tv Bloomberg Markets European Close Bloomberg August 12, 2016 11:00am-12:01pm EDT
nejra cehic. you are watching the "european close" on "bloomberg markets." ♪ >> we will take you from washington to frankfurt and carver stories out of the u.k. and china -- and cover stories out of the u.k. and china. today, a pullback stocks have you raised post brexit losses. major averages in the u.s. closed records together for the first time since 1999. an equity had a blackrock joins us any moment. >> it is a global economic data.. germany's economy grew more than expected. china's momentum wavered. in july.t missed
and the bank of england is restarting its stimulus program, leaving the pound the worst-performing currency. a look at where sterling could go from here. let's have a look at where european equities are trading now. just under 30 minutes to the close. the stoxx 600 intraday here. you can see it is down 2/10 of a percent. --s time yesterday, the recouped. but sentiments are still not great. signs of still lingering if you look at options and fund flow. i want to show the stoxx 600 versus other major indices. this is normalized from 100. it shows the stoxx 600 has just
not back to the levels where was back to thejust got levels where it was post brexit. in pink, you have the msci pacific index. also gaining since june 23. this chart is in local currencies. if you put in dollar terms, it looks different. the ftse 100 is the underperformer. let's look at one of the companies we have been watching. 2/10er-maersk, shares of of 1% of the moment. this is denmark's biggest company. it has done cost cuts to create a leaner business. oil and container divisions suffered from falling prices. beat.xes were a sterling.o highlight
this is over five days. g 10 currencies. the pound down more than 1%. the worst-performing d10 currency over the past week. but if you actually look at it year-to-date, what that will pound hasat the regained the crown as the world's worst-performing currency. julie: a dubious crown. if you take a look at what is going on with u.s. stocks, we are seeing very little change. coming back from the lows of the session for the major averages, after all of them closed at record yesterday. stocksee best performing in the s&p 500 or nordstrom. out with earnings that beat estimates. seeing strong sales in its rack division. in video out with numbers -- i vidia out with numbers as again. kohl's caught in the object from
nordstrom. is we hadoning today this retail sales report that came in worse than estimated at a time where department stores are working well. check out this g #btv 2719. jcpenney in white. nordstrom in aqua. kohls in red. all of them gaining in the latter part of the week. this flies in the face of what we heard overall in the retail sales number, but many of these companies are doing various cost controls. a few are seeing outright increases in sales. what they are doing in inventory management or, in the case of macy's, closing stores. prices been watching oil on this report and speculation -- i guess we are skipping oil for the moment. so here is wynn resorts. it is falling after it was not awarded as many tables in macau
as the company requested. they will get 150 gaming tables for the new resort there. the company requested 400 tables. so worse than expected. now let's get to the oil prices. in oil around one point 5% around speculation saudi arabia is looking for some kind of stabilization in -- around speculation saudi arabia is looking for some kind of stabilization. helpare hoping stocks will hold off losses. >> thank you. julie hyman with the latest on the markets. let's check in on bloomberg first word news now. are calling for calm in the latest competition between russia and ukraine over crimea. the european union says there is no confirmation ukrainian troops killed to russian servicemen.
president vladimir putin says those deaths would bring a serious response. russia hasreport deployed air defense missiles in crimea. russia annexed of the country in 2015. the fbi has high confidence the russian government hacked democratic party groups. the fbi's findings underscore the extent to which they did sleep believes russia has spied on u.s. elections. securities experts believe that the same hackers also hack george soros and a top nato general. , more than-- in iraq 100,000 people have been displaced as troops prepare to retake mosul. the united nations warms one million more can be forced from their homes once the operation moves forward. donald trump thinks that some of the news media does not get him.
yesterday, the republican presidential candidate repeatedly called president obama the founder of islamic state. in a post on twitter today, he called out cnn for reporting the story so seriously. he wrote "they do not get sarcasm?" global news 24 hours a day, powered by our 2400 journalists and analysts in more than 120 countries. this is bloomberg. nejra: thank you pay let's get that to the markets. u.s. stocks fluctuating today after all three major averages hit all-time closing highs yesterday. the stoxx 600 also showing a little bit of weakness today. -- thoughid recover it did recover post brexit losses yesterday. what can we expect in the week ahead? joining us from edinburgh in scotland is nigel bolton, chief investment officer of active
equities in blackrock. great to have you on the program. i am interested to know more about the disconnect we are seeing, in the sense we are getting forecast for earnings downgraded in the u.s. and europe. yet we are seeing gains in stock markets. what is driving this? huit a hot for yields -- a nt for yields? a key i think that is factor. we are in a slightly unusual situation. driven hereby central-bank policy. the result is evident in the bond markets. the pointting to where people are unhappy about buying negative returns and bonds. despite the fact that there is very little earnings growth in the world, we are in a low nominal growth environment. equities provide income and the opportunity for some growth over time. -- ifk relative to bonds
you look at the msci europe, dividend yields relative to bond yields, it is the cheapest it has ever been. you can go back as far as you like. to me, that is what is starting to happen. you start to see the flow into equities, because people are nervous about buying and locking in negative returns in a lot of the bond markets. >> is interesting you talk about the cheapness relative to bonds. the stoxx 600, we are looking at more than 15 times estimated earnings, the highest this year, almost. i want to talk about how you are positioning in case of this rally does not continue. are you looking at options? ? possibly be did not want to go out right long. and how do you position for volatility, because you expect that to increase? nigel: volatility has been low.
although running into the elections in the u.s. in q4, it is likely volatility will rise. but because of interest rates remaining low globally, we expect overall levels of volatility remains subdued. so there are opportunities out where you see because of the low volatility, the pricing is relatively attractive. i think people are slowly coming to the view that the world is not just heading into another recession. people are being fearful since the global financial crisis, that we will have a repeat of the scenario. i think gradually, people are starting to move that into equities and a more meaningful way. they have gone as far as they can in the bond markets. in the bond markets now, it is small parts of the high-yield market, the emerging markets, which we do like. we see attractive opportunities there. but the overall equities -- yes,
they look expensive compared to their own history, but you have to look at where interest rates are and where bond yields are. when you put them up against that, equities are as cheap as they have ever been. that is where people are starting to focus. if you look at where the funds are going, a lot will go into income type strategies. as long as we have the current and time in a very low interest rates, low bond yields, that will remain longer than expected, than those sectors continue to perform. >> historical data shows a may for equities,sy at least in the u.s. you talked about the elections. in the past four that -- four presidential votes, we saw investors pulling money out of the u.s. equity funds leading to election day. could we see a pullback from record highs? you are correct.
certainly, your selections will be a prime focus. that could lead to short-term volatility. i would look upon that as opportunity. beo not think these will massive moving events. ultimately, we get a sensible decision and proper leadership. then we can go back to the fundamentals. those are we are in a low growth world. despite what politicians may want to do, that will not change. we are in a low interest rate world. therefore, equities in that environment look attractive. >> but also the fundamentals. the truth is earnings are not getting better. we are now forecasting that third-quarter earnings will again be negative in the s&p 500. why is there such a big disconnect between what profits are doing and these record highs? nigel: it is all to do with the low return interest rate world. nominal gdp -- something that is
not get talked about as much as real beat -- real dgp. and for company earnings, that is the more important factor. so it is a low nominal gdp world. in that environment, our expectation is that it will be a relatively low return world. positiveies give you a made digit -- mid single-digit type return. gradually, people are coming to the view that it is a better alternative than large parts of the bond market. >> year-to-date totals as well with stocks outperforming other asset classes. thank you for joining us. nigel bolton, chief investment officer of active equities at lack rock. -- lack rock -- blackrock. plungeup, the pound's has made it the worst performing currency. how low can ago? ♪
>> from bloomberg world headquarters in new york, i am shery ahn. london, i am nejra cehic. we are 14 minutes away from the european close. turning to the british pound. look at this chart. it shows it is lower for another week. this as the bank of england restarted its stimulus program, i'll leaving the pound they years worst performer. joining us is richard jones, bloomberg's fx and rate shortages. i have it on my bloomberg. i put the pound year-to-date against the expanded majors.
it is doing worse than everything else. down 12.2%. could we see it take another leg lower? richard: next week could be very interesting, because we have the first look at hard u.k. data. we have a lot of survey data out since brexit. it has been gloomy. datae get a look at hard next week. perhaps, is that data is on the weaker side of expectations, we could -- if that date is on the weaker side of expectations, we could start a leg lower in the british pound. shery: we look at gilt yields. we have seen the 10 year fall to record lows off of the bank of england expanding qe. richard: that is true in shorter maturities as well. for the end of the year, i think we have another interest rate cut in the bank of england.
i think the interest rate differentials are probably not poundlly what drove the lower initially after brexit, but it is playing into the story now to the fact that gilt yields hit record loads has -- lowe's has hurt the pound. nejra: let's look at the wirp function on the bloomberg. it is a good snapshot. we can see that traders are pricing in 18% of a chance of a rate hike in september, down from yesterday, where was 24%. on target not happening until may of last -- of next year. is this what traders are pricing in now? richard: what we could possibly see as a repeat of april, where the actual statement did not have much of an impact at the time. but the minutes were more hawkish. i am not certain that is what
will happen next week, but that is something investors have to be open to. having said that, given the data we had today and the lack of traction in raising u.s. yields and the probability, even after that pay rates last week, even if statements are more hawkish, i think we will probably not get much upside. and you have jackson hole in a couple of weeks, which i think people -- investors are looking forward to. >> what should investors look forward to as they assess what the fed will do? we expect the updated jobs report, for the fed to drop its way and see approach. so what should investors be looking at, going forward? i hate to sayh it, i think we see a fed that
says they remain data dependent and that the data is mixed. i think where the markets are pricing expectations now are probably about spot on. the thing that will move those probabilities of a near-term rate hike higher are better data. to these data do not fit the bill at all. richard jones, bloomberg's ethics and rate strategist. coming up, we hear from italy's former prime minister mario challenges facing europe after the brexit vote. this is bloomberg. ♪
excited before the vote. it may be after the vote. understoodey have that the fx of brexit -- effects of brexit will be on the real economy. they will take time to materialize. so while there probably will be very serious economic, real economy consequences, for both the u.k. and the 27, it is not a short process. and of the markets do well to focus more on other problems. the problems of the nonperforming banks and so on. francine: speaking of the italian financial system, does the italian finance assist them remain too big to fail and to be to save -- too big to save?
mario: the italian financial and banking system do have their problems. yearsave had a number of in which they had considerably less programs -- problems than other banking systems, like germany or spain. now, -- of course, the monte dei paschi siena was a big problem. it was the only occasion in which, during my government in 2011, 2013, the state intervened . for the rest, there was no clear need to do so. i have the impression that italy's banking system is a problem, but they also, frankly, have pressure, especially the anglo-saxon world. that problem is being slightly
exaggerated. maybe also to inadvertently seek to divert the attention from brexit and other major problems. >> that was former italian prime minister mario monti speaking earlier today on bloomberg television. let's look at where european markets are trading. we are five minutes away from the close. the stoxx 600 pretty much unchanged. a little softer after we saw it recoup post brexit losses yesterday. asianhind u.s. and stocks, though. the ftse 100 pretty much unchanged after six days of change. the dax down three times a 1%. let's look at some of these -- the dax down 3/10 1%. 3.1% asller-maersk at it started to meet punishing market conditions with cost
cuts. its earnings before interest and tax actually were a beat, despite an 80% drop in profit. oil gaining. bank of america raised it to a buy, but higher oil prices may be feeding into this. the worst performance on the stocks of hundred, anglo-american among them, down 3%. we heard from people familiar that the attempt to sell a nickel mine in brazil have stalled because bids from potential suitors are low. this is bloomberg. ♪
watching the european close. nejra: let's take you through all the action. if we look at the indices, we are seeing some of them move higher area stocks moving higher in portugal. ,lso moving higher in ireland where we have seen a little bit on theness come in european equity benchmark as a whole. taking a look at currencies, the pound down almost 0.2%. headed for its second weekly loss. it is the world's worst performing currency this year. the euro is up almost to 0.4%. germany's 10 year yield is down one basis point. 600 godn to the stoxx pretty much unchanged.
after yesterday, it recouped post brexit losses. they have been lagging in that respect. we are seeing a bit of a softer trade. investors are underweight for the first time in three years. lingers in fund flows. let's take a look at some of the main movers we have been watching. bank of america did raise it from a buy to a neutral. it has had some punishing market conditions, but it has met them with cost cuts. divisionsd container suffered.
were good. have beenperformers bad. anglo american trading down. finally, the stoxx 600 year to date. it is down more than 5% year to date. shery: i'm taking a look at some currencies starting with the u.s. dollar. it has dropped to the lowest level in seven weeks. down 0.25%. we had disappointing data. retail sales and producer prices in july were weaker than forecast. as the dollar falls, the yen is gaining ground. currently trading at that
100-101 level. e dollar falling. remember, currencies and commodities are gaining ground as oil heads for the biggest weekly advance. but's get a check of the broader u.s. markets. we are seeing them retreating after those disappointing data ut of the u.s. the s&p 500 lacking clear direction. earnings season is approaching. 90% of those s&p 500 companies have already reported. gaining.q abigail doolittle is that the nasdaq. abigail: this may come as a bit
of a surprise considering that the nasdaq is just about flat, but this is a very exciting trading day for the index, considering that today's closing direction is likely to show whether the nasdaq and close higher on the week for seven weeks in a row. nasdaq's six-week winning streak will be broken. does weekly trends are very important to pay attention to. now helping the nasdaq the most, helping on the side of the tug-of-war to the bullish side, apple, the biggest boost today. this stock has not managed to hold onto its gains over the last two sessions. i.ther big boost is nvidia big growth in terms of earnings.
revenues grew by 24%. even more impressive is that shares are up more than 160% over the last four months. we looked into what is behind this. strong execution from management and the fact that the company is moving into new segments away from gaming. as to whether the strength continues, it could have to with whether the strong gaming cycle continues. how about the notable lacquers weighing down the index -- laggers weighing down the index? abigail: we do have those. microsoft is down. one biotech dragging in a big way desk gilead. hepatitis c prescriptions are down in the third quarter.
this is in line with the weakness we have seen. helping to explain why the stock is down sharply on the year. shery: abigail, thanks for joining us. alyssa parenti as the first word news. attacksa series of bomb cost --eted the country the country's tourism areas. the thai government says it does not know who is behind the attack. measures being considered, limits on some south korean exports to china, beijing. russia's president vladimir putin as fired one of his closest allies. he says he is replacing sergei ivanov as chief of staff at
ivanov's request because he had been at the job too long. in turkey, banks are taking their orders from the top. president erdogan warned that refusing to lower interest rates could be considered treason. rates averagege almost 14%. the president thinks they should be about 9%. dayal news 24 hours per powered by 2600 journalists and analysts. this is bloomberg. nejra: thanks so much. if the bank of england's new qe program causing more harm than good? e -- pension funds are hoarding longer debt.
byexplain, we are joined bloomberg government bonds and currencies managing editor paul dobson. problem for of a the bank of england or the pension funds? it remains to be seen. the bank of england cannot buy all of the bonds it wants to get its hands on. as yields come down across the guilt curve, that puts pressure on them to try to increase the holdings.assets in they are working to hold on to longer term government bonds. it sounds like something has got to give here. so far, we have had one
small move by the bank of england. there may be some changes that could happen that would alleviate the pressure on the pension fund. they could change the calculations that they use for their liabilities. that is something that has happened in the netherlands for recent years. the second could be for the bank of england to change the parts upthe gilt market and leave a little bit of that debt. to third option could be sell more bonds and give the pension funds more of what they want. shery: explain this to us. there is no shortage of long data bonds in the market. what does this mean? paul: the whole conundrum is that pension funds really need to match their liability. the future amounts they are going to have to pay out. againstd to match those
the stuff they are holding in their portfolios. they are very reluctant to give up the kind of bonds there maybe it isady area tucked away in an account where they know they've got predictable income coming in and they know what they are going to get at the end of the term. they have a huge amount of these bonds under their control. they still have a very big shortfall in their portfolios. toy are probably reluctant change up the situation. shery: is this problem confined to the u.k.? paul: that is an interesting question. is that thefinding lower yields on longer-term .onds -- look at japan
struggling everywhere. , they arehe u.s. fessing up that they will not be able to make as big of returns as they were counting on. global pressure at the moment. el-erian had mohamed writing about the titanic challenges for retirement funds. you have alluded to some of them, but what are the other implications for global markets and the global economy? paul: from the bond perspective, all of these people calling for a bond bubble saying that the h have been- nig oring to recalculate reassess their appreciation of what is going on in the market.
bonds ofnd for government debt. maybe over time that means governments are going to start loosening the purse strings to get enough debt out there for these pension funds to loan -- own. shery: it looks like this problem is not going to go away. what can be done to improve the situation? paul: as we were discussing, some of the measures that could happen, one that is interesting is the idea of more fiscal stimulus from the u.k. government. the administration that has taken over since the brexit vote is talked about an increase in spending. , stuffructure projects that cannot only help keep the economy going, but it could forease the poll -- pull the pension funds to on.
story. sales up today and they are a little disappointing. this shows non-store retailers. shery: we can see that you have an appointment coming up right there. [laughter] retail sales have been climbing for years. it has been climbing for a wild. accelerating as part of the overall economy. it really explains why some companies are in so much trouble. .ou can see that chart nejra, joe not making things easy for you today. nejra: at least we are both one line wonders today.
my chart is one line, but i think it tells a pretty compelling story. it goes with what we have been talking about, whether investors are moving into equities. what this shows is that companies in the ftse all share index. we have seen it fall to record lows this week. may get cap's, which have been are noing -- mega-caps longer the only drivers in the market. have jumped toes the highest levels. are at a companies record. have stocks become too expensive? the ftse all share index is 2%
away from a record. it is near its highest ever multiple versus the euro stock 60 index. is this really the time to be moving into stocks versus bonds? you can see my chart on the bloomberg. that: that is a conundrum we are even facing in the u.s., but i'm sorry i will have to go with joe because i do like the online sales component of that story and consumers being so important for the u.s. and the u.s. economy being so important for the global economy. joe, congratulations. thanks for those beautiful charts. i had come the european flows, the experiment was negative interest rates gets real. retail customers will be charged to get cash. ♪
shery: live from london and new york. nejra: the european close on "bloomberg markets." time for the bloomberg business flash. a look at some of the biggest business stories. macau is serious about limiting the growth in gambling. steve wynn will only get 150 gaming tables for his resort in macau. that is a little more than a third of what he asked for. macau wants to reduce its reliance on gambling revenue. in the u.k. shrank for a second month in a row in june. building output declined by 0.9%. companies have started to put their spending plan on hold.
a labor dispute in london has forced euro start to cancel some trains to paris and brussels over the next few days. before day strike over working hours. there is another strike planned against euro start at the end of the month. that is the latest business flash. retail customers will be charged to hold cash by a german bank. whoill only be on those have more than $100,000 in savings. for more on how it all changed, i want to bring in jet black, who wrote the story. thank you for joining us. this was never part of the ecb
plan. what happened? jeff: that's right. mentioned in your introduction, this was never intended to be something that would filter through into the real economy. in the meantime, two years have .assed this particular bank has decided that it is not making enough money and it needs to take extraordinary measures. that is what the story has been? nejra: could we see this happening more and more. could this become a reality in european banking? jeff: i think what has happened this week is that an important taboo has been broken. that individual banks can pass on costs like this to their customers. if growth does not pick up and
lending does not pick up, more and more may have to go down this road. so far, policy makers say that there has not been any negative side effects, but could we see more customers withdrawing cash and stashing it at what point do they -- jeff: i what point do they convert their bank balance is into money. we still think it is a big psychological cost to have to sit on a load of cash. as time goes on, we make it closer and closer to that. this is a small bank. are they applying this to all customers are just a segment of clients? jeff: no, just to give you background, this is a tiny little savings bank in a village at the foot of the bavarian out
a --lp -- alsps. they are applying it to people in only have 100,000 euros savings, but an important psychological barrier has been crossed. it have impact on the ecb's next policy decision? jeff: there are going to be increasing calls for negative rates in general to be rethought. we see that around the globe. has facedf japan serious criticism for its negative policy. the bank of england said it is not going to go there. we do want to see whether it is the right way forward. mario draghi will face more serious questions about that. jeff blackblack -- in frankfurt, thank you for that. a look at how the indices closed.
the stoxx 600 pretty much unchanged. it recouped its post brexit losses. much slower to do that than the u.s. and asia. lower. let's look at how the bond markets and currencies have been shaping up. on the 10 year gilt yield, we are down two basis points. weaker sterling. worst-performing currency in the world. it has reclaimed that crown, down 0.2%. stronger euro, though, after data out of europe. this is bloomberg. ♪
matt: from bloomberg's world headquarters in hot, hot new york, i'm matt miller. .liver: i'm oliver ran it here's what we are watching. stocks taking a break after hitting new records this week. treasuries are rallying. andppointing retail sales the likelihood of a fed rate interest ike. matt: we have breaking news. it looks like hillary clinton is forasing her tax returns 2015. we see that the clintons say they paid 34.2% tax rate for the last reporting year. are going to continue to get headlines on this and bring you all the news on hillary clinton's tax returns.