Transcripts For BLOOMBERG On The Move 20160601

Warns of huge consolidation. Opec dissents on the in a. Crude dissents under 50. Is saudi arabias oil minister calling the shots . A warm welcome to the program. Lets have a look on what is happening at the futures. We are not getting an incredibly strong picture from the futures this morning, i have to say. Weve got euro stocks up just a fraction at the start of the are p and trading day. The ftse 100, perhaps its a little bit on the back foot. Of getting a great deal momentum perhaps coming through from the asian session. We still have some big agenda items on the radar with the ecb meeting and the jobs report, plenty still to digest. Matt take a look at the nikkei, down 1. 6 . Take a look at the yen strength that we are seeing, 109. 95, how many yen you get for your u. S. Dollar. The aussie dollar on the other strength,owing some not the kind of strength we saw earlier in the session. We saw an hour ago a 1 gain against the greenback. 0. 5 . Only see it up losses in brent, the global benchmark, accelerating. Barrel for brent. Lets get to the bloomberg first word news with juliette sally. Tte banks are taking the hatchet to jobs. Hsbc is said to be cutting Senior Investment banking positions as part of Stuart Gullivers plan to reduce costs. A person with knowledge of the matter says mcquarrie will shutter will get rid of 30 jobs in its equity businesses. Of theounts to about 8 workforce. The move follows an industrywide trend of scaling back as trading volumes fall. Other banks including barclays and bnp paribas have announced similar cuts this year. Official factory gate remains in expansion territory in may. That adds to evidence of gradual Economic Stabilization in the worlds secondlargest economy. Pmi came in at 50. 1, a welcome sign of resilience, but the thai ton private measure fell 49. 2, down from a reading of 49. 4 in april. New york traded oil has slipped a fourth day, headed for the longest run of declines since april, that is as opec ministers gather in vienna. The uaes representative says the global oversupply that has caused prices to slump since 2014 is correcting itself. Thee will need to give markets sometime, and the markets will correct themselves, as we saw from the beginning of the year until now. Upward,een correcting and i think all of those are good signs. We just need to be a little bit patient. Juliette global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus, and you can find more stories on the bloomberg at top. Matt thanks very much. Japans Prime Minister is delaying a planned sales tax increase until 2019. Its a major aboutface for shinzo abe who previously said a Lehman Brotherstype moment or earthquake would prompt a delay. Lets get to tokyo where Jodi Schneider has more. What has been the history of the debate over delaying the sales tax . Had Prime Minister abe said he was going ahead with thisis increase increase in the sales tax in april 2017 unless there was a Major Economic event like the collapse of Lehman Brothers or a major earthquake. He is obviously changing his mind. The tax has been very unpopular. At the g7ster abe presented some information, which he said showed the economy in terms of Commodity Prices was headed for trouble along the lines of the lehman shock, but that not that information was not included in the final communique of the conference. He was waiting until after the conference, and now its time. He didnt manage to bring the g7 along with him, but he has been sticking with that line. What is the downside in delaying this increase in the sales tax . To one of speaking the ratings agencies. They see this as a key part of japans plan to plug its fiscal holes. Jodi thats right, and we will be watching that to see what the rating agencies do, but this obviously does not help in terms of trying to rein in that on theing debt that is balance sheet. This is the Worlds Largest public debt, and also, with a very rapidly aging population and one of the worlds oldest, Social Security costs are rising. Revenuenot be seeing from a tax increase until 2019 to help with those costs. You, Jodi Schneider joining us from tokyo. Lets welcome our guest into the conversation, Peter Fitzgerald, head of assets at aviva investors. Ive got a chart on the bloomberg that shows the impact we saw on cpi the last time we saw the japanese increasing their sales tax. Of course, its one way to generate inflation. The lesson is perhaps it doesnt last that long. Were you surprised, and is this the right decision by the japanese government . Peter the stimulus the japanese economy needs will be a combination of fiscal and monetary stimulus. By delaying the sales tax, you are delaying the fiscal stimulus. A would not see it as surprise, and in fact, its probably the beginning of a change or expansion of that policy in japan to move away from just monetary into just fiscal expansion. Matt peter, we do see Interest Rates at an alltime low, if not negative. Isnt that a lot of fiscal stimulus in itself . Peter that is predominantly monetary stimulus, and that has got a certain limitation in terms of what it can achieve. The reality is we are in a period of incredible experimentation, and anybody who says they have a clear idea of exactly how they are going to pan out as we move ahead is probably deluding themselves to some extent. Im sure our grandchildren will be asking us about this particular period not just in japan but europe, and i think there is a limit to what you can do with Monetary Policy. Anna japan has been watch closely for itself and possibly for what it represents. Weve got a country with ballooning Social Security costs and an aging population. Where are we in abes attempts to kickstart the economy . He spoke to three arrows. Weve talked about monetary. This is fiscal, not doing something on something that could have cut back on stimulus, and the other era may be more elusive. Peter politicians will always choose the easier path to addressing an economy and the have an and when you option in terms of some sort of expansion, fiscal and monetary, which will lead to inflation, that is an easier process to take then some Structural Reforms, which will prove unpopular. Matt do you think we are going to see these policies leading to inflation, peter, and if so, when . Peter this is always the difficulty in terms of predicting the exact moment. What we do is we take a two to threeyear timeframe when we assess opportunities, and we have always said that these particular policies will probably result in Financial Investors doing quite well out of japanese investments, particularly on a hedged basis. We dont know if they will provide longterm solutions to the japanese economy, which simply you cant do with the decline in population. Matt shinzo abe wanted the g7 to give him some cover. Anna he tried to get some agreement, suggesting this is a lehman type environment, a shock that could be looming. Do you see anything on the horizon that makes you concerned about a lehman shock to the Global Economy in terms of chinese debt or anywhere else . Peter i think the main challenge that we have in the ,conomy today is probably china and we ultimately dont really know what is going on. We have official numbers that probably very few people believe in, including ourselves, and as you see those numbers ratchet down, they are probably just catching up with the reality on the ground. We would say china is probably one of the largest risks, and its difficult to predict when that will actually materialize in terms of a key event. Anna our guest earlier was talking about the increasing amounts of debt required to eke out every bit of chinese gdp. Stays with us, Peter Fitzgerald, head of multiassets at aviva investors. Up next, bankings brave new world. We discuss what is next for the industry. Na this is on the move 7 43 in london. Lets get the Bloomberg Business flash. Heres juliette sally. Juliette a former barclays director is being accused by the u. S. Of giving tips on future mergers and acquisitions to a plumber friend in exchange for cash and a new bathroom. Stephen mcclatchy was arrested by fbi agents yesterday. He faces conspiracy, wire fraud, and securities fraud charges. Softbank, the largest investor says it willoup, sell 7. 9 billion of its stake in the chinese ecommerce giant. Even after the sale, softbank will remain alibabas largest stake. Lder with a 28 alibabas u. S. Listed shares have gained 21 since the inpanys Public Offering 2014. Shares of boc aviation rose on the companys hong kong debut after an ipo that raised 1. 1 billion. Flotation of the Aircraft Leasing unit of china is asias secondbiggest this year. The Company Plans to use the process to buy new planes if the region is set to overtake the u. S. As the Worlds Largest market for aircraft in two decades. Tot us steel completed the sale of its long products business. The operation, which includes steelworks and mills, will trade under the name british steel. The business employs 4400 people in the u. K. And 400 and france. That is your Bloomberg Business flash. Matt thank you very much. Bankings brave new world, as job cuts continue to plague the sector, what does the future hold for the Financial Services industry . Senior said to have cut Investment Banking jobs as part of a plan to reduce costs. Mcquarrie has planned 30 job at its equities unit. The ceo of the Worlds Largest money manager waiting on the future of Asset Management. Larry fink warns of big changes. We believe there is going to be a massive shift more into passive, and we believe its going to create a huge consolidation and Asset Management. Anna Peter Fitzgerald, head of multiassets at aviva investors, is with us. Your thoughts on the Asset Management industry . Do you think we are headed towards a wave of consolidation . Peter i suppose there are two points. One is consolidation, and one is the move towards passive. We do see the environment for some consolidation, particularly with regulatory costs and distribution costs increasing materially for us. I dont think that is an unrealistic thing to expect. However, theres an opportunity for managers to generate high performance, which is elusive for big businesses. I do see some consolidation. I do see passive solutions. Matt the idea is that brokers have to put their clients interests first, hence the move to the passive strategies, right . Peter the issue that you have is its difficult to determine if those passive strategies will deliver in the future. If you have simply been in a bull bowl market market, to expect a passive strategy to generate the historical returns you have experienced, i think that is not being up and clear to your clients. Secondly, in an environment where you have passive solutions for equities, yes, there will be a place for those in your portfolio, but when you say, what to clients want with their portfolios, it is to generate positive returns with a minimum amount of risk or generate a certain level of income. Them with passive solutions, we are asking those clients to effectively build their own portfolios in a difficult environment. Matt i wonder then about the other part of larry finks statement, which is its difficult to generate alpha. Is that because it is in a crowded space . Is it because there are so many Money Managers out there as regulators clamp down that you cant get an edge . Peter i think its always been difficult to generate alpha in markets. Today, obviously, there are more participants. There is more competition, and markets are today being dominated by Central Banks and big macro events. Its almost like, does it matter if i go active in certain markets when the decision is, do i want to invest at all in that asset class with the Alpha Opportunities being a secondary impact . You are in a particular period of some of those big macro drivers that have been some of the key inputs. However, to say there are no Alpha Opportunities is probably a little bit too simplistic. I hatee just need to to bring up the new normal, because its not new anymore, but as we discuss what is going on in japan, as we await an ecb meeting, we have to get used to the fact we are in an age of lower returns. Peter i think we are in an era of lower returns, and not only are we in an era of lower returns but in an environment where Interest Rates are zero and negative, those returns are going to become much more volatile. We thought in school the way to value any financial instrument was effectively, you take the future cash flows and discount them back to the present value. If you dont know what that discount rate is or if that rate is zero or negative, and you plug it in, it doesnt solve. Not only are those returns in my view going to be lower, particularly in a traditional sense, but they are going to be achieved with higher volatility. Anna peter, thank you very much, Peter Fitzgerald from aviva investors. Still to come, we are minutes away from the start of the european trading day. We will look at the potential corporate movers in todays trading, including adidas and under armour, which cut its outlook. We will be back in a couple of minutes. Matt it is 7 53 in london, 8 53 in berlin. We are minutes away from the open of equity trading for europe. Here in germany, adidas is in focus after under armour cut guidance. The competitors fell in afterhours trading, and we are watching a deed us. By the way, it is adidas, beca dassler started the company. Anna you are telling me something i are it he knew, but i appreciate your input. I was goingow to ask if you know what company his brother started . Anna no. [laughter] another sports manufacturer. Matt boomer puma. Afterwolseley is in focus its thirdquarter Trading Profit rose 18 . It said Revenue Growth trends have been challenging. I know that some analysts have been picking up on this, good body saying q3 trading has been strong. This is a business that is reliant on House Building in the u. S. Peter fitzgerald, head of multiassets at aviva investors, is with us. Where are you looking for interesting stocks at the moment . Peter i think there are a number of areas where you can look. We think the u. S. Is relatively from an overall market, despite the doomsday anna consumerrelated stocks . Peter as long as you can select those that are not significantly overvalued, definitely you have an interest. The issue that you have is, at the moment, a lot of these movements are determined by macro events, such as what the fed is potentially going to do into the summer and beyond, and what the direction of the dollar is, but we think there are opportunities in the u. S. And europe. Anna thank you very much, Peter Fitzgerald. Up next, we are live in paris for the oecd forum, speaking to norways finance minister. We will get her take on Global Growth and productivity, all of that coming to us from paris. We will be back with the start of the European Equity trading day. It looks as though we are not getting guidance in terms of the futures and where we are going to open up to the handover from asia was a mildly negative one, futures suggesting we will be a theh weaker at the start of trading day. We will be back in a couple of minutes. Anna good morning and welcome to only move. On the move. Matt miller is with us of course, and has the morning brief. Matt good morning. Abes moment might have come. The Prime Minister postpones the sales tax hike after bowing only a massive earthquake or lehmanesque shock could prompt a delay. Set to cut the headcount. Crude descends below 50 a barrel. Saudi arabias new oil minister takes center stage. But is he really calling the shots . Anna lets have a look at the futures. Just a few seconds until these markets are up and running. Negative, but not by much. In asia, down by. 3 . But we saw a late surge in u. S. Trading yesterday, which would not have been factored into yesterdays trading in europe. That is something the european markets will want to run with. We are a little bit on the back foot with the stoxx 600. The cac is fairly flat. By. 1 . 100 is down european markets are opening. Lets get a check on the details with nejra. Nejra i am looking at the imap, looking at the Industry Groups on the stoxx 600. Could not be full by all of these colors, because actually, many of these are flat. It is only Energy Stocks leading the losses, down. 5 . That is nice surprise, given wti is down for a fourth day today. Materials are off by. 2 . Overall themes in weakness in commodity. Otherwise, we are flat with an Industry Groups. I want to bring up the u. K. 10 year yield because the guilt marks are opening. We are down one basis point there. 1. 2 there on that yield. Lets look at the three stocks bear watching here at the open. Expecting perhaps some moves on some earnings here. Ain Dutch Grocery ch talked analyst predictions. Profitability in the u. S. And the netherlands improved because of Cost Reduction. Ahold there, upe 2. 2 . Elekta was being called lower at the open. Fourth quarter was a mess on that number. Was a miss on the number. There was also a week 2016 to 2017. The dividend will be divided. We are still waiting for w olseley to move their thirdquarter Trading Profit. Osts were about 20 million pounds. StillPeter Fitzgerald, with us in the studio. Nejra was talking about the commodities being one of the laggards in the session. Opec ministers are gathering over in vienna. Are we going to move from here or will we hold at 50 . Peter the world is littered with people who want to predict the oil price. All people, i think it is probably unfair. A number of us try and ultimately fail. We have looked back in the past. We have looked up commodities and what you can see is that there have been a number of bull markets and bear markets. What you tended to see, the average bear market lasts between 15 and 17 years. Started aroundt 2011. So, we are probably halfway through the bear market in commodities. The initial price destruction tends to be the most destructive. About 2 3 of the value is destroyed in the first period. When you get a long period prices go within a trading range for up to 10 years. Really, Commodity Prices only recover when people stop trying to predict the bottom. And people are not yet stopping. So, we think they are really in that long, flat trading range. Anna were talking earlier about the u. S. Consumer. Do you think that these lower Commodity Prices will eventually be a boon to Consumer Spending and growth . Peter Consumer Spending has the reasonably robust in u. S. I think there has been a reasonable pickup in Consumer Spending. If you actually look at the gas prices, as they call them in the states, and say, what was the average price of gas this memorial day and memorial day last year and memorial day two years ago, you will the a substantial fall off enough prices and a pickup in consumer demand. Anna thank you, Peter Fitzgerald. Now, the oecb secretary general has told bloomberg he sees flat growth in the Global Economy for 2016 with little improvement for next year. He spoke to Caroline Hyde at the annual forum in paris. He was talking about 3 last year and 3 this year. That is what he meant by flat, isnt it . Caroline precisely, anna. We are asking if there is any optimism for 2016 and 2017. It is wonderful to have you here. Are you optimistic about Global Growth at the moment . Do you see flat growth as the secretarygeneral predicted . For the time being, the growth is slow. But i think in order to reach to makewth, we need sure we have a well functioning labor market. We need to ensure people get access to free education. We need to promote open markets and global trade. Concerns about the country moving away from that. Carolyn in terms of one concern raised by the secretarygeneral was commodities. Oil of course, seems to be coming back down in the market. But is this price stable . Is 50 where you wanted to be now . Norway, the drop in oil prices is affecting us seriously. That means we need to make sure we can diversify our economy and turn more and more towards other sectors. That is why we have the tax reform, to stimulate investments into the markets. This is important for creating jobs. Caroline unemployment seems to be picking up slightly in norway at the moment. Is this a concern . Will you be able to avoid any recession heading for the country . Time,nsen for a long unemployment was a great concern. In other parts of the country, we have seen an increase in employment. In certain parts of the country, yes, we do have problems. But then again, in other sectors and other markets, we do see growth. Krono is the cro it weakening . Siv jensen that is something we have to watch day to day. We have to make sure we have prudent fiscal policy and for the time being, we have that possibility due to the fact we have savings, which is a good thing for our economy. Caroline defined it is frustrating when other Central Banks seem to be partaking in a currency war that has been taking over the globe . Siv jensen i mean, Monetary Policy is of great importance. Nowave lower Interest Rates than we have had for a very long time in norway. We still have a long way to come and i think fiscal policy needs to take its turn. Doing its job in the economy right now. Caroline could we see any negative rates in norway . Siv jensen that is up to the central bank to decide on. My job is to make sure that we that isiscal policy actually working for the economy. I think it is a good thing that we have financial muscles to stimulate the economy through fiscal policy. But then again, we needed to stimulate Structural Reforms. That is why we have this tax reform in place. That is why we make sure we take care of the labor market. That is why we are pushing efficiency into every spectrum. I think we need to stick to Structural Reforms. Caroline which sectors excite you the most in terms of the growth you have seen . Siv jensen i know there are a lot of possibilities. We have a lot of skill, especially surrounding the oil sector. That is also related to the energy sector. But a lot of what we see in future growth is technology driven. That is white it is important to have a well functioning Education System to make sure nobody falls behind. About thewhat concerns when labor reforms seem to be going rather slowly and the rest of the world. Take france, we have got strikes happening in the country. There are other countries doing so as well. Needensen other countries to stop talking about Structural Reforms. It is different from country to country. What we have been doing is, we set of a policy commission to analyze the tactics behind the drop in growth in norway. Based on that, we have set up a plan for implementing Structural Reforms and we are sticking to it, despite the fact we have Slower Growth at the moment. Alsaleh caroline is the Unemployment Rate falling now . Siv jensen for the time being, the Unemployment Rate in norway is about 4. 6 . We have much to do in 12 months. But that has to do with what the government is implementing. Caroline thanks for joining us. That was siv jensen, the norwegian finance minister. Handing back to you in the studio. Anna caroline, thanks very much. Signs of stabilization in china. We have some analysis. Anna welcome back. This is on the move. We got some negative moves over in the negative session this morning, mildly negative. Despite that late balancing u. S. Trade, we are not factoring that into the european picture this morning. We are down 0. 5 on the stocks. Down. 3 . 00 is a quick look at mrr and the companies on the move this morning. Weve got some of those mining related companies on the back foot in in london, expending some of the back performance. We have got wolseley, down by 3. 9 at the bottom there. Wolseley talking about being in line with their Trading Profits, but there were a few concerning statements coming from the company saying they generated decent profit in the Third Quarter and certain Revenue Growth trends had been weaker. What number is that . It is the fifth down, up by 1. 4 . Lets get to bloomberg first world news. Reporter japanese Prime Minister abe says he will delay an increase into the countrys until 2019. This could complicate the governments efforts to tame the debt burden. Abearks an aboutface for who previously said only a major earthquake or an economic scandallike the lehman would force them to do this. A three year plan to reduce costs. Inpositions will be shed hong kong, japan, and india. The move follows an industrywide trend of it scaling back as trading volumes fall. Asher banks, including bnp par and barclays have announced similar cuts this year. Government consumption contrasted the gdp increased in the quarter from the previous three months. That rating compared to the forecast of. 3 growth in a bloomberg survey. The aussi dollar has spiked after the economy has shown to be growing at the fastest pace in four years. First quarter gdp increased 1. 1 . Policymakers meet next tuesday after their surprise decision to cut the benchmark rate to a record low last month. Traders are split 5050 on further easing. Global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. You can find more stories on the bloomberg at top. Matt . Matt thanks. Chinas official factory gauge remained above 50, the dividing line that signals improving conditions. May anddata for evidence of stabilization. A similar measure showed that manufacturing pmi was below 50. Asianerg chief correspondent joins us now from hong kong. How reliable is the official guage . Are we in a contraction, or are we seeing growth . Good morning, indeed. Maybe we are somewhere in the middle i think. I think the official guage today tells us look, it adds to the sav to the stabilization of the economy. We saw a pickup in march and april. Things now are not getting much better, but not getting much worse either. That is the main take away from this. Chinas economy still has not gained much momentum. You have got to be a concern for policymakers when you consider all of the stimulus they have pumped into the economy over the last year now. Course, Interest Rate cuts. When you put it together, the picture is still pretty subdued right now. Anna we have heard plenty of people warning about debt levels in the chinese economy. We had another morning today. The Statistics Bureau throwing their concerns into the mix. Can you decoded them for us . For sure. The bureau at the very least, went out of their way to put a bit of realism on this pmi. They point to a certain index order that shows orders is still very temperate. Of course, demand exports around the world are weaker. This does not help china. Leaning back on the old growth drivers, steelmakers and the like, are still ticking. That means keeping Companies Alive and that means debt. They managed to give growth on target in the First Quarter. They wanted to give growth to at least 0. 5 this year. How do they do that while at the same time, trying to keep a lid on debt. That is the unknown question here. So, right now, china seems to be muddling along. We will see how long they can keep going as the summer goes. You, joining us there from hong kong. We are getting a dripfeed of those pmi numbers best morning. Now we have the spanish number coming through this morning. One from europe throughout the morning. 51. 8,h pmi just reading missing estimates of 52. 5. They can still generate growth, the minister says. This does suggest expansion territory and he is trying to put the emphasis on growth as he tries to cut taxes. Up next on the program, it is time for the chart of the hour. It is all about u. S. Stocks. If you are looking for bargains, find out why you might be out of luck. Matt you are looking at a live shot of new york city, the city than ever sleeps the city that never sleeps, the city where jon ferro has been awake. Lets get to the chart of the hour. Nejra i am looking at the s p 500, specifically at valuation. I am looking for the priceearnings ratio. This chart tells us, if you are looking for bargains in u. S. Stocks, you could be out of luck because the s p 500 ended last times earnings estimates. It has been no higher than 18. 2 sincve the current bull market started in march of 2009. Most they this does not look remotely cheap enough to warrant a bullish start. Anna does that mean investors are preferring value over growth, then . Nejra really, trying to be the market since 2006 with cheap stocks has been a lost cause. Unless you are looking at financials, a group or a group where values drop to a low. Bloomberg data is looking at etf. It shows that value stocks have seen inflows. Where is Growth Stocks have seen withdrawals. A preference could be in could be an indication that investors are preparing for an improving economy. These stocks traditionally have needed a better economy to thrive. The question is, are we at a Tipping Point because at present, growth edge has gone on at about three times what it was in 1932. Will we continue to see this shift from growth towards value . Perhaps you are in a Fund Tracking the s p 500. You might not see much value, but if you are looking at the etf, perhaps that is the way to go. Anna thanks, nejra. Matt, you matt she is showing us the suex, but if you type in ec you can see all of the Economic Data feeds we follow on bloomberg, stripping out gdp. You can see how that gauges against the expectations. Speaking of the Tipping Point, we are just getting back to positive levels here. Again ecsu is a great function and it breaks down what is beating and what is missing. Anna we will continue to look at that as the get more data. Up next of course, sitting the the stakes in the airline industry. Anna welcome back. This is on the move. We are 30 minutes into the trading day. Lets see how things are shaping up. We are down by. 6 on the stoxx 600. The ftse 100 is getting the worst of the losses. 1 on then 2 3 of ftse 100. Lets get to the top stories. Nejra im watching some of the biggest movers on the stoxx 600. This is moving higher after the Dutch Grocery chain reported first court of profits that topped estimates. This was after Cost Reduction improved profitability. This is a company that is merging. We have seen that stock move higher today as well. Then, i am looking at cobham. Fellon april 26, cobham 20 as issued a profit warning. But we got today was a turn of the rights issue. This was a one for two, rights 89ue, an issue price at pounds per share. The outlook for the year is consistent with the april 26 announcement. That was the date they said they were going to have this rights issue. We are seeing the stock move higher on those details. One of thelseley worst performers this morning. It says demand is a subdued in several markets. We did get a thirdquarter profit and revenue number here. It also says four year restructuring costs are going to come in at 20 million pounds. Matt airlines have been extending leases on 747s, which guzzle gas, in a bet that these low oil prices will remain low. 100 lease agreements were executed in the First Quarter with this company. Now joins useo from the meeting in dublin. Good morning. We are all watching oil an d oil and opec, you probably more keenly than most other people. What do you see as far as the outlook for oil prices and how it affects your business . Good morning, matt. Oil of course, is vital to us. It accounts for 40 of our business. What we observe is what is happening with our customers. At the moment, we are definitely seeing airlines extending airplanes, the life of those airplanes that we would assume we would be parting with. The reason they are extending them is because they do believe fuel will stay relatively low for the next couple of years. However, we are not seeing them extend the life of these assets past three years. To overhaul a 747, just the interior, would cost about 25 million. To overhaul the four engines would be another 25 million. So, airlines are not willing to spend the 50 million, and neither are we as the biggest owner of your points biggest owner of airplanes willing to do that. On a global basis we see that fuel will stay low for a few more years, but inevitably, it will rise. Anna gus, we are just getting some comments coming out of the opec meeting taking place in vienna. Nigerias oil minister says the oil market are moving in the right direction. Some of the sense of urgency that was in doha has dissipated a bit. You painted a picture for us there, about how airlines are extending the lives of these paragraphs. I the lives of these aircraft. Is that a trend use the continuing . We think it will continue, but on the flipside of that, you have to remember, an airline cannot hedge itself longterm to fuel. An airlinel hedge spending 5 billion a year for 10 years. The only way to really protect themselves over the longer term is to have the most modern fuelefficient assets out there. There seeing no let up of most modern assets. Take the new airbus product. We have already leased 100 of those airplanes and have not taken the first one in yet. Yes,tells you that while they believe there is low oil for a while, in the longer term, nobody we spoke with is assuming fuel will be that low for several years. Anna how right are they, gus . There is a concern that mabye airlines are being encouraged to put a lot of capacity into the market with oil prices so low right now. But maybe the demand is not there and this wave of capacity risks weighing down on profits in the sector. Gus that is certainly a risk people are concerned about. You have to think about capacity in the industry. Yes, people are extending assets we assumed would get scrapped. That is not happening at the pace was assumed. People often say, are bowing and are boeing and airbus going to put too much into the market . They look at five years out. They have a customer base. They dont know which airlines, for which region of the world will get into trouble in four or five years time. All they know for sure is some parts of the world will be in trouble. But they also know on the flipside the a lot more people on a global basis will be traveling in four or five years. Therefore, they always have to overbook their backlog. When analysts look at the backlog, i agree with them. If it was to be delivered in the timeframe ordered, there would be a significant risk of oversupply. But that never happens. Russianstance, brus and brazil, two big problem areas. However, four years ago, nobody knew that russia and brazil would be problem areas. They did know that there would be demand elsewhere. So, what we see at the moment is a concern about the backlogs, and will that result in oversupply. As you have seen in the past, we do ultimately have a rational thought process. They do not cannibalize their own customer base. Airline comes to airbus and tells them, we cannot take all of the airplanes be ordered, they can force them to take them. Nverse, they will say, how many can you take . They will put into the airline as many as they can. You just saw this recently in gold with south america. He also saw this you also saw this recently with another big south american airline. They did not realize they would be the airlines that would have to get some relief, but they believe in their Business Models longterm. Matt let me ask you. Global wall street spent a lot of time on airplanes. Our viewers are probably just as worried about leg room as they are about oil prices. When i first started here with bloomberg, we were flying first class in Business Class. Now, we are flying with the luggage in the back of the plane. Our Business Class is getting smaller . And are Economy Class is getting more tightly packed . Gus matt, you have to remember, the airplane is some of the most expensive real estate in the world you will ever be in. Even the cheapest airplane is a 45 million machine. It is equivalent to the most expensive apartment in park avenue. Of course, they are going to start filling that real estate as densely as possible. That is a trend happening happening with all of the manufacturers. They are all working out how to pack as many people as possible into the airplane. Because ultimately, it is a very price elastic market. If you are going on holidays to disney with the kids, you are not going to spend 50 extra per ticket. That is a trend, unfortunately, for high rollers, such as yourself. Planes are going to get tighter and tighter. Matt i am old enough to remember when people were blazers on airplanes, as opposed to sweatpants and tank tops. You are clearly aging. Anna thank you for joining us from dublin, gus. We were getting comments from vienna, wher eopec members are meeting. They have two candidates for secretarygeneral and they are both credible. We are live in vienna for the gathering. That is next. Anna welcome back. This is on the move. Lets get to the Bloomberg Business flash. Reporter a former barclays director is being accused of taking tips for cash and a new bathroom. He faces conspiracy, wire fraud, and conspiracy fraud charges. The largest investor in alibaba will sell 7. 9 billion of its stake to bolster its cash position. They stillthe sale, remain alibabas main shareholder. Sharess u. S. Listed have gained 20 since 2014. Shares of bob aviation have raised 1. 1an ipo billion. The Company Plans to use the proceeds to purchase new planes. The region is set to overtake the u. S. As the Worlds Largest market with aircraft. Offer will trade under the name british deal. The business employs 4000 peoplein the u. K. And 400 in france. That is your Bloomberg Business flash. Anna opec Oil Ministers are gathering in vienna. Brent crude of Holding Around 50 a barrel, while all but one of 20 bloomberg analysts said they dont see an agreement on freezing output at the meeting. Ryan, you have been catching up with some of the ministers. You have been talking to the energy minister. Where does he stand on the oil price . Ryan i am not sure if he is delighted with the actual price right now, nor are any of the ministers with oil around 50 a barrel. But they seem to be pleased with the direction of travel. The thing about the uae oil minister is, he has become unofficial spokesperson for the gulf countries. They are a very strong faction. Saudi arabia is part of that faction and saudi arabia is the most powerful member of opec. And generally, what saudi wants, saudi gets. Us andsage i think, to as i understand it, to the other ministers here is, lets wait a while. The market seems to be working itself out. The strategy we enacted that late last year of abandoning the production ceiling, pumping as much as we want to allow the price to drop to push out competitors, well, that is kind of working and things are looking up. I think that is his take. I was expecting that we would have this year better production. The rules of the market, which is supply and demand, are working. That is the essence of this policy. I think we need to wait. The market will get to a price that is they are the consumer. Nd to the producers ryan you heard him there say we have to wait. Part of the concern is, what they had seen over the past several days, four days of a fa lling oil price. They think, at least some of them think, things are working, but they want to make sure before they change the policy. Matt what do you expect out of this meeting that could actually move prices . Is there some sort of agreement on the table . Is there some sort of statement that could move prices here . Ryan you know, i think it is kind of like following the fed a little bit. Maybe not this meeting. You heard our survey. Only one out of two dozen analysts think they are going to act at this meeting. But listen for the tone of how they see the oil market. I just spoke with the Venezuelan Oil minister. He does not be the picture like the uae and legal countries do. He said the oil price is not corrected because of some magic of supply and demand. It is because we have had supply disruption. But you will get inside is a very robust conversation. This is about what to do down the road, what opec should be doing. Have an influence on prices. That very well could have an influence on prices. Matt . Thanks very much. Ryan chicolte, covering that opec meeting. Anna we had lots of breaking news coming out of italy. The pmi manufacturing number is coming through, weaker than estimates and weaker than last time. Italy is missing estimates. Readingthe latest against an estimate of 53. The previous month we had a rate of 53. 9. Things are moderating a little bit perhaps on these pmi numbers. Up next on the program we talk brexit. More on that, next. Matt we are just getting manufacturing numbers. Pmi coming out at 48. 4. It beats estimate slightly, though it is a contraction. We have a couple of mrs. And one contracting weve a couple of growing misses, and contracting beat. Now losing. 2 . The cac is basically unchanged. Anna lets talk about what lies ahead in the market. We have had a number of these manufacturing pmi numbers already. This is combined with the excitement over the numbers from the eurozone. There are two big events to watch out for. The oecd releases its economic will holdd shinzo abe a News Conference after deciding to halt the sales tax hike. Then, we get mba Mortgage Applications form the united states. Warn that a bosses brexit will lead to the harm of future investments in the u. K. Overnight, the Deutsche Bank ceo weighed in on the subject. Business actually goes through london. Over time, we gravitate back to the eurozone just naturally. Matt that comes as sterling took a pounding yesterday after opinion polls showed support for burden to leave the European Union had actually increased. Support for britain to leave the European Union had actually increased. We are going to get polls sayong one side is winning some ground in other side is losing. But in general, the market believes the u. K. Will remain in the eu, doesnt it . That seems to be shifting a little bit. One of the polls that showed leave ahead of remain was a telephone poll. And telephone polls were said to side. The remain yesterday, the pound fell versus both the dollar and the euro. I now, there has been would not want to say complacency that the u. K. Would remain, but i think many polls were showing that. I think it will be interesting to see what we get in the coming days. We are only 22 days now away from the actual vote. Yes, we have had a mixed bag in terms of the pmi numbers, as far as meeting expectations. The french number was better than expected, but still below 50. Some of the others were worse than expected, but below 50. Is there moderation in the growth story for europe . I think it just shows how sluggish the actual recovery is. We have been here before. We had pmis that showed green shoots and then we have retreated. The problem is the direction of travel. We are heading in the wrong direction, as we saw with the the u. S. Pmis last week. We also get sterling manufacturing pmi at 9 30. That is showing a bit of a mixed picture. I would say it is very hard to spin a lot of positive out of it. Anna with that in mind, we have some breaking news. Matt richard, we are seeing german pmi at 52. 1. The reading we were looking for from our survey was 52. 4. So again, another country that shows growth, as italy and spain did, but missing expectations. We saw france beat expectations, but it is in a contraction. You think it is because of Rising Oil Prices that we are seeing this growth not achieve what economists were looking for . Richard that could be one of the things playing into it, matt. I think it is really just a sign that growth, the recovery certainly in the confident, and not here in the u. K. , is getting as much traction as policymakers would like. So far, i think the numbers have been a little bit glass half empty. Anna richard, thank you. That will do it for on the move. Ofe pulse has a line up great interviews for you. This is coming to you from the conference taking place in dublin. Later they speak with luxembourgs finance minister in paris. Stay with bloomberg. Marco the deflation delay. Japans Prime Minister postpones the hike. Stocks drop amid surges. Crude slips as opec gathers in vienna. Test lost control of the markets . No news for jaunty with inflation no news for jaunty with inflation the lowest in a month. When were data snapshot ahead of tomorrows meeting