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tv   The Pulse  Bloomberg  January 15, 2016 4:00am-5:01am EST

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francine: the shanghai bear china's benchmark dropped 20%. european stocks are lower. victim bhpce's latest will take a right down. as thatcher's child -- strategists rush to downgrade forecast. deutsche bank sees it hitting 1985 lows. welcome to "the pulse" live here
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in london. i'm francine lacqua. let's get straight to your data check because in the last couple tinutes, both wti and bren falling below that psychological $30 level. ymex,an see crude, the n 29.6. a lot of these european stocks are under pressure. they are down 1%. this is on the back of the shanghai composite. it's fallen from 20%. that is well into a correction today. 20% was over the last couple weeks which means we are now in bear territory. let's get straight to first word news. nejra: the shanghai composite has fallen back into a bear market after dropping 20% from its high. the slide wife suck gains from a statement to campaign. as investors lose confidence in beijing's efforts to manage the country's economy.
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general electric has agreed to sell its appliance business to china's group for $5.4 billion. the transaction comes after the sale to electrolux collapse. billiton said it expects a take a write-down of $4.9 billion on the value of its u.s. shale assets. the company is cutting capital expenditure as it grapples with the slide in oil prices. that is your bloomberg first word news. francine: now, the shanghai composite entered a bear market. wti hit $30 and today dipped below 30. as we saw more and more stock at market turmoil. it's been another unhappy week for markets. let's break it down.
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we are joined by james bevan. forre grateful to you coming on as always. it seems every day we have a little bit extra of concerning news. first of all, i want to frame everything. are we too concerned? we are very focused on $30 for brent. we are very concerned on every single stock market move on the shanghai composite. should we have a more level had? james: we must certainly be rather than overly emotional. one needs to recognize the price particularly important to global markets on a day-to-day basis. let's unpack why $30 is not longer an important barrier. all about this is supply and demand. there has been a consensus that this year there would be 1.3 million barrels a day extra demand. the global economy grows more slowly. people are more efficient and the use of fuel. that demand is less.
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in terms of supply, a lot of people have been talking about iran coming back onto tap. that might be 300,000 barrels a day. the bit is the big number because the production is down around one million barrels a day - libya is the big number. it may change in the saudi and iraq pumping. what happens in supply and demand? i do think we are going to reach an excess supply to the point where they will be pumping at cost, meaning the pricing is $20 barrel. francine: this is a psychological market. so, does the fact that wti or self go below 30 almost fulfilled the prophecy of $20 oil? james: we may see a significantly lower oil price. at which point i think the saudi will take action. it is not in their interest.
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that said, of course, those that win oil have been quiet about the benefits they are achieving. at the moment u.s. consumers are receiving an annual benefit around $100 billion. they are choosing to save a lot of that money rather than spend. be saying if we sat here a few years ago at $100 a barrel. now looking at $200 a barrel. we would be saying the world is nearly over. francine: we would have been in a much deeper recession for longer. but now we are in a deflationary spiral, or at least we have the threat of deflation and losing power for central banks to do anything. much morelation is about excess capacity in the global economy. if we said, what happened to the money that was created by quantitative easing? a large chunk of it was recycled to emerging economies. now produce goods and services that people do not want to buy. a market clearing mechanism in terms of getting supply and demand back into even keel.
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blow the inventory that has been built. of course, there has been a significant deflationary headline number. francine: it is just going to get worse as we see the yuan continue to be devalued. which is a large probability. is that a done deal? james: i think excessive devaluation of the yuan is a huge risk for markets, far more than oil prices. at that point, china's disruption of the global economic system becomes highly substantial. a lot of entities fairly cannot cope that competitive threat. arecine: is that what we seeing starting to unravel in china? i know there is this asset bubble in the stock market. james: i don't worry about the stock market. of course i worry about debt. worry about. i
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one is the property bubble because the property bubble in place, they're clearly, the reliance of the banks or lending institutions on property as collateral is brought into question. secondly there is a bubble in credit. far too much money has been borrowed over the last five years. if that were to unwind aggressively, it would be complete chaos. the third bubble is excess investment. far too much machinery -- a lot of it has to be retired because it is no longer relevant. francine: we'll come back to china and we will come back to the earnings we are expecting this week. plenty coming up, including stocks lose their last line of defense as analysts slash a forecast for this earnings season. crude continues to crash. t both falling below $30 a barrel. we talk about bhp. it takes a $5 million write-down as it becomes the collapse's
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latest victim. a year on from this was surprised, we speak to an expert that tells us a strong franc is strangling his business. ♪
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francine: welcome back to "the pulse." could the pound beheading back to levels last seen when margaret thatcher was midway through her premiership?
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that is the view of sterling's worst enemies. deutsche bank last year was 1.27, ang a crufall to level that has not been seen since 1985. that is when live aid charity concert was rocking london. ah, memorie, huh, james? james: i was just thinking how young lady thatcher looked. in 30 years time, how will i feel? really frightening. francine: if you are market discipline, it puts things in perspective. we can see the pound level, a level on the pound that could be like 1985. does that make you worry? james: not at all. there is a difference between investing between a company -- we are expecting growth because you know what is going to happen with revenues.
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you buy a good quality company can expect increases. there is no rhyme nor reason. the currency will depreciate forever and one direction. all we are seeing is an unwind of what is a very long, torch recycled. francine: i am trying to figure out whether a weaker pound is really that bad for this economy. we have so many unknowns. referendum, the risk of brexit. we also have china, the volatility, the risk of deflation. a week pound helps exports. james: it's absolutely fine. it will mean inflation will be slightly higher than otherwise might have been the case. everybody is saying, ooh, bank of inlet is not going to raise rates ever. make a case that the domestic economy is beginning to justify a rate hike. francine: and duster production was not great. at the data, in the domestic economy alone, rate hike is -- francine: what data are you're looking at? james: core inflation numbers,
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absolutely safe. when the year on year increases, deflation's of -- decreases or inflation -- we will be back at that 2% target before you can say jack robinson. francine: jack robinson. it's done. james: absolutely. it would shock the bank of england. which is why a number of people are making the cogent, it is right to think about tiny rights for becomes an issue. francine: what do you do with a referendum? if you are governor carney, you cannot be seen to be sending out a political message. there are three months before the vote happens that your in lockdown. james: i don't agree with that at all. that is the perceived wisdom. that is what everybody thinks. i think a truly independent bank of england should continue to operate. ignorant and unaware of what is going on in the political world and making whatever decisions necessary for the smooth running of the economy.
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francine: i understand but the problem is if you're so independent, can it be construed as trying to have an impact on the vote. step: mr. carney has to back and say, what is more important? seemingly to be nonpolitical or doing the right thing for the british economy. francine: what, one hike and come november? is a huge amount of dated tennessee. this premise the domestic economy justifies a rate hike is counterbalanced by the weakness of the global economy. we cannot ignore what is going on in china and the rest of the world. it will have a huge impact on the growth trends and prospects of the u.k. that iney will have mind when he decides on balance what to do with policy. francine: your basics and are is still growth, right? recessionary growth? james: we say recessionary growth, you mean less growth than we had before. some really smart
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words. you had the great phrase you coined for the fed hike which was a dovish hike. i think it is correct to say that people have in their head that we are heading for recession. we are heading for low growth. francine: i want to talk about earnings. a lot of people are saying volatility that we saw for the last 10 days is about we are not ready for monetary tightening in 2016. the fed did a mistake and hiking. it seems central banks can never get it right. james: i do not buy that argument at all. if you said to me, what happened to the equity market? what we have seen is a de- rating. the s&p 500 has gone from 17.5 to 15.5. i think u.s. equities look cheap. but they only look cheap if earnings are there. are the earnings there are they not? we will get a material downshift in the earnings output for the coming year than we will get a better -- a bear market.
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that is not my scenario. francine: what you expecting for the earnings season? what about currencies? james: i think revenue is going to continue to grow at a 3% to 5% region. the degree to which they are manipulated by buybacks, m&a activity. if you look what is happened to the buyback. if you buy back your shares because they are cheaper than arecost of debt, -- there fewer shares. that is a very bad property for real progress. i want to see what is having to revenues, to margins. i think both will stay reasonable. francine: this is across the board or european stocks and certain industry groups? james: i'm looking at consumer stocks. they look perfectly safe and aggregate. absolutely right to say that emerging markets have been massively bad news for the likes of burberry. before.d about burberry it is hard to see early recovery for stocks like every. listening he would
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agree with that. in contrast, i think the staples copies are doing very well. players like heineken globally are extremely well-placed. but there's no rest bite for oil companies are commodity players. -- no respite for oil companies. they are very significant in terms of sentiment and they have a significant knock on to capital expenditure and the whole of industrial cycle. francine: what is your smartest play for 2016? james: not to be adventurous. to recognize that equities are way too cheap relative to cash and bonds. safety first. francine: thank you so much he stays with us and we will talk more about the oil majors and i will ask about dividends. up next, the oil rout . by bhp billiton is writing down five billion dollars of its u.s. onshore assets. ♪
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francine: welcome back. we are getting breaking news from jean-claude juncker saying he's basically talking about fact thatequest, the david cameron has been trying to renegotiate ahead of the vote on the referendum on vrex -- on brexit. saying all u.k. requests are difficult was. cameron will try to negotiate
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open borders. saying that "are's are crucial for the central market. there are intimate links between -- and the euro. we saw concerns coming from brussels about certain bridges being closed as more countries become concerned about the refugee crisis. ker saying also he is quite sure they will get a permanent solution on the u.k. and february. a reminder, february is the months where david cameron says he wants to renegotiate by then he can put the vote to the people of this country. we will continue monitoring any headlines coming from jean-claude juncker in brussels. now also have breaking news the last 21 minutes. that is when wti and brent fell below $30. they did briefly touch 29 something a couple days ago. this is a psychological level. we were talking to james bevan. he was saying it does not matter if we have 31 or 29 but it may
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have an impact on certain technical levels. the more you talk about negative headlines, the more it may impact trader psychology. so, the oil rout claiming another victim. this time miner bhp as having to make a hefty write-down on its shale assets. joining us is our committee -- reporter.ities what is the background for the world's biggest miner? jesse: they've been having a tough time. they bought these assets in 2011. $20 billion going long on u.s. shale. at the time, that was well received by the market. oil prices went higher. against the backdrop of waning commodity prices across the board. commoditye that when drops you will see these kinds of write-downs. but what perhaps it does do is -- reignite debate of whether or not bhp should be a natural
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owner over energy assets. francine: what does it mean for management? se: and put some under further pressure. it makes a decision around sustainable dividend, and may come quicker than expected and perhaps there is a question for james but i think investors have shown a positive reaction to cutting dividends. it shows they are taking this rout seriously. francine: what is your reaction? when you see bhp? does the management have to go? or is it a difficult time people have to wait out? james: i do not think management do have to go. the commitments that were made , we're in an environment where he signed up for the premise that commodity prices would be stable. long-term demand was in place. dreams whenur wildest we assume we would get crude down to this level. management will come, big
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changes now. here is the rebate business. we are not going to rebate again. any further deterioration after this would not be well received. they say it is in your interest. it would be extreme the well received now. francine: when you look at what analysts are saying about bhp, very contrarian views. it changes from one analyst to the other. jesse: we have seen four banks come out. two have gone from mutual to buy. morgan stanley citigroup came out with buys. the most punchy -- they said andrew mackenzie is under further pressure. they re-estimated their forecast 3%. profits, cutting them by it has been much more sharper and quicker than people expected. francine: is there a buying opportunity? james: i own bhp. confident they
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are long-term winners and what will be an externally difficult sector. francine: five years or longer? james: within five years i see -- i expect to see them materially better than they are today. if you think about what really ends bull markets is excess b and deploy so margins are shrunk because of too many players being there. in commodity space, we are seeing a huge retirement upper disciplines. that is excellent long-term news for those buyers. bhp and rio are the two players on whom we can rely. jesse: i think that is right. we saw an interesting note from merrill lynch last week where they said that bhp and rio could raise $21 billion in equity which may be a bit pudgy. t-- punchy. these companies are the best to emerge from this rout. i would agree with that. francine: when you look at the
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following commodities, it has repercussions. we heard from the norwegian government saying they will struggle as the oil continues to slump. i want to show you a chart. as you see that, of course, it's been devalued a lot. where is the buying opportunity? when you look at russia, some of these currencies being impacted of commodities? when do you go in? thes: i look at denomination of assets. when i look at -- a few scandinavian banks extremely well place. i see the italian banks as well place. some of the domestic french banks. currency is an important part of the equation but they are not the raison d'etre to banks. jesse: they are speaking to the press more rather interestingly. we saw yesterday, interesting news from rio tinto.
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they have frozen salaries. i do not think people are expecting the same levels of volatility, but it's going to be another tough year for this sector. francine: thank you very much. we are back in two. ♪
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francine: welcome to "the pulse," live from london. i'm francine lacqua. let's get to the bloomberg business flash with nejra cehic. volkswagen's market share in europe has fallen for the first time since 2007. it accounted for 24.8% of new cars sold compared with 25.5% in 2014. as the admissions scandal deterred potential buyers. apple could oh more than $8 billion in back taxes as a
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result of the commission investigation, according to analysis by bloomberg intelligence. the world's largest company has been accused of using subsidiaries to avoid playing taxes. apple has said it will appeal. goldman sachs has agreed to settle a u.s. probe into its handling of mortgage backed securities 45 $.1 billion. that will cut their -- backed securities for $5.1 billion. that is your bloomberg business flash. francine: thank you. let's check in the markets with mark barton. mark: china entering a bear market -- have a look at the shanghai. how far we fell through this summer, rebounding through december. it is only since december through today that we saw these 20% declines. today, the shanghai composite sank 3.6%, taking its weekly run of losses to the worst since
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october. it is the worst performing global benchmark this year out of the 93 tracked by us at bloomberg, with a decline of 19%. of the dollar spot index continues to go from strength to strength. this is a one-month chart hitting a record high today, the gauge that tracks the dollar against ten of its leading global peers. what's interesting is that it continues to rise despite doubtors' growing to raise rates four times this year. traders are pricing a 29% probability that the fed will hike. -- whature stood at 53% has changed since then is china-induced global financial turbulence pushing down commodities, which of course is putting downward pressure on price expectations. that is why many don't believe the fed will go four times this year, some even doubting the fed will go twice. but the dollar is the haven
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currency. dollar assets remain the preferred assets of choice in turbulent times. crude oil is slumping below $30 again today. this is the 2016 chart. crude in 2016 fell for eight days out of ten. in the last 30 minutes, it fell to $29.61, down by 19.7% this year. we fell as much as 5% today and we are heading lower for the first consecutive week, down to our lowest level on the chart since november, 2003. the concern is that iran is moving closer to bolstering exports. how low will crude go? there is the perennial question. francine: thank you so much. mark barton with your asset check. january, 15 may not mean much to everyone, but if you are watching the market, it is hard to forget. guy: we are getting some details
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from the swiss national bank -- the smb lowering its interest rate to 0.75%, down by nearly 20% in the last few minutes. mark is going through some key levels -- my screen is going berserk. we are trying to find the floor. down by 30%. manus: we are going to take this cap away, going more negative on the interest rates. that is not having the desired effect at this precise moment -- mark: the equities, the bond markets, what is next? >> where is the frank going to settle? tom: you are going to pay a lot to a bank in switzerland to take your money. >> keep it together, europe. keep it together, europe. come on, come on. if you want something done right, you have to do it yourself. >> the markets were completely stunned. it's going to be a major
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deflationary shock to switzerland. it's spreading into europe. francine: that was exactly a year ago today when the swiss national bank unexpectedly dropped its cap against the euro. so how is switzerland one year on? let's speak to the ceo this was company convair, loved the world's leading manufacturers of humidification. great to have you. how does it feel a year on? >> well, the whole development has been accelerating ever since. it's nothing new that the swiss is depreciating against all the other currencies, roughly .4% over the last four years, but what happened ever since 2008, and in particular 2011 and last year, has just blown it out of proportion. it has accelerated. i think we are a good example to that part. wewing the first step,
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started sourcing everything in the euro area. that we, and after changed all the pricing into euro and u.s. dollar currencies. are consolidating on manufacturing. that's the development. francine: oliver, we had a couple charts made. one of them is of labor costs. they are extremely high in switzerland. is that your main concern? where you look at your business compared to 12 months ago, how you aboutout you arareare labor? >> labor is not the hugest portion, but the difference is so tremendous, and in particular the depreciation of the swiss franc, therefore of course it is our concern. on the one hand, people shock
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across the border, people move any service outside of switzerland, and there is manufacturing, because that is where labor hits the most. francine: how many jobs do you think switzerland is at risk of losing? i know it is difficult to quantify, but what is the mood like in switzerland? this was probably the most competitive country in europe just a couple years ago, and as a a lot of things are losing their shine, are you worried about the haven status of switzerland? see, i think we have only seen the tip of the iceberg. politically, it is not an opportune discussion. we have seen 45,000 jobs disappear ever since 2008. when i talk to other companies, i see that many of them are just about to prepare moving the jobs outside of switzerland. what's remaining is highly
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skilled labor. that is what is still beneficial. jobs in theee other financial sector moving to eastern europe. yes, i do believe it will hit switzerland even harder. when you look at the unemployment rate, switzerland is about the only country in europe that is seeing increasing unemployment rates. francine: oliver, thank you so much. the ceo of condair. the man who wants to do when netflix couldn't -- break into china. that is coming up next. ♪
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francine: welcome back to "the pulse," live from london. i'm francine lacqua. let's get you an oil check. brand into wti fell below $30. we were speaking to an investor who is saying, $20, $30, it doesn't make a difference. a lot of other people argue that once you hit anything below $30, it is psychological and people fear it more. that's the picture for brent at the moment. let's bring you the wider market picture. european equity stocks fell in
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asia on the back of chinese shares tumbling back into a bear losing 20% since december. you can see also we are looking at the norwegian krone, which links back to oil. the government said it was concerned about the continuous lump. losing 20% since december. let's get now to the bloomberg first word news with nejra cehic. nejra: thanks. far right political parties gain traction across europe. bloomberg spoke to the dutch freedom party leader, who says the momentum is on his side. >> i believe that the good news is that we see now in any european country, it is on the rise. we can be very influential. the best will be to win elections and impact government. that is my aim and that is our goal. ofra: the prime minister iceland is taking the final step to undo the capital controls that were put in place eight years ago. in an exclusive interview, he
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says he doesn't expect too many more problems. >> well, we don't see any major hurdles. the plan is fully in place and we just have to implement it. we still have a few steps to go, the implementation of the plan, but once we are finished with that, there shouldn't be any real hit or miss. nejra: and the shanghai composite has fallen back into a bear market after dropping 20% from the september high. the slide wiped out gains from an unprecedented rise. losemes as investors confidence in beijing's efforts to manage the country's market and economy. that's your bloomberg first word. francine: thank you. nejra cehic with the bloomberg first word. we are also getting breaking news out of the commission president, jean-claude juncker. he has been talking in brussels for the last 30 minutes. he said when he was talking
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about the renegotiations with david cameron and the vote on brexit, he is -- this is a direct quote -- "quite sure that we will have a deal." not a compromise, but a permanent solution. juncker is quite optimistic. usually when he says that it means he is confident, and he talks about showing i schengen g something sacred. jean-claude juncker saying he is expecting something by february. let's talk show biz. while the world entertainment correspondents are focused on the oscars, many media companies are focused on china. just like us here at bloomberg. let's talk to the founder and ceo of a streaming movie company. signed a just joint venture in china.
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great to see you. when you look at china -- we have been corresponding. it has been a long time coming. this is just this week. when we were covering the bad news out of china, you were there negotiating. do you feel any ripple effects from that craziness on the market? >> no, but it was interesting days. we were finalizing a $50 million investment, and you wake up and you read -- francine: stockmarket crash! >> yeah, down like crazy. amazingly, it didn't have any impact. globally, not just in china, it is very healthy. and china is a completely different ballgame. the box office revenues increased more than 40% in china last year, so it's very healthy, and stock markets go up and down to impact conversation. francine: what surprised you
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most as you were negotiating with the chinese? i have spoken to a couple producers who say it's amazing, because there is an appetite for foreign films, for the hollywood blockbuster, but they also really want to retain their culture. >> mhm. the most surprising thing was content forchinese the chinese markets were. films that you may have never more than the biggest films that you hear of. to give you an example, our venture partner released their latest films two months ago in hong kong. that sold $250 million in the box office. to give you a comparison, "star wars" did less than that in the opening weekend. the scale -- the business opportunity is so vast that i am busy. francine: so how did you get it
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right when netflix got it wrong? it seems like it is difficult for a big american company to go into china. you succeeded. is it because you are not a big american company? >> no, i think netflix is executing well. the thing in china -- you need a strong partner. we have a strong partner before they did. but we also had conversations with various partners. the challenges that netflix has the type of content that doesn't necessarily appeal -- francine: we did a chart for you. don't have your figures, but we have netflix, and compared to amazon, time warner, there's such a fight for content. who is making the best programs? your business model is completely different -- >> netflix is producing incredibly high-quality content, but if we are talking about
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china, it is not relevant. turns out, no one cares about "house of cards" in china. they care a lot about chinese content and big blockbusters. it's very important to have a very specific china strategy. us, partnering with the strongest producer in production company that produces that type of content in china i think is the winning combination. francine: what is the content? what did the chinese want? we talk about the elusive chinese consumer and how they like to spend and shop, and there is still a very difficult figure. >> the same type of things we like to watch, but chinese. the narrative is slightly different. is thecurrency, online biggest generator of revenue -- it is sports. but of course, over time, you
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expect -- just like it did in the rest of the world -- the revenues to go up significantly in china as well. francine: we also had this week the done in one legendary entertainment. do you think there will be more m&a? do you see yourself part of that? or will you try to stay independent for as long as you can? >> [laughter] i think we have a great opportunity. we are going to keep our head down and continue. but more and more people are going to be waking up to the potential in china. china is about to overtake u.s. as the single largest market in the world by next year. you will definitely see more of these tieups with china, particularly hollywood. francine: hollywood has been reluctant in some cases because of copyright issues. they are concerned about things which, in the west, would not be legal. this is something you have word about -- is this something you have worried about? when you do business with china coming just have to get over it?
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>> two things -- one about the type of content and censorship. it's difficult. the second is protection of ip. in terms of censorship -- look, the vision is to show great films to a large audience. and of great content that doesn't rub policy in the wrong way. ip,with the protection of you just need to be really fast, establish your brand as the place to watch a movie as soon as possible. that is what we are intending to do. i will be spending a significant amount of my time in beijing to launch this platform. francine: amazing. it's been quite brutal on the market. give us a film we should watch this weekend. >> [laughter] i think -- what i am watching is
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"the big short."short i heard it is an amazing film. francine: me, too. tom keene is a little bit upset obsessed -- you can talk to him. >> thank you. francine: up next, we see some major upsets in the shanghai complex. a fair market, rent -- a bear market, brent. we will check in on the markets as the upsets continue. that is coming up next. ♪
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francine: welcome back to "the pulse," live from london. we have to check on markets because we have quite a lot of movement, not only in currency but the shanghai composite entering a bear market, wti and brent dipping below $30. let's check in on the markets. mark: check out the shanghai composite. this is going back to june, the record high of the rout. some source of recovery through december, and since december through today, there has been a 20% decline.
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thestock market itself, shanghai composite sinking 3.6%. it is the worst performing global benchmark of the 93 we track at bloomberg. this is the bloomberg dollar spot index. what's interesting about this in dex is not only that it is hitting a record high, but hitting a record high as investors start to doubt whether the fed will raise rates four times this year. the turbulent times in china have caused many to doubt their ability to hike rates even two times. still, the dollar remains a haven currency dollay, dollar assets remain the choice in turbulence. it rose to a record high. have a look at what is happening to the price of crude oil, falling to $29.16. the lowest level since november, 2001. this is the 2016 chart.
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that has fallen for eight days out of ten. it is down for the third straight week. litany is thathe iran is moving closer to boosting the glut of sanctions could be dropped. brent is down for a ninth day in ten. will it remain in the 20's? francine: we are watching the dollar and the pound, and i am also watching the norwegian krone, very much linked to oil. we also have breaking news from jean-claude juncker, who was talking about renegotiations with david cameron, and his commission is the president -- he says first of all they are entering a very delicate period, that he says he is quite sure.
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for me, that is a sign of optimism from understated juncker. it will probably come in february. coming up, i will be joined with by tom keene. ♪
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francine: the shanghai there. benchmark -- european stocks are down. crude finds its latest victim. bhp will take $5 billion on his shell operation. wti and brent fall below $30. and sterling loses as people rush to downgrade forecasts. deutsche bank season taking the 1985 low. good morning, this is "surveillance." piece of we have a

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