tv On the Move Bloomberg June 16, 2015 3:00am-4:01am EDT
the yen surging. today he back steps. he said he was not trying to influence the exchange rate but he did. that's what we are watching. future markets lower. spreads widening. it looks like a repeat of monday this tuesday morning. straight to the markets. caroline hyde bring you the open. zeb eckert with a wrap up in asia. a pretty ugly session and china. caroline: risk of urges of cross of the board. yesterday it was ugly and it looks like another down day. how markets are opening. france is up by 0.75%. we wait for the dax to open in germany. greek debt continuing. basically, we are gaining climax
status. officials on both sides seem to be losing patience. the ball in greece's court but they want to throw it back at their creditors. no end to this debt debacle. foreign currency volatility. a sudden spike in the euro. we are trading higher on zero point 3%. a similar dip in the dollar index. -- 0.3%. in fact, the swings between the euro and the dollar between this hair is the high -- pair is the highest since 2011. volatility is present. bearish. bets against the euro are pretty low. many believe it will be done with greece. the market is positioning with a deal. the hedge fund speculators have been cutting their bets the euro will fall.
a little bit of an issue. the dollar will be moving today on the fact without monetary policy committee comments together, the federal reserve will start debating monetary policy in the u.s. could there be any hit by jenny yellen will see rate rises later this year? most bets on september. the bond market, a move to the haven into germany. borrowing costs are layer does lower. money moving into u.s. at 2.34%. they are coming out of the periphery. rising in italy. six basis points. starting to see the borrowing costs. italy, spain, coming back and widening. greece, of course, is where the concern is. 20 basis points higher. 12.5%.
clearly, we are seeing significant move in the market. i will show you stop movers later. jonathan: the euro-dollar higher. i want to take into asia and get to zeb eckert for the move. zeb, big moves over there in shanghai? zeb: the biggest 2 today loss is the shanghai composite industrial groups declining care. being dumped by investors and a warning from international securities the information of the bubble, extreme return and jittery investors. the markets watchdog regulator taking a closer look at this and deciding how to respond. the hang seng is down. shanghai composite is 1.5% decline. pharmaceutical stocks, some the big decliners, crrc china
railway. the rail giant formed last week by the merger of china's two biggest railways is taking a hit today. the shares down in hong kong. the big concern is this a margin financing used by domestic investors to pay for the rally could implode. you are seeing some the big industrial related shares in china moving today. watching this gather steam. we will watch it as of the we gather zone. the nikkei 225 falling giving governor corona's backs -- kuroda's backs damping saying i didn't -- back stepping said i do not mean that. it may have an intended for washington as president obama try to seek approval for the tpp which he did not get from democrats.
jakarta approaches an interest rate decision in the coming days. we are seeing positive buying in jakarta. the new somewhere in the asia-pacific stop we are positive generally. jonathan: zeb eckert, thank you. a bad day for chinese stocks. a bad day for greek yesterday. banks taking an absolute to beating. there are signs a deal fatigue is setting in both athens and among creditor nations. hans nichols and at the end -- in athens. a big headline dropped yesterday and a german newspaper. talk to me about that. hans: well, at the report in the newspaper using anonymous sourcing saying eu officials are preparing an ultimatum for greece. plan b's capital controls.
how do you get greece to accepted them? it is only a national government that can impose capital controls. yesterday you are from mario draghi and he did not mention capital controls. he did talk about the need for greece to come to the table and an agreement and he was putting pressure on greece. have a listen. mario draghi: such a strong a credible agreement with greece is needed. also other euro area as a whole. while all actors will need to go the extra mile the bull is in the camp of the greek government. hans: i count a three or four officials or ministers in the case of spain talking publicly about the need for a plan b about what you do if they do not make their payments or have a deal and if we get to june 30
and no agreement for additional cash. one final note, a new poll out and they ask on whether cool bears responsibility for the prolonged talks. 56% blame creditors and the other the greek government. inside of athens, more blame for the creditors than the greek government. jonathan: nikos, that headline that last night, what i want to gauge is the latest from athens. when news's first across, does it -- when news like that comes up, does the hit of the streets? nikos: greek public opinion is divided and the majority of greeks favor an option that would keep greece and the euro area. some would say greece should remain at any cost is dropping.
we do not see a swing yet full over half of those surveyed by gpo ssaid they would prefer an agreement with additional austerity measures to keep greece and the euro area instead of default and euro exit. among the party supporters, the results are mixed. in fact, those who favor the default and as it from the euro area are a bit more than those who say greece needs a deal. jonathan: nikos chrysoloras thank you for joining us. thank you very much. let's bring in our guest lucy mcdonald. she manages more than 700 billion euros and the head of macro research at ubs. the headline yesterday in the
german newspaper, the plan b. do we face the prospect of cyprus? guest: the scenario and i ain't there's a chance of a last-minute agreement. it makes sense rationally. the greek government is digging their heels in. if they miss and payment there would be a grace period. probably a bank holiday. they end of june is close to the next payment on the 20th of july. that is to the ecb and other central banks. that payment is a lot more important. you can have one month or 21 degrees period missing imf payment but if you miss ecb, the assets would be frozen. likely you are in a situation where you may have two have iou's. that is a step closer to an
exit. we still have time to avoid that. we are getting closer to the point of no return. jonathan: greece's reality a you can have a company with no exposure to greece and no operations but it sounds hard how do you manage that type of situation? lucy mcdonald: that is what we're hoping for. we have raised a bit of liquidity on concerns about grexit. and so these will be opportunities for us when we selloff particularly in europe. it could obviously, you could have yields rising further as at the moment in italy and spain. it could get worse before it gets a better. jonathan: for you the spread
between italy and spain. that starts to change fundamentally. as i look at the bond, as they are anchored in this risk aversion. where do we go from here in germany? alberto gallo: the ecb has done a lot with qe. all of this is being undone. there's a point when the ecb will care. as of the last conference, mario draghi was cool. to some extent it shows an inflation expectations are rising and qe is working. if you make 10 year spanish bonds rise to the average level of hunting for the government you are undoing qe. if italy is going to pay more than it was, then basically they can spend less. fiscal tightening on on voluntary tightening. the ecb have to care. jonathan: when is it? ecb officials in a speech said i
do not want to give the market a free pass. at some point, they have to care. where is it? 3%, 4%? alberto gallo: the point where you are funding as your average cost a you are not saving more money. even though i have to say after these levels, high volatility can still hinder spending and investments and make more concern about investments. you are really having a bit of monetary tightening. banks that were landing in january and february are cutting their loans again. they are saying volatility bob banks are landing and now they are not. jonathan: lucy, this good news for the bond market it means high yields. for the equity market, selloff. they are highly correlated. when does a breakdown when it is good news for equities? lucy macdonald: volatility in
the equity markets and then the bond markets. it does not hit until recently. that shows there is a little bit more of a valuation in equity markets. and the real concern not within the corporate sector. i do not think we are due for more volatility at the moment. i think it will break down but maybe a little bit more support. jonathan: with your stocks and looking at equities, do you try to the the low cap stocks or try to gauge what the future earning stream and brace yourself? lucy macdonald: what we do is get some clarity about the underlying performance which has been a martyr little bit about this. that is something well spoken
about just seeing where business is fundamentally being affected by the exchange rate volatility or whether it is just reporting. if it is just reporting, there are opportunities and things were been looking for. with a company to understand exactly how their company is working. some are learning. they have not seen this level of fx volatility. jonathan: have you pinpointed other countries that look good? lucy macdonald: ralph lauren is one. they have been affected by travel. it is a double impact going on. jonathan: lucy macdonald chief investment officer and alberto gallo will stay with us. coming up -- the paris air show.
jonathan: good morning and welcome back. i am anna edwards. -- i am jonathan ferro. the equity markets are blanket red. the dax is up 0.8%. the ftse 100 is off 0.25%. most of the bond market. german yields, pretty anchored. the 10 year is down 2 basis points. the italian 10 year, yield is up 70 basis points. the spanish is up for the first time august. the interesting part is at the seven and a nine and the difference. over the last 12 months, the spread has been trading over spain for the majority of the time and that has changed in the last week or so. italian under spanish. are we thinking about political risks until the end of the year and spain pulling a greece?
that is the extreme scenario. i will break it down with alberto gallo. the bond market moves. the top news and bloomberg. the bank of japan governor kuroda said he was not try to influence of the yen's exchange rate. it's centered the yen lower. a statement after mr. kuroda told a hearing the yen was unlikely to weaken further. shares in australian insurance giant iag surge by the most in years after securing a $388 million investment from warren buffett. berkshire will get a stake. boeing took an early lead in orders and commitments on the first day of the paris air show with $18 billion order. it rival airbus. boeing signed a deal with indonesia for 30 dreamliner's.
day 2 and interviews with the ceos of some of the biggest companies. guy johnson is with one of them. over to you. guy: thank you. you were talking about some of the numbers out of the paris air show. let me update you. a company placing an order for 100 737's, the new version. the list price is twice of the business of airbus of 30 billion dollars versus $60 billion and that number will change. let's talk to a man who will help provide some of the new engines for the 737. he is the ceo of safran. recently on at the job.
nice to see you. a lot of orders, through a you will provide engines of the 737 and a-20. is there really a demand for all of these? guest: i believe so. i am very pleased with this order. we have already, we have eight rows and engine -- 8000 engines on order and a huge a backlog and i expect a more during the show. over 9000 engines on order and we will start production in 2016. i 2018, we should be at the rate of 1800 engines per year. guy: airbus, i was talking to the ceo and he was contemplating
stepping up the 6320's and has a lot of airplanes. a huge strain on you guys? philippe petitcolin: yes, it is. on all of the supply chain. we have a lot of partners and suppliers all over the world of now. we have to be sure that as long as the demand and request increasing, we are able to sustain such an increase. guy: is it? philippe petitcolin: we are discussing it with each of our partners and suppliers does the off are we came push and storing the supply chain. we are under discussion right now. guy: you are doing it right now? philippe petitcolin: everybody is talking about an increase. we have to beat our commitment. you cannot say, yes, we will
try. you have to commit. guy: perhaps a few problems with their engines for the 320, any pressure from airbus? philippe petitcolin; no, this kind of problem happens. if it happens to anybody, i do not want to blame anybody regarding this problems. we have not yet to discuss any kind of consequences. your question regarding -- which can be even harder for us. guy: you will be the engine supplier of the new chinese aircraft. give us a sense of different -- gives a sense of dealing with the chinese. they really want to break in. philippe petitcolin: i am sure they will get into it. they will get a bps of it. the longer, they are learned.
-- they will get a piece of it. they are learning fast. guy: in terms of your timetable of the schedule you are looking at? philippe petitcolin: we are going to diversify. for the chinese, you do not only supply the engine but in the provide the assistance in august. and we expect before year end. sometime in 2016. guy: you have recently gotten into what would airbus on launch vehicles. how much is that -- how much has that market change this in london must decided to be a part of it? philippe petitcolin: he is pushing us. -- elon musk decided to be a part of it? philippe petitcolin: it will
change. would you talk about europe, you talk about airbus and safran. we are going to them to meet the competition in terms of performance and cost and service to the guys who put on the satellites. that is the reason we decided to create a venture. guy: how much on the market? philippe petitcolin: it is too early to tell. two different markets. your the commercial market. you have to work on the mix between the two. they are different. it depends on the weight of each of them that you can achieve in order to give a price comparison between various satellites and omissions. it is too early to tell. guy: you are pushing heavily.
is it a natural fit, engines and biometrics in the same group? philippe petitcolin: the way you ask the question, you would answer, no. when you look at security, airports, we are a big market. we do a lot of things in protection and biometrics. if you look at the airport today sometimes of the day, it is overcrowded. sometimes, there's almost nobody. we have to adjust the flow and the way passengers are treated in an airport. i know the saying we are pushing today into the security business which has nothing to do with the airport. it is digital identity. i believe it is a physical market. the physical identity as well protected.
jonathan: good morning and welcome back to "on the move." i am jonathan ferro. up to spain on how things are moving in the equity markets. -- up to speed on how things are moving in the equity markets. mainland europe where the heavier markets -- losses are. almost 14 percentage points lower. -- almost 14 percentage point lower. waiting for the athens a stock exchange would allow for formation. it has been brutal in greek stocks. the biggest 2-day selloff since
january. interesting moves and the bond market. down by two basis points. the italian 10 year, the yields go higher. 2.4%. spanish bond is up. nine basis points. earlier the difference between spain and italy getting interesting. we will break it down with alberto gallo. we are waiting for the big decision out in europe the court of justice in luxembourg will deliver a verdict on ecb president mario draghi's transaction program. it was announced three years ago by mario draghi when the bonds threatened to split of the currency bloc. they will deliver a verdict on the legality. we are joined by paul gordon. what are we expecting? a big
surprise if they ruled against the program, wouldn't it? paul gordon: it would be a huge a shock. it is not about easing. the advocate general said earlier that the plan is probably illegal and a lot depends on not crossing over into monetary financing. interestingly, the general said at the ecb is probably the best organization to judge whether that is the case for the european courts. it would be interesting to see how they easy j reacts and deal with those themes. jonathan: it could have implications on qe. how could it affect the program? paul gordon: a couple of issues. the sheer horror if it was overruled. there would be legal challenges and even more of them.
although the ecb said they are separate programs and even back months ago saying it would not affect qe, you have to question how significant that would be. the second issue sounds like a minor one but they pointed out the ecb must not be allowed or should not be a blocking minority in the bonds and buys. omt does not necessarily go that far but qe does. qe is buying bonds and has restrictions in place to stop it. if it wanted to, would it be able to do so? that is the question we might get a light on. jonathan: is that what we are looking for? paul gordon: i mean, you have to admit, the most likely scenario is the ecj saying it is find a
hearing conditions it was not to be fine. and carries on with the job. that is what the market would like to see. the plaintiffs, certainly not. jonathan: paul gordon thank you. breaking down what we can expect from the european court of justice. more from alberto gallo at rbs. we are waiting the decision. never activated but oh, my, what an effective program. mario draghi not to buying a single bond during the euro prices and now it is back on the agenda but not entirely. alberto gallo: omt has been a great success but maybe this verdict will not to be as important a because we have the qe program and buying bonds. even if it is an unlimited amount, it is done when qe. if greece enters entered a
third bailout, if there was an agreement the ecb could buy greek bonds without a program for we expect a positive a verdict. a positive verdict does not really change anything on the table. jonathan: it kill the securities program -- securities market program. has qe killed omt? alberto gallo: i think you could still have a situation where the general eurozone economy is doing fine but one country that has a problem and that is where omt comes in. i think it is still important to have it in the future. in this situation, the greek situation the greek negotiations is much more important. jonathan: the judges will read a rolling in the omt case.
the case is qe is one thing and omt is another. if greece does not want to reform now, why would they want to implement some of the criteria of omt? alberto gallo: either way conditions in the case of omt would be stricter. omt only looks at short-term maturities. i think -- jonathan: the top court rules on the validity of omt program. the omt program, the court allows them to run it. no big surprise, alberto. going forward we go back to the conversation you and i had at one point did the ecb should be concerned about a backup. we are looking at spain and
italy. i am looking at spain more closely. alberto gallo: very important to note the ecb has been buying a bit lower bond. a bit less and not frontloading the past -- the purchases like they were saying and they are slowing down. maybe it means they do not want to say, i am there any way. they want to play more of a neutral position. mario draghi says all ball is in the greek court. if yields on italy or spain go to 3% 3% 3.5%, it means the government off those countries will spend at the same that were spending in the past and will not save any money. both volatility and the level of funding costs matter. spain is more of honorable because you have podemos, a
close party to syriza and elections in november. more worried about italy then spain. you have reforms coming up to the disposal of bad loans and eu have a general positive political output and unstable governments. italy will be a bit more unstable. jonathan: the question i would ask is the politics. i read a headline on my bloomberg terminals said the ecb wins the eu top court ruling. i ask for just lost? whole lot was a group of german individuals, officials that do not what the ecb to go down the road. they lost the monetary policy argument. are they going to win of the political argument? one of the reason you see wolfgang schaeuble is the politics and you wonder what the
implications are for the likes of greece and spain. will they win the argument over austerity? alberto gallo: ecb has done a lot probably as much as they can do. now it is about politicians. prime minister's including angela merkel what a solution. it is becoming harder and harder. we are getting closer to the point of no return. this is the game of two cars going in opposite direction. jonathan: the interesting part is we talk about spanish yields is the political equation to think about at the end of the year. another spanish election. the euro is going higher on greece and they want to send a message to podemos. the eurogroup president, sc going to remain dusselbloem -- is it going to remain draws a blue -- dusselbloem>
alberto gallo: dusselbloem has played a hard role. he has done a good job. we will see what happens and the next few weeks. greece is the same as duesseldorf or malan. -- milan. a potential exit is a dangerous situation for the euro. like draghi said, enter unchartered territory. the incentive to be a little flexible is on both sides. we know there is a last draft the ecb has presented to greece. we do not know the whole details and we do not know who is being inflexible. having an agreement is the rational choice here. i think that is how we measure the success of the president.
we have interviews with the biggest leaders. we have guy johnson. over to you. guy: thank you. the ceo of aeroflot joins me now. russia has been a difficult market. how tough has it been? guest: it has been rather challenging even though people tend to look at it in a more negative way. let me give you some indication. it was down and the first quarter by 40%. aviation demand is down by 2% 3%. it is down and a crisis but it is much more resilient. guy: if you had to change your network or returns of aircraft or leasing companies? how do you manage the dynamic? giorgio callegari: we have a strategy of avoiding the risky
bets. the sense we have been focusing on developing the russian market. there is room for growth. and developing based on establishing in terms of frequency rather than aggressively spending. that means we could cope by adjusting capacity and canceling. we did the reviews services in two or three destinations. we maintain most of our frequencies. as a result of that our market share has greatly increased. it hasbro receiving positive feedback. guy: did he return any aircraft? giorgio callegari: we returned some of the --
that's market has been the most affected by the crisis. we are in discussion with some of the purchasers and we are still growing. plans to add adjusting. guy: you have aircraft on order. you have a-35-0's from airbus. talk to me is that order is still on. giorgio callegari: let me start with what is happening now. completing the order as we have 416. -- for 16. adding some metal bodie and super jets. as far as the future is concerned a-350's which will come. and the 787 which we canceled as
a result of the delay of the delivery of the aircraft. guy: the latest the model. it had to be canceled because of what happened in a crimea. let's talk about the successor to that and where it fits into the low cost spectrum. tell me. giorgio callegari: the name is the -- i am proud to say it has been the result of delivering to the russian market, a low-fare, very efficient product. the response of the launch of the original low-cost was so positive that even when the company was under sanctions, it was up again. in three months we went from
grounding to restarting the new one. and the first quarter of 2015 it is number nine, the ninth carrier in russia. you can imagine how positive the response from the market was. we plan to getting to grow the company. therefore it is a success. the result of weathering the crisis and the implementation of the multiplan strategy where we have a different brand. guy: how low cost is a low-cost? the lowest change to make low-cost possible. how would you compare and contrast what you are doing in russia with ryanair? giorgio callegari: that is a good question. we appear -- we have been promoting affairs for 999 rubles
which is -- those are fares that compare with a low-cost in europe. we can use of those as promotions. we have a very efficient cost system. guy: when you talk about the ruble how difficult has the volatility in the ruble been? paying to, how hard has it been? how have you managed those variables? giorgio callegari: to be faced with the depreciation of the currency because of the ruble went from 40 rubles to 100 rubles to one euro. it has been challenging. going back to our competitive advantage, we have hedged our network so that we can
distribute our capacity within europe and russia and within the asian countries. that means that the share of revenue as small as between the rubles and dollars. we have a natural hedge. it is the cost of your fuel going up and then you have a challenge. guy: giorgio callegari a pleasure speaking to you. the ceo of aeroflot. mr. ferro, back over to you. jonathan: thank you very much. what to watch today? what is happening so far and what is to come? inflation in focus. that is after this break. ♪
a little bit lower again this morning. the banks stocks have taken damage over friday and monday session. a little lower today. this morning not really about equity markets so much about bond markets in a big way. germany yields go lower by five basis points. the spread why does. italian -- spanish bonds go up. for the first time since august of last year. the italian 10 year also up seven basis points. the yield, the spread, the difference that is interesting. the difference between italy and spain is going to be one for the rest of the year as the spanish head to the polls. this is him as it for me. almost a third minutes away from inflation data out of the u.k. -- as that is almost it for me. it fell into negative territory for the first time since records
were kept. are we going to get that the bounceback on u.k. cpi? reporter: the bloomberg survey is calling for it and in addition to the headline number rebounding also expecting the core inflation to rise to 1%. that coupled with tomorrow's data and the minutes, a busy couple of days. jonathan: you are looking for two gauging the first rate hike. around june, july for the meeting of the mpc. does it change the picture? richard jones: we need a big upward surprise. something far above the 1% expected. we have then admitted 2016 for the bank of england a liftoff for maybe a month -- we have then at mid 2016 for the bank of
england liftoff for maybe a month. that has not changed. jonathan: and the world effects that -- in the world of fx, sterling? richard jones: i think you might be onto something. the fomc decision will be critical. as much as the bank of england follows domestic developments the implications of the fed will trump. jonathan: always a pleasure to have you on. richard jones. coming up later -- a votto data. u.k. inflation out and 30 minutes's time. at 130 news -- at 1:30 p.m. housing starts. "the pulse" is next. they will have more from the paris air show.
francine: the ball is in your court. mario draghi said greece must take the necessary steps. the european court of justice ruled the ecb's scheme is legal. kuroda's you turn said he was not trying to influence the yen when his remarks sent the currency climbing. francine: welcome to "the pulse ." i am francine lacqua. also coming