Transcripts For BLOOMBERG Bloomberg Surveillance 20161206 :

Transcripts For BLOOMBERG Bloomberg Surveillance 20161206

I am mark barton in london. And i am Francine Lacqua, right here in rome. We have been in rome the last three days. When you look at the markets, they seem very calm. Be buying some of the bonds to keep that safety blanket in check. We will find out more on thursday, when i am sure mario draghi will be fielding a lot of questions about the political upheaval here. One thing i keep being told over and over is that investors burned by brexit are still burned by trump, but this time took the right positions. Timetable. Talk when will lindsay step down as Prime Minister . Francine at this point, we dont know. We know that the president met with the Prime Minister, matteo renzi. We understand they met twice yesterday, once in the morning and once in the evening, around 6 00, 7 00 p. M. The second meeting was quite long. It lasted an hour. Matteo renzi tendered his resignation, with the president saying, hold on. I need you to first pass this budget law. Means that failing passing of the law, which could come as early as friday it could take until tuesday. There are two houses. This law has already been passed by the lower parliament. The senate is expected to give december approval friday or next tuesday. Nothing huge. Not controversial. But it would put italy in a more stable and equal footing. Mark who is in the hat to zi as Prime Minister . Francine we hear a lot of names the culture minister, the transport minister, possibly the head of the senate. It is clear speaking to ceos here that the next person will have to deal with the banks. Do not know exactly what will happen to the banks or what will happen to the monte dei paschi Capital Raising plan. A failure seem to be in the international markets. This could be the current finance minister, who has already taken quite a big role in trying to fix these banks. Mark francine, we will be back with you shortly in rome. Lets get the bloomberg first word news today. Here is sebastian salek. Seb france president Francois Hollande has named bernard Prime Minister for his final months in office. That came after the current Prime Minister said he will run in next years president ial election. He will officially resign today to prepare for the socialist to run primary next month. In south korea, President Park will step down in april over and influencepedaling scandal, after opposition Lawmakers Said they might have enough votes to impeach her and the motion set for a vote on friday. German factory orders surged in october, suggesting growing growth in europes largest economy will accelerate at the end of the year. Adjusted to seasonal swings, orders jumped by 4. 9 , the biggest increase since july 2014. And the governor of the bank of england has launched a defense of globalization. Speaking in liverpool, mark carney sets out a manifesto for central bankers and governments to boost growth and make the World Economy more people. Carney real earnings have grown at the slowest rate since the mid19th century. Growthhis week income that has focused attention on its distribution. Inequalities that might have been tolerated during generalized prosperity are now felt more acutely. Powered by more than 2600 journalists and analysts in more than 120 countries, i am sebastian salek, and this is bloomberg. Mark lets look at equity markets today. Other asset classes, starting 600, whichx stoxx initially fell on the referendum results, finished today roughly half a percent higher. That is the euro stoxx 50. 0. 2 againstp by the dollar. It was down by 1. 5 yesterday. Big swings yesterday. It finished the day higher. Rising today as well. Tight trading range today. There is the italian 10 year. Yesterday at one juncture, up by 16 basis points. Down by three basis points. The Market Reaction seems to have been felt yesterday. There is the price of crude today, down by 0. 9 , retreating from the highest close in 16 months. Meet producerso from outside of the group on saturday, to widen cooperation with supply curbs. Just two days and it has been quite a week for the euro, taking a hit after the italian referendum. Investors shrugging off the results. This ahead of thursdays ecb meeting. Economistsof the surveyed by bloomberg expect mario draghi to announce an extension of the bond buying program. Play a year ofb Upcoming Elections and potential political instability . Lets get more with a socgen global strategist, kit juckes. Cast your mind back to december 3, 2015. That the ecb meeting when expectations ahead of the meeting led many of the market to believe we were expecting something. Draghi underwhelmed. The euro surged. Bond yields surged. Could we be seemingly disappointed on thursday, like we were a year ago . Kit i think he is going to work really hard to avoid disappointing us. He is a magician really short on tricks at the moment. He could probably mount an extension of the bond buying program. He might be really like on detail about what that means. In other words, he might not have the support in the council to be explicit about how many bonds they are buying each month as they go through. At all surprised if we read that, there is a slowing of the pace of bond purchases, a tapering coming, sometimes in the spring, sometime next year. Mario draghis attentions to not disappoint the market are pretty clear. It is just what he can get out of the council. Not want so, he does to disappoint. He may extend the qe program because of the italian referendum. How much of the political turmoil we are seeing in rome will affect his thinking . Kit i do not think he is just going to if there were any other reason needed, the current political environment in europe is one which says, you know, steer as straight as you can. The italian referendum itself, there is still the issue of bank recapitalization, and French Elections next spring. There is too much coming down the track. Inflation is not a problem yet, going up in any way, shape, or form. What we need to do is not make any dramatic turns that could be interpreted as a turn away from easing policy, a way toward tightening, anything that could destabilize europes markets and europes economy. I think that is his guide. If i were him, i would try to offer as few questions as possible at the press conference. Francine i ensure he will. The spread between italian and german yields was not whitening by that much. These think the ecb was buying . Kit i do not have any knowledge. The vote itself was not a surprise. Every opinion poll pretty much for a while suggested this was going to be a no vote. It happened. We came in yesterday morning to find spreads wider, the euro lower. Immediately, i think at the beginning of december, position started coming off. I think the market was probably wellpositioned to the extent that it was expecting a no vote. But the positions coming off and everybody settling back to work out what their social diary looks like in the next couple of weeks was probably the main one yesterday. Mark how does that set of next year for the netherlands, france, and germany . The market just the results. They were right the market guessed the results. That was right across asset classes. Kit i think the french one is the really difficult one. Just by its nature. I was in the states for two weeks around the u. S. Election. Could not persuade a single u. S. Hedge fund manager, investor, corporate, anybody of the idea buy the euro on the dip before the French Election. If i told them the electoral map was really difficult for a surprise Marine Le Pen win, i got yes, but. But i forecast in a low in the euro just before the election, because i cannot think what else to do. Kit will stay with us. Germany cap court says utilities are entitled for damages for the atomic exit. Germany must compensate utilities for their loss. This is the top court in germany, the Constitutional Court, issuing a ruling over the nuclear exit, germany pushing back from Nuclear Energy to green energy. The top court says utilities entitled to damages for the atomic exit. Keep on on on keep an eye on rwe, both of my 5 , 6 . Biggeste the two utilities in germany that have been hindered by the push away from nuclear industry. The court has ruled in their favor, to an extent. They never are entitled to damages for the atomic exit. We will continue to monitor shares. Both surging on that German Top Court ruling. Stay with surveillance this morning. Delayedp, renzis resignation as the p. M. Is asked to stay a little longer. Dollar danger is the u. S. Currency flying too high on trump stimulus promises . And as the legal challenge to brexit continues to be examined by the Supreme Court, we get socgens outlook for the pound in 2017. Mark i am mark barton in london. Big news out of germany from the nations top court. Essentially the ruling is that utilities are entitled to from atomicthe exit energy. Germany must compensate utilities a loss of rights. The Constitutional Court has issued a ruling over the exit from nuclear energies. Utility partly winning the Germany Nuclear exit cases. They are entitled to damages. These utilities have been hit by the move away from Nuclear Energy in germany, toward green energy. We rallying on the news today. We will continue to keep an eye on those shares after this big news from the German Top Court. Lets get the Bloomberg Business flash. Here is sebastian salek. I is considering a counter bed for actelion, potentially countering johnson johnson. The french drugmaker is working with advisers as it weighs its options. A representative for sanofi did on couldent while acteli not be reached at set of business hours. The New York Times says it has not seen any role since the election. The executives and journalists have been heavily criticized by president elect donald trump or what he claims is biased reporting about him. Towe have guided the market 100,000 net new subscribers, more than twice as many as last year. We are well over 200,000 already, and nowhere near the end of the quarter. A very big surge. Australia are and to introduce collateral rules for overthecounter Derivatives Trading in march. Financial institutions will be required to have systems ready to exchange the collateral, known as variation margin. The guidelines will also apply to a Global Initiative to make transactions and 544 trillion markets safer. That is the Bloomberg Business flash. Thank you so much. Lets get straight to we are in rome. Of course, we had that referendum on sunday. They gave a very clear no vote. 60 of italians voted against what matteo renzi wanted. I am pleased to say i am joined , one economics professor of the foremost experts when it comes to the Banking Industry here in italy. Thank you so much for joining us. Great to have you on the program. I dont know what happens with the banks. The Political Class does not know what happens to the banks. Investors do not know. Do you . Say, duedifficult to to the fact that obviously the results of the referendum increased dramatically the instability in the economic system. Hence, it is difficult to understand which will be the position of International Investors toward the banking problems in italy in particular, with reference to the monte dei paschi situation. Francine we seem to think that matteo renzi was going to resign straight away, but the president asking him to stay on another couple of days. Does it give the president the upper hand in choosing the right successor to renzi that would do with the banks . Iscello obviously, it difficult for me to judge the political situation in italy. Nevertheless, it seems to me that the most important signal to send to the markets is to look for stability. Hence, we need a rapid solution, and institutional solution. The idea is to find out a new set thent able to budget low, to approve at the parliament, to change the electoral laws, due to the fact that currency currently we have opposite laws in the two branches of the parliament, and it is impossible to vote immediately. But you know it is not so easy to find out the right road to do that. Francine professor, i want to ask you to talk about politics for just one more question. The, we will get back to banks. The electoral law i was thinking about this. They are trying to fix the electoral lawsuit you have the same rules in the lower house and senate. It is basically a measure to protect it from the rise of the fivestar movement or such a populist party. But is it not rigged . Does it not give the feeling that the italians could revolt, because it feels like the establishment are trying to protect their own interests . Marcello absolutely. It is difficult to find a good solution to overcome these difficulties. And it is difficult for me to forecast which will be the actual solution. Francine you and everyone else in rome, i assure you. Lets go back to the banks. You believe it is almost impossible at this moment in time, 60 of italians voting no on the referendum, for monte dei andhi to reassure investors find an anchor investor or other investors to raise that capital . Marcello listen, impossibility is a difficult word to use. I would use very low probability to find a market solution. Up an we have to build alternative. In my opinion, the only possible alternative is a public intervention. But obviously, a public intervention requires an arrangement, a compromise between the Italian Government and european institutions. You know very well that the european gnomes avoid the public intervention except in very extreme cases. Hence, we have to judge of currently in italy the Banking Sector is in an extreme situation or not. Francine professor, we will get back to the rules in just a second. That from a point i covered many crises in my years in bloomberg. A lot of the anglosaxon world, a lot of the people in brussels, have always said, we dont have a plan b. As soon as we say, we have a plan b, the investors discount plan a. Marcello you are absolutely right. Francine so why are they talking about plan b, your treasury saying they are looking for a plan b for monte dei paschi . Marcello it is a probability to find out a Natural Market solution are very low currently, due to the fact that instability implies that International Investors have a lot of difficulty to decide, in the shortterm, a very important capitalization for a bank in trouble, such as monte dei paschi. And as you know very well, there is a time limit put by the ecb. Francine that would be the first step. Do you believe the ecb will extend this deadline . Does it give them more of a chance to increase capital . Marcello listen, it is possible arises. Ight solution otherwise, it seems to me that it would be possible to ask for a postponement, a sanction with respect to the deadline put by the an extension with respect to the deadline by the ecb. Francine you say we should have a plan b, but have something on the table. Looking at nationalization, should italy look at the rules and say, this is systemic, i cannot do anything else, and i cannot take the pain out on my bondholders marcello that is the problem. If the Italian Government is able to manage a situation in which there is a declaration that the italian Banking Sector is in high risk of systemic instability, the european norms allow a public intervention without a suspension of the bailing process. Obviously, it would be necessary to find a compromise with the european institutions. And the likelihood is to involve the holders of subordinated , maybe the institutional holders of subordinated bonds, in the process of restructuring of the monte dei paschi. But it is difficult to say. And moreover, in my view, it is impossible to look just at monte dei paschi. Francine of course. Marcello if you choose the role of instability, of the risk of instability, it is the italian Banking Sector to be involved. Francine are you worried about unicredit . They may look to raise capital next week. The Smaller Banks, do you merge them . Marcello i am worrying on the small banks, due to the fact exactly. Wereour new banks which the consequence of the crisis in november, 2015. Unicredit francine you nationalize them . What do you do with them . Do you build a bad bank . Marcello there is a bad bank. Nevertheless, the new banks have a number of nonperforming loans. They need recapitalization. Is to potential option ask for how do you say it is a possibility to have someone ready to buy the new nonperforming loans, or to have a very favorable condition in order to purchase these banks. So it is difficult to find a solution even in this case. Francine given what you have just said, do you think this is a systemic thing . A Systemic Risk . Marcello i think so. I have to confess to you that i am thinking that the italian Banking Sector has a high probability of Systemic Risk since january, since last january. Francine this is a problem. Do you not need an event to make it more if the bailing rules were to be applied a month ago, the referendum has changed, but you are telling me it has always been a problem. Marcello the problem is which is the reason why the european loans do not allow public intervention, due to the fact that public intervention has distortionary impact on the working of the markets. Nevertheless, there are some circumstances in which a public intervention implies a distorti

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