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tv   Bloomberg Go  Bloomberg  May 23, 2016 7:00am-10:01am EDT

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year-long recession as it leaves the e.u. yang --erts call for for yen strength and. jon: experts call for yen strengthening. i am jonathan ferro, with vonnie quinn. david westin is on assignment
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for the week. vonnie: 1.5 million dollars worth of savings will help contribute because this is an all-cash deal. an exciting day for the industry, specifically when you consider that they have been trying to consolidate and there are so many unsolicited bids between companies, monsanto included, and now monsanto is on the receiving end. jon: and the potential of that deal is being reflected let's get you up to speed on markets. futures -- where are we? i'm not sure we are that saw on the dow. we will update you on that in a moment. s&p futures down. that is one year and not intraday. moves, theyraday are your one-year moved spirit let's switch up the board very quickly. hopefully they are intraday moves through they are one year moves once again with euro down. that is the reality today, down by 10% over the last year.
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around the's go world and check in with our bloomberg team for in-depth coverage of our top stories. matt miller is in berlin on buyers push for monsanto. enda curran is in hong kong. we have guy johnson in london on another morning as the u.k. leaves the e.u. president erdogan tries to increase power. we being -- let's go to berlin and get the latest from matt miller right there in berlin. huge deal,g day, a and what is the reaction in the german markets? matt: the reaction in the german markets, as far as the buyers are concerned, has been negative. at stock fell at one -- 3.6%. it has gotten crushed this month, down by a fifth of its value.
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investors do not like the way this deal looks. the ceo, as jonathan mentioned, has only been at the job in the leading role for a month, but before that he was a strategy chief he has been the cfo, has been at bayer since 1988. he has been offering the best possible deal. one of the investors we spoke as muchs this tops out as they can really pay. anything more becomes less attractive. is it going to be enough to convince monsanto? listen to what he told tom keene this morning. we are totally convinced about the attractiveness of our offer. if you look at the fact that it is a 30% -- a 37% premium over the others share price, that is a strong testimony for monsanto shareholders. it is also in line with attempted transactions.
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we are fully convinced that that is a highly attractive offer for monsanto. matt: so he was actually the boss for m&a for bayer before taking the ceo job, and he probably knows as well as you and i do that most first offers end up getting up to or dropped. usually a company will not accept of first offer, that monsanto will say that does not value was highly enough, and they will have to offer more. moree: we will bring you of our interview with warner baughman in our next hour. jon: we go live to hong kong now where enda curran stands by. great to have you with us on the program. they are not exactly explosive words between the u.s. and japan, but the fact that it was played a publicly is perhaps the
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story. enda: that is exactly right, jonathan. it is one of the starkest differences of opinion between the u.s. and japan in a number of years on foreign exchange policy. it comes down to an agreement on what kind of market conditions can justify a government to intervene in the foreign exchange market? the reason japan is making a stink over it is because the yen has risen 9% so far this year. o said overter as the weekend that he thinks the yen is one-sided and speculative. a lot of heavy industry and exporters in japan are urging the government to do something about yen strength. for their part, jacob lew said it is hard to define what is happening in the form exchange market. isthe very least, japan trying to drive currency lower it haso make clear that
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the option of going back in disagreement between the big governments, that governments can intervene when markets become disorderly. but it does not look like they will get any support from the u.s. jon: we have this fragile position at the moment. a weaker dollar is good for the likes of china and terrible for the other big economy in asia, japan. how is thisd, managed at a g-7 level, if at all? enda: exactly right. manage athat they can deal with the u.s., but the fact that it keeps making the point and keeps repeating that he thinks the trading conditions in the unr disorderly, and the fact that the fed keeps agreeing with him, shows that there could be a significant difference over time. the the potential for dollar to rally, that takes pressure off japan.
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they are not explicitly saying they are going to intervene and they are talking about fiscal stimulus in the near term. if the yen continues to be strong a number of months from now, the pressure will be on japan's government to act. jon: enda curran, great to have you on the program. one month away from the brexit vote, a new warning today. leavek., if it were to the european union -- i want to go with guy johnson for the latest. the short-term consequences of an exit from the e.u. -- it is from the u.k. treasury, and it looks ugly. guy: this is the second report we have had from the u.k. treasury through the first dealt with the long-term implications. this one deals with the next two years or let's just say the plus or minus on these numbers is fairly big. very hard to pin down exactly what will happen. but they have had a stab at it.
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they were very nervous about their numbers. they have had a few people fact check it. let's give you some of the biggest. this is what the treasury is saying. this is consistent with the aggressive project fear. we have kick this around on the radio. under a shock scenario, the u.k. -3.6.ory would be over the severe shock scenario, it would be minus six. this is where it hits badly for the british because they love their house prices. -18% on house prices. people will say that they should pay attention to that because the british like talking about house prices. diye is a warning about a recession. i'm not sure they were like a diy recession, and that is what they are warning about. that is part of the political narrative going into this brexit. it has been about extremes,
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about frightening the british people on either side of the bench on this one. jon: i understand that the self-imposed government deadline campaigning is this friday, so the project fear becomes project whom. -- project doom. what are the assumptions that this research is based on? significant is the pushback? guy: the pushback -- these easier to it is much plan for the long-term because you can make all kinds of assumptions and extrapolate over a long period. this is based on a short scenario. if the u.k. says we want to leave, some things do not change. say europe will be in a negotiating. , but people make assumptions. the assumption is that the bank of england would have to respond
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to the reaction based on those assumptions. that is very hard. the details on the distribution of outcomes absolutely matter. great to have you with us on the program. discussing brexit. if it is a diy recession, i raised the question, why did they have the referendum in the first place, if they believe the consequences are this dire? vonnie: it might offset some of the impact. jon: kind of ironic with the bank of england wanted in the first place. vonnie: i am not sure what you are suggesting. erdogan iselected its prime minister. what is a more powerful erdogan mean for turkey's economy? the transport minister is an extremely close ally of president as one -- he vowed to
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change the constitution and in effect change the constitution because the presidential system -- in effect it undercuts the prime minister's authority. presidentmething that erdogan desperately wants. over the next few days we will find out who will be in his cabinet, and investors will be watching to see if the deputy prime minister is in or out. he has the trust of investors. if he is out, this could further hurt turkish assets. this month alone, there is a iss of 6%, and this temple the worst performing equity market around the world in dollar terms. vonnie: down 16% this month. angela merkel is making her fifth trip in eight months to is vimplecom meeting erdogan. what is her goal here?
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what this you want to achieve? : she is in istanbul attending the summit. her main mission is to save the e.u. turkey refugee deal. turkey is unhappy because they say europe is dragged its feet. it also wants your to speed up delivery of the 6 billion euros in promised in the deal. but angela merkel says the tightening grip on the turkish economy and politics is problematic, and she is lifting ofbout his the immunity of kurdish lawmakers. let's get an you p update on what is making headlines outside the business world. shery ahn is here with first word news. a remote-controlled
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submarine is being sent to egyptairr the missing jet. they will try to locate the voice and data recorders, which could be almost 10,000 feet below the surface. french investigators say the plane generated automatic radio messages about smoke and the kamman -- smoke in the cabin before disappearing. iraq has launched an offensive to retake falluja. the prime minister says the iraqi forces are "approaching a moment of great victory." falluja is 40 miles west of baghdad. islamic state has controlled it for two years. president obama has ended one of the last symbols of wartime animosity between vietnam and the u.s. he lifted the embargo on weapons sales to vietnam. president obama: this will ensure that vietnam has access to what it needs to defend
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itself, and it removes a lingering vestige of the cold war and underscores the commitment of the united states for a fully normalized relationship with vietnam, including strong defense ties in this region for the long-term. shery: it is being driven by mutual concerns over china. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world, i am shery ahn. program,ng up on this two days, no consensus. talks between g7 finance ministers are marked by a growing divide between the japan and the u.s. ♪
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."is is "bloomberg
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dow futures are up by 22 points. s&p 500 futures are down by the .1 of 1%. down three quarters of 1% on the dax. there is the potential for a deal throughout the next few hours on "bloomberg ." 1.1212.lar at dollar-yen is down 7/10 of 1%. that is where i want to begin the discussion because friction between leaders from the u.s. and japan at this weekend's g7 meeting are showing a growing divide between the two countries. joining me is the asset management chief global strategist. not exactly an explosive division between the u.s. and japan, but enough to get a sense of what was happening behind closed doors. >> it heightens the concern
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people have about a lack of cooperation between the two countries. it surprised me why the u.s. is pushing japan so far, our largest ally in asia. their economy is struggling, so it is pretty tough, the stance the u.s. is taking. vonnie: are fx markets disorderly acca -- john: suddenly the yen's rapid strength after additional easing by the bank of japan was hard to understand in many ways. i think the japanese are scratching their heads about it, too. toy desperately want the yen stop strengthening and they will probably do anything to have it stop, i think. jon: we will get you a headline right here, right now. tribune publishing rejecting the proposed takeover, offering which will talks. the board says there he is no timetable for concluding those
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talks. but the headline is that tribune publishing has offered mutual talks. we will keep you updated throughout the program. to turn back to the g7, you look at the tension going forward in the fx market, and the dollar in the u.s. is between a rock and a hard place. you just wonder, is there any middle ground where you can keep the fx market happy in china and japan? john: i think there is. that keeps foreign exchange rates where they are right now, not to allow large swings. the foreign exchange rates are properly valued at the present level, and if they swung much more either way, it would be harmful to the global economy. vonnie: yet we are seeing huge moves into jgb's why is this? john: it is negative interest rate. it is hard to believe anyone would want to buy it. it does not make a lot of sense.
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negative inflation on a total basis, core inflation is still positive year on year, so it is a mystery to me why people want to jump in. some people are forced buyers. we have to realize that. vonnie: the consumption tax is going to go ahead next year the matter what the situation. is that a wise thing to be saying? john: i think it is still under consideration what will happen with that. it is important because before the dat is hiked and the economy surges to beat the hike, and then slumps afterwards, it is very important for a macro decision-making to decide whether it goes ahead or not. jon: john vail, sticking with us. was onecoming up, it year ago yesterday the dow hit a record high. but it has struggled to gain momentum since. track -- do not
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forget to stay with us for our 8:00 a.m. hour. we will be joined by steve rattner and david's herbal -- zervos.d ♪
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an: 365 days ago the dow hit all-time high, but the market little changed since. still with us is john bell. -- john vail. was about 52igh weeks ago. what does that tell you about the world? john: it tells you things are in consolidation mode, that the u.s. had a massive regrading -- a massive rerating and it is struggling to get above that. especially with the oil price decline and the strong dollar. the markets are getting accustomed to that, and it
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seemed like friday was a big day where people are increasingly ,ricing in a june or july hike yet the stock went up anyway. it is a pretty strong indicator. vonnie: it does feel like the bond market is hanging on the fed's every word, but the equities market is the verge. it does not seem to be as fed driven as it used to be. john: i think everybody is concerned about what the fed will do, and maybe the stock market is sort of hiding it or discounted that. it is hard to know exactly what the stock market is thinking, but the bond market is also reacting to global bond yields, and the fact that mobile bond yields are pinned very low by central-bank actions in japan and europe exhibit difference for the europe bond market. jon: if i rewind back to january and february, it was not just the fed but china in there, too. do you think the market, the sweet spot, is the one to two kind of thing?
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john: i think stock market investors are. i think the stock market can handle that, and it is a sign that the economy, the fed has confidence in the economy. in the end, it is corporate earnings that drive the stock market and not bond yields. for them to start rising -- people are expecting them to -- for them to start rising like people expect them to, that is a powerful thing. bowls,e are not massive not massive there's we are positive about japan, but the u.s. should do fine, especially what you can do with a bank deposit. why are you positive on japan versus the u.s.? john: the yen, japanese earnings are following a bit, but generally it is a very -- are falling a bit. the p/e ratio is well below that in the states. it is still a very competitive economy globally, and corporate
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profit margins are at record highs but we still think abenomics has room to grow, and there will be further reforms. jon: 16 times forward earnings? is that just the intro? john: i thought we had 14.5 or 15. some people are more cautious on earnings than we are. jon: john vail, great to have you on the program. bayer has made an unsolicited $62 billion all cash out offer for monsanto, making it potentially the biggest takeover ever by a german company. we spoke with the ceo right here. we will bring you that interview next. ♪
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julie:on:
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jon: this is a snapshot of the market. 62 billion dollar offer for monsanto. there is an equity share sale in there and the stock has been weighted heavily. also the japanese yen is much stronger. of g-seven heels division. the japanese yen strength is potentially disorderly. on this map is wti down by one percentage point. the brent contract is lower and the state oil company of iran is in the headlines saying they want no part in and out put free deal. vonnie: we are about two hours away from the opening bell on
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wall street. er's offering $62 billion to buy man sent a witches leaving investor concern that it's stretching its finances. we will bring you an interview with the ceo in a few minutes. tribune publishing is rejecting the takeover by gannett. also receiving a $70.5 million capital investment from nanca capital. a warning from the u.k. treasury the says the u.k. faces a year-long recession if it leaves the european union. let's go to first word news. sherry: lawmakers in greece have cleared more loans. there are calling for higher taxes in the sale of ad loans to distressed funds. that's one of the last things
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greece has to do to unlock the next round of loans from the european daylight. the u.s. drone flight killed the leader of the tele-band. president obama killed -- called the killing an important milestone in the effort to bring these and posterity to that peace and prosperity to afghanistan. congress are warning there could be a shakeup at the tsa of something is not done about the long airport lines. adam says and edward royce says there may be need for management changes at the agencies. it's taking 90 minutes or more to get through security at u.s. airports. jon: bayer's deal could be the
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biggest deal ever for a german company comes less than one month after the new ceo has been on the job. talked to us earlier and is convinced the deal is value creating. >> we see that this is a great opportunity to drive our science and innovation business model going forward. convinced thath this is a value proposition for the monsanto shareholders and where also convinced and committed to this action. it's said this will take your debt out to 40 billion euros and investors do not see return on capital doing better than cost of capital on till 2023. can your shareholders wait for return that goes out
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five or six years? is a matter of fact, in the first year after closing the transaction, we see doubled digits earnings per share and with it the ability to pay a higher dividend to our shareholders. starting from the second year, this will be a double-digit increase roughly. that will be over and above our standalone. return on capital after the third year will not go that far out. we will be earning the cost of capital and the premium thereafter. rapidactually a fairly value creating proposition. that's why we are convinced about this. monsanto rejects your
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offer, are you ready or do you have a capacity to increase the offer? we are totally convinced about the attractiveness of the offer. premium above the unaffected share price as of may 9, that's a strong testimony to the value proposition for monsanto shareholders. it's also in line with some of the transactions we have had in the past and we are convinced that is a highly attractive offer for monsanto and their shareholder proposition. cine: is this your final offer? >> it's the best and strongest offer. where waiting for the response of the board of directors from monsanto. jon: tom keene is joining us straight from radio. it was a breath of fresh air to see a ceo actually speak
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in english and answer the questions. he was completely correct that a creative transaction with immediately double-digit profits from the start. do better than all the money spent? it's sobering and it speaks to how rich the deal is and how 1980's this deal is. the assumption that monsanto will hold out for a higher price is there. critically, it says all cash but it's how they raise the cash. they have to do a cash call with shareholders and i believe the stock is down 15% since the peak of may 12. jon: you can see it on the screen. investorsiled down as are pricing in that potential sale. you can look at the debt and the debt market has reacted.
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it still trades on 90%. the debt market opens this deal. whati have no fault with the ceo said. the idea that they can put together a deal, i believe they have free money. do they get a negative yield on this? if they go through short-term paper to raise 25% of this deal, will they be issued negative yield aper? i don't know. the effective yield on that was around 2.5%. that's the bond market that is open for business. the ecb supporting this act tivoli? back tois better goes every transaction including in the united states. deal.ot a dublin like tax it goes back to the idea that there is week nominal gdp and here is a new ceo and we have to row, how do you do that much of my you by monsanto.
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jon: the big report in the financial world friday was the moody's report for non-financial u.s. companies of about $1 trillion. tom: i would suggest that there is a bet by elite corporations like bayer and monsanto that we will not get a boy and gdp. buoyant and gdp -- a gdp. jon: it's a fascinating story, thank you. tune in to bloomberg radio. tom: my bowtie today is the same as vonnie's look.
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vonnie: we seem to be sinking up together. coming up, oil is lower for a fourth day as producers in canada resume operations and they boost exports. is this the end of the oil rally? we will discuss that next. ♪
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vonnie: this is "bloomberg ." up, steve ratner will join us.
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time for the bloomberg business flash. erry: there is an order from 100 jets. is moree of the deal than $11 billion. was timed to coincide with president obama's visit to vietnam. the st. louis fed president says there are signs the s. economy is growing below the trend pace of 2% per year. he spoke in beijing today and said inflation expectations remain low and he praised the performance of the job market. the u.s. labor market is very strong so this is a definite fact are in favor of the fomc view that we would have a gradual normalization of the u.s. interest rates. he also said there are
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fewer international influences on the u.s. economy. was tops birds movie of the box office in north america over the weekend. it's based on game and it took in $30 million. in second place was disney's captain america: civil war. your bloomberg business flash. vonnie: thank you. the talk that opec will reach oil supply is becoming increasingly unlikely as iran shuns talks and they will resume production. joining us now is vincent piazza. >> good morning. vonnie: it has been a relief in the last few weeks. many constituents, how sustainable is the rally? >> you had optimism off of the
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lows in the first quarter based on the dream of this frees. it did not materialize but you had other factors. off-line,nada come you have the ongoing issues and some of the other opec countries like olivia. -- like libya. it gave ansitory but little lift to the market. we come into this meeting in june and the issues remain the same. there is no incentive for a freeze if you are iran. there is no incentive to agree to a freeze. . pre-sanctions, you were running roughly four million barrels per day and now you are at 3.5. you want to see the output rise before iran comes to the table. this is not just petroleum economics. this is a battle within opec itself for influence, geographic influence. shia so there are
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so many other dynamics involved. vonnie: what about longer-term? but where is the incremental demand for the barrel coming from? from yourng traditional partners? is it coming from asia? not so much. the developed world is having its own struggles. where will it come from? in the beginning of the year, we're running roughly almost 2 million barrels oversupplied. because of this, closer to one million barrels but these are transitory issues. it's the optimism from the bottom inspired by this thought of a freeze and that has not materialized. if you think about what we heard from u.s. operators on q1 conference calls, there is more optimism in their voices if that heads above $50 per barrel. jon: the conversation has
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transformed. we were talking about reaching storage capacity. someone said that maybe they are directly related and you may have no choice but to shut down production. >> i think we are past the issue of storage capacity. the inventory balances are quite elevated across the petroleum value change but now we are heading into the summer drive season. you could see some relief and you will likely see a draw from storage balance is going forward getting into june and the rest of the summer. barrelsissue of these coming off-line or more transitory. where is the marginal harrell of demand coming from? why are people surprised by the inventory drawdown? issue is that you had
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some very good demand on gasoline throughout this winter. it has been a mild winter so you saw some incremental demand. that demand, if you take a look at storage across the value chain, you are still very much elevated. crude oil is roughly 33% above the average. to chopl have some wood but there are transitory issues like fire up north and nigeria provide some balance to wti and brent. the calls are being raised today. they think we will see $60 per barrel so what is causing goldman sachs to say that? >> they perhaps are looking at the supply issues for longer dated project. ,hose projects may be delayed
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pushed out or may not come to market. in the u.s. market, you have a mass amount of just-in-time inventory which is shorter cycle which can be reintroduced into the marketplace. we did a study recently on the amount of drilled that uncompleted wells. wells in that capacity could come online quickly, more quickly than a conventional development. we could see that incremental output come online getting closer to $60 per barrel. down 1.5%,ex is thank you for being with us. jon: looking at the markets, it down in europe and stable in the u.s. let's get to the movers with abigail doolittle. >> we are looking at a big rally in the greek banks. after passed a new austerity package which has
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sent the tenure greek bond yield down to six month lows. after the great banks, they will likely have to raise less capital. this comes after big down trends over the last several months. the european suppliers to apple, we see a big rally their. semiconductors are holding on a report saying that apple has asked its suppliers to prepare or the production of up to 78 million iphone 7 units which is above the estimate of 75 million. sending theis suppliers higher but apple as well. apple is on a bullish tear. it was up more than 5% last week area its first up move in more than five weeks so it's a nice
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move higher for apple on the week. vonnie: thank you. up, the recession calendar for 28 teen and we will tell you -- for 2018. : looking at the markets, stocks in europe. futures are up five points on the dow. yields are a little bit lower. dollar, there is a stronger japanese yen. ♪
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vonnie: you're watching "bloomberg ." andune publishing is down
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investors are not liking that it's rejecting very offer from gannett. noticed that tribune has received a $70.5 million infusion from nance capital. it represents about a $15 per share for the amount of shares he is buying. he will become the largest shareholder in tribune and investors don't like the developments this morning. time for off the charts. the u.s. economy will lay the groundwork for higher prices for at least the next two years according to tony dwyer. abigail doolittle is here to walk us through it. >> this is a bold call. he is making to calls within this one. he says the u.s. economy will stay out of a recession until 2018 and this will send the s&p 500 higher for the next year.
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as for the out of recession part of the call, he bases it on the fact that we have three indexes trading near subzero. he thinks this suggests we have stable financial conditions and will stay out of a recession. he says the s&p 500 is likely to climb higher by 14% through the end of next year which is a bold call considering that over the last year and a half, the s&p 500 is six points from where was at the end of 2014 so the s&p 500 has done nothing but he says it will do quite a bit into and of next year. chart is really showing the absence of negatives according to tony dwyer. what would be some of the positives? if we take a look at another chart of economic surprises, we
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see this is a pretty positive charge. it shows the reading is closing in on zero which suggests the economy is relatively strong. it also shows economist and strategist after having been wildly off in terms of their economic forecast are getting closer to polling more accurately. . the fact that he is basing his readings off of the other economic readings may suggest his accuracy. . there is also the fact that the s&p 500 has rallied huge each of the postelection years. in 2009, it rallied by 23% and after the next election. vonnie: i'm not completely convinced but there are convincing parts to that argument. thank you so much.
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nextlooking forward to the and asteve rat mayor chief market strategist and nonfinancial companies are sitting on a record cash pile and apple remains the cash king. how do you get them to spend that cash? that is the conversation next on "bloomberg ." futures in the united states are largely stable. andds are little bit lower dollar-yen, the yen is higher. ♪
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jon: global bond yields are rising in me look ahead to week four of fed speak. keeps its crown as
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the cash king as u.s. company said on a record pile of $1.7 trillion. jon: potentially the biggest german takeover ever with concerns that bayer may be stretching its finances. to our viewers worldwide, a very warm welcome. have been telling you that we have a huge 8:00 a.m. hour. let's take a quick look at the markets. stabletures are likely with s&p 500 futures pretty much flat. bayer is thewn and biggest loser on that index.
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stable butllar is there is a stronger japanese yen. the yields are a little bit lower on the 10 year. basis point. one crude oil is softer. a global bond rally is coming to a halt as investors prepare for the federal reserve to potentially act on rates may be as soon as june. jim bullard spoke in beijing earlier. >> the u.s. labor market looks very strong. fact ares a definite in favor of the fomc view that you would have a gradual normalization of the u.s. interest rates. looked like an interesting seminar. janet yellen will be speaking
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twice over the next couple of weeks. let's bring in a chief market strategist. welcome to the program. the bond market recalibrate's expectation for moving jan. does it change things around the world? >> a little bit in that market was saying there would not the a move even though the fed even before last week has been signaling there would be a move. in my world, i don't think 1/4 of a point move in june or july or any other time as a game changer. i think we are expecting normalization of rates at some point. i am not sure it should be right this minute but it's not the end of the world that is. vonnie: it would not be a game changer for the u.s. economy but it could potentially be a game changer for another economy. inwe have gone through this august leading into a potential september rate hike.
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we got that and we got the reaction in january. we have seen this concept of international headwinds being used to push back on the fed's plans. we did not really know how big these were but it turns out that as the chinese decide to move away from the peg, it gets pretty messy. i think that's what we learned in the last 6-8 months and i think the fed is doing what it's supposed to be doing. they say rate should be doing -- going higher. they say if we mess things up or other people, they will probably pull back. jon: this has been depicted as a tug-of-war between the market and the federal reserve. >> i think it's a little simplified in the sense that i don't think market full the -- pulls the fed back. the market had a view that it
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would be potentially zero rate increases. really do believe that the fed is data dependent. as the facts unfold, it will adjust. the fed has been consistently wrong about the pace of u.s. growth and the need for tightening. at this point, they seem focused on increased this year without the help of the market. vonnie: is it fair to say that china might be holding back the federal reserve? we have seen fed officials mention emerging markets. at the same time, china is doing a fairly good job in managing its currency and peg. >> i think china is doing a fairly good job being that they don't have a lot of history and managing markets but the fed made clear last year that at
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certain times, and i don't think is one of them, they will look at what's going on in the rest of the world particularly in emerging markets. the fed has gotten a huge amount for affecting emerging markets. when you see all these statements of whether his june or july, the they are clearly focused on normalization. growth beingut gdp predicted at 2.5%. the forecast keep getting lower. is this the new normal of low rates and low growth? >> since 2010, we have been growing at 2.25% in that region every year so this is nothing new. we have week first quarters and then get a bounce back. i just don't think the data matters hill of beans of the moment. will a tightening lead to a
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sparked byt is global financial conditions? that's the only thing that matters. the rest of it is a relevant. we looked at a fed that was ready to tighten last year. have we learned in the last five months that the fed is the number one policymaker and it does not matter what the ecb or doj does? >> it matters a lot. work to weaken their currency. that dollar strength that came with that contributed to the angst in china and led to the d valuation in august. the dollar is the focus. the ability of the chinese to
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take monetary policy decisions into their own hands for the first time in 20 years and figure out how to deal with their debt issues and economy without to give backing u.s. monetary policy is the number one problem today. if the fed did not care of all about the international financial conditions issue, how can you explain a fed funds rate below 50 basis points, of course he be i above 2% and unemployment rate at 5%? all the goals have been met toqe worked. i'm not sure it's quite that simple. they're still has been very modest wage growth. wage growth is the key to all of this oath to ensure continuing economic recovery and the goal of any policy makers who have people be better off. the fed has been waiting because
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until recently, those conditions have not been met. i think you are overstating and overestimating the extent to which china or any other part of the world plays into the fed thinking. it's a piece of the thinking but i don't think it is the majority of the thinking. vonnie: you are on the sidelines when it comes to a june increase. what is your call? drops 5-7%,p 500 they probably will. i don't pay attention to that. i think the fed is looking at the state of the real economy and where we are in the trade-off between wage growth and inflation. until recently, it has come down reasonably hard. i think it's focused on normalization. does the first quarter
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matter? >> we took out three rate hikes. we were saying that in december. went dovish and took the market with her and probably went too far and here we sit. is it investors that the fed is worried about? >> and includes a lot about the global economy. it's somewhat of a sufficient statistic to describe what the fed is looking at. it's not that they are targeting equities but the information in the equity prices is important to the fed in their decision-making. there is a subtle difference between what we are saying. i think the international financial conditions, the tightening that can come from a strengthening in the dollar that happened last year and the beginning of this year and
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happened with emerging markets is something the fed is fearful of. it is playing and unduly large role in the determination of policy. without the international financial condition worries, you why 2% inflation and 5% unemployment yields a higher fund -- fed fund rate >> # >>i would respectfully disagree. if you expect the view about secular stagnation and the fact we are in a world that we can talk about where it takes unnaturally low interest rates to maintain a relatively low rate of growth, than the 37 basis points does not become so bizarre. >> that's a big stretch for me. jon: we will continue this conversation. they will stick with us. up next, a record amount of cash is sitting on corporate alan sheets in the u.s.
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it might not be enough and why cash may not be king to some u.s. companies. ♪
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vonnie: this is "bloomberg ." an exciting hour with our guestss. u.s. are in the holding on to $1.6 trillion in cash at the end of last year according to a moody's report. our guest are still with us. record cash and balance sheets with deal after deal and you say the fed is worried about the equity investor but what happens to all the cash?
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lasts been a story for the six or seven years that investment has been week. we see consumption really one of the major drivers and the week investment is light -- has business is not as likely to put money into anything specific. as we head into the election season, i don't think much will change as people figure out what the next steps are there. everyone runs away when the moody's report drops. the u.s. technology companies are sitting on all this cash. we put the debt column next to it. the debt maturing in five years, that climbs to -- what's the story there? >> it's pretty straightforward -- the cash is trapped offshore so the companies like apple and others are are a wing in order to buy back their own stock and not pay the tax on repatriating the cash.
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it's a not right place for the country tobe street firmsll will make money and life will go on so it's not the biggest problem we face at the moment. vonnie: let me get your thoughts on the election season. it depends on the policies that get put in place of any change. what do you see happening in november? >> i think it is more likely than not that mrs. clinton will win. the polls show the rice -- race being tight, when you think about the fact of the earth a substantial number of reap publicans -- of republicans who will not yet behind donald trump , it seems very hard for him to recover from a lot of that vonnie: you vonnie: if it is a
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clinton administration, will we see much change? a clinton administration, we probably don't see a ton of change. the big variable would be the fed and trade policy. that's what i would focus on. that pushes away everything related to all the social side of the equation. trump brings us a more volatile world in the financial markets for a variety of reasons. you may disagree with that but i think he would add some pretty spicy mornings to the bloomberg go show. you guys will be in serious business in november. vonnie: i think you are saying we should be grateful. >> regardless of who was president, it will be a big push for some tax reform.
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whether they can pull it together, it's complicated. clearly, tax reform is at the top of most people's agendas. yer's offering $62 billion to buy man cento. this says -- of mock to buy man's -- to buy man cento -- monsanto. busy jeff now is a mccracken. equity market is reacting as the stock is trading lower and the bond market is trading -- is reacting. >> they have about 20 billion dollars of debt on the balance sheet and this would take them to $40 billion. to be honest, everyone we talked to on the mind cento side -- on thisonsanto side said
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would have to be an all cash offer. it will need 2-d value the company in the range of $55 billion or higher. billion if you include that. this is roughly what monsanto would have wanted. they may say no because that's how you do a negotiation. then you begin again a few days later. bayer is pushing their balance sheet but they have known they would have to do that. a common case of eat or be eaten and monsanto bigger deal.o a basf must buyr or monsanto. they were trying to buy synge nto.
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jon: you look at the offer with a 30% premium. 101.52 in the premarket but nowhere near the offer. regulators stop a deal from happening. do you expect that to continue? he nine antitrust enforcement, there change in mood in washington about the fact that there has been an enormous amount of consolidation in a number of industries which has led to a reduction of competition and is not protect really consumer friendly. i'm not an expert in the seed business. i don't know whether this deal would be in line. vonnie: that's what we heard earlier.
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aren't we seeing more cross-border deals with currencies the way they are? i think we have seen a lot of them and there are being done for tax reasons. they got squashed by the administration. i don't know enough about this deal. is there a tax arbitrage here? >> from a regulatory standpoint, there'll be developed to teachers and you might see more of that from the eu than the united states. the last two years, it has got more difficult to get these big deal done. there are couple of health insurance deals out there that make it locked by regulators going forward but i don't think the regulators would necessarily perth that.
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we had a story saying if you go atan that's how people perceive them. the debt has moved against the company but it is not exactly fallen out of that. it goes to show that the debt market is still very much open if you hold that investment grade. >> the european credit markets have been changing your mattock since the ecb decided to buy investment grade corporate's. saying thate bayer the doors open for us to do something. onknow the ecb will buy our celebs lever the balance sheet area this may be one of the first time that ecb policy to spark animal spirits are working.
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the european credit markets have been fantastic this year. i think he will see strong outperformance of european reddit going into these investment grade bonds this summer. jon: great to have you with us. final thoughts with our gas -- our guests is coming up. ♪
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>> the ecb is the big headline and europe is still a mess. all eyes will still be on mario draghi to see what he is prepared to do to get europe to grow at a reasonable pace. vonnie: what is the top of mind for you? what is your biggest concern? >> the election of donald trump, does that count. we heard david saying we will get more volatility. >> it would be good for you guys but i'm not sure it would be good for america or the rest of the world. we have an election of enormous concert whence. the one thing this year that will change the world for all of this is the election. what do you think about
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the fact that he could win question mark >> he has support among white middle-aged working man because they have gotten the stick even during this recovery. when you have a large group of americans who see no increase in their pay after adjustment for inflation, you get a lot of discontent. you see this in europe and different countries. jon: great to have you with us. david is sticking around but steve ratner, thank you so much. the it advisers is investment advisor for michael bloomberg. we'll talk about the u.s. economy and the data in the coming weeks.
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okay, ready? whoa! [ explosion ] nothing should get in the way of the things you love. ♪ get america's fastest internet. only from xfinity. "on: this is "bloomberg , let's get a snapshot of the market. it's a soft session in europe. withiggest loser is bayer
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a $62 billion all cash offer for monsanto. it will be an equity issue and that's why you see bayer the biggest loser. there was disagreement over the move of dollar-yen at the g7 meeting. the yen is stronger. in the commodity market, brent and wti are trading lower. the iranian state oil company showed no desire to take part in any oil output freeze. this is one week ahead of opec. what a week we have coming up. iraq has launched an
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offensive to retake the city of falluja. the iraqi forces are approaching a moment of great victory. it's 40 miles west of bag dad. virtual dead heat in the austrian election. absentee balance will determine who the winner will be. some austrian presidents have played a ceremonial role. the polls are showing donald trump leading hillary clinton for the first time. 13% of the voters are undecided. let's get to today's
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morning meeting where we hear what he banks are looking at. new numbers are out for april isre it a continued gain expected. april housing starts rose but they did not break out of the narrow range for a good part of this past year. david is still with us. we also want to welcome michelle meyer. the labor market story looks good and inflation has an upright's -- upside surprise and housing a strong? >> i think it continues. it has been a slow recovery but it is one that is ongoing. hadhousing starts report we last week shows continued momentum. the home sales data this week should show some further advancement. think choppy trend but we it will continue to increase. vonnie: it's not absolute
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improvement across the board and homebuilders have had problems. wethat's exactly right, continuously get reminded that this is not a normal recovery and it's not a strong and fast recovery in the housing market. it's one of fits and starts. depending on overall confidence and interest rates and the amount of financing, you will see some fluctuation. goese: if the fed indeed by 25 basis points in june, what happens to the housing market? will it be less of a component of the recovery? >> i doubt it, i think 25 basis points, even if they were to go, the long end of the yield curve stays intact and we could see the longest rates even rally because the market is at loggerheads with the fed. what tends to happen in those scenarios is the market starts to flatten out the curve and start betting on the fed making
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a mistake in going too far. the market is being dragged along for this one. i don't think it affects the housing market. it's a market betting on the federal reserve they presume is making a mistake. >> you actually have a and aning of the curve indication of a policy mistake is not what the fed wants to deliver. if it's true, it means the will threaten to abort so that would be a bad scenario. if that were the market reaction, you would hope it would be temporary. you would have inflation pickup and economic growth pickup. market itshousing positive but the overall sentiment, it would be negative area we have seen a lot of flattening recently. dhe latest move when the fe
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pivoted took a lot of people by surprise. my guess is that the market will fight this idea that it's the right thing to do until we see data that confirms it. >> it seems like it give and take between what the market is communicated compared to the data and what the fed wants. it's a constant circle. jon: we look at the treasury curve and it used to tell us much about the domestic economy. there is a massive reach for yield. >> i think every recession has been preceded by a big flattening in the yield curve in the next recession probably will be as well. i don't think there is any doubt about that. we are getting flatter. the risk that something on a policy mistake front is higher than oh was before. i don't think the fed will really get aggressive on anybody. they are testing the waters.
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policyalked about, their looks optically really silly. inflation,ment, 2% and a 37 basis fed funds rate. the old world of a 4% fed funds rate, let's not get down to 2% and they it's significantly below the long run. we are still at 37 basis points on that looks pretty good. we made a lot of joys just jobs and we have good interest rates. worlde seem to be in a , after aof america report, bank of america throws the tell him on a june fed funds rate. >> it was not just in response
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to the jobs number. it was a combination of events that made it harder for the fed to hike in june. after we pulled the june hi, would they go in july or wait until september and that's a close call. that theyne is still will hike in september but after the recent conversation from fed officials, i think july is a real possibility. it's a data dependent and dependent on the markets and the headwinds that could potentially develop between now and the summer. when you take a step back and look at the economic indicators, yes, the fed can go. the challenge is that they are still constrained by the zero interest rate policy and still dealing with asymmetric risks so they have to become innocent of it. vonnie: when it comes to housing, what is the top challenge?
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things will not get easier for would-be borrowers. is that still the same issue? >> it's a combination of everything. it's not all level of interest rates, it's the availability of credit which has been constraining. there are some constraints in terms of the amount of new construction we see whether it's builders complaining they cannot get skilled labor or availability of lots. nature ofk averse homebuilders after the crisis. 25: i hear continually that aces points does not matter. it looks like 25 basis points mattered in the first quarter. does not matter for the interest rate component. it matters a lot for the currency markets and international headwinds that the fed has been fighting since late last summer.
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i don't think the data matters. the data are not the point. the point is what will happen toward afed pivoting more hawkish stance and what will that imply for the dollar and what will that imply for the equity markets? remt causes dollar cny the the dollar to move up and sparks another move up by january, the fed will back down again. i think they are correctly testing the waters to get back to something that looks more normal. the optics look terrible. i think the fed is trying to do everything to avoid tantrums. they are doing a lot through communication. i think the markets are learning.
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it's also for the fed. they saw what happened with the per tantrum. it's hard to say that or not be another one but they are working hard to avoid it. has peoplercny concerned. what is the issue in the fx market? >> after the minutes, we saw a and then, almost 62 they brought it debt -- 652 and then they wrote it back down. is that the chinese backing away? i don't know. the give and take is clearly there. we have written about the concept of detente in the currency wars.
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i think people have turned it into the shanghai accord. , there it's real or not is a comfortable policy today for everybody that is fighting dollar strength. unfortunately, the fed does not want dollars trying but it has an optical problem and a policy problem that things look like they are being overstimulated with the current level of monetary policy and the level of their targets on inflation and unemployment. janet would love nothing more to .ave a 1.5-2% fund rate is a insked my guest london about knowing the out, one commodity, what would it the? most of them chose the oil contracts. that's it.ike it's
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>> for me, it's a combination of rate.llar- remembyi for many decades, they have done a lot behind the scenes. this is an age-old story. if you ask me what's the most important variable, for me it's the dollar. it would help you figure out the oil market pretty well. jon: and maybe the s&p 500. >> and donald trump. jon: thank you both so much. vonnie: coming up, are the cracks starting to show in this bull market?
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investors don't have their savor -- their favorite safety nets. we will talk up of the impact next. ♪
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vonnie: you are watching "bloomberg ." coming up in the top of the hour, the oppenheimer funds chief investment officer will join us for the entire hour. 2015 set records for dealmaking but momentum this era showing little signs of picking up which means a decline in the stock prices that investors have counted on from corporate transactions.
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-- just to throw some drama, the monsanto deal, does it change your story? >> only from the sense that a stories, you m& should not do them on mondays. there is an 8% move in monsanto which will add a fair amount of value to the equity markets. thirds really about the tell that has been helpful to the stock market. i'm talking about three shareholder friendly at act 70's. they have had a big impact on the market and they probably will going forward. what we are starting to see is some of these things slow down a little bit which might be because of market volatility or companies becoming tighter with their cash. it's not clear but it's
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interesting because you've got fewer deals this year and the premiums are about the same but in terms of how it helps stocks, it boosts prices so it's hard to gauge the entire share price. figureed at this one which is to what degree do the target company stocks pop overnight or the day after a deal is announced. last year, though single days of trading added 200 alien dollars in equity value to the stock market. billion in equity value to the stock market. start seeingdo we organic revenue growth? >> it's tricky, the cycle has not been easy. the investment side of the equation has been lacking and the consumer is there but not in the biggest ways. growth,we are seeing wage growth which is not massive
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but it's there. growth and justin for inflation is pretty consistent with what it has been a previous cycles. its nominal and just the idea we have had slightly subdued price pressure since the crisis with a sluggish return to getting the cbi back to its 2% level even though it is finally there. the next leg up in the start -- in the stock market is tricky. it's more organic and it becomes much harder to predict when you will get the next innovation or the next supply-side story that drives equity prices whether it's biotech or communications or energy. 1990's-stylend of move your looking for. most of what we got off the lows for the last seven years has been central bank driven animal spirits.
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paying -- an a good good ring but that's probably leg which becomes you to predict area jon: identify the three pillars which are not organic growth. is it the most hated bull market ever? to some degree, if you take this year until a couple of weeks ago, there was a lot of money leaving the market through hedge funds and institutional's and retail investors. doing supply and demand but people injecting demand were the corporations. these sorts of activities put a floor under stocks than they do. it helps stocks get to where we
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are now. from here going forward, the reason we keep bouncing off the 1850 level is because these companies will provide the source of demand.in order to take market up to new highs, you will have to see growth. it's showing signs of faltering because it comes at it time when quarters of4 contracting profits. not what you want to see. vonnie: why haven't hedge funds have had a better time of this? >> i would say its saturation because they are all in the same trade. chinais overcapacity in and a lot of different areas. there is overcapacity and hedge funds. they all got stuffed in the beginning of the year. they have had a rough time the last couple of years. -- all thanks to oliver. -- a special thanks to oliver.
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david will stay with us. where our u.k. investors putting their money ahead of the referendum? that is next. ♪
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it'smberg vonnie: time for battle of the charts. we have an old lady battle. all lady battle. it's very exciting. take it away. we are exactly what month away from the u.k. vote on whether to remain in the eu. a warning from the u.k. treasury about a year-long recession in the event of brexit. we talked about how the pound is one of the worst performing currencies against the dollar this year but how much do equity investors care?
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lot chart suggests a because they are piling into contracts protecting against price swings. the volume of trading each day this month through the end of last week hit the most in six years. you can see the spike at the end of the chart and you can see how far back you have to go. it's against -- it's about hedging against futures. it shows the global fund managers allocation to u.k. equities have fallen for the most since 2008. thestors consider brexit biggest risk. ftse is one of the best performers which suggests investors think it may not stay that way. vonnie: thank you. that's a great chart. >> we have had some much
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volatility with the yen this year, thought would be interesting to look at what's going on. the dollar-yen has dropped 9% this year after shooting up a phenomenal 60% from the start of in 2012. some are using the yen as a funding currency for riskier assets and the yen is carrying along with the s&p 500 and the nikkei. now that we have this diversions between the s&p 500 and the yen, what is ahead for u.s. stocks? the answer could be in the nikkei which has dropped down with the yen. it will be interesting to see whether the s&p 500 can continue to stay flat or trade higher even as the yen goes down. vonnie: i will give you the wind just for that. zervos?id
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color on the abigail's chart. jon: i am the deciding vote. >> i am concerned about the brexit debate but not concerned about the u.k. people are getting concerned about the entire euro project and it's one of your most beloved subject. vonnie: we have to say thank you both are it we have to go. ♪
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jon: this is bloomberg . 30 minutes away from the market open. futures in the united dates stable. in europe, losses.
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they had line, buyer. market, a bad dollar yen. japanese yen strength, you see it on the board. up 6/10 of 1%. cruderkets in focus with down by 1.8%. this is bloomberg . we are counting you down to the open. a little under 30 minutes away from the opening bell. i am jonathan ferro, alongside vonnie quinn. much is moving. green on the screens, read on the screen, depending on where you are looking. let's get tab the gals zoo little. abigail zoo to
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little. >> a stock is up. the deal here is going to buy american capital management for $3.4 billion. 1495 in cash and stock deal. exclude mortgage getty sayinga demand forgrowing capital buyers and this has created a need for flexible lending. management is the number two shareholder in american capital and strongly suggest it is supportive of this deal. another two stocks moving this morning, anthem and cigna. cigna down about 3%. a deal between these companies is july lie 20 worth --
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24 of last year. there is bickering ahead of an antitrust review. accusing the other of violating the agreement. ans is not helpful in environment where we have seen deals not go through, most notably pfizer and allergan. whatll have to see happens. lastly, tribune publishing has rejected a $15 per share from gannett, saying the takeover offer is inadequate. justin dearborn says they stand ready to work with gannett whether or not there is a pathway to create more value for all involved. vonnie: time for the three stories that matter. three stories we are following ahead of the opening, buyers bid form on shantou. for months and
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to. -- for monsanto. 'svestors are wary as monsanto shares are trading lower than the offer. m&a, something we could have anticipated? >> it shows the challenges. if they want to grow, they will have to acquire companies that can grow faster and commodities, tied to nominal gdp growth. bayer is doing. is the reason the
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regulation? the sensitivity of the agency? it is a large transaction. offeray have to raise the significantly higher than where it is now. john says it is an all cash deal. if i look at the debt, the debt trades lower. >> i think the dell deal proved that. as long as we can make a good, credible case that the entity has a bit of value. as long as it is not a leveraging transaction.
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we have david saying the fed is concerned with the s&p and its level. what is your case? itthey are trying to have both ways. they don't want the markets to run away at the same time. market goes up, but meaningfully, they go back into it. a significant pullback, they will probably give up. markets are expecting those types of moves. volatility in the future is going to be lower than what we had in the first three months of the year. jon: the number two story is friction. financeering of the
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chief in japan highlighting a risk between the host country and the u.s. over growing currency concerns, specifically about a stronger yen. the politicians can have this divide and make noise on either side. monetary policy speaks for itself. you see the dollar pushed hard against by the yen and the euro. >> the fed has backed off, but it is on better footing. the data is looking ok. the dollar has not appreciated to the level it had last time around. if that persists, they have are him. if it does not, dollar strengthens in a big way, that and they should not do anything, but they are going to do something and that is more like the july or september.
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vonnie: why shouldn't they? approaching the 2% target. >> cyclical conditions in the u.s. was never an issue. theave been here since middle of last year. that is not with the driver is. the driver is what would be the impact of that at the dollar level and growth on a worldwide basis and how would the economy react to that. that reaction is going to be negative. if the dollar strengthens meaningfully. the impact of that is going to be more than just the impact on domesticnal, the u.s. economy, where capex is fragile, we will slow down. risky move.
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they are at a better place this around than last year. john's is the risk? >> the trick is to prove this is not a sustained rate rise. if we talked about a sustained rate rise, there is a difference between where the fed is and where the markets are. if it tried to prove to the market that 2017 and 2018 is where they are going to be, we will have a problem. out in due it work time as opposed to talk like stanley fischer, four tightening's in the works, we will be at a better place and a less a volatile market. our third story, the
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u.k. treasury warned of a recession. that is should britain leave the european union. and gdp couldlost decrease by 3.6% and what could be a year-long recession. not sure on what your thoughts are on break as it -- on brexit. >> i think the markets have moved beyond brexit. result, not a significant amount of meaningful slowdown in the u.k. or a meaningful impact on the markets. t is a good story. if you are a politician, it scares you. matter, things have moved on. month looked out one
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implied volatility. it captures the referendum today. higher.it pop some people are concerned. they want the downside protection. has the risk really receded? >> the probability is not zero, but it is lower than what it used to be. that is what i mean that they had markets that moved on already. it would help trade, but it will weekend when other things are happening. trade is only one component of the u.s. economy. consumption, things like that, things will slow down. what if there is a narrow vote and the vote remain stays. does the risk received giving how fragmented politics are currently? vote will keep the
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issue alive, perhaps not in the u.k., but on a global basis for longer than we would like. vote, ifve a narrow the greek negotiations don't go well, people will imply some -- somethe ability probability of the euro breaking up again. vonnie: thank you. here is a check of other stories making headlines. confirmed age drone strike killed the leader of the taliban and. it is an important milestone in an effort to bring peace and prosperity to afghanistan. his death is the most significant assassination in the 15 year war.
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iraq has launched an official of -- has launched an offensive to take a city. they are approaching a moment of great victory. the city is a 40 miles west of baghdad. islamic state has controlled it for about two years. president obama has closed his book on wartime animosity --.een was driven by mutual concern over china's influence. global news powered by our bureaussts in our news around the world. jon: thank you. coming up, drama surrounding viacom has taken another surprising term. futures a little bit negative in the united states.
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jon: good day to you from new york. 15 minutes away from the cache open. futures lower. the market board, futures are flat in the u.s.. trading lower throughout much of the session. european equities down. ae ftse 100 off by about third. , worst week for treasuries since november 2015. largely stable now. the focus shifts to china. concern and -- investor concern
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over debt levels there. an anonymous voice in china people's daily, referred to as an authoritative person. the rumor on his identity. here for more, the ceo of oppenheimer funds. aboutre raising concerns debt fueled growth. credit growth and the data stabilize because of it. are you saying they're going to throw the towel in on it? >> absolutely not. the chinese economy is going to -- with the person was getting too, expecting huge credit growth, to be the driver in china is not tenable and it is going to end.
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that is what the expectation was. that, credit in china is going to grow. growth will be maintained at north of 6% with the help of fiscal and monetary stimulus. jon: chinese economy is going to crash seems like a deadly headline. the question is -- when and why soon? you have to define what crash means. if you mean that the chinese economy will continue to slow, yes. that has been ongoing for some time. if you mean it is going to have real or nominal gdp growth rates, that is a bit of a stretch. chinese economy will slow because the level of investments
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they have made in the economy is too large. we need to shift from investment to consumption. for them to successfully make that transition, the economy has to continue to grow. that is what their challenges. excuses are being made by these firms because they are defaulting, saying things like they are missing corporate stance and so forth. how much more developed does this market need to get before we can consider it a market? >> it is not a true market as we would define it. oneing too much into default or five defaults is the reason for being too particular about things. of the day, focus on chinese banking and the system. most of the credit growth has
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been in the banking system. as long as the banking system is because the central government provides an support, as long as we can keep it together, there will be enough growth to support the economy. jon: people focusing on the u.n. six every day to look at what is happening. do when you login to the bloomberg terminal? what you look for in china? what is the interest rate on an overnight market and short-term market. china is not a story anymore. you are thinking of china as being the primary driver of what is going to happen in global markets, that is not a story anymore. fed does towith the
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the dollar ins up being a big story. that has an impact on china. it would not be because they are oring to do value the run be implement some policy that will have big ramifications for the war. middle of last year story i think they have learned their lesson and moved on. he is sticking with us. headingwire hedge funds back to stocks to hurt them? more on that when we come back. ♪
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--jon: funds added momentum stock rates. been lookinghas through these filings and joins us with more. the pushback is this is a
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snapshot and may not be the reality. the momentum strategy is back in a way? >> there is a pattern here. this is the fifth consecutive order. momentum is defined as stocks that have gone up the most in the past 12 months. these are stocks that hurt hedge funds at the beginning of the year. momentum, they fell by over 6%, the worse they have done since august 2009. people look at that and say why are hedge funds getting back into these names? with these filings, we don't know what they are sure -- what they are short. there is a chance their hedging some of this. if you look on the other side, another way some people look, i don't want to say they are the opposite of momentum, but value stock. a -- betweene is momentum and a value.
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it, they aret positions of the furthest away from value that they have been since 2010. there might be something else going on that perhaps they are not aware of how overly exposed as they are to the momentum trade. expecting the markets and hedge funds to do something dramatically different than momentum investing is -- it is not going to happen. the reasons are straightforward. in real growth rates are low. if you wanted to buy two sets of things, defensive because you are not sure how things will work out and growth stocks toause growth is going deliver better growth. if the overall market valuations were cheap, you could gravitate towards value. where we are, value is not going to get traction.
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>> is the hit -- is the hedge fund desperate to make returns because it had such a hard time? sideways.gone >> there is not that much growth. they are searching for that. are names, perhaps they sold off and instead of deterring hedge funds, they say it is an attractive point and i want to put more chips on these names because they are expensive and they sold off. you have seen bp or momentum factor increased by 1.5%. maybe those bets are playing off. people are concerned this is crowded and it cannot end well. jon: not the same block of shares they were long.
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they shift out of other stuff and into new things. will it work? while.a longer-term perspective, as long as growth remains low and we don't have a sharp direction in the market to improve valuation, this will continue. jon: thank you. sticking with us. four minutes away from the market open. futures a little softer. there onill hanging in the dax. the ftse up by 22 points. ♪ okay, ready?
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whoa! [ explosion ] nothing should get in the way of the things you love. ♪ get america's fastest internet. only from xfinity. jonathan: this is "bloomberg ." we are counting down to the opening bell right here in new york city. futures are little bit softer by only 11 points.
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over in europe though, the losses are hanging in there with the dax up a 6/10 of 1%. gains onr two weeks of the stoxx 600. i will get to the other asset classes for you. treasuries -- a rough week last week. worst week for treasuries since november. i can bring you the crisis with the yield stable on a 10 year with 1.84% on the ten year. we recalibrate expectations for the federal reserve rate hike. dollar japanese yen. 25 seconds into the session, let's get back to abigail doolittle. abigail: we're looking at a mixed for the open to the major indices. the nasdaq is up so let's call it unchanged. the big news is around buyer and
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bidanto for the $62 million to buy monsanto. this or presents a 38% premium from the letter was initially offered back on may 10. it is a really big premium being .aid here's that big move up from when they first did receive the letter. shares of bayer are trading lower, offering new shares to finance the steel. oil is now down for days in a row. it's its worst losing streak in a month. e do have some oil stocks trading lower, but bucking the bearish trend are schlumberger.es of
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and analyst says the company is best position for a new world a move froml, middle east dominance to also include shale and also oil coming out of russia. another stock moving here on the open is apple. the stock is higher by nearly 1% , this after trading higher by 5%, the first up week in five weeks. what's a bullish movement recently for apple. today, the reason for the move is that apple has asked suppliers to prepare for production of 78 million iphone units is to the estimate of 65 million. it is the highest target in two years, coming out of the taipei-based daily news. nowr weeks on apple, we have the stock trading higher for the second week in a row. jonathan: to the big story that you just outlined for us -- they , raisingg monsanto
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concerns of the country to be stretching too far to make the deal happen. the acquisition would create the world's biggest agricultural business and would go down in history as the biggest german takeover ever. joining us now is a european deals reporter. the headline is that it is all cash, but the story is that there is a debt sale and equity issue in there as well. what are investors saying about it? 6 the day that the company's first came out and said they were6 looking at this deal, the stock fell the most it had. they are also looking at a really big capital raise for this could some of this is investors pricing that in. that is one element of it could you take thit. you take the other element and this deal will not be easy to get done. there are some concerns about
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whether or not they will have to offer a higher price. you also have monsanto's reputation. the german media was full of stories about the kind of company that monsanto is, what does this mean for bayer. this is a gutsy move, but also a move that has raised quite a few eyebrows and bayer stock is dealing with the repercussions. hasie: obviously monsanto bid in the past for companies. bayer would also need to look for something else if this did not happen. ruth: yes, but keep in mind that there has been and a lot of activity in the space in the last few months. dupont and you had monsanto making an offer. there are not too many steps left among the big players in the industry. monsanto, there is the kind of feeling that they need to at least see this offer and what it brings to the table for
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them because they alone are not doing too well either. jonathan: just a question on leadership. the market reaction has been called an uneducated reaction. how can i be diplomatic about this? he was a little more humble and reserved about investors in the market reaction to things that may or may not happen on the back of numbers. he is tried to pull off the biggest german takeover ever one month on the job. what does this say about the leadership that the at bayer? ruth: he has been at the company for quite a while, but he is tried to pull this off. this is such a surprise because people are saying you would never expect bayer to do something like this. it is a gutsy move and a move that has not been seen before. i agree with you that we were also looking at that response because he is basically saying the stock is going down, and problemns you have a
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with the way you are looking at this deal. that may not be the case. time will tell. that you let's say and the ceo says se this is an uneducated reaction. what would you say back? krishna: prove it to us. i think there is a case to be made as to why this may end up being a good deal, but i think he has to spend a lot of time justifying the price that he will end up paying, especially for a conservative owner base that they ar bayer h, which is european institutions. if this was a u.s. company, he probably would've gotten a lot less push back. jonathan: ruth david, great to get your insight. could be a huge deal. vonnie: the drama surrounding
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sumner redstone and his by, empire taking another turn. turn, the ceo has filed suit to block these actions. paul sweeney is here to expand but may be unexplainable. i want to read a quote from one of our stories saying that basically this is not surprising. the only thing that is not consistent is that sumner did not fire dauman earlier. here are people longtime trusted confidant of sumner redstone and have helped him build this company from scratch for decades. from that perspective, investors are saying this is a shocking move that occurred over the
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weekend. i think investors are really questioning who made this move. was it in fact sumner? or is it his daughter, sherry, influencing sumner? that are some of the questions of the suits will try to answer. vonnie: the other question though is that dauman has not exactly been wonderful for the stock price. there would've been a case to maybe get rid of him anyway. paul: this is a media stock that has underperformed its big cap peers. the has traditionally been very weak ratings across many other cable networks they have acquired over the years and a lot of investment to try to drive those ratings. paramount is falling behind some of its other peers in hollywood. there's clearly an argument to be made and investors have made it by pushing the stock down that this management team has not performed well over the last 2-3 years. jonathan: the stock is higher
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into the session, so what does that tell you? paul: investors think something is going to happen here. we are going to get a turnover in maybe management or board termsure certainly within of the trust that manages this company. one of the outcomes could possibly be a sale of some were part of this company to maximize shareholder value. i think that's a little presumptuous because the real question that investors have to answer is what is the trust really looking to do? are they looking to maximize shareholder value or looking to perhaps continue the legacy of sumner redstone? vonnie: national amusements owns 80% of the holding of viacom. what decides this or who decides this? is it the board of directors right now or the courts? paul: ultimately it is going to be the trust that decides how
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the shares of national amusements are going to be voted. it looks like the initial part of contention will certainly be in the courtroom as philippe looks to really challenge this ruling by sumner redstone. that is going to be the national point. vonnie: does shery have any support among directors? paul: she does. she will have presumably control over the trust now, which she did not have under the price structure. jonathan: bit of a management soap opera fo. more to come from paul sweeney. coming up on the program, iced coffee booming in the united states. starbucks is cashing in on this. they soon could get some very big competition. from who? we will speak of next. ♪
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jonathan: this is "bloomberg ." coming up a little later on bloomberg tv, evercore partners and founder. vonnie: you are watching "bloomberg ." i am vonnie quinn with your latest bloomberg business flash. the ceo may resign as soon as tomorrow according to people with knowledge of the organization. the bank's board may authorize the nomination committee to begin searching for a new chief executive. after more than five years at the top, he has fallen out of favor for some investors over the failure to shore up capital. general electric is making a serious deal with saudi
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arabia worth more than $4 billion. $1 billion worth of projects would be implemented with the saudi arabia and industrial investments company. another $100 million will go toward a manufacturing facility for the kingdoms energy industries. they hope to create about 2000 jobs. buying american capital in a deal worth $3.4 billion. the deal does not include american capital mortgage investment. it is being sold separately for $562 million. that is the latest bloomberg business flash. let's go to abigail doolittle for a look at nasdaq stocks moving in early trading, starting with staples. abigail: staples trading nicely americafter they can
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merrill lynch has upgraded shares of staples to a by. this is a move up, saying that valuation is attractive here. she also sees upsides for earnings. shares of staples are down sharply this year, more than 10%. she has a new price target of $10 come of that suggest that staples could trade higher by 20% from current levels and perhaps recover those year-to-date losses. another nasdaq stock trading higher today is that it has been up to equal weight. this is an upgrade ahead of an important fda action date. the stock is soaring in fact on this upgrade. he believes the share price reflects all potential outcomes around that fda action date, including a possible delay or unfavorable label. nonetheless, the shares are down more than 40% year to date.
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we will have to see if that situation can turn around. jonathan: that is the big move in one of the stocks. futurery for the potential is cold coffee booming in the u.s. companies are trying to hop on board from coke to pepsi. they are banking on an increasing demand for the cold brew. joining us now is adam. i want you to consider a scenario for continued growth. adam: thanks for having me. the cold coffee space, particularly the bottled and can't cold coffee space, is an area of continued growth. starbuckoned partnering with pepsi and that is a growth area that has grown in double digits for the last five years. still a small market with a lot of growth potential going forward. it is fitting that niche, maybe wherenergy drink itch consumers want cold, on the go,
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convenient caffeine. stigma ofncreased carbonated beverages, cold coffee si beats that. vonnie: it's a pretty phenomenal amount of revenue to be had. do you think there will be acquisitions or craft brew type acquisitions in the space? adam: it's an interesting space because at over $3 billion at 2020, it is still only by our estimates a couple percent of the overall beverage market in the u.s. i still think it is quite small. there's going to be consolidation and a lot of volatility. what the biggest barrier to entry is distribution to retailer relationships. we mentioned starbucks partnering with pepsi. a small company partnered with dr pepper. the couplings ability to get into the retailers and get on the shelf space coming get into the coolers at the from the store, that's a very sizable barrier to entry that is costly to replicate.
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i think that ultimately will decide the winners and losers in the space. jonathan: you mentioned the social stigma associated with carbonated drinks and not so much their own coffee. to the iced coffee speak of has a load of sugar. would be a matter of time before that comes on the radar prominently? adam: there are new fda regulations that will require beverages to report added sugars. that will be interesting to see how it impacts the beverage space. what we have lately seen from consumers is that they have flocked to energy drinks. there are a lot of sugars in energy drink as well. they are moved away from diet sodas in increasing numbers, which is a backlash more against the artificial sweeteners and even high fructose corn syrup has drawn attention as an ingredient of concern. i think consumers are making choices more focused on health and wellness and natural sugars rather than strictly whether or not it has sugar or some sort of sweetener. vonnie: you could read this as a
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bit of a negative and it at sign sign for these companies struggling to find organic revenue growth. is it sort of flailing in the dark for something? adam: we ultimately think that particular coke, pepsi, and dr pepper, the big three in the united states beverage market, carbonated soft drinks are likely going to continue to dominate their portfolios, even over the next five years or remainder of the decade. coca pepsi are little bit ahead of dr pepper in carbonated beverages and we expect growth in these beverages areas. what happens in the carbonated isce, your absolute right, really going to govern the direction of these companies and their stocks. jonathan: i want to bring you into the conversation because of saying that today's ethics becomes tomorrow's regulations. i look at the news that they are divesting $2 billion worth of
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tobacco assets. pitch that against what is happening in the beverage and food and drink industry as well. it is the matter of time before we get the regulations there as in the tobacco industry as well. sg investing is a quickly growing industry in investments. i think this tobacco thing as part of that, although i would say that it has moved away from exclusion investing, which used to be not to own any sin stocks. having said that, i think the impact of bsg investing in corporate america or the corporate world is still up for debate. at the margin, i think it will have positive impacts, but it is early days on that front. vonnie: thank you. adam fleck, analyst at morningstar in chicago, thanks for joining us. coming up, it is "bloomberg
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markets" with mark barton today. strategist at wells fargo joins us. she has a 2100 price target for the s&p 500 in the next 12 months. this one is for jonathan. the chief executive of one rebel is launching an initiative to hold spinning classes on a specially designed bus during your commute to work. vonnie: i heartily endorse that. [laughter] mark: you cannot get me spinning in any scenario. we are mentioned the italian cup finals. fromanchester united fan cross-strings capital is long-run equities. if you ask about the italian cup final? vonnie: i've heard about ac milan morning, noon, and night.
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jonathan: being long on ac malan is a difficult in the morning. let's not go there. mark: i feel for you. vonnie: every time he mentions a funeral on, we're going to make and put a dollar in. " next.omberg ♪
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jonathan: this is "bloomberg ." 24 minutes into the session in the united states, so here's a check on the markets. the s&p 500 down by a 10th of 1%. the dax is hanging in the red by 6/10 of 1%. pay significant moves in the treasury market as investors recalibrate expectations for that next rate hike. yields are down untouched today by 1.83% on the 10 year yield. vonnie: now for bloomberg trends
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come and look at the top stories that terminal users are reading on the bloomberg. you can find these on read go. still with us is krishna. story that has dominated the headlines both in europe and here in the united states is what could a monster deal between bayer and monsanto. i look at this deal and i see a market still open for business. bayer could go there and raise a ton of money. anyone cynical out there, they could say a misallocation of capital is going on here. krishna: that's a bit of a stretch. bayer is right and looking for growth. if this company is going to look at growth for the long-term, it has to look at buying opportunities and monsanto is a good company. in addition, they have a unique opportunity because of ecb moves and rates remaining relatively low overall. there is cheap capital available
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that they can use to acquire good assets. the trick is to acquire good assets. jonathan: what about the investor? what about their standpoint? refinance the brazilians buying budweiser and other things. as long as there are good assets and we can get good returns, i think they will be ok. jonathan: krishna works overtime for bloomberg today. thanks for joining us. for myself and vonnie quinn, it is thank you very much. next up is "bloomberg markets" on bloomberg television. ♪
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>> it is 10:00 a.m. in new york. i am shery ahn standing in for betty liu. and this is barton
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"bloomberg markets" on bloomberg television. ♪ shery: we are going to take you from new york to london to washington in the next hour. here's what we're watching this droppinghares of bayer almost 4% today as the company unveiled details of its bid to acquire monsanto for $62 billion . we will hear from the bayer ceo about whether it's stretching finances too thin in order to become the world's biggest seller of seeds and farm chemicals. mark: the u.k. government has seen its most serious warning yet about the potential consequences of a brexit, saying it may spark a year of recession and cost more than half a million jobs. will: the vote on a brexit not the clips the decision to raise rates

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