tv On the Move Bloomberg January 19, 2015 3:00am-4:01am EST
just eight days and counting until the big central bank decision. 93% of respondents expect mario draghi to announce quantitative easing. i am looking at futures markets climbing high. dax futures up by 63 points. this monday morning it looks like we will get a higher open for the market open. >> you hit the nail on the head. equity markets are rising. it was a dip in china that this poll had further to run. expectations are very common with bank saying perhaps the shock and awe, saying the ambition is to get back to the inflation of 2% and leave it open-ended.
the germans might have some objection to that. london opened virtually flat. oil is making a comeback. is that being overgenerous? you are seeing just a little bit of a reprieve on these equity markets. we are going to run towards super tuesday. let's have a look at some of the currencies. everything is priced into the euro dollar. you are probably going to see the euro-dollar at 120. the market has fully priced qe by the european central bank and the one-month money suggests you are going to see a little bit of a turnaround on that. have a look at the euro yen. money was coming out of the euro
and going into the yen. that is where you see a big move . have a look at the couple of stocks we are keeping an ion. -- keeping an eye on. who day is becoming ceo. they would create the largest mobile operator in the united kingdom with the 41% share of the market. that really surprises me. they are coming together creating 41%. telefonica up 1.38%. would it be 9 million pounds
they might receive. -- they might receive? we start the trading day in earnest. >> we will be talking. don't worry. you won't miss me. we are a little higher at the open. the ftse 100 up by nine or 10 points. a very different story in china. the steepest wanted more than six years after regulators cracked down on investors buying stocks with borrowed money. let's get to david tweed in hong kong. 63% higher in just six months. a lot of people calling it a bubble. was it a bubble? was it bursting? >> you said 63% in six months. the chinese authorities are worried about the pace of game they saw take place in the
chinese equity markets. i want to give you an eye watering number. this is $63 billion. i am giving it to you six months ago. that was a market of outstanding market loans. that rose by the end of december two $174 billion. you can imagine why the chinese authorities are so worried. it is 80% retail investors. you have all these retail investors out there with a high possibility of getting badly burnt. which is why the chinese authorities have turned to the three biggest rogue ridges in china. they said no new margin trading accounts for three months. they are actually panic for allowing inexperienced retail investors so they are trying to crack down on this.
we might see further gains. what is going to happen to all the money in china that is sitting around? there is a lot of money sitting around. when you look at the traditional measure like price-earnings ratio the shanghai composition 15 times projected earnings. s&p, 18 times projected earnings. will it continue or not? you decide. >> i don't have the answers, but thank you for joining us this morning. let's get someone who might have the answer. we are joined by the local head of equity trading strategy at citigroup. the last six months, the chart suddenly looks like bubble
behavior. what would you say? >> to drivers. -- two drivers. four months after it would be 35% premium. there was a sentiment to buy them at the time. they did go pretty extensive. the trade couldn't be helped as well. there was a new mechanism allowing flows between shanghai and hong kong, and that contributes as well. there has been an injection of liquidity in china, which leads to accounts opening. therefore, the announcement we saw over the weekend. >> you raised a red flag. i will give you the credit -- on margin loans. if they rein in on this area
this is almost the end. do you think this is the beginning of something, or is this typical of chinese policymakers that they dabble a little bit but do not go all in? >> if you look at the last four or five years, if they put too much liquidity in, they don't control it. we actually downgraded the market a week ago based on valuations. the market posted at 10% move this morning. at one point it will become interesting again. for now we find them too expensive. >> how does chinese new year sit in all of this? >> it is going to increase volatility. we do still find value. there are still some a shares.
there are some that are interesting to look at. the only problem is how you express it. one has to be creative. >> let's talk about margin lending and leverage. is this about chinese leverage? >> i think one thing that may come up this year is increased volatility, and we have called for that. in the maturing market you expect more volatility. we have been more -- quite comfortable with volatility. we are still bullish. we think it will be higher.
switzerland showed us the volatility can come back with a vengeance. >> i want to talk about the fx market. shanghai composition went vertical. how long are they going to tolerate this for in china? >> the one thing they did was they carried trades. they did let the currency dropped to make sure there were no week hands. i think it fits with their views. it fits with the fundamentals. you have a country which is growing. you have yields which are making it interesting. we are seeing an inflow if not from chinese retail by some of
the institutions as well. >> will you be paying much attention to the gdp figure? >> especially last year we priced the fact we are going to be around seven and a half, so unless we deflate from that significantly, unlikely you will get a huge impact on the back end of it. >> a big move in china. we will talk europe after the break. up next, qe countdown. 93% of respondents in a bloomberg survey the ecb is expected to deliver its sovereign bond buying program this thursday. what does it mean for markets? here is a look at the markets pretty much doing nothing. the cac is dead flat. a big week ahead for europe. we will start the countdown for
i have seen the polls, and it looks like expectations are high. >> they are stellar according to one economist we spoke to. you can pretty much take it there is going to be some form of qe this week. there will still be discussion between now and thursday but it looks at the moment inevitable because the market expects something like that. one of the characteristics attributed to mario draghi rightly or wrongly is that he is aware that disappointing the markets when the economy is as fragile as it is is very dangerous. we are looking at something like 550 billion euros. >> let's say we get 550 thursday. i guess the bigger one could be
the nuance between the headline. i think the major haggling seems to be around risk. what are the potential outcomes and what do they mean for the market? >> that is key. the key issue remains how do you allocate the risk how do you limit the risk. the options come down to how do you buy. it is equivalent to the size of the euro economy. 14% would be french debt. the other aspect is who buys and holds the risk in their own books. the risks are that national central banks will be told to buy a portion of the debt and
keep the risk on their books. if spain or portugal want to buy heavily their own country's debt, german taxpayers don't end up bearing the risk of that. that might end up with the german public. this is quite a sticking point. the concern is if you make this too complicated, it makes it too hard to convey the message to investors the governing council is serious and reduces the effectiveness. the simplest way would be the ecb buys a lot, the risk is shared, and there you go. >> nothing is simple in europe. i know you're going to be a busy day -- to have a busy day. is there a risk this thursday becomes too complex to understand what they are really doing? >> the expectations are pretty high.
we need to get something on thursday. there should be implications. yes, there are questions about how you can buy the debt. first it is better than nothing. if you start putting liquidity into the system. it's a bit more complicated, but it's better than nothing as well. >> it's less about what a date
of easing and more about quality. if you come out with a big number, are people going to forget the other stuff? >> if he came out with less than 100 billion over two years, that would be one thing. he is making the claim there can always be more. >> the big question is going into thursday. what is the positioning like? we talk about the bond market and how this is priced in. what about the bond market? are we holding back a little bit? >> i think a lot of it came from the lack of housing. the human being is not prone to take the lack of housing well.
for us it is not being priced from that point of view. what has been priced is the move on thursday. we are pricing about a 7% move on the banks. >> i want to get your take on the swiss national bank. it hit the 52 week high and the low in the same week. >> that is rather unique. we had flagged the fact the peg was at risk because of qe. he was not going to stand there and buy more and more euros. what has been vicious was not the position on swiss stocks. it was more the effect. there was a feeling the snb was going to go negative rates. we
know what happened last week. the positioning of swiss equities was high as well. the biggest market was actually switzerland. switzerland is about 21%. france is 20. germany is 19. if you were an american shareholder you make more on the swiss francs then he lost on the swiss stocks. that attributes to the weakness. if you start making money, your reaction will be to go flat. >> a fascinating insight. coming up, we're going to talk about the fallout. details after the break. stay with us for that.
>> welcome back. it's time to talk about the fallout after the swiss franc last week. the loss is becoming but it clear over the last couple days. here with more is caroline hyde. they are calling it francoge ddon. a number of companies get into trouble. >> if you were betting basically against the frist --
the swiss franc, you were going to be hurt. if you were thinking it would decline, you were smashed. they are closing the oldest and biggest main fund. we understand it is being closed because they were betting the swiss franc would decline. there is one hedge fund. who has really been hurt? we have the largest u.s. retail one now $300 million. they have been given a lifeline. their clients basically couldn't get the cash for their losses. what happens is you usually use a lot of leverage. suddenly, who sits in the middle?
they said, when they have to go into insolvency. a bit of a problem for the sponsor. >> the regulatory problem could be big. we are finding out about the losers. we are finding out about some of the big losses of some of the big financial institutions, the big banks in the city. >> they have set aside some money, but they are not in any great trouble. some of the big losses are in the biggest banks. barclays lost less than $100 million. these hundreds of millions of dollars these companies lost. we spoke to the european banking
authority chairperson. he is saying, it's all about how well capitalized they are. >> these shocks are always there. what is important is the european banks have strengthened quite significantly. they are much more resilient. >> people really felt the pain. they say no losses. they continue to analyze the development. they say overall they are doing pretty well. we were not exposed. >> did the snb move because of the european central bank? the qe countdown begins.
>> welcome back to "on the move ." this is how things are shaping up this morning, the stoxx 600 up .26%. counting down to thursday when the ecb's vision day -- will we get that qe announcement? >> some calm off of that storm of volatility last week after the swiss franc shot up against the euro. checking on the swiss stocks julius baer up five and a half percent after a beating last
week. we experienced no losses after the days following the swiss national bank to and the euro cap. they are saying look we were well protected and they're also saying we managed enormous volatility and the volume. and schindler that escalated as well. and they are saying the prophet has accumulated rather nicely. it is all down to financing. they are saying overall that it is all due to the financing activity why they are having a higher profit. plus pretty much as expected, what is this company even doing that they have suddenly been held to the tune of millions of swiss francs. balfour beatty
also climbing today, good news to the united kingdom. a big contract several engineering contracts. could be worth 1.5 billion pounds for civil engineering and infrastructure in the united kingdom. what about infrastructure in the u.k. today jacob -- today? >> here are the top stories at bloomberg. stocks in china got crushed today. the biggest drop in more than six years. the inequities followed a crackdown on regulators on investors who use the arotech money to buy stocks. despite that, the shanghai cobb is still up over six months. the swiss decision to allow the frank to trade freely against the euro has caused a big dip. the $830 million global fund was completely wiped out. that follow several brokerage
firms that have gone bust because of the move. the european central bank 93% of respondents expect that ecb to announce a sovereign qe program this week. mario draghi is likely to announce a 750 billion euro bond buying program. let's keep the discussion on the ecb, we are joined by the head of the fx strategy at the bank of montreal. great to have you. we will first indulge in a guessing game, let's peculiar -- let's be clear, that is what is your it what is your base case? >> the 500 billion euro number has been floating around and anything between 500 and 1.5 trillion euros as an announcement is something that we should be looking for.
the goal of the ecb is a result of these asset purchases. i would look at that as mainly an effort to keep the euro cap. or to use the dollar strength as it were to the ecb advantage. i think it will support medium-term growth. the credit dynamic and the lending dynamic. it is something that should support the euro over the medium-term. the upside growth potential and possibly even inflows to private asset markets. >> i want to talk about the next rate very quickly, will they have to put that up a little bit? where else am i putting the money? >> that is a fair point and certainly one of the things that i think will protect the ecb
from being extremely aggressive. you want to call it boj-like. it is something that could slow the ecb down from a very aggressive announcement. my preferred option would be for the ecb to keep most of the bond buying program under wraps. we could get as much as 11 5 trillion over the next year -- 1.5 trillion over the next year or so. because draghi has credibility he has more credibility on this issue of supporting the eurozone and keeping it together than they did when they were operating the securities market program. overall, it was probably a failure. with mario draghi at the helm if they are intervening at
adequately timed clips and sizes the market should view that as potentially unlimited and that should get them what they want in terms of the euro. >> let's talk about the euro last spring pushing 1.1 or -- 1.40 and turn of the year we have come down and the move in the last month has been sizable. how much more down? >> we see the euro going down to 1.10 by the end of the year. we see it in issuing the end of the first half at 1.10. you have to look at the dollar side of the equation. the fed has curtailed the supply of dollars to the global economy at a time when the external position of the u.s. is improving and the deficit has been on an improving trend. it is like pressing a giant
reset button on the global economy, all exchange rates have to adjust vis-a-vis the dollar. potentially you could say that growth and mobile growth and inflation are lower in an environment where there is less dollar liquidity. that is the environment where the ecb has started to expand the balance sheet into as the growth rate decreases. month over month terms, this is no accident, the ecb has been purchasing private sector assets. in month over month terms, the growth rate is above that of the fed and that is no accident. >> we talk about that one cross, euro-dollar. euro-swiss, the swiss national bank capitulated on that cap, where does this leave the others? >> they are already gaining
pressure and in fact the remaining free-floating currencies without negative rates or official rates or official caps, we expect more volatility over the course of 2015. officially -- effectively, we think the ecb lower interest rate and the threat that things could go lower in switzerland, we think that will be successful. as long as risk aversion stays reasonably wall -- reasonably low, we think it will be effective in deflecting capital away from switzerland. it will put pressure on other european central banks. >> is there a lesson we can learn from last week, or is this a different trade? >> in what sense? >> you have seen the swiss bank strengthen so much, would you make the trade on the danish krone that you should have made on the swiss franc?
>> you need to be careful. as far as rates are concerned you have more success in the very short run. most of the yield curves we are talking about in norway and sweden and denmark maybe the u.k. but i am not entirely sure because the growth i now met is still a little bit better -- because the growth right now in the u.k. is still a little bit that are than the euro as a whole. >> why do i care that they share the risk? >> from the euro perspective? you need to look at the sovereign bond buying as a way to keep a euro week and to cap it. the private asset purchases are more about reinvigorating or creating from scratch the asset markets in the eurozone. that is more of an medium-term
upside. in terms of the details at the end of the day, the creation of the euro has fostered a huge amount of macro economic interconnectedness in europe, so it makes sense, with decisions that reflect a integrated situation. the biggest printers globally have been the nationstates because they are making one decision, one government, one bank. in the eurozone it is different it makes sense to keep those decisions on an interconnected basis. so you have the banks that will presumably be buying and keeping the credit risk on the national central bank's allen seat but also performing -- balance sheet , but also performing as a whole. you have to consider that the more that the growth improves in those countries and the more the
banking system and bond market is protected, the larger the risks for those countries to walk away and leave the euro. as things improve for them, the risk of leaving and having all of that written off is higher. >> let's talk about that question and just to summarize and conclude, three days later how can the details stimulate a greek exit. -- exit? >> it is once again, another game of chicken. what the ecb has the power to do is simulate a greek exit by ordering that the banks by most of the debt -- buy most of the debt, but exclude greece. if they push that can too far, in greece it could look like an
exit is a better situation. they have a little power with that. i think as the ecb ventures into sovereign bond buying, it needs to have another way to have a right down on -- write down on greece's debt. >> stephen gallo, european head of ethics tragedy. we have climbed to a session high. the dax also pushing higher, up 79 points. it is decision day for mario draghi at the ecb, will they pull the trigger on quantitative easing? that is the picture in the equity market, here is the picture in the fx market. 140 we were pushing last spring what a move lower over the last nine months. stay with "on the move."
we will invest it in ourselves and gross. -- growth. they went to ease potential deficits and are putting 100 million pounds into a fund. they're trying to eat crow about what their growth has been. look at their statements, annual returns of 23% from john lang. henderson has been looking up ways to exit this particular asset, they're looking at selling it to a player in australia and now they are selling shares. before it used to be a big construction player but then it got burned building the millennium stadium in wales. and now they go to sovereign funds that want to invest in infrastructure and then they go to the government in united kingdom and australia and america and say help us do these deals. they have skin in the game,
hospitals, wales, roads and criminal justice a 160 million pounds project doing a children's hospital. they help build them and then they help manage them. it is public-private partnerships. >> why have they changed their mind? are they looking at market conditions and thinking, might be better spinning this off? >> i think anderson wants to cash in at the moment. they have been selling certain assets already. they paid about 780 million pounds in 2006 but have managed to make a nice little earning from this company. we understand they're going to sell a portion of their stake and might even hold onto a little bit. they are changing their tactic and now getting new board members at john laing. we understand there are new
people at the helm and one of the directors could be jeremy beaton, he was involved in the olympics and knows how to steer a big company. >> those of us who get excited about an ipo, what is on the agenda? >> i am amazed by what the pipeline looks like. pwc says we could see 30 to 40 listings. and the london stock exchange in the first order alone, 5 billion pounds could be raised. we have the train lines -- train line.com could ipo. 25% of the company could be sold. mccarthy and stone could resurrect plans to sell their shares. hss hire is another one on the books. it is going to be a heavy hype
line in terms of deals -- hype line in terms of deals. >> a busy 2015i am sure. that is almost it for -- a busy 2015, i am sure. guy, what have you got? >> as weeks go, this is a big week for macro economics. ecb on thursday, everyone will be talking about that. one of them is carl weinberg, he will be joining us and we are looking for to that conversation. a few things to say about this. we will get his take on the s&p and what is happening with the ecb. potentially with the way the qe operates and we will talk about the fed and china. then -- it is not a dual anchor show, it is a three person show because hans nichols is at the
dlc conference in munich and he will be conducting a bunch of great interviews in the second hour of the show getting at the heart of what is happening and the bigger picture. thinking about the fact that we have over talking about creating huge numbers of jobs. the impact these tech companies are having at the moment. the first hour of show is just fran and i. macro economics and technology, what a great combination. >> i am much more excited about the macro. ecb, the big event and next to that could beat russia, the world's biggest energy producer and is quickly nearing junk. the russian bond blast in full focus. ♪
bonds that are yielding more than 10% more than what you get through the u.s. treasury. that is the definition of distressed. more than 10% of the yield than you're getting in distress. at the beginning of december, it was just five ons. we have seen this dramatic escalation. v ed is a state backed rescue bank, infrastructure bank. almost half of the $44 billion of distressed debt that russia has right now. if you look at those yields, then you say, people are already treating russia as if it was junk but in fact if you look at the credit ratings, they all right now are one notch above junk but we are expecting for s&p to downgrade russia to junk
and we are expecting moody's who made that move already to the notch just above junk to do the same very -- same. both dependent on the likelihood of sanctions continuing and the oil prices. >> what we are seeing is dollar-denominated debt and sanctioned spikes and perhaps the ultimate sanction, the collapse on the oil price. we are interested in the feedback loop. things have gone off the boil slightly, how serious is it? >> on the oil front, oil is still below $50 a barrel and that is a huge problem for russia. sanctions-wise, it doesn't look like they will go away. the fact that the eu foreign ministers are meeting today and discussing sanctions. we have a huge uptick in the
fighting at an airport in rebel held territory. they are trying to hold onto it in a separatist area. in addition to that, you have the ukrainian president saying that the federal government should take all of these facts. no one is talking about these and we are nowhere in terms of the mints agreement. the eu and the united states have said that until that happens there won't the any rollback. >> not so much talk of that at the moment. almost it for "on the move" the markets are still higher by about .3%. the dax is still higher by .3% as well. check in on the euro, this trading at 1.40, near enough. we are back to a low we have not
>> shanghai shaken, chinese stocks fall the most since 2008 as regulators rein in retail investors. >> we will have more on the latest bloomberg survey of what to expect this week. >> 50,000 new jobs to the continent, we are live in munich speaking to top tech execs as they vie to win over europe's investors.