tv Whatd You Miss Bloomberg June 1, 2016 4:00pm-5:01pm EDT
joe: i am joe weisenthal. "what'd you miss?" mixed.tocks joe: "what'd you miss?" we dig into the ripple effects, including job cuts a goldman sachs. eyes on the bank as it gets closer to its inflation target. economyorld's largest may be close to hitting a bottom. scarlet: market minutes, major indexes closing mixed. higher withslightly six out of 10 major groups gaining ground. of a betterhe heels
isn manufacturing report. just below 2100, so can't quite get that magic number. we were just talking about that yesterday. one thing is if you look at tech , what isd the s&p standing out is the nasdaq ,omposite, six days of gains the longest streak since february. that's pretty impressive. a lot of these small cap's the bignew highs, but movers microsoft, facebook, google, amazon. time, some bad numbers on the flipside coming withford and gm disappointing sales dragging down that sector. government bonds, people
keep buying them, driving those yields lower. german five-year yields at low for -.38, a record how much people are paying to the german government. yields,e, u.s. 10 year nothing doing there, at one point the lowest since may 18, close to flat, down a little bit for the day, but not much life in long-term yields. currencies, we want to focus on the yen. the japanese prime minister delayed implementation of the sales tax until 2019. the reason why the yen strength and was risk aversion for lackluster china pmi reports.
performing ge best 10 currency, up 10% versus the dollar. dollar-yen started at 120 and strengthened to 105 on an intraday basis. joe: on commodities, pretty quiet day, a little bit of gains on oil. in some gains on gold. that opec meeting coming up. hope might be some something could happen there. gold, of course, everything about the fed and the dollar. small gains there. today's those are market minutes. now let's take a deep dive. at -- butg to look why don't you go ahead, joe. data -- i.s.ois m ism dated today.
better than expected. much it hashow rebounded since december, perhaps some dollar weakening helping it, maybe a bit of a recovery and oil helping. the blue line's prices paid index, what manufactures are paying, high since 2011. one more time perhaps we are starting to see inflation creeping in. that is perhaps in good news. onrlet: we will check in more of that and a moment. i'm looking at the effect on saudi arabia from oil prices. plungeects from their for the last few years are not going away quickly. traders are increasingly betting that saudi arabia will adjust that three decade old pegged to the dollar. it is now rising the most since
.008 saudi arabia trying to conserve cash, raising cash by selling bonds for the first time ever, perhaps 15 billion dollars worth, selling part of its crown jewel, saudi aramco. the measures they are taking right now to try to get some evening out in terms of bonds or other kinds of stuff. one thing we talked about before the difference between manufacturing in the u.s. versus the manufacturing in europe. the white line is a spread pmi minushe u.s. eurozone pmi. blue line is a sickly the stock market spreads, s&p minus the ftse 100.
this is fascinating because one speaks to the difference between what is economy, u.s.he manufacturing struggling, but stocks still appreciating. 50% of s&p profits come from services sectors. you can see all these charts and more on twitter. let's bring in our first guest. federal reserve report shows the economy -- ating at a monist modest pace. where are we right now? are we setting up for a summer hike. ? >> yes, we are. that is the message we got from by ainutes and comments number of fed officials, including janet yellen. i think that is probably what the fed will do. at this point, the burden of
proof is whether be something to happen to prevent the fed from raising rates. briggs it is the most likely event, although i don't think -- exit is the most likely event. --: there has been a pricing repricing of fed expectations, why hasn't the market been bothered by it? we have seen a pretty solid rally. >> the front end of the treasury market has given up some ground. risky assets have not, and part of the reason is the message they are taking from the fed is confidence. --the fed is confidence
confident enough they can raise rates, is because they believe the u.s. economy will continue to be resilient and grow. and that is the message we should take away from the price action in this stock market and risk assets in general. >> couldn't you make the hasment that the market seen the fed jawboning and then did bingo? thet it possible that market has just wise and up? thep button till december, fed had made many promises they were going to raise rates. last year in the october policy statement, the fed referred to conditions that needed to be met to raise rates at the next meeting, december. the market off that liftoff was coming in december. the fed tried to reduce that confusion with public statements then they talked
about the likelihood of raising rates at the next meeting. i think it took them another get the market focused where it needs to be, but the minutes did it. scarlet: the data seems to be backing up the fed. prices are moving slightly higher. another example of this pattern we have had where the first quarter is a beat and the second quarter is a rebound? >> we have seen first quarter growth and this cycle 6/10 of 1%, the final three quarters is 2.6%. yes, on the data side. , but you get into the second quarter and the economy looks good. a number of the inflation indices, you see a response to
the fact that commodity prices stopped going down in february. some of them have bottomed. them have been trending higher. that is starting to filter through. ppi, importt in the prices, and cpi, and now we are seeing it at the manufacturing level as well. stirwill help to manufacturing activity, because indid not make sense relation to inventories for the past year and a half when the price was going to be falling. andthat prices are stable may be rising, i think that create some incentive to begin to increase orders and build inventory. in today's data shows maybe that is happening. joe: friday is the big event when we get the jobs report for the month. what is the most important number to watch? what will the fed be looking for? improvement on wages?
continued improvement in labor force precipitation? what -- participation. what is the key thing we need to see? >> there is no one thing, however i think key things will be the size of the gain in hourlys and average think given what we have seen, i think the fed will be tolerant of a mediocre case -- rise in payrolls. generated 15.5 million jobs during this cycle so far. i think they will be interesting -- interested to see some improvement in the house on survey. i think we will see them be satisfied on both fronts on friday. scarlet: what constitutes a mediocre report? 150 5000 in payrolls is
mediocre, but a lot of it is a temporary factor, 30,000 people out on strike. whatever number it is on friday, at 30,000 to it. other factors in the first quarter, retail payrolls rise by more than 50,000 per month, and been what is happening in the retail sector, so some weakness there. may was cool and wet, so some seasonal jobs will probably suffer. we are off to a better start in june. joe: thank you for joining us. scarlet: brazil's economy is still shrinking. why is struggling to reg out out of its deepest downturn in a century. ♪
mark: let's get the first word news. stormed a hotel in the capital today, killing at least six people and taking others hostage. police say two members of parliament are among the dead. the rebel group is claiming responsibility. officials say the attack on mogadishu's ambassador hotel is continuing and militants are still inside the building. asking fornations is iragi troops and islamic state fighters to spare children caught in the battle for falluja. they estimate 20,000 children trapped in the city. the few families have been able to get out. trump tops hillary clinton honesty according to a
new national poll. 30% of voters from mr. trump more honest than most politicians compared to 15% for mrs. clinton. found both presidential candidates less honest than most politicians. 46% say mrs. clinton, 45% say mr. trump. the obama administration improving the eating habits of americans. the fda issued sweeping salt reduction goals for everything from french fries to granola, putting pressure on food manufactures and restaurants to cut back on sodium in processed foods. global news 24 hours a day powered by our 2400 journalists and more than 150 news bureaus around the world. i am mark crumpton. scarlet: "what'd you miss?" ine signs of stabilization brazil's economy.
gdp contracted by only three tens of 1%, less than forecast. business confidence is starting to recover as acting president take steps to put the economy back on track. you have described brazil's economy as taking on the characteristics of an economic depression. why is that still your call? has been one of the longest, deepest recessions in living memory in brazil. it is already a quarters long. this started to and half years ago. we have seen a contraction of 9% gdp, deeper than what we have the in the last decade of , where per capita gdp contracted by 7.6%. we have seen 10 consecutive quarters of the climbing
, 12% per quarter, five consecutive quarters of declining private consumption. this has been a brutal recession, and other indicators suggest the unemployment rate is exceeding 11%. we got the gdp data, a little better than expected, but still contraction. also, brazilian pmi, a dismal number. where is the currency going from here? does it need to weaken further to improve bruising competitiveness? weaken, has it gotten disconnected from the fundamentals? >> the last thing the economy needs is for the currency to become overvalued again. different approaches to
estimate fair values. the currency is slightly overvalued at the current valuation. we need at this stage is a competitive currency, a currency that lists the industrial sector. consolidation of the adjustment of the current is consolidated is when we see the first signs of a buddingeconomy -- economy. like there's a lot of risks out there. risk ofir yet another that market will see some kind of correction? are market participants pricing in these risks? best-performing
markets year to date. a lot of hope invested in the political transition and that will beng president able to deliver the type of policies needed. capable from ae political standpoint to build the necessary consensus to advance difficult adjustment measures that need to be improved. is able tonistration stabilize the economy, lower inflation, attract investment, therefore to see the early signs starts to go in 2017, then there is more upside. an administration incapable of driving that agenda through congress, the market will be vulnerable. confidence have seen , business and consumer, start recover. why is that not enough?
>> it is just a start. they have been extremely depressed. we have seen some signs of stabilization and recovery. again, our hope is that politics s and policy mix will become more traditional. joe: people think it's probably what to be permanent, but are the signs we should look for that this administration is making these new reforms? thing -- faster they are able to do it, the better. on the fiscal side, that is perhaps at the core of the macro problems afflicting brazil. to deliver to start and see tangible signs of progress in the short-term and thatype of measures
changes the medium-term trajectory for public spending. a the monetary font, we need central bank committed to deliver low and stable inflation. if those things are done, i think sentiment could recover. we would see in investment spending taking off and the economy stabilizing is starting to grow. us.let: stay with we will dive into the macro economic tailwinds for the economy to improve that are needed. ♪
we're back with head of latin american economics at goldman sachs. the current finance minister said something i would like you to hear. that has two years of recession of 4% has a lot of idle capacity. that permits the sort of growth that could be faster than foreseen. brazil gets the reforms right, how fast could we see brazil grow? >> there is a tremendous amount of slack in the economy. market,at the labor unemployment now all of them percent to if the right policies now 11%.ered --
against that slack, you could seat decent growth rates. gdp after 10 consecutive quarters of declining investment? ratio of theabor economy has to klein, so there will be a low ceiling all in that recovery. abilityascinated by the of brazilian stocks to outperform their peers despite the recessionary conditions, the fact that there are a lot of concerns lingering, but one thing is that if you look at the risk-free return on the 10 year brazilian bond, you are yielding
more than the expected equity returns. what does that tell you about an economy when that government is perceived as risky as equities? domestic financial conditions are extraordinarily tight. despite the severity of the recession and this being one of the deepest recessions we have seen, inflation hit double digits, illustrating the dysfunctionality of what is going on in brazil. at 7%.tes are how can you square that with an economy that has a tremendous amount of slack and has been contracting for two years in a row? joe: there will be a time when they will be a little cut rates. thank you for joining us. scarlet: where all the mergers
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mark: let's get the first word news. thee may be new clues about whereabouts of a downed egyptair flight. a french company says it's search ship has detected signals from one of the planes black box recorders. carrying 66 people, the plane crashed into the mediterranean last month. it says the signals are from flight 804, but did not indicate how it was able to make such a determination. makery clinton expected to the case that donald trump would be a threat to national security if elected president.
thursday, mrs. clinton will deliver what her campaign calls a major foreign-policy address. "fear,l rebuke the bigotry, and misplaced defeatism that mr. trump has been selling to voters." the economy is the number one issue facing voters according to the latest gallup poll. 19% say the economy tops their list of concerns. other issues include immigration, 14%, and health care and health care reform at 10%. the u.s. is proposing new penalties aimed at stopping north korea from laundering money to fund its nuclear weapons program. the treasury department designated pyongyang as a money-laundering concern. a treasury official says it is a further step backwards, severing banking relationships with the north. global news 24 hours a day powered by our 2400 journalists and more than 150 news bureaus around the world.
scarlet: thank you. let's get a recap of today's action. stocks were little changed. rebounding from an early selloff. the catalyst for the recovery was the manufacturing report pmi pace in may and an increase in prices paid. there has been this theme that the economy is s like itg, and it look-alike is. has gone ack market full year without reaching a new high, and now there are signs of erosion. the economic recovery sent stocks climbing for six straight years. companies that wanted to buy
other companies or their own shares or raised evidence, did so. example, u.s. companies have been a greater source of demand in terms of net stock purchases since the start of the bull market. 2016, they were the only ones buying stocks. now things are shifting. profit margins are tightening after four quarters of declining earnings, and surveys of investor sentiment are showing that investors want company to do something else with their cash. shares of companies that spend the most on buybacks, lost their lead over companies that spent on capital expenditures. another shift occurred with investors chasing dividends. in 2016, buybacks have dropped 38% and dividend growth while still positive slowed is for the
first time says 2009. deal activity is slowing after a record year. it is possible that equity market volatility is to blame for the slowdown in corporate activities, but regardless of why, their impact is waning and that could pose a real problem to this bull market rally. m&a, scottr more on is ceo of greenhill and company. great to see you. oliver was telling us about the drop off in m&a activity. where are we in the cycle right now? >> i think we are still early in the cycle.
we had a steep decline with the financial crisis. it plateaus for quite a while. last year looks like a big increase, but not as big as what it seems like from the outside. i think there is quite a long way to run despite the fact that this year is off to a slow start. joe: you mentioned those megadeals that are fizzling out, does that mean there will be hesitancy going down the road to do those megadeals and the real action will be somewhere else? >> i think m&a will become much more broad-based. seen in recent years as companies willing to take more antitrust risks, trying to negotiate some sort of compromise to get the deal through. that a small number ultimately get blocked by regulators. >> premiums have come down the middle bit, may be a function of
larger deals not getting done, that a reflection of concerns about valuations in the market? >> it is realistic that premiums will come down a bit when stock prices go up. to 2009 and 2010, it's no surprise that they have come down a little bit. situations every m&a you can get a significant premium for your shareholders. we've seen the health-care care sector very active, but i wonder if pfizer and allergan have run the course with their transformative acquisition. they are getting blocked by regulators. to what extent do believe that the most they will be able to achieve are these incremental purchases? is not as big of
an outlier as it was. they were very active and rolling up a lot of companies across the health care sector. i think that slowed a little bit. but health care remains the busiest sector. sectors wouldr you expect to see him in a pickup in? up quite aill pick lot. there has been a fair amount of restructuring. always have this moment when buyers and sellers don't converge on a single point of view during market dislocation. when you have a huge drop in oil prices and a significant rebound, it will take time before buyers and sellers start to see values similarly again. what can we expect going forward? is there anything that will loosen up some of these deals where companies have backed away from going overseas?
>> there were 20-30 of them done in history. that's not a big thing. there are other things going on around the globe that once they get cleared up could lead to more deal activity, the brexit vote in the u.k. is restraining european m&a activity. done, positive or negative, i think we will see more activity in europe after that vote. certainty ones where currencies are headed, to volatility is fx limiting companies outside the u.s. to do deals? europe, that has probably slowed things down. my experience is companies don't spend a huge amount of time thinking about foreign currency when they buy things. to may be spending sterling buy something, but you getting a sterling cash flow in exchange for that, so companies tend to be agnostic about where exchange
rates are. extreme volatility, people worry about that around the brexit vote, which is why i think they are holding back. scarlet: stick around. has taken as, uber $3.5 billion investment from the saudi wealth fund. the public investment fund is also taking a board seat in uber as well. we will cover this and get you more details as the headlines cross. we will be back. ♪
scarlet: i am scarlet fu. it is time for the bloomberg business flash. the department of justice on track to approve $107 billion merger later this month. it could include limits on the combined company's ownership of distributors. u.s. antitrust approval would make it closer to the biggest merger ever. a judge convinced to toss a lawsuit over losses from the 2008 financial crisis. aig'sdge rejected argument that,"'s claims were brought to light. he granted aig's request to immediately appeal the ruling. the federal reserve detected 50 breaches of computer systems from 2011 to 2015.
the security team all 310 incident reports. 140 were classified as hacking attempts. and 2012 were described as espionage, at least where information was disclosed. that is your bloomberg business flash. we're back with the ceo of greenhill and company. when you look at the banks and how they are dealing with the slowdown in m&a. banking, equity and debt issuance, so many people ask where the revenue growth going to come from? is the revenue growth coming from for the smaller investment banks? think that for the big , barclays,organ's
they have much bigger problems, impactinglumes negatively, spreads on interest rates are low given you have negative interest rates in some places around the world. in the m&a space, things are fairly good. volume is reasonably good. banks like ours are getting an increasing share. >> greenhill stock running into trouble a little bit this past fuel ahat exactly will rebound here? what are you guys looking at to encourage investors to buy your shares? investors are negative on the whole with anything related to capital markets. i think investors are worried about what the future holds and are we in the eighth inning of the m&a cycle. i think we are in a relatively
early part of the m&a cycle. when investors realize that, you will see the stock price reflect that. joe: to what extent would you argue that small investment banks are unfairly penalized. there is regulatory angst about all the big banks. you argue that it does not affect you that much. >> that is a huge positive for our business versus the big banks. we are regulated in a way that does not really affect our act 70 at all compared to the big banks where they are controlled by regulators. that, a long way from almost unpacked it by regulators at all. unimpacted by regulators at all.
for the big bangs, the problems are so broad-based that they have to cut costs where they can. arember of the big banks cutting back quite severely, certainly all the european banks and some of the firms that are more regional are cutting back in a way that should help us. scarlet: you have a dividend yield of 8.6%, super juicing the flow of return. what is the likelihood of that being cut? dividend has survived the whole financial crisis and beyond, so i don't think there is much risk of their at all. tivoliiness in a role at -- in a relatively slow m&a environment, we don't need that capital, so we return it back to shareholders. larger banksok at
versus smaller ones, mid caps on of done well. when we talk about m&a influencing, but the trending business coming under fire. are there asset classes that will be hard to bring profits on? >> anything to do with trading will be quite difficult for the banks, even the huge shift away from active management towards passive management. in assetthat is big management, it has a huge impact on them. they pay very low fees. scarlet: joe asked about regulation, and it hurts the big banks. does it benefit you? in the sense does that our employees are not distracted by a lot of compliance matters. it is fairly simple what they do. scarlet: you don't hire dozens
the senior european economist joining is now on the phone from geneva. thank you for joining us. we shoulde big thing be watching for from the ecb tomorrow? >> it will be an interesting meeting. it's not an easy one. mario draghi does not want to sound overconfident in terms of economy outlook and inflation. they want to send the signal that it is working. this particular will be , and those protections will be the focal point tomorrow. what is working? to ecb announced the plan find credit expansion, ballot -- balance sheet expansion, what can mario draghi
.2 to say what the ecb announced earlier this year is having the desired effect? sentiment has been fairly resilient in the eurozone. china, the u.s., financial markets, and also in terms of bank credits transmissions. the bank credit cycle has continued to improve despite negative rates. quitehis in mind, it is good outcome for the ecb, gdp growth in the euro area has been stronger than expected, stronger than the u.s. co-inflation, has been resilient as well but still too low around 1%. you mentioned some of the confidence measures holding up, but not all the data is that great. we got mediocre manufacturing
pmis from across the eurozone. twoontinue to see this speed europe, german unemployment continues to decline, italian unemployment elevated. is there anything mario draghi that some economies are thriving and summer dormant? last -- west. his that is very important for spain, italy, small and medium , and maybe that is something the ecb can do little about in terms of the practical risks. new elections, briggs it is a is a risk, so it
is a mixed picture at best. joe: you mention the political risks, spain has elections, the u.k. vote is not a eurozone thing but still a fax economies. that's still defects at economies. , ayou have some different mixed picture from one country to the other. inflation is low with its own banking sector province in particular which the italian prime minister is trying to address.
fund. let's get more. that values uber at $62.5 billion. extended a round to take in more money at the same valuation. this is the biggest single investment for them. it is a huge move. the managing director of the saudi wealth fund on the board of directors, something that they have not been eager to do. they recently added the head of the huffington post to the board , said they have been expanding their board recently and this is a huge investment. joe: thank you for the update. scarlet: that is all for "what'd you miss?" we have the ecb to look forward to tomorrow. joe: and a big day on friday. stay with this for the rest of