wholly owned Investment Management business in china. The shanghaibased consultant says that bridgewater won permission to operate in the free trade zone back in march. It raises expectations that china may lift the moratorium on new Investment Management firms imposed over concern about activities such as peertopeer lending. Corporate loan issuance in town has slumped to the lowest in 16 years, as private equity firms slow mergers and acquisitions while the u. K. Decides whether to stay in the european union. Leverage sales this year totaled 2. 3 billion pounds; 59 down from the same. When 2015, and the lowest since 2015 and that is the Bloomberg Business flash. Francine gold is up for a third day, and george soros joined the slew of investors piling into it. The move comes after he cut investments by more than 1 3 in the First Quarter. Gold has climbed a lot this year. , the best quarter in three decades. Joining us now is the sector head of Global Mining research a bloomberg intelligence. Still with us is peter dixon from commerzbank. Lets kick it off with you. We can show you 45 charts if not more that show you that golda miners have become the stars. Sure. I think Investor Perception has changed. There is a truly concern, a small concern, that they will be able to get through this, that china will be having more and more issues the debt problem that has issued a lot of cash they are the largest importer of gold and they think it is important so a lot of hedge funds are saying we have almost no allocations and gold we will put a small allocation in gold and because the market is so much bigger, it has been a bid in gold. They have been positioning themselves for a fear of Central Banks. China is in a really tough spot. They have a lot of debt. China has doubled be m2 that the United States does, 13 . They have a debt problem that a lot of people are concerned about. How are they going to get out of that, and if they are, will it be issuing more cash . If that is true, what is the one currency that we have that no central bank can mess around with . Francine and the problem is if you look at gold, it is hedged against everything that is ugly,. That people are concerned about there is nothing to write home about in terms of good news. Yeah. Thats unfortunately the case. It has been a fairly lackluster recovery we have had a negative couple of years, running into concerns about brexit, the china story and the fed. Do . You go for Something Like gold. Francine this could be the ultimate asset bubble. It could. It is very early days. Most companies have no exposure to gold. Some people say have 5 , but most have zero. Most people in the west have never seen gold as a true currency. You are starting to see some people show some interest, mainly the big hedge funds who are looking at it on a longterm basis. If you do see more mainstream funds, that you could have a bubble, that at that point gold is a lot higher. Francine are you expecting more volatility in terms of currencies, that could drive a lot of investors to pile into gold . Volatility will be betrayed of the next quarter. What with all the risks that are out there. It could get an awful lot worse, in the event that the brexit referendum comes out with the wrong decision. That will throw the cat amongst the pigeons. Francine what is the biggest risk out there . A mistake by the fed, or a political event like brexit or the u. S. Election . Think its an exogenous risk. I think brexit is my primary concern at the moment, because i think that will change the nature of whats happening in europe. There is an outside chance that we could get a trump presidency, but i dont think anyone is really worried about that at the moment. Francine can you put up some research this is ahead of the london platinum the one thing people need to understand is that gold is important. Central bank sold 1. 5 trillion worth of gold, and they have been increasing that. At the current pace, they will have an alltime record amount. They still believe in gold, and investors are starting to as well. Francine the bank of england is still off. Yeah. Kenneth hoffman, thanks so much. Peter dixon from commerzbank stays with us. We will be talking boj and yen next. Also up next, oil heads to a sixmonth high. Are we seeing the beginning of the end of the oil glut . Francine so oil is that a sixmonth high ahead of u. S. Data tomorrow. Stockpiles forecast a drop for second week, in nigeria and canada have got worldwide output on venezuela. Are we starting to see the end of the global glut . Lets have that conversation with peter dixon from commerzbank. Peter, we were speaking to the analysts they were surprised that the supply and demand equation has come at the balance quicker than they thought. Yeah, i can see that. I certainly would have thought that the second half of the year, we would see a much greater balance. It has come a little more quickly. Back and turn around again. I think the problem is that so long as Oil Prices Continue to go up, you dont force shale producers out of the game and you have this idea that supply continues to grow. We may be approaching limits on the oil price it may not that go much above 50. Local crude rally stocks tend to move in sync with oil and the question we had in january and february weather this was going to do something a lot more sinister, which has to do with growth in china consumption. Is this just because of outflow coming . Thehat the chart shows is extent to which markets are using oil as a barometer for global growth. Stocks are setting off at the same time oil prices are going down. Presumably Lower Oil Prices would be good and therefore equities or not. Francine the drop was too severe . Possibly. See that theight correlations are a little bit more negative. Francine does this help with the Central Bank Inflation conundrum . They are throwing everything at inflation and nothing is working. It may be that they need some exogenous shock and maybe central bankers shock upwards. We are less than 1 in most developed economies and certainly they would like to see it higher. They would be happy to see this for the next 12 months. Francine are we starting to see the next crisis, cutting investments so much that we could see oil back at 110 in two or three years because we arent investing enough in a lot of these oil prices . That presupposes i dont think were at that stage yet. Over the next couple years, i would buy that, but at this stage francine talk about inflation, this is one of the concerns for the boj. Yen strength hurting the ability of a lot of companies to increase wage. Is that what abenomics has done . Is a mistake or just not working . He hasnt fired the third arrow, which is structural reform. Is thatlem with the boj it has been difficult to generate inflation in an economy where you have an aging population. Francine but also because they are a haven . Rising andkeeps on days where we dont understand whats going on, and it is a Natural Heritage that almost look like the guys are against kuroda. You are quite right, and people nowadays look at the yen as a hedge. They are going to flee towards safe havens and the yen is one of them a few weeks back the boj bottled the decision and that has hastened the trended toward the end. I think the boj will have to work very hard to out run them because it forces the market francine great to have you. Come back soon. Peter dixon, from commerzbank. Coming up, with fewer than six weeks until the u. K. s you getreferendum, we the latest numbers. We will go through the currency, that show you how gold miners have become the stars of the market. Are francine welcome to the pulse from london. We are just getting inflation figures for the month of a role for the u. K. The inflation rate has been lowered i airfares and clothing. Im going through the numbers in terms of what we see. Were inflation is falling to 1. 2 . Its below what some economists had addicted. Look at the pound. The pound had been rounding as we had more brexit polls showing its boosting its lead. U. K. Inflation unexpectedly slowed in april. 0. 3 fromfell to 0. 5 . Is 14488. E the pound markets are pretty much flat. Lets get straight to the bloomberg. Im looking at the stoxx 600 arid we are on the third day of gains. Its up 1 at the moment. Its on a course for the longest winning streak this month. If you look at the equity benchmark, its most Industry Groups gaining. Nearly all of them are heading higher. Commodity producers that are doing the best red metals have rally today and of course oil. You can see brent coming down a bit. It is still above 49 a barrel. Oil has risen to a sixmonth high. This ahead of the rest data tomorrow. Its expected to show that it actually fell. That would be the first two weeks hes since september. Goldman sachs talked about a deficit in oil markets. Stocks are up and oil is rising. I want to look at the australian dollar. We saw this jump today. This is after the decision this month. Board members considered leaving the cash rate unchanged, even though they did cut in the end. The fact that there was a question mark about that rate is why we see speculation of pullback about a rate cut in june. Its pushed bond rates up in australia. I want to finish on the pound. We did get that inflation data coming in worse than expected. You can see an ever so slight raab. 1. 44. Still on the biggest gain is after a pull from the or be showing u. K. Voters were 55 in favor of staying in the eu. The remaining percentage is higher than in a similar poll in april. Francine thank you very much. Would bring extreme volatility to market. Speaking to me exclusively yesterday, mark gilbert told me about his approach. Ignore you to have to look at it from the bottom up. Look at what the effect may have on a bank or an insurance company. Do is take a topdown approach to investment and say Political Risk is too great in this country. Not even for briggs it brexit. Becausethats mainly this is around our european operation. An investor in germany, france, italy, luxembourg is their home. We in the u. K. Are definitely with u. K. Registered funds or perhaps dublin registered funds. We not going to be hugely affected. Vote to come if we out. There will be some unintended consequences we have not thought about. There will be a lot of market volatility. Will it be Something Like a systemic freeze . I think it will be very uncomfortable for a few days. Currency will be volatile. The share market will be volatile. People will try to work out what the affect is. I think part of that is because markets are pricing in. Be extreme volatility if we vote to come out. Francine you can catch that full interview with Martin Gilbert on friday. The inflation figures are kicking off a easy week. The bank of england will be waiting the numbers as it engages the briggs it debate. Economist. E senior thanks for having you on the program. If you look at the headline figure, inflation is going nowhere. Should we be worried about it . England madenk of a forecast last week. They got one up on the private sector economists. They did a very good job. Its looking all right it gives them plenty of room for flexibility. They may need it after this vote coming up. Francine if you look at the has mainlyate, this to do with airfares. Sense of thee us a printers globally . James its an interesting story. Airfare has been significant. Its been flying around this year. Francine because of the price of oil . James we can look for that to settle down. The big surprise has been clothing. Thats been weaker in this report. A slowdown on the retail. It may be that stocks are hanging over and retailers had to get a lot of stuff. This could lead to more of that on the high street. Francine how difficult it mark carneys job right now . Rates could rise to they could fall very quickly. James thats right. It could go either way. If we leave, it could be lower. There is a lot of political flak coming up. If i dont stand, they will say i am being political. He is being caught in a bad spot politically. Francine why do we see much volatility because of the debate being carried out on the currency . James im surprised the country has not been more volatile. We saw that through the last six months. The pulse of been suggesting it could be more inclined to stay in. I think in general the story is looking ok. The currency is where when i expect more volatility as we get closer to the vote. Francine if it happens, what does that mean for currency . What we know is the u. K. Has a very big account deficit. Were not in a very healthy situation in the first place. Then the uncertainty about what happens to work fully as. It does make it a troubling time for sterling. It could be that magnitude. Difficult is your job over the next six weeks . We can only rely on the polls. Its going to be very difficult to get any indication about the future of the economy. James thats right. My concern is the u. K. Is losing more momentum than we anticipated to the buildup to Risk Appetite is weakening. The employment as to the needs as we approach this referendum. Usiness surveys are weakening confidence is weakening as well. If we vote to stay in, a lot of momentum could mean the First Quarter next year before we see a proper recovery. That would push back those rate hikes for the bank of england. Francine thank you so much for coming on. Coming up, french strikes. Francine lets get to the news. Nejra a broadbased weakening of inflation pressures is behind this months surprise interestrate cut. Cutaustralian central bank for the First Time Since 2008. Growth outlook remained steady. Yes trillion dollar jumped. It was not viewed as a slamdunk. Has cut his firms investments in u. S. Stocks by more than a third. He has warned of risks stemming from chinas economy. He thinks the hard landing for the country is practically unavoidable. Ehrenberg will increase its holding of gold and other precious metals. They think demand will be lifted by uncertainty surrounding the outcome of the u. S. Elections and the eu referendum. , platinum markets will rebound by us much as 40 in the next two years. U. S. Has revealed how much of its debt is owned by saudi arabia. Department said the kingdom has a stock file of 117 billion, putting them as one of the top. Requestg submitted a under the freedom of information act. Global news powered by our 2400 analysts in 150 news bureaus. Francine thank you so much. The french president will try to head off strikes this week after forcing labor reforms. Nation in anthe hourlong radio interview this morning. Speakgo to paris where we to greg. Its great to have you on the program. Why is there so much unrest . I think its just that the union sue the government is weak on this point there in the bill was very badly presented. It was badly prepared. It had been around a protests about it. There is just enough and it to a noisy unions. I think they are going in for the kill to try to kill it off completely. He is said hes not going to back down, but we will see. The strikes are not coming all it wants. It will be train workers and air Traffic Controllers later in the week. We will see how much resolve the government has this time. Francine things are Getting Better on the economy. Are they . Greg yes. Hes got a point. If you compare it with the way things were four years ago. They were in the euro crisis four years ago. Things were quite a bit worse. There was no growth in france. Wereigh Interest Rates afflicting italy and spain. The euro crisis is behind us in terms of an acute crisis about government that. Its just a very slow economy. Unemployment is higher. There have been some region job creations recent job creations. Its fair to say things are better than when he took over. Whether its enough to go in front of the French Public and run again next year, probably not. He was promising a lot more than this. The 2017 president ial elections are almost around order. Are there indications if he plans to run again . Greg he seems to be running a campaign. His close allies of all been popping propping up his record. It looks like a coordinated campaign to burnish his image a bit among the french. The problem is all the polls show he would not get past the first round. I think he is just hoping that the unpopularity of some of the candidates in the other parties means his vote may not be as high but there is theres to be lower. The indications are he will run. There is not another strong candidate. Its great to have you on the program as always. Up next, more in a for the fed. Saturateu. S. Debt does. Francine lets get straight to the Bloomberg Business flash. Nejra shares have jumped this morning. They will pay a special dividend of 300 Million Pounds next year. Increaseny said will its regular payout as it generates excess cash. Is theter Associates First Foreign Hedge Fund to win approval to set up a whollyowned Investment Management in china. Bridgwater one permission to upgrade operate in the freetrade joan zone. They may live the moratorium on management firms that was imposed by the concern but activity such as peertopeer lending. Moreer is trying to give freedom to express themselves. They will start counting photos and links in its 140 carry s. Aracter they want to give the site more flexibility. Issuances have slumped to the lowest in 16 years. Pursue equity firms acquisitions. Leverage loan sales this year totaled 2. 3 billion pounds. 59 down from the same time last year. Its the lowest since 2000. That is the bloomberg is this flash area flash. Francine the u. S. Has revealed how much was debt is held i saudi arabia. It follows the freedom of information request by bloomberg. We have the details. Its taken 40 years to find out the breakdown. Whats the biggest prize . Surprise . It took bloomberg to crack that. This is a scoop. Is out. Et is 116rising fact billion. China has 1. 2 trillion japan has 1. 1 trillion. Highe still at a record for saudi holdings. Its an important distinction. Its an inside baseball. The holdings of the treasury, we dont know every holding. I can tell you for the past 30 years what societies do in the futures market, what they do in the equities market, that something is not reflected in these numbers. Those are the nuances that draw the. The shock for me is this compared to whats going on with china and japan. Francine this is reassure bond markets that seti raymond does not have the threat to unseat them . Manus this is the great debate. Just a couple of months ago we had this article. If they were brought to bear in terms of congress saying seti raven could be liable for the tragedy and the events back in 2001 that they would start selling off assets. Around 750was billion. I think the other question for the bond market is if societies mayselling, the japanese sell yet. Guess where those dollars are backlated to end up . Right up in the bond market. Its a great scoop 42 years in the making. For this, it opens more questions about what really happens in the bond market when we see a bit of a shift. You can be sure the saudis have more bonds that this disclosure. Back to you. Francine thank you so much. Bloombergs economics editor for the u. S. Michael mckee joins us. The fed has been all about inflation. We are expecting an increase in the cpi number today. Michael it will be important. They wont be decisive for two reasons. We are expecting an increase in april. That will push the figure up to 1. 1 . Drop in theting a year over year for core inflation. That will give the doves some scope for saying we dont have a lot of rusher out there. The fed follows a different index. Its a different market ask her in it runs a couple of tenths lower than cpi. If we get a surprisingly weaker rate, that may convince markets at the fed is off the table for june. Francine we will see Housing Starts and industrial rates in the u. S. Michael they fall into the confirmation basket. The story has been a very weak firstquarter in the u. S. Data suggests rebound is underway. We will see Housing Starts. They are forecast to be up this months. That things are Getting Better. Everybody is going to be looking at industrial production. Did we pull out of the nose dive . The fed has some numbers today that should help get a clearer picture of where the u. S. Economy is going. Francine thank you so much. I look forward to doing surveillance with you. I will joined by Michael Mckee and tom keene. They are both in new york. We will get that data. We have some inflation figures in the u K Mark Carney had foreseen this. Inwill look at the pound china and much more coming up on surveillance. Francine the debt we should be worried about. Its a bloomberg exclusive. Buys billions, george soros cuts his stocks. Bunch bank has the most challenging job among banks. This is bloomberg surveillance. Tom keene is in new york. We are looking at currencies. There is a lot going on with commodities. Stocks are in change. Tom