Transcripts For BLOOMBERG The Pulse 20160617

Live from bloombergs European Headquarters here in london. We have a great show. We talk brexit with a merkel ally. E speak with a Prime Minister we are live in russia speaking to the ceo of the Worlds Largest diamond miner. Roneyspeak to paolo scott paolo scaroni. We will speak to him about whether we can see every cover. The Global Markets a bit on the upside. They are recovering losses. The european stoxx 600 getting 1. 3 . We talk about what we heard from japans finance minister. At 142. 66 ound 1. 4266. I want to show you what the polish swat the. Anything that affects the pound will affect swissie. Lets get to the bloomberg first word news with nejra cehic. Both sides of the Eu Referendum debate has suspended their campaign for a second day after the killing of an mp. Jo cox died after being shot and stabbed as she met voters in her West Yorkshire constituency. A 52yearold man has been arrested. She was a committed member of the remain camp. Witnesses said britain first as he attacked her. The Group Britain first has denied any involvement. David cameron has led tributes. This is absolutely tragic and gentle news. My thoughts are with her husband and the two children. We have lost a great start. Mp was a great campaigning with huge compassion and a big heart. People are going to be very, very sad at what has happened. Dreadful news. Francine japans finance minister has escalated his concern about a surge in the yen, calling for coordination with the g7 counterpart to adjust with to address this orderly moves in the market. Vermont senator Bernie Sanders has told supporters that he will take on a new role in an effort to defeat donald trump. It is the closest he has come to conceding that Hillary Clinton will clinch the nomination at the Democratic Party next convention. To makeorward to sure your voices are heard and that the Democratic Party passes the most progressive platform in its history. Democrats actually fight for that agenda. Nejra and growing number of prominent u. S. Organizations have at the Republican National convention. They include wells fargo, ubs and afford, all and afford all of which some top elected officials skipping next months meeting in cleveland after warnings of largescale protests. Pimco is cutting jobs. The company is losing 68 68 positions to the firm has seen asset under management fall by 25 in the last three years. Before leaving at berkeley in 2014. In 2014. Leaving at abruptly inaving 2014. Global news, 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. Stillne the u. K. Is digesting the tragic news of the killing of jo cox. Frombute to cox poured in contacts. Thank you for joining us today. Themuch do we know of when campaigning will resume . At the moment, we do not know. Campaigns have agreed to set the sidelines today. That were duells today have been pushed into tomorrow. Maybe over the weekend, David Cameron is scheduled to appear on tv on sunday night for the sunday morning news show. Will see a slight return to campaigning. Francine i guess the tone will change. That, you can guarantee. Gotten pretty varicose. Those awful events one would think would sober things up. Francine how much do we know i guess it is still 5050, if we look at the polls a few days ago. How much do we know of what happened in the next 72 hours after leave were to come up front . I am not sure what youre asking. Francine do you think that Central Banks will intervene . Wins, what happens in the next 72 hours . Stephen we will fall a percent on the move we will fall 8 on the move. The pound will stabilize pretty quickly. That is no evidence suggests longterm investors in the u. K. Will sell various types of assets. A mystic investors is welcome domestic investors as well. Dont expect and snb style event. It was a rush to buy swiss francs in 2015 when they left thats when they let the euro swiss when they let the euro swiss floor go. This time it is a wellknown event. There has been a lot of prehedging flow. Francine is it priced into the markets . In. Hen it is not priced initially a lot of pound underperformance. It is a wily widely telegraphed event. The market is not going to be completely lopsided. It is not going to be this huge rush to sell gdp like it was to buy francs. , cine simon, if we leave if we leave the u. K. Politicians to one side, how much do we know businesses are ready to act . Simon the media concern for the danish as well are the currencies the immediate concern for the danish is the currencies will start selling high. And u. K. , they will be first on the front. Talk about liquidity in the market, the ftse credit easing. More qe would not come immediately but it would become a point of debate. A debate whether the fed would raise rates in july. Francine theyre also talks about some kind of central bank ,oordination on friday morning if the movements would be to draw a too jarring. Central bank action, you need some type of deleveraging or massive financial shock. I dont think leveraging the system is like it was. The risk is known. A solid point, one of the things that markets will be quick to do is price in around the various yield curves, additional easing from Central Banks, must delayed tightening from the fed and additional indirectly supported gdp because those currencies will be weaker. Provide some support to the pound. That is significant. Whether Central Banks are going to start intervening to yen,gthen to weaken the or to provide the similar support they did in 2008, i think, it is a fairly low probability in the first week or so. Down the line, things are much different, then Central Banks would react accordingly. Francine stephen gallo, thank you for joining us. Our London Bureau chief and economic correspondent. Stay with the pulse. Including tourism in the wake of the russian government looks to offload statecontrolled companies p and we speak to companies. We speak to the ceo of the World Largest diamond miner. We ask the w chairman of rothchild why now is time asking the chairman of rothchild why now is the time to grow the company . Francine welcome back. Lets get to uber business flash with nejra cehic. Nejra a former Goldman Sachs banker who pleaded guilty to receiving document that had been from the Federal Reserve bank of new york has been banned from the financial industry. He has been barred from the sec from any association with a broker, Investment Advisor or municipal securities dealer could europes biggest Engineering Company will pay 1 billion of cash to spain after a deal to combine the companies businesses. The shares were suspended after the company said in a filing that it has approval for a potential deal but the final terms still need to be agreed upon. Processce. Com in the leading up to its acquisition by microsoft. They say salesforce was advised by Goldman Sachs in the negotiations but Microsoft One out. The Software Giant unveiled for 24. 2uy linked in billion in cash. Atsubishi motors will take ¥50 billion charge in a report to japans transport ministry, the carmaker says it found inappropriate texting and up to 20 models sold between 2006 and 2016. That is the Bloomberg Business flash. Francine it has been a few tweaks for Central Banks and they chose to do nothing. The fed, the boj and the boe keeps their power drive forward. Lets continue with centralbank discussion with stephen gallo. Stephen, thank you for sticking around. Your assumption is that even if brexit were to happen, because it has been telegraphed, the temperance of the markets will be coolheaded than what we have heard from commentators. Stephen at this stage how many years from the gfci are we . We are used to crises. Definite that we are good to see the same type of financial trauma in the Global Financial system that we saw in 2008. Are a said that, there million numbers of gauges that you can look at. Nervousness is increasing. It is not of any cute strain. It is not it is not of and a cute strain. It is not what we saw a few years ago. Francine i guess, i have heard that a couple of times. It is more of an outlier call. Futures and he goes back to globals there we have not seen since the financial crisis. If you look at it chart like this, your simpson would be this is a Financial Bank option. Is that fair . You are to point out that gold is probably well supported because of nervousness. I like to look at sterling. Low ratedk at Corporate Credit spreads in the u. K. , they came in significantly during q1 once the bank of england says it is going to provide further liquidity which they have already started to do. They have one after the referendum. Already we have seen financial strength decrease but a small promise from the central bank. Francine what surprised you most next week . We had the boj. Who had the toughest time . Stephen what surprised me most, im still surprised by how little emphasis the market puts on the chance that the fed could move rates next month if we do not have brexit. They went out of the way in their language to keep the phrase and the statement about expecting the labor market to strengthen. In the deliberate slap face was at the labor market was falling drastically as a result of the jobs report. They are saying that july is a very much a live month. Obviously, brexit is a risk to give we dont have brexit, they are likely to move. Francine you are right. W ip moved on the back of it. Isnt that misinterpretation for the markets . Are they looking at the dock plot and confusing people . It seems that most fed president s are expecting more rate hikes this year. Stephen the thing that mattered to me was they reduced the docs for 2014 2017 and 2018. It may have suggested there uncertainty about raising rates were lower. They are going to come in later on and lower those dots to manage more manage manage more expectations about rates. What they are saying is that wanted to rate hikes this year more is completely on the table. We are gradually getting close to the neutral rate. We are likely to further post the neutral rate this year. Francine we talked a little bit about canadian dollar. Has this week changed anything for you . Stephen not really. From a fundamental perspective, regardless of whether or not we have brexit, but especially if we have brexit, eurodollar is going to meet with a lot of resistance from the top side, especially in the 113. 50 range. Even if we dont have brexit, i think you still look to sell , justollar around 114 because the fundamentals happening in the credit market. The effects is his hat the effects it is having on yields. Monetary policy divergence. Francine stephen, thank you for stephen, great to have you on the program. He stays with us and we will be talking about emergingmarket currencies. Up next, the brexit risk. Where live with the multis prime maltese with the Prime Minister. Already englands market Commodity Markets [indiscernible] price ande oil utility partly low survive. This is the basis of our project. As it europe met this decision five to seven years. During this five to seven years, everybody [indiscernible] nonconfidence in the market. Normal volatility of indices. Francine that was alex eight look i have speaking to Ryan Chilcote. With us is stephen gallo. Thank you for talking actually sticking around. We talked about the impact that brexit would have and a little bit about centralbank divergence. What is your take about any commodity related currency . I know you look at canadian dollar. Where do we go from here . View or average oil price next year is around 53 a barrel for brent. Ultimately 125 and dollar cad, despite the governor of the bank of canadas recent optimism is a good area to be cad. Ng along with dollar supply issues are not going to go away and oil. Canada has a lot of external challenges, u. S. The mystic demand growing reasonablys u. S. Domestic demand growing reasonably strong. Canada has lost out in competitiveness to the United States and to mexico. Range. That if we seek 25, then it is a bargain. Francine we move on to yen. This is the biggest experiment of them all. 10 did the boj get it wrong . Stephen they were in a tough spot. Central bankers are very aware of the risk of brexit next week. Exhausting the limited bullets you have that close to a major event probably would have been. Ind of full hearty if dollar yen is going to go u. K. Ing through 150 leaves the eu anyway, why leave . Nyway why act i believe it was the right decision. Whether they are going to get any major bank support, i am not convinced. We know one of the main reasons why abenomics has had limited traction in japan is because of that third arrow. Francine that has been late coming. Stephen the problem is when you print and encourage significant outflows, you may get them, but when Global Financial markets go into meltdown, guess what . They get the patch treated. You sow the seeds of your own destruction. Francine will they actually get slack for it . It is not the same as getting support. We leave you alone if you want to intervene. Stephen it depends on when they intervene. The fed is clearly getting close to the top of its comfort zone on rates. That is clear. It may be more willing to entertain bank of japan intervention at certain times given that the dollar has been relatively weak so far. For example in q2. It depends where, when and how much. Francine at how fast the currency moves from here. Think its a much. And how fast the currency moves from here. Thank you so much. Still good to remind us at the end of the day. Tephen gallo up next, we talk more about russia and diamonds. Francine welcome to the pulse live from london. Im francine lacqua. With russias economy in recession, this is an opportunity for the country to woo foreign investors. Ryan chilcote is there with a guest. Ryan my next guest is here to talk not so much about russia, but about the possibility that we get a brexit on the 24th of june. He is the Prime Minister of malta. Thank you for joining us. June 24, we learn we have a brexit, what do you do . Obviousnk it is pretty that whatever the british people decide needs to be implemented, but i cannot really say what will be the mood next week and the coming months. It can vary from a consensual outofcourt settlement to make some comparisons to a bitter divorce. What is definite is that it wont be cheap and it wont be easy. Ryan in terms of the contingency planning, how does this happen . The eu leaders get together right away . Theres a meeting scheduled for the next week. I think what will happen is irrespective of the results, there will be cabinet meetings where the result will be discussed. We will be than preparing for the European Council on tuesday. Whatever happens, some changes need to take place. If there is brexit, we need to prepare for that. If there isnt, there is still an agreement that needs to be implemented. Has the eu presidency beginning in january. Im sure you are already planning. Whatever agenda you have for january would pretty much be hijacked by a brexit. I have learned in my term as Prime Minister, that my goals always get hijacked at the eu level. We are preparing ourselves, but the point is that a week is a very long time in politics. Ryan you are not sure theres going to be a brexit. I think the remain campaign is being written off way too early. What is for sure is that the debate in the u. K. Has not really focused on what happens in the u. K. Rather than in europe. Reig what happens to your n in power with the presidency of the European Union . After your term ends, britain is supposed to get it. If they exit, i guess they obviously dont get it. I think that is a minor detail. Ryan malta takes it . Or another country comes in. What happens in the u. K. . What sort of relation does the u. K. Want with the European Union . Access to the Single Market comes with obligations. If this generation of brits say, we want out and the next generation says, we might want to get in again, the same deal is not on the table. It has to start from scratch. Whatever refunds they get, whatever concessions they have today, will be lost forever. Ryan Prime Minister, thank you for your time. Francine, back to you. Francine Ryan Chilcote there in st. Petersburg. Markets in the green this morning. Lets head to the bloomberg with mark barton. Mark we are up the most in a month. Every Industry Group on the stoxx 600 is gaining, led by banks, travel, and insurers. We are still on track for the third weekly decline. That is the longest losing stretch since april. I thought we would look at the andd today against its feet peers. Its g10 peers. This is following the killing of the u. K. Labour party member jo cox yesterday and it is leading to speculation that voters in the upcoming referendum will be more likely to favor remaining in the European Union. An ardent eu supporter. A quote from sydney, it is evident that the rally is being attributed to the belief that yesterdays tragedy has increased the likelihood of the remain side holding sway in next weeks referendum. The Referendum Campaign has been suspended for a second day after butmurder of jo cox, sterling has benefited today. Intraday against the dollar, pound fell to a march low yesterday. Implied volatility is down for the second consecutive day after falling for rising to its highest since 2008 on tuesday. I want to talk about the japanese yen, erasing most of its earlier declines against the dollar. Investors doubting japans ability to rein in the currencys rally. Earlier, we had the dollar rise as much as 0. 5 against the yen after the finance minister escalated his concern about the surge in the yen, calling for a coordination to address what he described as disorderly moves in Foreign Exchange markets. Nevertheless, traders remain bullish on the yen after the boj stood at on policy and theres also concern that the Brexit Campaign will be victorious next thursday, which many believe will push money into the japanese currency. The japanese yen has appreciated more than 7 against the dollar. It is the worlds top performer. Analysts have raised their forecast to 112. Today we are at 104. At what level does japan intervene for the First Time Since 2011 . Will it be small intervention or coordinated intervention with other . Central banks . Thought wed have a look at the commodities market. Oil rising for the first day in seven. Still down 6 this week. Oil rising, and other index declining. We spoke to russias oil minister. He said theres no need for russia and saudi to cooperate on crude prices right now. Days is the last eight down by 7 . Gold in the last eight days is up 3. 2 . It is rising for the seventh day in eight. The feeling is the fed wont be raising Interest Rates in a hurry. Gold has been a safe haven. Gold in the last eight days outperforming crude oil. Francine thank you so much. Mark barton with your asset check. Lets get back to st. Petersburg. Ryan chilcote is there with another exclusive interview. Ryan thanks a lot, francine. Im joined by andres arc of zharkov, ceo of the Worlds Largest diamond producer. Thanks a lot for being here. Privatization is what everybodys talking about. Your company is at the beginning of the list of companies to see more of the government stake sold off. When is it going to happen . Andrey the situation with privatization is pretty much the same. What we have at the moment, we have a president ial decree which allows the government to sell part of its stake, 10. 9 of its stake, during 2016. It is very likely that it is going to happen by the end of this year. The governments chosen the deal he said the preference would be for a strategic investor. What is the likelihood there would be a secondary placement that other investors would be able to participate as well . Andrey we expect it will be Public Offering but it is up to discussion between the agents and the government. We expect it will be public placement on moscow exchange. Ryan last time around, when you had the ipo, you have pretty strong interest from americans as well as europeans. What do you expect this time around . Andrey we have 23 of free flow. If we look at free flow, more than 50 of free flow is owned by u. S. Investors. Another 20 or so is owned by british investors. I think that it can be pretty coming from u. S. And british investors. Also with interest coming from middle east investors and chinese investors as well. Ryan you said the word, britain. Everybody is talking about the biggest political event of perhaps the year, the referendum on whether we should exit the European Union. Any effect onhave your share sale plans . Does it influence the picture at all . It is creating a lot of uncertainty in the market. Andrey yes, but my personal iswpoint is that this topic coming from 1973, when Great Britain joined the European Community. I think that since then, this topic is coming for discussion. Decided byt will be british people, definitely, but what i think, it can be a bad precedent for the European Community as a whole if britain will separate. Ryan in one sentence, what does it mean for Alrosa Andrey in terms of uncertainty that it could bring to the market, it can be bad for all of us, but honestly, i dont believe it is going to happen. Ryan one more sentence, First Quarter diamond sales were down. My colleague, mark barton, was talking about commodities. You are very optimistic on the diamond market. Why . Andrey if we are talking about diamonds, ryan you are bearish. Andrey no. We have seen very good recovery during the First Quarter of this year. There was a restocking process because our sales in the second half of 2015 were really down. We reduced sales in the second half of 2015. We see a very good recovery in the First Quarter. Bullish diamonds, i cannot say that we have a bad outlook for the market in the current year. We see that the growth is not there. The size of the growth is not the same, like it was maybe two years ago. But still the outlook is quite positive. I dont think that we will see decreasing demand. We may see decreasing growth. Ryan andrey zharkov, thank you for your time. That was the chief executive of alrosa. Francine thank you so much. We will have plenty more from ryan throughout the day. Up next, expanding operations. We ask the deputy chairman of rothschild why now is a good time to grow the companys Wealth Management business. Francine european stocks up today after falling, as investors wary of exit. My next guest is former ceo of the italian oil major, now deputy chairman of rothschild and sons. Welcome. Always a pleasure to speak to you. First, give me a sense of what the strength of rothschild is at the moment. How much bigger do you want to get . How much do you worry about brexit and european reforms in general . Rothschild is growing as an investment bank. The business has been healthy in the last 1218 months. We expect the market to continue to grow. We are gaining market share in europe and outside of europe. Our share price is doing reasonably well. We changed name lately to rothschild and we are listed in the paris stock exchange. Means thatn france we want to grow for private clients. We want to be the bank of wealthy private clients, particularly in france and across europe. Something, we is speak to ceos at credit suisse, barclays, and they are going in the same direction. You have these investment banks trying to downsize. Do you feel like you are more in competition . Paolo of course there is competition. But we believe that the name of rothschild can be quite attractive, in particular for private investors. While many of our competitors look at institutions more than to private families, wealthy families across france and europe. Francine overall, we talked in the past about european reform. We talk about risks, brexit, but fundamentally how much do you think france, italy, other european nations are more eurosceptic than the u. K. . Paolo if you want to know my view, first of all i believe brexit will not happen simply because i believe the brits, which are very pragmatic, will vote with their wallet weather than their heart. Having said that, even if brexit does not happen, this will mean that europe will move into a direction in which the eurozone will continue to progress while the countries which are part of the European Union but do not adopt the euro will become a Common Market. At the end of the day, brexit or not, i believe this british referendum will make clarity. Either you are a part of the euro and what you want to do is go further, to a bigger integration, even political integration, or you do not adopt the euro and you are part of the Common Market like norway or switzerland. That is the way i look at it. Francine once it is decided will feel, ceos better about the world they live in. Of course they will know what they are looking at. Paolo everyone hates uncertainty. In one week time, uncertainty will disappear. The markets hate uncertainty. Ceos hate uncertainty. Investors hate uncertainty. The worst become is what we are living today. Week wer not, from next will be much better off. Francine do you think when there is less uncertainty that we will see more m a . How will rothschild or other Companies Deal with this . Paolo m a will continue to be strong as long as Interest Rates are so low. With the money so cheap, real assets take value and there is a push towards more opposition from u. S. Into europe, but even into europe itself. Francine thank you so much for now. We will be talking about oil next. Up next, european stocks advancing this morning. We will bring you an update on the markets and talk oil, next. Us, deputytill with chairman of rothschild and sons, paolo scaroni. Now i want to focus on oil. You either believe Goldman Sachs, who says the recovery is still fragile, or you believe the iea, saying the market is clear and they are rebalancing. What are you on . Goldman sachs have been wrong several times on the price of oil, as everybody has. What it seems to me, the facts are consumption is going up. We are now at 97 Million Barrels a day. Francine from emerging markets. Paolo the chinese and indians are driving more. In the u. S. , they are driving more. Consumption is going up one Million Barrels a day. Down mainlys going because shale oil is down. Nigeria is in troubles. Canada is another area. There is some rebalancing. No doubt, i believe the oil price will be in the region of maybe 55 55 50, the rest of the year. I personally believe there is a cap. Beyondprice of oil goes 65, shale producers will start all over again and pushed prices down. Francine can iranian production increase . We understand that companies are wary of getting into the market. I dont know if they are concerned about possible sanctions or it is difficult to do business in iran. What is your feeling . Slowly. T is moving very iran production is going up slowly, but going up. There has been a number of contracts between western companies and iranian companies, which are badly needed to of existinguction oilfields in iran. This will come slowly and will come as long as the peace in iran with the western world will continue to be active. In total, i can see iran three years from now producing 5 Million Barrels a day. Francine give me a sense, talking about this cap on the price of oil opec has warned many times that they are concerned theres so little investment that it may lead to future shortages because oil majors havent invested enough. Paolo this is certainly true. Ive read that investment has 1000 billion dollars, which is an immense number. True, i dont know, but if we look ahead, then there will be some shortage. No doubt about that. Depletion rate, the oilfields decline 5 every year on average. Production today will be 20 less for years from now. Investments,make this 20 will be a shortage. Francine thank you so much for coming on. Now, we have plenty more coming up. Surveillance is next. Tom keene will be joining me from new york. We will talk about u. S. Politics. We will be talking about some of the risks there and give you insight into what the fed may or may not do after a big week for Central Banks. Francine the killing of labour cox says both sides of the finance minister says theres rhetoric about the strength of the yen. And a great transaction, bill gates praises microsofts 26 billion deal with linkedin. Well bring you our interview with the microsoft cofounder. Im francine lacqua. Tom keene is in new york. Tom will be making his way