Transcripts For BLOOMBERG Bloomberg Surveillance 20240713 :

Im Francine Lacqua in london. These are your markets. 0. 4 . An markets down a lot of the market put a position that the economy and a lot of the earnings would go through the coronavirus. Not so after the apple news yesterday. There is more concern about the deadly coronavirus trade looking at treasuries, they are rising. Americans reopening after a holiday. Yesterday was president s day. Jumping as much as 24 after unsuccessful bid for the small arrival. This may be the kickoff of banking consolidation in italy and then further into europe. Coming up on bloomberg surveillance, our exclusive conversation with the hsbc Financial Officer on the banks job cuts. First word news. Viviana hsbc is set to slash 80 of its workforce. The lender taking more than 7 billion of charges and suspending buybacks as part of a restructuring plan. Plans to exit some businesses and cut costs. Hsbc still hunting for a permanent chief executive. We also spoke to the lender cfo about the coronavirus outbreak. Came to actively monitor the effects of the coronavirus. We will have to take some additional provisions. Very much a call on how long the virus continues for. Viviana staying with the coronavirus, worldwide cases have risen above 73,000. This as japan plans to remove all passages from the diamond princess. The ship remains docked ideal,. Casinos in macau have been cleared to open again on thursday. This follows an unprecedented 15 day closure for the worlds biggest gambling hub. The u. K. , it is lunch unprecedented attack on the eu conditions for a postbrexit trade deal. The chief negotiator warning that a that britain be backed by its rules risks undermining democracy. It highlights the split between the two sides. We end with amazon founder jeff bezos committing 10 billion to fight climate change. He has announced the bezos earth fund, his biggest ever philanthropic investment. It will begin issuing grants in the next few months. In ames as he says post, we can save the earth. Global news 24 hours a day and on quicktake by bloomberg powered by 2700 journalists and analysts. This is bloomberg. Francine thank you. Now our top story, the coronavirus has hit one of the worlds most valuable companies. Apple says it will not be able to meet its Revenue Target for january to march quarter because of a work slowdown and lower smartphone demand. The iphone maker says it is experiencing a slow return to normal conditions than anticipated. Demand ahead is been hit by store closures and reduced foot traffic. Joining us, selina wang is in beijing. The first of Many Companies that roads have because been shut down but people dont travel to buy things. Selina that is exactly right. This news about apple is not entirely surprising given the reporting of all the supply Chain Disruption but it reinforces the supply and demand side for multinationals across china. Even those apples iphone manufacturing partner is located outside the center of the outbreak and restarted the process of those factories have been very slow. On the demand side, it has been reduced for the iphones as many stores in china have been closed or operating with reduced hours and few customers. China is apples thirdlargest market and has 32 stores which have been closed for much of the month. Earlier this month, we heard from foxconn which makes a majority of the iphones, warning investors is a very challenging for. At hand w hand the restrictions have made it difficult for factory workers across china to return to the place of work. According to a survey by the American Chamber of commerce in shanghai, 80 of u. S. Factories around shanghai say they dont have enough staff to run apple capacity yet. Francine what do we know about what the virus is becoming . Do we have a handle in china of the number of infections in the number of deaths . Selina we are seeing the growth rate of cases in Hubei Province continue to stabilize with china reporting new cases on tuesday. That is the lowest single day figure in china for the month. There are now more than 72,000 cases total and more than 12,000 patients that have recovered and been discharged in china. State media says this is a sign that containment efforts are working. The World Health Organization says it is still too early to say if those reported declines are going to continue with every scenario still on the table at this point. We have seen china continue to mobilize workers across the country to help those hospitals that have been overwhelmed by the virus. More than 25,000 medical workers, including topline doctors in hospitals in beijing and hospitals have been sent to jubail province Hubei Province. Just reporting moments ago the director of a hospital in wuhan had died. According to the latest statistics, more than 1007 hundred medical workers have been infected by the coronavirus in at least six of them have died. Francine thank you so much for all of your reporting. Our china correspondent in beijing. Joining us is the chief Global Economic strategist at Goldman Sachs. Peter, you have some great notes looking at the earnings, earnings tracker. How difficult is it to actually model what the Coronavirus Impact on a lot of these Big Companies will be . Peter its difficult because at the core of this, we dont know how big and the shock economically will be and how long it will last. We already reduced our chinese firstquarter quarter gdp by about 6 quarter on quarter. Reduced it to 4 quarter on quarter annualized. That is quite a big hit. Our central assumption is that the rate of infection does peak in the First Quarter. So some of the hit in the First Quarter then reverses again in the quarters that follow. So, the overall effect on global gdp is not that big, but i dont think we can underestimate the effects on companies that are affected by the supply chain effects. Around a rule of thumb, a 1 change in global gdp would hit earnings, in europe, by about 10 . I think it is important to emphasize that even before the virus its, we were looking at pretty low Profit Growth over the course of this year. This revenue that companies can actually get back . If you look at the hong kong protests, but either go elsewhere or wait for it to be quiet to shop again. Peter some of it is demand that will shift to other areas. It will be some rebalancing there but it is the supply chain effect that is going to be quite damaging, at least in the near term for companies. Theyre making components and parts of their processes in china and the provinces around where the infection has really been hit. I think in the context of Profit Growth already being likely quite week this year, you could easily see one or two quarters where earnings are actually negative for some companies and maybe even for the markets as a whole. Francine it is difficult because we look back at sars as the benchmark. The chinese economy was so much smaller and the supply chains were less global. Is there anything at the moment that would not be hit by the coronavirus . That the supply chains do not touch that part of the world. Peter the regions which are more isolated, but there are also parts of the market which are much more domestically driven by services and generally speaking, what we have seen since this outbreak is the more domestic and the more defensive areas of most markets that have got relatively predictable cash flows are the areas that have performed best. I think that does make a lot of sense. We find there is a split between markets which are very exposed to china for sales or for supply chains relative to those areas which are much more domestically exposed. Francine do you think theyre a lot more Companies Like apple that will come out . Peter we are already seeing lots of companies warning will be disruption from this. I think there will be more companies that will come out and say very similar things. I think the issue for market and investment is to really try to assess how much of that is a shortterm, temporary hit that will be quickly reversed, and how much of it is likely to have a more ongoing effect for some months to come. Francine i know this is a difficult question but i am asking you because you are good at this. If we stay at it is for another quarter, is the impact actually , the than if it becomes coronavirus spreads worse but then we go back to some normality by summer . Peter i think when we look at some of the other you mentioned sars. Differences given the size of the chinese economy but what we have found is the markets tend to react more positively once you start to see the rate of infection peak and the derivative improves. And also as we have seen, during the stress itself, we tend to get Interest Rates and bond yields falling. That decline tends to last longer. It is the combination of the lower Interest Rates and the expectation that the rates of infection has feet that generates a recovery. Pathnk that is the likely this time so long as the virus is contained and the number of infections start to slow in the First Quarter. That would be our central assumption and our hope. Francine Peter Oppenheimer stays with us. Plenty coming up, including more on apple shares down this morning in premarket trade after the Company Warns about the effect of the coronavirus. Plus, our conversation with the hsbc chief Financial Officer Ewen Stevenson. Thats coming up next. This is bloomberg. Francine economics, finance, politics. This is bloomberg surveillance. 35,000 jobsto slash and taking 7. 3 billion of charges and exiting some Business Units as part of a dramatic overhaul. The lender is targeting Cost Reductions of 4. 5 billion in europe in the u. S. And concentrating on its asia business. As the coronavirus continues to pose risk, we asked the chief Financial Officer about the banks mitigations plan. Theres acoronavirus, big call on how long it takes for the virus to be contained. At the moment, as you can see in the Fourth Quarter results, we had a very resilient performance in hong kong. Profits were up 3 on the year before. But overall, we are continuing to actively monitor the impact of the coronavirus. I do think we are going to have to take some additional provisions this quarter as a result of that, but very much a call on how long the bears continues for. Can you give us any indication of the slow down in lending, the reaction in china and hong kong in its first month of 2020 . May coronavirus come alive in terms of the actual reality for the business, for the market. At yes, when you look across the businesses, we have had to put a lot of Contingency Planning along the centers. A lot of colleagues have been able to work from home. For our customers, when you look at the actual january numbers, they continue to be robust but i think we are seeing some customers obviously struggling at the moment, particularly those dependent in the retailing sector. Some of the real estate sectors. Anything that is dependent on tourism. So far, the credit metrics continue to be pretty robust. Francine that was the hsbcs chief Financial Officer Ewen Stevenson speaking to manus cranny. Lets broaden our conversation to the wider european earnings picture. Still with us as Peter Oppenheimer. First of all, the earnings seem to be ok but this is before the coronavirus. Do they still actually warrant these pretty lofty valuations . We are seeing record on equities. Doesnt match up with the quality of earnings we are seeing . Peter the earnings season has been broadly reasonable, slightly better than expectations in europe. Rather better relative to expectations in the u. S. The u. S. Has done better than europe. Equity markets are at record highs and they seem to be shrugging off all of the effects of things like the coronavirus. While that may be reasonable on the basis of what we see in historic similar examples, these things have been shortlived and investors are looking through it, and also enjoying the benefits of the lower Interest Rates bond yields are getting, i think in the context of relatively weak Earnings Growth there is probably too much complacency and we could see some negative earnings. And, the valuations are vulnerable to a setback. I dont think structurally, equities are at risk. They still offer decent risk premiums, but certainly i think we could not out some corrections, particularly if we get worse earnings numbers from the disruption we have been discussing this morning. Francine when do we go back to the kind of oldfashioned correlation between bonds and equities . Peter oldfashioned is a good way to put it because the relationship has varied over time. Generally but we have found is in the period when youve got very low Inflation Expectations and relatively weak growth, equities tend to do better because that reflects greater confidence in growth and higher Inflation Expectations. I would say that in the sense if we get slightly higher bond yields, over time, equities are likely to sustain the rally longer. In the very shortterm, that actually benefit from bond yields falling only because it compensates for the shortterm growth shock that investors are expecting from the effect of coronavirus itself. To me, bond yields continue to be falling is probably in the end on a great thing for equities because it is really reflected a falling big sliced Inflation Expectations. Francine quickly on the european banking industry, i know you dont want to talk individual stocks but given what we heard from hsbc, the possible consolidation among italian banks, is 20 going to be a big europe transformation for banking . Peter we are seeing a transformation and it is important the european Banking Sector at the heart does not have a real problem with capital. That was an issue that lasted for a very long time after the financial crisis. Banks issued a huge amount of capital. Now Balance Sheets are sustainable. Some of the banks of being able investorssh back to in the form of dividends. That is a positive. But on the other hand, we do have very weak growth in europe in terms of lending and economic activity. These flows in bond yields we have been discussing are continuing to put pressure on interest margins. I think we are out of the crisis phase. I think we are moving in a phase where we are going to see more consolidation and we dont have the structural impediments that we see for many years. I think the differences between relative winners and losers are going to become more important as we move forward and the sector as a whole is not going to be as disadvantaged as it was. Francine Peter Oppenheimer from Goldman Sachs stays with us. Coming up, brexit gets frosty. Her ins chief negotiator makes his case and not looking to make any friends in brussels. We will break down david frosts demands next. This is bloomberg. Francine this is bloomberg surveillance. The u. K. Has launched an unprecedented attack on the eu over its terms for postbrexit trade deal. The u. K. Has warned the blocs demand that britain be bound by his rules after departure risks undermining democracy. The dramatic intervention by david frost highlighted the gulf between the two sides. Still with us, Peter Oppenheimer from Goldman Sachs. First, how do you see this panning out . Will we have a trade deal by december 31 . Peter this is part of the negotiating process. The u. K. Are trying to make clear they are not going to accept the deal at any cost. One important principle is they have the right to the verge on some areas of regulation diverge on some areas of regulation in order to fulfill the hopes of the point of brexit in the first place. I think there will be the ability to get some trading deals done this year within the time limit. It could go into details of other specific parts of a trade deal to a might end up going in phases. Itre the beginning part of is the basis of the trade deal and art good. And, other more complicated issues follow. Francine what does it mean for u. K. Assets . Peter u. K. Assets, as we have discussed before, Different Things for different people. If you look at u. K. Equities, they are quite global and they tend to benefit from periods where sterling weekends. We think domestically, u. K. Equities in particular are quite attractive valuations and will also benefit from a decent physical fiscal boost. Francine thank you. We will be back with Peter Oppenheimer of Goldman Sachs. Hi were glad you came in, whats on your mind . Can you help keep these guys protected online . Easy, connect to the xfi gateway. What about internet speeds that keep up with my gaming . Lets hook you up with the Fastest Internet from xfinity. What about wireless data options for the family . Of course, you can customize and save. Can you save me from this conversation . That we cant do, but come in and see what we can do. Were here to make life simple. Easy. Awesome. Ask. Shop. Discover. At your local xfinity store today. Francine job cuts at hsbc. The bank is set to slash about 15 of its workforce in another attempt to revive its fortunes. The cfo tells us cuts w