Transcripts For CNBC Street Signs 20240711 : comparemela.com

Transcripts For CNBC Street Signs 20240711

Economy. Eu budget faces more delays after hungary and poland double down, as the polish Prime Minister urges them to reconsider this will lead to a breakup of europe and the European Union. And President Trump moves closer to conceding the u. S. Election saying that he will leave the white house if and when the Electoral College confirms joe bidens win well, it is friday, we made to the end of the week happy thanksgiving thank you very much great to be with you on black friday and lets talk about markets and the price action were seeing on this final trading day of the week, capping off a week of solid gains the stoxx 600 and most of the european indices will ending the week about 2 higher than where we started off this is where we are for the broader european a indices as a whole, you can see the only one trading in negative territory is the ftse 100 down about and a half a percentage point. And we are getting to crunch time on brexit talks it doesnt appear like they are getting closer to getting a deal over the line. Not so much affecting the found this morning, but well talk more about that in the show. But you can see rest of the picture for conte then tam youis pretty positive. And lets see if some of the positive momentum is filtering through. It is a bit of a positive start for u. S. Markets, but nothing major. Of course a quiet day in of tth wake of thanksgiving coming into todays session, up about 2 across the board. And i mentioned that we did have some banking news and lets get right to it. Switching over to spain, sabadel is pulling out of a merger with bbva after local media reports said that sabadell was unable withal valuation of smaller rivals bbva bouncing on the news and sabadel plunging still down substantially and it is interesting in the context of the european banking consolidation drive that weve been talking so much about on the show, people had been speculating once bbva sold off his u. S. Business to pnc that with the renewed capital they would look to strengthen some of their influence in domestic markets. But this news is a disappointment to investors particularly those banking on those two actually coming up with a much larger institution with a significant presence. And i think investors are asking where does it leave sabadell which was seen as the weaker of the two. Shares reacting very sharply negative this morning. So what happens now. I think bancosabadel said that they would potentially expand about their program, but will it be enough when the spanish market is under so much presence in this negative rate environme environment. And it all comes back to profitability. Youve got the profitability question with super low Interest Rates, very low net interest margins likely to continue for a long time. Add to that as well something that people are not so focused on now and the prospect of insolvencies as a function of the coronavirus pandemic we certainly have seen that Companies Come under a lot of economic strain, but the number of defaults in the system is stilt particularly low as you mentioned, the Spanish Banks have a lot of exposure to the north ganlg systmortgage sy. A difficult outlook on the bbva side, a potential sweetener investors can look forward to earlier this month bbva said if the deal fell through, one of the alternatives they would consider is a Share Buy Back if they are allowed to do so, of course. And lets talk broke some of the data that weve been getting overnight as well. Turning to china, because they a mchthe there the industrial profits surged so this is the sixth month of expene exexpansion. Profits rose to 28. 2 year on year in october, that was according to the stats bureau. And that marks the sixth month in a row now of growth and big jump from the 10. 1 in september. From january to october, profits rose 0. 7 year on year so back to growth now for the first time this year but beyond that headline number in terms of where this came from, the stats bureau said that the biggest contribution came from Profit Growth in Equipment Manufacturing and said that the Electronics Industry has seen double digit growth since it turned positive in april and that is because demand for goods from china has been more strong with people working from home globally. And profits in the auto sector had been helped by the governments support Profit Growth consumer goods manufacturing was also said to have risen and that was sthanks to improving economic recovery as business resumed production and that is thanks to domestic demand holding up quite nicely as the boost of spending by the government which has been used to lower the external risks. But this is largely consistent with the jewel circulation strategy that the government has been promoting heavily just this week chinas vice premiere said that he was very confident that chinas economy could achieve positive growth this year based on the current data and he expects Economic Activity can return to a reason only range next year back to you. And the shanghai composite rose 1. 1 , hang seng also trading higher this morning. Certainly people are ending the week on a positive note. And lets bring in a specialist on the em complex, head of research from glen point capital. It is great to have you on thank you very much conversations weve had with multiple investors are pointing to people being more optimistic about the outlook, cyclical recovery coming into play next year and real return to normalization. What type of opportunities does that present do you think . I think that in generals risk environment should be quite supportive for broader risk taking but beyond that, you know, assessment, is this a once in a decade kind of a setup for emerging markets and although the market has started to realize that, the market hasnt traded and the market doesnt own the trade yet, so i think is this a great time to have this discussion and there is short term but also long term drivers of that. Which we can discuss in detail but in very short, i would summarize its as follows about after a long time of this investment, capital inflows in emerging markets clapg the last fewer or five years, now the setup is changing. First you have the acceleration from covid for these places that have been badly hit. Second, you have a very different political environment in washington, d. C. , a lot more support of multilateral developments, a lot more likely to lead to discussions with china as he opposed to an open trade war. Lower uncertainty on the trade changes and so on. Opposed to ann trade war. Lower uncertainty on the trade changes and so on. You have good valuations for emerging market assets and a lot of those having strong structural stories to them a lot of which resonate with these profit reports that you are talking about in china which are partly linked to government support, but also partly linked to the very robust profitability of comes there, which is part of the opportunity set i guess. And it seems like you are not alone with this view i was looking at the bank of america flow data, and actually em debt and equity markets have seen the largest inflow in the last three weeks ever in history. So there has been a record amount of flows going into emerging markets but i want to turn to something that perhaps is a bit more to do with the bread and butter of emerging market economies and that is their deficits this has been a year where weve seen deficits everywhere in both advanced economies and emerging market economies, blowouts to massive numbers because countries have had to deal with this crisis, they have had to take on new debt why are investors not focusing on that in that there will be a debt servicing issue for many of these economies in the future. And that could be problematic if you are looking to invest in some of them joumanna, that is an excellent question i think if you drill down to it, you have a couple things first of all, although the deficits as you say in emerging markets have widened, they have widened sicyclically they have not used it as aggressively as the u. S. Or europe has which means that obviously the fallout this growth has been bigger it also means that Monetary Policy had to do a lot more work which is partly why you have seen this weakness in currencies and the steep curves but also means that if the vaccine is a successful story, if we have an organic catchup, these deficits will quickly decli decline. That is first. The second thing is to your point, investors have been worried about that the steepness is wide by historic standards some curves are extremely steep. Credit spreads are a lot wider than even quality credit spreads in a developed economy so there is a risk brepremium to them and if you add the setup that u. S. Rates will stay lower for longer despite the improvement in growth due to the new med policy and the likely odds that the dollar will be soft, what you are getting is that emerging markets are getting a good chance to have easing monetary conditions, the deficits to decline, the risks to decline and the assets to perform. And the inflows in credit and equity coming from a very low base and a lot of other assets like local bonds are not seeing the same inflow, although the risk premium is very high as you can see from the steep eare merging markets suffering local currency curves. It sounds like a lot of your outlook is predicated on a more constructive relationship between washington and china and many believer that joe biden and his administration will take a different approach to President Trump. Never the less the democrats have a widespread desire to take a harsher stance on china slaf to the republicans so what gives you confidence that we will actually see a deescalation of tensions between the two nations . I think that it is a very important part of the outlook. It is not the only one, but it is a very important part of the outlook. I have no doubt that the relationship between china and the u. S. Will be tense but what you have to keep in mind is that this pressure in china is not a new ifew anonymos nono phenomenon but it is how you do the conduct of the policy. And it is a Manufacturing Firm based out of china doesnt really know how to set up its supply chain because at any given point, its costs may increase by 20 on the night that is whole different ball game compared to a place where what were likely to see is a set of multinational negotiations where a lot of nations sit at the table, discuss with china, put pressure on china, and you lead to deals like one that the Ballistic Missile administration was supposed to the obama strairks was suppo administration was supposed to go into. If you look at market, they have projected uncertainty. Even if you look at ali baba, very mainstream companies, they have a very large risk premium compared to any u. S. Counterpart and you can start seeing that risk premium building up around 2017, 2018 where those tensions started to pick up and those valuations havent expanded since then. So there is some evidence that the conduct of u. S. Foreign trade policy around that period has weighed on those assets. And although there will be discussions and pressure on china, you know, a smoother passage will allow markets to do what they need to do, to do what they have to do, allocate capital to where the return is the highest. And a lot of those opportunities come resi do reside in china thank you for your insight into that issue. I want to just wrap up with your thoughts on the dollar perhaps one of the most critical components or factors that will determine direction of travel for emerging markets next year, a weaker dollar highly core ratrat correlated to emerging market gains. What do you think is the main driver and what levels are you looking at toward the end of the year look, i think what you are saying is very important and what i would highlight here is that there is a gap although there is an increasing consensus lets say from the banks and analysts that the dollar will be weak her, a lot of investors are skeptical they are still long dollar. Her,f investors are skeptical. They are still long dollar people are thinking that the dollar has already weakened enough, et cetera. We dont think that it has weakened enough. There are a couple factors behind this. The first and most important factor i would say that people overlook is that as a function of the way that the u. S. Has actually cushioned the economy with humongous fiscal which will find itself either needing more fiscal or evaporating, both outcomes being tricky, but also because of the decline in oil prices and the restrictions on fracking and Oil Production that are likely to come Going Forward in the United States, the current account deficit of the United States has started to widen in a way that we havent seen since basically the great financial crisis you know, you have to think of the balance of payments of the u. S. As something that looks a lot more to the 2005 2008 episode as opposed to the 2010, 2020 experience. And covid was the reason for that on top of that, what you have had is a decade where the u. S. Has been being a coupleaccumuli liabilities. And the stock of net liabilities to the rest of the world is the largest it has been in a very long sample basically. And you add to that the very low Interest Rates and the cyclical rebound globally, you can get a weaker dollar. All right, well leave it there. Thank you for joining us this morning. Thank you for having me now here is the latest on a story were all watching very closely. Astrazenecas ceo said that the vaccine candidate has company has coached with oxford will likely undergo another global trial, this after questions were raised of its latest results which showed an average 70 efficacy he said he did not expect to hold up Regulatory Approvals in the uk and eu. And there are additional variables that need to be clarified. So of course well bring you all those updates. And it is considered to be well, it was dubbed the vaccine for the world, right so huge ramifications for emerging markets and you can tweet us directly with your thoughts stay with us because also coming up, hungary and poland dig their heels in on their threat to veto the eus budget as 1. 8 trillion euros hangs in the balance woo you are busy. Working, parenting, problem solving. At new chapter vitamins weve been busy too. Innovating, sourcing organic ingredients, testing them and fermenting. Fermenting . Yeah like kombucha or yogurt. And we formulate everything so your body can really truly absorb the natural goodness. Thats what we do, so you can do you. New chapter wellness, well done. Tturning downhe temperature, dad. Ow. Thunk, lock the doors. Locking doors. Thunk, dim the lights. Dimming lights. [ croaking ] goodnight, honey. Goodnight. [ laughs ] thats my leg. Aw pft, pft. Evolve your home security. Get the peace of mind, safety and convenience of xfinity home. And dont forget to catch the croods, a new age now in theaters. Rated pg. Welcome back some bond news, germany plans to borrow almost 180 billion euros in new debt next year according to lawmakers this is nearly twice as much as previously set out and would be the second largest amount of borrowing in post war germany. Hungary and poland have intensified their opposition to the eu budget unless rule of law conditions are removed the two country leaders held a joint press conference arguing that the eu must respond quickly and that their position is meant to, quote, change bad dynamics sylvia is following this and they dont seem to be backing down at all in their opposition to this agreement and in particular the rule of law clause here. How is this going to play out, what will a likely solution going to look like if we get one . Well, there are different scenarios on the table at this stage. It isnt clear though which one the eu will follow because all of them would have implications in particular towards the eu sentiment that citizens have and we know that both hungary and poland are both pro european countries. So this process could actually have implications toward that. So that is something that policymakers in the eu are bearing in mind. So it is unclear how they will fix this problem the question is though that everyone is actually expecting that this at some point will indeed be overcome and as you mentioned, both countries stepped up their opposition to the rule of law mechanism in a press conference yesterday. They asked for a substantial modification but winnow that european lawmakers do not want that the majority of the eu countries, the 25, are also against that so lets see whether or not they will overcome this difference. And in that context let me show you some remarks from both Prime Ministers of hungary and poland at the press conference yet. Translator this is extremely dangerous for europes cohesion, it is about the solution that threatens the break up of the European Union in the pufuture translator it is about takening ttake establishing the rule of majority and so they mentioned the question of majority and that could be a question that the eu will have to answer in its short future because it essentially has been for some time the glad requiring a consensus decision for certain areas is making poli policymaking very diblgts fficun the eu and that was also an issue when it came back in 2018 and the digital tax because they also needed a consensus decision for that and that was not the case. So that will be a question for the eu in the near future. But when it comes to this budget dispu dispute, there will be tough talks in the coming weeks. The next event to watch is the eu summit because by then, if there is no agreement among the 27 towards this, than investors and citizens across the eu will start questioning when this coronavirus stimulus package will actually be disbursed to citizens and businesses across the eu and a quick question but a complicated answer, can the eu just circumvent poland and hungary at this point, just go around them . They can. There is a mechanism that would allow the 25 to approve the coronavirus stimulus package the 750 billion just for 925 but if they do that, then that could have implications on how hungarian and polish citizens feel about the eu and it would start also by raising other questions about the cohesion of the eu and it is unlikely that the traditiona

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