Transcripts For BLOOMBERG Countdown 20160518

Anna a very warm welcome everybody. This wednesday morning. I am anna and words. Edwards. Moving the markets, two of them, San Francisco John Williams and the conclusion being that at least two Interest Rate hikes may be warranted in 2016 because of the expansion in the economy. And inflation increasing. Over a goldman sachs, there is a chart over the twoyear spread in the u. S. On the bloomberg. Theyre warning Bond Investors that they need be more prepared for the fed to increase Interest Rates. Bill gross of course did something similar earlier on shouldnth, markets not count the fed out. What were seeing here is the increased demand for longterm debt, at least seeing a decrease over the two year yield. That spread is the smallest since 2007. It seems that in some senses, markets are not repairing a big difference between what we are seeing in the rhetoric from the fed. Not all of the assets have been reacting a great deal to what we heard from the fed, i should say. The dollar index yesterday session actually falling, against the years against the currency market. The fx market not buying into the fed hawkish commentary. The we have the dollar index up today. Twoyear treasury notes doing all of the reacting yesterday. Unchanged in todays session. The most increasing in two months, factoring in the possibility of arete index. I have to say that the function only suggests a 12 chance in june, 64 by the end of this year. In the oil prices as well, 48, up by 3 10 of 1 . U. S. Stockpiles increased can we know that from yesterday. Later we get the data on oil supply from the government side. And canada still topical, putting pressure on the likes of suncor energy. That is where he are on the Asset Classes overnight on fed commentary. That is get the bloomberg first word news with Tom Mackenzie. Tom following from what you are talking about, two Federal Reserve Bank President s say at hikestwo Interest Rate may be awarded this year, as the economy continues to expand and inflation picks up. It pushes back against expectations that the central bank will delay actions next month. Is that theseng are projections at a point in time. They are not promises. So i do not know how many rate increases we will have. Two,ntly, my assumption is possibly three. But i do not know. It depends on how the economy vaults. I actually think two or three, given where the economy is, the job growth we have seen, the inflation data we have seen. Motor shareshi have plunged after the company said it used improper methods to test the fuel efficiency of the vehicle. It first originated with Mitsubishi Motors, and suzuki will brief the media on the issue at 8 a. M. U. K. Time. Oil prices rose in chinas cities, after gains in secondtier pass advances in the larger hub. 65 cities, compared with 62 in march, while sales jumped almost 64 to 122 billion. Bernie sanders has won the democratic residential primary in oregon. Meanwhile, Hillary Clinton claimed victory in kentucky. Donald trump one the oregon primary, though he has effectively clinched the nomination as the only contender in the race. Ted cruz and john kasich remain on the ballot. The chances of a brexit have fallen to 24 , according to a firm called good judgment. And the panel of socalled super forecasters, suggesting less certainty than the polls are signaling. Calculated by banks, including Morgan Stanley citigroup and others. Global news 24 hours a day, powered by 2400 journalists in around thereaus world. More on top. Anna thanks very much. Tom mackenzie joining is there with the details of stories we are following this morning. Let us check in on the Market Reaction in. Juliette saly is standing by. We talked a bit about what the fed had to say. That seems to outweigh any positives on the gdp this morning. Juliet it has been an interesting session on the nikkei, it was actually stronger about an hour ago. Of course suzuki motors has had an impact on the nikkei. You can see it is down 10 after announcing that concerning the flaw in the mileage testing method. Tom just said the share price is down to a 16 year low, as much as 60 . But the weakness that we have seen from suzuki has had an impact on the overall index, which was tracking higher after japan First Quarter gdp was released. Much unchanged against the dollar. The dollar is stronger on those fed comments from the president s. Leadersave seen the following the losses on wall street. The shanghai market underperforming. It is down by almost 2 after coming online after lunch. And here in hong kong, you can have a look here. The stoxx on the 50 that are in the hang seng index, quite a lot of widespread selling coming through the lenovo group, a lot underpanies coming pressure as well. A little bit of buying in the Southeast Asian markets. To the tune of around 7 10 of 1 . We are having a look at the graph of suzuki share price, when we did see that big lunch coming through. Of course, the chairman is going to be funding the Japanese Transport Ministry later today. You can see the big plunge. It has recovered a little bit at the moment. Before to quickly show you the aussie dollar, the assisting governor speaking in beijing today. He was actually talking about the fact that he quite welcomes the strength and the yuan, but the aussie dollar being sold off. The japanese yen is pretty unchanged. It is Holding Around 109. Anna thank you very much. Juliet sally in hong kong. Lets get more on the japan story. They managed to sidestep a recession with the economy growing an annualized 1. 7 . Gains in government and Consumer Spending commentator for a slugging business investment. This comes following a revised 1. 7 contraction in the previous quarter. Enda curran joins us now with more from tokyo. Good to have you. Tell us more about what has been driving the growth. It has not been corporate spending. Enda good morning, indeed. No, it has not. It is a good headline for japan today. But when you look at the polling, like you mentioned, business spending is contracting. It is nowhere to be seen. Forns Biggest Companies all the cash on the Balance Sheet. They are not expanding, lifting wages at the pace you really need to get the economy off the ground here. So the business cut back side of things during the week, you look at spending, also off on the order. That is not a key component. But do not forget the back drop here is the big debate over whether to hike sales tax. And Government Spending today actually in the quarter help to get gdp cost in line. And the fun thing to remember as of visits per luminary gdp, prone to revision in japan. And the recession they ended up not having, take it altogether, the headline basis, japan did skirt another quarter of contraction. But there is reason to because his, anna. Anna when is a recession not a recession . We have a meeting coming up at the end of may. In japan, what are the japanese good to be looking for . Does this shift the emphasis back onto the fiscal policy conversation . Enda yeah, most likely. I mean, so one of the most pressing policy concerns in japan and a moment is the strength of the yen. It has drawn complaints from companies and lobby groups, suggesting that japan may intervene for the First Time Since 2011. But it will not be on the official agenda. That might be the discussion on the sideline. But where they might make progress is on this idea that they get sort of a green light for a new fiscal spending, even though countries like germany are very posted for us in opposition, that they should be spending more. A lot more on the structural side of things, the reform side of things. Prime minister abe is coming out of the g7 with some kind of path forward to go ahead on the spending side of things, that would be a good result for him. Let us he can get that across. We know that germany is opposed. The u. K. Is not that warm. Canada is prospending. That might be something to get done. Anna thank you very much for joining us today. Enda curran joining us from japan. Let us get to our guest house. He is andrew colquhoun, had of asiapacific sovereign ratings. He is right here on set with us. What better person to talk to on a day like today when we have all this asiapacific data to talk about, how do you expect the japanese to respond to the surprising strength against the gdp. Andrew it does take some of the wind out of the sale on the delay to the consumption side, which is central part of the debate around japans rating going. We said that if the consumption tax increases beyond, that would add negative pressure and you could see negative raising. Anna you see that delay as being less likely now . Andrew the strength of the q1 number would tend to suggest that come up to kerley the fact that consumption made such a strong contribution. Question,condary about whether japan or how large the oneoff fiscal stimulus japan evidence may be across the plays intos, partly the g7 debate, as we just discussed. I think for us, a oneoff fiscal stimulus, even if it means a higher deficit than we currently expect, it wouldnt necessarily have such a negative impact on the rating. As a structural to the limit like a delay to the consumption tax increase. Anna what kind of fiscal stimulus are you anticipating . Andrew we think the have already and limited, or said they would implement, one points the effectsback of the recent earthquake. Beyond that, we have not factored in anything yet. But if it was at the order of say one half of 1 of gdp, that would not be too surprising. Anna and the corporates do not seem to be borrowing as much as the japanese government wants them to. At least not investing as much. The idea that negative Interest Rates makes it easier or cheaper for corporates to borrow. But you cannot make them. What can the japanese do to try to get them to invest more . They expect the Japanese Corporate investment to increase . Andrew there is a real puzzle i think in the labor market, in particular, with an han solo in japan, it is a genuinely low number. Data rates are rising. Not just people dropping out of the labor market. But wage gains are extremely low. Investment has been weakened, which i think maybe reflects some uncertainty over the outlook for the exchange rate. Puts think that in turn the spotlight back on the bank of japan. The Public Perception over how much policy the bank of japan has left. Now there are plenty of people in the markets in japan who are complaining about the impacts of the bank of japans ¥80 trillion annual Balance Sheet expansion. That is hoovering up so many assets in the market, expanding on quantitative easing further. With negative rates, while Central Banks globally the bank of england and the fed point to the impact as an important part of the transition mechanism for unorthodox Monetary Policy, so it seems in japan that negative rates have had a perverse effect on perception. Consumer confidence, Inflation Expectation in business have actually weakened since the move to negative rates. The question mark is there. Anna is it too soon to definitively say whether negative Interest Rates are helping to defend . Andrew yeah, i think Monetary Policy typically works on the long lag. Definitely too soon to kind of right off negative rates. Same debates playing off in europe, adopting these policies, and the effectiveness of negative rates is definitely in question, i would say. And the markets do not seem to be buying it, looking at asset prices. Anna what is the biggest risk in japan at the moment . About public debt at 2. 5 of gdp, by far the highest of any sovereign grossly. If japan does decide to delay the consumption tax increase quality like this. We think two Percentage Points more could consolidate with left stabilization, the Government Debt ratio. And the consumption tax increase is the biggest part of that further to points of consolidation. If that doesnt happen, if the consumption tax increase is postponed or canceled, there is no equivalent other measure, than the Government Debt will go on rising further and faster than we currently expect, and that as a negative pressure. Anna raising the risk we see the increase in consumption tax. Andrew all things equal. Anna andrew stays with us. Head ofolquhoun, asiapacific sovereign ratings. Here are highlights of the day. Jobs data. K. You can be sure brexit will jump on the figures. We will work out what that means about the run up to the vote on the 23rd of june. Half an hour later, the final meeting of euro zone inflation for last month. And parliament, the state opening come all the turmoil that goes along with that. And along with that, of course we get the queens speech setting of the latest of agenda. At 7 p. M. U. K. Time we get the minutes from the feds april meeting. Lest we forget, up on the program, chinese prices continue to climb, full details, next. Anna welcome back. 6 19 in london. 90 minutes past 1 00 in hong kong. The view out of your window perhaps. Let us get the Bloomberg Business flash. Here is Tom Mackenzie. Tom thanks, anna. Chinas biggest maker of Home Appliances is offering 150 euros a share, seeking to raise the state and the german industrial maker. And the offer will be subject to certain conditions, in particular a minimum acceptance condition of 30 . 20 forceas much as wall street workers this year, according to johnson and associates. It says they can fall at every type of Financial Services firm. The sharpest drop probably being with income sales and trading, as well as Investment Bank underwriting. Bank of america is being sued by managing directors who say the company treats women in her position like secondclass citizens, and pays them substantially less than the male can apart. She is seeking mental anguish and loss of dignity. The bank takes all allegations of inappropriate behavior seriously. Chelsea football club, according to people familiar with the matter, will pay about 60 Million Pounds a season over at least a season. Chelsea first has to get out of it 10 year deal with adidas. The club paid around 40 Million Pounds to break the contract. And that is your Bloomberg Business flash. Anna tom, thank you very much. Tom mackenzie joining us there with the business news. Now home prices rose the most in chinese cities in more than two years in april. That is as gains in secondtier cities surpassed larger hubs. New home prices climbed and 65 cities, compared to 62 in march. While sales jumped on the 64 . Andreandrew colquhoun is the head of Sovereign Pacific ratings. Let us talk about china them. We have this fairly strong data from the Housing Market in china. The strongest data in two years if you look at the numbers, where we see price increases. Is what we are seeing in property sustainable . Andrew we do not think the china activity, more broadly in the first four months of the year, is sustainable. It is a bit puzzling to me. Market know how much the is taking from it. I have been going around speaking to investors recently, and the kind of bounce there seeing as result of the confidence in china to strikes me as a bit odd. Behind the pickup in china activity is the further surge in credit. And debt levels in china, which everyone is thinking about as a problem. So china is doing a lot of credit at the economy so far. This year, more than 7 trillion u. S. Dollars the gdp of india, if youre to it that way. Not surprisingly, them a bit of a bounce in activity. Anna what is the problem with that . Is it the overall debt level . The economy goes to . Andrew i think both of those. Banging the drum on the debt level in china since 2010, before it was fashionable i suppose. I think the analysis that debt levels in china are at risk, of dangerously high levels, is not quite likely shared. It is quite think puzzling that so much comfort is taken from a further acceleration anna in credit. Anna would you expect those to come down . We saw that interesting story, somewhere where the commonest party would put the beauty, the original sin of debt, trying to change the psychology of debt in the china market. The same time, allowing it to rise. Andrew negative action in 2013 because of negative concern over the debt issue, that was also the time of the leadership transition in china. Since then, we have been watching to see what the new current leadership does about this debt problem. Now, on the one side, we do have disclosures,policy like the peoples daily, or going back to the very coherent diagnosis of the problem back then. But i look at the march data, the slate of economic targets this data, which implies that the economy will become more leveraged, 13 on the financing target, looking back at high Single Digits not in the guild, the government is saying in the formal targets that they are quite happy with the country becoming more humility. Anna what you need to see on leverage to allow you to increase the rating . One of the reasons and has not gone up to aa . Andrew we have never felt comfortable with china having the aa category. With good reason, we have also identified a potential positive rate trigger, if we get comfortable that china is on the rebalancing path, which is sustainable and looks likely to be smooth, without a sort of sharp disruptive slowdown, what people often call a hard landing. Then that would let us recognize more of chinas sovereign Balance Sheets strength, and consider a higher rate. I think the debate is more about whether it might be going down or up at the moment. In a nutshell, our view that china would not have a hard landing has been, to a large degree, based that the debt problem is all money they oh themselves. So they can work through at their own pace. But look at the capital flows, and the evidence of tightening liquidity in the system, some evidence in a story is looking shaking. Anna we had george soros in particular talking about how this is in some ways like the fragile crisis we saw in the u. S. , the impact we then saw in the economy was dire. In terms of magnitude and systemic risk, do you see any similarities . Andrew all financial systems, i think there are many important differences between the u. S. System today before the global crisis, but i think all vital problems are similar in one way. Which is that debt run heads of repayment classes. I think that diagnosis is now widely shared, both within china and outside. As with any debt crisis, the question is who does pay for it . We expect a low fall and the sovereign and that will have an impact on the rating, if it is larger than we currently expect. Anna andrew colquhoun, head of asiapacific sovereign ratings. Putting us on the program, we look at south africas political turmoil, and the investment climate. Welcome back. 6 30 in london. 7 30 in brussels or frankfurt. Here is Tom Mackenzie. Tom thanks, anna. To Federal Reserve bank ratedents say at least two increases may be warranted, as the economy fans and inflation picks up where it pushes back that expectations to delay next month. Thing is that these are projections at a point in time. They are not promises. So i do not know how many rate increases we will have. Currently, my assumption is two, possibly three, are possible. But i do not know. It just depends on how the economy evolves. I actually think two to three, given the economy, the job growth we have seen, the inflation data we have seen. Recession, asa Consumer Spending, xina for a slide in business investment. Towards the by 1. 7 end of march. Exceeding all forecasts, in a Bloomberg Survey of economists. The october to december quarter was revised to a 1. 7 contraction, worse than the previous estimate of a 1. 1 drop. Suzuki motor shares have plunged after the company said it used an improper method to test the fuel efficiency of its vehicles. It widens the scandal for the auto industry, first originating with Mitsubishi Motors. Suzuki is scheduled to brief the media. We will bring you all the breaking news from that event. Bernie sanders has won the democratic president of primary in oregon. Meanwhile Hillary Clinton claimed victory in a closely fought contest in kentucky. Donald trump one the oregon primary, though he has clinched the nomination as the only contender still in the race. Formal rivals ted cruz and john kasich remain on the ballots in the state. Powered by 2400 journalists in more than 150 news bureaus around the world, you can find more bloomberg top. Anna Tom Mackenzie there in hong kong. Investors have punished South African stocks on concerned that the Credit Rating will be cut to junk. That is our chart at the hour. Guy johnson has more. We are also joined by john wraith. Good morning to you both. Guy, take us to the chart. Guy south africa is interesting. We have these rate reviews coming out. The markets get quite excited because of the political story in south africa is developing. The finance director denying that he has been accused of espionage. But it is certainly affecting the market. You see what the rand has done. Now treated with a higher rate than junk trading brazil. In terms of getting out in front of them, we are already there. The interesting study comes to where it is priced in in south africa. This is the chart, the banks versus the wider market. Anna the banks in blue. Guy they are feeling quite blue. An appropriate color. The markets, these are the ratios, you can see the banks trading at a significant discount. This is on expectation that we do see a downgrade for south africa coming up. The question is, how does that feedback into the political story and the market . It will be an interesting one to mark. We talked about whether or not we would see the global story in south africa a roughing in brazil. Brazil has gone first. South africa not far behind. The market price is interesting. Anna this is higher than the Foreign Exchange, more volatile in south africa them brazil. Which is saying something. Guy we know what happened in brazil with impeachment and volatility. We have data coming out this fee. The downgrade have story. Bringing ushnson that south africa story this morning. We will have more details from south africa as we go through programming. The fascinating politics, and is guy was saying the rate increase coming. Let us chink in with matt in berlin. What can you tell us . Equities reacting to what the fed is saying. Matt exactly. All of those nonvoting members still seem to have sway globally over market. If you take a look at asian equities, you can see theyre down across the board as more and more fed speakers are coming out and saying june could be a live meeting. You see the nikkei down just a bit, but still a red arrow there. The hang seng down and china down as well. Take a look at u. S. Futures. You will see the same pressure coming through on the u. S. Futures market. So we are looking for a down open, it looks like ive sorry a backdrop. If you do look at u. S. Futures you can tell they are down across the board right now. If you look at my terminal, i have some interesting currency action here. You can see what i have got is the board of all of the major currencies in the world, trading against the dollar right now. You can see that over the last day, all down. The pound is down. The South African rand, and the aussie dollar are the biggest losers. What i think is interesting is if you come to this dropdown box and change it to a fiveday look, it is still the same piece. Everybody is down against the dollar. If i come up here and change the ite to a pound instead, is interesting that everything is off against the pound, with the exception of the dollar. So the dollar and the pound have seen some real strength over the past few days in the currency market. A very interesting story playing out, not only because of brexit, but because of what is going on with the fed speaker. Those same speakers that are influencing u. S. Markets, influencing really Global Equity markets, are also obviously influencing the dollar. Because people mays the this diversion trade coming back on again, if the u. S. Raises rates. Anna very contrasting story. Having an impact on the currency. Matt miller joining us from berlin with a couple of looks at the market this morning. The chances of a brexit falling to 24 , according to good judgment and its panel of super forecasters. That suggests less uncertainty over the results in opinion polls might be telling us. Under shoes the probability catalina by banks, including Morgan Stanley. Meanwhile, George Thompson has given his view on a brexit to bloomberg in San Francisco. George you do not want any more geopolitical instability, because we have enough instability in the Global Economy as it is. And so, to the extent that there is a Material Change in the eu consortium, that creates geopolitical and stability. That is just not good for the environment, be in the business or quite frankly what is going on in the citizens of the european union. Anna joining us now, john wraith, head of strategy at ubs. Lets talk about the u. K. Then. We have this great bloomberg story quoting the super forecasters, 150 put together by good judgment. They came up with a magic number of 24 chance of a brexit. That sounds like a lot less scary number. It ties into some of the stability we have seen on the number crunchers. And that sounds a lot less scary than the 5050 coin toss you get from the polls. John you are right. The polls may suggest it is a pretty contest, important for a lot of people that are undecided. Clearly, that makes for another moving part which could prove unpredictable. I think this sort of thing you mentioned, looking at the markets recently, you showed a graphic of sterling over the past week. It has done quite well. Markets seem to be discounting the risks of it, more relaxed than they were. Which suggests that might be a bit premature. There is still a long way to go. And the polls are not really shifting materially. Things could change certainly between now and the 23rd of june. Anna we had one poll yesterday that showed a little turnout, a bit more remains that have previously been in the Foreign Exchange market. They got excited. We saw the pound higher. Someone explain it to me by saying the markets have been, up to now, very short sterling. Now they are a little less. Very primed for this kind of news. John there are lots of different polls and views by all different people. I think the bottom line is that the vote itself, there will be a lot of uncertainty. People will have their own views on how this will break. But uncertainty of course is key in all of this. What markets hate the most, and it will only be the other side of the referendum that that uncertainty is resolved and we focus on the medium to longer term. Until we know what happens, i dont think investors are going to be repaired to vote one way or the other. That spells more weakness for sterling going forward. The u. K. Has this current account deficit that needs constant inflows to keep investors, that doesnt just to us that sterling is slightly weakening. Anna do you see data that directly attributes to the nervousness around the brexit . We had inflation yesterday. We get unemployment later. A lot of people tell me sci would be a good place to go. That could be a really lagging number. To actually see the evidence of the slowdown. John when you look more widely, there is more uncertainty in the Global Economy. How much weakness in the data is attributed to the brexit . But certainly, a lot of data in the u. K. Has not only weekend, which was likely in the second course, but weakening significant lead more than expectations in fact. When you look at the pmis, which is an important indicator of consumer confidence, which tells you something obviously about the way you can consumers are feeling over the coming months and so on, there has been a more rapid slowing the most anticipated, including the bank of england if you look at the core inflation last week. We certainly do think a lot about that being the referendum. There are a lot of factors. Anna will be sort of range bound in the runup . There is a big shift in the poll . John again, as a global context in that, they have been falling faster than most other major markets. Now, i think as long as the consensus view is that ultimately the u. K. Stays in the eu, which seems to be the case in most polls and forecasts, overseas investors are not going to run scared. And what we have seen certainly from overseas investors is that amandas paying strong. What is driving this is more expectations about Phenomenal Growth over the coming years. As i say, with the data flowing as material as it is, people are downgrading. Anna john rate stays with us. The political turmoil in south africa, and the investor uncertainty that goes with it, shows no sign of easing. The countries finance minister denies he was involved in espionage, or involved in it. This comes after the sunday times reports that is now risk of being charged and fire beard lets go live to johannesburg, great to see you. What exactly is at stake to see . This 50telling us about minutes ago. Lay out the story in south africa . Good morning. What is at stake is that we have agents, that they are looking at the instability in south africa, as well as the uncertainty that has been emanating from the country, ever since the former finance minister was fired abruptly in december. We are also seeing is that the currency is acting quite e, definitely something that is what the undermining economic sentiment, when it comes to investors looking at the country, as well as the credibility of the finance ministry and the treasury. What we do know is that the finance minister stepped in, after the previous one was fired in december, denying he was involved in any gathering or spying on taxpayers while he was head of the tax agency in south africa. Anna and tell us a little bit about what the Political Uncertainty is in south africa, what it is doing to sentiment. We have a Rate Decision on the rise, as well. We have a Rate Decision on the horizon. They will meet tomorrow to make a decision on the Interest Rate. And with the rand volatility really increasing, we see it plunging on the news that there is uncertainty on dropping the security. That is definitely something coming through as an investor concern. That is paramount. Gainingee the rand quite strongly, after he came out saying he is consulting with his lawyers, and police and investigating agencies are watching. But what we do know is that we have to look at what is next in the political scene. And the president zumas name is coming up quite a lot. Saying that he really needs to put in line what is next, with regard to the political stability in the country. Anna thank you very much. Joining us there from johannesburg. Up next on the program, cutbacks and setbacks. Cost savings in the spotlight, as burberry reports at the top of the hour. We look forward to those numbers, coming up next. Anna welcome back. 1 47 in the morning or the evening, depending how you feel about that, over in new york. Here is Tom Mackenzie. Tom thanks, nna. Chinas biggest maker of Home Appliances is offering 150 euro per share, as it seeks to raise share in the german industrial maker. Details of the takeover will be certain to certain conditions, in particular a minimum acceptance condition of 30 . As 20 eclined by as much for some wall street workers, according to compensation consultant johnson. At almost every type of Financial Services firm. With the sharpest drop probably being felt in fixed income sales and trading, as well as Investment Bank underwriting. Bank of america is being sued by managing director who says country coming treats women in her position as secondclass citizens and pay them substantially less than male counterparts. She is seeking damages for mental anguish and loss of dignity. The bank says it takes all allegations of inappropriate behavior seriously, and investigat thoroughly. Provide for chelsea football club, paying about 16 Million Pounds the season over at least a decade. Chelsea still have to get out of a 10 year deal with adidas. They still have several years left to run beard they paid around 14 Million Pounds to break the contract. That is your Bloomberg Business flash. Anna thanks very much. Tom mackenzie reporting there. Now burberry kicks off the luxury earnings calendar when it reports for year earnings in about 15 minutes. Cost savings are in spotlight after the fashion house previously said earnings will be at the low end of expectations. During is for a closer look is Bloomberg Intelligence senior and or debra aiken. Tell us what is going on over at burberry right now. I think japan, and the lack of presence in that market, is key. Debra they use license and franchisees over in japan. And they are working to incorporate that back into the business. And they just did not have enough exposure, one or 2 when they were moving with good composure against the yen market. Anna when i stopped buying in hong kong, last march, saw things cheaper because of the currency, they do not have a presence in the market. Said thatnd they also hong kong was down 20 , and still creating a drag when they reported in april. Anna and terror attacks in europe also deterring at least in the very shortterm, deterring some international chatter, which mightve been expected. Deborah when we saw the number that came in 1 , we thought that was really bad. We started to get quantitative plus three, that terrorism is still the result and means the numbers are still down. But they are getting back to where they still work. Book the issue with burberry is that given the pound strength, they did not do as well as european peers. There was a lot more moving from china. You also had the visa issue, too. Anna how has the Investment Community been reacting to all the talk in the queue about the supplementary manager over there. . He really does two roles. Deborah absolutely. We are seeing that is not quite working. I think you need some kind of help and management ceo role. The issue with burberry was 5 sales. They aretail side, still incorporating the beauty business. They are dealing with a japanese business. They have a lot to change, productivity next year, that will need more than one pair of hands. And we look at all the numbers, who is doing well with the different portfolios, we would expect that to stay at the helm of creative director. But to really have some help on the management side. Anna great to get your analysis. We will look for numbers on the top of the hour. Now, two regional Federal Reserve Bank President s say at least two Interest Rates may be warranted this year. That is as the economy continues to expand and inflation picks up, pushing back against expectations the central bank will delay action next month. The key thing is that these are projections at a point in time. They are not promises. So i do not know how many rate increases we will have. Currently, my something is two possibly three, are possible. I dont know. It depends on how the economy evolved. I actually think two to three, given where the economy is in the job data we are seeing. Is still withith us. John, turning our attention to the fed, two maybe three hikes, these are the messages we are getting once again from the fed. Some markets reacting. I have a chart here of the two year yield, climbed to the highest since april, overnight. Market reacting a bit to what we heard overnight from fed officials, was still a 64. 6 chance of a rate hike at the end of this year. John this is why i think the, with the markets. The market is not commenced the more rate hikes are coming. What the fed has neither the intention or the desire to stop on the backend of the asked year. Need to keep the room for maneuvering, and to do so, there to talk up the possibility of raising rates. Dont want to catch the market cold, if they decide to act. And the best chance of getting rates higher is by continuing to remind markets that is where they intend to take them. Anna is june still alive . Joan it is. It certainly is still live. Fromhe data has been far entirely comfortable. But there has certainly been some bright spots. And as i say, the fed would like to take rights higher. And as we flexible so it is in a position to take advantage when has the opportunity to strike. We think it is a bit early. We think two hikes may come in the second half of the year. That is our forecasts. Anna when you look at the spread of the 10 year over the twoyear, and i would just drag that on my screen if i can, does this suggest to you the market is not focus on the same things as the fed . Suggestions were made this is a market preparing for slow inflation. John yield turns do tend to flatten. This is unusual. But when you show the chart, yes, yields have gone up. But that is subdued. The market is not convinced any heights are coming, never mind two or three. It would not be flattening as much of this. What is driving it is the effect of the lower 10 year yield. When there is a loss of confidence about the recovery, about inflation and growth continuing around trend and target as great heights are enacted, 10 year yields about the falling as fast. This tells you the market is concerned that if the fed is overly determined to get rates up, it may do so to the detriment of the u. S. Recovery. Anna how do we align better what the fed is saying and the markets increasing rates at a time when they were really not prepared, perhaps they might be saying that not all markets are prepared. Bill gross warning the markets should not count the fed out. We could see some real repercussions and markets, if they were to be caught offguard. John yeah, i think again that is why they are having a fairly open dialogue. That they are of a mind to raise rates sometime in the future. They cannot be held hostage by the market. All of the take then is for investors to repeatedly say a hike would be a shock. We dont think this is the time to do it. This is effectively setting policy on behalf of the fed. If that then makes the fed in the corner, then they do to try to contain and take control of the debate. , ultimately it is the data, and the outlook of the data that will decide if they are making the right decision. Anna just briefly on timing, the brexit, president election, standing in some way . Referendumnk the fed is another factor in june. It is clearly a global risk, of a degree. But ultimately, they have to take everything an account. Aith, had atr ubs. Sab miller strategy targeting countries, hasnt been working . Stay tuned. Anna on the fed. Asian stocks snap their winning streak, this as expectations for a rate hike rise with william forecasting to moves this year. Japan dodges a recession. Spending helping to lift growth in the last quarter. Oruki shares hit the bottom the carmaker said it used in improper message method to test the fuel efficiency of its vehicles. Chinas biggest Home Appliances firm makes a cash offer for a 30 stake in a german robotics company. Lcome to countdown i am anna edwards. 7 00 here in london. Lets get straight to the breaking news. We are getting numbers from burberry. Fullyear profit before tax, 416 Million Pounds. Basic basic eps of 7. 5 pence per share, final dividend of 26. 8 pence. We were talking to Deborah Aiken before the top of this hour about the headwinds this company is facing. They predicted that earnings would be at the low end of estimates, 405 Million Pounds. Problems in hong kong as chinese demand has shifted from hong kong into japan. Only to being percent of sales come from japan in that market. Has been weaker in the face of terror attacks. They are telling us more about the plans for the business, details in their threeyour plan to drive revenue growth. They plan to deliver 100 Million Pounds worth of cost savings, this coming from Christopher Bailey and management at burberry. Lets switch gears and talk a little bit on burberry, they say they see challenging external environments continuing. Weve got numbers coming through. Pretax profit of 4. 70 pounds. Just a touch below estimates there. They say the see good underlying performance in the year ahead. The dividend per share, 100 . 22 per share against an estimate that was less than that, 119. That pretax number looks to be a little bit light. This is the business that is due to be bought by anheuserbusch later this year. This is a essay be preparing to get absorbed into their belgian rival in what will be the industrys biggest ever deal. They are still trying to win over regulatory clearance. They have been shedding some assets, shuffling others around. A few brandsling in europe to try to satisfy antitrust concerns. They are on track for targeted savings of 1. 0 5 billion per year by 2020. That is sab miller. The futures suggest we will be weaker on the start of the european trading day, down 6 10 of 1 on the stoxx 600. Of course, the handover from asia has been a week one. We have seen stocks in asia down by 6 10 of 1 a lot of focus on. Whatthe fed had to say overnight, to fed president sfed up race saying two rate hikes might be expected in 2016. Toll on markets in the asian session. Lets recap where some of these key markets are for you. We mention what we have been hearing from the fed. Yesterday, that didnt seem to drive the dollar much. Today, it seems to be something driving the dollar. We are up 2 10 of 1 on the u. S. Currency. Versusay, it was down its peers. If we focus on the u. S. Twoyear, we saw that market reacting, increasingly factoring in rate increases. Its the most in some two months. Weve also got cpi data from the u. S. Up 3 10 of 1 . The canadian wildfires, putting pressure on suncor energy. Well get the u. S. Government on oil supplies more generally later on today. That is all seen as contributing to this picture of the glut decreasing and putting upward pressure on oil prices. Lets get the bloomberg first word news. Here is Tom Mackenzie. Were just saying, to regional Federal Reserve Bank President s say to Interest Rate increases may be warranted this year. That is if the economy continues to expand and inflation picks up. The key thing is these are predictions projections at a point in time. They are not promises. I dont know how many rate increases we will have. My assumption is two, possibly three are possible. I dont know. It depends on how the economy evolves. I think 23 seems reasonable given where the economy is, given the jobs growth we are seeing, the inflation data we are seeing. Tom suzuki motor shares have plunged after the company said it used an improper method to test the fuel efficiency of its vehicles. It widens a scandal for the countrys auto industry. Suzuki is scheduled to brief the media on the issue at 8 00 a. M. U. K. Time. We will bring you the breaking news from that event. Home prices in most chinese cities rose the most in two years. Gains in secondtier cities those in largest cities. To 122umped almost 64 billion dollars. Bernie sanders has won the president ial primary in oregon. Hillary clinton claimed victory in a closely fought contest in kentucky. Donald trump one oregons republican primary, though he has effectively clinched the gop nomination. Former rivals ted cruz and john kasich remained on the ballot. The chances of a brexit have , according to a judgment. Ed good that suggests there is less uncertainty over the result than opinion polls are signaling and undershoot shoots the probabilities calculated by banks. Global news 24 hours a day powered by our 2400 journalists around the world, and you can find more stories on the bloomberg at top. Anna just a quick word on burberry. We are getting further details. They are saying in terms of the outlook, they see the fullyear adjusted pretax to be at the bottom of the range. That will be of interest to investors. They are planning to deliver 20 Million Pounds of cost savings in the fullyear 2017 and 100 Million Pounds in savings. They are also talking about the share buyback. Up to 150 Million Pounds starting in 2017. Just to reiterate, burberry sees 2017 adjusted pretax to be at the bottom of the existing range. Japan managed to sidestep a recession in the last quarter with the economy growing 1. 7 . That as gains in Consumer Spending compensated for a slide in business investment. This comes a contraction in the previous quarter. Enda curran joins us from tokyo. Good to have you on the program. Tell us more about what has been driving growth. We talked in the last hour about how this number might look good on the outside, if you like, but when you delve deeper, not so good. I think that is the takeaway from today. Sure, japan has avoided recession, but none of the severe economic headwinds or risks facing the worlds thirdlargest economy have gone away. You mentioned Government Spending. It was that money that got the economy over the line in the First Quarter. Business spending contracted. The irony is Japanese Companies are sitting on large hordes of cash. They are not willing to spend. Confidence isnt there to do so. Not enough hiring or raising wages, the way policy makers would like them too, so that is acting as a drag on growth. If you look on the consumer side, soft spending in the First Quarter. That is important when you consider the bigger debate about whether japan should raise a sales tax to try to raise money and keep a lid on its debt. A soft number wont help the hawks in that debate. There is another technical point, which is that it is a preliminary reading. We shouldnt look into it too much. Ticket altogether, its fine. Japan has escaped recession, but all of those challenges really havent gone away. I think pressure remains on the government to step up in the weeks and months ahead. Anna we will see what the g7 brings in japan. Guest,ring in our next stephen fitzgerald, head of investors at rim investors. Lets start the conversation in asia. As he was saying, they dodged a recession. Its not a recession. The growth number looks better than had been estimated. What are your expectations around japan . japan is very interesting, and in fact, it has been disappointing as an investment. Year to date, Japanese Equities had doubledigit losses despite the fact that gdp growth has actually picked up. Interestingly, the equity market is now one of the cheaper within the developed markets. We think that its an interesting investment if you can find a way to not take the currency risk associated with that. Anna talking about currency risk, ive got a chart for you. Talk about chinese currency edge, how the chinese have more flexibility in their policy to adjust to those global pressures than the japanese do. Have seen such a surge in interest in the japanese currency. In china, tumbling 17 against the yen since last years peak. We talk about the challenges both of these economies face, that they face different pressures and currency markets. That theour view is japanese yen is not a store of value, and while periodically attends to behave in a risk off manner, we think that the bank of japan is not going to become payable with environment where the yen continues to appreciate. It is in our view quite probable that you would see quite large intervention in that currency market or fiscal stimulus within japan, which would result in a weaker yen. Anna do you think that the g7 could be a time when we will learn more about how much leeway they have to do that intervention . Stephen i think you can really pick up on what is going to happen in currency markets from central bankers. They are never going to say, we are going to intervene. Its going to happen without you being warned. We dont spend much time trying to follow policymakers in terms of their pronouncements. Anna but that is what you expect. On the chinese story, weve got further evidence of strength in the chinese property market, the strongest in two years in terms of the number of cities we are seeing prices increasing. Is this a worry or a comfort . I spoke to someone at fitch earlier today, andrew calhoun, who was talking about how he was concerned that the markets took so much comfort in the creditdriven growth story. Stephen i suppose both, comfort and a concern. Its a comfort in the shortterm that the issues have been constrained, and its great concerns in terms of what happens ultimately to china. In terms of the property markets, i think it is being used as a form of stimulus. Our view is that china is reverting back to its more traditional means of stimulus, which is creditfueled, investmentled, not the rebalancing one was led to believe may have been happening. When you are trying to target 6. 5 growth, you are not going to achieve that if you try to rebalance your economy longerterm. Anna companies all around the world suffering, the likes of burberry, for example. Stephen i was in hong kong for two days last week, and ive certainly never seen as many luxury goods shops covered up, not just burberry, but other luxury items. I think there has been a reduction in chinese consumption in hong kong, driven partially by the anticorruption drives within china. Anna thank you, peter fitzgerald, head of multiassets at aviva investors. A couple lines out of deutsche saying that the lse deal is making good progress. We will watch for more on that. Back to the japan story, and suzuki motor shares have slumped after the company said it used an improper method to test the fuel efficiency of its vehicles. Lets talk to Craig Trudeau who joins us on the program. What is the chairman of suzuki expected to say when he gives a News Conference that can tests dont sound good. we can anticipate that the chairman of the company will try to draw a line in the sand suzuki and Mitsubishi Motors. What you have at Mitsubishi Motors are two separate issues, one being where it manipulated data related to its many cars, and that led to the minicars fuel economy being overstated by as much as 10 . As separate issue is they have been missed testing their cars in japan going back many years, but they tried to make the case that that is a technicality, that they are not doing tests the way japan wants them to, and that while they resolve that issue, it may not actually lead to the fuel efficiency ratings of those separate vehicles changing. It sounds like, from what suzuki has said, that they are going to make a disclosure closer to the second issue where they have done in proper testing. We dont have a whole lot of detail at this point in terms of how many models for how long, but the company has said that there is not an issue with its fuel efficiency, but in fact its methods. The press conference is coming up in a little under an hour. We talk aboutan Mitsubishi Motors in the same sense as suzuki . This has had a big toll on the suzuki share price. How wellpositioned is this company to weather the storm that mitsubishi has been facing . So suzuki has had a close to 7 billion on its Balance Sheet as of the end of march. That is quite a bit more than Mitsubishi Motors, but importantly, you have a company in Mitsubishi Motors that has the backing of Group Companies and now nissan, which stepped in and said it is going to buy a controlling stake of about 34 for more than 2 billion. Both of these companies should have the resources to whether these sorts of scandals, but certainly, you have a reaction here where investors are very jittery about these sorts of keepals that seemed to popping up among major carmakers worldwide. Anna craig, thank you very much. Program, as the feds williams and lockhart see two rate hikes this year, is the market being too pessimistic . We will discuss that next. Anna this is countdown. 7 20 in london. 8 20 if you are watching in frankfurt. Lets get to Tom Mackenzie. He has the Bloomberg Business flash. My dear group, chinas biggest maker of Home Appliances, is offering 150 euros per share to the likes of kuka. The completion of the takeover will be subject to certain conditions , and in particular, a minimum acceptance condition of 30 to bonus pools could decline as much as 20 for some wall street workers this year. That is according to johnson associates. It says incentive play pay could fall at every type of Financial Services firm. Bank of america is being sued by says thedirector who company treats women in her position like secondclass citizens and pays them substantially less than their male counterparts. Megan vezina is seeking damages for mental anguish and loss of dignity. Allbank says it takes allegations of inappropriate behavior seriously and investigates them thoroughly. That is your Bloomberg Business flash. Anna thanks very much. Some news coming out of japan. Prime minister ab speaking. Ethey are talking ahead of the g7, which takes place there, and speaking in a debate with the opposition leader, he says there is no change to the existing stance on the sales tax rise. Of course, this in light of the better than estimated gdp numbers we got from japan overnight, abe saying economic lessees are proving effective. There are Downside Risks to the Global Economy. He is watching to see if greater risks materialize in this economic cycle. We will keep an eye on what he is saying. Two regional Federal Reserve Bank President say at least two Interest Rate increases may be warranted this year, that as the economy continues to expand and inflation picks up. It pushes against expectations that the central bank will delay action next month. The key thing is these are projections at a point in time. They are not promises. I dont know how many rate increases we will have. Currently, my assumption is two, possibly three. I dont know. It depends on how the economy evolves. I actually think 23 seems reasonable given where the economy is, given the job growth we are seeing, the inflation data we are seeing. Anna peter fitzgerald, head of multiasset at aviva investments is with us. Are you constantly rethinking what you think the fed is going to do based on these hawkish comments . Peter im not sure the fed itself knows what it is going to do. To try to predict somebody who doesnt know themselves what they are going to do is very difficult. Anna one of them was saying, these are not promises. Peter they consistently change their views and their messages. If you look back to the rate hike in december, that was based on a series of economic data. When you move into the beginning of this year, all that economic improve, but to they ignored it. To pay much attention to what they are saying is quite difficult. I can understand their objective is to ensure the markets dont get ahead of themselves and expect no rate rises. I dont think its surprising you have certain individuals coming out to say, its not a oneway bet. Our view is you are in an environment where you will see oneto rate hikes rather than 34, and there is no real rush to increase rates. View you should increase rates to preempt inflation. I would argue the opposite. I would say, the bigger risks longerterm are deflationary, and why would you try to preempt inflation. You should allow it to take hold. Previously, we were getting these more dovish messages from the fed about online the economy to run a little hot. Return ofen a inflation in the u. S. Peter i think you are seeing a return to inflation into u. S. And europe. We are positioned more for a reflationiary environment given some of the stabilization and commodity prices. The movingll of parts around the president ial election later on this year and into the autumn, are they starting to manifest themselves in strategies around the u. S. . Peter i dont think they are quite there yet. Markets tend to be a little bit shorttermfocused on some of these events, and right now, i think most people are worried about the immediate risks within the u. K. Rather than within a president ial election in the u. S. Anna i bring that up because i know in some of your recent research, you have been talking about how the world seems to be moving on a number of fronts towards dealing with problems on a national rather than international basis. Peter what you saw postfinancial crisis was coordinated intervention in markets, coordinated policies, and that coordination starts to diminish over time as certain economies recover and others dont and politicians are put into positions where they need to represent national interests. You have had a whole series of attempts back over the past couple hundred years on globalization. A globalized economy before, which was abruptly ended , and i think its a significant risk that a number of Political Parties are rising, and its actually potentially putting a break on some of the globalization trends. Anna thank you very much for joining us this morning. Peter fitzgerald, head of multiassets at aviva investors. Keep an i on a number of stocks. Weve got burberry earnings hong kong wayss on the luxury maker. Burberry found itself not quite positioned for that move. Futures tell us we will be weaker at the start of the trading day in europe. And negative handover from europe. Gloomy all day in london. Good morning, everybody. Guy good morning. U are watching on the move 7 30 in london. We are counting you down to the european open. I am guy johnson alongside matt miller. He is over in berlin. This is what we are watching. They dont have a vote, but they do have a view. Wise the market paying attention William Lockhart williams and lockhart . Japan dodges a recession. Spending helps to lift growth. What is ne