tv On the Move Bloomberg August 4, 2016 2:30am-4:01am EDT
. u'e e dry. oding uc pwiwiro fi hthatpsroui >> welcome everybody to "on thea edwards onside caroline hyde in berlin. here is what we're watching. super thursday for the bank of england. mark carney is expected to cut the benchmark rate with official signaling they are ready. sterling volatility spikes. power britain banks. -- new lows power britain banks. that interview at 8:30 london
time. full steam ahead. zima --ats estimates -- for clarity following the brexit vote. caroline: super thursday is upon us and it looks as if there is a risk appetite and we are following you is higher, you asia higher. we got futures signaling .5% uptick on the open. .5%.ee we are up the dax looks like we could surge .6%. money moving into equities. money moving into equities in japan as well. the nikkei 225 has been surging more than a percentage point. finally a turnaround in the risk aversion and money moving into asia and out of the yen. money moving out of the haven that is gold. we get -- we get a bit of a steadying in the oil market. we see supplies come down
slightly in the united states. let's get to bloomberg business flash with juliette saly. juliette: caroline, thank you. a woman has been killed and five others injured in a knife attack in central london. police were called to russell square. a 19-year-old man was arrested a few minutes later after being tasered. mental health was a significant factor in the event come although the possibility of terrorism is also being explored. siemens has released its earnings outlook as it posted higher-than-expected third-quarter profit. a jump in orders for powergenerating equipment. europe's biggest internet company says profits from industrial operations rose 20% to 2.1 9 billion euros in the months through june. chicago fed president says one rate hike could be warranted this year as the economy picks up steam could he expects growth to increase in the second half
of 2016: disappointing gdp readings in the first two quarters to do meanwhile investors are awaiting friday's jobs starters to gauge the fed's rate path. global news, 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. saly.uliette this is bloomberg. anna. anna: thank you very much. let's get back to a macro story of the day, mark carney is about to put moneys -- the bank of england is expected to lower the u.k. growth outlook and a majority of economists also believe we will see a rate cut. manus cranny is at the bank of england. downgraderutal of a to growth that are included in the inflation report -- how brutal are they going to be? manus: i think it is going to be fairly brutal. this is the reality of brexit coming home to roost in terms of growth outlook. with the fastest-growing economy
, in may at 2.2%. already seeing a good faction for this quarter. today, it is about uncertainty rising. we got a lovely chart that shows you the uncertainty that is in the market. it is the biggest one-month fall for the index in its 20 year history and what is on the menu? rate cuts in the view according to markets. 50-50 ore easing, corporate bonds? .efocusing the inflation target the risk to markets going to bill gross is an action. >> i think the market expects them to cut but they didn't cut, there would be near-term chaos. with the fed along
and move along with the boj. manus: you and i had a look really?saying are they going to produce any kind of a sledgehammer. we spoke to the aviva ceo dousing the ability for rate cuts or quantitive easing as really adding any fuel, putting a baseline in the u.k. economy. anna. anna: i will pick it up. in a moment we are seeing the pound pretty much under pressure. there seems to be an enormous amount of bearish -- versus the pound. is the market expecting -- will live up to the expectations of more weakness? manus: i think so much is priced in, the figures are the short bet. the highest on record since 1992.
what you've got here is a trade weighted sterling, which has dropped by nearly 9% since we had the brexit vote. the question is will the market react as they did on the back of the bank of japan? it was a mediocre response in terms of what they did. the rba cut rates and the aussie bounced. the question for markets is are we finding a new floor in sterling? might we even see a bounce? is a the twitter five basis points the market expects? this the governor that manages crisis. he is the only person on that committee who has lived desk that is cut rates before it sterling, it is fully priced but will my? -- but who am i? anna: manus cranny at the bank of england. let's welcome our studio guest for this hour. -- david, welcome to the program.
i favorite quote comes from bloomberg news. this is the most highly anticipated bank of england meeting since three weeks ago. they wrongfooted the markets last time a little bit. many people were calling what we saw. what are you expecting to see today? how big of a sledgehammer will they produce? david: this is super dave they. we get all of the documents -- super thursday. we get all the documents. this the bank of england try to do the impossible, putting some numbers. it is hard to tell how deep it is trying to be. they are going to cut rates. by lisa 25 basis point at least. -- by at least 25 basis point at least. they extended it in november last year until the end of next year. there is no extension immediately. signaling that is -- maybe even
makehelping the criteria it a little more attractive would be a way to go. i don't think the sovereign qe gets here. -- taking the tenure down below 1%. that's taking the 10 year down below 1%. they could look at corporate qe. back in 2009, they bought $2 billion. that was a different situation. that was when the corporate bond market was dysfunctional. they were try to improve it. no one is saying that is where we are today. we are not. that could be a couple meant for lending. you go to the banks, there's cheap financing their. something along those lines. caroline: what market reaction with his have yet to your sink quantitive easing not on the table because yields already so low? i've got where we are anticipating the pound to go, $1.27 is the medium. you got standard chartered for
example thinking we could go as low as $1.20. where do you think -- is it the pound that is good to feel the brunt of the rate today? david: i think the bears positioning does set the pound up like any security. baked into a shot higher if there is disappointment. ifre the market pricing is, they only give us a 25 basis point, i think sterling will have a pop today. that is today. we think that strolling is going down into the one 20's and by the end of this year. what is good to take it there, a couple of things. the decline in the economy itself. we start to see hard data showing a contraction or even stagnation. the market will take sterling down. further policy action to do this not the only action we are going to get. they are going to cut 25 basis points today so they can cut it
again sometime this year and that further policy easing once they get a clear severe on with the economy is going to do. they are going to do enough for it to be significant growth, leaving something in the tank. threading the needle and not disappointing the market, it is a tough decision. >> we are going to get conversation from the bank of england. we spoke to the aviva sealed earlier on today. -- what difference is a going to make if we cut interest rates from here. mark saying saying we should consider taking instruction risks are a lot of people focusing on what the fiscal side does when you start talking about every structure projects. we are going to be talking to the bank of england later. do you hear helicopters? david: cutting the short interest rates in this economy does do a lot. two thirds of people mortgages puts people this puts money in people's pockets. -- puts money in people's
pockets. sovereign qe, where the tenure is? fiscal policy is incredibly important for the united kingdom. this is a global trend. we see the japanese stimulus. we see government spending increasing. the budget deficit in the united states is rising it austerity is dead everywhere. thank god. countries have worked out that despite the fact that there is optically high, they have in or miss amounts of physical space especially their own down currency -- have their own currency. the debt stabilizes recently, nobody is talking about that. we are fine where we are and so is the eurozone. absolutely, i would love to see a sustained program of intersection starting as soon as possible stretching out into the future, giving brady -- giving business certainty, pushing more money into that can structure construction.
helicopter money is off the table and we have plenty of policy options before going there. from if you regulations chancellor hammond. david, think you very much. david steps stays with us. caroline: stay with bloomberg for that boe policy decision and inflation report. we will bring that to you live at 12:00 p.m. u.k. time, followed by mark carney tsipras caverns a half hour -- mark carney's press conference at half hour later. later, mark raises its full-year forecast. we speak to the cfo after the market opens. still to come, we spoke just we talk record low rates to the former head of the uk's financial services authority. this is bloomberg. ♪
anna: a beautiful morning in berlin. currently seeing some optimism on the dax, up .6%. let's get you up to speed with the bloomberg business flash with juliette saly. toiette: caroline, thank you toyota motor has cut its fiscal year profit forecast after net income fell in the first quarter. the automaker said profits will drop to $40.3 billion for the year ending in march. that is as cheap feel pushed u.s. demand away from its car lineup while a strong yen cut
earnings from vehicles overseas did -- overseas. merck has raised its full-year earnings forecast as it posted second quarter profits. , andngs before interest excluding some cost rose 89% to 1.1 6 billion euros. marcus cannot you will join us after 8:00 a.m. that's marcus kerr not -- it can ship roughly 50,000 cars in this year's second half and half a million in 2018. that eased the sting of a second .uarter loss of $1.06 per share that was worse than the $.60 per share average estimate in a bluebird survey of 17 analysts. that is your bloomberg business flash. anna. anna: thank you, juliette. we are two thirds of the way and the earnings season. despite the bad job of low
growth, negative interest rates and headwinds from the brexit boat, european -- a positive surprise. the bloomberg european 500 index is 6.4% in the positive while financials have done better. function,s -- the a david stubbs joins us now. ont are your early thoughts the earnings season so far? david: is a patchy one. european companies have for long time had the best return on equity's. for a while we have been pointing to these as the possible fuel to significant upside in the medium-term, three to five years. of course, we look at the functions on the bloomberg and you can see there is some strength in different sectors good test sectors. the banks adventure -- sectors. the banks have been trading.
resolutionustainable to the key issues in the european banking system. everybody knows what they are. i think before the equities can get out of their own way. hopefully that should actually release a very good period of performance for investors. the eurozone economy is performing well. it has plenty of room to run it we see a pivot toward government spending. governor draghi has been wanting that out. that's has been pointing that out -- has been pointing that out. we have been waiting for some satisfactory resolution. caroline: it is odd because you talk a lot of risks that are continuing to spiral within the market check out my bloomberg. currently a really sanguine level and we are well below the five year average which is in the red line. has beenility index
significantly below the height we have seen throughout the crisis. why is there little volatility in the market? is a right to be this displaced? david: that is the measure of u.s. equities. it is slightly higher at the moment in europe. if we look at the u.s., the market is at record highs. should it be there? is in their complacency in u.s. stocks at the moment? probably. people running toward america, because it is the old cliche, it is the best house in a bad neighborhood. think theecause we u.s. economy is going to do ok, growth will be slow but resilient, but also we are concerned about every thing else. at least we find it hard to get excited about, although options in developed markets right now.
there is a key flow toward u.s. equity markets on those reasons. caroline: i have another chart, you took but u.s. equity markets, s&p 500 and blue. this showing the s&p 500 is above wall street estimates from where it should be the first time since 2014. is this partly to do with reluctance that's reluctant stock ownership. .- reluctant stock ownership bill gross talk about the low interest rate environment and how he doesn't like bonds. that is pushing people into equity markets, even though they would be elsewhere -- they would rather be elsewhere. david: the low interest-rate market only claims part of it. it is not a great reason to go and buy them. there is plenty of people who are disbelievers in this stock rally. you see that all over the networks. cliche comesld again that stocks love to climb a wall of worry.
a lot of people are just believing of this. those strategists, the expectations have been pressing in this flat market -- have been pricing in this flat market. there has been an impressive breakout. the results over the average, the number of individuals -- individual charts of major blue-chip companies that have broken out of trading rages. -- trading ranges and what could be causing it? the pictures are part of it. declinesy investment to the energy correction is a most done. u.s. dollar has been stable from a year. if we're going to get a pivot toward productivity, now is the time it inflation -- now's the time. anna: a robust defense. .avid stubbs stays with us we are minutes away from the start of european equity trading day. up next, we'll look at potential corporate movers including
11%. beating estimates climbing 20%. the move into energy equipment seems to be paying off. anna: yes indeed. let's focus in on another company that is been reporting numbers, aviva. they are giving us the numbers for the first half. telling us about their balance sheet, the capital strength at 174%. that could impress investors. we will look to see of that stock goes higher at the start of the trading day. the ceo telling me this has been , atirly stable number, 174% the top of the range. also questioned the need for the bank of england to do interest rate cuts and urging the government to taking infrastructure construction risks. caroline? caroline: some of it are calling it down as much as 4%. energy, the this savings they see. it was the sales miss, concerns
. 'itrestn i, w c u'e e dry.ynebuss. oding uc pwiwiro fi hthatpsroui anna: good morning and welcome to "on the move." i'm anna edwards, right here in london, alongside caroline hyde in berlin. we are moments away from the start of european trading day. caroline has your morning brief. caroline: anna,governor mark cad to cut the benchmark rate, signaling that they are readying a suite of stimulus. new lows. how will britain's banks cope with record low interest rates? we will ask the former head of financial services, coming up at 8:30 a.m. london time. and full steam ahead. andens speeds estimates,
the ceo tells us he urged u.k. politicians for clarity following brexit. markets are just opening up as we see futures are signaling that we could see some green today following asia and the united states higher; there seems to be more risk appetite ahead of the stimulus anticipation. we're currently flat, picking up to 2/10 of 1% higher. we're up 2/10 of 1% on the cac 40. dax,.wait to see, the always a bit of a laggard. full-year forecast up from siemens and by the likes of merck. an industry breakdown from nejra cehic. nejra: let's take a look at the imap and see how things are
shaping up on the stoxx 600. in asian trade, it was energies and materials that were outperforming with the rally that we saw in asia. energy stocks are leading the gain in europe as well, up a tense of 1%, followed by a andncials at 6/10 of 1%, then on the lower side you have consumer staples and i.t. lagging. gains ine are seeing most industry groups here in europe. if we take a look at how the it lookset is doing, like we are down just one basis point. that 10 year yield, 79 basis points in the u.k., this ap ahead of super thursday and the bank of england. fromwe see a surprise, the bank of england? that interest rate is fully priced in. let's take a look at the stocks we are watching this morning, and i am starting with nokia.
second-quarter sales really trailed analyst estimates, and so it has raised the target for cost savings from the acquisition, in an attempt to support earnings. it looks like that could be opening lower, down 2.5% on nokia. we are still waiting for a viva to open, which reported a 13% gain in first-half profit. it also increased its dividend on growth. we might see that open higher. some analysts were calling it higher. rent gold shares have more than doubled this year on the price gain in oil. what we had today was an 8.5% drop in second-quarter profit after operational problems at two of its african mines, leading to a decline in gold output. we will see how those shares opened up as a see full and production. anna: just waiting for the
keycorp brits to open up. y core operates. aviva opening up. equity markets getting into their strike this thursday morning; let's get to ryan chilcote, live on the cnc trading floor with a guest. investors all over the u.k. get ready for the bank of england rate decision. ryan: yeah. the pound is moving lower ever so slightly and it looks like more investors and traders subscribe to that, that we are going to get a cut from the bank of england. joining me is the chief market analyst, michael houston. thank you for joining us. to,of 52 analysts we talked 50 said we would get a cut. >> that is the consensus view, absolutely. and i think that is the minimum. markets are expecting 25 basis points. england will be for
the first time in months but i think the surprise will be if of the bank of england doesn't cut, we have already seen yields fall quite substantially. also what does the bank of england want to achieve? ryan: do you think that your clients, investors, are going to get everything they are looking for? the basis rate cut plus more qe? >> no, i don't think that at all. to me their scope is very limited. i think there is a danger that the bank of england could do too much, and that would have a significantly adverse reaction. positions are so extreme that i think the danger is if the bank of england under delivers, which is a possibility, everything else could go higher. ryan: quantify that in terms of the pound moving up. >> the markets are so aggressively short, and one of the only previous occasions i have been this short is in 2008
to 2012. soon after that the pound went up, simply because market expectations were so geared to a shock and awe response. ryan: last time we had a committee meeting, nine members voted for a cut. what do you think the split will be? >> this is where the mathematics gets interesting. will i think vote for a cut. wheel could vote for a rate cut. then it gets blurry. mark carney could vote for one, but that still leaves three or four others. kristin forbes suggested that we wait and see, and i think that is the right approach. it's a question of what mr. carney says. ryan: you look at applied volatility on the bloomberg, and traders right now are pricing in
the third biggest move of the pound this year, going into the brexit vote, the serious event risk, and it certainly was. also at the last mpc meeting, there was an elevated sense of, we are going to get a big pound move. today, not too far off from what we saw last time, when there was disappointment and surprise without a cut. how big could move be today? >> the risk is of a move to the upside, not the downside, simply because of the sheer volume of short positions. for me, the risky side of the trade is toward 135 and 140 on the pound against the dollar. we have potentially seen the lows. there's a risk that at any moment, the bank of england move could be counterproductive in the same way the rba and the bank of japan. ryan: thank you very much. michael houston. we will be here all day, right
up until that bank of england meeting and after, watching the pound and everything else. anna: ryan chilcote, live with michael houston, thank you very much. could we see a rally in the pound? german pharmaceutical company merck lifted its for your outlook today after second-quarter earnings beat analyst estimates. him to discuss this in more detail, the company's cfo, on the phone from don'stadt. talk us through the numbers. we are seeing an uptick it numbers; you are saying the significant increase in sales, some 18% -- give us a sense in terms of overall the sales of rebate. is have been your biggest sale when it came to multiple sclerosis drug. it has a lot of generic competition -- what are you doing? performanceh care
was very favorable in the first quarter, so we saw an organic sales growth of more than 7%, which was indeed driven by stable development of risk and very favorable development of our utility segment, which has strong performance in the u.s. and in china. compensate the pressure on volumes with a positive pricing development, which was especially strong in the u.s. anna: in terms of your job portfolio, what can you tell investors about those tablets? when will they be reaching the markets? tablets, we were on track in applying for approval. we have just recently, ended june, filed for approval at the european medicines th agency and have
received approval for review. we expect an answer by mid-2017. caroline: your acquisition of sigma-aldrich seems to be bearing dividends in terms of helping your numbers, but it did up your debt. how much of a priority is to keep whittling away at the 12.5 billion euros of debt? how quickly can you do that? for should you? -- or should you? >> after the acquisition of sigma-aldrich, we had some debt in the balance sheet. by the end of june it is at $12.5 billion, and given that, it is of high priority for the company to swiftly and sustainably reduce the debt. we have held successive generations well above $300 million in the second quarter,
and we will continue our efforts to bring down our financial debt as fast possible. anna: can i ask you about your collaboration pact with pfizer and your ambition in the cancer space? what are you expecting from that collaboration? when are we going to see or how quickly are you going to be bringing new drugs? >> our collaboration with pfizer is progressing nicely and fully according to plan. we have at the moment nine registration studies running, and we are now together with entering exploring and to the first combination studies. the most advanced indication of merck itself -- a rare and very aggressive type of skin cancer. eventually for sales in 2017, and then there
are plans to have at least one product launch per year afterwards. caroline: give us a sense in terms of bio stimulus, the regulatory environment for these types of drugs. clearly they are where you are manufacturing them, within living cells. where on a geographical basis seems to be most willing to see these drugs come to the market? targeting predominantly in the first instance more mature markets, some not america and europe. at the beginning of the year we launched our first phase three study and we are continuing to work on that initiative, which is supposed to provide further topline growth to the company in the years ahead. anna: thank you very much for joining us. , from merck.t
with us in the studio, are global market strategistfrom j.p. morgan asset management. how does it feel to you at the moment? >> this remains one of my structural over rates -- you have the well-known fear that everyone is aging and also the technological revolutions that we are undergoing right now and health care is really at the crux of three or four themes -- we are leaving through a very deflationary environment and yet you still have pricing power although eventually it runs off because you have competition with generics but still, the point stands, that you have pricing power on your key drugs. as always, this has stock specific issues -- you can have
drugs that fail, so we are picking winners in this sector and that is difficult but a broad-based exposure is still something i absolutely like. anna: thank you very much. david stays with us. coming up, investors expect a cuts from the bank of england interest rate. how our members coping? bloomberg up. then, banking and brexit. respect to the former head of the u.s. financial services authority. don't miss a conversation with him, coming up. then a beat for siemens. the biggest engineering company raises its outlook after topping estimates. the ceo ways in; his share price is up this hour. this is bloomberg. ♪
anna: welcome back. 60 minutes into the trading day. i want to get in on the movers on the mrr function, which gives you the returns. let's have a look at the biggest climbers. keep an eye on aviva, currently trading at the fifth best performer, up 4.3% as the company raises its profit estimates better than expected, by some 30%. erased their dividend as well. i want to focus on the laggards. of the worst performer is down some 13% on the stoxx 600. the jordan-based company traded
in london. we are seeing pharmaceuticals warning on generics. randgold, the second-worst performer. that's a look at the biggest movers, but let's focus on what it's all about; the bank of england, expected to be covering bad .5 basis points. the low negative rate environment could continue for some time. here is a breakdown on the leaders and what they have told us in recent weeks about surviving low rates. >> it is a very challenging one, but i would say that going forward it will become a big challenge for the rest of the economy, particularly the french and the social system in europe. >> we are operating in a very challenging environment with low interest rates, so the key issue we have is to focus on getting
our operations stable and moving up in a difficult environment. >> we are in a very unfavorable environment, lower for longer, and we are producing results but it's a very hostile environment. any change would definitely be good news. >> for global world growth has been ridiculous, lower than in the past and these interest rates could last very long. >> we want to work in cooperation with the bank of to minimize the economic impact of brexit an the on the sided of our customers. anna: some thoughts there from some banking leaders on the low interest rate environment. the global market strategist from j.p. morgan is still with us. it's not just the onus of interest rates, it's the yield curve, and their ability to operate.
>> sure. what you banks do? they are in the maturity transformation business. they borrow short and they lend long. there's a big difference interest rate and they make money in the differences. that's what is one of the key issues, not just the very low rates at the short end, of the fact that the yield curves have flattened over the last couple years. there are bumps along the way, and we have seen some in recent days, but still, that is the key trend. and it fits in, potentially, with something special about negative interest rates. it rules out a whole section of fixed-income markets and pushes them further out the maturity spectrum. in effect, you are enlarging the demands at the long and, which pushes interest rates down even further. we think negative rates are inherently occur flattening, and in a very special and powerful way, they are just plain old
low rates. caroline: where to buy, then, in this environment? if you are checking out my bloomberg, it is so painful what has been going on your to date in terms of the banking sector. the brutality of the selloff. populare, isnk italy -- the heavyweights like unicredit -- starting to look like a by? are they cheap? valuationbviously the in a lot of these european banks is extremely compelling on the but your valuation of a future earning streams depends on the earnings stream, and that is a great concern over that. i don't think that this will be a sector which is going to be able to be ridden sustainably without the concerns over the weakest parts of it being rectified. we have obviously seen plans to
do just that, but the jury is out on efficacy. furthermore, you do have the ongoing negative rate environment in the eurozone. i think the question for policymakers is not investors is yes, this hurts bank earnings, but does it prevent them or dissuade them from lending to the real economy? the first one is accepted, the second one the jury is out. if you are making less money per loan, you need more loans. if you look at the banking survey in europe, bank lending in the eurozone is improving. attitudes towards lending are getting better, even when their stock prices and earnings have been week. they're not focused on the stock market, and that is right. anna: interesting that you think negative interest rates have a specific outlook on the yield curve. food for thought. david stubbs stays with us. up next, figuring out the fed.
he says he expects growth to increase in the second half of the year. meanwhile, traders are awaiting the friday jobs data. david stubbs from j.p. morgan asset management is still with us in the studio. we were talking about the shape of the yield curve in the united states. although we heard this from charles evans, that he thinks one rate hike might be appropriate, he doesn't really want to do it. he wants to wait for better inflation. >> sure. it was kind of contradictory in that regard. it depends as always what measure you look at. core cpi inflation is about the 2% target, but they don't target that, they target personal consumption expenditures price index. the call on that is 1.6%, if i have that right. inflation is not quite there. we don't have the wage growth we were hoping for. we do have a gradual acceleration. i don't think the fed will be pressured by inflation into hiking anytime soon. my call remains that they will
hike in december, and they will do that primarily as an insurance policy. you can absolutely poke holes in the case to raise interest rates, even if the data remains a strong. this will be one of those holes you can poke. but they will look ahead and say, we don't know if quality will pick up. that is some kind of risk in inflation; let's do one hike. words answers, when is the righate hike? >> i am still in december this year. september isn't even totally off the table. i think the data hangs in there, the drag on the economy lessons. -- lessens. anna: david stubbs, thank you. global market strategist at j.p. morgan asset management. fantastic to have you.
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. odintrg ucin pwifiwiro, fi hthatpsyow usur bs.ines u 'doe t eth dvery.nebusiss. ascomcbu.ss t builbufor sssine anna: welcome back to "on the move." 30 minutes into the trading day -- how are things looking on the equity side of the equation? we are in the green. 5/10 of 1% off the highs. if you are looking at industrywe laggard. let's get across the individual names to keep an eye on with nejra cehic. nejra: thanks, caroline. one ofrting with aviva, the biggest gainers on the stoxx 600, after britain's second-largest insurer reported a big gain in first-half profit
and increased its interim dividend by 10% to 7.42 per share. this was on growth at its life business. a positive day for aviva. a positive day for siemens, europe's biggest engineering company. it raised its earnings outlook for the second time this year after posting higher-than-expected first order profits and a jump in large orders from powergenerating equipment. 3.1% up. the big laggard on the stoxx 600 is one of the worst performers, randgold. their shares have more than doubled this year on the gain in the gold price that we have seen. it has been benefiting like that, but today it reported an 8.5% drop in second-quarter profits after operational problems that led to a decline in gold output. stocks down a point in percent right now. anna: thank you.
a tough year for banks, particularly in the u.k.. it is among the worst-performing sectors on the ftse. shares of major banks have fallen. themore, let's bring in former head of the financial services authority, lord turner, who joins us on the phone ahead of the bank of england rate decision later today. lord turner, thank you for talking to us. thoughtsto get your on the decisions facing the bank of england at the moment. it has been well flagged that they will cut interest rates today. could you give us your thoughts on whether you think that is a good path for the bank of england? >> i think they are almost certain to cut interest rates. i think after the statement that we had from mark carney, from the chief economist at head of , and given the, latest survey data and activity data on construction on
factories wedge over the last week has been quite strongly that is, i think it is highly likely that they will jump. i have to say, i don't know how much monetary policy can now achieve. i think once you have already low interest rates it doesn't make a huge amount of difference. they are in a better position than other central banks, they aren't up against zero already, so it will certainly have a stimulus, but i think we are in an environment with a capacity of monetary policy alone to offset deflationary pressures around the world is coming to an end. much could this hurt the banking business model going forward, when we have such record low yields coming in? how much do you see the bank of england trying to force feed a bit of living for the banks? >> i think that is clearly a
possibility. if you look at the monetary tools that they have available, they have an interest rate cut, now at .5, and it could even come down another half which will probably take it in steps. or they could do more to me. that is the one where i at least certain of it have a major effect. what qb does is drive down long-term yields but u.k. long-term yields are amazingly low in the aftermath of brexit already. you might see an extension of the funding for lending fees, encouraging the banks to keep lending money by providing a sort of monetary subsidy. but even that is probably less effective than the tools which are under the control of the
chancellor rather than the bank of england. that is some relapse of the fiscal stance and we have seen an indication already from the chancellor that that is something he will think about. today,e spoke to aviva who called on the government to take infrastructure investment risk. what tools do you think the government needs to shake to allow them to invest more? is it simply about spending more? >> well, it isn't just about spending more, it also means you have to take things through the planning system. you have to get agreements, and one of the difficulties is keeping the economy going; it's quite difficult to switch it on immediately, unless you have plans that in advance. it takes you through the planning and development process and makes it shovel ready. but i thinkger
broadly speaking it is a good idea. that could be in the energy area , with much more investment that we need to do to build a low carbon economy, perhaps in the transport area. there is a lot of more mundane investments that could be valuable. a publicthese are not infrastructure, they are private infrastructure as well. they don't directly fall within the direct control of the government. there are a variety of ways they can simulate infrastructure spending, but it will take several years. is morere might be relaxation of the pressure to even subcategories
of relaxation of employers national insurance and things like that, encouraging people to keep hiring full there are a variety of tools and the trade-off is that the long-term benefit, probably the most useful fiscal stimulus is in spending that it's difficult to switch on quickly. anna: lord turner, if you are still overseeing the u.k. banks, what would be your biggest concern? systemic risk from italy and the eurozone? where would you be most concerned? >> well, the british banks in total do not have a big exposure to italy. issue that we looked at carefully when eurozone was under maximum stress in 2011 and 2012, and they don't have huge exposures.
the bigger problem for the british banks is that the problems in italy are one among a set of factors which are helping to keep the euro zone , andmy lacking confidence we saw some relatively for for figures. that, then, a level of the confidence hit post brexit, the slowing euro zone economy has a big effect, and you've just got a slowdown of the economy. you have an impact on property prices, and banks are always significantly exposed to property -- that's unavoidable, and that can produce either bad loans in some places where it can produce a slow down in new low demand. i would think that the biggest threat to the banks comes more
from sustained low interest rates or even lower interest a slowdown of the euro zone economy, the japanese ,conomy, the u.s. economy recovering but not at the pace we used to think it was capable. creates a sort of deflationary environment and continued low interest rates and it is that sort of thing that threatens business model rather than, i think, specific threats to exposure to italian banks or something like that. anna: thank you very much for giving us your thoughts. x head of the fsa. 8:39. stay with us for the bank of england rate decision, live at 12:00 u.k. time. up next, siemens beats europe's biggest engineering company
pushed u.s. demand away from its lineup while a stronger yen cut earnings from vehicles sold overseas. merck has raises for your earnings forecast after they beat analyst estimates. earnings before interest, depreciation, and amortization rose 29%. exchange has said the uk's decision to leave the eu may eventually damage investor confidence in trading. they are pursuing a tie up with deutsche boorse, a transaction that was shaken by the following. officials in france and germany have threatened -- anna: thanks. oil has been picking up steam, extending its rebound into the second day.
are, and that we wasn't the case earlier this week. the hour. chart of >> this is what we have come up with. it is basically a closer look at the data we got out of the u.s. from the eia, which we have been anticipating. this needs to be pulled up on your bloomberg -- what you are seeing is the decline in u.s. production and then you have -- what we have done is we referenced it with the price of oil. the decline is down to 8.40 6 million barrels per day, leading up to july 29. it is the first time we have seen that the client in some or weeks and it is the longest stretch we have seen since january. you can easily swap this across
andell on a one-year basis you can see even on a lower time to the, imports surged highest since 2012 as the output slipped, very interesting sets of numbers. anna: thank you. caroline? caroline: we are now talking corporate's. siemens has exposure to the oil market and the early report is that they beat analyst estimates, raising their earnings outlook for the year. shares traded higher this morning, up 2.9%. we caught up with the chief executive. >> i'm very proud of my team because we have been delivering on the back of q2. we have clearly been back on the compared to currency
related changes when we increased profit. hand, theer environment has not exactly been great, we really need to work hard to get the performance, executing on the mission of 2020. so far it moves along very well. caroline: let's get more on siemens -- we are joined by benedict kumar. talk us through these numbers. they did look pretty strong, given the economic environment. >> it's difficult to find anything negative in those numbers. and gas is doing very as they catch up on a lot of orders.
it's very important, a supply a lot of equipment to companies that rely on oil and countries that extract oil. managed to deal with the backlog very well. has done veryess well -- they made that big acquisition that is doing well so it's a good, strong performance. this is an unusual number to get because there are a lot of things that are hidden. numbers, andset of you are keen to point out to me that it wasn't all about oil -- tell me about the brexit conversation. i was impressed that they managed to find members of government to talk to about the plans for the u.k.. >> siemens was one of the first
companies to come out with some view, a lot of companies have been very shy to come down on one's either the other -- later they said we are putting some investments on hold or we are reviewing the. but then they struck a more careful tone, saying that they have 14,000 employees and a lot of factories. whatever happens over there will be just fine, but what he did wanted what he was asking for was that is the charity, that sense of being able to plan which is in line with what most of these are telling us. >> they did sound pretty pleased. but talk about the concern with the economy. this is a company that has to take steps back, making job cuts, restructuring. is there any hint of what the next quarter signals for them? >> it is hard to say. he raised his forecast for the year; he did it
for the first time in january after people said he was too risky but the fact that he has managed to maintain their momentum and raise it again shows that he is fairly confident with the way the business is going. he did say this morning that it's too early to look into next year because they don't know what will happen but for the time being they will try to optimize performance. caroline: we will see how siemens performs. great to have you; thank you. benedict kumar. up next, traders race for a rate cut, and lower growth outlooks. but is it really all doom and gloom? this is bloomberg. ♪
anna: welcome back to "on the move." let's have a quick look at how the market is performing. 52 minutes is the trading day. we are currently seeing is holding onto the gains, coming off the highs. ftse in negative territory, pharmaceuticals underperforming, randgold -- keep an eye on them. the dax is up, cac up slightly. anna, it's all about super thursday. anna: absolutely. the bank of england is due to publish its first full
assessment of the u.k. economy since brexit. it is expected to lower its u.k. growth outlook and the majority of economists also believe we will see a racecar. manus cranny is at the bank of england. just how brutal are we going to see the bank of england being in downgrading their estimates for growth? they need to tread the fine line between being realistic and not scaremongering. manus: yeah, and i think this is obviously -- they have to be honest with the british public about the reality of the slowdown. we are looking for the third cut to growth in the united kingdom. take your mind back to me, when we had a rate of 2.4%. b.i. reckons 6/10 of 1%. 1%,e now down one third of so the market is just beginning to fill it in. the question is this -- the on youras
certainty of a 25 basis point cut. the other question is what else would the cohorts do, and what value is that in terms of the rate cut? the ceo of aviva sounded skeptical. >> i am not sure what question a rate cut is trying to answer. we have already got low rates. we don't have overstretched housing. companies can already borrow pretty much free money. our debt costs are going down in down. what is a rate cut going to achieve? manus: a couple of really big issues. one is about signaling to the market in terms of the intention of the monetary policy committee to keep these rates low for longer period of time. the chief economist use phrases like "sledgehammer," to move the economy along . it is what else they might do -- that is where the debate lies. quantitive easing, by a corporate bonds, funding for
lending, or maybe adjusting the inflation target, that 2% target. seeing on thee're screen the pound down 3/10 of 1%, for a second day. so much hope and bets upon more stimulus. how much is this currently being factored into the british pound? manus: well, the market is short as short can be according to data that collates all the long and short position. it is as short as it has been since 1992. the market has been building pressure. i think with interesting -- i shifted my thinking since i got here this morning -- so too is the market. i thought maybe sterling might see a bit of a backlash against the bank of england, as we saw in the aussie dollar, as we saw in the yen. despite more stimulus the currencies bounced. but this currency looks as if it is under pressure.
down 9% on a trade weighted basis, and that is another headache. it's the wrong kind of inflation. that could see inflation busting the 2% level. bankhat could lead this with a pretty tough decision. do you run the inflation numbers hot, so that you have a little bit of inflation, or is it a floor under the u.k. services, construction and those indicators that are all sub 50? that is the worry for the bank. anna: manus, thank you. manus cranny at the bank of england. stay with bloomberg for the bank of england policy decision and inflation report. the will bring you that's 12:00 u.k. time, followed by mark carney's press conference half an hour later. that will be fascinating to hear from him. stay with us. pulse." "the
francine: we are just hours away from the bank of england rate decision and inflation report. investors expect connie to change course and cut interest rates. government bonds slip into negative territory and brexit triggers market uncertainty. we will hear from the ceo of one of the world's largest gold producers. after dipping into the bear market earlier this week, u.s. court's holding gains, sending emerging market currencies higher.