tv On the Move Bloomberg January 16, 2015 3:00am-4:01am EST
concerns about mortgages in countries from poland to hungary nominated in swiss francs. that is one of the things we are watching this morning. that is the big story the last one he four hours, the snb. future markets a little lower the dax futures off, the euro stoxx 50 futures lower. manus cranny has the open at the touchscreen. all about the swiss franc again. >> it is all about franc power, the unadulterated, unabashed moment where the central banks said we will not be constrained by buying euros. they left the euro buying party, 40% move higher in swiss francs, a retracement. iron fx, we just had a conversation with mark barton talking about parity level.
in the equity markets the consequences of foreign-exchange with the losses they have. when you get wiped out within the retail businesses or face challenges in terms of the margin call, what will that do to the rest of the assets that you hold to meet the margin calls? will you have to sell equities, will you have to do vest yourself of assets to meet the margin requirements in the margin calls? equities at a cracking week overall, up almost 3% overall. all of the frenzy if the swiss abandon the cap because they don't see any value in defending themselves anymore, what does that mean for the european central bank in terms of quantitative easing? we have had the best week so far since december 2013. the yen is rising, swiss franc
puts we are waiting for the market to open. the swiss market 4300 put options, a rise of 15,000%. people saw that rise 15,000%. even i love that figure. maybe the horse has bolted, as they say. smi down 2.5%. the biggest losers today, the exporters, the ceo of swatch referring to the synonymy -- the tsunami, analyst talking about the stoxx saying 10%, 50% drop in earnings.
let's go to other common itpanies that are earning, automobiles rising. caroline hyde will take you through the details, but it looks like there is better news for bp in terms of the clean water act? >> we are lower almost across the board. the swiss equity market under pressure again, the only story in town, the fallout from the snp surprise move has ripped through markets. this morning, the swiss franc is trading at close to parity with the euro after searching yesterday. hans nichols has the latest from the zürich. exporters really not expecting this move yesterday. how is it affecting them? >> in some ways, the big corporates, whether they reap in
euros francs or dollars, they are these he ones. the pharmaceuticals all took a hit. the question this morning here in zürich and across the country is how are the other companies going to do. exports from switzerland 56% are to the euro zone some of these are small companies and they have high labor costs, costs in francs that they cannot necessarily do something about. in the local press, they are talking about time, short time. it will have to for low workers on a short-term basis -- they may have to start furloughing workers on a short-term basis. we will be looking to see what the reaction is to this. we also saw eastern european countries take quite a bit of a dive on the 25% range.
i suspect we have a lot more settling out to do. yes, you mentioned fx mc, the global trading house in the states that has $225 million in customer losses. the new zealand trading house had to close its door. there's a question about where individual traders are at, but the big question at the big banks is with their exposure is, did they have hedges. and now is there anything these swiss central bank can do to clean this up. this is a decision based on consensus of the three-member board. we will see if they are working another plan to clean this up. >> hans, let's step back everybody who's all this news cross yesterday on the bloomberg terminal, looking at the chart of euro-swiss, that collapsed. how historic is that? >> well, let's take the 40% range. what was remarkable about it is
it was 40% appreciation. for the most part, these great collapses, whether the argentine peso, those fn in the 50%, 60% range, the mexican peso crisis, most of those have been depreciation were the currency lost value. the only thing that really compares to this is japan in the late 1990's with a 7% appreciation. what is remarkable about this is what it will do to the swiss companies and swiss economy in a country that has made itself a safe haven and an export-driven economy. i suspect are interesting conversations going on at the swiss national bank all through town, and we will try to report on them. >> hans nichols, thank you very much. let's get an investor's take the head of investments across bridge capital where he oversees more than $2 billion of assets. good morning. >> good morning. >> when you see a move like that
on the fx market, things break. what you expect to break off the back of this? we saw it with some of the act to -- with some of the fx broker. what do you think? >> clearly the profits are not going to be very good. it's probably fair to say that they will be melting like chocolate. but if you are a dollar-based investor i did not do anything for my portfolio because i made money on fx which we lost on equity. if you are funding through the swiss franc, you are looking at what to do. if you look at pure swiss manufacturing, they do a lot of manufacturing locally, so they will get hit big. if you are a bank, this will impact your income statement. but yesterday what we saw was a big move. you saw a major western central bank really go back on its
pledge. that is big news. >> when you look at the equity market, the selloff -- the selloff never discriminates, but when you look at the movers and some of the stocks elsewhere overdone? >> my positioning is more equities. i see this as a sign of with the ecb is going to do. i would say if you are at the ecb, you're probably going to disappoint the market by not doing a qe of this size. that should help european equities. my opinion is that european equities are a buy. >> is there a lesson here as well as we look at the snb and the pledge they had that they would defend this peg they looking forward to january 22 with the expectations higher. how much room is there to disappoint now? >> the peg was untenable if you
see what is coming. there is a reason why they did it, because the peg was untenable. the snb balance sheet has grown. there is a political angle as well. people were not happy with what the snb was doing. it was untenable and was going to become more so going forward. >> i look at a couple of countries -- poland, hungary some of the mortgage markets and how they are denominated in swiss franc. perhaps the francs in the eurozone that have exposure those countries, is there a big risk that we could see some big rises in bad debt? >> i think it's possible. most of these mortgage services are spread over libor. they are not going to hit a corner. the net cost is coming down.
there might be a case where some will rise. i don't think it will be very significant. some hedging has been lost over the last 20 years. it is a known problem. it happened in 2011 when the swiss franc was very strong. i think there was some hedging going on. i would not be worried about that come up there could be some. >> i want to keep this conversation on that move from the swiss national bank yesterday that shock the markets. we will dive into the ramifications as investors brace for the aftershocks. the stocks this morning, europe down a most across the board the swiss equity market also lower off 3%, the dax off 0 .3%. ♪
>> welcome back to "on the move ." the top story, the shockwave the swiss national bank sent through the markets. we are joined by the local head of fx strategy at bnp paribas and across bridge capital. stephen, we are kicking off with you. the number one point is if the snp cannot keep a peg, which is
the next to go? denmark, or further east to asia? >> good morning. probably a bit preemptive to go down that road. i think the point i would make is the floor on the euro-swiss paeeg was different. you have a central bank that is very much tracking the ecb, a shadow euro. it is a free-floating currency with an independent central bank setting policy independent. what they said was they would put a floor in to prevent excessive or unwarranted swiss franc appreciation. it's a different scenario that i think is specific to switzerland and the swiss franc. >> steven, i look at the timing of this, why thursday, why in the middle of the morning? why not friday after the close? what did you make of the timing?
i sure there was mayhem on your floor, but what were they doing? >> this was a very unexpected move. the snb had been committing and reiterating this was a key part of its policy. it has taken everyone by surprise. i think the timing, when it happened, i think it is going to be difficult. certainly they needed to do it during the market being open so trades could be executed. clearly, there's a lot of investors and corporate investors who needed to make or exit positions on the back of this. the fact it was during a liquid market probably helped. i think it would have been worse if they did it when the market was closed. >> just a couple days ago, the snb vice president said this peg was a pillar of monetary policy, then they drop in a few days later. what does it mean for our faith in central-bank promises and the
credibility of the swiss national bank? >> i think in their defense the point is very little in foreign exchange markets, previously intervention often comes as a surprise. i think the key point i would highlight is compared to when the floor was introduced back in september 2011 the driver of the swiss franc has very much change. back then we were in the midst of a euro crisis. there was a lot of safe haven flows toward stability and the swiss franc was very much higher from that. what has changed today is nobody now believes the euro is likely in danger and differentials are driving things. what really set the ball in motion was the ecb lowering rates early last year, going to a negative deposit rate which really meant the euro was competing with the swiss franc as one of the lowest yielding currencies or funding currencies. i think that is the catalyst.
so with the swiss national bankers decided is because the driver of swiss francs has changed, they need to respond, and this is their way of responding. >> a final question, the last three years five minutes after they introduce the peg and the next three years, it has been boring. you are either long euro-swiss or stay clear. is it time to trade euro-swiss and should i be worried it will be forceed to come back and intervene? >> i think they have been opened that they would come back and smooth markets if it gets out of hand. that does not mean a strong appreciation. in contrast, i would argue in this world of policy divergence with interest rates driving the markets, we think the u.s. and u.k. higher this year, the swiss franc remains one of the lowest yielding currencies. given the moves of companies that fall back from the floor
yesterday, lower interest rates it still means the swiss franc is actually a fairly attractive funding currency. clearly what we need to do is see the dust settle so investors and market makers have an idea of where fair value is in terms of the swiss franc. from our perspective, we would expect a gentle rise in europe-swiss from here probably 108 or so by the end of the year. >> steven head of fx strategy at bnp paribas, thank you for joining us. i want to get some final thoughts, what about the ecb forcing the snp hand? is it that really, that it has broken the ecb and their will to keep the peg? >> i think it is, but that does not mean they are going to not intervene. that is something everyone has to remember. even though it is a currency and
save haven, they will intervene. if they don't, clearly you have a big problem in the economy. >> i'm looking at the bond markets, the money going into the swiss bond market yesterday, we had a yield on the 10 year of 20 basis points. in italy, we have record low yields again. what does it mean for the bond market? >> i think clearly if the deposit rates are negative it's funny now because even when you are minus five basis points in denmark, it is seen as a high-yielding currency. you are comparing negative 10 negative. the flow into bonds will not stop. i think you will see them flow into bonds, especially the european market. you will see the yield go down further. it just begs the question, are we creating another bubble. at a something for another day. >> it is. as we going to the ecb meeting, how credible is the qe plan if it is introduced?
do i need to see the bond market selloff? >> i think the bond market will rally a bit, my view. i think people are expecting this given the market news. the key thing will be it will not be a very big thing that counsel does not like. mario draghi wants to maximize the counsel for stop they will keep it as qe-1. you are going with the same playbook as in the u.s. >> mainish singh, of cross bridge capital, thank you very much. coming up, with the swiss franc shock means to one of the biggest industries investors giving a clear message yesterday. we are back with more after the break. ♪
>> welcome back to "on the move ." the big story, the surprise move by the snp that sent the currency soaring. sam, you were there yesterday in switzerland. how annoyed and shocked are some of the exporters? >> use all the words of the chief executive of swatch i think it was the tsunami. interestingly, summary said that in switzerland it would be an avalanche. everybody was shocked.
it was shocked, right. i cannot really put it in any other words. >> let's talk data, numbers. what is the translation effect, who loses the most? >> the best we can do is back of the envelope cap chelation is because there is hedging going on. there is a lot of moving parts. a lot of it is wash in the first release that they had. each percentage move in the swiss franc, it tells you what the swiss franc hit would be to the sales and operating profits for the four key regions of the u.s., japan, and other. if you work that out based on 2016 consensus from analyst, you get about a 4.5% hit on sales and something in the region of 7% hit on operating profits. it all the phone where the currency settles. it depends on across the various
currencies. >> as you look at these companies, did they have fx hedges? >> of course they did but it can actually work against you. we know with novartis and rauch in all these companies they have currency traders, etc. of course they do. the reality is that will be the difficulty, to figure out the level of hedging the exposure or a benefit. >> i look at the equity market selloff and i use the words "does not discriminate." some of these companies reported dollars. >> novartis does. >> is the swiss market enough to move the dial? >> not a huge amount, but some of the cost. novartis does not give you the same disclosure as rauch in the same way. yesterday they put out a press release saying, looking at this, just thinking about the u.s.
dollar they say about $5 billion. you look at that, that is operating profit. that is about a 5%, 5.5% hit to operating profit. now, whether that is the exact number and do they not need to also consider all the other currencies they are dealing with i think the math is quite complicated. the question for all these guys is, is the swiss franc safe or will we see more? >> where do we stabilize at. >> i just read this morning that when perhaps qe hits, there will be more interest. >> sam fazelli will be on bloomberg tv through the morning. equities getting a hit today, every single stock on the equity market is lower. up next, we will shift gears and talk about another story, oil. we will speak with the ceo and talk to him about the oil prices and how it will affect his
>> welcome back to "on the move ." i'm jonathan ferro. 30 minutes into trading, the stock market off a little bit. big headline is switzerland. the snb scrapping the cap on the swiss franc, the swiss franc surging, equity markets under pressure. smi down 3.5%, the dax doing nothing. caroline hyde? >> the pain, $2 billion wiped out of its market capitalization in two days. they are frantically trying to work out how this hit private
banks in public banks in switzerland because of the sudden appreciation in the swiss franc. julius baer profits they say will slump, credit suisse will see its profits hit high 15%. so says barclays. julius baer really the worst performance because of the sudden appreciation, sudden end of the cap down 9%, as do most swiss stocks today. let's look at retail carrefour up, france's largest retailer is dominated in brazil, an international player, sales up 3%. this company is doing something right. minneapolis praising the management and the new format.
the only issue is china. chinese sales have fallen. the company says clearly this is one to watch. meanwhile ,spectris, basically they test gear, whether energy or automotive. they will test your gear that you make in most industries. shares up 7%, the best performance. why? fourth-quarter sales are looking bright, up 5% year on year. they say the macro economy is not looking too great, but they're well-positioned for 2015. >> thank you, caroline hyde. those are the stocks on the move. a quick check of the price of oil, a big story, crude heading for its biggest appliances 1986. the high today, $47 per barrel
brent up a little bit $49 per barrel. the move is having a varied impact on businesses everywhere. it has been up for battle. our next guest is the ceo of the second-biggest oil and gas engineering company in the u.k. samhir, great to have you with us. >> thank you, may i actually correct some of your statements? i am now the largest. >> you are. the largest. the big story the last 12 months, the collapse in the price of oil the last six months. explain to me how this works for your company as your clients perhaps pullback, have to cut jobs and costs. how does this impact your business? >> there is no question there are lots of challenges when the
oil prices are under $47, as reported. that puts a lot of pressure of the system in the sense of cap x investments that need to take place and whether we will see a delay of six to 12 months before we see oil recovering and more business happening. i think during the time, it's important that you have a very solid business basesd on a healthy mix between capex, and operation and minutes. we have a very good hedge and balance before you -- hedge and balanced portfolio. while some investments are going down our operation and maintenance contracts in the north sea, in the middle east, asia still continued to be very solid. >> are you concerned about what is going on in the north sea and the cost of operating up there? >> of course. there have been reports about house and sit of the oil prices are to get the benefits out of
the sea which we have up there. and now of course more stress on prices, everybody is nervous. but the point of what we need to do here is as an industry we need to reinvent itself and come up with different solutions than what we have done in the past. >> samikr, what kind of things can you do down the road to weather the storm? >> the big thing is hedge not because we are not only working on the oil and gas sector, but also looking at the fundamentals of the business, clean power technologies, and also for the mining business and environmental business. all that mixture can be helpful going forward. amec foster wheeler has been one of the best performance in the last seven years, five years, three years, and this year. what's important is it continues to be strong. we continue to invest in our people. we listen to our customers and
we together with our customers are reinventing the business. >> samir i have to ask, what you make of the share price move, 20% drop last year? you cannot begin to get into the psychology of an investor's mind, sometimes heading south. do you think the move lower the price of your company is justified by the move lower in oil? >>no, i cannot judge the market, but i notice people get nervous as soon as they see oil prices going down. amec foster wheeler is 159 years old and we have been weathering a lot of cycles. what i think is very good now with a combination at amec foster wheeler we are one of the few companies that will offer value through the whole value chain of the oil and gas business upstream or downstream. when you see pressure upstream, it makes it easier on the downstream business because the
fees are cheaper and that generates more business opportunities. >> what shocks me personally is nobody in june was telling me this was coming. hardly anybody call this. now people are think him you know what, by the end of the year the price of oil will rebound. if oil stays at $50 per barrel, what does it mean for the industry and your company? >> if oil prices are going to stay a $50, i think many of our clients will be having issues. the question is whether they have a strong balance sheet to weather whatever this is. the fundamentals of the business is very solid. you have seen that open has already reported -- opec has reported they have seen a reduction in production because of lower investment and that shale gas activity is going less, which means if this works out, we will be seeing better balance between the supply and the demand and we will see prices going up. >> samir, i want to talk about
how the vest that you are and renewables. renewables, it's great to be diversified, but when the oil prices low not much to do on the renewable side. draw the picture form a. >> -- draw the picture for me. >> we are en route global not only because they are cost competitive but also because they contribute quite a lot for a better environment. i think even as we have seen oil prices at 10 or 20, we are obliged to plug into new technology to reduce co2. co2 production is irrelevant by what is happening with oil prices because we need to come up with solutions. renewables is one of the solutions, capture is another and their others being developed. >> samir, will you be able to avoid not cutting jobs in the next will months? >> the beauty with what we have been doing at amec foster
wheeler is we have our ready announce we will take out a lot of costs because there is enormous benefits and cost energy, and also revenue synergy. as we know from amec we had a major program and having the organization lean and mean, and that journey continues. >> politically speaking, there is a lot of pressure on the u.k. government to do something in the north sea to cut taxes. do you think they should? >> i think something needs to happen there. there is a major issue with the north sea, beyond the cost of production and how much is the profit. you need to understand there is a lot involved in generating from the north sea. for us, for a company like amec foster wheeler, this is our university, this is the place where we educate the future oil and gas people, in many places in the world. that needs to continue. if the taxes are not tweaked to
facilitate investors making investments and the services to be there, it would be a shame. >> samiorr, as you look at the situation in the north sea, is there a risk if the oil stays at 50 that projects could be decommissioned? >> it depends on whether you are a large investor or a medium player or a junior or independent. i think the independents have found they can run many of these assets much shecheaper than the big guys because their costs and overhead are different. but going forward, with the oil prices we have, that puts pressure because they cannot generate money for further investments which means the industry is going to be more on the opec side of the plan if they see they cannot make money even with enhancements and retrofits. >> samir a political question,
your company is part of a consortium that has a contract to sell its oil here in the u.k. will you bid for that contract again or step away? >> we need to first understand what it is. obviously we are disappointed we do not have the management benefit anymore. i think there are three points that are in. first this termination was a termination of convenience rather than for cause. two, the performance on the site has been outstanding in the new second term. three as we know amec foster wheeler is doing a lot of work at tier two and tier three. i think the journey continues. we are disappointed and we come back. >> samir, one further question that i forgot to ask. as you see equities selloff, consolidation, are there opportunities for your company? >> i think there are good
opportunities. the first thing is we have been working hard in the last 10 months to digest and get the best benefit from the commendation. we will go in see about the new opportunities in the market. >> anything you would like to move for this year? >> this year is a little too early. by the end of the year, we could be ready to think about new acquisitions. >> thank you very much samir brikho of amec foster wheeler. a possible $13 billion fine is most of the time not met with a boost of stock. more on why that figure may be good for bp, next. ♪
>> welcome back to "on the move ." i'm jonathan ferro. this is how stocks are trading in europe. the ftse 100 is up about 0.5%. bp is up, one of their finds a lot lower than potentially expected, good news for them. bond market yields are lower. the 10 year yield in italy is down. the u.k., 30 year record low on the yield, 2.18%. you think yields are low? check out oil.
amid the gloom for falling oil prices, good news for bp. a u.s. judge has ruled during the gulf of mexico oil spill less oil spill, less oil spilled then the government believed. this cap's the fine at a lower level. caroline, how much does bp need to pay the u.s. government? the numbers are mind-boggling, but this is good news? >> 13.7 billion dollars could be good news, that will be the maximum. it is thought to be the biggest ever pollution fine in the was industry, but not as high as it could be. a u.s. judge ruled the u.s. government was a little overzealous in thinking how many barrels of oil were dumped into the sea during the dramatic oil spill in the gulf of mexico in 2010. they feel the u.s. government was inflating this by about a quarter. it is not 4.2 billion barrels dumped, the judge thinks it was about 3.2 billion barrels
dumped. less oil in the sea, a quarter less the fine. many of the lawyers are saying this is a major victory for bp. bp was more optimistic. they felt the u.s. was insatiable lysing this to the tune of 40%. not quite as low as they wanted, but it's getting there. >> how much does this set the scene for the trial? >> new orleans, it starts next week. the u.s. district judge will be setting the exact fine. he does not have to think $13.7 billion is what bp should pay the u.s. government. he may feel that bp took dramatic steps to ease the situation. that they tried to minimize the damage. many are feeling that perhaps bp will not pay as much as double-digit billion dollar figures. bp actually feels they will not be seeing this maximum amount of the claim. they feel it will be less, so says the spokesman. they said they are not expecting the maximum amount of fine.
bp has set aside $43 billion. you cannot even try to compute what sort of size money that is. that is what they have set aside. they have already spent half of that on some of the fines they have had to settle, some of the response to the cleanup they paid as well. where will they see this overall fine to the u.s. government? they still have to be paying out some other government, state governments, casinos. because of all the damage done to business over there, they want payments back. this will run on and on. the next is the big one, with ao the u.s. government. >> the other is quite purely the price of oil. cuts for them in the north sea schlumberger this morning, there are some big numbers. >> we are talking big numbers with bp, we are drastic measures by the oil industry. schlumberger the biggest oil
services company, bp goes to them and says we want to build more oil rigs, 9000 jobs are being cut. that is 7% of their workforce. some of the analytics going on at the moment, energy companies in the u.s. are likely to cut spending 35% this year. we are likely to see 750 oil rigs go in the u.s. that is down some 40%. some phenomenal, drastic steps being taken by u.s. energy companies. >> that is what $48 brent does the business. european car sales rising for the first year on year since 2007, increasing 5.7%, 13 million cars. joining us from berlin, chris what is behind the strength? is this just cost-cutting? >> well, the rises based on six
years of declines. over six years of declines means cars are getting older. at a certain point, they just have to be replaced. also, to reduced demand, there has been a lot of price-cutting, so the fundamentals are still questionable. >> who are the big winners? talk to me about the carmakers, the luxury dealers. any mainstream names some affordable companies that have done well? >> actually what has driven sales the way of the fundamentals of the european economy, is the budget, the lower-cost cars. the biggest gainer last year was a romanian-built renault unit, famous for no-nonsense vehicles. that was the biggest gainer, 23% last year. also the low-cost vw brand grew 13% last year.
the luxury brands were actually stable. their market share did not change too much. they do not have a great year. it was the low-cost brands that drove the sales gains. >> chris, a little good news in europe for once. thank you very much for joining us. a quick check of the equity markets -- the ftse 100 lower up .5% couple minutes ago. the smi down 4% after the shock move by the swiss national bank to scrap the peg against the euro the swiss franc surging yesterday, the european equity markets taking a beating again. a quick check of the bond markets, the yields are lower. the 30 year guild, the u.k. bond 2.2%. that is a record low. we will continue that conversation after the break. ♪
switzerland, the reverberations continue, the market's down. his answer staying, the currency overlay on all this story is fascinating. if you're a euro investor dollar investor, different story. you need to back the currency element out of the stock. there will be some smart people out there plugging in numbers, trying to figure out with the degradation of earnings is going to be for the big pharma. a lot of comp located stuff. it will take a while for that. >> who are you speaking to? >> we will get a take on what clients are saying, with the institutions are saying, the long-term story, what they are saying within the switzerland circles. he has a number of different hats he is willing to wear, a big perspective on that. hans nichols is in zürich. we will get his take on that. we will try to dig into the nuances of the story. it's easy to get the knee-jerk
reaction and look at the swiss market falling, but you need to assess the details. shock stock is a well-known institution now to come out of silicon valley, out of the u.s. in the tech story. yesterday in london, big photo agency, shutter stock, very different is this model. we will talk to him about what is happening, why this acquisition will happen. he is a supersmart guy. >> that will be in about four minutes. that is almost it for "on the move." a quick check of swiss stocks lower, down yesterday, down again today. 12.5% drop the last couple days. the swiss franc surging equities getting pummeled, the ceo of swatch said a tsunami