tv Bloomberg Markets European Close Bloomberg July 29, 2016 11:00am-12:01pm EDT
you are watching "european close" on "markets." [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. isit ncicap.org] mark: we're live in new york and london for the next hour covering stories in san francisco and milan. european stocks heading for their best month since october. u.s. shares seeing gains in july led by strong tech earnings. vonnie: european banks making a comeback. shares of barclays and u.b.s. rise even though profits fell in the last quarter. and all eyes will be on the bank of england's policy meeting next week trying to give the u.k. economy a boost in the wake of the brexit vote. mark: let's have a look at how european equities are trading. the power of the bloomberg sabmiller recommends the revised
ab inbev offer. how fast things are moved. we were saying sabmiller is said to be ready and then bang it happened minutes ago. look at the red sticker. sabmiller board has recommended the revised ab inbev offer. interestingly, it says 45 pounds a share offer. it went from 44 pounds to 45 pounds per shareholders. it was at the lower end of the acceptable range. it was below acceptable for shareholders. but the big shareholders were getting behind this deal. other news on this deal came from ab inbev. it set the china, the regulator has approved the deal. that was the big news from ab inbev today. its shares was suspended. ahead of that announcement. the big news, sabmiller board has recommended the revised offer. just a couple of days ago,
yesterday, sabmiller froze all contact with ab inbev after it raised is offer. there was a bit of fear that this deal might not happen. the shareholders, of course, still have to vote on it. that's the big news. ve a little look at ab inbev and sabmiller shares. in the shares rose, they've come down a little bit since the news that sabmiller board has recommended inbev but they're up by 3.9%. what saga it's been this week. have a look at what's happening in the market. this is global macromovers. up for the fourth day in five. we're up in july. biggest monthly gain since october. wow. what month it's been. 3% up in the stoxx 600. in june, the brexit, we fell by 6%. and really quickly, i want to tell you a bit about i.a.g. which owns british airways. it's going to cut capacity. it's putting spending in under a
view in the wake of the brexit vote with the uncertainty. depressing profit growth this year. shares, little changed. we knew after brexit that they were going to announce some sort of change to their profit forecast. that came about today. and as i drop my notes that's just reiterate the big news from sabmiller. the board recommending revise ab inbev offer. the power of the bloomberg. 90 minutes into the trading day in the u.s. let's get over to the markets. julie what, have you got? julie: so we are still seeing a mixed market in the united states but it is now a little bit more of a positive vibe. the s&p and nasdac flipped up. the dow lower by about 23 points here. but it's still, if you look at the s&p 500 over the past couple of weeks, we are seeing not much movement. the s&p this week is set for its first weekly decline in the month of july although it's relatively small. here's the two-week chart.
pretty much sideways. up half of 1%. we have not seen that much dramatic movement but we are seeing dramatic movement of course on individual stocks. google and amazon, for example, are what is helping propel the nasdac higher today. both of these stocks are trading at records after reporting earnings beat estimates and both of these, it is not their bread and butter business that's getting attention although that helped propel profits but in the case of alphabet, it's other business. it's non-surge business. it was amazon web services that help propel profits and other earnings, we've got [newline]brand trading an 18-year high. mbers beating estimates in investment group numbers. to counterbalance had been oil but oil has turned around here in the united states. it had been a big pressure on stocks and it still continues to
be to some extent but not as much as earlier. it flips higher here. exxon/mobil, phillips and chevron lower after reporting earnings that largely missed estimates. oil appears to have turn around as the dollar has fallen around today. the bloomberg dollar is down. its declines are accelerating lower after that g.d.p. for the last quarter came in below estimates with an expansion of 1.2%. dollar down more means oil for the moment is up. vonnie: yep. it's interesting to look at. gold, a nice rally. let's check in on the bloomberg first word news this morning. courtney has more from our newsroom. >> hillary clinton and tim kaine hit the road hours after clinton formerly accepted the democratic nomination for president. she and her running mate will begin a bus trip through two battleground state, pennsylvania and ohio. on the last night of the convention, clinton belittled donald trump saying it would
make more than one person to make america great. hillary clinton: so let's be stronger together, my fellow americans. [applause] hillary clinton: let's look to the future with courage and confidence. let's build a better tomorrow for our beloved children and our beloved country and when we do, america will be greater than ever. >> trump's back on the road too. he'll be in colorado springs after a stop in iowa last mite. his running mate mike pence will campaign in ohio. growth in the u.s. economy was slug niche the spring. the commerce department said g.d.p. grew at 1.2% annual rate. stronger consumer spending was offset by weakness in housing construction. and will was a big slowdown in the pace that business restocked store shelves. officials in florida say that for the first time in the zika virus is probably spreading
locally through insects and mosquitoes after an investigation into four suspected cases in south florida. governor rick scott says transmission of the virus is confined to a neighborhood north of miami. and in poland, pope francis visited the nazi death camp today. he's the third pope in a row to go there. hitler's forces of the camp took more than one million people, most of them jews. global news 24 hours a day powered by more than 2,600 journalists and analysts in more than 120 countries. this is bloomberg. mark? mark: courtney, thank you very much indeed. let's get back to markets and the european bank. shares of barclays posted. outperforming european rivals as for brexit, the achieve executive say the bank can weather the coming storm. >> we want to work in cooperation with the efforts of
the bank of england and be on the side of our customers and clients in great britain. mark: to break down the earnings and preview today's european stress test result, let's bring in elisea martin. it was one of the strange days. yesterday, we had banks beating earnings but still shares fell. today, barclays earnings missed but shares rose and what a rise it was. nine% higher most since 2012. what's the takeaway from barclays? why are investors looking at the glass half-full than empty? >> they're looking the numbers that point to potentially the bank turning a corner. so you're looking at the cost income ratio which fell to below in at least two years. you're looking at capital. u're looking at that fixed income revenue line.
so people are looking to the bank and looking into next year and thinking in particular, the unit which is raised on profit as we saw today. well that is going to ease for next year. perhaps we're turning a corner. mark: coming to you b.s., it was interest because earnings beat but tough world for management. tough investment banking and they warned very little visibility about the near future on all fronts. shares gave up most of their gains, didn't they? elisa: yes. that's right. u.b.s. is now pretty much a wealth manager. that's what people look at more closely. and the two takers there that investors would have been looking at me new money flows which are behind the annual growth.ate at 3 to 3% and to tend for that, you've got to focus on cost and on cost.
they're saying that the targets are going to be achieved and that tempered the news on the wealth management side. vonnie: elisa, there's a great column on the bloomberg about how the brexit induced turmoil actually helped u.s. banks where it didn't help european banks at all. and i'm talking about trading volumes. why did the volumes go to the u.s. banks as opposed to the european banks? elisa: what we're seeing is a conned erosion of the market share of the european banks. and deutsche bank c.e.o. spoke of the decline and difficulties in the quarter. it was a very visible job from the share prices and confidence overall was impacted by what we've seen on the markets. but also, you know, the european funds are more exposed. and the economic outlook is clouding with brexit. i think that's the consensus. vonnie: what's the bottom line
from the european stress test today, elisa? elisa: we'll know in a few hours but i can tell you what we'll be looking at. italy, very much so. --re the focus is clearly on has been in talks with banks to put together a capital raising plan. there's also a discussion with the government about a potential bailout or taxpayer money of some form being bought in to recapitalize the bank. nd the focus will also be on germany where deutsche banks are thinly capitalized and buffers are not as high as some investors would like them to be. and this test will tell us how thin they might be. mark: elisa, thanks so much in milan. those stress test results come in at 9:00 p.m. london time. in the u.k. 10 year yield has fall on a new record low. down to .695% ahead of next week's big b.o.e. quarterly
exclusive interview. >> i think that the u.k. government know perfectly that toa convenience for the u.k. use the high quality -- that they have in the nuck the sector nd we can provide a lot of resources and particularly capabilities. mark: will you continue to invest in the u.k.? does brexit make you rethink your investment plans? >> we have the investment plan particularly in the electronic curity and -- we are discussing with the government. i hope that we can reopen the iscussion. i am thinking particularly to the autocraft systems and you
know for the other question, particularly for the attack helicopters. agreement with bogey. -- boeing. we have some opportunities too to contradict at this business. mark: do you think brexit will budget, the k. defense budget? mauro: i hope, i am sure that they've maintained the budget. maybe they can increase the budget. you withstand the rise with 40% of your sales come from the u.k., the euro's risen by 10% against the pound since the brexit referendum? w are you going to withstand that? do you expect the pound to fall further? attract pound can
investments in the u.k. particularly where we're at, hat is important manufacturing activities. in our case, we have some problems, but not particularly important. the amount of impact considering 100 ximum capital of million. mark: can i ask you about the french playmaker a.t.r. if are you interested about a stake swap? can you tell us about what's happening on that front? mauro: we are discussing to create a different configuration giving at one part, maybe. i don't have the control of the company. but we have to base our agreement also in the development plan of the a.t.r., particularly consider first of all, the improvement of the flat phone which at the moment we have and thinking also in the
second stage of the new platform for the future of challenges. mark: just a final question on the upcoming italian referendum where mr. rensi is trying to overhaul the constitution. he wants to overhaul the senate. he says he'll resign if he loses the referendum. how important to italy? how important for business is the october italian referendum? mauro: it is quite important because industry companies speaking in italy needs a simplification of the institutional structure. for ed more rapid answer the institution of parts, creating the condition to simplify the rules and give a transparent way to face the markets in italy. so it's absolutely important
that the constitution and reforms can be approved because or n in this way, avoid overcome the gap that we have to the other countries. finmeccanica as c.e.o. mauro moretti. ahead, the european close with the fed and the b.o.j. decisions out of the way, bank of england next. we will preview next week's rate decisions. this is bloomberg. ♪
interest rate decision out of the way. let's turn our decision the bank of england. august 4, super thursday the b.o.e. released quarterly inflation report and hold a press conference as well and release the minutes of the meetings. here look at what's going to happen, check out the bloomberg. you'll see the futures markets pricing at a 100% chance of a cut in rates. a look at just why that is, we're joined by bloomberg first strategist richard. it was 80% before the july meeting. and we see what happened in july. they did nothing paved in the way for august. having it would be a complete shock. >> it would be. ne of the reasons that these expectations have been cemented at 100% is we've seen an awful lot of survey data that's really pointing to a significant downturn in sentiment for businesss and for individuals. and as a result, i think the market will definitely cut
rates. mark: let's look at the one above all others, probably, you know, puts the nail in the coffin. and that is p.m.i. data which was last friday. richard: yeah, it was last friday and the weakness of that data convinced one of the hawks on the m.p.c. to change his mind and actually he will now vote for immediate policy stimulus. and of course, since then, we've had c.b.i. data sentiments lower. we've had a lot of survey data since then that has confirmed that initial p.m.i. weakness and that's why investors are now nailing on a rate cut next week. vonnie: we just had the 10-year gild yield at a record low showing the spread between two and 10 at the u.k. and it is only 57 basis points. we thought 80 basis points was a narrow thread in the u.s. will we get an inversion of the u.k. curve at some point?
richard: well, i'm not sure. it's probably a little bit too early to make that sort of judgment, vonnie but what i think is happening is -- the thing that's driving these 10-year yields in the u.k. considerably lower and it's more for the more defender parts of the curb is there is an expectation that not only will the bank of england cut rate next week, but they may announce additional q.e. and that might come as early as next week but investors are betting on that and that's why we're seeing that 10-year yield drive down to a record low. vonnie: what kind of other purchases can the bank of england make? what's it most likely to do? richard: in the first instance, they'll probably stick with government bonds. but the entire universe is open to them punch the way the e.c.b. has started with public sector purchase -- purchases and expanded the program. but you never know further down the line. mark: and there's the funding
for lendings team. that is still going on, isn't it? until 201789 they could extend that. richard: and it could be something they do before they embark on q.e.-but policy is come and it will start as early as next week. mark: what is the low for rates? here in the u.k. i mean, is zero the lower pound? we heard many say this is the lower bound and it tends to break it. what's the lower bound? richard: we do know that the governor is very adverse to negative rates. he's already said that negative rates would not be his preferred choice. you never say never. we -- you can't rule it out completely. but i think it will taken a awful lot for the u.k. to adopt negative rates. vonnie: is he looking to the government at all to do anything? mean, whole rake of uncertainties there. will mark harney forget about the fiscal health and do his own
thing as if there were no fiscal authority? richard: this is interesting because the new chancellor of the czech has said he expects the bank of england will act first in stimulating the economy but that in the autumn statement networks the month or two's time, he will actually invoke fiscal policy as well. but the bank of england will go first and there's some joined up thinking between the chance color and the governor. mark: thank you, richard. you're watching bloomberg television. take a look at where european markets are heading as we approach the close. four minutes away. stocks looks like they're going to close higher. this is bloomberg. ♪
it looks like we will close up that third week in succession. the longest run in two months. it looks like july is the best month since october for stoxx 600. the worst performing this year, this is the individual components of the stoxx 600 .anks index, which rose by 2% barclays up by 6%, earlier it was 9%. the biggest rise since 2012. fixed incomes trading revenue outperformed european rivals. they say the noncall unit will weigh less on profit next year and analyst pointing to a drop in expenses and an increase in capital as bright spots. ubs rising. gaining as a.
ab inbev, the food and beverage component, ab inbev, 4.5% higher. .abmiller up 2.2% busy on the news that broke just before the european close with the sabmiller board recommending ab inbev's improved offer. going from 44 pounds to 45 pounds. they will work together with ab inbev. the news was that the chinese regulator will accept the deal. we have sales figures from ab inbev. i want to get into that because the sabmiller board. both rising. macro data, gdp slowing in the eurozone, .3% versus .6%.
inflation unexpectedly accelerating. the growth data highlights economic recovery fragile in the eurozone ahead of the brexit referendum. he is ready to act if growth or inflation is affected. gdp, it is still plus, but not as much as the first quarter. vonnie: i'm looking at dollar-yen. investors arev frustrated by the lack of action by the boj. 102.31, strengthening of the yen i 2.8%. after gdp data turning oil around. we have seen oil as low as $40 and $.57. two the dollar index decline. gold futures, they are above
1350. majorlook at it the averages. gdp weighing on things for the dow. was a lotsay that q2 of inventory problems. we should see gdp and proof for the second half of the year. the dow is down. the s&p staying in positive territory, up 3%. for more at the nasdaq we have at the -- we have abigail doolittle. abigail: another day of directionless trading between small gains and losses. the need that the nine surface, lots of movement. starting with the losers, down 3.4%, one of the biggest drags on the nasdaq. quarter their third revenue forecast nine below as they continue to struggle with difficulties in the medical. the ceo said there could be two
quarters to three quarters of uncertainty ahead as they make the transition. the biggest drag is western digital after the company reported the fiscal fourth quarter. while they beat estimates, and it was a good quarter from that it became clear that much of the upside was driven by the sandisk acquisition and it came at a cost. a bloomberg intelligence analysts believe the long-term issues will persist. we have the green capital saying to by the weakness and western digital. vonnie: one stock is helping with a quarter percent gain. .bigail: amazon and alphabet amazon finishing at a record high after beating estimates on the top line and bottom line for the second quarter. lots is driven by the cloud, very profitable. a fifth profitable order in a row. beat estimates for 20%
growth year over year. we now have all of the bank stocks. k is the winner in tech stocks. green. amazon and alphabet in between. netflix is the loser, down 20% on the year. vonnie: thank you. come the nasdaq in midtown manhattan. we have more from our newsroom. yen rose against a 31 of its peers after the move by japan's central bank. the most anticipated policy announcement left investors underwhelmed. they kept the bond buying target and policy rate on changed. economist warned that japan is nearing a danger zone. >> if you start moving below 96 to the dollar, lower 90's, the pain will kick in.
the reason they are not acting on the end directly is because of the g7 commitment and the hope the u.s. will pass tpp. that is why abe restricted exchange rate intervention. hastney: shinzo abe outlined his own plan. turkey escalated the crackdown in the wake of the coup. the president's government canceled 50,000 passports. turkish authorities have fired or suspended thousands of soldiers, bureaucrats, and academics. la minister mariano hoti does not want to submit rajoyf -- prime minister does not want to submit himself to a populist vote. spend 24s agreed to billion dollars to build the
first nuclear power patent and the u.k.. the british government is casting doubt on the future of the project. there is concern customers would have to pay too much in subsidies. they will decide whether to go ahead sometime in the fall. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am courtney collins. this is bloomberg. mark: thank you. let's get back to the market. banks remaining the focus. 600 index,e stoxx gaining after index results were better than expected. a summer rally. there might be a sharp pullback on the horizon. let's bring in patrick spencer, -- vice chair with more than you say the s&p 500 is consolidating. does this consolidation portend something gloomy? patrick: no.
we have had a run in the s&p. up 20%. it is not surprising. came on many months ago, you put me on the spot and asked how markets would do. everyone was negative. now the market is upbeat. i think people are more willing then sell the rallies. sentiment is higher. mark: are you seeing pockets of optimism? where? not really. it is short-term overbought on the indicators we look at. generally, looking at our clients, they hold 6% of cash, the highest level that it has been in a long time. clients are underperforming and bonds at record highs, which you alluded to. the fear factor out there. there is an opportunity in stocks longer-term. short-term, they are overbought in our opinion.
vonnie: what would you move to cash for the moment to take advantage when that comes about? .atrick: no as always, as warren buffett stock marketot a it is a market of stocks. you have to be specific weirdly like technology stocks. you alluded to how well the disruptors are doing, amazon and alphabet. you alluded to the banks which we do not like today, but in a negative interest rate world and you want to cash, these are instruments that have been scrubbed clean with huge capital positions that pay regular dividends above the s&p. they're relatively cheap. there are good places to park money and not only in cash. i want to reemphasize that we do see, as i said last time, record highs in the industries in the u.s. vonnie: we might have won today.
the last trading day in july. what banks are you looking at? if in europe, where? patrick: you can look at the banks generally. u.s. banks we like. on a valuation basis, banks in europe are more dangerous. they have not been through the strict tests that we saw in the u.s.. they need more restructuring, especially italian banks. retail banks, which you alluded to in the u.k. -- but, generally, u.s. banks are the preferred vehicle given they have better capital positions and the stress tests have been more thorough. mark: i we coming to the end game when it comes to recapitalizing european tanks? tonight, thests real urge to recapitalize italian lenders. are we nearing the point where bank investors hope the landscape is changing?
deflationary environment you have to be concerned about negative interest rates. i do not see us going there in europe or the u.k.. that is dangerous to the banking fraternity given that they cannot earn returns on net interest margin. i see reasonable economy. the next move in rates in the states will be up. it might not be this year, but it will be up. that bodes well for baking margins. i think europe is behind that. the world will normalize in a few years. do's returns will be made. -- decent returns will be made. it is like catching a falling knife on some of the banks. over a one year or two year view, and given the u.s. banks have well-capitalized and well covered dividends.
mark: the next move in u.k. rates, you say u.s. is up and u.k. is down. that is basically everybody. you have chosen this chart, the pound-dollar versus the 10-year yield. the 10 year yield is the blue line, a new record, and the pound-dollar is the white line. quite a divergence at the end. patrick: i like that chart because people are so negative about the u.k. and brexit and us falling into a recession that people are delaying spending. we have a huge deficit in the u.k.. when brexit was announced, there was a lot of scaremongering. generally, if you have a negative deficit position you have to fund that externally. if you were going to move into a horrid recession, the yields would move sharply up to attract that capital. in fact, what we have seen, are yields falling to all-time lows despite the currency falling
10%. what is happening, which is fascinating, is that basically austerity around the world -- because of populism and low inflation is being diminished and will be pulled back -- even hammond has talked about the possibility of cutting austerity. i think because we can fund gu ilts at a low level, and we saw that the city airport, we have talked about the third runway at heathrow, you will see more projects like that that will make up for all of the concerns of her that expenditure. t on theheat -- upbea u.k. and the ftse. and the:43 in london u.k..
vonnie: it is time for the battle of the charts, the friday battle of the charts. mark barton -- who is not ready yet -- against all of oliver will go first. are you running a show of it there? i will start. if you are looking at the s&p, all nine out of 10 sectors are down except for information technology, up over percent on the week. there are earnings out, and that is important.
looking at technology evaluations. far, thermance so bottom panel looking at the tech performers so far year to date. earnings have started come you can see tech outperforming the s&p. that is the ratio of text to s&p, meaning it is outperforming the broader benchmark. it has gone up quite a bit since we started earning season. it has done pretty well in terms of beats, but it is year-over-year one of the worst profit losses. the valuations, topline is the p/e ratio of the staples group. the bottom line is the pe level of tech. you can see a big cap where you have tech trading and the gap is the weakest ever. you're looking at cheap tech stock that is helping them right now. vonnie: that is a fascinating chart. our viewers should go to 2380 in the calendar to get another look at it.
you have another good one coming up? mark: it is perfect, that is all i can say. today was not only about the bank of japan, which besides monetary policy on -- unveiled inflation data, we have the eurozone of taking 2.2%. it is the highest since january. we are -.6%. the ecb'sar cry from inflation forecast of just below 2%. what does this tell us? german breakeven, the difference between the government bond and is a far link debt cry from the 2% levels that mario draghi would like. this is his third inflation gains. the third-year forward inflation swap rate, down to 1.33%. early july, it fell to a
record low. we are near the record. inflation expectations are not telling us we will see the ecb hit the 2% target. i will tell you also, this gauge is below the morgan stanley gauge, which tells us when the first rate hike -- this gauge tells us you will not be seeing tight monetary policy anytime soon. rate hikes the next is 58-months away. the next u.k. rate hike according to morgan stanley is months. the market is telling us the ecb will hike rates before the u.k.. are we talking about rate hikes? yes, we are. let's be different. vonnie: remember when we were talking about the potential of the u.k. reason before the u.s. 18-months ago? inflation is nowhere to be seen. are the winner because
their pieces are inspired by military aviation. we would like to welcome the ceo. if you would like to have a look at what we are talking about on .he bloomberg, type bros you will see a website for the bell and ross catalog. for joining us. explain how you compete with rolex. what gives you your competitive advantage? >> we have a passion. we know where to drive the company. .e stick to being consistent also, having a good team that works hard. vonnie: everyone says that. what gives you the edge? is it the military style? who do you appeal to? carlos: people who love the design. the influence of military is
huge. internet language comes from the military field, gps also. our world, military aviation, we have many inspired by aviation. we say that when you are in an airplane, the most important part is the cockpit. we were influenced to put the cockpit on the rest. mark: i don't know if you have looked at the different brands. i would be intrigued to know what does the military bring to the watchmaking industry. why are we wearing wristwatches today? we remember that our grandfathers were wearing pocket watches. i, they said ir cannot drive the plane, shoot the enemy, and check my pocket watch. they asked the watchmakers to
fix the pocket watch on the wrist. this is what they achieved. wi stands for wristwatch one for the period. vonnie showing interest. how many of your customers are female? carlos: 20% of our customers are women. i think that as we have an iconic model with the square watch, women want a more feminine adaptation, which we have been doing with the s --s standing for smaller, sleeker, smarter. vonnie: you have used marine models and eagle, beautiful brand names for your watches. tell us about the demand. $2500 watch is not too much for a luxury customer, but are
their pockets of the world where it is difficult now? carlos: in the luxury world the man must be superior to the offer. we are a challenger. we could control that. we are also good make the demand superior to the offer. we have our core business that goes from $2000 to $6,000. we have also higher prices. oss.ie: the ceo of bell & r check it out on the bloomberg at bros . this is bloomberg. ♪
♪ >> from bloomberg world headquarters in new york, i am scarlet fu. .> i am amanda lang we are covering stories from new york, send it cisco. -- and san francisco. the american economy grew at a slower pace than expected in the second order. the european banking authority releasing the results of stress tests for european banks. how italian lenders are faring. >> we will hear from the ceos of 2 italian banks. on how some of the european banks are recovering from brexit-induced volatility. we are halfway through the u.s. trading day. let's go to julie hyman. she is tracking the moves.