Transcripts For BLOOMBERG On The Move 20141029

Low for a considerable amount of time in the united states. Could they be pushing back the timing for Interest Rate increases . That has been helping with advertising in the u. S. We have seen earnings on the upside, continuing. The s p 500 just off a record high. Ansumer confidence jumped to sevenyear high in the united states. Generally, there is a positive feel out there. Helping stocks in europe, helping u. S. Treasuries. We have seen bonds continue to see a downward trend in yields. 2. 29 is where it is at. Still no hint of a rate rise in the u. S. We are seeing appetite for italy and spain this morning. Of course, this appetite for risk coming back. We are seeing germany sell off a little bit. I want to get into some of the big movers here in europe. Key foldsecting some on the back of a couple of earnings. Deutsche bank posted a thirdquarter loss. , we wereovisions talking about it with ubs. Deutsche bank too having to cover the cost of litigation. Did they manipulate Foreign Exchange . Did they manipulate benchmarks in terms of rates . This is in countries that the u. S. Has sanctions on. The new chief Financial Officer could help. Therefore trending a little higher. Air france off by 1. 3 . They have two weeks of strikes. Thirdquarter profit down by 61 . The bookings for the Fourth Quarter look weak. It is future of caution for air france. Next off by 3 . We are not buying our coats quite yet. They are saying profit isnt going to be quite as good as we thought. Thirdquarter sales up less than had been expected. They say we could see profit up about 8 to 14 this year. Sounds good, not as good as many had been hoping. Thanks, caroline. Breaking news on another company. Sanofi have ousted their ceo. Some speculation about that yesterday. The stock has been on the move lower. It is down another 3 . The company says the board met today at 8 00 a. M. Central european time. They decided unanimously to remove him as ceo. We will bring you the news on that Company Story a little later in the show. I want to get back to the big story for these markets. Markets do open higher in london. Time to get perspective. We are joined by a member of the Investment Committee at karnak. Fed in focus today as the markets prepare for the end of qe three. What a run for quantitative easing. We are looking at 3 trillion added to the Balance Sheet. Has it changed anything . I think it has really helped the u. S. Economy to whether this very painful current. Right now we are in a situation where Central Banks will be less unconditional as in the past. We are discovering there are some side effects of these significant actions. In japan, the weaker yen has helped to reflate the economy. Trade now is in the consideration of the bank of japan. The wealth created by qe has helped consumers. On the other hand, there is greater concern regarding the price of assets. This is the chart i want to talk about. End, everybody will be asking, what does this mean for stocks . You see the Federal Reserve Balance Sheet climb high, you see the s p 500 climb with it. This bull market and the fed Balance Sheet running together. It ends now, what happens . It is the crucial point. In our global strategy, we have reduced our exposure to equity in september of this year in anticipation of the end of qe3, but also because we thought there were some signs of the Economic Cycle running over. Kind ofthat when this action comes from Central Banks, there is volatility. You have to be prepared for that. Being prepared for that, being less exposed in your global strategy, and being more focused , being more selective in terms of the countries, the sectors and the stocks that you want to put in your portfolio. The up session over the fed communication is a blanket selloff, no matter what kind of stock you have picked. Everything gets battered. We are looking at that one line that talks about the time after quantitative easing, when rates might rise. The paragraph is on the screen. Do they tweak that today . Considerable timeline stay in there and does it matter for you . I think they have done a relatively good job trying to blur this. I think now it is probably less relevant than it was in the past. The markets have a greater understanding of how the fed wants to make its future Monetary Policy. Next year, we are probably heading for Interest Rate rise which will be later than markets and investors were expecting. We dont anticipate there will be some shock regarding this communication. No repeat of 2013 for you . We will continue this conversation after the break. Here is a stock on the move this morning, sanofi. We will have more on the story throughout the hour. It is down by over 5 . A check in on the borrowed or equity markets, stocks in london open higher. I believe they are staying higher as well. We will have a look at next as well, i miss across the board a miss across the board. They are blaming the weather. We are back in two. Will come back. I am Jonathan Ferro. This is on the move. Still with me is jean medecin. I want to get to your stock picks. You call these the global leaders. He likes of novartis then they really have up a storm. I think i can indeed. Now,is interesting right it is more of an output driven market. If you take the example of novartis, one of our Biggest Holdings in our global strategy, i think they are extremely well positioned towards deflationary pressure coming out of europe. They are wellpositioned also to capitalize, to deliver earnings growth. Earlier this year, they did a deal with glaxo, buying their oncology business, partnering with them to address the business. This is the kind of stock we like at the moment. Can they capitalize on the mess at santa fe . Fi . At sanop sanofi was very important in the restructuring and the performance of sanofi. Very strongome drugs. It is not just a question of the ceo. There will be a little period of uncertainty at sanofi that some might take advantage of. Sanofit competitor to for insulin drugs, for example. Beyond this uncertainty, the question will be, who will be the new ceo . I am very happy to have you here. You hawked facebook stock. Facebook looking for a Fourth Quarter of growth. Next year they are going to spend more. What i found fascinating is that we got a number that whatsapp delivers. They paid 19 million for the company. Approvereholder, do you of that kind of spending . I think it is the wrong way to try to allocate revenues. If you look at google, which has been establishing its presence theobile, they did it via Android System which was given for free. Nobody will dismiss the idea of android being extremely key for google to establish its competitive position. Facebook, when you look at the overall numbers, 68 advertising that thisu cant say company is not growing. Actually, isto see the company to spend wisely. We will know later whether the big increase in spending next year is going to give some good return on investment. That is something we need to assess later on. When you invest in such companies, you invest in those companies for growth. And yould not expect should not want those companies to stop spending because then they will stop growing. You and i will continue this conversation another time. Lets finish with the eurozone. You hold portugal, spanish, italian debt. Have you been reducing those positions . We have been slightly taking profit from some of our positions in the center. Of opportunity was less compelling than when we took this position in the middle of 2012. We are Still Holding a big chunk of spanish and italian debt in particular. The kind of growth we are expecting in europe, the kind of , as long aslation are set with fundamental views on Interest Rates, they are still very good value. The ecb has been a lender of last resort, providing some efficient backstops. Issue for transparency, you are reducing your holdings. A lot of people will be looking at the yield on the 10 year. I imagine that is not the yield you are getting. When did you buy those securities . Thosen we bought securities in 2012, we were getting much higher yield. What is very important when you are reaching this level of 2. 2 , 2. 3 , you are more looking for the carried in the capital gain. We think there can still be a little bit of compression of spread versus germany. As you know, over the past months, we have seen some declining yields. Obviously, this is more opposition that will be interesting from a Capital Gains standpoint. Would you be a buyer at these levels on the periphery or would you avoid . I think we can still be buyers at this level. Otherwise, we wouldnt be sticking to those positions. Obviously we are less enthused and less aggressive than we were a couple of years ago. The valuation opportunity is lower today than two years ago. Finding aa matter of position according to the upside. Qe3inal question for you, set to end today. The overwhelming consensus is that it finishes. Can tv really finish qe finish without the kind of taper tantrum we had last year . Because now we are at the end of the story, i think markets have understood what is going on. Last year, the big spike of volatility happened when the Federal Reserve didnt reduce qe. I think markets are probably on ahead of the game. Should not expect big volatility coming out of the announcement today. The volatility we had a couple months ago in the anticipation of the end of qe, that is where it was wise to be positioned in global strategy to face this volatility. We dont expect the actual delivery will create what we have seen. You are optimistic always good to have you in the studio. The ftse up by 36 points. One stock on the move is u. K. Retailer next. The stock is down by over 3 . Sales missed across the board. Downgraded. Miss, they are blaming the weather. It has been a mild start to the winter. A mild start to the unseasonably warm weather and people just arent buying winter clothes. Next is lower. On the move is back in two. Welcome back to on the move. Sanofi shares are taking another hit today. They got spanked yesterday. This time it is over the ceo. Confirms that the ceo is out of a job. Lets bring in the Bloomberg Intelligence director of european business. Is this business or is it personal . Reading the paragraph, i think it is worthwhile. Going forward to pursue development, harnessing talent and focusing on execution with a close and confident cooperation with the board. It cant be that his strategy was bad. Obviously, investors liked it. There was a lot of positive opinion on the stock up to yesterday. Two downgrades today on the back of all the discussions yesterday. The company had until yesterday an 87 relative return, the thirdbest among large pharma. Some of those things were going right. The moving of sanofi to biologics is new with the acquisition of genzyme. Those were all going in the right direction. Perhaps some of the things he have done were not done with the consensus of the board. Couldnt have smoke without fire. You also said there are signs of within thet wa company. It is not just the ceo putting the stock lower. Certainly not. By uncertainty and worries about regarded drug that a lot of diabetics use, an insulin. Sanofi gets about 18 of its revenues from it. To us yesterday is that they are seeing Competitive Pressure on prices. There was no sign of this. See big competition in that sort of setting. Now everyone has got to be watching how the volumes of that product are doing. Headwinds for this company, stock down 3. 65 . Of Bloomberg Intelligence, thanks for joining us this morning. Watching Deutsche Bank shares this morning after that 94 million euro loss. More is ourith international correspondent, hans nichols. Is there any good news in this report . Just down a is little bit so there must be something. The headline number was pretty dismal, that 94 million loss. Atir pretext profit came in two hundred 26 million, a little higher than expected. Some bank and equity debt trading came in higher than expected. It wasnt all bad news. The main story is this loss of provision they set aside for legal costs. Translate that into dollars, about 1. 13. The challenge for Deutsche Bank and other banks in a similar situation, no one quite knows what their litigation cost is going to be. They said they are in talks with officials about settling the libor claims but that doesnt get to this issue of what happened with currency potential manipulation. What is going on with the stress test and Mortgage Backed securities . There are so many other legal challenges for this bank. They may be setting aside more. Commodities and currencies, they came in about 1. 4 billion. You look at where they have been in the past couple quarters, it has gone up and down. That wasnt as bad as some had been expecting. May be news there as well. The stock down 0. 85 for Deutsche Bank. Lets move it on, a very busy morning. Another round of oil results today. The theme is the same. Profit hit by lower prices. Caroline, lets look at todays numbers first. Similard statoil, story . Exactly the same. Oil prices in a bear market. They are more than 20 off their highs back in june. If you are producing oil, it is heading the bottom line. Profitability down 2 . They are more exposed to refining. That helped bp yesterday as well. Statoil, they are seeing profit down significantly, dropped by 24 . It is not just the oil majors, it is the companys supplying these companies, supporting the industry. Dutch Deepwater Oil field surveyor trading at the lowest since 2005. They say they have arrested deterioration in the third quarter. What is interesting, today, oil prices are climbing a bit higher. Are we turning a bit of a corner . We spoke to the interim chief executive of statoil and he says we could be seeing Better Things to come. Also interesting is the reaction time of these companies to switch production. Caroline will be joining the pulse to talk about that. Up next, next. The retailer misses estimates and slashes therefore yea their fullyear forecast. You can follow me on twitter. You know where i am. Plenty to discuss as we discussed the prospect of qe3 ending. Welcome back to on the move. I am Jonathan Ferro. You know what time it is. 30 minutes into your trading day and this is how things are shaping up in europe. Ftse 100 up by 30 points. The dax up by 67 points. It is all about one thing today, the Federal Reserve and the likely conclusion of quantitative easing and qe3. What does it mean for the markets . We will discuss that through the morning. Plenty of corporate news. Slightly downbeat. I am focusing on the rest this morning. Some big movers. All about oil prices. We are talking about a potential rebound in oil prices as we see a change in production Going Forward. It has been hitting some of the earnings. One of them is a supplier to the oil market. Dutch company that goes into the oil fields and surveys. Lowest since 2005. Down by more than 20 . They say they saw a rapid deterioration in the oil and gas market in the third quarter. Thirdquarter results significantly below expectations. Microelectronics, this is your biggest maker of chips and europe. It too on the downside after sales are not matching analyst estimates. They say fourthquarter sales missed, thirdquarter sales fell 6 . They are already likely to fall again. Down 3. 5 is where the company sees it going. Weak development in the digital group. , sensors used in microphones and smart phones, they are not picking up much in terms of demand. We are seeing Strong Demand in the car market but not in the smartphones. We are seeing it weathering a storm this morning. Shares down by 7 . And next, to warm. We are not running out to buy our coats and scarves yet. We are a little bit too dreamy across the board. They say, we warned you about it. We did say if the temperature wasnt going to go down, we could be slashing our profit forecast. They have had to curtail it slightly. Remember, profits are still set to rise anywhere between 8 and 14 . That is a pretty good turnout, just not as good as the market had been hoping. Back to you. Thanks, caroline. Aose next numbers make for grim read across for the u. K. Retailers. We will talk about that through the earnings season. They, investors await allimportant policy statement from the Federal Reserve. Policymakers are said to end their stimulus program. What does this mean for the credit markets . Lets discuss this with richard byrne. Manage more than 9 billion in assets. Great to have you with me this morning. Great timing. Plenty of Federal Reserve president s, governors, looking at one spot in the market. A certain area of fixed income. Junk bonds. Do you believe that is a bubble . It could be a bubble. We are going through an unprecedented period of time, six years the fed has cap Interest Rates near zero. We are coming out of that. We are dealing with a market that is priced to perfection to borrow and equity term. It seems like a lot can go wrong if things start to go off the rail. Rates go up, spreads widen. Investors plan for a very small return. Risksre we see the return, but i think you need to dig in deeper to understand the state of the market. You tell me, where are the hot spots . Does this look like something similar to what we were seeing in 2007 . That is a great question. Has about 10ond points of upside, 60, 70 points of downside. The market is made up of long only investors. Mutual funds, insurance companies, it is really a oneway market. When it goes the other way, it tends to go down pretty hard. Question, today versus 2007, there are some real trouble some signs out there. The trouble some ones are in our view the biggest predictor of future default rates. Defaults have been super low. Rate paperof low being put out in the market. 2007, compare today to which i am pretty sure we would agree that was the frothy as amountn the market, the of low rated paper exceeds what happened in 2007. It is about 25 of the market. What you generally see, low rated paper a few years and a row, wait a little bit, then a spike in default rates. We have seen that cycle repeat itself and i have no reason to believe that is not the case again. This is what i get told, spreads of investment rate versus high yields have collapsed of it. It is time to get back in. What do you say to those people . You are playing for 5 or 6 return. Maybe 5 is the new 10 . Maybe that is not so bad. If you think about it, you think betweends, the spread , that bs and triple cs says to me when the market starts to differentiate between Good Companies and bad companies. That spread compared to 2007 is tighter, which to my knowledge was the tightest ever. Trouble to like a me. Trouble, bubbles, overheating. What is the endgame . People always wonder what the catalyst is and i think this is a great question. It is the punch you dont see that ends up knocking you out. We had an investor for him. We asked every investor the same question. The answers were china, isis, ebola, ukraine, you name it. Who would have guessed that the thing that tips down the markets is bill gross leaving his job . Do you think that is what moved the fixed income . It created some movement of money, and movement of money is the first leg. What we havent had for six years now is a second leg down. That was a significant first leg but the market saw that and put it right back up. Talk to me about liquidity. Is that a concern for you . Absolutely. The credit markets are still for the most part just an overthecounter business. Liquidity has always been very limited. In times ofk back my career in the credit markets and people are shocked. People wanted to know what happened. ,hink about it, with Voelker Basel and all the other contortions, really we are dealing with less liquidity them the little that we had then. Market, when it goes down, people forget what that is like. We had a nice holiday and markets go down for a while. An aggressive move lower. He just closed a 1. 7 5 billion alarcon. Where are you putting that money to work . Flex first of all, i think there are some bright spots in the market. That may make this point before i forget. Soccer world, volume market,world, that this too big to fail, that is not in the market today. That is very encouraging. For us, we look for places to invest that dont have these typical big market supplydemand imbalances. What you have in the big market is a lot of buyers, not a lot of sellers. That tends to create lower yields. We think we found in direct lending a market where, because the bank stepped out of that market because of regulation, a lot of firms have stepped in and created a dynamic where we are getting access yield and covenants. , i have 30 question seconds for you to answer, ben bernanke said he couldnt finance his mortgage. We talked about things overheating. Is the financing need actually that difficult in the u. S. . I dont know about Ben Bernankes mortgage. I have a few bankers maybe we can introduce him to. On the corporate side, if you are a reasonable corporate, there is no trouble financing 60 of the Corporate Bonds that are issued in the low Investment Grade space our covenantlike. That is a sort of bull market indicator. If you are a reasonably good company with reasonably good credit quality, this is not the issue. It is almost too good. Richard byrne, thank you very much for joining us this morning. Talks toangel gurria us about the ailing euro zone economy and what can be done to fix it. Stay with us. We are on the move. Welcome back to on the move. I am Jonathan Ferro live from london. Lets turn to the eu budget. France and italy of what it a political collision with brussels yesterday. Officials said they would approve all member nations budgets after lastminute adjustments to spending plans. The changes still arent enough for france and italy to bridge deficit gaps. I have a special guest to get some perspective on the european issues. Secretarygeneral angel gurria live from berlin. Great to have you with us. I know you will be attending a forum on tax issues. Also you are going to be speaking to finance ministers from germany, spain, france, the u. K. What is your message for them . Basically, congratulations on the deal yesterday, because there was a lot of tension, a lot of focus on that. It is good that we now have a roadmap. It is good that we are Going Forward. Fundamentals, we run out of room on Monetary Policy side, or almost. There is a bit more that can be done by the ecb. But the other question is, can you grow on the fiscal side . We have mostly run out of room. Not a lotolicy of room on the fiscal side because we want to reduce the deficit. What do you do . You go structural. That is the message. Education, innovation, competition. It means flexibility in the labor market, flexibility in the product market, not only the tax system but also to make the tax system more investmentfriendly and jobfriendly. Also, the question of how to deal with the global value chains. And of course, obviously, the question is whether we finish the homework with the Banking System so that the banks not only are shown to be healthy, as was the case with the ecb report , but they start to lend again. We talk about structural reforms. A lot of people talk about the need. I would like to talk about the absence of market discipline. If i am france i can borrow 10 years. There is no real market discipline to push these countries to reform. Frankly, jonathan, that is precisely what led to the crisis in the beginning. There was no differentiation. There was no risk or credit messaging. Gettinge, nobody was any alarm bells going. Even though some of the fundamentals were going badly. We are getting again this kind of clustering, where you are getting very small spreads and now you are getting absolute levels of total cost and debt which are not necessarily indicative or objective in terms of the differentiation of risk itself. That is not good. It gives the impression that there is no urgency in Going Forward with reforms. The big reformers have been the countries that needed it most, the ones that were under a program, or under a lot of market pressure. We need also the larger economies to reform themselves. That is what is going to make the machine move. A largerou save economies, i assume you are talking about germany. I want to go through the stats. When is the eu going to start looking to germany the same way they look at the likes of france and italy . Germany is running a current answer surplus of around 7 . When are people going to Start Talking about addressing this . There are no limits in terms of how big your current account can be. Of howno limit in terms big your deficit can be. Spain had 10 . It now has a 1 surplus. Massive transformation of 11 points of gdp in the current account. That is happening to a number of countries. Werehe countries that under a program are now in surplus in the current account. This shows you there has been very important efforts by those countries. When are we going to consider germany the same as everybody else . I think we do, except the fundamentals of germany are positive. They have been increasing their productivity more than their wages for the last 50 years. Many other countries have been increasing wages more than productivity. Therefore they have a huge competitive gap. However, germany has to help with the adjustment and is already doing that. , some increasee on the tradeion union settlements, etc. , but also the question of the public finances. I think there is now a moment in which a greater contribution by germany, without losing its discipline, without losing the fundamentals, in terms of its investment, could help. What is happening is that germany had a 6 deficit before the crisis. Sorry, a 6 surplus. Now they have a 7 , as you mentioned. Instead of reducing the surplus, it actually increased it. Although it increased its trade advantage, or it trade surplus, with many countries around the world. There has been a balancing within europe. It is a moment in which germany can help for the rebalancing. The other countries are making an effort in a very difficult context. , because when you want to reduce your deficit, increase your revenues, and do that when there is no growth, it is very difficult. You want to deal with your debt in a time where there is inflation, very difficult. You have to roll twice as hard. I have 30 seconds before the break. Help me if you can. We talked about the lack of a risk premium in these bond yields, the lack of structural reforms. Are we selling the seeds for another crisis down the road . I dont think so. I think we know of enough about the cost and the consequences that we can avoid one. We certainly have to make haste. It is a good sign that the European Union has gotten its act together. We are moving forward even in a difficult context. That is the first step, getting the Banking Union together. The banking regulations is another step. Then, going structural. That means you are not going to get results tomorrow, but going for those innovation, education, competition, foreign investment, better regulation, this is the way forward. Angel gurria, always a pleasure to speak to you. Let me know when you are back in london. Thank you very much. On the move is back in two. Welcome back to on the move. When google brought in car navigation startups, it put the israeli consumer innovation on the map. E along startup has com promising to do for indoor navigation what waze did for outdoor. Israeli Shopping Centers dont get much more posh then the Perfect Place to indulge, the Perfect Place to road test indoor navigation apps. Founder is near the ralph lauren store but im not sure where that is. I type in ralph lauren here. Automaticallye recognizes that i am outside the store and it will automatically give me directions. How are you . It works. Gps foris this like a indoors like in your car . W it is likeaz it is like waze for indoor navigation. The cameras open and then we know where you are. We use all the other sensors. August, in malls, shops and hospitals, it is working with stores to help customers pinpoint items and buy them. But do we really need indoor navigation . A lot of people are in a rush. Some people are shy. When they go inside, instead of , i wantyou can just say to go to the tallest office building. I want to go directly to the store. Thereyou park your car, are so many other things you can do. Indoor atlas uses the earths Magnetic Field to navigate indoors. Inside uses wifi sensors. Then there is google. Inside plans to use the power of the crowd. If you have got the sense of direction of a blindfolded badger, you may never get lost again. Now where did i put my wallet . Elliott gotkine, bloomberg, tel aviv. Fascinating. Lets get to the stuff that really matters. The big stuff on the move, next. Down by over 2 . It downgraded the fullyear guidance for profit. They are blaming the weather. As we head to the break, equities in london higher. It is about one thing, the Federal Reserve. R. I. P. , qe3. Will they end their Asset Purchase Program . Look for the language in a Federal Reserve statement later. That is it for on the move. Good luck for the rest of your day. Kicked out. Nofis board sa chris after six years at the helm. Looking to goldman sachs. Qe on the agenda, when will the fed deliver a rate hike . Good morning to our viewers in europe, good evening those in asia, and a very warm welcome to those just waking up in the u. S. Im guy johnson