tv On the Move Bloomberg April 13, 2015 3:00am-4:01am EDT
the chairman of volkswagen publicly criticizes the ceo. we ask the question, whose driving? coming up on the show we will bring you more of that exclusive interview with one of britain's richest men. his thoughts on u.k. politics and london property coming up in about 20 minutes. we have got futures pretty much dead flat. euro stoxx futures up about a point. dax futures down about four points. some pretty lofty levels over at the touchscreen. manus: thank you very much. $70 trillion worth of equities it is the bart chart. just go to bloomberg.com to pick up the nuances of that. 14 of 47 hit all-time records around the world. the question is, will shanghai continue its momentum? we get ready for that growth data to come out on wednesday.
the export and import numbers were toward you this morning. the euro steps bacsk from its all-time high. denmark, portugal all off in excess of 25%. the pound is at a five-year low. we are waiting for u.s. retail sales to come through. iron ore down at $30 -- $45 this year, $30 in the making. you are seeing the miners come under pressure. as we go to the imf, stop-start scenario. a lot of criticism of the miners. just keep digging that stuff out of western australia and exporting it. paris, let's have a look. on the downside by over 1.2%. some individual names in focus
today, the irish paper and pulp corporation up 2.78%. they are denying that they are in talks, had an approach from international paper. they are saying it is frustrating that they've got these reports. julius baer dispelling rumors that julius baer and credit suisse have not held talks, according to the ceo. tesco down by 0.9%. tesco may face another 3 billion pounds of impairments. scrapping plans for 49 stores. those are your stocks to watch. jonathan: manus cranny, thank you very much. the ftse 100 coming off an all-time high, down about 0.1%. the date of this morning is coming out of china. exports plummeted for the month of march. estimates were a gain of 9%.
the number came in at -15%. tom warlick over in beijing. the export data, on the face, looks terrible. the first question is, is it as bad as it seems considering this is such a noisy data point? tom: i think that is a good point. certainly a contraction of 15% is not good news. there's no getting around that. at the same time, there's a couple of factors which suggest maybe we should treat the data point with a little bit of caution. we saw a massive surge in exports in february. now we see this contraction in march. if you put the data together for the first three months of the year, you see export growth around 5%. that's not stellar, but it is not that bad either. the second point, which means that we need to have a little caution, is what is going on
with invoice exaggeration. if you go back a year, china's exporters wanted to bring funds on shore. they were exaggerating their invoices. that bumped up the export growth. that is much less common, that practice of invoice exaggeration, now. there's a drag on headline export rates. jonathan: tom, we've got to talk about the policy response. the equity markets get excited. the idea is that you get more stimulus. what is the policy reaction likely to be, considering that authorities have been tweaking around the edges over the last several months? tom: that is right. this is really the latest in a string of week data points for china. we've had poor readings on industrialized investment consumption. the m i has been disappointing. if you put this export number in the mix as well, the case of
further easing appears very clear. the equity markets have certainly anticipated further cuts in the interest rate. i think that's right. i think we are moving quickly towards a further interest rate cut. i think in some ways the more interesting question, the more difficult question for china's leaders, is what to do on the exchange rate. if you've got contracting exports, you want to support the competitiveness of your factories. at the same time, china's leaders are also worried about the stability of the domestic financial system. they are worried that if they allow the yuan to follow the japanese and korean currencies down, the result could be an exit us from the markets -- exodus from the markets. jonathan: tom orlik, fascinating as always. tom orlik joining us from beijing. for more, i am joined by bob
parker. great to have you with us this morning. you've got the economy in china, the market in china, can't really equate the two right now. start with the economy. a record surplus evaporates in a month. how do you make sense of what is going on? bob: do not look at one month's figures. this chinese export data, chinese trade data, historically is very volatile for a whole series of statistical reasons. look much more at the 3-6-month trend. if we look at export data over the last 3-6 months, we've got a growth rate between 5% and 7%. that is not as good as we saw two or three years ago when export growth was close to 14%. i'm assuming, in line with the trends lowdown is moderation in the chinese economy, that we are going to get trend export growth just above 5% for the rest of
this year. one caveat is you might get somewhat better data over the next six months and then we've seen over the past ex month. the week data as exemplified by the pmi numbers, i think we are going to see some slight improvement. that is in line with pboc monetary easing. jonathan: people often get excited about the prospect for more stimulus out of china. do you foresee that happening in a more aggressive way? bob: the first point is what is motivating people's bank of china. they have been very clear. they aren't concerned about the negative ppi numbers. they are very concerned about deflationary risks. those deflationary risks have been compounded. they are not relaxed about the fact that pmi numbers have been dipping below 50. also, they are concerned that the real estate market has to be
deflated slowly. i emphasize the word, slowly. they want the bubbles in the real estate market to stop but they don't want them to burst. linked to that is the crackdown in the shadow banking market. they've been very effective indeed. the cracking down on shadow banking, the offset is going to be easier towards the more conventional banks. that is in line with a further easing in monetary policy. jonathan: they try to temper the speculation in the real estate market. that speculation seems to have shifted to the equity market. the shanghai composite has gone vertical. bob: i think it goes higher. the reason for that is, yes, i appreciate the shanghai composite now up 95%. we have been long the chinese market since last june. i'm still pretty comfortable with that long position. the reason i say that is i don't
think we are going to get a hard landing. i think growth this year will come in close to 7%. in 2017, growth is probably going to be 5%. a longer-term path of moderation in the chinese economy. i think the shadow banking system has been largely fixed. i think the deflation of the real estate bubble is proceeding reasonably smoothly. capital flows, the key question for the chinese market chinese investors were long real estate, long money markets. they'd been shifting into equities over the past 2-3 months, but i think there is still very significant chinese retail and institutional money to go back into the equity market, which is still the valuations are not looking that stretched. jonathan: bob parker is going to stick around. we will talk equities more after
the break. $70 trillion later in the hour we are going to hear from one of the billionaires behind the hinduja fortune. he things london property prices are heading one way, up. in contrast, bond yields slide. we speak to the man who nailed the market and then, who is driving volkswagen? more on the skirmish at the german auto giant. join us after the break. ♪
jonathan: good morning and welcome back to "on the move." about 12 minutes into the session, coming off all time highs on the foot a 100. -- the ftse 100. for 2015, it has been a record year for stocks across the planet. 14 of 47 macro -- national equity benchmarks hit all-time highs this year. that has propelled the value of the global stock market to more than $70 trillion. i want to bring back bob parker of credit squeeze. we talk about bond markets and equity markets. let's talk about equity markets first. phenomenal start of the year. bob: to a lesser extent in japan , and selectively across emerging markets. the chinese market has continued to do very well.
however, you look at the latin american markets, they've underperformed. the big trade this year has been the opposite of last year, which is long europe against the united states. that outperformance by the s&p which has lagged quite badly this year. jonathan: what are we investing in? is this an overweight queue e*trade? bob: i think the first point to make is that qe is very powerful in driving investor money into riskier assets. for example, the german market the 10-year bond is currently yielding 50 basis points and potentially in the coming weeks goes to a negative yield, relative to investing in an equity market which is benefiting from the devaluation of the euro, the lower oil price , lower commodity prices. i think capital flows in europe are going to move driven partly
by qe, but also driven by the weakness of the euro and other bond markets into equity markets. although europe is now looking a little overvalued, i wouldn't say it is a bubble yet. i think that upside in european equity markets continues. that's what i find -- jonathan: that's what i find so amazing. it has been a buy everything scenario. at some point, does that relationship or lack thereof breakdown where actually one of those sectors, one of their asset classes -- bob: i think it can break down later in the year. what happens if expectations build up later in the year and the ecb qe program is either going to slow down or potentially stop? the ecb has said, yes, we plan to do qe until september 2016.
there are some technical issues about getting purchases of european bonds in certain illiquid markets, but what happens if later in the year the inflation numbers pick up again? european growth accelerates. expectations could change in the fourth quarter of this year. if qe stops or reverses, that would create a serious problem for markets. is that going to happen over the next 3-6 months -- no. jonathan: if it is a buy everything scenario with qe -- bob: if you get a reversal of qe or an announcement that qe is going to slow down, you get a selloff in european bonds. german 10-year bond yields in 3-6 months time could be close to euro, and could snap back to 50 basis points or 75 basis points, in a reasonably short time. the ecb is very sensitive to any
slowdown in qe later in the year or early next year. it has got to be handled very carefully. a sharp selloff in bond yields would trigger a negative impact in equity markets. jonathan: bob parker is going to stay with us. are things going to get messy in the london property market? an exclusive entered be with gopichand hinduja. he thinks it still has room to run higher, much higher. ♪
jonathan: good morning and welcome back. this is "on the move." i'm jonathan ferro. the ftse 100 coming off an all-time high. the dax also often all-time high, down by about 40 points. stoxx 600, record high friday, coming back a little today. i want to get a little excited about london property. nowhere to go but up. that is the message from billionaire gopichand hinduja. guy johnson sat down with the billionaire for an exclusive interview. gopichand: properties in london will keep on growing. when i say prime properties, i'm
referring to mayfair, i'm referring to -- all in all, the property prices say 800 pounds a square foot, then i found the same property went up to 2000. then i found the same property went up to 4000 pounds a square foot. whatever estimations have been gradually, it has been going up again. the real estate property is cyclical. you should have a holding power. if you don't have a holding power then you should not be in that business. if you have a holding power, it will always pay you more than any other business. your team has to be good.
your model has to be correct. and, it is something which will always -- [indiscernible] at the moment the property prices are flat. there is not much buying and selling. there is uncertainty. of elections. now once that gets cleared, i think a new life will come into the properties. jonathan: i'm pleased to say we are now joined by guy johnson. bob parker from credit suisse is still with us. talking about the elections as a possible risk. for me, the london property market is one thing and the non-dom status part of that is the same story. guy: it is. as is the concern around a whole multitude of factors. what he's saying on the property story is that at the moment, super prime is probably
flatlining. a lot of agents talking about deals falling through. on the non-dom stuff, he genuinely doesn't believe that once miliband, if he were to be in office, that he wouldn't push it as aggressively. maybe the mansion tax wouldn't be a factor. nevertheless, he still believes that is a good trade. jonathan: bob, how mobile are these guys? bob: what i find fascinating is the fact that every time there's a geopolitical crisis or economic crisis anywhere in the world, we see a new flood of foreign money coming into what is still a fairly small london real estate market. one of the factors guy talks about the super prime market, central london is that significant supplier. i think for this super prime market, we also have to compare that with prices in manhattan or
other leading u.s. cities such as san francisco. actually, london does not look that overvalued compared with some of the top properties in manhattan. jonathan: it doesn't. on the screen, we are looking at a chart of the prime sector in london cut down into individual segments. over 10 million has flatlined. when i look at the u.k. property markets and seat london property prices at over eight times earnings, i'm still seeing them north of four times earnings. that is still an affordability problem. guy: there was a piece over the weekend talking about the fact that london will become this metropolis. you look at tokyo, what gets brought into its orbit. people will be pushed out field as far as paris and commute into london. it will be interesting to see how the average person and let's do fine average as being kind of a professional will
increasingly get pushed out into these areas. transport infrastructure, all of these factors may counterweight a problem in prime central london. bob: the key factor is transport. between london and tokyo, i know tokyo extremely well. the transport systems yes they get overcrowded from time to time, but those high speed trains coming into tokyo central station, london hasn't got that. jonathan: when i saw the affordability chart at 8.5 times earnings, i thought maybe i could commute from calais. the breakdown in the super prime in london, how does that trickle down to the rest of the u.k.? bob: i think we are seeing a significant element of trickle-down. if you talk about these eight times valuations, look at cities outside london which have been very successful and are now becoming quite expensive.
oxford, cambridge, bristol. money is now going north. you mentioned the northern valuations are four times earnings. investor flows are now going into cities like manchester and leads, for example. jonathan: problem for the bank of england? they seem to have washed their hands of this in the last five months. guy: i think at the moment it is something of a problem, but not a massive problem. i think if there was a massive problem, they'd be raising rates right now. i don't think that is the case. they are tinkering with the macro prudential rules and those have had an effect, so i think at the moment, the bank of england looks fairly comfortable. jonathan: guy johnson and bob parker, thank you very much. coming up, the man who nailed the bond market last year when most people got it wrong. what is he forecasting now? we will talk to stephen major
jonathan: good morning and welcome back to "on the move p are co-i'm jonathan ferro. 30 minutes into the trading session. remarkable week last week, best week on the stoxx 600 since january. maybe not a covance it is was the worst week for the euro since september 2011. right now, all time highs for the ftse 100. the dax also coming off a record high. some great stock stories. caroline hyde has these and here she is. caroline: let's look at what is tugging down the stoxx 600. the worst performer, tgf, a seismic survey are in norway.
revenues aren't looking quite so pretty for those oil related stocks. first-quarter revenue/my a quarter. -- revenue slashed by a quarter. they are cutting their 2015 forecast. they are also cutting 10% of their workforce. another key father is volkswagen. drama brewing at this german carmaker. we are seeing arguments being pitted. chairman versus chief executive. it seems the rest of the power players are rallying behind the chief executive, instead of ferdinand pierce who is finding himself more and more isolated even by his own cousin. clearly some concerns brewing at the helm of volkswagen. that sent that stock lower by 1.3%. smurfit kappa continuing to
drive higher, all about the m&a story when it comes to this company. i wish company going into the press saying, we are frustrated by these reports, speculation that an international company is buying us up. it was reported over the weekend that an 8 billion euro bid is on the table. they say, we haven't received any sort of bid. the stock continues to push higher on the hopes a deal will be done. back to you. jonathan: thank you, caroline. switching from equities the bonds, fixed income. there is one trend for the european bond yields these days, lower. the german 10-year is at a record low. last year, the swiss government became the first to auction 10-year bonds added negative yield. let's ask one of the people who got this market right last year. we are joined by steven major
head of fixed income research at hsbc. german bonds, the big question for the 10-year, will the yield go below zero? could we really see a 10-year bond minus 0.2%? steven: of course you could. what could go wrong? all the comments we are hearing our demand-based. everyone knows there's more buyers than sellers. probably the most patronizing thing you can say. the demand side is where the focus is. the ecb takes more than that from what i can see. it can only go one way. presumably, there could be a supply response. i've seen separate examples over the last few weeks. back in march, we saw that eurozone periphery bonds underperformed because supply increased. it is quite simple.
it is basic economics. in switzerland, there are new issuers of swiss franc bonds that weren't there a year ago. i feel very uncomfortable with this growing consensus that it can only go one way. i guess for this month, it is possible that the 10-year yield does challenge. it is possible. a few months out, there are so many things that can go wrong. the supply of bonds from u.s. corporate's and other sovereigns , it is one example. also, there are so many technical constraints on this policy, not just fundamental ones. the tentacle stuff is quite interesting. there's a lack of willing sellers of bonds. jonathan: going forward, long-term implications yields negative up to what we have in
germany last week what are the implications? steven: many people are quite concerned about this. it means -- it is causing all kinds of unintended consequences. for example, some companies probably exist that shouldn't because they get access to funds. the efficiency of the economy, the animal spirit, just isn't there. if you knew that next year, rates were going up, you would borrow now. think of your house, your mortgage. you go into that mortgage now and if you know next year it is going to be there, you don't do anything. jonathan: when i look at the german curve, just before qe started, you've got the line of 0% and the line of -0.2%. increasingly dropping towards
that -0.2% across the curve. what does happen when this policy starts working? what does that trade look like? steven: the bond yield is completely too low. between january and february jgb loans doubled. the kind of scale and impact that would have on -- it is enormous. the other thing is, that short -- that chart shows the -0.2%. presumably, that number matters and the ecb would want to defend that. if that puts a floor on those yields it is difficult to see how the yields in the longer term come down. in switzerland, you have a money market rate of -100 basis points. that has helped the 10-year yield go through zero. we do not have -100 in the
eurozone. it is difficult to see how we get far from zero. it is all about timing. i feel very uncomfortable with this idea that you can only go down. jonathan: what is your best case? steven: i think we will have technical challenges in things like the repo market and how many bonds they buy over each sovereign, all sorts of questions. there aren't really answers actually. there's some discord, it seems. the more fundamental questions will come, if the data really is improving. the trend has been good so far. this continues through to the summer and there could be an ecb meeting where someone says, why are we doing this? then we are talking about the end of qe. what happens if you edge bond yields higher? jonathan: let's talk about the treasury. nailed it last year.
just as they capitulate, you say treasury yields are going higher. steven: it is not quite what it seems. i would say that yields are very low and the likelihood is we probably have seen the floor. what is more interesting now is the shape of the curve. you've got this flattening view on everything. treasuries and bonds. jonathan: the chart there is pre-taper december 18, 2013. everyone says, yields must go higher. they have not. how does that curve move? gopichand: the market -- steven: the market is pricing in the next move. as you know, when the talk of the taper started, the bond markets sold off. during the taper, the bond market rallied. the fed is aware of all this. the fed is also aware that the term structure is so flat
because of overseas buying and stagnation elsewhere in the world. they also know that when they left off, they will not do so in the conventional matter. we have unconventional policy, low rates, forward guidance, and a big balance sheet. how will anyone expect a conventional outcome from an unconventional policy? maybe no rate hikes. if we have rate hikes tiny ones. maybe they will use the balance sheet. they might start testing a runoff. i think that could scoot the longer and. by the end of this year, the curve will sit steeper than the current trend and consensus forecast is saying, and the forwards are implying a flattening. everyone thinks this trend goes on and on. this has been going on for the better part of 12 months. jonathan: you've been out front on this supply side of the
story. there's concerns about liquidity in the treasury market. couldn't we see the fed turn around and say fine, let's not reinvest? steven: that is the point. every client i meet, there seems to be a lack of good quality collateral, which means a lack of bonds. they are all stuck in the central banks. if that's the case, do something about it. let some out or stop interfering with the market mechanisms. i'm not saying it is going to happen for sure, but we can tell from the recent yellen speeches and those of stanley fischer that they are looking at the balance sheet. the idea that you have a conventional rate hike cycle where the curve flattens doesn't make sense to me. jonathan: i want to bring it to the u.k. very quickly. we've gone from sovereigns to credit. we've got that lower interest rate.
what does it mean for yields? what does it mean for the gilt market? we've got this big political headwind. steven: small matter of an election coming. historical in analysis, for what its worth, history says that it doesn't matter too much for the gilt market. that's probably because governments are constrained. history is no guide to the future. maybe it does matter. anyway, it is very complicated. i know you've done work on this on bloomberg. there's a number of permutations. that makes it quite confusing. it is probably bad news for sterling, because that is where the risk premium is most prevalent. on guilts, it is probably not so serious. the same for equities, actually. the companies on the ftse are all international. it is really about sterling.
it is certainly a big event. jonathan: final question, steve. put on the table some options. u.k. 10-year, u.s. 10-year, 10-year bond. what are you taking? steven: gilts. because i'm being controversial. i think the election will probably buy -- probably give us a goodbye opportunity. i think what happens with this election, i think at the end of the day, the end of the year you realize it is about the economics. internationally, treasuries and gilts clearly look the best value. my concern is the fed starting some sort of unconventional liftoff that will push treasury yields. jonathan: nailed the bond market last year. his calls were controversial they may be again. thank you, steven major. still to come on the program
expected to rise by 9%. china has cut interest rates twice in less than six months. hillary clinton announced she will run for the white house in 2016. this marks her second presidential campaign. if successful, she will be the first female commander in chief area -- commander in chief. jordan spieth became the second youngest champion of the masters tournament. he had a four-shot victory and matched tiger woods' score, the lowest in the event. let's go back to the corporate stories. better for the wheel at volkswagen. the chairman of the company has publicly criticized the ceo. winter corn appears to have enough support from an openly divided board. let's go to hans nichols in berlin for more. should we start with who said what and when? hans: it is good playground
stuff. it has big implications. on friday afternoon, there spiegel published an interview with the grandson of the founder. he said he was keeping himself at a distance from martin winter corn, the current ceo. we have that. on sunday, there was a statement released by the other grandson of the founder, a cousin. here's what he had to say. he represents his private opinion. content and facts have not been coordinated with the family. we have an open split on the board. the porsche family have two votes. the piech has two votes. there are 20 votes. 10 of those are with the workers council. another two of them are with the state of lower saxony. it looks like mr. winterkorn has the clear support of the workers
council and lower saxony. the issue is, one mr. piech doesn't think mr. winterkorn has done a good enough job in the u.s. they also haven't come up with a low-cost alternative, a cheaper volkswagen for this market. the company has been very successful. their stock is up 37% on the year. sales are right around 10 million units per year. they are getting close to taking over toyota as the world's leading automaker. cutting against that, the volkswagen brand, they've had some profitability challenges. they came in 2014 at 2.5% operating margin. their goal by 2018 is 6%. they've done a lot of cost-cutting. the retold those plants. they hope that some upfront investments are going to lead to better margins down the line.
right now, it looks like mr. winterkorn has the backing of his board, but not the chairman. jonathan: let's talk about the public spat a little more. we see this stuff on wall street, here in london, how rare is it to have a public feud in germany? hans: for a family company, it is very rare. you rarely have these disputes. the only time we have this open dissent on boards is when you have an activist investor involved trying to get some seats on the board. we've seen it a lot in the states. this is the bill ackman model. what you haven't seen in germany is hostile relations even between family members. the people that are fighting here are both grandsons. they are cousins, both grandsons of the legendary founder of porsche. in many ways, this is a remarkable story. we will see how it turns out. one thing about ferdinand piech,
he was the chairman before winterkorn, . he basically got rid of the last ceo. up to this point, ferdinand piech has gotten what he wanted. it looks like he is playing a losing hand. jonathan: you will be a busy man. hans nichols, our international correspondent. as we head to the break, let's check on equity markets. record high closes for the stoxx 600, the ftse, and the dax. off by 17 points on the ftse in london. the dax stilwell north of 12,000 points. the best week for european stocks last week since january. the euro showing a little more weakness against the dollar this morning. join us after the break. we are going to talk u.k. politics. ♪
jonathan: let's bring the conversation back to the u.k. big day in the election race. guy johnson and anna edwards join me now for a little more. first you, anna. labor unveiling its manifesto. are we expecting any fireworks? anna: there will be a few things we do know about. one thing is trying to take on the mantle of fiscal responsibility from the
conservatives. that is something labor are going to try to achieve. pledging to narrow the u.k. budget deficit every year. they want to run a surplus on that measure by 2020. we will get details on energy companies, more on childcare, mansion tax, tax on tobacco companies. there has been a little color around this already, talking about where spending cuts are going to fall. maybe the police and local government. broadly speaking, this is a big week for the election campaign. we've got the manifesto for labor, the conservatives, and the greens tomorrow. basically we will be getting no sleep. jonathan: no sleep? it has been kind of boring for a lot of people. guy: a lot of people have been put to sleep. that is the issue thus far. it is time to wake up.
i'm hoping there are fireworks. i'm hoping people are going to wake up. it needs to get more interesting now. we need to see both parties stepping out of their comfort zones. i think you get a role reversal. i think you are going to get the labour party wanting to be fiscally prudent. anna: i looked at two of the polls this morning. they do put labor ahead by one or two percentage points, but that is not enough. that is not material. we have not seen a marginal sampling. i put guide to sleep again. jonathan: there is something like this flat line. to get me excited, i want to see that market reaction. i want to see what is about to happen here. is it slowly starting to happen
for you? guy: i think there was none, and now we are getting a little bit. i think when you get the big story, actually once you realize the magnitude of how fragile the economic story is going to be we talked about it last week. sterling is going to be under a little pressure. the dollar was trading higher last week. it wasn't just a u.k. story. anna: it is hard to do attach what is happening in the u.k. election story from quantitative easing in the eurozone. there might be reasons to buy eurozone assets. jonathan: big week for bloomberg politics. key debates, can you summarize them? anna: yes, tomorrow at the british museum. i'm hosting the business debate. that is going to be exciting. guy: and i've got the city. we are going to record it