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tv   The Pulse  Bloomberg  May 24, 2016 4:00am-5:01am EDT

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>> the china credit -- the top analyst for the country will need a debt a in the trillions of dollars. in an interview, morgan stanley james gorman tells us why he is still bullish. >> the second largest economy in the world. it is going at 6.9%. it is going at a rate demonstrably -- growing at a rate demonstrably faster than the rest of the world. >> moody's cuts deutsche bank's credit rating. kennedy.kes on the he faces the eu referendum and
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his last august -- public statement. ♪ >> welcome to the pulse. live from europe's -- bloombergs european headquarters. i'm mark barton. francine will be bringing you an jesusive with just daily -- staley. we got a big show lined up for you today. less than a month until the u.k. votes on the membership, we will bring you to top names on the opposite sides for the defense secretary, liam fox takes on the founder and chairman of finsbury pr, roland rudd. that will be in a half hour here on the pulse. let's check in on the markets.
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stocks are rising continuing a trend that started last monday. it gains one day and losses the next. stoxx europe 600 up by .6%. the dollar is up against the yen today. interesting comments -- he said a two day move of five yen would be considered one way lopsided giving an indication what it would take for the boj to intervene for the first time since 2011. in the commodity market, brent crude is down for the fifth consecutive day. that is the longest stretch since genuine 13th. -- since january 13. producers appear to restart operations. the german 10 year bond, the economy in germany jumped by .7% in the first quarter takes to a surge in investments.
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let's get the latest first word news, nara joins us. nejra: china may need a bailout worth trillions of dollars. of risk her name making from china's credit binge. beijing will have to provide vast sums to tackle vast debt. top china watches see further declines for the yuan. that is the chaos that came with january's devaluation. it is down more than 1% this month. the pboc has learned its lesson and will not let the market fallen to panic. china will use the verbal support to avoid spooking investors. tutor investment is trimming fees.
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the move comes as the finance industries highest paid money managers faces a backlash over lackluster performance. reduce most fees to 2.25% in assets. that is according to a letter sent to clients and obtained by bloomberg. global news, 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. you can find more stories on the bloomberg at top . mark. mark: morgan starley -- morgan stanley's chair, james gorman, says he is bullish on china despite the slowdown in the world's second-biggest economy. face somes china will bumps as it transitions to domestic demand. >> the chinese economy is a $10 trillion economy.
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it is the second largest in the world. it is growing at 6.9%, whether it is exactly right or not. it is growing at a rate the monster bleed faster than the rest of the world. japan has negative growth. 2%.largest is europe with percentagewise, yes, it is slowing. china accounts for 35% of growth. >> a former fitch ratings analyst within interview at bloomberg saying the debt problem at the banks is worse than anyone is reporting, upwards of 22% of the thinning credit will go in pl, nonperforming, meaning trillions of dollars of bailouts. >> there are big numbers they are throwing around. pl's are likely going to
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rise. the chinese economy is enormously complicated, moving from an export led economy to a domestic-demand economy. .oving from consumer savings all of these changes are not going to happen without pops. .- without bumps more chinese banks are tremendous earning engines at the same time. >> speaking of the environment, you have a 33% -- which is the maximum allowed. icc before five years ago. givenyou ever consider the complexities in this market, going at it alone if they were to raise the ceiling that let you have wanted to percent? time.r is a long
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over the long run, we always liked to control the businesses we have around the world. in the medium-term, we have often gone into markets in a joint venture type structure. you get the advantage of the local expertise. it has been a great partnership for morgan stanley. >> what would be your expansion for headcount plans for asia? where are you looking to grow? >> asia, as you know, has been on the back foot, the last year or two. with rates rising, you're going to see further liquidity. i am not sure there's accelerated growth relative to what is going on in the u.s. we are long-term buyers, if you will, of china. we have a chairman this operation here in china and of course across hong kong. .organ stanley is here to stay mark: let's introduce our guest, .ark felt
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mark, thank you for joining us -- guest, mark phelps. thank you for joining us. we see the yuan following -- falling. can authorities smooth the process during this yuan decline, especially the fed is closer to raising rates than it was a week or so ago. >> i agree with james gorman that the underlying economy is growing reasonably but it slowed significantly. -- moving from an investment-led economy to a consumer-led economy. that is going to have low growth and also more volatile growth. we have to get used to this fall until the. we are going to go into a softening patch again. we've got more economic stimulus from the government. that is begun to wane a little bit.
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the chinese growth beginning to slow again. they will think about whether they need to take more action. i don't think we'll see anymore in the next couple of months. they are try to manage that slowing growth. it is a challenge. however, growth there is better than most other places. mark: how does that feed into the fed which of course is looking at global markets, global market volatility, with a big eye on china. >> this is interesting because the fed has another set of circumstances and that is been the driving force. we saw at the beginning of this year when we were thinking about another rate rise that international volatility was highlighted the chairman of the fed as a factor in not doing anything. clearly they are looking at the broader picture. however, underlying economic
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growth in the u.s. is ok. not spectacular, but ok. what we heard last night is expect something in june or july . it is hard to be specific as to which but you'll get something unless something dramatic happens. mark: one rate hike or at least two or three is some are suggesting. three with ther fed that came out last night. as we go into the back end of the year, it becomes a bit more competition because of the underlying election for the presidential position. i suspect we make it one more. if i had to put my money on it, it is probably too -- probably two. mark: mark phelps, he stays with us. 20 coming up including vocus on the stability of earnings -- including focus on the stability of earnings. we talk equity investments in
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the volatile world. it is less than a month until the u.k. vaux -- u.k. votes to continue membership. violence sees street and shortages of petrol in the wake of oil refinery protests, what the future holds for the president. ♪
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mark: let's get the bloomberg is is flash. nejra cehic is here. ordered bfi bank to shut its operations in the island nation. serious breaches of anti-money laundering. poor management oversight of the bank. gross misconduct by some of the banks staff. the group said its ceo is stepping down. facebook is changing how it determines which news stories are trending. that is after allegations of political bias. the company says it will no longer require stores to appear on sites considered news leaders, including the new york times as of that requirement could lead to bias. facebook stop using its rss feed for news. is recalling more
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vehicles linked to the takataally lethal airbags. -- including certain models of the corolla and lexus line. carmakers have already recalled more than 60 million vehicles because of the fawlty airbag inflation. that is bloomberg business flash. mark. mark: an investigation by the sec by whether it inflated the value. millions of dollars of losses, that is according to people with knowledge of the matter. delays in recording the losses could have helped boosted the banks earnings. john cryan has another headache with mood is cutting the banks rating to just two grades above junk. the ratings agency says which is performance sing -- performances has been week -- says deutsche's
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faces economic uncertainty. lacquaned for francine who will be speaking to jes sta ley. do not miss it. mark phelps is here. charti want to show you a . this is the stoxx 600 90 industry groups you to date. bottom of the pile. 19% lower. what does it take for you to get enthusiastic about european banks? >> we find it quite challenging to invest in banks and we try to do fundamental work. -- attractive. i find it hard to look at banks because we just all know. what we are seeing here is the fact that there is a tremendous amount of challenges the bank
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faces, particularly our negative interest rate environment which make it very hard for profitability. the regulated are consistently changing what their requirements are. they have cut significant cost that they have to deal with. have challenges in regard to what is going on in the political environment in europe. it is difficult to run a bank and make any money consistently. what we see is a focus on cost-cutting as some way to get any sort of profitability moving forward. that is appropriate but it is hard to say that we see them as a good opportunity for investment. mark: what are the good opportunities? >> you see a strong performance commodities.s, that may have run its course. things like telecoms and utilities have done well. you have a commodity risk on
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economic activity looking up. a lot of people looking defensive. that is quite unusual. oflth care is partly because the politics in the united states. we think health care has a quite good value. actually there is a lot going on in terms of opportunities to attack new disease areas that they have not been in to do before, like oncology. that looks attractive. we know prices are under pressure and that is going to continue the u.s. is going to play that game. if you have innovative drug and provide new therapy, that will become something the markets are prepared to pay for. mark: stay with us. we will come back and talk about more of your top picks. more from mark. he says investors should focus
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on the stability of earnings. we will talk equities, volatility and top picks next. stay with us. ♪
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mark: i want to bring you our chart. it tracks u.s. equity volatility is climbed 25% from its april low. ahead of indices of other asset classes. crude oil much lower
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than other peak levels. the average is the highest since 2011. the timing of fed interest rate increases. let's get more from this from our guest. he says it bloom and bust has been replaced by bubble and sizzle -- bubble and physical. -- bubble and fizzle. what is it? >> as we look at the world economy, it is clear that growth is pretty unexciting. it is ok. global growth, 2.5% to 3%. china is slowing. the u.s. is getting a little bit better. europe muddling along. in that environment, you will see some growth that carpets can make some headway with an terms of a little bit of margin. a tiny bit of price maybe. single digit type returns you did nothing wrong with that.
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compared to cash and bond, quite attractive. said to my clients i will give you 6% this year, you're going to 50 basis points per month, they would be delighted with that. if i said i am going to be 6% and you could make her lose that every week, they are a lot less happy. that is the challenge we face people the stock market is doing is the liquidity is slashing about the system is pushing things up and down a little bit with the news. the underlying reality is it is ok and unexciting. growth is not going to be strong . i also don't think we have much on the big negative shock on the downside either. i think we will grind up growth. if you can find growth just find companies that can follow that, it'll make you a solid return. mark: you make the case for health care, make the case for travel. >> the one thing we do know is
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incomes rise, people tend to spend more. as they hit a certain put of income. the chinese have done that in the last couple of years. there are traveling tremendously . a bit like the brits did in the 60's, we start going very close to home. we went to spain. the chinese start with hong kong and now they are korea, thailand . japan and they are coming to europe and u.s. you are going to see tremendous amounts of a commits of travel. that is been the case -- amounts of increments of travel. that has been the case. think there are interesting areas that will get people coming. mark: an incident short-lived. it is tough to talk about but andence has proved you get
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initial selloff in these types of stocks and the rebound is as quick as the selloff. >> realistically, that is certainly the case. we have to get a month after month of these things. in most cases, are you going to change your entire lifestyle because of an incident? probably not. it will were you for a few days. i need to go somewhere and enjoy it, maybe i stay at home. mark: as we approach our brexit panel, how big a risk is the ?utcome referendum >> if we were to vote to leave, it will be a big risk? there will be a lot of volatility in markets. where they go is hard to predict. no doubt the economy would take a step down and slow in terms of growth. it might even go into recession. it is hard to tell. as i talk to companies, there is , particularly staffing companies, we are seeing a lot of caution about sing invest --
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about making investments prior. now companies are saying we don't know what we are going to get. that is going to leave uncertainty until we do know. and move down in the short run in terms of growth is not helpful. sterling takes a move down. that makes it more competitive. a lot of crosscurrents. i was suggest it is not going to be helpful for the markets. of june, let's say we are still in with a regional -- a reasonable margin, we are still in. investors suddenly come back to our favorite story in europe of sovereign debt, austerity versus growth. we have german economy going gangbusters here it just gangbusters. -- gangbusters. mr. avoid saying no more austerity. we are in for a bit of a bus stop potentially.
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-- debatehought the was a grind. mark, thank you for joining us. a big brexit debate is next. do not move. ♪
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mark: welcome to the pulse line from bloomberg's european headquarters. have a look at what is happening in the equity market today. stocks are higher since monday. bloomberg,to the nejra cehic has the latest. nejra: looking at europe, reversing earlier declines the stoxx 600 is up. we are seeing a broad-based rally with every industry group higher on europe's equity benchmark. different picture to asia where
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we saw a broad-based selloff. the dollar very much in focus with attention turning to whether we are going to get a rate rise from the fed. futures -- funds factoring a better chance of a rate hike in july. with that, the dollar has climbed to a two month high. looking at the bloomberg dollar index, gold is down for a fifth day in a row, its longest losing streak since november. fed officials with a hawkish tone have been stacking up in the meantime. are we going to get a repeat of the situation in january where he had dollar strength, stocks selling off globally? two things look different. if we look at the yuan, it is
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1%,anged today, down about with people who watch it closely see a decline without disorder. we are not quite at the levels we were at january, and the same with crude. look how different, we are in the 40's. wti $48 a barrel whereas in january we were in the 30's. crude oil and the yuan see more resilient. governor mark carney at pairs before u.k. lawmakers in his last public engagement before the pre-brexit vote begins. this morning we are bringing you two big names from opposing sides of the debate. and on the other side, founder and chairman of finsbury, treasurer of written -- britain stronger in europe. gos is our wonderful bricks
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says theand it 45%,bility of a leave is but the probabilities are pretty much stacked in the remain category. what has been the reason for the resurgent in the support for the remain cap in the last week do you think? liam: my caveat would be, i believe any of the polls either way because the pollsters are not sure how to pull properly. that is the caveat. i think that the remain campaign had some success in recent days in putting a series scare stories in front of voters. the government has decided to use the mechanics of government to do this. i think this has profound political implications for stability post referendum and i
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think the government report yesterday, the treasury report -- mark: why does honestly presented? risk --ely late out the laid out the risk. liam: no, they didn't. out three different scenarios, including eu membership. missing, presumably because it was the best outcome and i did not want us to have that but the reason that was given was much more sinister. some people in the leaf campaign said they were not look at that. the treasury was taking its orders from the remain campaign rather than as we would normally get from the civil service, a full range of upside and downside scenarios. i have never known anything like that before and a number of us are writing to the chief
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secretary and permanent secretary to say we want to know what instructions you had on this. it could be a great and fraction. -- infraction. mark: a grave infraction. roland: one thing i agree with liam, we should not get carried away by the polls. i do think it was a good report. i think there are a lot of economy working behind the report. it was not done on the back of a piece of paper by george osborne. if your chairman says publicly and repeatedly that we are going to leave the single market, we must take that to be the vote leave position. he made it very clear that you are going to leave the single market. if you take a different view, that is fine.
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but that is the view he set out very clearly. you look at the two scenarios of outside the single market and insight. thatroblem for liam is every single economic, reputable imf, oxford, the economics, london school of economics, and the bank of england, and we have to be told that all of these people are in some sort of a conspiracy. they are all colliding together and have been paid to say what they are saying. it is not credible, and they all come to the same conclusion. why would people want to risk it? it is profoundly wrong because the leave campaign will not be the government. it is a multiparty government that will not -- that will disappear after the referendum.
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we have to have a full set of scenarios set out for the treasury which will ultimately be part of that. so that the public committee proper choice is unprecedented. mark: but that is the treasury, yes? what about the oecd? what about the imf? are they biased as well? lose we were told we would our preeminence if we did not join. [simultaneous speaking] >> forecasts are always difficult it is that all of these forecasters are
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forecasting the same thing. the treasury did not forecast one scenario. if we voted for brexit we would have a populist government. in the event of brexit they would basically veto every eu treaty. a massived be argument between britain and our european colleagues. i think it would be worse than what the treasury said if we went down that line and that is what we would end up with. and i understand why because there is no sort of blue on blue allowed in this debate. i see another scenario that i'm sure liam would not like to talk about. liam, paint me the picture, pose the vote of the instability we might see within the government. liam: within the government i think there is a leave vote. if there is a big remain vote, i think that is quite stable.
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the problem comes with a very small remain vote, especially of people feel that the election was in some way rigged toward the remain campaign with the public -- the government spending public money for one argument. the most -- mark: why are we talking about this or is it just sour grapes? the fundamental backdrop of your argument seems to be sour grapes. why don't you just put forward at other -- another argument? why aren't you banging the inflation argument, immigration? >> i think there are three things that i want to see in this referendum. i want to get control of our lawmaking because i think having an unelected court over righted our democratically elected parliament is outrageous. i run control of our borders. our open borders are leading us to the failure of the xeric --
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eurozone with too much migration. i want control of our money. that is just things that i want out of the referendum. >> i will accept a very small leave majority, however small it is, because that would be the will of the people and i think liam is going to have to accept a very small remain. roland: there will be liam: -- liam: there will be people if they feel the referendum was unfairly conducted, that makes it very difficult. roland: it really is not odd to be talking about if one loses by a small amount, it is not fair. the problem with the referendum, you have to accept the result no matter what it is. mark: liam, you are defense secretary. they say that membership helps
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maintain peace. --was an siding world war i inciting world war i and world war ii. was he exaggerating? liam: i think it was to the point of being preposterous and the five examples he gave in world war i and world war ii, if -- hen our back on europe needs a better history writer. things went wrong notwithstanding our strong involvement. this idea that he's in europe has been kept the eu. -- peace in europe has been kept in the eu. nato kept the peace. during the strong cold war because it brings in the might of the united states. that is what we have to understand. mark: was this a classic example
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of the remain camp issuing yet another scare story, invoking world war i? that johnson suggested shares hisal, the eu goal of uniting the continent. the last thing liam would ever do is bring in hitler to that argument. that is just silly. the eu is not solely responsible for the piece, of course it is not, but it has presided over a very peaceful period. one thing we can agree on is is a big threat. -- vladimir putin is a big threat. eu coming together have set two sets of sanctions against him and it is the view of many people that one of the reasons he has stopped where he has in ukraine is because of those sets
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of sanctions. i think britain would've posed sanctions whether we were in or out of the eu but we have been able to persuade italy and germany but what we have been able to had we been outside is a different matter. that is where you see the eu coming together on a important desk and important policy matter -- an important policy matter. nato, to be faced down by which has not done enough. he has to be faced down by the eu. mark: can the conservative party heal the words that are been wounds thatworms -- have been inflicted? liam: passions will be united in the referendum. i agree that we need to accept that we will stick are the result whatever it is, and how easy or difficult it is for us
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to come together is largely dependent on how respectful we are for our respectful views. people are -- people have strong views on both sides of this and no one has the answers. a little bit of taking down the temperature, being respectful and courteous will not do any harm. , therehave to remember will be a 24th of june, not just a 23rd. mark: thank you both for joining pulse." on "the breaking news coming out of turkey. announcementsme on the cabinet. simsek isintment of the big take away, that there have been a number of headlines crossing the terminal, but that is the big announcement that sim thend has been reappointed
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dollar -- reappointed. , the lira is down rising on that news. up next, fueling discontent. we will get the details live in paris. ♪
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mark: protests against france waterhole lawns government.
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--france waterhole bond meanwhile, the offices of the socialist party have been vandalized in several cities across the country. most recently yesterday. how serious are these feel shortages? greg: reasonably. about 20% of france's gas stations are completely dry or lacking one type of fuel or another. there's 2400 gas stations having trouble now. that is about 20% of the total nationwide, but that is up from 1600 just 24 hours earlier. the government has taken action. police this morning stopped the blockade at one of the refineries in the south of france, one of the fuel depots
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so that should enable more fuel to be distributed. it is worrying. there are long lines outside of gas stations. tempers flaring between the people in line. mark: what are the implications for the president as we are a year away from the next election? greg: it does not look good. there was starting to be some positive news on the economic front in france. unemployment was down, there was a big order that france one for a military separate. now there is a sense that the government is not in control because there is not only this issue of the gas shortages and the blockade outside the refineries, last week there was a riot in paris in which a bunch of people attacked a police car, said it on fire, and caused the police officer to run.
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this has been shown in continuation on tv news and social networks. it just gives the sense that no one is in charge. i think this actually could be quite a serious blow to the president. mark: greg, thank you. oil traders awaiting a recovery in prices, borrowing from banks to store crude. situationt is the with floating storage of oil? tracy: i am here in abu dhabi or where close to the gulf sea. up because it seems like this idea of storing oil on ships is becoming more and more important as we try to parse the future direction of oil prices and specifically, we have seen a
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lot of oil traders opting to store crude in southeast asia in the waters between singapore and malaysia. they account for 27% of all crude going around the world and most of that comes from the gulf. mark: is that kind of storage trade profitable at the moment? tracy: this is the really weeresting thing, because had a really famous storage trade after the financial crisis in 2008 and 2009, but that was profitable. you could immediately sell it forward for future delivery and pocket the difference thanks to the structure of the oil price curve. this time around, it is supposed to be lossmaking. according to morgan stanley, people are losing anywhere from $.48 to six dollars a barrel on storage of oil.
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they are doing this because they have no other option. or peopleons are full are trying to make a speculative bet on the price of oil, and that can be a risky bet because some of them are borrowing from banks to fund those storage costs. ready risky. mark: what does it mean for oil markets, tracy? tracy: i think one way of interpreting it is potentially the recent rally in the price of oil has been pretty speculative. the other thing it suggests, we still have quite a storage glut in the physical market and according to morgan stanley, this means the physical oil market is not as healthy as recent sentiment in oil prices would suggest. mark: up next we are going to talk turkey. simsek. the prime minister, sending the lira higher. ♪
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mark: breaking news out of turkey. the deputy prime minister has retained his post, sending the lira high. give us the details. why is this so important? minister designate has just announced his new cabinet and as you said, investors were waiting to see if
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the deputy prime minister of economy was in or out. he has been named as a deputy prime minister. later on, we will find out what his role will be because we found out he will still be a deputy prime minister. this is welcome news to the market. he is extremely liked by investors and the market. he used to be an econ minister and the finance minister said this is welcome news. markets in turkey have played havoc over the past few months because there was so much uncertainty over what was happening with the cabinet. as you said, the lira has strengthened in the stock market is up. mark: thank you for giving us that update. there is the dollar against the lira. standing of the market friendly team credited for turkeys economic revival.
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stay with bloomberg "surveillance." our exclusive -- jes staley.ys ♪
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>> the china credit riddle. exclusive, morgan stanley's james gorman tells us he is still bullish. the bank of england governor gets ready to face mts in his last public statement before the pre-vote. what would an exit mean for its business? we speak exclusively with jes staley. this is bloomberg


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