tv On the Move Bloomberg October 26, 2015 4:00am-5:01am EDT
15 seconds away from the open. dax futures are pretty much flat. a big week ahead -- the bank of japan. let's get your european market open with caroline hyde. volkswagen caroline: good morning -- caroline: good morning. quite a muted reaction to the stimulus we saw -- the sixth interest rate cut coming with any year. -- within a year. they are injecting up to $110 billion into the financial system, but the hang seng is down by 1/10 of a percent. is it that we have already seen the market move and they have already factored in more monetary policies coming from china or is it caution ahead of the five-year plan, rs barclays has said, is it underscoring the fundamental weakness of the chinese economy? of 1%ai posted 5/10 higher but not as big a move as
we saw in europe on friday, when we factored in that chinese whenlus adding to the ecb we see more stimulus coming from mario draghi. perhaps a little bit of profit taking, a little more risk aversion. the dax is flat, business climate set to deteriorate later today. taking after we saw the biggest two-day gain since july on thursday and friday. the other asset classes are moving on the back of these measures. nickel hasn't been performing so well. a big bellwether coming from how china is performing is the aussie dollar. let's have a look at some of the stocks to watch. we have had news on potential acquisitions or disposals. , with aboutdown 3%
$2.8 billion -- it could be under threat. u.s. regulators are confronting roadblocks, saying that they have concerns. up readyrs are significantly but investors are really focusing on the concerns about that sale, up 2%. this is something that is just shy of estimates, 12.4 billion euros. aberdeen asset management reports that we could see potential buyers. they could davis wishes to percent to 5%. jonathan: thank you. that is what's happening in markets in the early part of the session -- a lower open. here's us will happen in today's program. beijing, we are live in
is the pboc cuts rates and the leaders set out the nation's five year plan. later we get a preview of the bank of japan's much-anticipated october meeting. will the boj pull the trigger again? in poland has an unprecedented majority to an opposition party, pledging a tough stance on refugees. let's get our top story. is cutting interest rates on china for the fifth time since november. this is ahead of leaders gathering in beijing to form the five-year plan for the nation. it will be the first under president xi jingping's leadership, coming during a period of sub 7% growth. for more, let's bring in tom orlik in beijing. tom, first of all, let's start with the rate cuts from the pboc in the motivation behind it. so much discussion about the pboc carrying out a neutral monetary policy. are they shifting to ease mode
now? if you have cut interest rates six times in the space of a year it is pretty difficult to argue you are doing anything apart from using. asing.m e they seek growth week,, inflation low they want to do something about it. . , since the middle of august we have seen extraordinary amounts of capital flowing out of china's financial system, expectations of yuan depreciation triggering record capital outflows in september. cut,eserve requirement which we saw in parallel with the rate cut on friday, is meant to offset that. there is money flowing out of the country, there is no requirement cut. period, this year leadershiprowth,
convenes and us we look ahead to next year what are the growth targets going to look like and will they still be the main focus of the meeting? inevitably there is always a focus on the gdp number , it has a totemic significance with china, a rallying point for the entire government. the expectation coming into this meeting in beijing is really that china's leaders are going to bow to the inevitable. the shrinking working age population, growing concern about overcapacity in the industrial sector, overcapacity in the real estate sector. the outlook, everyone agrees, is going to be slow. we seestion is will it reflected in the five-year plan? the consensus is that the government will come down from 7% to 6.5% for the years ahead.
jonathan: tom orlik, thank you very much. themore on this topic, global asset allocation strategist at ubs. it is funny -- known as the one happen in china, but leaders gathered to develop a five-year plan. that is a difficult task. >> they think so, but i think what they will talk about our reforms that are going to benefit them in the street. unfortunately we don't think it will benefit things like commodities. we think cover price will stay fairly low. globally, we still think that growth will be week. -- will be weak. goinge what the pboc is to do, despite what this plan will do. jonathan: the exit of excess capacity and nonviable enterprises has been slow. rate cuts aren't going to see that up, are they? ramin: that's right, there is
only so much they can do. think about it -- over the next 10, 20 years, they are going to change into a developed country. it will be a surprise every year when they underperform. i think we should be surprised if we see growth down. jonathan: for industrials, for mining companies, you assume it to continue. ramin: absolutely. i don't think we will see a big jump there. the oil price will stay pretty much where it is now. have fairly severe repercussions globally but i think the commodity shock and it is inflationary shock will be felt particularly in these small, open economies like switzerland and sweden. that will be the impact of the china slowdown. jonathan: the fascinating thing about friday -- another rate cut is surprising, the sixth rate cut since november. then they scrapped the deposit rate ceiling. i'm going to have to the
question -- if you struck the deposit rate ceiling and get , the banks to compete average rate rises and so do funding costs -- does that get passed on? ramin: the other thing to look at is the schaeuble rate -- that interbank lending rate. whenever it spikes it comes down. there is a that phone call to a bank to tell them to lend to one another. i think it is likely that liquidity will be the key thing they try to maintain well growth slows, while they try to re-stimulate the economy. jonathan: as we look ahead, the five-year plan, the not-so-subtle pitted from old china to new china, i wonder if the direction of travel or the velocity changes in any way at all. what would make the chinese government capitulate on that pivot? crash if we saw another in property markets, that would be problematic. a crash in equity markets will
be problematic. but it has balanced fairly well, particularly for the tier one assets. this priceoblem was crash their and their huge oversupply. if the property market continues to worsen and that would be a problem, but that is not what we see. jonathan: he will stay with us. , by 2017 he could be holding half of japan's government debt. the boj governor, haruhiko kuroda. ♪
jonathan: here are bloomberg's top stories -- poland's opposition party is on course for victory after pledging a tougher stance on refugees and more state control of the economy. they won more than 25 -- 29% of the vote and are the projected majority in the parliament. phillips speed estimates, rising demand for health care. they also warned that the sale of its lighting unit is facing a regulatory burden. tokyo the regained its global sales over volkswagen. vw is dealing with the scandal with 7.4 9 million vehicles this year through september, slumping sales they reported earlier this month.
japan's post holdings have been at the top of the range, making it the biggest ipo of the year. the government raised the trillion with the privatization of the nations postal service and its banking and insurance unit. bloomberg's asian finance editor is in tokyo for us. the prime minister's main motivation for doing this -- what is it? minister is finishing a job that was started 10 years ago by his mentor. he wanted to sell it because he felt that had been used as a vehicle for government spending and wanted to use the money more efficiently. he also had a plan is getting peoplers, or at least getting investing more of their savings. is it a surprise
anyone that japan's post prices are at the top of the range? what happens next as far as the story is concerned, getting investors to invest more? russell: it is not a huge eurprise mainly because thi shares are often relatively cheap on all three fronts. company was the holding with the price-to-book ratio of .41 times, a third of their pr. pvr.eir but also another reason is that most of this is being targeted in japan and japan post is a household name. it is a national icon, one of the most famous brains. its familiarity made it quite appealing to some of the investors, particularly older investors who feel that japan
post is a very trusted brand. that was probably one of the reasons why it has really been flocked to. jonathan: they thanks for joining us -- i want to stick on japan. it is decision day for the boj on friday and bloomberg's survey shows economist are split on kuroda's decision. 13 of 36 say we should expect extra stimulus. brian fowler -- he joins the. what is behind the increase of expectations and i wonder if the mood moved it as well. brian: yeah, definitely expectations are inching up, and part of that may be the ecb making positive finds about further easing and then of course the people's bank of china cut rates on friday so there may be something in the is also a growing
sense that japan may have entered a technical recession and we will get those gdp figures in november to confirm but i would also hasten to point out that at least in one park it --the financial community one pocket of the financial community it is going in the opposite direction. the yen has fallen to the lowest position in three years, so at least among currency traders it looks like they do not expect to see any further easing. jonathan: they are also seeing a divide between what the city expects and what wall street expects, what domestic japan expects -- what you big question mark what is the story? i am guessing that overseas investors are looking too much at the numbers and thinking logically, whereas people in japan are looking at the politics. we had 10 days ago on a friday night the finance minister appeared in an interview,
talking about the boj -- he said any further easing probably would have no effect because there is no demand for funds. that was not a random event. i can tell you from personal experience that any time the government puts a guy like that in a position like that it is carefully choreographed. that werethe ideas put in his mind by the administration. it was a clear signal that the boj doesn't need to take any steps this time around. jonathan: brian fowler, thanks. -- yous still with us heard about what wall street expects him what domestic japan expect? ramin: we're fairly certain that they will do something -- the growth has not been particularly good and we are far from eating the inflation target. we think they will increase the
stimulus and the third question is simply when. the timing varies but whether they increase the stimulus or not we don't think it's an issue. jonathan: why not? ramin: because of the growth in the inflation. they are buying etf's of the nikkei 400 -- in other words, they are directly injecting capital into the companies which have created this rou friendly corporate governance -- that is a nice way of rewarding those companies. the next step is if they run out of bonds to buy, and they are already buying more by a fairly large margin, is to buy equity. that is why you are bullish. i want to talk about a technicality to the bond buying -- the boj is set to have half the market by 2017. you asked the question when did they struggle -- how soon is
that? is it a matter of months? ramin: the question is what is the marginal benefit. i think it would be fairly limited and that is probably why they have looks to shock markets, but buying other assets inequities. what else can they buy? jonathan: the credit market is markable right now. out, very dovish. -- boj, they should do more is it a bailout for the high-yield space? ramin: the european high-yield markets are very attractive. we would like to buy protection on emerging market credit and so protection on european credit. i think that is a nice way of playing that european high-yield positive story. whether in the u.s. there could , soignificant fallout particularly we are worried about hybrid mutual funds the
they hold a combination of credit and equity. crunch, it isedit the equity that they hold alongside the credit. it is aaa games that could be affected. it is not just junk companies that will be affected by the high-yield credit crunch, it is high credit quality companies. jonathan: ramin, great to have you with us. program,:in this lurches to the right. the country -- poland lurches to the right. details next. ♪
jonathan: good morning and welcome back to "on the move." i am live from london. politics now. politics opposition party is on course for an unprecedented victory. it is set to sweep into power, promising a tougher stance on refugees and more state control over the economy. let's get obstacles in berlin. hans, i look to the market reaction and there is little changed -- i ask whether that will hold. what are strategists saying? hans: we have had a couple notes that socgen is expecting it to weaken. they will expect shifts but not radical changes, it could explain why it hasn't moved much.
bnp is saying that until a new government is formed expected to weaken. they also say that you will see some rate cuts priced in. yes, they ran into migration policy, but a few months ago in the presidential election, you already saw a shift in a country that has seen economic expansion but still has 1/5 of their populace living 20% below the poverty level, around 700 euros. you have also seen massive emigration from poland. in the east and part of the country, unemployment is much higher in this can be read as an economic concern that concern about migration. one quick note -- we don't have a final tally of projections of where they will be, whether or not the party will have an outright majority. according to exit polls, they have about 232 seats out of 400
and 60. -- 460. jonathan: the backdrop to all of this is the european meeting of leaders in brussels on how to deal with the crisis. is anything accomplished at all? hans: short-term solutions. all they really agreed to was temporary housing it may be some sort of plan but there was a lot of back and forth. litmusmerkel called it a test for germany, although she challenged the notion that this was supposed to be the summit where they come up with a car brands of solution. all, to date was about alleviating the suffering of the refugees and the so-called reach. they are all bound to humanitarian human values. we have all signed the geneva refugee convention. what we have seen in recent days did not correspond our values. hans: the numbers on this are staggering.
you look at the latest figures out of slovenia, the last 10 days they have seen 60,000 migrants. in macedonia, the numbers at 10,000. we can quite classify them until we know why they are fleeing. similarly the numbers out of turkey to greece, that looks like you were close to 9000, 10,000 per day. it is a massive challenge and no one is pretending that we are anywhere close to a solution. jonathan: hans nichols in berlin, thank you very much. next, as struck a brings life into the euro-dollar parity, the fed needs a hike rate before the end of the year to make it a reality. we talk for an exchange next. ♪
jonathan: good morning and welcome back to "on the move." i'm jonathan ferro in london. o yourutes and -- 3 int trading day. ftse 100 is down by half of 1%, the dax down by 22 points. a big rally in the back half of last week for the stoxx 600, the longest winning streak since march. a little bit of a pullback this morning, down by half of 1%. switch at the board -- when we reasons for the equity market strength was the euro weakness. it was down 3% last week, the worst week for this currency since july and spreads were much tighter.
italy was below 100 basis points to close out the week. they are some of the moves in the asset classes and let's get to stock news with caroline hyde. caroline: the pain continues. i want to talk about the that-performing stock, and of the significant so off we saw on friday and it has now lost a order of the billion pounds of its market capitalization. the cyberattacks, the crisis that started to unfolded wednesday when we understood that attackers took a significant amount of data, potentially bringing into question whether it has compromised data from clients or whether the information could of another attack. some claim that there may be allegations of criminals using
this data and we know the company is desperately trying to rectify the situation. the chief executive is working hard to help clients, to release them from some of their contract, even following compensation, but clearly the negative headlines are hitting this company related to that cyber attack on wednesday,. continuing to pull down meanwhile -- continuing to pull down. meanwhile, philips beat analyst expectations when it came to its third-quarter results. we saw a 20% pickup and profit, but the problem is the sale of its lighting component unit. billion to a chinese led consortium -- it would seem that u.s. regulators are putting in roadblocks saying that there are concerns. we don't know what they are but we know that phillips and the company looking to buy it are trying to rectify it, but the
concern that they may not be able to sell off this unit is dragging on the stock. meanwhile, i will if you want a high -- aberdeen asset management is leading the charge at 4%. they are reporting that there are rumors this company could be looking for a new buyer. jonathan: thank you very much. that focuses decision week for the fed -- what are the prospects for a rate hike? according to most estimates, not great, with the fed unlikely to deliver any major changes. by next guest says the discussion make it interesting when the minutes are released. i am joined now by the head of g 10 asset strategy. great to have you with us. wonder if your call for parity have a big sigh of relief on thursday after it dovish mario draghi. how much do we need to see from the fed to make your call a reality? >> we do need the fed to start
hiking rates, and definitely the ecb to announce qe, an extension of qe. -- way to think about it about a year ago, euro-dollar was at 2.4 and now we are below that. move,er to see a further we need more of the ecb and the fed to move against it -- it is a matter of time now. jonathan: i still see treasury yields that are low. surplus has account fundamental reasons why we can't have a strong euro -- do you worry about those hurdles? more fromif we do get the ecb and i think it is very likely, but the fed does not hike, that it unlikely to see the euro-dollar a parity.
we need both the fed and the ecb to move. in this case, the fed hike is a matter of time. if it doesn't happen in the first half of next year rather than this year. when we think about the equilibrium of the euro-dollar, it is about 1.15. will close the gap next year and in this environment in which they are in a difficult beition, euro-dollar should worlds below equilibrium and it can very easily reach parity once the fed moves further in opposite directions. jonathan: when you look toward what they might do with rate in december, to take the deposit whichven more negative, is quite early targeted at the fx, are there other to the consequences -- are there unintended consequences? athansio: i was surprised when
they discussed -- i don't think it helps that this point beyond weakening the euro. it can complicate the operation of qe. in practice, what is important is for the ecb to announce an extension of qe that will be open-ended. that it is likely to stay well below the target for a long qe,, if the ecb announced that will have a very powerful impact. thatstead they announced they will extend to the end of next year, this might be a disappointment. jonathan: so the federal reserve to get this parity -- i look at and you have this dynamic between domestic economy, which was doing totally fine, and international risks abroad. this has settled down.
the domestic data, though, hasn't improved. some say it is next in some say it is getting worse. how does the fed deal with a dynamic? athansio: we don't expect it will do anything this week. the data is worse today than in september. if they decided to wait in september, i think they will wait for the next two bill in order to decide. i think we will -- i think it will be much more important to seek how they deal with external developments that will affect the decision. it has been in the sweet spot because it has been weak enough to boost fed rates but not so weak that the markets will panic because it will be very difficult for the feds to these further. there is this balance. we believe it is more likely than not that the fed will move
in december, but there are increasing risks. j what is the bottom line here? expect more volatility -- is that it? athansio: that is an important question. you mentioned that we have seen a very strong market rally. we believe that this is a bear market. it is supported by the fact that they have posted a later fed --e and the bank of japan this has supported risk from a very short position. however the big picture is that the fed will start hiking, asset prices will be supported by very aggressive qe, and we are back to reality. bad news will be bad news. volatility will remain high. jonathan: final question -- euro-yen, this week there is this huge divide.
the international expectations and the japanese expectations. internationals expects more boj easing -- where to use it? athansios: 50-50. the domestic data has been mixed. if you look at inflation, the boj should do more. dollar-yen is not very strong or weak. it is very hard to tell, but what is important is that the market hopes the boj will do something but is not positioned for it. going into the meeting i would look at the volatility because dollar yen -- --athan: you are on course if the economy doesn't approve of the way you anticipate, why is buying a single bond more than you've got to going to move it forward? a huge issueis is and at some point the market will start wondering about the effectiveness of qe, and it could affect liquidity, which could lead to higher yields.
gather in beijing to formulate the nation's 13th five-year plan. it comes as the second-biggest economy confronts its first era of sub 7% economic growth since the 1970's. cutpeople's bank of china interest rates for the fifth time in a year. plans to sell 58 billion shares. the bank expects to generate gross proceeds of $1.2 billion. local media atid the company plans to invest $400 million in switzerland over the next two years. quarter revenue grew 3.2% -- the company also weighed in on the emissions scandal, saying that it never cheated and will gaed by a gears investi an independent body. welcome back to bloomberg tv. weittle bit of a pullback --
didn't get earnings from vw on wednesday as the company loses its title of world's biggest automaker to toyota in the wake of a widening emissions scandal. let's get more with craig trudeau. good to have you with us. how much of an impact do you think this scandal has had on it? g: that is maybe the worst news in this development, that volkswagen gave up its sales lead and give it back to toyota, even before it had an impact from the emissions scandal. you had less than two weeks of sales reporting that was affected, if at all. this isn't a story yet of the fallout from the emissions scandal -- if anything we are only going to see blowback from consumers in the weeks and months to calm. we know for certain that some
diesel models have stopped sales in some markets, so that will be a significant drag, because it is highly dependent on diesel models. jonathan: craig, we know the scandal away on them, but it wonder what it means for toyota and what they have up their sleeves to take advantage of what's happening there. craig: tokyo has some ace up its sleeve -- it is coming in the next few months. the big one will be the s.iu it is too early to tell how much of an impact that car will have on this current quarter through the end of the year, but certainly it will loom large in 2016 and in the first quarter of next year. this is a model that does huge ambers here in japan, and is very popular model in the u.s. and has gone almost seven years without a redesign. that is an eternity these days,
and they have made some substantial updates to the car. we should see a sales increase for that vehicle in the next few months, even year ahead. jonathan: big thanks for joining us. craig trudeau. staying on the corporate front, electronics and health-care giant philips posted results that the estimates, but there are concerns about the sales of its lighting component. caroline hyde joins us -- let's talk through the results. caroline: underlying it looks pretty rosy. we are getting an excess of half a billion euros. the choices that the chief executives made are feeling vindicated. they are stepping back from lighting, where we saw sales not perform well. instead they had a big bet on a $125 billion industry that is health technology, all about
using your data to be more analytical. bet and it is where the consumer lifestyle area is growing up, and indeed it is boosting the health care unit while they invest. underlying this, the business is pretty stellar. jonathan: what are the concerns about the lighting unit? caroline: it is because we are worried it might not go through. it is a $2.8 billion deal and an area they have cited as concern is china but china is a buyer. pay for thisto unit back in march but now u.s. regulators are weighing in on potential roadblocks, saying that foreign investment in the united states is flagging concerns. we spoke to the chief executive, trying to dig into what these concerns are and what the technical solutions they are trying to find.
he didn't really have anything else -- have a listen. >> the deal is facing some as we work and delay through regulatory issues that were voiced in the united states. this is a confidential process -- i wish i could tell more but that is not possible. towards afocused closing of the deal. they were already meant to be close to -- they wanted to close in october. remember, it has more units to go and they still say that sales orcess, whether it is an ipo disposal, is on track to complete by the first half of next year. morgan stanley is saying that u.s. concerns have no major negative. they had a lot of appetite in market when they were looking
jonathan: good morning and welcome back to "on the move," live from london. a big week ahead -- the fed and boj are holding meetings with speculation that the boj made use further. apple reports numbers on tuesday, and bp releases as well. in the red now, -- in the here and now, let's go to our international correspondent hans nichols in berlin. i wonder what we are expecting, because he have had such a mixed data points out of germany. pmi is one thing, factory orders another -- what is the confidence number set to tell me? hans: it is supposed to come in at 102.4, down from the one of
3.3 last month. in some ways it is the most important data that we get in the month. you could make the case that pmi is more important. we saw was that w a precipitous decline -- then it dropped all the way down to 1.2. that is a survey of financial executives for financial participants, so it is always a little more jumpy. but we get with this is actual manufacturers, a survey in the .ield from 7000 respondents they give you a sense of where they see the german economy. i'm looking to see if there is a volkswagen affect -- what are the effects we see? we will get the number in four or five minutes and we can take it from there. don't get excited, though -- you and i can get excited about too many numbers that this is not
one of them. jonathan: i wonder how excited we should be and how disappointed we should be if it comes in below estimates, and whether we have this good news is bad news dynamic. what are your thoughts? no onwell, i would say the latter part because in so many ways it has been made clear that mario draghi is of looking at german economic figures to make his case about qe. it is a clear signal that we have gotten -- they are going to expanded and it is a question of how. will they expand the overall size? the like? the numbers -- i would be disappointed because they will see an effect and it could be china related, and that is a long-term problem that will affect the engine of growth in europe, and that can only be thought of as disappointing, regardless of what you think it will do to quantitive easing. jonathan: const nichols in berlin. -- hans nichols in berlin. surveillance is up next.
we are joined now i francine lacqua, who will -- now by francine lacqua. francine: we have a great come exclusive interview with the italian foreign minister. this relates back to what we have seen on the refugee crisis. it brings it back to the economic pressures on a lot of these countries. my first question will be are we concerned, is he concerned, that this is the end of moderate europe? we saw that vote in poland, voting in nationalists because of the refugee crisis. this is a very divisive issue, and we have the foreign minister on the front line. as someone who speaks to these guys all the time, how do you gauge the mood in europe, when you look at the free movement of people, not just from mainland europe but from the u.k. as well? is this a critical point in the whole project? francine: this is a critical point, and if you wear italian
you could see it through different eyes from someone in germany or the u.k. there is something called the dublin act. if the refugee arrives in the country, this is where they have to take them. we think they want to change that because italy being the many of, getting so these refugees, they can process. jonathan: francine lacqua, coming up with tom keene after the break. that is it for me. best of luck for the rest of your day. you can follow me on twitter. session,s into the the ftse down by 23 points, the dax breaking even. ♪