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tv   The Pulse  Bloomberg  December 7, 2015 4:00am-5:01am EST

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guy: opec in turmoil. the bti trades below 40 bucks a barrel. plug, cutting 10% after ge cancels its appliance deal. le pen in the lead. france's far right national front ahead after the first round of elections this weekend. ♪ guy: locum to the pulse. i am guy johnson.
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-- dominating the headlines with president obama describing the shooting in california as an act of terrorism. success inont party the first round of regional elections in france. the latest from paris with caroline. hans nichols joins us. let me take you to washington. the me take you to your former home turf. what you think the president was trying to do with this speech? what did he try to communicate? hans: he is trying to reassure the public. he uses the oval office for very somber occasions. part of that was other rooms in the white house were occupied by christmas holidays. publicrying to brace the .
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here is how he put it. quit the threat is real. >> the overcome it -- threat is real. we will overcome it. won't depend on tough talk or abandoning our values or giving in to fear. that is what groups like isil are hoping for. we will prevail by being strong. resilient and relentless. by drawing upon every aspect of american power. hans: he did announce a strategy review. unclear what sort of policies will come out of that. he is ruled out committing any ground forces to the fight. that is going be a main dividing line between the president and the republicans. what was the reaction to
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the speech? hans: there was a lot of criticism from the presidential candidates. par for the course. criticismrised by the from paul ryan. he was quite critical. he was disappointed, just a halfhearted attempt to distract. i will be watching to see whether on not -- whether or not relationship. europeans turn to politics. france's far right, national front, making gains in regional elections over the weekend. the first time folks are heading to the polls since the terror attack. put this in context. give us a sense of how well they
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did. recent jump in popularity of president hollande has translated into the ballot box. three times better than their last regional elections in 2010. they are leaving the first round in six out of the 12 regions and mainland france. the governing party is only meeting in two regions. has becomel front the front runner in france. andeople express themselves with the people france raised its head. ballots hads what announced. the national movement is without any contest. it is hardly represented in parliament.
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caroline: two regions are the most at risk, the southeast of france which includes the french riviera. the candidate who came third in the two regions, the socialist decided to revoke their candidacy. creating a republican barricade. guy: fascinating stuff. paris, hans nichols -- central banking here in europe after disappointing markets which were expecting broader action from the european
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central bank. mario draghi spoke in new york city. he defended his decision. consider the package that has been proposed by the committees as exactly -- it was as the markets have demonstrated, it was not a package that was meant to address market expectations. it was a package that was meant reaching of our objectives of inflation. if we had to intensify the use of our instruments to ensure we abilitythe price mandate, we should. no limit to how far where able to employ our instruments. guy: let's introduce our guest. .aul webber good morning.
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delivers a lot of stimulus. do those two things fit together? think a lot of angst has been because of hauch -- of how crowded that trade was. eventsld see the market in the last few days in that context. regionseeing the recover. going to be growing similar to other developed markets. we think there is a regional basis. makes itome ways it easier for u.s. investors to invest into europe. they don't have the currency risk as they did before. maybe we can take the currency a little above parity. you can understand that part of the trade. it is always easier to put money to work.
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simon: we have been trying to explain to our clients that most of the your risks is on his way out. the gross outlook was better than it was. handsn invest on an on that's on hedge basis. saw the draghi drop that we , time to get in. been taken the opportunity to add in stocks across the region. guy: when you take a look at what is going on in oil, one of the biggest drags his service companies and oil majors. do i need to rethink my trades come monday morning? i'm looking for these big oil stocks and thinking how do they maintain those dividends? simon: we're seeing across the oil sector, dividend cover is
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very low. whether that is sustainable depends on whether the oil price can recover. it needs to recover by the end of next year. i maintain a pretty cautious approach. we may get some bounce next year when some of the supply cuts come through. the important thing is to focus on long-term demand. that is coming under more and more pressure because of some of the other technologies. we got the paris climate talks going on. the demand outlook is at risk. guy: when i think about next year, a lot of people do worry about it, where is my income going to come from? simon: we'll see some dividend cuts. in those exquisite factors. we'll see the prospect for dividend growth.
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we're interested in sustainable growth companies coming from companies like health care. there is a lot of interest in pharma. the banks are getting through their regulatory -- the banking sector could perform better next year. guy: i want to talk to you about that later because the weekend news out of it bif. there is more revelatory work to be done. we will talk about that later. simon weber will stay with us. our radar? limit tell you, bloomberg sources say barclays may cut what percent more of its banking staff. ceo speaks of possibility of cuts coming. 3:16.s
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the decision comes amid a legal battle. -- a breakup fee -- percent softer. energy stocks have slipped. opec gave up. at a chaotic meeting in vienna, opted to keep pumping in that effort to squeeze nonmember rivals structure for non-member be low --sia -- will will fall below 38 in the following weeks. up next, china's foreign exchange reserve falls below the $.5 trillion. pboc intervention. coming fresher -- coming pressure on the yuan. ♪
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guy: 14 minutes past the hour. welcome back. you are watching the pulse pierced streaming on bloomberg.com. china's foreign exchange reserves fell to $2.44 trillion. that is a big number. let's find out what it all means. tom, the fall was expected.
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talk to us about the reasons behind it. there are a couple of factors at work. firstly, china's this is his. china's investors -- china's businesses. china's investors have expectations that it will weaken in the weeks ahead. china's central bank, the people's bank of china isn't ready to allow the market to do its work. to allow the market to push the yuan lower. it continues to spend large quantities to expand china's exchange rate. guy: how does that fit side-by-side with the news we learned about central bankers have lowered the range. put those two pieces of news together for me. tom: we need to disentangle day-to-day movement in china's
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exchange rate from the broader trend in china's management of the exchange rate. the daily fixing can go up and down. sometimes that can be a signal. a change of strategy by the central bank. sometimes it isn't. at the moment, views on the yuan are sharply divided. some expectation that the yuan a immediately set to go into depreciation pad. press next week, the fed meeting could be the trigger of the china central bank losing grip on the currency. today's fixing was a sign of things to come. the alternative view is really china's central bank had a nasty shock in august when the many devaluation of the yuan past. intensive selling pressure on china's currency and light flows. the fundamentals of interest
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rates are set to change when the federal reserve moves toward a interest rate increase. bresky system bank is not ready to lose its grip on the currency. to keep the currency stable in 2016. guy: big about how long-term actually works out. let's go to our top stories. u.s. crude trading below $40 a barrel, this after opec friday gave up all pretense. ryan chilcote was at that meeting friday and joins us. let's talk about the price reaction to what we have seen. ryan: there are various signals out there. the bti, 39.50. i would love to talk about wti precisely. that has a lot of traders saying where we going to go next? 37.75. for 2015 was if you go below that, we test
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the lows of 2808. -- 2008. where below the 100 day average. sell signal. beyond that, you look at the options market. in the day friday, this is after opec -- after the opec meeting has concluded here and number of options out there betting on decline. them or four fold more of than options betting on an increase. the market right now is very bearish on the price of oil. guy: ryan, quick oil question. the market is already bearish. give me your sense of what happened friday. it was a very chaotic meeting. pretensely gave up any of being cartel. isn't that the right interpretation? ryan: the biggest take away is we ended up with an organization that was a
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desk that was unable to decide on anything. it is not a good thing to roll over the production ceiling or increase the production ceiling. they came out of the meeting unable to speak in one voice. unable to agree on what they decided. that is the single biggest issue. it creates uncertainty about what opec might do in the coming year. what the value of opec is. we had some minister saying they agreed to raise the ceiling. some say they left it where it was. that's theral secretary-general said they decided to wait -- the secretary-general said they decided to wait until the middle of next year. we got the trade signals from the nigerian oil minister. the president see that the presidency of opec saying at the price continues to fall -- we came away confused about what opec really wanted to do. they were unable to come to any
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sort of decision and ready to go home and a hurry. guy: simon weber joins us from shoulders. salmon, the bls post -- simon, a lot ofalks about -- turbulence elsewhere. we've got what is happening with oil, minister draghi. talk to me about whether or not we should listen to the pis. the problem is you want to take the chips off the table. simon: we should take -- we should pay attention to that risk. very low interest rates. building performance records in that phase. companies have taken on those of leverage. not uniform across the corporate sector. as weates start to go up are going to get in the u.s., we will find out who is wearing close when the time goes out.
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we need to be paying attention to that. the financial markets and corporate sector. guy: will be get a contagion. lehman brothers. -- will we get a contagion? and brothers. tom cole -- simon: it depends on where. banking industry is much higher than going into lehman. the there is risk outside of the -- there is risk us out of the banking sector is well. we'll have to see. there will be problems that are very difficult to foresee. guy: the problem with the situation at the moment is if i am a portfolio manager, i don't want to get into cash because if this thing doesn't blowup in the near future, i am in trouble. hang in there and ignoring the warning signals will provide problems. simon: youuare that? do everything. you can be very careful around leverage.
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that is what we have been trying to do is think about companies and are notnovation just financially engineering to invest our clients money. guy: this risk is in there and growing. something you need to pay attention to. simon: the longer we have zero interest rates, the bigger the cycle problem. guy: simon weber is going to stay with us. let's check in on the markets. you got dropped the bounce underway. the stocks in turn up 2.8%. electrolytes feeling the pain. --ctrolux feeling that electrolux feeling the pain this morning. electrolux down pretty sharply this morning. what are we doing 2016?
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we started the conversation and we will carry on with that. see you in a moment. ♪
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>> i have no idea. taking the stock market short-term it is time to pick some of these artists. it is again. the best you can do is know what you own and know what you are short and have an opinion about that. i have no idea.
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jim chanos talking about his productions for the stock market or lack of ability to predict the stock market. still with us, simon weber. we haven't talked about technology yet. we're coming out of the talks in paris. .he focus on green tech the impact it is good to have. we've got oil trading where it is. we have acceleration in these technologies. when do we get the crossing point? simon: we did the crossing point now and it accelerates the next time also fuel prices have an up cycle. we now have the tools. cheap solar, cheap storage. linking that altogether, you can now disrupt the auto and power sectors and achieve much of that
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vision which negotiators in paris are trying to achieve. driven by the technology itself. it is becoming cost-effective. guy: the longer it carries on, -- simon: that is all we will never let here locally voiced by opec. they know the pace of substitution will be much and $80 to $100 oil. ofis easy to see a lot disrupted companies, legacy financially stressed companies, fossil fuels that are not reallocating capital away from those industries. guy: you're talking about generators? simon: yeah, those assets. stranded assets and coal mining. --are going to be talking up we're going to be talking about a lot more -- producing electric
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vehicles that are substituting these engine manufacturing plants as well. echo are you investing like this now? -- guy: are you investing like this now? the whole thing is going to fall apart? simon: and we are having conversations with management teams. it is a long life as that. how sure can you be that this will be utilized and you will make money? on the flipside, we are really much more positive on companies that can be part of making this alternative powertrain a future reality. they will have sustainable earnings. guy: given that a lot of the stuff is still in the lab and get to get out, what is your ability to predict what works? will know all of it in a little bit?
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simon: we don't need to picking technology. it is come down every year. if you have ever driven a tesla, my advice to everyone tried and you will not disbelieve that electro vehicles have a big part of the future. i have been through a number of cycles in the biotech industry where you say i don't understand science fully and there for what i do is i own all of it. a fairlylaid out straightforward argument for a number of these areas. how do i capture more of that? how do i capture the extra little bit echo is it by portfolio management simon: our approach is did try
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to understand these emerging companies in the best in it. and to build a portfolio of those companies. you can have overcapacity and even the best new growth industries. you have to be careful selecting those companies that have a true edge. blanket lying, it is being very careful. simon, great to see you. let's get you up to date of what you need to know. caroline: energy stocks have slipped after opec gave up all -- it is essentially opted to keep pumping in an effort to squeeze nonmember rivals such as russia and the u.s.. barrels below $40 per
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and there are a record number of bets that it will fall below $38 in the next two weeks. 's described last week shootings in california an act of terrorism. congress to pass tougher gun laws and asked lawmakers for new authorization for force against the islamic state. >> we have no evidence the killers were directed or were part of a broader conspiracy at home, but it is clear that the two of them had gone don -- down the dark path of radicalization. they had stockpiled assault weapons, ammunition, and pipe .ombs this was an act of terrorism designed to kill innocent people. caroline: terrorism and the refugee crisis have also come
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regional in france's elections. according to early polling data, it has taken more than 27% of the debate. guy, back to you. more on thatt story that caroline was just talking about, the french regional elections. eurasia group researchers joins us now. .his is better than we thought how strong a victory was it and will it translate into reality? disagree, i think it was what was expected and she might be slightly disappointed. the polls were showing her at about 30%. we have to wait and see what happens. it certainly means they are now a political force that is present on every ballot.
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guy: what does this mean for nicolas sarkozy? this is a midterm for them and if they won a lot of regions last time because sarkozy was in power, so it is more difficult for his republican party. i think the biggest problem will be in how they coordinate a message between forming united fronts and maintaining their identity they sing socialists. a coalitionet effectively? is that what the reality is going to end up being? charles: the socialists are pulling out of some of the races says republicans might be able to say they are not taking part in the coalition, but they are being helped by the fact that the socialists are pulling out. there's also the fact -- so they
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are only really two regions where they are contenders. the are favorites. guy: why are people waiting for them? frustration with mainstream politics? charles: they have tried the center right and left, not feeling great about the economic guy:?ion so why not what are the implications of at policy you look formation and how it is going to shape french politics, what do we think french politics is going to look like? charles: we do not think the pro-national will win in 16. inference of the
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centerleft, not so much on economic policy, but you may have noticed after the terrorist attacks, the socialists copied a few ideas. i have been calling for this much longer than anybody else, and they are the only people capable of defending france. guy: what are the european implications? charles: there has been a lot of debate suddenly. it does not seem it is a certainty anymore but i do not think we are going in a direction that will take us to it completely being dismantled. i think we will see the countries on the front line are senten forces that from other countries, the borders being somewhat bolstered . the spot checks between belgium and france, that will become more the norm so spotchecks when necessary. ever close union?
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the u.k. is obsessed with ever close to union. guy: their market said, we do not want this, that, and the other charles:. it does not have as many fans as it used to and it is being contested. they carry the negative feeling about the eu in france. i think they will use the u.k. referendum to call for one in france. that will not necessarily happen straight away. a core country charles: in europe. it would be a big deal but i think the project could just about carry-on. you will enter the discourse and she will start talking about her referendum, and people will
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wonder whether i cannot have their own renegotiations. guy: very nice to see you, charles lichfield, researcher at the eurasia group. we are going to get back to banking . berkeleyslsashed more jobs. ♪
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guy: 20 minutes past the hour, welcome back.
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let's get the bloomberg business flash with caroline. caroline: general electric has abandoned plans to sell its appliances to electrolux. ge is entitled to a breakup fee of $175 million from the swedish manufacturer. electrolux shares are tumbling. it isech security says unable to contact two of its executives. the missing men are members of the company's eight person executive committee. the two may have been taken away by authorities to assist in the inquiry. barclays may cut an additional andof its banking staff most of the losses will be in asia and the -- to shore of profitability.
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-- that is your bloomberg business flash. guy: let's get more not berkeley story. story.lays >> this decision was well .lagged by the chairman he's of the contributions of the asian and middle eastern investment thinking operations were under review because they did not make enough money so this is a logical first step. it is kind of surprising due to the timing because he has only been in the job for about six or seven days. guy: is asia the right place to be cutting? some people say asia is the place to be, not walking away from. the management has taken the decision that i cannot
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turn around enough to have a return on equity. i guess they want to focus on their strength, and really just try and cut their way to success. he: the people who thought was going to come into investment banking, he is going to be slowing down the cut. the problem with that, he knows what he is looking at. stephen: he does have experience running jpmorgan's investment banking sector before, much more than his predecessor who was criticized by both investors and the board, for not knowing what strings to pull to get the investment bank working properly , and perhaps not having credibility among investment bankers themselves. guy: what happens next? he has laid out his parameters and areas that he thinks need focus.
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are we seeing action in those areas? stephen: they have hired a new chief strategy officer who has , andup through the ranks more of an advisory type person than a traitor. -- trader. the cuts are focused on the businesses that the big u.s. investment banks have typically had a stranglehold on, the ones that do not take up as much capital on the balance sheet. guy: who is running this business? stephen: john mcfarland says as ceo,as he fired -- hires a but it is hard to imagine that he will not be consulted quite thoroughly before any decision is made. guy: thank you very much. let's figure out what is happening in the markets. a lot of things have changed over the last two days. europeinvestors in
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sending stocks higher after the biggest weekly drop since august. the feeling is that the u.s. economy is strong enough to whether an increase. -- 211,000 positions were added. let's look at the euro against the drago -- against the dollar. this is a three day chart. you know what happened on thursday, the euro's biggest rise in six years. it has been dipping down since then. he defended his measures on friday, saying thursday's -- hee was not meant to did stress the ecb is ready to do more if needed. a strong dollar of course has been one of the reasons why the fed has been to raise rates. it makes american countries that
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companies less competitive internationally. the gauge of the dollar which we track at bloomberg, it had its figures drop in two months, making it a little easier for the fed to raise rates next week. friday,ing from opec on this is a chart going back to january 2015. crude oil holding below $40 a barrel. opec is dead, that is the view of one oil analyst after the cartel brought forward the idea of limiting production. opec will keep pumping as much as it does now. placearget has been in for the most part since 1982. crude oil, since last november's meeting sunk by 37%.
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the key level to look at is the $38l reached on august 24, $.24. that was the closing level that was the lowest level in six years. look at electrolux shares, the biggest declining stock in europe. back in february, shares in a lecture look at the highest level ever. look how they fared today, plunging today, the most in four years after general electric --ndoned lands to sell its lands to sell its appliance .usiness and it failed to win approval from u.s. competition regulators on can serve in the combined company, as well as whirlpool would dominate the u.s. cooking appliance market. this would have been a big deal for electrolux. it wanted to gain scale in the u.s. market. down 14%. indeed.nk you very much
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up next, u.s. crude trading below $40 a barrel after opec's chaotic meeting in vienna friday. are we done? is that it? or is the price going to go lower? ♪
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guy: 10 minutes until the top of the hour. you are watching "the pulse." it is a busy morning in the markets. we saw thursday into friday pretty busy as a result of opec, and what happened with mario draghi. you are getting a bounce in european and the. dealtll have not fully with the draghi drop. others.s much as the reason for that, the oil stocks are acting as a bit of a break, but the dax is definitely up front.
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story.efinitely a big let's talk a little bit about what is going on here. rich iraqi kurdistan is in the throes of an economic crisis as low prices. it is costing western energy from millions of dollars and injuring the fight against islamic state. thomas: the cabinet storage tanks of the rocky kurdistan's largest refinery masks an important truth about the oil economy. it is in the midst of a deep and complex prices -- crisis. companies take a risk when they invest in iraqi kurdistan. this is the most stable part of the rock and the rewards can be -- of iraq and the rewards can
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be very high. iraqi kurdistan sits on 45 billion barrels of oil, almost twice the amount that remains in the north sea, but the collapse of the oil for cash deal with baghdad is hampering the production. we are inside the control room, on entering the levels of the tanks. they refined fuel including diesel, jet fuel, and crude as well. the end of payments from baghdad along with the low price has left krg broke. divisions amongst the kurds are also impacting the industry with rival groups vying for control of the best oilfields. we are gathering some of the best lawmakers from iraq along with members of the international community and the u.n. to talk about the crisis
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facing this region, the economic and political and security crisis. divisions run deep indeed. the province of kirk cook is a case in point. they are falling out over the k rg. western allies are putting pressure on all sides. western ally this
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will remain in jeopardy. glass.t's talk to javier that is just a microcosm of opec, nobody is talking to each other and can get on the same page. er: if you go to kurdistan, you see seepage where oil flows naturally from the ground but not really. they are going to be making money and they will be able to increase production. .he same geology in iran these countries will have very low production cost. they will be bringing more oil into the market in 2016. guy: why haven't we seen the full effect coming through of these low oil prices yet? we are trading at very key levels. er: we're only a few cents
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to the lowest price we have seen in a financial crisis. the american benchmark is trading below $40 a barrel, and yet we have not seen the kind of pain we would expect in the oil industry. we have not seen any company of significant size going into chapter 11, no ceos have been fired. everyone is trying to hunker down and survive. guy: wait it out. javier: the problem is that longer is very long. guy: and lower is getting lower. javier: in 2016 we will see pain in the industry. guy: what is the catalyst? javier: i think we need to look at whether or not we're going to if we see any moment that
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we reached the limits of storage and see prices in the physical discounts,g to huge meaning that some companies have to stop producing because of financial stress. that is what we saw in 1998 and 1999. javier, always a great pleasure to talk with you. covering opec, the fallout from it, and what happens next. mark carney will be speaking with the eu parliamentary committee in brussels. bullardresident james is going to be talking about the monetary economy, given the run up to the fed. bloomberg, the first word is up the, it is "surveillance."
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dax is up 2% but still down 3% from when draghi for started speaking. the turbulence in the market continues and those guys will carry on talking about it.
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>> the ecb president vows to pull the stimulus trigger if needed. foropec hangover, no limit opec production. barrel. below $40 per the far right national front in france takes the first round. "surveillance"rg alongside tom keene

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