tv Bloomberg Markets European Close Bloomberg May 17, 2016 11:00am-12:01pm EDT
p.m.. where it is 5:00 you are watching the european close on bloomberg market. let's take a look at where european equities are trading right now. we have losses across the board with the exception of the u.k. take a look and you will see the dax down on its first day of trading. it was closed yesterday for pentecost. about half aaining percent in london and that is enough to push up the stoxx 600 about 1/10 of 1%. take a look at the telecoms, there is a reason for the gains today. cdlfone is out saying the -- the ceo saying he has seen more consolidation in the
industry and players are going to have to bid up. as a result, vodafone is rising. telefonica up in spain and deutsche telekom rising more than 1% in frankfurt. those are gathering pace throughout the session. just about a half hour to go. spanish and portuguese government debt getting bid up, pushing down the yield. bonds, youernment saw them being sold off earlier along with the krone. that seems to have been headed off. betty: let's head to california for the first ever goldman sachs leverage finance conference. bloomberg television is live with alix steel. .lix: thank you so much, betty i am here with david solomon, cohead of investment banking at goldman sachs. the leverage finance conference,
why now? david: there's a lot going on in the markets. it has been a volatile start to the year and if you look at the leverage finance markets over the past couple of months, it has been a volatile period. i would like to say we started planning two months ago and it just fit into the market, but as you know we do these things in advance. we think it is a function that our clients need, the opportunity for 100 issuers to come together with 500 investors and spend time talking about what is going on in markets, in the businesses. a great opportunity for businesses to do due diligence. we are proud to sponsor it. alix: the demand that you might see right now, you trust it and think it is a sustainable demand? david: markets run in cycles and
the one thing that happened that was very interesting, we had a downward pressure on the market. market lows came in the middle of february but we have had a massive tightening, and it happened very quickly. as a result, many active managers did not keep pace with that market rally and as a result, they are looking at new issues and opportunities to try to generate some returns and keep up with some of that market tightening. alix: i feel like when i talk to individuals they look to see the credit cycle turning sometime in the fall. they do not believe it is sustainable, yet on the flipside you have covenant light still looking relatively robust. what do you see? what is the dynamic? >> there are different components to the leverage finance market. you have finance transactions, lbl activity is very quiet.
there has been a regulatory impact on debt which has an impact on making some of those capital structures a little bit more conservative. corporate debt, a different situation but if you step back globally, the economy is growing. it is a slow growth, sluggish growth, and at some point that reddit cycle will turn. pundits have been talking about the credit cycle turning for years now. it has been a long and slow recovery, and it could turn sometime in the fall or it could go for another couple of years if we continue to see this slow, sustainable growth. alix: are your clients worried yet about the business turning? >> i think it depends on which client you talk to. investors really felt like we were headed into a recession and things were slowing down. that was really disconnected with the corporate clients i was speaking to who said growth is
slow and sluggish but we are still growing. i would say now that investors are cautious. we have had a long cycle and investors are cautious, but when i talked to ceos, there's no question that businesses will be fine. exceptions, you look at the retail earnings and there is no question that is a space that is under a lot of pressure. we have had an industrial slowdown over the last 12 months but if you look at it as a whole, things are growing slowly . as long as that is the case, we could see a relatively robust market. alix: investors are little cautious but want to play catch-up for missing out on the rally at the beginning of the year. that you weres trying to unload like veritas and solaris but could not find buyers, are you finding them now? david: we are finding buyers for
transactions we are bringing to the market. in the context of the market, one of our jobs when we make commitments to capital structures is to bring it to the market when it is the right time. there are other times when the market is buying very aggressively, but the market tone has improved significantly. when we look at the commitment on our books at the beginning of the year, we basically have been able to move all that paper with no losses. alix: you did not have to sell any at a discount? david: song was sold at a discount but when you look at the gains, that product was moved to the market appropriately. demand is actually stronger because of some of the dynamics i was talking about earlier so at the moment i think you will see a lot of activity in the near term, and we are seeing that. markets are pretty healthy right now for debt issue. alix: when you specifically look
at veritas, are you able to shop that today? david: they were in a transaction that we were the lead underwriter on but that is a transaction that could be marketed today at a different price than the original price. going forward, you feel more confident that you can clear those old transactions at market price and not take losses? that we feel confident can clear our book at market price, but that could change tomorrow. this is a big business and it runs in cycles. it is a risk business. we are in the business of committing to our clients and distributing the securities into the market. sometimes it goes well, sometimes it doesn't but if we look back at any 12 month period of time, we have done well. alix: taking a look at what happened when the banks pulled
back in the debt market, direct lenders really filled that whole. what we are seeing is that firms are sticking with direct lenders because they offer different options. what do you do to mitigate that? david: it is not necessarily something we want to mitigate. there are many ways that capital formation exists in the market. there has been a growth indirect lending. but alsonding competes does not compete in certain situations where the advantage of a full-service firm that can provide advice, capital in a contravention -- confidential way, it is not as simple as this is competing with this. direct lending is going to continue to exist but we do not see it as a direct threat to the big franchise we have as a debt underwriter. alix: would you feel like you would need to offer new products
or better terms to get them back over? david: know, the market is the market. at the end of the day i believe there is a market for debt products and our job is to know that. aggressivebe more but i do not see anything changing specifically in the way we think about the business because there is more direct lending. alix: revenue for investment banking dropped 23%. is that the trough? david: i could not possibly tell you. we talked a little bit at the volatility at the beginning of there isand when volatility, it affects our investment banking revenue. i felt very good over the fact that our revenue was number one over any hour top company competitors, but down 23% from
the first quarter in 2016. there were no ipos in the first quarter, i must know equity issuance, and m&a slowed a little bit in that volatility. levels have been a little bit better in the second quarter but we will see. all business is cyclical, it runs ups and downs. i could not tell you the trough, but we are supposed to do, help our clients and when there are opportunities hopefully we are in a position to help them. solomon, cohead of investment banking at goldman sachs. make sure toteel, stay with her because she will be speaking with the goldman sachs head of research jeff curry. his comments always closely watched. let's check in on the bloomberg first word news. taylor riggs has more. taylor: baghdad has been hit by
another wave of deadly bombings. the attacks targeted shiite neighborhoods, and the islamic state spade -- claimed responsibility. more than 200 have died in the attacks in and around baghdad in the last week. in the moments before an amtrak train went off the rails last year, the engineer was distracted by a report that another train was hit by a rock. that was one of the findings. .ight people were killed they also said a key backup safety system was not in place. investigators say it would provided a technological safety net. bernie sanders is hoping to make it four in a row. primaries are being held in kentucky and oregon, and hillary clinton's lead is almost insurmountable. he has won the last two
primaries. the senate plans to vote today on president obama's request for money to combat the zika virus. lawmakers considering three plans but a measure to cut president obama's request has the greatest chance to advance. the causes serious birth facts and is expected to spread more widely during the summer mosquito system. vice president joe biden compared it to a third world country and york will find out if laguardia airport can get a facelift while staying in operation and without a cost overrun. a group will borrow two and a half billion dollars in the bond market, promising to renovate laguardia within six years and on budget. global news 24 hours a day powered by our 2400 journalists
february 2013. the reason? the largest increase in gas prices in over four years. associates areer headed to china. he has been the first hedge fund manager jeter to win -- manager to win china. bridgewater manages $150 billion. department store chains had a rough first quarter but some discounters are thriving. t.j. maxx and marshalls posted better-than-expected sales growth. they offer raised annual forecasts. macy and nordstrom cut their outlooks. that is your bloomberg business flash for this hour. let's head back to the markets desk where julie hyman has a deeper check into lending club shares which are nosediving. julie: we are looking at the broader markets as well.
let me start there. all three major averages are pulling back by about one third of 1%. a consumer staple and more value stocks, perhaps, are doing a microsoft,worse so png, and coke are some of the worst performers with the biggest drag on major averages. another one that falls into that category is abbvie. the u.s. patent offers said the patent on humira may be invalid. this is their largest selling drug that accounts for about 60% of its revenue. the company that is challenging it is surging. this is something according to abbvie that was already talked about in the patent review, the challenge to it. it is dismissing this as invalid but we will see if there are any more developments regarding this .
a lot of news in retail today, home depot, there are some concerns about flowing growth for the balance of the year. the shares are down 2% despite what was a stellar first-quarter. tjx holding up well, corporal sales up 7% -- comparable sales up 7%. closingo's, the women's -- clothing retailer missing estimates and the ceo resigning for personal reasons. betty: let's talk about lending club. julie: lending club is falling once again, although the decline is not as steep as it was earlier. down nearly 11%, the company says investors have suspended line loans and that is how their business works. on thedo not have a peer other side buying your loan, you have an issue.
the department of justice had subpoenaed it over the events leading to the resignation of its ceo. stocks are down in the wake of his departure. betty: julie hyman at the markets desk. matt? matt: we're going to take a quick break but when we come pgn we are going to talk to chief strategist. we are going to talk exclusively to taimur hyat and what he is doing when you have that much money. you can move markets by yourself.
as is the european close. reforms,spite china's larry fink warns we should all be worried about their debt dependency. he remains bullish on china's long-term outlook. here he is earlier in an exclusive interview from hong kong. lawrence: i would give chinese leadership some of the best marks in trying to transform their society. we are on the fourth year of the 10 year plan to reorient china away from that, away from an export dependent economy to a much more resilient, domestic economy. that is a very hard thing to do. it takes many countries 50 years to do that, and countries definitely have recessions in the transition. recentlyat china most in form of policy behaviors, overstepped the market is saying
that right now. they are saying china's dependency on debt and the leverage of the balance sheets and the continuation of investing and some of the unproductive state owned companies is not a good long-term solution. i would say indeed it is not a good long-term solution. awfully this is only a short-term remedy and they get back to the basics of trying to build a better domestic economy. betty: that was blackrock ceo larry fink who spoke exclusively to angie lau in hong kong. matt: very interesting stuff, and we are also getting some breaking news across the bloomberg terminal. let me pull up these headlines before we tossed over to riad. qatar airlines is increasing its inke to more than 15% international consolidated airlines group, pushing that stock up in london training --
trading by about one and a half percent. one of the great mysteries of the treasury market has been resolved next door, how much u.s. debt the saudi arabia hold? $116 billion. dubai iss now from riad hamade. i hope you do not mind me lumping all of these together i'm asked quickly about this breaking news that we have coming out of qatar, they are boosting their stake. there have been a lot of controversy around the airlines, at least from the point of view of american carriers and now it looks like the are getting bigger. it has been invested for a while and their reliance with withsh -- there alliance british airways is a
long-standing one. i think it was expected that they might increase their stake in that alliance. the controversy with american airlines is one that is not just linked to qatar airways, but with emirates where in theicular the airlines -- american airlines have accused them of getting government subsidies and getting an unfair advantage as they grow. it is also about the open skies agreements which were made at the time these are very small airlines. matt: i wanted to get into that question on qatar and now let me get back to the regularly scheduled program. saudi arabia and their holdings, it does not look like that big of a stake when you look at, they have a little over $100 billion. ireland has $250 billion in treasuries. the saudis are not massive
investors in the u.s. economy really. riad: they are not massive investors according to the data in terms of treasuries. they do invest in other assets in the u.s., however these numbers were not completely surprising because the data before showed that all of the eight opec countries together had about $280 billion. --was reasonable to consider to assume saudi arabia would have a sizable chunk. if you look at the development is the most interesting part of it to me, it is linked to the oil prices. the higher the oil prices went, the higher the treasuries. matt: thank you so much, we had a mod out of dubai.
let's take a look at how markets are trading with bloomberg's abigail doolittle live from the nasdaq. abigail: we do have the nasdaq trading down modestly about 3/10 of 1%. one stock is helping the nasdaq , american airlines shares are trading higher after the company management did present earlier at the boa merrill lynch conference. the ceo said underlying demand is strong despite a near-term challenging environment that could affect the week pricing environment. that could help explain why the shares of american airlines are down more than 20% year to date. stericycle shares are higher after the recently disclosed 2.9 present position of janet partners is "significantly positive" for shareholders.
they have a track record of building value. shares are trading at 34% discount. what some investors may see as value or cheap after shares dropped sharply after the first quarter report in april. betty: abigail, thank you so much. let's check in on the bloomberg first word news with taylor riggs. taylor: a new poll shows them as art -- majority of britons want to remain in the european union. 55% surveyed want the u.k. to stay in the block, up slightly from last month. 40% want to leave. prime minister david cameron warned that leaving would endanger london's role as a major finance center. leave, there to first thing other european countries would do is try and have another go at discriminating against london,
discriminating against japan, and trying to get that business in the city of london. if we are in the european union, they cannot do it. taylor: microsoft says the u.k. should remain in the eu and is one of the largest companies to come out against leaving. a new report highlights the problems the bank of england is having in getting prices to rise. the inflation rate fell to just 3/10 of 1%. inflation has been below the boe's 2% target for more than two years. and france, president francois hollande will try to head off strikes to protest labor reforms. demonstrators in paris announced a plan making it easier for companies to fire workers and reduce overtime pay. he says the reforms lead to the creation of more jobs. anti-drone deploy technology to protect this
.ummer's soccer championship the technology can take control of any drones that enter restricted airspace. news 24 hours a day powered by 2400 journalists and more than 150 news bureaus around the world, i'm taylor riggs. so much abouted the day to day gyrations of the market, but what about the long-term investor? what are the long-term trends to watch out for. our next guest says watch out for democratic -- demographics. ist: joining us from london taimur hyat, chief strategy officer at pgim. he has more than a trillion dollars under management now. thank you so much for joining us. let me ask first about the aging trend. this seems to be your main play here. where do you start?
it seems like such a big trade to execute. thatr: we truly do believe if we have sufficient long-term investors who look at the trend and complement the day to day trading with the longer-term view. aging is one of those trends that you can set your watch to. we know there are more people over 65 then under. we still see opportunities in private markets, in emerging markets in aging that we do not think are priced in opportunities for investors to play the aging team. matt: how do you break that down ? do you say, let's look first off at emerging markets because they are not priced in or let's look first at the industry group, health care because you do not think it is priced in? how do you break this down to make it easier? taimur: we really break it down
by looking at the fact-based and the first is where is beijing happening -- where is aging happening. there a misconception that it is mainly japan, the u.s., the u.k., but most of the world's over 65 live in the emerging markets. correction is really plant your lens where the aging trend is most focused. the second lens is saying, where is the money going, follow the money. even though there is a lot of they onlyillennials, control about 12% of the wealth in the world. differenty are very from the decisions of younger folks, and we track those headwinds and tailwinds as the
silver dollar get stronger around the world. betty: i want to talk about profiting off of this trend. that andly do you do search for those returns while also doing it as safely as possible for your institutional clients? looking at secret to a megatrend is it does not fall into the easy asset classes that you might just put in equities or fixed income or real estate. we have a really healthy debate among our best investment professionals across all the disciplines and asset classes and then see what opportunities come out of that. an example, when opportunity is in real state from -- real estate from aging. folks over 80 who can no longer live in their own house, is a very large opportunity in the u.s.. we see a hundred 50,000 new senior housing units being built between now and 2020.
putting the lens a little further on, 50 years ahead we focus -- we focus on the next five or 10 years. you see senior housing opportunities for the elderly in the u.k., in japan, and potentially in china. that is further down the horizon but that would be one example of what aging leads to. everybody knows about biotech companies and biotech being a way to focus on diseases that the elderly get. causing aiotech is revolutionary change in the cycle of real estate opportunities we have seen. we are seeing opportunities in ,ities like munich, shanghai and kendall swear in boston where around educational centers you are starting to see the real estate opportunities in the biotech space.
they are very sticky long-term investments. if you take the long-term perspective and put on the megatrend lens. matt: we have breaking news right now the chyna speaks to your point. goingis has said they are to split their pharmacy unit into two divisions, novartis pharmaceutical and novartis oncology. this is interesting because we're talking about basically a 200 billion dollar company .plitting off and oncology unit that has to play into the aging trend, don't you think? taimur: it absolutely does, and health care as a sector is too blunt an instrument as a way to play the aging idea on its own. we focus very much in our findings on the fact that you need to find more granular companies that are truly focused on things affecting aging trends
. oncology is one very good example, and we focus also on venture capital as a way of targeting operating companies focused on dementia, alzheimer's, and parkinson's. it's is a way for investors to be able to bust into the trend in a targeted way. matt: i just want to wrap up this breaking news, novartis saying david epstein is going to leave and they are going to appoint paul hudson, and bruno virginie be the ceo of novartis oncology. here we have an industry where there has been so much m&a. now that has got to slow down because the companies are such giant behemoths you say they need to become more granular and more focused. taimur: it is all about much smaller companies that are under the radar, many have been acquired by big pharma companies.
atking under the radar smaller companies that might be active through private companies and venture capital. biotech is another important route. the next wave is something we like to call silver tech, which is technology for now, applications focusing on the millennials. next generation of technology will not be around the quickest way to get pizza. important, butin will be about solutions for elderly people. emergency pendants for example, caregivers, and the technology solutions for that. we see so over attack another opportunity out of the aging trend that will require people working across asset classes thinking in a granular way about what are the teams you can invest in resulting from the aging megatrend.
betty: let's head back to our exclusive coverage of the first annual goldman sachs leverage finance conference, alex stack standing by with jan hatzius. alix: great to see you. i want to get to your overall take on the economy but first i want to get to the data we saw. retail sales holding up pretty well, core cpi also rose. at one point does it become harder for the fed not to raise rates? jan: i do think it is supportive
of most of what we see, not everything. generally it is supportive of the idea that we will see some rate hikes this year, and we are getting that story from the fed. williams, but also as you look at what the fed said on monday last week, it is certainly supportive of the idea that we will get some hikes. at one point they come, that is still more uncertain. june seems unlikely now but i think we will see some hikes. inx: when the data comes better it means they should be hiking to some extent. d you think data dependent israel or just lip service? think it israel and the market is underestimating their willingness to follow through. we are approaching full employment and approaching it
with an average of 200,000 jobs per month in created, or than twice the long-term trend. you will want to see a little bit of a slowdown in that in the direction of 100,000 so that you do not overshoot by too much, because it is risky. it is risky to overshoot employment and bring the unemployment rate up. that is this -- very difficult to do. alix: he downgraded your rate hike to two this year but it was kicking and screaming. jan: i think the fundamental case for them to normalize is still pretty strong but at the same time, what we think is the most likely case, june has gone to a less likely case partly because the data has been a little weaker. partly because of some of the fed commentary has become a little more noncommittal about the imminent case for rate hikes
, and partly also because if you look at market pricing, the hurdle for them to basically generate pricing that is consistent with a hike is pretty high now. what i mean by that, we have never had a hike that was priced as low in the bond market 30 days ahead as this one. that makes it a little less likely. alix: the market behind the curve. we have also seen the yield curve really flat. when you look at that, at any point are you worried about a recession? jan: i am not very worried about a recession. the risk if i look at the indicators that seem to predict recessions best -- alix: so the yield curve is not one? an importantit is indicator because you want to know what the market is saying but when i look at the risk of recession, i look at things like
credit growth, where you are relative to full employment and while we approach it, i do not think we have overshot it yet. it i would be a lot more concerned because it is difficult to achieve a soft landing. if that was the case, i would be more concerned, but right now to me the indicators do not look that concerning. to whatat brings me david solomon was just telling me, but on one hand you have investors that are still relatively cautious but on the corporate side, ceos seem very constructive. do you feel like you are seeing this push and pull as well? an: i can probably relate little more to the message from the corporate side. if i look at the real economy and the prospect for the real economy, i do feel more optimistic than much of what i
hear from investors, which is of course also reflective in the pricing of at least some assets. maybe not so much equities or credit after the rally we have seen but if you look at where howyield curve is priced, little normalization of monetary policy is recorded. alix: it does seem like investors assume that janet yellen will overshoot inflation in order to stoke some kind of growth, but you do not agree with that? jan: i do not disagree with the idea that you can have some overshooting. i think it is a symmetric inflation target and you should expect to be above it as much as you are below it, so i do agree with that. what i do not agree with is the idea that they are going to engineer a deliberate overshooting, and i certainly do not agree with the idea that if inflation were to overshoot 2%
that they would just sit on their hands and not normalize policy. they tolerate an increase. they would not go ballistic with rate hikes if you overshot 2%, but i still think they would want to take that into account and the funds rate is otherwise a little bit more. alix: and the market is not getting that? the market is being too pessimistic? jan: it is a combination of the market thinking and overshoot is unlikely, and if you did get an overshoot it might not respond. i think it is probably more the former, that many people in the market do not think you can get an overshoot. we are not forecasting and overshoot. our forecast is one in which core pc inflation gradually returns to 2% but does not go above, but a forecast is a forecast. alix: jan, thank you very much.
good to see you. .etty: thank you so much that was goldman sachs chief economist jan hatzius and alex alix steel reporting all day. an interview with the global head of m&a at 12:15 p.m. eastern time. are you sad you will not be doing battle of the charts? matt: i was not invited to battle of the charts. i feel like some people are intimidated by my charting prowess. betty: we will have some more coming up. ♪
time for the bloomberg business flash, a look at some of the biggest business stories in the news right now. of generaln union motors rejecting allegations that its diesel engines can turn off emissions controls. the head of the opel division says german media and an environmental group reach conclusions that were plain wrong. the credibility of automakers has been under attack. volkswagen and mitsubishi admit rigging emissions tests. to analues increased annual rate of 9%, more evidence investors rushed to buy homes before a tax hike on second homes and investment properties took effect in april. hollande, president says the improvement in the economy is a reality even if all citizens still have not felt it yet. he told europe one radio the economy will grow one half percent this year and the budget
deficit next year will be less than 3% of gdp. that is the latest business flash. betty: it is time for the global battle of the charts where we take a look at some of the most telling charts of the day and what they mean for investors. you can find-- these charts on the bloomberg terminal. with us today is dani burger. : i thought i would drill into one fund in particular. this is look at john paulson, paulson info us exposure. this top line is their exposure to health care relative to the s&p, and you can see that almost three times with the momentum of the s&p. at the bottom you can see is
exposure to value which makes bets on relatively cheaper stocks has stayed pretty steady, pretty low, and that is bucking the trend what other managers have done. have soros who put a lot of money in gold and is cutting down on stocks. you can use this saying the port go function. betty: a closer look at his holdings -- at paulson's holdings. asking, why who are is home depot doing better than a change weretail, see in a comparable acis on sales. here you have a remodeling basis so it is a survey of people who do remodeling for a living. these have tracked pretty closely together at least directionally. it is not just people like you and me, it is people who do this
as a profession. that is feeling some of the demand. betty: it is interesting, they pretty much do move in lockstep. i feel like today we are focusing much more on retail and housing numbers. i saw this chart earlier. i'm going toani, have to hand it to julie. matt, let's keep you in the loop. what do you think? david: i like -- chart. like dani's i am going to judge a chart for a chart sake and i think julie is the clear winner. ♪
from bloomberg world headquarters in new york, i am scarlet fu. here is what we are watching. stocks are slipping the day after a strong rally. housing data signaling the economy may have enough for a rate increase. ?ho is wheeling and dealing shares of lending club still plunging after losing almost half its value after the surprise departure of its ceo. first we want to get a snapshot of today's trading action. julie hyman has been tracking everything and the big point this morning was inflation.