Bulls back in their pan . Big enough tot insulate investors from the risk . We are less then 30 minutes away from the european open. Lets take a look at where futures are trading. You can see down across the board, we finished with all green arrows. Speaking atp began the close and even the u. S. Market closed positive. Even as people bought treasuries and sold the dollar. Maybe today is the day of reckoning. We will wait and watch and see what is happening. You can see them bloomberg dollar index is down overnight. The yen is up by nearly a percent. The nikkei is down by 1. 2 . A big off day there. The euro is higher. Youll get accounts from the ecb. Let me walk you over here as well. Gold reasonably well bid. Up by. 7 of 1 fitting in with the narrative surrounding what we got from trump yesterday. Front and index center at the moment. That is the trachea watching very carefully. The treasury market is feeding off that. We will wait to see if today is a day of reckoning. Interesting moving average is pumped up and we will talk about that a little later in the program. Lets get you the first word news up eight. Juliette president elect donald trump picks the secretary of state and said china must he denied access to artificial islands it has told in the south china sea. Said alerson also failure to respond to the countrys actions in the disputed waters had allowed it to keep pushing the envelope and the world wants a strong United States. The stability that is foundational to peace and security, American Leadership must not only be renewed, it must he asserted. We have many advantages on which to build. Our alliances are durable and our allies are looking for a return to her leadership. There are signs of growing trade tensions between the u. S. And china. Antidumpingvering duties on a green variety. To be preparing to file a complaint with the World Trade Organization alleging chinese subsidies to domestic aluminum producers as suppressing are suppressing global prices. Volkswagen has taken a step toward resolving the emissions scandal and pleaded guilty in the u. S. And agreed to pay 4. 3 billion in penalties. Chargesors announced against five executives in germany. Admitted using false statements to import cars to america. South korean officials have been questioning Samsung Electronic j wiley as an suspect in a bribery investigation. While he was expected to be called in for questioning the fact that he was identified as a suspect was a surprise. Prosecutors want to know whether samsung and other Companies Made to a confident of the impeached president in exchange for political favors and ask access. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Matt thanks for a much. President elect donald trump held his first News Conference since july yesterday. He addressed the russian hacking claims, his relationship with Vladimir Putin and his famous mexican wall. Course, theand of bill. He gave few specifics on the timing and scope of his planned policies. As far asrussia, hacking. We also get hacked by other countries and other people. If putin likes donald trump, i consider that an asset, not a liability. We have a horrible relationship with russia. , asia can help us fight isis thing like that should never have been written. It should never have been had and it should never have been released. We are going to build a wall. I could wait a year and a half until we finish negotiations but i do not want to wait. As soon as our secretaries are approved. I must almost simultaneously, shortly thereafter, a plan. It will be repealed and replaced , it will be essentially simultaneously not you. Your organization is terrible. Quiet. Im not going to give you a question. You are fake news. Interesting stuff. Joining us now. Are the allegations about russia persist . Does russia have something over the president of the United States . Allegationsnk the will continue to persist. He has to prove that he did not happen which is difficult. He has dismissed it as fake news, there is a lot of the former mi six asian who compiled this dossier who is apparently on the run. Be docked by the allegations and the larger question of how is he going to he has finally accepted that russia was behind the hacking and flipped a few minutes later and said anyone could have done it. How is he going to respond to the russian hacking and how is stance different from tillerson, his secretary of state who sounded a much tougher tone ring his Senate Testimony yesterday. It is unclear if they are on the same page when it comes to policy toward Vladimir Putin. Why does he have to prove it did not happen . That sounds very unamerican. That is not the way it works. Completely unsubstantiated reports. This could happen anything someone made up on the internet and forwarded it into buzzfeed or just passed around washington. Am i missing something, is their actual evidence to suggest that any of this is really true . Guest there is no evidence but the doubts will linger that any russia,akes toward towards putin could be colored by these allegations. I think there will be continuing theres on whether or not are any allegations and that dossier that are true. Journalists have been combing over that for many weeks now. As rumors have been circulating since his election. Their doubtsing is will persist, the allegations have been released. Be continuingwill questions as he goes forward. We will deal with the specifics about what he said about the pharmaceutical sector. Doubts will persist. We are looking at a very different start to a and we have period with previous administrations. The markets are priced in an awful lot. If you look at the situation we are in, did yesterdays press conference change anything, did it augment anything, what did we learn that tells us something about Something Else about what will happen next . Guest investors have been less willing to believe that [inaudible] you campaign in poetry and govern in prose. There was alarming elements of that press conference that suggested that maybe not all of it was in a campaign trail trump, we made we may see a bit more of that one when he comes into office. Ofwas relative to the rest the world. It is not the big picture. The major thing we have to watch with regards to investors is still that trade story, what goes on with china, how does trump and his Administration Deal with the global trade story, are they going to be as protectionist as they talked about, how to down how far down the terror fruit will they go . Tariff road will they go . Guy the Intelligence Community has probably a difficult for years ahead of it. Together that relationship and Rex Tillersons relationship with the Intelligence Service and put congress on top of that, how easy is it to comprehend what the u. S. s relationship with russia will be like. We come to china as well. Bid that is confusing. I do not understand yet how the lines of comedicish and are going to work. Attack theid intelligence agencies for releasing that report and perhaps being behind the release of that report. You know you have a bizarre situation where he will take office, the intelligence agencies should be doing a thorough investigation not only of the hacking but of those allegations. They gave credence to them saying the source that growth that report has been credible in the past. You have a situation where the intelligence agencies should be doing a thorough investigation. Congress may want to do a thorough investigation. How this is going to pull together once trump assumes office is unclear. He will put pressure on the cia be the fbi perhaps too may dialback. Perhaps put more emphasis on who is behind the dossier, and it is unclear what he really wants to do in response to the russian hacking. Guy thank you. Joining us on what we learned yesterday. Matt we will speak with carol kellyanne conway, a Senior Adviser to president elect donald trump at 12 25 p. M. U. K. Time. If you want to tune in for that. Im a stocks plunge after the trump News Conference yesterday. We will discuss with this could mean for european countries. 18 minutes away from the open. And talking turkey. The lira ciphers the first five date plunged since the financial crisis. We bring you the details. Marks spencer beats estimates with its thirdquarter revenue. Is the u. K. Retailer back in fashion . We will talk about the sector. This is bloomberg. Matt welcome back to bloomberg markets. This is the european open. Only 15 minutes to go until stock start trite as trading and the u. K. Stocks start trading. Shareholders making meeting will be asked to approve the conversion of every 10 shares into one new share. This as the ceo attempt to turn around italys biggest bank after the stock dropped more than 45 last year. A former barclays director has been jailed for five months in the u. S. As for price for passing inside information. Stephen mcclatchy pleaded guilty for offering merger tips that were used to make 10 illegal trades bringing in 76,000. The plumber a plumber also pleaded guilty and worked with prosecutors. Johnson johnson has tentatively agreed with actelion on a price to acquire this is the Swiss Technology company. They say talks are focused on valuing what would be a new unit that would house the research and develop men asset and a deal could be finalized as soon as this month. A Johnson Johnson representative declined to comment while a spokesman for actelion did not immediately respond to requests for comment. That is your Bloomberg Business flash. Matt and guy. Thank you very much indeed. Staying with the pharma team. Pharma and tech stocks fell yesterday this after president elect donald trump said he forced the industry to bid for government business. This is a position with democrats and against the from American Manufacturing lobby. This is the performance of the last year. It will be interesting to see how some of the drug stocks open this morning post what was said. We saw u. S. Drug stocks down and asian drug stocks down. Well europeans follow suit . Will europeans follow suit . Drug sector has been a concern particularly when it comes to u. S. Reising. Hillary clinton was talking about it a great deal on the campaign trail. It looks like the republicans are now looking at drug pricing pretty aggressively. Has this been priced in yet, do you think . It is difficult to say. Conferences press gives you a sense you do not want to take big recommendations on the drug sector. Steerason why we would clear of the sector is more fundamental. Duration sector. You have visible longterm cash flows as the Interest Rates are lower. That should raise the present value. The present value should do well. A negative for the sector on top of this clinical headwind. Matt initially the moves after donald trump was elected were big and some important figures were saying, were voicing optimistic outlooks about his Infrastructure Spending plans, etc. Ts, deregulation, maybe his bark was bigger than his bite will be. You think we will see the continued unwinding of the trump rally or the trump investment play . Guest it is an interesting question. It is difficult to distinguish what is the rally and what has been more fundamentally backed. Since the middle of last year and in the last quarter, before trump won the election, you found a pickup in fundamentals, not just from the u. S. But around the rest of the world. Inflation bounce that from the Oil Price Crash and the pm eyes have been picking up handily. Theremorrow china is a fundamental aspect of israeli. On the other side, there is clearly some people trying to cuts, fiscalax spend the what that does and that has been an influence on the market. It has been a range of studies on what tax cuts due to economic growth. The conclusions are not strong. The Brookings Institute has done a lot of work on this looking at the tenant kennedy tax cuts to the bush tax cuts. It is hard to come to a strong conclusion. We would argue that any boost earnings is one off from tax cuts so you treated in a way like you treat like the oil price shocks. It does not offend effect trend earnings. We would be wary again of the impact of fiscal spending and there has been many studies on this. It is much more nuanced. You have to invest what you think Economic Activity is going to be. That is a difficult trick. Guy we are minutes away from the european open. We will look at some of the trade in todays including Marks Spencer doing well in terms of beating estimates in the Third Quarter and clothing and food. Were going to watch very carefully what is happening to the pharmaceutical sector as well. The market open is eight minutes away. Snow forecast for the u. K. Today. Guy lets take a look at some of the stocks that we are watching. Retailers in focus. Tesco numbers look good. We will see how that plays. Mns has eaten on clothing and food. We anticipated the numbers would be good. And aptos doing well with its numbers. The consumer can tune used to spend money. Continues to spend money. Matt we have richmond to watch. The watchmaker seems undeterred by the release of another piece of competition risk, jewelry from apple. They are selling more of their cartier necklaces and watches. And watch sales in general have boosted sales better than had been expected. Were watching volkswagen. To a charge and caseguilty in the criminal cheating the california emissions florida. On the other hand, maybe less important for investors but more important for more for the sod at of volkswagen, the u. S. Department of justice has indicted five more volkswagen workers even either current or x workers. The company will not tell us if they are still working but they are here in germany. They will be tough to exit expedite. The individuals could continue to get prosecuted even as volkswagen the Company Admits guilt and pays the fine and moves on. Guy all of those stocks going to be the focus and the pharmaceutical sector is in focus. It is a good day for matt miller. He loves talking about british and supermarkets. European equities are softer down just at hatch a touch. The market open is four minutes away. Looks like we are headed for a softer open but the stock story will be the focus this morning. Good morning. Welcome. You are watching bloomberg marks ets. I am guy johnson. Matt trump picks a fight with drug centers, european pharma stock expected to follow their u. S. And asian counterparts lower at the open, but how hard will become down the . We will be watching for that. It is a big day for bonds. Sovereign bump up against their moving averages. Will Janet Yellens speech later tonight with the bulls back in their patenen . 13 billion rights offering. Is the discount enough to insulate the bank from risk . A lot going on this morning. Guy big day for european stocks. Let us talk about where we think the market will go. Let us go to the market and find out with the Market Makers are saying. This is the picture we have. Selloff in the auction, better bid in the auction. We are softening up a little bit this morning, 7285. A little bit of weakness creeping in. Indo have british growth focus and the pharma sector in focus, european banks and focus. Lots for mr. Manus cranny to talk about. Manus welcome back. Looking at the equity markets. It is the anticipation of the great trump euphoria. In matters of grave importance, style not sincerity is a vital thing. Im wondering if that is what donald trump is channeling. The market did not get what it wanted from price cam frances press conferences. It got a lot of bluster about his tax payments, or his tax receipts, i should say, and a number of other things. Financials are down. Unicredit in our sideline. That is a heck of a rights issue and a reverse stock split. 2 10 of 1 . I take you to the trump effect. This is it. During his press conference, the dollar down, down went the yields in the United States of america. We continue there was trump effect trades and they continue across the market. One thing and bring to attention, this, european bond markets. This is the bond market. The reason why i reflect on because u. S. Yields in that differential as divergence trade goes, so the impact on European Markets. Ofeigners buying over 70 the issue. For me, that says a big thing about the market, maybe putting a little bit of a hedge on, and talking about stocks to watch, Marks Spencers and tesco has delivered its verdicts. Tesco, strong numbers in five years. Customers returning price cuts. The numbers were a beat. The stock down by two point 18 this morning. The flipside is Marks Spencer, knocking it out of the park. Up to. 9 . Five extra days in the numbers. Margins coming through in some of the lifestyle goods. Good old clothing, good return to growth on sales for the first wo years. Early t that is the question. Like for like sales up 5 . The industry facing the greatest challenge since the downturn in the 1980s. I learned something new today. Guy, im off to digital radio. Come join me there here it if people are just getting into their cars guy it is amazing if you look at the market caps of these companies. Tesco, shockingly big. More than 17 billion pounds and it is a growth restore grocery store. Mmps is a lot more. They sell luggage and blts. It is only a 5 billion pound company. Francs. T is many now. S move to italy right the biggest bank seeking investor backing for a 13 billion euro price offering. Matt almost as much as it market value. Unicreditss shareholders are meeting in rome today to approve the turnaround plan after italys thirdbiggest bank, monte dei paschi, failed to secure funding for a plan to offset its nonperforming loans. Joining us now is a person from bloomberg intelligence. Let me start with you. Is unicredits plan viable . It is a very different beast than monte dei paschi. Than itssue is rather is viable, is what is this plan focusing on . And this plan is focusing on things the bank can actually soe some real affect on, they are planning to reduce some beeny issues that have accumulated in time, so they are planning to reduce the noncore and costs with a Union Agreement that has already been signed for 75 of the cost reduction. Plan appearsn, the to be focusing on things that will have immediate effects on the profitability of the bank. The profitability of the bank was 4 in 2015 and the plan is bysidering to get to a 9 2019, and the biggest part is going to be the reduction in noncore and the cost accounting. Chemical about the discount because investors have been burned badly on italian banks in the past. He has been diluted again and again. To convince investors they are insulated from any of the risks that surround what happens next with the bank . Guest i would say the real issue is not how big is the discount, because if you are investing in a bank, an italian bank, now, you are probably aware of what has been in the past, so the real issue would be, are you ready to have faith in a chilly . And especially even more importantly, in unicredit, in italy . And especially in unicredit. The discount, is sort of takes a second, one step back, taking one step back. Marta youre talking about a Capital Increase which is almost as large as the current market capitalization, so the discount sort of passes in second place, almost. Guy thank you very much for joining us, Marta Bastoni from bloomberg intelligence. If i invest in unicredit, im investing in a bet on the fact that the Italian Economy is going to improve, because unicredit, maybe it has been mismanaged, maybe it has not in the past. The Italian Economy has not delivered, as a result of which, the companies have not been able to perform. This is a bet on italy. Is that a bet you would be prepared to take right now . William italy is a difficult economy right now. The Constitutional Court really reduces the probability of eminent snap elections. In real problem is the need italy, and this is a huge part of the nonperforming loan problem. A Civil Justice system that just creeks. Tor records to collateral buy the nonperforming loans off things, it is so slow moving relative to other countries, and that is part of the story. There are other problems that make you think that because reforms are going to be slowmoving, that makes a bet on singling out italian banks quite difficult and singling out is really difficult. We like your by the whole and european banks as a wall and italian banks are part of it. Banks as a whole and italian banks are part of it. The long end of the yield curve will be continued to be dragged higher in europe by what is going on in the u. S. , so a wider sector to return, you need the shorter rate to go up. Marta, do we separate italian banks or do you think the Italian Government sorry, william hobbs, do we separate italian banks, do we think unicredit is a very different story than monte paschi . William yeah, it is definitely a different story, matt. It is a better capitalized, more visibly, easier to bet on bank. That is definitely the case. Like i say, at the moment, we are not wanting to single out particular stories. We like to diversify across the entire sector. That is the way to go for it right now. The thing you have to wait for, like i said, valuations have picked back up to a normal level, so what you saw last year was obviously, as people wondered where the floor was in terms of negative deposit rate, and it went lower and lower and lower, and some people were saying it went to 4 and wondering how on earth of the bank would make profits in that environment with a flat yield curve, what we have seen since that is a recovery train and people have gone beyond that to take a different view of the past and perspective and the end of the yield curve, so what you are now seeing, i think, and what you need to see our earnings estimates pick up. Bypart, that will be driven the behavior of the long end of the yield curve, but what you need probably is a different perspective prospective tope, for the wider sector feel better and for analysts to feel confident about upgrading their estimates. We have to watch what the analysts do. Matt may be more upside at risk, risk than downside from here. William hobbs will stay with us. , lockhart, bullard, kaplan, and yellen. All due today to make comments. What they have to say. Back, up next. Plus, it turkey bleak midwinter. The lira suffers its biggest fiveday loss since the 2008 financial crisis as investors go cold on the currency. It just paired todays losses. Is the selloff at bottom . U. K. Grocers, some of the most important stocks in england, have had a christmas east. Christmas feast. All those stories, and more to come. This is bloomberg. Matt welcome back to bloomberg markets. This is the European Market open. Taking a look at what is notening today in stocks is entirely unexpected. Guy has mentioned before a few times, health care stops under pressure at the open. This is the group ranked returns of the stoxx 600. You can see Health Care Stocks are the biggest losers and i will type in the imap form. This is fun to look at this way. Health care stocks are the biggest losers. We are looking at the sort of deepest red for Health Care Stocks, but we are seeing a loss in telecoms, financials, consumer staples, industrials, i. T. , real estate. It is looking like more of a down day, guy, as only the defensive sectors, consumer, discretionary, and utilities, are holding up. Havethe heavyweights, you talked about them leading the charge this morning. Sector. E luxury goods it is also dragging up swatches, which makes brands like omega, it is doing very well, up by 5. 4. Richemont up by 9 on that stock. M s doing well. It is the closing bit that is driving the stock higher this morning. Tesco not delivering this morning in the same way, 2. 7, the downside, despite upbeat on the metrics. It is interesting to see the drug stocks up. There is an interesting story surrounding the pension fund in the states, a classaction lawsuit against nova management according to a statement from a law firm, dragging its stock down. We are seeing the entire pharma sector down post trump yesterday. Let us talk about what is happening in the bottom market. Treasuries gaining yesterday and the 10 year u. S. Auction during the strongest demand since june. Big day for fed speakers. Parker, evans, lockhart, bullard , and kaplan, all speaking, but the big one comes much later on in the day, particularly for us europeans, fed chair janet yellen will address a town hall at 7 00 p. M. New york time. Couple of quick charts i want to blast through. Let us get off my stock story until the about what is happening with the treasuries. Let me walk you through this one. That is the u. S. Election there. This is a price chart, not a yield chart. Prices start to fall reasonably aggressively, the moving average, busing up around the 50 day moving average, so that is one to Pay Attention to as well. On the technical side of things, can the bulls keep the story moving on the upside . Middlell happen in the of the curve is an interesting question. We have this chart here. This is bonds, looking to test this line here, which is a 200 day moving average. It is a technical story surrounding what is happening with the bond market right now. Bonds have got a better bit over the last couple of weeks. Is that sustainable . We are waiting to hear what janet yellen says later on. Yesterday, donald trump did not deliver on the fiscal friend as much as the market was looking for. The market was expecting the fed will respond. What do i do if i have long bonds this morning . Right, guy. re it has been a little bit of a recovery of late. Things moved very fast after the election. Quickly. Rsold by a couple of points for investors is, one, im sure you saw the bank of england blog the other day which talked about eight centuries of data. This is one of the longest bull markets, and sharpest. The other point is relative to the fundamentals. The bond market is still expensive and increasingly so, if you look at those pmis, inflation data, inflation expectations, and all of those things, there is still further to go in terms of u. S. Interest rates. Guy do we hit 3 this year on a u. S. 10 year . William easily could do. That would be the closer to the error value. If you think donald gdp growth gdphe u. S. Is at nominal growth in the u. S. Is a 4 basis, that is a long way for yields to go in the u. S. Before you talk about their value, in our opinion. Tot william, not to go back trump again, but if he does not provide details at any point, if you does not start really acting , i realize he has not been sworn in yet, but on these infrastructure stimulus moves, does that bring the yield back down . See someo we need to trump activity before we get to 3 this year . William yeah, i mean, it seems to have been part of the story, doesnt it, matt . The thing to think about really is even without trump, the forces of inflation are less questionable than they were a year ago when people were worrying about, you know, you watched the fiveyear fiveyear inflation expectations, seemed to be enthralled with what oil prices are doing today. Look at china ppi, u. S. Wages, all around the world, there are signs inflation is less dead and buried than people thought. That has to remove a key strut for buying the bond market. You do see Political Risk raise its ugly head this year . Every chance it could and that could introduce a safe haven elements to government bonds, particularly in the u. S. , i guess, but really, our opinion is that on a fundamental basis, those bond yields materially are materially undervalued the growth prospects. Matt we know what they are up to, at least the direction they are heading this year. What about the bank of england . Mario draghie ecb, extending stimulus in terms of the timeline, kind of reducing it in terms of the quantity . Is it possible we see a turnaround in the Central Bank Policy here in europe . I think we hazard me seen some turnaround in expectations from a market perspective because of the bounce back that pointed to people they should not necessarily be thinking that the ecb will never be Monetary Policy from this setting. One of the interesting sort of conundrums of this year, if we are looking at the inflation data is it looks like germany is finally starting to see inflation amidst a very tight labor market. Will that happen in the rest of the eurozone, which is much further behind in terms of unemployment output gap narrowing . Inflation will likely pick up their much more slowly. What does that mean for Central Bank Policy . To bully theanaged ecb into tightening Monetary Policy earlier than the periphery wants. That could create them her chin in terms of Monetary Policy there, but in terms of our opinion, and one of the things that dominated trade last year, and bonds, banks, or related trades, was the idea that Monetary Policy was going to keep having to get loser and loser, negative deposit rate would have to go down and down, and there was no end to that trade. Guy stay with us. Turkey certainly in a very difficult position right now. The lira has suffered its worst fiveday plunge since the financial crisis. Details next, this is bloomberg. Matt welcome back to the European Market open. The lira has suffered its worst fiveday loss since the Global Financial crisis. While volatility in the turkish currency has gone parabolic as you can see from the start, joining us now is bloomberg daybreak europe macro strategist cudmore. William hobbs. S mark, i want to ask about the turkish lira, and the fall has been amazing. I have been tweeting about it for a few days now. Where does it stop . Is there a natural equilibrium point here . Mark i do not think there is pure it one of the problems in turkey is that unlike in most countries were the currencies depreciating and ameliorating the situations, in turkey, it is making it worse. In terms of their external data is so large, so they have to chase the move higher. I do not think this stops until the central bank comes in to support the currency. Guy does it stop until we get this view and governments that cutting rates is the way to deal with inflation . Mark i mean, certainly, that is erdoganre gone or t is owing pushing. People have given him more sympathy recently, but that is not what turkey needs. Rateseed to hike aggressively. The currency needs some stability before inflows will start coming back in. Matt is this an interesting play here . Or is there still too much Political Risk . Everybody seems so interested in mexico investments due to the discounts in the peso, but this has gone a lot further than the mexican peso has. Not interesting, i would have to say. The institutional quality seems to be disappearing thanks to mr. Centralized power, judicial independence, all the things he would look for in terms of a solid longterm invest and in the economy. They are increasingly absent in terms of turkey, so this is not an area we would be singling out. We like emerging markets generally, but we will be focusing on e. M. Asia. Guy thank you very much indeed, and william, thank you for spending time with us. William hobbs, head of investment strategy. Up next, well speak to bnp paribass management team. Health care could be a big winner. Details next. This is bloomberg. Guy welcome back. You are watching bloomberg markets. This is the european open. How are we trading 30 minutes into the trading day . This is the picture around europe. Negative stock story. We have the pharma sector under pressure this morning. Mixed. Retailers are luxury goods doing well. Matt has more detail surrounding all of this. Mov is a function i like to look at. Mrr is great to see the big movers, big picture. With mov, you can drill into a tighter. I put it into index points to see who is really moving the stoxx 600. Luxury companies are doing the best here. Seeichemont you richemont, swatch group, and they make the james bond watch of choice right now, the omega, and watch sales are doing well. Luxury stocks are taking off today. The big weights are clear. Novo nordisk, shire, all of stocksealth care and bio are down because of the possibility that donald trump raid yesterday of drugmakers having to really did for business with the government and that would put a real weight on prices pulling down the stoxx 600. Guy they give you much indeed, mr. Matt miller, with his fantastic options on the bloomberg terminal. Let us talk about what bnp paribas Wealth Management has to say about 2017. List,g the unsurprisingly, managing inflation risk with financial assets. Technology and health care are mentioned, the sectors to watch in the mediumterm. Let us get more now from the cio of bnp paribas was management, joins us now. Good morning to you. Tolation, everyone is trying figure out whether the inflation story that we are starting to price in, and i have the fiveyear fiveyear for the u. S. In front of me on the screen, is a real story. Is inflation went to be my biggest challenge . Guest i think, wishing so. We think inflation is starting to increase, mechanically, because of the oil price and the headline is rapidly increasing due to that effect, but also because of wages. Wages are beginning to rise significantly in the u. S. We have seen it with the last job report, last friday. 2. 9 wage increase, so that is the current level of Interest Rates, two thirds of the cost in a metro economy. Florent we have to be careful. Then, we have this question about the new administration in the u. S. Pushing for fiscal stimulus eventually. It will come, rapidly or not, will it be fully implemented, will the President Trump be very different from the candidate trump . Those are questions we are facing today. We do not have the answers. Of course, but the markets are beginning to discount inflation is on the rise. This is not only due to the fiscal stimulus. This is a world story, a global story. Guy you are in the business of protecting peoples wealth against the erosion of th erosion that inflation could bring. How are you advising your worldly clients as to how they should be investing their money to deal with this . How do i position myself, what are the right trade, had i get myself into them, and if things go wrong, had i get myself out of them . Florent the thing to understand is that people did make money in holding 15 years just bonds and not moving at all. You have retained this mentality because the level of Interest Rates is too low compared to inflation, so we advise our clients to move smoothly out of Bond Investments into more risky investments. That is a mentality challenge, especially on the continent because the equity proportion of investment is extremely low, so we advise our clients to take more risk, to increase the equity portion of their assets. Guy what do you mean by that . Florent volatility. Are more volatile than bond markets. We say to our client, volatility is not dead. Because therelow is a strong consensus about what rising,ning, inflation corporate doing well, delivering earnings increases, so because of that, volatility is low. We think volatility is not dead client, ito our will have ups and downs on equity markets and you have to monitor the volatility to be ready to have losses during some time. And to be able to carry the losses. Matt arent you worried about already elevated valuations in stocks . I mean, especially if earnings are not expected to rise that much this year . What can you expect on the upside, 4 , 5 . Florent well, your question is extremely relevant for the u. S. Market. The u. S. Equity market did outperform tremendously in the recent years, and today, it is otherive compared to i equity markets. For sure, equity markets in the u. S. Are expensive. It is always discounting a lot of good news. We think the good news will continue but the potential for the u. S. Equity market seems to be lower compared to eurozone or japan, so we are just drawn the u. S. Equity market and we and japaneserozone markets. Those two markets are more sensitive to the global cycle then we expect the earnings cycle to continue to the upside. We are more positive. Mature markets compared to emerging markets, because the volatility on equities on emerging equity markets can be very sharp. Good point. A very im guilty as charged. I was thinking about the s p. If i do look at the stoxx 600, i see forecast price earnings ratio of only 15 here. Im using the ge screen to look at pes. . Where do you expect to see valuations how high could they climb in european stocks . Florent we think european stocks will deliver a good performance in line with Earnings Growth. If we had a 10 Earnings Growth in europe, we will get 10 equity return, meaning that we do not expect a real appreciation of the market reappreciation of the market from we expect it will translate and a 10 equity return. Eventually, 15 if the earnings are better, if the euro continues to weaken compared to other currencies. Guy if i look at the kind of stocks that i want to earn, if you talk about pharma and technology, both in some ways, it Technology Companies, but with very different kind of issues surrounding them. We saw what donald trump had to say about pricing in the United States when it comes to the pharma sector. How big a headwind do you think it will be . How big a headwind will it be for Technology Companies when it comes to how edmund attrition will treat them . How do i price politics in both of those sectors . That is the longterm play, but im worried about the shortterm push i will feel. Florent this is exactly the point and it is a very good point, shortterm between longterm. Shortterm, the Technology Sector especially in the u. S. Seems to be relatively expensive. Shortterm, format will be under pressure because of what mr. Tom said yesterday. Longerterm, innovation is something you cannot escape, so technology will continue to be age writing force of drivingvity gains force of productivity gains and competitiveness. If you want to be competitive, use technology. From the healthcare sector, demographics, the aging population longerterm will continue to drive the sector to the upside. Guy demographics work, but it is how you invest in it. Can i go buy a basket of european or global pharmaceutical sectors . Or should i invest in an Oncology Fund or a Diabetes Fund . How granular do i need to get in terms of the way i invest within particularly the pharmaceutical sector . Florent if you want to be a client of bnp paribas, well sit somewhere, talk a lot, and i will try to understand have specialized you are. Do you know the pharmaceutical sector or not . Do a need to get an expert . I will determine what kind of risk you can incur. We will advise you differently. It has to be guy where does the biggest risk life . Lie . A basket ofderstand by attacks on an individual stock buy stock basis, but i can aggregate risk within. Which is the more risky of those two . Florent anyway, you have to diversify. I do not know what will be yours. Comparing pharmaceuticals, small pharma, big pharma, a mutual care, it depends. You have to monitor your situation very carefully on an individual basis, and the notion of risk test risk has to be monitored. Guy thank you for joining us, lorent brnus. F we talk retail next. This is bloomberg. Matt welcome back to bloomberg markets. This is the European Market open. We are 43 minutes into trading and seeing a big drag on the market from Health Care Stocks after Donald Trumps statement yesterday. Luxury stocks are doing quite well as watch sales improved over the christmas period. Let us get to the Bloomberg Business flash. For that, we bring in sebastian salek. 13bashing unicredit is billion rights offer. Meareholders meeting in ro to consolidate every 10 shares into a new one. They will turnaround italys biggest bank after the stock dropped more than 45 last year. Saidsecretaries general more output cuts are needed. Ae group was targeting reduction in global crude inventories, not specific rights. We are very hopeful that with of thel implementation historic agreement, well be able to bring forward this rebalancing. The projections show that at this point in the Second Quarter of this year, you will be able stock job bounds move in further towards the fiveyear outlook. And this is our timeline. Sebastian that is your Bloomberg Business flash. Matt, guy. Guy thank you ray much indeed. I will pick this one up. Had arowth has apparently bit of a christmas feet. Feat forted a sales the holidays. It is proving to be better than expected. Brian roberts, Global Insights director, joins us now. We talk about tesco in a moment. I want to start with m s. Market likes m s this morning. Is that the right reaction . There are better than expected, certainly, and for the first time, it is good news ostensibly for the general merchandise division, but camino, 2. 2 growth for that part of the business, if you strip out the different calendar effects, the timing of christmas, that is more modest. That is still great news. After so the only way many years of decline, it shows that it is having an impact and ranges have improved, merchandising has improved. Resre were store closu sometime ago. Turning around the general direction of travel. Bryan for food, quite a decent christmas. The numbers we have seen this morning, and also every single retailer, set up at premium ranges and the rapid growth we are seeing there. M s seems disappointing on the food front. Guy m s christmas. Let us talk about inflation. The tesco ceo talking about inflationary pressure. Inflationary pressure, evident in pork and cheese. He is talking about the fact that deflation in food prices is clearly easing. How does this work through 2017, because we are going to start to see you see it fresh, early, in the way the supply chains work, but you see it in the rest of the supply chains as well. How do they manage the inflationary story . How much gets passed on to how do they manage the inflationary story . How much gets passed on to consumers . We had premier foods this week saying they are trying to get pricing through as well. On the agricultural side, they can be quite a big lag. The structureges of agriculture, particularly in british farming. As prices rise, people try to herds, porke dairy production back on swing. There is quite a lag. This year,t be up 5 and primark modi inflation will be very much on the agenda, so cross, you know, virtually every single sector of retail, deflation is easing and reflation will come back into effect during the course of the four coming 12 months. Forecoming 12 month. Matt how are you take consumers feeling about spending money in a postbrexit, or brexit world . As confident taken a hit on a consumer level . Not. certainly the Christmas Trading members across the board, electronics, fashion, grocery, all very positive. The only negative sort of performances if you like would be next in fashion and what we can infer from the market share so consumers have been spending pretty robustly over christmas. We saw an alarming credit card spending data last week, which consumers are happy to spend on credit. The big unknown, the two data unknowns, inflation and wage growth. Can it keep pace with the inflation . Are havingoppers their money diverted to transport, for example. Matt you mention credit as well. Our consumers going to be able to continue getting credit with lower Interest Rates . Lending has been tightening as the ecb loosens. Maybe not what you would expect, but how does it look in britain . Bryan i mentioned the credit card data last week suggests shoppers are happy to borrow to fund some of the big ticket items. It remains to be seen how that pans out over the course of the year. The inflation will be the big one for me in terms of how that impacts Consumer Spending because, we are expecting to see if i percent rise in fashion prices and deflation will certainly disappear in grocery and start feeding through to the main sector markets. On transport more or fuel, there is inflation across the Retail Sector with income if wages fail to keep pace with the rise in inflation. Uy the inflation story when you look at what is happening in china right now, te prices are going up. You are seeing the disinflationary factor beginning to ease, but nevertheless, chinese currency going down as well. Emerging market currencies are under pressure right now. There, how much of the cheapness of the bound in key sectors is being offset a weaker currency elsewhere . We dont import a lot of clothing from the United States, for instance. Bryan i expect retailers buying in china, i have been saying, towards the end of 2016, the prices being asked for by chinese manufacturers is of who you speak to, and what does happen to currencies, the overwhelming universal story is that inflation is on the way. Guy thank you for coming to see us this morning. Interesting story surrounding the retailers. Matt, im sure you have something decent about the grocers this morning. Ryan roberts. Up next, could brian roberts. More on that story, next. This is bloomberg. To bloomberg back markets. This is the european open, almost one hour into trading and we are looking at slight losses here in European Markets. The German Economy is getting some wind in its sales as the waters are about to get rough. Alice see a 2016 gdp growth of 1. 8 . See a 2016 analysts gdp growth of 1. 8 . Alessandro, a rise in gdp will give a boost to Angela Merkels election campaign, not that she really has much opposition here. But it will be a good thing in general for german consumer confidence, wont it . Yes, indeed. In fact, even the stories generally that german consumers do not spend too much is partly, in a big part, supported and bolstered by private spending. Iss is because unemployment at record lows here in germany so people have more money in their pockets, and by german standard, they have been spending more and supporting the economy, and this has been helping the ratings of angela has beenen as she facing tough criticism for her immigration policy, which will be one of the key themes in the campaign. Guy just a quick question. Is there an output gap in germany, and if not, or if so, when do wait is finally start to kick in in germany . Alessandro that is a question that has been puzzling many people in frankfurt at ecb. Inflation does not just come from the Rising Energy prices. The output gap is probably close , and the economy is running overcapacity here in germany. Still, wages have been very low in picking up. Slow in picking up. It seems things will change and pickup in the course of the year. Unemployment is very low and this should fulfill one of the aims of the ecb was want to see domestically generated inflation to with growth stimulus. Should we be looking for in the ecb accounts . In december, the ecb decided to extend qe until the end of 2017, slowing the pace, turkey in april. What drove this . Decision why did they decide to extend what drove this decision . Why did they decide to extend . Ecb is not often there, it will stay there in the coming months. What do they expect to happen . Guy alessandro, we will leave you there. Joiningro speciale us. Up next, it is surveillance and i will be joining. Francine trump talks, the president elect gives detail on policy. Troubled waters trumps bid for secretary of state says china must be denied access to artificial islands that have built in the south china sea. Mark carney defends the bank of england policy moves, saying it helped financial instability. Good morning, everyone. This is bloomberg surveillance. I am Francine Lacqua in london
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