Transcripts For BLOOMBERG Bloomberg Surveillance 20161025 :

Surveillance. I am mark barton in london. Just getting some data crossing the bloomberg terminal. German Business Confidence just crossing now. Thectation is up on previous month, up from 104. 5 to 106. 1. The actual Business Climate and improvement from 109. 5 to 110. 5. The Current Assessment is also up. So Business Confidence in the euro regions biggest economy is increasing. Have a look at what is happening to assets today. We have had two days of finishing little changed for the stoxx europe 600, up by 0. 3 . A host of Companies Reporting earnings. The longest losing stretch since may. Diversions between the euro area and the u. S. The 10 year yield is down a basis point today in germany. There is the offshore yuan. Chinese policymakers signaling they are willing to allow greater currency flexibility assets in then dollar. The german 10 year yield which i alluded to in european banks stocks Something Special happened. European bank stocks erased all their losses from the brexit vote. This is a great chart. Is theman chart this german 10 year yield, which has come up from its lows in late september. It has come down a little bit in the last week or so, but we are hovering around zero. The bank index the euro stoxx isin next on the stoxx 600 rising. We are seeing a diversions. Does that tell Us Bank Stocks have outperformed and are going to come back . Or does that tell us that the german 10 year yield is going to increase . Questions, questions, questions. Here is come with the ramallah here is come with. Kumutha. Kumutha a belgian region has trade dealup for a between the e. U. And u. K. A poll has found more than half of adults in the u. K. Say restricting immigration is more important than maintaining access to the e. U. Single market. The survey showed a majority of britons support the current government approach to brexit. U. K. Government is expected to decide today whether to suspend gatwick, ending decades of delays over what has become one of the most contentious issues in british politics airport expansion. It will be put to parliament next winter after public consultation. Authorities in france are expected to continue with the dismantling of the migrant camp in the northeastern port of calais today. The operation will force police to disperse as many as 8000 people across the country. Resident Francois Hollande has promised to close the camp known as the jungle by the end of the year. Local residents have blamed the unrest, andsing that is hampering traffic through the channel tunnel as migrants try to move to britain. 126 by more than powered by journalists in more than 126 countries. Charlesharles mark evans says it may be appropriate for the central bank to raise rates three times by the end of 2017. The rate increases should be related to inflation progress. Charles it is important to get inflation up to our objective. We need to get the level of the federal funds rate up to a sustainable level as soon as the economy will allow it, while we are meeting our objectives, so that whenever the next troubling period comes around, the fomc has the capacity to lower rates enough in order to help the economy get through a temporary period. Mark lets talk to andrew wilson, global head of fixed income at Goldman Sachs Asset Management international. Do you worry about the next euro uncertaintyof question mark if the fed has rates so low, it does not have much in its tool to bring rates lower. Is there an urgency, you sense, to get the rate of a bit . Torew it is more related the fact that the u. S. Economy is in decent shape. Growing at a solid place. Im an claimant has come down to 5 . There is gradual, maybe muted wage pressure. Earnings are slowly ticking up. There is gradual upward pressure on wages, and more general inflation in the u. S. Raise rates just reflects a pretty solid u. S. Economy, rather than, lets get them up so we can take them down again. That is getting ahead of ourselves. Mark there is a diversions that shows an Interest Rate problem. September, 70 for for december, but next year, who is going to win out . Andrew i would have a lot of simply with evanss view. The idea of moving it to december seems likely. A couple of rate hikes in 2017, to us, sounds about right. There are caveats around there. We are seeing the dollar very strong. We know the fed looks at financial conditions. If the dollar continues to move higher, maybe they need to do less. I think in aggregate, we would es in 2017. Two hik i think the market is too cautious about the Growth Outlook and is not paying attention to potential inflation. Mark what is the neutral rate . Andrew that is a tough question. Mark it could be 2 , j. P. Morgan saying. Andrew i think if you look at productivity growth, we would expect to pick up somewhere closer to the 3 region. It seems a more regional reasonable estimate to us. Mark one of the reasons why the rate hikes this year were derailed, as i throw my pen in the air, is china, which brings us to yuan, which on offshore basis is at a record low. Onshore, at a sixyear low. This chart tells you everything you need to know. dollar, the yellow line. This is capital outflows. December january was a worrying level. Can it guides the currency lower . Clearly, authorities are allowing it to listen. Andrew they are, and they have moved to the basket mark and the basket is stable right now. Andrew it is relatively stable. What you are seeing as much as anything is a dollar appreciation story. The dollar is going up against most currencies, including the yuan. The authorities have done a good job of keeping it in the range of the basket. But as the capital flows chart shows, if you see those pickup, it is going to be a more challenging environment. Mark could we see a repeat of august last year, early 2016, financial markets, uncertainty . Andrew i hope not. It was pretty stressful. It is unlikely. We have policy missteps, in terms of chinese policy. I think they have learned those lessons. The Growth Numbers have been much more stable. To some extent because the chinese authorities have reverted back towards the old put money into investment, get the Housing Market moving, which is a lot. Chinese to us like growth is pretty stable. It does not mean it is not a longerterm concern for us. Over the next 12 months, we are not concerned about china. Mark no nearterm catalyst for a debt crisis, but there is longer concerned that there might be andrew if you look at chinese growth and what is driving it, it is credit. You see the impact of that credit having a diminishing effect on the growth story. It is taking more credit injection to get less impact on growth, and that is building up problems for the future. We would see issues in china, potentially, in 2018 and beyond, rather than 2017. Mark andrew wilson, global head of fixed income at Goldman Sachs Asset Management international. Stay with us here on surveillance. Coming up, wallonia versus canada. The belgian province throws the canadae. U. Trade deal into disarray. The european earnings season picks up. Over 100 stoxx 600 Companies Report this week. Is corporate . And monte dei paschi, the worlds oldest bank, cuts 2600 jobs as part of its turnaround plan. Will the rescue overhaul of the worlds oldest bank convince investors . Mark here is Kumutha Ramanathan. Monte dei kumutha paschi plans to cut branches and worlds oldesthe bank tends to attract investors to a turnaround key to its survival. The lender, which also announces , isirdquarter net loss targeting an annual profit in 2019. Shareholders will meet to approve a plan to raise as much as 5 billion euros of new capital. And bloomberg will speak exclusively to the ceo of the tomorrow. S syngenta says the completion of its 43 billion takeover by chemchina is expected to be pushed back to the First Quarter of next year. That indicates it is not confident the e. U. Will decide before a friday deadline to approve the deal without any antitrust strings attached. The alternative is an extended probe that could add at least another four months to the process. Says profit fell for the seventh straight quarter as generic competition eroded sales of blockbuster Cancer Treatment gleevec. Earnings fell 3 . Europes secondlargest drugmaker by sales, which is also grappling with a slump in its eye care, is banking on its newer psoriasis treatment. Hundredss planning more job cuts to be announced as soon as this week, according to people familiar with the matter. Around 8 of its workforce, or around 300 people, may be let go. A twitter representative declined to comment. The news comes after disney, alphabet, and salesforce backed out of potential purchases of the company. That is the Bloomberg Business flash. Mark kumutha, thanks. The spotlight turns to boes mark carney some of who will appear before the house of lords to take questions on the state of the economy, Interest Rates, and the pound. Mario draghi, the ecb president , gives a speech on stability and equity Monetary Policy in berlin. Andrew wilson, global head of fixed income at Goldman Sachs Asset Management international, is still with us. A chart which was a loser on yesterdays battle of the charts in my afternoon charts, but i still think is wonderful these are u. K. Assets in dollars, not in pounds. Ftse down by 8 . Down by 2 . 8 to show not all assets have fallen in dollars, these are the best performing stocks fair ferrexpo and anglo american. How do you view usss either in pounds or other currencies . Assets, either in pounds or other currencies . Andrew it shows what they have done to assets and to some extent to help soften the blow soften the blow of brexit for the u. K. Economy. This helps buffet the concerns we have about brexit. Thatnk the concerns maybe a 2018 maybe a 2018 stor. We have seen strong investment that two years ago or more was still in the pipeline. Look at the numbers. They do not look so soft. I think the concern we have an , and the reason they have entered into qe, is about the Investment Outlook for 2017 and what it means beyond that. The exhibit, the potential move from Monetary Policy globally to fiscal policy lets move that to the u. K. To what extent can fiscal policies be approached at the end of november . That would pick up some of the slack from the andrew it is timely. The u. K. , another major economy, cutting Interest Rates further is not working, and that is why they have moved into quantitative easing. Ability toies the bridge the gap as we move away from Monetary Policy stimulus arguably not doing that much into physical. Is, it just fiscal takes time. You cannot get big projects going immediately. They take a long time. To an extent, a consumer in the u. K. Is doing all right at the moment. It is not a bad idea to pivot toward fiscal. Maybe the timing of doing that works nicely. Mark you say the consumer is doing all right, which brings me to my second chart, ecb 4500. Is theple line breakeven, the difference between the 10 year yield and the inflation. Because of the weakness in sterling, its going up. People are talking about real as inflation rises. Real pay is going to diminish. Andrew i think it is an important point. Our own view is that inflation is likely to pick up meaningfully through next year. Maybe he can get as close to 3 . Ont has put the pressure real wages. The concern for the consumer is, i have done ok at this stage, but as you see pressure on real income, they start to rein in spending. Is why 2017 concerns us. You need some fiscal stimulus to take up the slack for what we expect. Mark and they have a 10 year yield, which is the blue line. You have come down. We have come up because of the weakness of the pound, because of political worries. , how do theys stand in the global universe . They are still quite generous on a yield, arent they . Relative basis, they are not so bad, but if you look at the fiscal trajectory, we would expect the budget to be somewhat stimulatory next month. We didnt expect we did expect inflation to pick up. Higher yields around the longer end of the gilt curve, those pressures, we think, will push it a little bit higher. Not dramatic way. You look around the world, and everywhere, you have a relative basis gilts have become attractive. Mark back to you in a second. Andrew wilson, global head of fixed income at global sacks Asset Management international. Up next, risky business. We find out why gsa is overweight in assets. Burton, withrk andrew wilson, ceo and global head of fixed income at Goldman Sachs Asset Management international. Where is the value . Lookw valuations stressed. No doubt about it. On a relative basis, everything looks expensive. We still think equities are at the top of the tree. We would say credit after that, and particularly emerging market credit. Stack, wetom of that would have conventional developed market Government Debt, which is very overpriced. Mark within equities, highyield equities andrew dividend paying stocks. We like consumers in europe. The fall in the europe was helpful for a lot of Consumer Products and exporters in europe. We kind of like that sector. In the fixed income space, i think emerging markets are looking pretty interesting, particularly in local currency terms. Not all of them. We like latin america, for example, places like mexico. The peso has weakened a lot. It is pretty good value. We are less positive on asia. I think the slowdown in china and the countries that rely on china from a growth point of view, for us, got to be a little more cautious around that. Conventional Government Debt or traditional german bond market, the u. S. Bond market, the japanese bond market those still look really expensive. Mark the bond market is a play on inflation. Some are questioning where Central Banks go from here. Are we witnessing a change . Do you think we are . We talked about fiscal policy. Within global Central Banks, are we seeing a change in thinking . Andrew they have been pretty creative. We cut Interest Rates and went into negative territory. We realized we have seen significant unintended consequences. The yield curve flattening. What it did to interest margins. He saw Central Banks stifel way from that, at least in terms of rhetoric. Relying more on quantitative easing to do the job. We have seen some pretty interesting policies. Look at what the japanese did a few weeks back. Japanese central bank setting where 10 year yields will be. I think we are seeing the development of Monetary Policy. I think it is as far as it is going to go. It is hard to imagine that a lot more can be done from here, which is why i think the emphasis is on fiscal policy. I think central bankers have been creative and thoughtful, but we are probably reaching the end of what they are able to do in terms of stimulating growth, getting credit creation, and ultimately getting inflation rates back toward their target level. Andrew mark what is your biggest worry . Andrew fixed income, there is a lot of things to worry about. I think politics across europe would be right up there, in terms of one of our concerns. The constitutional referendum in italy coming up in early december. Elections in germany and france. All of those good throw a spanner in throw a spanner in the works and change the dynamics between the major economies, or the relationship between the periphery and the core, as you think about the italian constitutional referendums. European politics could be a handful. Mark thanks for joining us, andrew wilson. Mark i am mark barton in london. Here is Kumutha Ramanathan. Kumutha the European Unions ability to sign trade deals has been thrown into doubt after belgians wallonia region has not signed a trade agreement with canada. It demonstrates the backlash against globalization and hints at the tough times awaiting the u. K. Itvew poll by surveytion for found half of adults in the u. K. Said restricting immigration is more important than maintaining access to the e. U. s single market. The survey found a majority of britons support the governments current approach to brexit. The u. K. Government is set to decide whether to expand heathrow or gatwick, in the latest step toward ending decades of delays over what has become one of the most contentious issues in british politics. The final decision will be put to parliament next winter after a public consultation. German Business Sentiment rose to the highest level in more than two years this month. The latest update on the ecoinstitute Business Climate index signals increased confidence in europes largest economy. Germany is overcoming a tempora slowdown as manufacturing is listed by stronger demand from the u. S. And asia. In france are expected to continue dismantling the migrant camp in calais today. This will force people to be dispersed across the country. France ollanta promised to close the camps, known as the jungle, by the end of the year. Critics say it is hampering traffic through the channel tunnel as migrants try to move to britain. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Amm camus the roman on i Kumutha Ramanathan. Health. Timism about the earnings disappointing from af