tv Bloomberg Surveillance Bloomberg April 28, 2016 5:00am-7:01am EDT
francine: this is what we are seeing on the markets today. central banks hold fire. the fed skips a hike but leaves june on the table. deutsche bank beats shares, posting surprise profit. the ceo cuts costs. upwardly mobile. facebook tops estimates; zuckerberg pushes for more control and investors like with a seat. this is bloomberg "surveillance." tom keene is off. vonnie, we have a great day.
some people were a little disappointed by central-bank action, but i would argue that that that was more hawkish ends the boj is just trying to surprise us. vonnie: wringing their hands little bit. nothing to impact the markets, and the new zealand central bank doing nothing as well. francine: it certainly is. let's get to the first word with nejra cehic. nejra: thanks. a shock today from tokyo. japan's at central bank has held off on expanding monetary stimulus. it has the yen surging and u.s. stock futures falling. the bank of japan decided to take more time to assess the impact of negative interest rate. policymakers are betting it will lead to more lending. peace talks in syria have envoyd and as special wants russia and the u.s. to revitalize the cease-fire that is all but collapsed. envoy ended two weeks of negotiations about setting a date to review. authorities in france have now charged salah abdeslam in
connection with the november attacks in paris. he was arrested last month in belgium and transfer difference yesterday. portugal is willing to take in 10,000 refugees who ended up in europe. so far, only a few more than 200 have arrived. portugal blames the lack of coordination in europe and administrative roadblocks, of the bigger reason may be the sluggish economy. portugal's jobless rate is almost three times that of germany, which may hurt the country's appeal. a british think tank is calling for the bbc to be sold off to private investors. the institute of economic oldest says the world's national broadcaster is biased in its news coverage. the bbc says the funding model is out of date. you can't residents have to pay a license fee to own a tv. global news, 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. i'm nejra cehic. vonnie? vonnie: thank you. time to look at some data after
a big 24 hours of action, or little action. futures are pointing to a lower open. you have the 10 year yield moving by a couple basis points, e, or ae bit of a slid grant for something, somewhere in the world. .he euro is trading stronger, crude oil futures holding about that $245 mark. the vix is elevated, as you can imagine, a bit more volatile today now that things look uncertain for global growth. the dollar index as well as suffering by about 2/3 of 1% versus a basket of currencies. the yen is where our focus will be today; it's strengthening today amid chagrin over mr. corona. -- mr. kuroda. francine: i think this is probably the story of the day. i wonder whether governor kuroda
didn't do anything because he didn't want to be stuck following what the markets wanted him. that's a debate we will put our guest. , euron see the stoxxx 600 down. against what we saw in germany over the last couple weeks, and deutsche bank, i needed to put that in there at doingigher, because we're a little bit better than expected due to cut costs and expended more. vonnie: exactly. it's time to turn to the bloomberg. i want to show you exactly what the impact of th eboj's action -- the boj's actions and inaction have been. the dollar-yen is in love. this is january 29, the dollar-yen drops quite
substantially, exactly the opposite of what he wanted. he did nothing in the same thing happened. the poor central banker can't win. topix a drop in the index. action from the central bank, another drop. what is amended to? -- what is a man to do? francine: i think you want to be dictated to. a lot of people are seeing him as experimental. this is my bloomberg terminal; i picked as something that goes to the heart of the we have been trying to figure out. this is, in the white line, the s&p 500. -- this ising --thi earnings-per-share. because profits driven by the s&p 500 rally is inflated by the fed, and the problem is that this chart gives a little bit of credo to both. boj; theyom the
refrain from adding stimulus, which sent the yen soaring. for more, let's bring in our bloomberg economic editor joe schneider. we'll be joined by -- the boj's decision surprised, disappointed the market. the thinking is that governor kuroda wants to see what negative rates due to his economy and his banks longer-term. >> that's right. and governor kuroda in a press conference in the last few hours underscore the fact that there is more that could be done,a nd and he will do more as , but he wants to give more time for them to have an impact. it's clearly a wait and see; he didn't prepare the markets for this, as he didn't when he took action on adopting the negative
rates in january. francine: is this defiance toward the markets? we also thought he would introduce some measures to counter the side effects of negative rates, something we haven't europe, for example, charging a negative rate. that didn't happen, either. >> right. and he said in his press conference that it wasn't in consideration. i don't think it is defiance as much as he is making it clear that he will not take into account the market and will take into account things like the yen. what he is going to do is looking at the growth target, talking about that 2% growth target, which moves further away. today we had more consumer spending data which showed data flat. vonnie: that is the one thing he did do, extending the time frame. implicateding to not the markets and, come what may was not good about
repairing the markets but that is maybe what he wants to do. >> i think that's it. he likes the prizes. we know that for the last three years since he started his campaign of unprecedented monetary stimulus that he comes off with things, whatever he considers necessary, to try and spur the growth. until now, what had happened was it was a weaker yen and profits were up. since the beginning of the year, it's a different picture. this today was really a wait and see action; let me see what happens with negative rates before we go ahead and take more stimulus. however that could happen as soon as june. vonnie: thank you so much. jodi schneider with the latest. for more, we speak to hold bush meeting. -- this is trying to get into the
psychology of haruhiko kuroda. rates.es into negative we had an interview with him about five days before where he told us negative rates -- before he spoke to us, he spoke to parliament, saying we aren't thinking about it. is this a central bank or not only doesn't want to be dictated to, the chooses to suppress the market as a weapon? >> it certainly looks a bit like that. he doesn't mind suppressing the market, but he deliberately chooses it as a weapon, discussions going on in the background that we don't know. indeed,y can't say, but she does not seem to be hearing very much about the market, deterring the public. as you could say, to some extent, he is not using one of the tools for central banks; namely, that is to get some confidence in central bank action, and with confidence to inspire them spending decisions. by creating some confusion, i
don't inc. he is helping. francine: let me push back against that. we were trying to figure out yesterday, if the central bank is too transparent, and everything they do is priced in, at some point it feels like the markets are leading central banks. >> if the central bank is just transparent and what is going to do, then it's not really dependent on markets. what's dependent on market is at the central banks emphasize their future actions will depend on what markets do in the meantime. just being transparent about what drive the inflation, growth, exchange rates, that is not making them too to the markets. vonnie: yesterday, we spoke with bill gross. this is after the fed announcement. he turned his attention to the bank of japan after he had
decided on the fed statement -- have a listen. >> the boj has really gone off the deep end in terms of quantitative easing. we will see tonight whether or not the extent that. vonnie: to an extent, this is a response to that, right? the bank of japan may be able to do more, but it shouldn't do more immediately; it should wait a while at least. >> the first big point is that whatever the central bank of japan does, they can't cure the japanese malaise, which is low trend growth. the second thing is they did there mays, yes, but also be arguments for them to wait and see what the fed is going to do in june, see if there is anything coming out of the g7. see also with the european central bank gets out of its recent action as the ecb is the leader in trying to offset the negative impact of negative
deposit rates on banks by other measures, so you can make a case that may be waiting a couple months and seeing how these things go with the ecb experience and then with the fed. francine: thank you so much. coming up later this hour, we speak with the vice-chairman of blackrock. remember, he was in charge of the swiss national bank before. we will talk to him about negative rates and the experience of that, and also swiss mortgages. ♪
there was a surprise for deutsche bank in the first quarter. lender's largest posted an unexpected profit. they posted results which beat estimates. the ceo has promised to eliminate 9000 jobs and get rid of riskier assets. first quarter profit fell by 23% at airbus, but still beat estimates. an engine glitch stalled delivery of the a320 narrowbody jet. that's the bloomberg business flash. francine: thank you so much. u.s. central bankers get an interest rate hike for the third straight meeting but left the door open for june. for more, we are joined by our chief international economic correspondent, simon kennedy. simon, great to have you. when you look at what the fed did yesterday, they seem to to be a little more hawkish, and the market took it in stride. simon: a little more hawkish.
that is why we aren't putting aside global issues; there are fundamental strengthen the economy, that powering ahead that they would really like for the backdrop of a rate hike. steady as we go for the moment, but not completely walled out. francine: what does it mean for the path going forward? i don't see how they can hike in june, given the risks. do you think they can? >> they could definitely hike in june. the fed, if nothing intervenes, they will hike. they are ready to hike. what they are looking for is some evidence of that. waiting for a gap between u.s. incomes, which are doing fine, and u.s. consumer spending, which is not. demand seems to be rising to where it should be, then i think the fed will hike. of course, it's something very that happens internationally,
such as markets getting extremely concerned about the crisis ink, or a emerging markets that could stay there hand, if nothing intervenes, they probably will hike and more likely than not in june. vonnie: they left out any next meeting language, the. ough. they didn't even hint at it. points would data you need to see before the fed will be comfortable? but they have to be inflation data points, or with a little bit of wage growth be enough? gamut,they run the full and they would like to see some wage growth. they didn't implicate anything yesterday because they don't have to. they don't have to promise anything in june. this is quite away before june; it occurs the week before
the brexit vote. to pay theo need colors. francine: i just want to give "yellen should take the focus of recent increases in inflation, allowing her to fix our argument that it's not only warranted but well within the mandate on inflation." simon, how long would it take to overshoot on inflation. we're not even reaching 2%. simon: it is a pretty hard concept to frame, but there is a feeling among modern central bankers that you can make up a bit of the lost ground, for what we have seen in recent years, and a violation of the target is not the greatest crime in central banking. francine: what happens if the dot plot told? >> well, they're interesting. we can talk about them.
but i would rather take them as a serious forecast for what the fed is likely to do. experience tells us we shouldn't attach too much importance to them. the fed is data dependent, and like everybody else, they are watching the data. we're post-lehman in this recovery for the great work financia financial crisis. spending is not as strong as normally would be at this stage of the cycle, and with these interest rates. we are watching how it develops, and we learn data point by data point what the fed could and should do as it continues like it has over the next few years. modest growth in the u.s., around 2%, they will hike shortly. francine: i'm frustrated because i don't know how you can be so data dependent and transparent. we're going to take a short break. we'll tell the viewers with equities are doing. simon kennedy. this is what we are seeing -- a
facebook. first, the company makes a cool ngout, and then they grow. facebook posted some better-than-expected figures. let's get straight to jeremy con. jeremy, what i loved about the bloomberg piece is that it's a simple model. if you get the talent, if you get investment, this is when you scale and make money. >> that's right. and that's not my particular piece you're referencing, but the writer is iright. they built mass on a platform before they try to monetize it, and they did that in a three-step process. they built a consumer audience, ,hen they invited businesses in and only then did they start allowing advertising on the social network. they did it with the main facebook social networks first;
they're now starting to allow advertising on instagram. everyone thinks whatsapp is the next platform. it's becoming, less and less of a digital formality for friends and more for marketing tool. this will continue as facebook puts its efforts into monetizing. how do you see that going in the next few quarters? will customers continue to come back? >> absolutely. there is good adoption so far of these new services, like video, facebook live. at the issue they are going to have is that there is big expectations for the growth of services, and there is some concern that the expectations may be running ahead of what they will be able to deliver in terms of growth of the new services. but they did a great job on growth of the existing platforms, and we saw them exceeding expectations yesterday; 52%. it was very strong.
seconds, willive you get the new voting rights? >> i think you probably will. francine: thanks so much. we will talk a little bit about negative rates, joined again by the interview of the day. the blackrock international vice-chairman. he's interesting because he is the head of the swiss national bank. we'll talked to him about the swiss franc and his thoughts about the eu. we'll probably also ask about the panama papers. that's coming up on "surveillance." ♪
battle between turkey and a kurdish separatist group, according to a top adviser to president anerdogan. kurdish militants have waged a 32-year war against turkey. in venezuela, thousands have signed petitions calling for a referendum to recall the president. they're angry about power cuts and food shortages. opposition leaders say they have enough signatures to call for a vote. the former u.s. house speaker dennis hastert is free on bail after being sentenced to 15 months in prison and hush money case. prosecutors say several members of the wrestling team he coached decades ago accused him of molesting them. he is the highest-ranking u.s. politician to be convicted of a crime in four decades. democratic presidential hasidate bernie sanders fallen further behind hillary clinton.
he plans to redirect his remaining resources to california, which holds its primary june 7. less than a week before the crucial indiana presidential primary, one of the state's legendary figures has endorsed donald trump. the former basketball coach on the night called him the most prepared presidential candidate in history. the most recent poll shows trump with a single digit lead over ted cruz. global news, 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. cehic.ra francine: thank you. whereget to davos, caroline hyde is joined by philipp hildebrand. a great day to have him to talk about central-bank action. caroline: it is. r from my eyefrom my as we are joined in a snowy a man who was a
regulator at the financial stability board, and now of course is vice-chairman of blackrock. philipp hildebrand, wonderful to have you. >> good morning. caroline: give us a sense on a day when we have had the bank of japan surprised with not more stimulus -- is there more stimulus coming? this is the right policy -- is this the right policy? >> i think they cannot do this anymore. i think that is the key, and it sort of makes sense, because we have reached the end of the road where monetary policy is the only game in town. politics, fiscal policy, structural reforms have to set in if we want to see sustained recovery. monetary policy can buy time; it can fight this inflationary forces; but i create sustainedcreate growth. kuroda willvernor
be spending a lot of time and probably has spent much time talking to the prime minister into parliament. the fact is we have not seen the abe part in abenomics. so far this has been largely kurodanomics. we see the same thing in europe -- the overburdening of monetary policy, i think, is one of the biggest problems we have. caroline: meanwhile, the clients you are talking to try to navigate and negative yield world. will we see yields continue to stay this negative? >> it's tough for our clients. they live in environment that is extremely challenging. but this is not caused by monetary policy. it is the function of exit savings in the lack of investments in the world, globally. central banks have followed this trend but they haven't caused it. again, the answer to this lies in creating the conditions, the structural level, the political level, supported by appropriate fiscal measures, to create the
kind of growth that will allow interest rates to normalize over time. for the time being, i think we have to accept that, in the short term and medium-term, this is the kind of world we will live it, unless we start to see some action at the level of fiscal and structural policies. caroline: meanwhile, the ecb and bank of japan are drafting measures to try to get lending into the real economy. what do you see about the banking system? that are #expected, but still we are seeing -- better numbers than expected, but are the structural levels happening at the bank level? >> there are many things going on the banks. there is technological disruption, which is challenging. there's still the post crisis business model changes that, in my view, have not advanced far enough for a number of european countries, particularly around investment banking. then there is the challenge of
responding to the flow rate environment. it's not true that banks aren't profitable. if you like at the high street banks, retail banks, they have roe's that are double digits. they're rising, even in europe, so it is tough, but if you have the right business model, you can generate the returns and you can generate profitability in the banks. caroline: you are looking at the u.k. banks which are more retail focused. is a time for deutsche bank to wind down further, more than they have already done? >> the cause of the crisis was a massively overleveraged financial system, primarily around the investment banking activity, and that needs to change. that has changed, to some extent, with capital rules, and the banks are adapting. the u.s. has been much more forceful, not least because the introduced stress tests. in europe, it has taken much longer, and some of the swiss banks, ubs in particular, have made a lot of changes.
in the case of the others in europe, there is much to come. the business model around the investment bank today requires forceful and precise action by the management and the board's. caroline: and decisive management has been articulated, but is it enough? >> if you look at how the market -- clearly, the answer is no. in a number of cases we are seeing better progress; in others, much less. i think the fact that the investment banking part of the model is not sorted out yet. on the other hand, we should not lose sight that we have solid wealth management businesses. we have good retail businesses and banking books in a number of countries, including here in switzerland and u.k. caroline: has regulation gone far enough? >> i think regulation did what it had to do. alwaysiction has been that the primary channel should be capital.
i suspect we are getting to the end of that road, and should have some time deposit and see what happens. my concern is that too many things were tackled at the same time and there has been a loss of focus. caroline: you point to the u.k. banks is doing relatively well, concern there is about the brexit. is it still time to be holding on to the u.k. banks? >> i think banking, done right, is a profitable business. it will not be as profitable as it has been before the crisis, and that is because the profitability was artificially boosted. it was therefore not sustainable. we should accept and expect lower profitability, but only risk-adjusted level, things could be perfectly fine. again, if you look at solid domestic banking books, whether it is here or in the u.k. or in a number of places, that's working quite well.
even in europe, roe's are rising. it's a good is a fallacy to say that banking is not profitable at all. caroline: is there one rescuer worried about? >> i think the biggest risk today is the derailment of the policy framework in china. i would say secondly, it's this continued overburdening of monetary policy. caroline: wonderful to have you wanted the snowy but sunny dav os. clearly china is a concern. banks continue to be -- the biggest money manager in the lthld, i'm here at the weat management summit in davos. francine: caroline, thank you so much. caroline hyde with that great interview. this goes back to the central bank discussion we were having. he doesn't see anything to write home about. fed do anything
unless we have structural reform around the world, that would ensure a global growth pick up? >> first of all, central banks have largely exhausted this coat of action. they cannot do anything to raise trend growth, and we just have to accept that as a fact. they can prevent deflation; they can steer the business cycle; but if japan wanted stronger trend growth, it just needs action on structural reform. of course, the fed can do what it has to do, to get the timing right on its return to a more normal rate environment, and in that sense, by and large the fed is doing a fairly good job, giving us a lot to talk about. but they will probably continue to razors gradually. vonnie: philipp hildebrand knows exactly what he's talking about. he can say till the cows come home that central-bank policy
can't do much; fiscal policy needs to step on. the can you see a government anywhere in the world than stepping up? >> no. i don't think this is the most important issue. japan is that so much fiscal policy over the last 25 years that it hasn't done a lot of good. work really is the point is to say these slow growth economies in the western world -- they just need the structural reforms to raise trend growth, and there are hopes that the central banks can do the job for them. that's completely in vain, and we are learning that almost month by month. vonnie: thank you so much. coming up in the next hour, julian emmanuel with ubs. also deutsche bank's director of fx strategy. that's at 6:00 a.m. in new york. ♪
francine: i'm francine lacqua in london; vonnie quinn is in new york. deutsche bank posted a surprise profit in the first quarter. for more on the results, let's bring in our german finance reporter, who joins us from frankfurt. nick, this was the surprise of the morning. they at a profit on cost reduction, and we heard a very cautious john cryan. the legal costs didn't book in the first quarter, and it could come back to bite them. nick: yeah, precisely. message,the key of his
that they have a whole lot of stuff they would like to get done. he said, if you see us post a small loss, it may be a hallmark of making more progress. show that they haven't made the profit they wanted. they are settling as much litigation as they would like to. it maybe a positive blip but it could be a nastier. francine: what would you say is the most significant? they also like the unwinding of core assets; he was unclear whether the bank would post a profit this year were not. ,e also mentioned cocoas saying it's a risky business. when they were concerned about their solvency. nick: precisely. we had some pretty cautious words, saying that this is probably not an issue. y're not -- they may not like
them, but they are saying it is still part of their toolbox. the big, burning issue for deutsche bank, no doubt about it. still making pretty positive tones about raising the capital ratio, and ending the year at the level they started, it's still not an early picture. vonnie: we can't get too excited. let's take a look at its performance over the last year; it's really pretty dismal. clients talk about growing the bank, with the huge emphasis on shrinking, and yet we see that risk is mentioned 530 times. grow if he is so concerned about de-risking? nick: that's a very good question. that's the new reality of banking, heightened risk management. i think the areas in which we
we highlighted were equities.they lost some ground and did surprisingly well in the prime brokerage business. there was a lot of expectations that they catered to hedge funds, that they might leave them as a consequence of all those concerns. but it seems like they managed to raise it. if you listen to what the bank is saying, then yes, there is an area in which they can grow in in equities. vonnie: do you see more layoffs, nick? nick: from here on out, i think it's wealth management, asset management. not so capital-intensive. but equally, it's a question of how much time do they have to earn money in order to sock it away and lift capital ratios. we had some noise from the cfo, saying they have more time that
they might expect, that there is a large core there as well. francine: nick, if you look at the chart, this is the worst performing european bank stock in the last 12 months. how does john cryan restore shareholding confidence? so, it's really a question of seeing that he can bring down costs, both on an adjusted in total level. they want lower litigation expenses this year, and that is a big uncertainty. with u.s. regulators on mortgage backed securities in the alleged money-laundering unit, it goes -- once those are out of the way, and if they settle for not an exorbitant on the money, then they say, look, they have the source of damocles hanging above are had, it is the same time adjusted costs fall and the banks revenues don't take away.
than they could be sitting in a prettier picture. francine: nick, thank you for joining us. deutsche bank surprising on the upside, share price going up. coming up later, we'll speak with mark fields, the third ceo. we talk a lot about the car industry -- what are his thoughts? you don't want to miss that interview. ♪
francine: you are watching bloomberg "surveillance." let's get to the bloomberg business flash with nejra cehic. nejra: thanks. facebook ceo mark zuckerberg so he isake big bets, proposing a new cast the stocks that would help him maintain control and make sure he has the ability to keep spending on future technology. facebook just reported a 52% increase in first-quarter revenue, sending the stock surging. paypal is going mobile to attract more customers and fend off competitors. the company keeps adding more users despite a new round of competition from credit card issuers. the ceo says that the main
attraction is a one touch mobile payment feature. the company just posted higher-than-expected profits in the third quarter. earnings got a boost from the early release of the new smartphone. net income beat estimates. they use the release of their galaxy phone and price that below the previous model. still, there are concerns that the industry still hasn't come up with the next must-have device. that the bloomberg business flash. francine: thank you. nejra cehic with the top stories. fromer top story comes in economic indicators we had from europe a little earlier on. we have seen improvement in investor confidence; euro area confidence reignited from a one-year low. let's get back to our guest. holger, when you look at this data -- only make sense of it. there is a little bit of improving sentiment. thate saw in germany, it's
germany is not feeling that great about the future. >> well, by and large, the indicators are stabilizing for the euro area. we had a period of modest decline following the china emerging-market issues and following concerns about the banking system. by and large, we see stability and marginal improvement. they were affected by early easter; the key issues to watch expectations moving up. it's getting a little better across the board in the eurozone. francine: there is brexit coming up. i don't want to be madame do in gloom, but we are still talking about more money for greece, and this being the final time when the eurozone breaks up. >> the euro zone economy, having had a breather, is starting to perk up. whether that will be interrupted again by a shock is the question. greece is very much a side
issue. it got bad and it didn't hurt the euro zone economy at all. greece is contained. brexit is the big risk. brexit, were to be a both sides of the channel will suffer, britain more than the eurozone, but that will be the one thing to interrupt. vonnie: to a certain extent, it could be suggested that because of relative confidence, the fed bringing the attention to the fact that they are more global and a little bit more of a fear, that in may have given consumers were confidence. but not anything to write home about. >> well, we're talking about growth which is close to the trend rate. we are talking about an ongoing improvement in the labor market. the underlying picture is not pretty, but the underlying picture is mediocre, which is
not quite as bad as much of the reporting about the eurozone. when we get eurozone gdp data, we will see whether -- it might be slightly better than the data for the u.s.. it's not good, but there are indicators that it's getting a little bit better. vonnie: 10.3% unemployment is what you might see tomorrow for the eurozone. how long can an environment sustain that? that's the aggregate. we are talking about 20%+ for many of these countries, and migrant crisis on top. >> we are talking about full of limited germany, record high unemployment in greece, an some countriesd like spain have a significant fall from high levels. it's a very diverse picture. how long this can go on, we have to see. if there is another big interruption of the upswing, things would get more difficult. but if the economic improvement pans out, at it seems to be,
things will likely continue to get a little better and it would also help longer-term with the political risks. francine: as long as there are structural reform. will talk more about that. thank you so much. coming up in the next hour, julian emmanuelle. he will be joining us alongside the deutsche bank director of fx strategy. will be talking boj. and we will also be talking to gary shilling. gdp out of the u.s. -- will they push the hand of janet yellen? you are watching bloomberg to v. ♪
table. the bank of japan hold off extra stimulus. deutsche bank shares jump after the lender post a surprise profit. facebook tops estimates. zuckerberg pushes for more control. investors like what they see. this is bloomberg "surveillance." tom keene is off. despite his being off, if you look at yen, it is going ever higher. it just was to send a message to the market it will not follow market movements. vonnie: i do not know what is more surprising, tom keene getting off -- being off. or this surprise from the bank of japan. first we want to get to the first word news. nejra: a shock today from tokyo. bank has heldl off on expanding monetary stimulus. surgeon. the eyen
the bank of japan decided to take more time to assess the impact of negative interest rates. policymakers are betting that will lead to more lending. peace talks and syria appear to have stalled. the envoy wants russia and the u.s. to revitalize a cease-fire that is all but collapsed. authorities in france have now abesalaam.lah he was transferred to france yesterday. portugal is willing to take in 10,000 refugees who have ended up and europe. so far only a few more than 200 have arrived. al blames administrative roadblocks but the bigger reason may be the sluggish economy. the jobless rate is almost three times that of germany and that may hurt the country's appeal. result theing out to
biggest crisis in the municipal bond market. unless they can strike a deal to defer a $422 million payment in the next three days it's in danger of default. the u.s. congress has been working on a rescue plan but lawmakers are not close to agreeing on a bill. vonnie: thank you for that update. i want to get you some data. we are seeing s&p futures point to a drop of .75% as japan stocks tank. the nikkei 225 down 2.6%. the euro-dollar is reacting. the euro strengthening, 1.1354. this after the fed yesterday. ie is seeing a flight to qualityld. that's yield coming down by a couple basis point.
next board please. the vix rising. volatility inching up. the dollar index dropping. the yen strengthening may be unexpectedly. francine: it seems like the boj governors time the markets, i do not know about the yen's strength, i want to be experimental and make sure i get this right. last year and he says that this will continue strengthening. crude oil. i want to show your deutsche bank. we have not had much good use for john cryan lately. he surprised the market since he has been in charge and profits are up. that is all about legal costs going down and cutting expenses. vonnie: good news from deutsche bank this morning. on some kind of track to somewhere. let's have a quick look at the terminal. i want to show you the reaction
to the bank of japan's lack of action. we see the yen dropping. the topix also dropping. the response kuroda didn't want. he got the same response in january when he did indicate those measures. he can't win. that's the bank of japan. the dollar-yen over the last year. francine: i wanted to show you something that is quite zeitgeist-y. this is the s&p. we see the biggest rally in 12 years before any kind of index. actually, what is it spurred by? federal reserve total assets? you see the purple line. or is it earnings-per-share? if you are bear, you're right. if you are bowl, you are right -- if you are a bull. vonnie: it is the longest bull run, the second-longest ever in the longest since the dot com
bubble. joining us this julian emanuel, a u.s. equity strategist and sebastian galy. thank you so much for joining us. is you surprise the yen strengthening after the bank of japan did nothing? >> we expected the boj to stay on hold. the fact that the yen strength and so much on so little shows there is a degree of instability in the markets. it tells us the market is completely driven from central banks, and pay very little attention to what the boj has done in the past. there have been massive impulse coming from the boj and the ecb. but the market is not paying attention. vonnie: we are, however, sticking and some kind of range. 108.re between 113 and 107, we dropped to.
francine had an interview. the economic instability is the case. what you are seeing in the case of the dollar-yen. you have two effects. the dollar is weakening paid you have to yen undershoot, which is steadily correcting. the commendation of the two means that -- the combination of the two means the dollar-yen is still heading for instability. francine: i might be the only one who thinks this is significant. this is governor kuroda telling markets to leave him alone. this is something we have not seen at the fed or ecb. >> so, what we are finding out here is that the markets are very sensitive to the, being surprised. so, it is not a surprise, in fact, that the markets were calm
yesterday based on what the fed did or didn't do. is,the issue here particular since we had this risk rally off the lows in february, market volatility has come in. therefore, actually, the markets are vulnerable to negative surprises and certainly we are seeing that this morning. ebastian, what is your take on the fact that this may be defying from governor kuroda to make sure he does not become trapped by markets. quite accurate. the market has become addicted to a short-term type of use. not paying attention to long-term fundamentals. the impulses he has propagated to the japanese system. impulses are helping advanced economies as well as emerging-market economies. we eventually see some stability in the e.m. then you will see some element of yen weakness versus emerging
markets. that will take some time. the same will happen with dollar-yen. whether it is stability coming from china, india. you can think about different places from mexico, brazil, singapore. --at system is propagating in a this will take a few months but it is certainly happening. vonnie: i want to show you the nikkei 225. we have not seen the same reaction from japanese stocks that we did from u.s. stocks when the fed was making its move. part of what works about q.e. here was a least asset prices did rise. the economy did recovered. it does not feel like a satisfying recovery but we are moving forward. he issue of this interconnectedness between central banks and markets. the issue here again is that they have been so intertwined, such a symbiotic relationship, essentially since 2008, that it
is very difficult to disentangle the two. again, going back to the element of surprise and uncertainty, this is why you are seeing as violent a reaction as you are. in a manner of speaking, it is true that the markets are relying on central banks, certainly overly more than we but central banks are reminded on the market's reaction as the fed said yesterday in being data dependent. francine: the end game for boj, is abenomics going to work and is kuroda's policy going to work? if not, what does that mean for growth? >> the problem for japan is really abenomics and not boj. there are a series of reforms that will take decades to happen. including opening itself to immigration. its process will be long term and one should be focused on what will happen this year or next year. a's opened a pahth,
positive one for japan, they of a very high debt to degdp ratio. the reforms other ones that need to be pursued over the next two decades. it is happening in japan. it will happen in europe. give credit to what he did. it is a significant breakthrough and a massive one. people underestimate the potential impact of this down the road. vonnie: brave and maybe reverses any kind of dents to his credibility. a very optimistic outlook. coming up later this hour, gary shilling. at 6:30 a.m. in new york. 11:30 in london. ♪
.rancine: i'm francine lacqua vonnie quinn in new york. nejra: there was as surprise from deutsche bank in the first quarter. it posted an unexpected profit. its legal expenses dropped in results from the firms trading unit beat estimates. john cryan has promised to eliminate 9000 jobs and get rid of riskier assets. shares of lloyd's are falling. profit was little change in the first quarter. lloyds has been under pressure to cut costs. ish government is looking to sell its remaining 9% stake in the bank. mark zuckerberg was suffering to proposingets as he's a new class of stocks that would help to maintain control and make sure he has the ability to keep spending on future technology. facebook reported a 52% increase in first-quarter revenue, that set the stock surging toward a
record. vonnie: we're back with julian emanuel, ubs equity strategist and sebastien galy. one to turn to the fed because normally we have been talking about the fed. the bank of japan's approximately by doing nothing. they took things over. a nice roundup of all the central-bank action today by said no, no,ng" i the u.s. economy is not healthy yet." the boj's policymaking looks increasingly uncertain." just making mention of the royal bank of new zealand not doing anything today, either. they might have cut but they didn't. everything is reliant on what the fed does. the fed is the global central-bank. >> especially if you are in emerging markets.
are sitting somewhere in the eurozone or for that matter in japan, but if you are sitting somewhere, whether it is in singapore or china or mexico or brazil, you are basically more or less interlinked with the local policy of the united states. it is a doll universe. it has some significant amounts -- it is a dollar universe. . aancine: we had baron berg in nd the fed is itching to hike he says. they are looking for evidence to support hike. >> they would like to hike. this is really a quandary, because of you look back at cycles,in past hiking the economy has a tendency to accelerate once the first hike is on the table. that has not been the case since december. a signaling mechanism of greater strength from that hike would be
something they would hope for. but the economy is not allowing them to do it at present. francine: once the economy is stronger and they start normalizing, what happens to these markets? i got up the s&p 500, i benchmarked it in blue. for earnings-per-share and towards total assets weekly. if this goes down for the fed, is the s&p going down with it? >> no. we actually think, there is a positive feedback loop. the fed has shown it will be patient. the fed does not want to precipitating economic downturn by being too aggressive. that is why we see this delay. it's likely to be the longest delay from type -- hike one to hike two. essentially, again, we see the path, whether you think about it in terms of fx stability or in terms of oil price stability, to past -- the patht
greater growth in 22017 will be supported for equity markets. vonnie: is there something out there that could destabilize emerging markets again? is that one of the reasons why the fed is being delicate? they did mention international put it together statement about being concerned about international markets. >> if anything, that was the positive take away from yesterday, that it is much less concerned about international, specifically china. china has been exceeding investors expectations. we race or economic forecast recently for china. it is not necessarily e.m. dependent in the main but again, it is this whole sort of stability mechanism that, by outsourcing liquidity provision to the pboc, the boj, the ecb, there is this risk of the unknown and there certainly
enough political events and so on that are out there that could destabilize markets in the weeks ahead. when you look in emerging markets, i guess with the crazy correlation is that -- en doing a lot better, although they have a huge debt pile, because precisely janet yellen hasn't started normalizing yet. the biggestis -- country around in one sense. more isolated bubble. then you have other pieces of emerging markets which are not necessarily the same size. they are being buffeted by this, because they continue to exports in the can amounts to the u.s. the relationship is mainly for emerging markets to be dependent on the united states. however, the u.s. have generated a significant amount of growth in emerging markets. we are all in the same boat. as that relationship continues
to stabilize, what you see is the u.s. needs to help emerging markets the same way emerging markets need to help the u.s. ofncine: bill winters standard chartered, i sat down with them, the biggest risk he sees is monetary policy, too much q.e. providing asset bubbles. are you seeing that in fx? of asset bubble, one has to be careful about. what you're seeing is the central-bank stabilizing the process. because they have done what was necessary to do, which was clean up the different balance sheets which were tainted. that means eventually things will work out. there are elements which are structural to the global economy. aging of populations -- and so, you have different headwinds which are very much structural. balt means that glo growth is more moderate than it used to be. and this means the pie has to be
shared in a more efficient fashion. it also means that different companies have to invest more in productivity, because productivity is difficult to measure. it's accelerated but it is going to be a more difficult process for the next few decades. francine: let's start with textbooks and maybe recalculate how we measure productivity. gentlemen, thank you so much. we will be back with more on central bank and a little bit of oil. this is the picture of what markets are doing today, even when central banks do not do much they have the power to shock or surprise the market spirit you can see the yen is strengthening 1.0823. the stoxx 600 privately unchanged, a little bit lower. we had that nice surprise from deutsche bank posting a profit for the first quarter, the first victory for john cryan, the co -ceo there. ♪
vonnie: you are watching bloomberg "surveillance." francine lacqua in london. it is time for the morning must read. a political must read from jonathan burns. two major things happening. cruz announcing a running mate. the --has moved to show he needs to do more than win in indiana and california to have a shot at the nomination. it is hard to see how this gambit changes anything." talking about ted cruz picking carly fiorina as his running mate.
a lot of people were saying that perhaps he should have gone with marco rubio. others saying, no, carly fiorina is a woman. she was popular in california. she will have power with donors. it is hard to see anything changing much between now and next tuesday's primary in indiana, anyway, francine. francine: carly fiorina, all i remember if she was one of the first ones out of the race. i wonder how much star power she can bring to ted cruz. first of all, i know where indiana is. i had to look it up. donald trump could sense that victory, it was telling me yesterday he said if he prevails in indiana, he believes his party's nomination contest will be over. vonnie: we got that foreign-policy speech were waiting for. someew higher -- have had influence on him. he is looking a lot more
presidential. now that we have what looks to be vp candidates, we are not calling that, will markets except that or will they consider this still to be an uncertain environment to the actual election? >> the uncertainty is going to persist, no doubt about it. to underestimate any of the players in the field i think has proven to be a mistake looking back over the last 6-8 months. butsn't entirely clear there are going to be moments of uncertainty all the way through to november. vonnie: the conversation on politics continues with john heilemann and mark halperin on "with all due respect." ♪ [ cheering ]
peace talks in the battle between turkey and the kurdish separatist group according to a top adviser to president ergoan. is determined to finish off the pkk once and for all. in venezuela, thousands of people have signed petitions calling for a referendum to recall president madura. they are angry about power cuts and food shortages. opposition leaders say they have enough signatures to call for a vote. bails hastert is free on after being sentenced to 15 months in prison in a hugsh money case. members of a wrestling team accused him of molesting him. north korea may have failed in his attempt to fire a mid range the listed missile today. the launch came a week before
kim jong-un's regime holds its first ruling party congress in 36 years. the missile is believed to be able to reach u.s. bases in japan and guam but there are doubts about its accuracy. it is now all but certain that the open seat on the u.s. supreme court will remain vacant until after the election. a media blitz from the white racke has failed to car republican opposition. republicans insist the next president fill the vacancy created by the death of antonin scalia. francine: now, we are still with julian emanuel, ubs u.s. equity strategist and sebastiaen gary shilling. galy. -- sebastian whether you are looking at banks industry in the u.s.
and around the world, there have been expectations on cost-cutting. when are we going to see real growth in revenue? >> that is again part of the perspective, positive story due to stabilization in fx and pricenly the commodity stabilization we have seen. but that is something that is a latter half of 2016 into 2017 story. i nthe meantime, we wait and our view is is if you look at earnings now, even though the bar has been set as low as it has notting the bar been good enough for every industry. it's selective. financials in particular being one where better-than-expected has been good enough. francine: what are we waiting to have real growth? is it ceo's having confidence to spend, or a turnaround in the economy? >> they feed on each other. that goes back to the positive of potentially that next rate
hike being a signaling mechanism. as we know, when good things that has been missing over the last several years is capex. capx usually is accompanied by aturn in ceo confidence and higher rate. i think that is something that will develop in the fullness of time and is part of the story of the stability in commodity markets now, sending a potentially positive message. vonnie: we are still seeing volatility in fx markets. that as anannot use excuse anymore. maybe the headwinds are not there is much as they were. we saw those excuses drop off a little in the first quarter. what are we going to see in terms of the rest of the year? >> it depends on the u.s.. the dollar is weakening. as corporate re-hedge their positions. . a positive development. if you're sitting in canada or
japan, things have been good for you. your currencies have been very cheap and you might see positive surprises coming from that site. from a currency perspective, you will see some regional positives. in europe, it is going to be very different. , mostly positive surprises. they probably will have earnings in a few countries. vonnie: why aren't we seeing more acquisitions? we are seeing companies issuing a lot of debt because in some cases they are being paid to do it. given currency fluctuations, we are not seeing -- >> if you look a little bit, particular coming out of china, you will see they are actually having acquiring a lot of targets within the eurozone. they do that because they need access to the technology, new markets. they need to reform their industry. and it is a positive department. not having much of an impact.
there are elements of m&a that are happening. linked to structural issues. i think that process will continue. >> it may be a question of perspective. i think we were spoiled and away but 2015 being a record year for the m&a. the reason you see this hesitation, again, is a function of the capital markets reacting cautiously to the kind of activity we saw in january and february. but i think as we go along and the year keeps moving, we will see a return to m&a, although the pace of last year is behind us. francine: is it cross-border, is it internal? we seem to have the repetition of winner takes all. but it is not always true. if you do megamergers and the culture is not right, you are set for failure. >> it is going to be situational dependent. again, this morning we see the
potential, the announcement of something in the health care space. obviously, we have got something pending in the oil space, a rather large deal we will see more news on. it is basically finding avenues to create growth would have otherwise been done by capx, which again, is something that is not going to excel a great -- to accelerate till later. ceo's are looking for avenues for growth in a growth challenge environment. francine: when you look at fx movements, this time last quarter they were beneficial to a lot of the earnings that we saw, but how difficult is it going to predict currency movements and the next couple quarters? this is a huge challenge for ceo's, because if you put a no matter howhat, much you cut costs, it will mean a fail for your company. >> if you look at the move we
have seen over the past few months, they have been quite considerable. figures, moves of 24 in some cases. it is very hard-core stuff. going forward with the central banks, the fed, the boj, and more on hold or less aggressive. the volatility in the currency market has somewhat been reduced. currency markets are fundamentally unstable. given enough of a big shock, whether it comes from politics or another source, you can still see a significant amount of movement. as oil rallies, it has taken commodity related currencies higher with it. some of these moves may continue. vonnie: what are you watching most? what is your trade now? >> the canadian dollar. it is not very appealing but it is still moving. it's self-correcting. as that process continues, it should be, i guess, a positive
canadian airplane maker. delta airlines has agreed to buy 75 jets. the first major u.k. -, delta is the first major u.s. carry to buy the planes. the deal would be valued at $5.6 billion. bombardier's ceo will join the european close at 11:00 a.m. in new york and 4:00 p.m. in london. airbus, first quarter profits fell 23% but it still beat estimates. a engine glitch -- plus shortage of kevin cramer and slow down production. --- a shortage of cabin equipment slowed down production. preparing toank is sell its operations in lebanon and has gotten interest from local banks. ceo was to shut down
money-losing businesses and cut 25,000 jobs. and that's the bloomberg business flash. francine: let's stick with banks. deutsche bank posting a surprise profit in the first quarter. let's bring in our finance reported. michael, when you look at deutsche bank, john cryan has had a dog of a time. this is the first good piece of news. he is very cautious about litigation costs for the rest of the year. you would not say he would post a profit this year. based ona lot of it is the timing of some of these investigations and when they have to pay the fine. i think that is why they are being cautious on the outlook for the year. and also, they said this would be the peak restructuring year. as they reshape the bank. but it's, a bit of good news here, you know. the analyst seem to like that there is a surprise profit. th market seems to likee it. they've also said they may have more time on the capital front to build up their buffers. front is the capital
extremely important, because we had concerns about their solvency. if this something -- is this something that has gone away? the market was really worried about them owning too much. michael: and their ability to pay them. those concerns have definitely ebbed. their capital ratio went down analystster, which the had expected but they went down perhaps a little more than estimated. but they countered that by saying, with the way the regulators are writing the rules, we have until the end of 2019 for some of these capital buffers to come into place, rather than the beginning of 2019. more time for them to build up, which reduces the chances of them having to raise more money, which has been one of the primary concerns for shareholders of deutsche bank. vonnie: what are the metrics cryan is worried about? what tier one at 10.7%.
if you look at the stock price, it is still, you know, - it's not, it has not come out of the dull drums. this is the last 10 years of deutsche bank. we are not far above where we were in the first quarter of 2009. when will we start worrying about shareholders from an equity point if you? michael -- poine t of view? michael: they are already definitely concern for you mentioned the teier one ratio. rivals.s a lot of the profitability question is the key one. they have not made money over the last five years. they say they might not make money again this year. that is giving investors little reason to buy up the stock. the thought process is that maybe cryan will eventually turn this around but i can wait two years to buy into that story and see some of the signs of that happening and we're still in
early days of his strategy. so, a lot of those signs are yet to appear. ,onnie: julian emanuel obviously, investors are happy today. it is up 2.4%. but what do you see? deutsche bank is just another bank having serious problems. >> no question the financial industry globally is under pressure. but what we would say is when you look at valuations and you look at how banks are coping with this low interest rate environment, there has been a sufficient amount of time now to start to get used to it. basically what we are seeing, whether it is american companies or european companies is that there are lots of levers to push is one of them. and we think that is going to be supportive for financials broadly in the weeks and months ahead. francine: it was not as ugly as we thought. whether it be european or u.s. banks.
january fabric, a lot of european banks got lambasted. trading has not been that bad -- in january and february. do we need to give european banks a bit more of a chance? do.e believe we again, because of the low interest rate environment, the pressure is there. veryentiment has been negative. by that token, even slightly better than expected, which is what we have seen the last few weeks. this positive price reaction. but we think in the main, that thisry good -- elicits positive price reaction. financials leading is a positive longer-term for equity markets. vonnie: we are getting dow chemical results. beat by 7 cents. coming in at 89 cents a share. net sales, $10.7 billion. bang on estimates. dow merging with dupont. the stock is up .4%. francine: yes, one that we keep
an eye on. we have a lot of earnings. earnings in china and earnings from europe. julian emanuel, thank you for an us and michael moore, going through what deutsche bank has done. i put deutsche bank on my data board. we do not see that many bank surprising to the upside. so, this is what the markets are doing. deutsche bank gaining 2%. a little bit of pressure on european stocks. one we are watching out for is yen. 1.082. not delivering what markets were expecting. -- 108.2. ♪
vonnie: you are watching bloomberg "surveillance." we are looking at some forex moves. you have the dollar-yen, 108.13. yen strengthening after the bank of japan said nothing is changing, nothing except moving its target for 2% by end of the year. euro experience in same thing. we a seeing the chinese renminbi strengthening versus the u.s. dollar. i just do want to point out that
greece's creditors are leaving assets and citing progress towards in a court. that is the latest we have -- citing progress towards an accord. judeine: abant to buy st. medical. that means the deal is valued at $25 billion. we are talking with julian ceo's we feelen confident enough to do these mega deals. 7%.reflects a premium o 32. this is a jewel asset. and there is a lot of confidence in the markets. coming up shortly, it is go.omberg " it is all about central banks. david: including surprising when they do not do everything. bank of japan and the fed. we will talk about that with a
range of guests. we also have earnings coming out. we will be joined by mark fields , the ceo of ford. and the ceo of what we always thought of mcgraw-hill. they just renamed themselves s&p global. and halfway through our program, we have u.s. gdp figures for the first quarter. we will talk about those all-important numbers. it sounds like we will talk about abbott, too. that is coming up on bloomberg o " vonnie: we were just talking about m&a. i'm not sure if we were talking about the dollar environment but i want to ask you abbott buying st. jude medical. it will find some of that with medium and long-term debt. expected to be $5.7 billion of
st. jude debt assumed. a huge deal. augurs something for the pharmaceutical and the hospital industry. definitely a very positive sign. it is what we had said all along, it is in the industry such as health care that have cash available that really essentially a slew of companies that are cash cows. with the debt markets being receptive once again, post the distress in january and february, we continue to see the potential for consolidation, and health care. it is a very positive sign. vonnie: a sign in certain areas. but gary shilling, if i can ask you, are we coming out of this bull market with a lot fewer companies? >> probably. we are in a consolidation era. when you do have slow growth,
that provides a lot of pressure to consolidate. so, i think that is probably true. biggo through waves of upstarts and consolidation. it is true in any industry, it is true on an economywide and a global basis. one of the things that is going right now is that globalization is largely completed in manufacturing. it has moved out of western europe and the u.s. to china. that is pretty well over. so, you are probably more in the consolidation phase in terms of that dynamic which dominated the last, dominated the last 30 years. i think that is the most important development on a global basis. francine: what about these valuations? 37% premiumying a for st. jude. it is pretty punchy. i you concern that because of the cheap money, valuations are running away -- are you concerned? >>i'm surprised. the bull market that started in
march of 2009 i think was fueled by federal reserve money. first, bailing out wall street and then quantitative easing. the fed got out of that business. they stopped added in october, 2014. they are at a very high level. you look at in terms of pe's and earnings. of earnings growth has not been topline revenue growth, where you cover your expenses and taken to the bottom line. that has not been possible. you have had slow growth and slow unit volume growth. the routeb5p to profit increases been cost-cutting. omst are labor costs. -- most are labor costs. we have not seen the productivity improving. whether they are scraping the bottom of the barrel or waiting for for more fruit to ripen remains to be seen but that gain
seems to be over, at least for now. francine: gary shilling goes to radio next. our thanks to julian emanuel. bloomberg go is up next. tomorrow on bloomberg "surveillance.," we will be joined by george magnus at ubs. that starts at 5:00 a.m. in new york we will talk negative rights and talking a little bit about m&a. thehe past he's come on program saying we need many more structural reforms. we have not seen them. we see more q.e. the boj disappointed. does that mean they are putting pressure on politicians? that is what we will be discussing next. ♪
a surprise profit. >> bold move. that is what marks a good book inplanning after an increase revenue. what could be next for the social media giant? david: welcome to bloomberg . here is jonathan ferro and carol massar. i'm excited to see you back. i was afraid we scared you off. carol: we have got a great lineup of guests on the program this thursday. we kick it off with mark fields 's. matt, those ford earnings. matt: adjusted eps of 68 cents. ford beating by a longshot there.