tv On the Move Bloomberg April 20, 2015 3:00am-4:01am EDT
snap elections are possible. and lloyds on sale? the conservative party the tories reach for the playbook. the three things we will talk about during the morning. we talk about equity markets. selloff last week. futures pointing to a rebound for i wonder if the china rate cut has anything to do with it. here is manus cranny. manus: what happened and commodity gives a boost all the way around. the market is so long on oil the most bullish and the oil market in eight months. the eia is forecasting a drop in the united states of america. traders are bullish, the most bullish since august of last year. the number of rigs producing oil
is down for the 19th straight away. west texas up. futures are up for light relief. china goes for a rate cut. the overall story in liquidity is institution banks adding to the liquidity of the markets. again delivering more of the european market. the purchasing managers index for the whole of europe will also be delivered. let's check in on the u.k. we are up about 01%. vodafone up. test go, -- tesco. a number of deals happening this morning. they are selling some assets. some other names where focus on. trading at 327. buying the belgium asset.
they will get 3 billion euros in cash. lloyds going, going gone. david cameron has his way, it will be sold to small investors. that is the latest political market. encouraging retail investors to want to hold a portion of lloyds. bizareere for david cameron linking belling out lloyds was a bad thing. maybe he was not around. deutsche bank up 0.5%. employees vote for an open ended strike on top of the snp. last week, three options and place for deutsche bank. reduce overall retail footprint and the size of investment banking. that is in play as well. on the commodities side, you are
seeing oil in the commodities and china reduce reserve rate requirements added liquidity and commodities got a small -- got smaller the copper side. 0.3%. and bhp this. do i have my yuan> a look. what comes next for china? will they go for more stimulus? will they go for another? that is the dollar-you one -- yuan. what is next? johnny. jonathan: the ftse 100 is up 0.6%. gains across much of your. manus said we have to go straight to beijing. they stepped up stimulus for reserve bank requirements. they want a reduction in the
reserve rate to allow banks to use the landing. let's get to bloomberg intelligence chief economist, tom. let's talk about the motivation. i am looking at the house prices over the weekend. anything to do with what is going on here? reporter: i think house prices are part of it. there really 2 big factors the central-bank is thinking about. firstly four years, china has had capital inflows and investors betting on an economy and rising currency into the country. the central bank has had to raise the ratio for the liquidity. now, these funds are exiting. that was the second half of last year and was a sustained outflows. the reserve requirement cut frees up more funds for the bank and offset some of the capital flow.
the other big factor when you alluded to the housing prices is really worrying concerned that china's economic engine is sputtering. real estate sales are falling. new construction is down. exports are very week in march. the key drivers are not really doing their job. that's why the government is accelerating stimulus efforts. jonathan: when you look at last time of easing from the bank of china, what is the impact you are expecting to see with a time to feed to the general economy in general impact itself? tom orlik: that is a great question. when we look at the reserve requirement cuts, the important thing to remember is it's a boost to the supply of credit. the bank's capacity to lend. what it does not do is anything to the demand of credit. the issue there is china's firms
are carrying a lot of debt and overcapacity and facing growing uncertainty about the future. that is venting their willingness tell borrow and invest in new products and new plants. and so, the issue there really is how can the central-bank go beyond boosting the data the supply of credit and towards boosting the demand of credit? the answer seems to be they need to cut the price and cut interest rates and that is why many analysts are thinking this reserve requirement cut is not the last step in the easing. jonathan: as you alluded to, you can get excited about the biggest with the rates at 18.5 percent, clearly a lot of room to go, isn't it? tom orlik: that is right and the
central bank governor is in washington, d.c. for the spring meeting over the week end and he said basically what he said was the difference between us and other central banks around the world is that we have room to ease. japan, the u.s., much of europe, interest rates are at the zero end. that is not the case with china. the central bank continues to have space to cut ratio and interest rates and i think our expectation, the expectation of most of economists out there is we will see further moves on both of those fronts in the second quarter. jonathan: a big thanks for joining us. china expert tom orlik. we are joined by a global asset allocation strategies at ubs investment bank. you heard tom speaking. let's talk about what the people are doing over the weekend. for you, the move on friday
let's talk about equity markets margins around lending. those things, are they link? guest: the property market and that's the most important thing. the thing to remember is the size of the urban population is growing by 1.5 times the size of london every year. there that in mind. a lot of people about 300 house buyers and they are looking to upgrade. they are looking to buy a nicer house and looking to buy something perhaps more expensive and they are funding that through mortgages. that is the key thing. we think the government is very keen on pumping up the property markets. we think that will be a drag on markets. if you look at equities, look for the companies linked to property construction. it is iron ore producers and steel producers.
go for people who build mobile networks, selling the equipment feeding the middle class urge for improvement off life. those are the key companies. jonathan: clearly this space, 18.5% on the rrr, how concerned are authorities about that the huge of boom we have seen in the shanghai? ramin nakisa: you can buy property or equity. what we have seen is a flip-flop. the property market selloff. my father would probably be advised me if i were chinese to buy. the really interesting thing is when they open up capital markets and take away capital controls and star binding to global markets. it is fascinating when i go out see their review of what are they invest in. jonathan: we often talk about pushing on a string. the problem in china, spare capacity. if your problem is huge excess capacity, you can do all you
want to try to increase liquidity. it is not going to make a difference. is that the problem in china? ramin nakisa: i think there will be demand and the change in the dynamic of employment and we're also seeing an aging demographic. they are -- and there are less jobs. a move to service companies which are more intensive. we are seeing more consumption. that will be the driver of gdp in the long term. as a short-term investor, i have to look at these booms and busts. jonathan: the here and now, not just china but europe. best quarters since 1998 for the stoxx 600. huge for the shanghai composite. when is the selloff? should we ask -- when do the stoxx play catch up? what happens with u.s. equities?
ramin nakisa: we see a big weakness in u.s. numbers, a horrible payroll number. disappointing consistently since the beginning of the year. we think it might be a soft patch. if not and the dollar eroding, the u.s. is looking much less attractive. money is chasing qe. china in europe, that's where the etf money is flowing. he is flowing out of the u.s. into europe and japan. that is the key driver of the moment. jonathan: more to come from china? ramin nakisa: definitely. jonathan: ramin nakisa will stay with us. the greek bomb ticks. the bond vigilantes are on holiday. is it time to wake up? lloyds and david cameron. what it means for the general election. join us after the break. ♪
ubs investment banker. hans, a new deadline if it is mid-may, what does eurozone finance minister going to be doing later this week? hans: [laughter] they will be taking stock all the talk, the significance. the real deadline is when greece runs out of cash. that is what -- said out of hollander this morning. when they run out and it could be mid-may or later made, they have been payments do. they owe 80 million euros. in may, that starts to crunch free here is what i will watch for. to what extent are finance ministers talking about firewalls? you heard from mr. dies will -- dusselbloem he thinks the rest
of the eurozone can withstand an exit. he had this to say and said the content we are a far apart and everybody sees the process is difficult. the line out of the imf meetings in washington was there was not much progress and taking too much time. if you're looking for a bit of optimism and i have an interview with a german newspaper that was published and they are saying there was some incremental progress from the imf with the greek officials over the weekend. that is about the only bit of optimism. everybody said of the big issues remain. from the greek side, nothing but the fines. they seem to be laying out there red lines which include pensions and wages. jonathan? jonathan: we had an election in finland and it looks like -- and will make it into the government. what is the significance? how does it tied to greece?
hans: they make a to the foreign ministry but as they get the finance ministry, it will may short-term negotiations that much difficult for mr. varoufakis. long-term, it will make the prospect or likelihood of a third bailout for greece which would have to go through all 19 parliaments that are members of the eurozone that much more difficult. finland is almost of the right of germany when it comes to pushing for austerity for greece. these election results will move feeling to further to the right and further down the austerity road. jonathan: hans nichols. let's bring in our reporter to the conversation. if we get an election and they win it again, what changes? what happens? report of a be much more clearer. we will have hard talks. that reporter: it will be much clearer.
we are moving into a euro environment or we are moving away from that pro-europe or a referendum and i think it will need much clearer where we are going. jonathan: what breaks of the deadlock -- the politics or elections, referendum coffers running to drive -- running dry, or from the banking sector? ramin nakisa i think it will be deposit light. the banks see collapse and the rational thing is for people to take their money out of greece and put it into germany. if there is a default, what would you prefer? would you prefer a greek bond? or denominated in georgia marks? -- deutsche marks? it is rational to put it in germany. jennifer: in -- jonathan: in
athens where the pleasure of having you today. are you seeing signs of dissent over the last couple of weeks? the public, is a turning? vassilis karamis: they were opening polls and around 85% of positive opinion. the last few weeks bankruptcy is coming closer as a possibility, you see the positive opinions are going down around 55% at the moment. jonathan: let's bring it into our world. i am looking at the markets free something interesting happened. a scenario of 2012 starting to seek back in. do you expect the risk aversion to play out? ramin nakisa: we have been advising clients to lock in their profits when the stoxx 600 reached 400.
we were 406 on friday. a 10% selloff of where we are now. long term, we are very bullish on a euro. short-term, people should buy protection. what we did was to buy that would expire before these huge redemptions of 3.6 billion. there's no way greece can pay those unless they agree to the terms of the institutions. i think that will be the crunch point. buy protection and sell toward the end of the year. that makes good profits. jonathan: the big redemptions in the summer, given everybody else in europe talking about the reforms at may be 7 billion euros, that just about covers the ecb redemption never mind and the rest. we need a first bailout package, do we not? vassilis karamis: that is why we
hear it extended. the extension going into june that was the main point of another bailout and the current bailout program that will be able to make greece able to meet its payments. greece's problem is not a liquidity, a political problem. jonathan: looking at the politics, how do we get past this? vassilis karamis: right now it can only be broken by another election or referendum. we are not clear. jonathan: do you think that is where we are headed? ramin nakisa: a selloff and potentially a default in greece. jonathan: is that something people are talking about? vassilis karamis: they have started. people in the market understand it will be last resort for the greece's banking system and it will be cap they flow.
jonathan: ramin nakisa and vassilis karamis thank you for joining me. coming up -- how low can german bond yields ago? something we are heading towards the role. we will talk about that. -- some big were heading toward zero. 22 minutes into the session. gains across the board. ftse 100 is up something to do with china apparently. we will talk about after the break. ♪
jonathan: good morning and welcome back to "on the will.” -- "on the move." vassilis karamis -- i am jonathan ferro. gains across the board. stoxx 600 had the worst week last week for the year. we combat. -- come back. ibex up by 0.4%. europe is old looking -- looking for a lift. rrr rating cut. it was aggressive.
to the fx market. the aussie dollar is up. australia, there being export destination is china. their hunger for commodities improve. that means the exports improve as well. for me, the big important story taking place in the bond market. over the past week or so of what is about to happen in europe. greek and yields go higher. to get that, look at -- 0.0. at one point, we were even lower. money going to the core. no surprise, you might see. the bond rally is another. for me, the spread that is starting to lower a little bit. 1.4 5% on the 10 year in italy. a tough day for spanish and italian bonds on thursday. after the break, we will talk about that. rbs with extreme uncertainty.
jonathan: good morning and welcome back to bloomberg.com." -- "on the move." i am jonathan ferro. a picture of the markets. equity markets across. the dax up. here in london, the ftse 100 add in and stress 60 points. -- added an extra 60 points. gains across of the board. some stock stories out of there. let's get to bill with caroline hyde. carolina abide a hint of -- let's get to them with caroline
hyde. caroline: a hint of m&a. buying base units. slightly bigger price tag than expected. people really liking the way tel enet is moving and the billionaire malone is moving. getting that the cable. 3.8% coming off of 5% higher than we saw a earlier. m&a driving some stocks on the higher side. driving down is a key project, petrofac. the reason? a particular cost they keep delaying on. now it is over running to the tune of excess of $200 million. the costs keep on climate
because they have to complete quicker than they want to. june is when they said they will have the bulk of the work done. the reason it has been delayed is poor weather. and industrial has pleaded the project under the crunch. they boosted it last year to the tone of $230 million and now once again $190 million in excess. they are determined they said take get it done in time and that is why they are having this. it is taking petrofac stocks down a it is the worst performing on the ftse 100. jonathan: to fair are the stock stories free let's talk bond. only one trend in europe. maturity after maturity in the eurozone turn negative. rbs said the german 10 year will
be next. we are joined by an analyst from rbs. great to have you. counting down to zero. you guys think it is way beyond that. -0.3%? guest: the biggest is in europe, there are no supply bus because the government is not spending. the markets are shrinking and the fastest-growing asset class is negative pond e-mails and we have around 42 percent, 43% with a negative yield. they provide a few other things and there is no supply. you got it is huge compression down. so far, it has been qe in could be that he yields go more negative because the flight to safety with degrees and the volatility. jonathan: that's what i want to talk to about alberto. inflation fueled to keep it to
lower. i want to ask you about the next leg, a real risk aversion and if we should look at germany, france differently and spain and italy, something we have not done in a while. alberto gallo: there's been a lotto buying in the periphery. the picture remains solid for the grease. in as the next few weeks, we will have volatility. -- the picture remains solid for greece. in the next few weeks, we well volatility. we may not have solution. christine lagarde and mario draghi were confident. they need to bring reforms to four wishon is what lagarde said. we have very little time. there are payments at the end of the month and pinches and wages and a payment in may for the imf. they may run out of cash. it it does not mean they are
exiting. it is a big difference. missing a payment and they have time to sort themselves out. it is not an exit. the liquidity will be given to the greek banks. we are looking at a cash flow shortfall over the next few weeks. hedging our along the bond trades and the next few weeks. jonathan: let's say the big "d" word and they default and do something unprecedented for a country when it comes to paying back the imf. it does not necessarily mean a grexit but could they be forced out of the eurozone? alberto gallo: i do not think so. it is a long process. the creditors do not really want to deal with the current government. the current governor -- government has burned some goodwill they have. if there was a missed payment in may, you have a grace period and probably a referendum during this grace period and that would
be the key decisive moment to understand if they want to stay in the euro or not. i think they want to. the vast majority wants to stay in europe. they were not have amended to exit. even with a default, they stay the euro. jonathan: let's talk about the short term. thursday, friday dominated by germany yields in higher spanish and italian yields. is it going to play out on the next few months? alberto gallo: i think we had a very strong quarter. italy 10 year and portugal were the best-performing. with european high monti yields. we have decompression, so volatility. we do not have a contagion we had in 2010 or 2011 when a problem in greece was trigger problems in france or italy or spain.
the ecb is giving a strong boost to the market with ecb. we are saying they need a debt restructuring and the situation doesn't change. in at the end, they will reach an agreement but a lot of volatility. they will postpone all maturities and have lower costs. they have to much debt and they need a flexible deal. they need something more flexible. jonathan: when you talk about the bond vigilantes and they need to wake up, and greece, not so much. when this crisis was really kicking off but elsewhere, where do you think the vigilantes need to wake up? alberto gallo: there are areas that half really compressed. website portugal tech -- we have seen portugal with technical factors driving yields so low. the fundamentals are so different. the u.s. market is really wide because of the fed's comments.
we see these anomalies and the market, evening emerging markets to some extent has rallied on the china -- the chinese measures. there are a lot the risks in emerging markets bonds and other countries are slowing in growth. jonathan: i find your point and portugal you need. people were said that should be a favorite destination to park your money. that is where the substantial gains have been. what will trigger not less thoroughly a huge selloff but somewhat of a selloff in portuguese he yields? alberto gallo: you look at the next five years, not just greece but other countries may have debts and issues, the next three or four years italy, it would make sense if you look at gdp. the level of assets and private debt from corporate is very different.
with qe, everybody was buying every bond and many investors have combined in the highest yields no matter what. we expect more differentiation and some weeks of volatility. i still think it is very important to make the difference between a missed payment, a cash flow shortfall and an exit. a missed payment is not a grexit. there is a big step between that and exiting the euro. jonathan: to finish, the bond as six basis points. for what you are saying, is in the bottom line? will it stay out of the rest? alberto gallo: i think you should put on hedges. in the next few weeks, we are going to see the periphery. you can hide and the blue market or put on hedges. generally speaking, we remain long on europe bonds. they qe force is very powerful.
jonathan: good morning. let's get you up to speed with top stories. china has reduce the amount of money that banks must set aside by one full percentage point. the biggest cut since the financial crisis. wo -- juha sipila won the national election. he is a self-made millionaire. he has promised to promote business friendly policies.
the economy is one of europe's worst performing the past three years. the bond manager who -- says the full impact of the fed's policy has yet to be felt. he said "the extreme policy has -- markets have not felt the full impact." one of our top corporate stores, the conservative party has announced plans to sell lord's shares if they win the upcoming election. anna edwards joins us for a little bit more. at a discount, a nice little discount, it is pretty narrow? anna: the price that was paid was 73.6 pence for share when the country belt it out, -- bailed it out.
there were fees to bring the price the government paid a little bit. you may want to make more. the actual break even would be like 61 pence. the details from the conservatives echoes, and you made it clear. somebody tells you could buy between 250 and 10,000 pounds in a lloyd's and mba loyalty bonus if you stay owning those shares for a while. the conservatives have said it before, it is not a new announcement. david cameron making clear on the bbc, the new part is the retail side. david cameron: we want to see lloyd's and the private sector. we did not say that was a retail sell to individuals. the crucial point is that more of clearing up the mess they left us.
we had that taxpayers put 20 billion pounds and the banks and i want to get the money back. that's what we are doing. we are for covered billion and this would help us recover billions more. anna: it would cover billions he said. the government has come from a 43% to 22%. jonathan: isn't about creating a culture of saving and allowing the public to invest? on the flipside, i say, i would like them to get as much money as they can add no point in playing this lottery. you also wonder is it really move the dial in the election race. anna: there are things on the agenda today. in terms of what we're here on the lloyd's story, you really harking back. they're thinking about the things though labour party did in the 1980's. we had a extension all the right tell by which was the highlight
of last week. whether they're looking back am looking at what created, the tories and spreading the wealth that's what they hope this -- trying to get people to invest in publicly traded companies. other things on the agenda the manifesto of the snp will be lunch pretty it will be anti-austerity. the leader is tory light. a little bit of a suggestion of how the manifesto will look. there talking about it being a manifesto to participate in votes on major issue south of the border such as restoring the health service. not worrying about how it looks great it is the party in big in welsh.
they have been talking for some time about how to build the union and keep the tories out. jonathan: anna edwards, thank you. employees at deutsche bank house voted to strike indefinitely as the bank consider selling the unit. let's bring in shane, what options are they considering and how seriously are they looking a getting rid of this unit? shane: good morning. we'll heard of management still has all three options on the table and they prefer one of the options that were either involves a complete our impartial as it banking and simply sell off and to take post and bundle it with other operations and sell them off in 2017. the third option has more support will heard under management is to take -- basically leave the bank the way
it is and take a deeper cause and consumer and investment banking. there looks to be the least likely option. jonathan: in terms of the options, what are the arguments for and it is the exit from consumer banking? shane strowmatt: well, basically it is the division that has the worst return on equity and the highest cost versus income generated last year. compared to any of the other divisions of deutsche bank. this is really somewhere analysts are pointing is a you want to boost profitability, you have to get rid of this division. on the other hand, some analysts are pointed deutsche bank makes a loud securities unit, but that securities unit needs funding -- makes a lot on security unit but that security unit needs funding. if they were to sell off too much or the entire consumer banking, they would have to find funding from somewhere else.
it is really pros and cons. jonathan: quickly, they are on strike. what are they asking for, can they stop the sale? shane strowmatt: so postbank it is uncertain where they are going on till the union members are asking for protection. and they just voted and 95% of voters are looking to a general strike. we will see how it goes in the coming weeks. it can be interested in adding next her element. the next big date will be this friday. we heard the supervisory board will be reviewing the strategic options presented by management. jonathan: a big thanks for joining us. shane strowmatt. let's check in on the stoxx 600. gains across the board.
stoxx 600 cut by 0.6%. a rally in commodities for you can thank china as a cause of the reserve ratio by a -- as they cause of the reserve ratio by a full percentage point. friday, the regulators speaking up on margin lending. the regulatory side. you try to stimulate the economy without boosting the equity market anymore. we will talk about these markets more after the break. ♪
jonathan: welcome back to "on the move." i am jonathan ferro. that is almost it for this show. coming up is "the pulse." things are getting more and more interesting with a grease pretty it is crunch time. guy: it is getting crunchier. -- more industry with greece. it is crunch time. guy: just take you to the pressure at the moment. the sense of frustration is just amazing. why can't we get this done? why is it not possible to strike a deal? there's a lot of frustration. we will talk to the finance
minister out of cyprus. a lot to lose in this game. also a person with had experience with what it looks like, capital controls. never go as far as issuing iou's but has understanding. his sense. jonathan: a guest talked about forget the politics, the capital flight deposits out of greece and elsewhere that will force the issue and you wonder if they will have to take something out of the cyprus playbook. guy: how you would make it work on the scale of greece, i do not know. he is right about the financial sector. it was raised this morning. you could have a default and the issues are separate. what you have to figure out is the default on the imf and the ecb and how do you provide liquidity for the banking sector?
if you have a banking sector crisis, game over. it is difficult to fix. how do you deal with that is the question everybody is going to come up with. jonathan: i look in the equity markets and an ugly thursday and friday and sunday, china pulled out magic. for you a big week on the u.s. side of things with earnings. guy: earnings season will be important. you will see the impact of the strong dollar and a lot attack on -- tech earnings as some will feel the pinch. google is an obvious example. microsoft toward the back end of the week. you have to look for that. other companies and the social media store picking up. twitter likely to be strong and facebook likely to be strong. a real division. the strong dollars really going to be there. jonathan: watch out for that free as we head to the break, the picture of the markets.
guy: a new goal for greece. the country needs to get a plan together for a made deal with its creditors. we will look at reaction in greece and germany. francine: china fights back. the country gives banks more lending power by cutting the amount cash lenders must set aside. guy: european foreign ministers race to address the issue after a boat tragedy in the mediterranean. welcome to "the pulse." we are live from bloomberg's european headquarters.