tv Bloomberg Markets European Close Bloomberg August 16, 2016 11:00am-12:01pm EDT
close on bloomberg markets. ♪ mark: we will take you from washington to london and cover stories out of china and australia. here is what we are watching today. in the first in clues on the u.k. economy in the wake of the brexit vote we see inflation accelerated july. we will ask an economist whether he sees it bursting through the 2% gold by the second quarter of next year. vonnie: more of brexit vote fallout. investment banks will start the process of moving jobs from the u.k. within weeks of the u.k. government triggering article 50. our exclusive reporting on the largest four of the firms.
we hear from the ceo of the world's largest mining company on why he says the -- is over and a long-term outlook recovers and oil is strong. mark: let's have a check where european equities are faring. movements,bal macro look at the stock's column. we are down in europe for the first consecutive day. decline for the stoxx 600 biggest drop for two weeks. one of the reasons why the euro at the highest level since june 23 that is impacting exporters. the copper miner owned by chile's wealthiest family. -- announced an interim dividend of 3.1 cents per share and the chief executive should -- sees a
strong second half and copper price increasing more likely. the rise today 2.9%, the biggest since february. 4.5%, of schindler down 142-year-old swiss company that makes elevators and this -- they are the global elevator market and they say it will show a slight the klein this year primarily -- decline. moderate growth in other markets like asia-pacific and europe and solid market growth in north america with first half net profit revenue rose and shares are down today. it was not all about the u.k. inflation data. we had confidence data out of germany today, investor confidence recovering in august after the initial shock of investord the index of
and analyst expectations aims to predict economic development minor 6.8% inr a july. the bloomberg survey predicted it would increase to 2%. central banks attempt to ward off a potential fallout. an improvement and the zew survey. let's get over to the market desk, julie hyman has the latest. julie: we have pullback after the record close yesterday. that has not been unusual over the past month. all three major averages are down. when it comes to housing, little bit of cold water of -- by build bill dougly. -- by as we see stocks fall back today
and we have seen them rise to records recently, it may be useful to point out what is happening with valuation. take a look here, you see the rationg price to earnings of the s&p 500 and the lines here are the standard deviation. how far away have we gotten from the norm or the average? we are almost two standard deviations away as the s&p is trailing at more than 20 times earnings. what is moving and what is moving down. we see a lot of telecoms pullback. it is the second phase of the government option of the wireless spectrum and many companies are participating with the exception of sprint. analysts estimates at&t could pay $10 billion -- $10 million in the auction for the spectrum. we have earnings related losers today.
advance auto parts second-quarter earnings missed estimates and the second quarter results were not acceptable and they are moving to make necessary changes. tjx, the off-price retailer raising the 2017 forecast, below estimates and the stock closed at a record on friday. shares are pulling back in the wake of the company's earnings report. we have a lot companies reporting secondary offerings that dilutes the offering from existing shareholders. all of these companies are down after announcing that univar is the worst performer in the s&p 500 today. vonnie: another busy day in the markets for sure. that is julie hyman at the markets desk. let's check in on first word news. clinton jumped out to a big lead over donald trump in virginia. a new poll gives clinton 852%-30
8% lead. lead. to 38% have started to receive in a southern louisiana and rivers and cliques -- creeks are above the flood stage. 20,000 people have fled their homes and at least 7 people have died. turkey is taking another step toward reconciling with israel. -- killing of citizens headed to the city in 20,000 -- 2010. the restoration of ties is excited to unlock energy contracts worth onions of dollars. -- worth billions of dollars. global news 24 hours a day, powered by more 2600 journals and analysts in over 120 countries. i am taylor riggs and this is bloomberg. mark: a big week for data for
the economy underway. inflation numbers kicking things off today and consumer prices raising .6% in july. a lot more data to come this jobs, retailg sales, public finances all in the next three days. chief european economist for lynch, america, merrill gilles. , but -- ending a 32 decline.iod of what does this tell us about inflation prospects going forward? gilles: it tells us experts are sometimes right. this is textbook economics. we have depreciation of the currency triggered by uncertainty after the vote.
it is generating this pipeline inflation through production prices both input and output through imports. that is slightly misleading because the ppi is a much narrower indicator than the cpi, inflation pipeline will be driven the next few months because it will be a while four contracts to be renegotiated. it means that the bank of england would probably have to write letters to the chancellor in a few months explaining -- mark: really? the view of economists is the second quarter of next year is where inflation will cross 2%. you think it would happen -- while, butcan take a it would find itself in the same situation they were after the
great recession when they were probably one of the most hupportive -- the most dovis central bank and the furthest away. that is life. mark carney said the institution would be able to look through this bout of inflation. definition of iteration in terms of trade and normally this shock is short-lived. mark: is it wishful thinking saying that the bank will cross nhe 2% inflation threshold 2017 second quarter? do they maybe need to bring that forward? gilles: the procession in the currency has continued after the latest bank of england's actions so it could generate further inflation down the pipeline. at the same time, there needs to
be some sort of fiscal accommodation of the shock. i agree with the idea that there is a strong case for cutting the rate and trying to offset some protectso as to consumer spending because this is the shock that has almost a one for one on spending because wages will not catch up, at least not quickly or entirely. if you want to protect against suspending and at the same time, you have to counteract this shock, you cut the rate for 12 or 18 months. vonnie: that is up to the fiscal authorities, i guess. how does the bank of england respond going forward? today it was successful with the quantitative easing biting. -- quantitative easing buying. on one hand inflation will rise
significantly and on the other hand there is no visibility in terms of trade. gilles: i think they have the to whataction versus they could have done in july. they chose to wait until august which did not make that much sense. i think they have the right call . if your military policy is already very close to the zero limit, you know you have to be very proactive. qe provides guidance and insurance that the government can fund itself without happens towhatever the level of confidence toward the u.k. i think they have the right call. they would expect more action down the road. i expect military policy has a little bit of -- i think the .all is in the fiscal camp
the fact that mr. hammond chose to send the level -- the letter the same day the -- of the bank of england decision. atnie: the euro is trading 112.65. do they have to wait to see what the bank of england does next? gilles: i do not think there is a very strong direct impact from the bank of england on to the cb . i think it will be more sensitive to whatever the fed does or says. it is hard to understand what the fed means at the moment. on the one hand, they are happy because it is obvious, we had dated today of the zew which was another indication that there is
not much of a contagion from brexit onto the european market ecbeuropean economy but the still has the old issues. banks are not in the best of shape and we have ecb that told us in june that they were not sure the recommendation package from march would be enough to bring us back to target by 2018. even if you factor out brexit, i think the ecb needs to do more. chief europeanec economist. -- stop -- start moving employees sooner in the brexit process than once thought. this is brexit -- this is bloomberg. ♪
♪ vonnie: live from new york, i am vonnie quinn. mark: and i am mark barton counting you down to the european close. we are literally 14 minutes away . major investment banks could be packing up and moving out of the u.k. in reaction to the brexit vote earlier than suggested. let's speak to bloomberg's banking and finance reporter. lead a led a mess -- miss? >> i think of banks wanted to project a certain amount of calm. from 2019k backward when the brexit happens, it
takes a lot of time for the regular -- regulatory approvals and the just the goal -- logistic steps. they will have to move quickly once the trigger hits. the fact that they have not heard reassuring things from the government probably encourages that. mark: how many bankers could get out of here and which banks will it affect? >> you are talking about thousands. bankss. obviously, the have come out ahead and talked about jpmorgan 4000, morgan stanley 1000. because europeans already have a presence on the continent they can be more flexible. you are talking about thousands across the ocean. vonnie: how is it rippling through the ranks?
our employees being asked if they want to move or how does it work? >> i do not think we have gotten to that point yet. it is mostly about contingency planning at this point. it will often depend on the activity involved. some activities like merger advisory will not be as affected. it really depends on the type of product and situation you are in. vonnie: we can see on the chart what banks are most involved. what is the u.k. government doing about this? how much does it know about the bank contingency plans? >> they knew to present a credible plan for keeping passporting. that is what the banks are interested in and to this point they have not heard that plan and that is what is encouraging them to make these plans.
the passporting will really be the key here and there are other ways to get into the single market. without passporting you will see jobs move. mark: and we may see those rights traded away. it could be used as a bargaining tool. michael: every one of these things is a bargaining chip in these negotiations and the more tenuous it gets the more banks will have to react. vonnie: fascinating. thank you to bloomberg's banking and finance reporter, michael moore. bhp reports a crutch or your loss. we will hear from the ceo andrew mackenzie. later today on bloomberg markets come a catch our interview with carl icahn and we will get his take on the u.s. election.
♪ vonnie: in corporate news, you may say it was a less than sunny picture for bhp as they reported a record net loss. despite the loss, the ceo andrew mackenzie told bloomberg the worst is over. andrew: we live in an uncertain world and i think it is important to put those numbers in perspective. the majority of the loss was caused by what we had to take for the disaster and the valuations of our u.s. shield the business and taxation matters. when you look through that you see a strong underlying
performance and that is what i think the market is signaling. is strong andeet we have reduced cost by 16% in the year. we have done that by being oursed on simplifying portfolio and simple find our company's processes, systems, and structure so we put a real accent on writing productivity drivingty -- productivity and safety. as we look forward into the current financial year we are looking at a 12% reduction in cost and a 4% uptick in volume which will release further operational productivity gains of $1.8 billion. why things are looking different now is we have been cutting cost. we have driven productivity
gains up over $10 billion near $2 billion to come. prices have been falling faster than we can cut costs. we are in a place where we are almost accelerating in our cost-cutting while prices have stabilized. jonathan: i will ask you what you plan to do with the free cash flow that you say is set to double next your. what is the priority for that cash? andrew: i will use my crystal ball a little bit. will trade ins recent ranges for a little while . i do not think it will get higher. as markets come into balance they may trade closer to the higher. when we look at current prices, we predict we would actually deliver $7 billion of free cash flow this year, the highest
since we were formed as a company in 2001. we have a very strict capital allocation framework we use to determine how we use that cash. in the first instance we will look after important maintenance capital we have to do and check that the balance sheet is strong and we have a dividend we pay, 50% of our underlying attributable earnings. this year we chose to put some toward further growth of the business and an additional dividend and some onto the balance sheet purines the preference going forward is to continue to pay down debt. not to the extent that we would not use the opportunity to make good on our commitment to increase cash returns to the shareholder and look after what are attractive long-term growth plans or the company. i gave a speech in miami and i outlined a six point plans to
grow the value of the company that the prices that existed then by 70% and that is something we want to continue funding. billiton ceo andrew mackenzie earlier. we are five minutes away from the end of the tuesday session and stocks are up for the third consecutive day, the longest losing run this early july, the week euro hurting exporters. the ftse 100 eight-day winning run has come to an end. is dominating the currency situation and we had strong inflation figures in the u.k. a better than expected german investor confidence numbers.
let's take you through the early market action, the late market action and the closing action. three industry groups rising today, oil and gas, chemicals, basic resources. this is the longest losing run, three days since early july. the biggest fall for two weeks for the stoxx 600 today. look at this, miner. bhp billiton, shares up 4% today. they flag they are emerging from the worst come on at a price slump in a generation, underlying profit jumping 95%. we have seen a rebound in commodity prices since january. since the multi-decade lows. the second quarter was the best corner since 2010.
they will likely market low point for the producer with a rebound in prices and higher output this year according to peter o'connor, a sydney-based analyst with sure partners. 9%,es earlier up as much as the most since february, this is a copper miner owned by chile's wealthiest family. they announced an interim dividend of 3.1% per share. this chart. january 20 is when european miner stocks fell to the lowest level since 2003 and it is great to see how they fared since. anglo american 303% higher since then. billiton 80% higher. a big piece of economic data today in the u.k. was inflation.
cpi, the blue line, they were expecting .5%. sterling is very much evident on the ppi. let's put it in perspective, producer prices have fallen for the last 32 months. there is evidence that the week sterling is impacting inflation and quickly, we have the results of the latest reversal from the bank of england, it essentially went out there and try to buy long dated bonds. last week was not so successful and this week was and they got 3.1 2 billion pounds of the 1.1 7 billion pound target. we solve records for the 10 year andy two-year -- 10 year and the two-year. we saw the lowest in the last
two weeks. the bond -- the bank of england bond buying was a success, unlike last week. vonnie: i am looking at the dollar index. 94.8, almost 96 a couple of days ago and that is giving little relief to the likes of sterling, trading just above $1.30 once again. japanese yen 100.28, strength by 1% versus the u.s. dollar and we did below 100 today. that was the level we got to post brexit vote. crude oil futures continue to rise. in a very near term, momentum will take it higher. appreciation of 1.5% and look at the two-year yield, we have seen a 5 basis point move today alone.
-- newdley, the u.s. york fed president said maybe the market is being too complacent about the opportunity for a november rate hike. let's take a look at the broader u.s. markets. we see them lower, the dow down about .25%. the s&p 500 is down a third of a percent and the nasdaq is down .4 -- .4%. abigail doolittle is standing by. the nasdaq have taking a breather today after the nasdaq set record highs yesterday. the nasdaq is outpacing the losses from the dow and s&p a little bit due to the overweighting some of the megacat names. istandout liger on the day haynes celestial. this isno small feat,
the worst day ever for the shares of haynes celestial. the company may have accounting issues around the can count thing concessions made to u.s. contributors. they have had to postpone or the lady fourth order report and quarteror delay fourth reports. thisve jeffries saying weakness could offer a potential buying opportunity for the long-term. they think the strong cash flow there and the hains brand is very strong. it could make them a buyout target. we definitely has huge weakness in the shares today. soaring on anocks m&a deal.
in a bigervices is up way, hitting a record high on the news that a uniform company is buying gee and k services for share.97 50 per the conference call started at 11:00 a.m. this morning and both stocks are up sharply. vonnie: abigail doolittle at the nasdaq. taylor biggs has more from our newsroom. taylor: russia has said the warplanes are using a base in iran to attack islamic states and other rebels in syria. they attacked targets near the city of aleppo today. putin discussed the fight against terrorism with the leader. -- rebels have held the eastern part of the largest city since 2012 and have battled troops since then.
the defense minister says they are closer to an agreement. warplanes have bombed a hospital in northern yemen, killing at least 15 people. the hospital was supported by doctors without borders. officials have said they only strike at military targets. global news 24 hours a day powered by more than 2400 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. mark: thank you very much. london and 11:37 in new york. the stoxx 600 briefly trimming losses on german data. investors are taking a second look. i want to bring in richard
saldanha. thursday was sort of the height of post brexit day. and that was the day on the stoxx 600 we raised all of our post brexit losses. why are we stuttering? youard: i do not think should be to surprise we have stuttered. we were up almost 10% if you look at it from the brexit lows. if we look specifically at the u.s. earnings season, we are 90% of the way through. topline growth is very hard to come by. if you break down statistics, two thirds of companies have been beaten on the bottom line. that is telling you that growth is challenging. it is not surprising, you see
people take a little bit off the table now and probably waiting to see what central banks will be doing and what the fed will be doing and what the ecb will be doing. mark: a merrill lynch survey told us that investors have gone underway european stocks in three years. you are telling them to stop pulling your money out. why are they listening? richard: there was a lot of bullish consensus on european equities. you have seen brexit and the italian banking crisis, it is not that investors are pulling their money away is not surprising. you could be getting yields on -- u.s. equities on 2%. you have seen this large exit out of europe into the u.s. which is considered almost a safe haven for equities, we
would actually be going the other way. particularly for income investors, it is quite good. we would almost go the other way around instead of throwing in the towel, we think investors should look proactively in european equities. vonnie: we have been hearing from investors on this side of the pond that they are not looking at britain. talk to us about pharmaceuticals . that is one area you are active at the moment. richard: another sector that there is not so much love out there right now. in an environment where we have the election-year, we have had a lot of rhetoric from both parties in terms of drug pricing. if you look at it and you look at the earnings the economies are generating, they are growing quite well and in a challenging growth environment we think investors should be looking at these names.
the pipelines are trading quite attractively. these stocks have pretty solid a balance sheets and dividends and continue to generate cash. theye: what about plaxico? are about to undergo a ceo change. who should take over? richard: i do not really want to speculate on that at this stage. the trajectory the company has been going has certainly in the -- been in the right direction for us. the focus will continue to be on the pipeline. whoever comes in will continue to take on the -- attractive dividend right now where you have u.k. gilt continuing to compress yields and bonds continuing to trade lower. plus in thisld 5%
environment and yelled earnings is quite attractive. higher.trazeneca 35% how much is that to do with the probability of a takeover post brexit and how much to do with similar reasons. is it a target because of brexit? richard: i think a combination of both. certainly the movement in the sterling currency has helped and people also look more proactive. in an environment where growth is scarce, any companies were investors feel there is growth up.starting to get bidding a lot of suitors are looking at stocks like this right now where the pipelines are attractive and continue to grow. it is not surprising to me. mark: where else can we take advantage of potential m&a because of a week sterling?
companies outside of the u.k. looking at in bash within the looking within the u.k. what types of companies may be on the receiving end of the bid. richard: for me it all goes back to companies that have the dollar revenue exposure right now. you certainly see a lot of interest in a number of sectors. not only health care names. i think technology sectors as well and companies almost have a motive where people feel companies can withstand what is a relatively weak backup environment. a lot of companies -- relatively weak macro environment. any companies which can deliver organic growth and are not
featured at the bottom of your screen. kicking things off today, julie hyman. julie: this is not a big macro chart of the kind we usually do. just a little bit unusual and it has to do with over-the-counter trading which is a little regulated part of the industry and you tend to see unusual stock activity. take the case of narrow mama. -- neuro mama. monday,k was halted on but not before it rose to a market cap of more than $35 million above tesla -- $35 billion above tesla at $33 billion. the company has heavy ion diffusion patents. the website says it has a broad range of other businesses and
investments, oceanfront property, a social network, and plans to license cirque du soleil style performances in tijuana and some of the executive have had brushes with the law in the past and the sec has been trying to shut down these types of companies. it had an operation -- called pel.--shell ex they see this kind of unexplained trading activity. i thought this chart was fascinating with the market cap soaring above that of tesla. vonnie: that is insane. how do they manage to get the ticker in euro? mine is a regular macro story. looking at emerging markets and how they have zoomed higher with the weakening dollar which is gathering pace.
with crude oil prices that have dropped so much. i am looking at the old country world index. it includes the emerging markets and the developed markets and it has done very well since the beginning of the year. the emerging markets are 32% higher in terms of stocks year to date and we are looking at a good currency picture and evaluations are at the highest level in 15 years. we have to keep an eye out because some countries will be affected pretty severely. 2771.n see that chart at mark: heavy ion fusion technology patent. that is the winner. those five words have taken julie hyman to the top. julie: thank you. vonnie: i fully agree. next, i bond traders
♪ vonnie: live from london and new york, i am vonnie quinn. mark: and i am mark barton. time for the bloomberg business flash, look at the biggest business stories in the news right now. the collapse in raw materials sent profit plummeting at the world's biggest mining company. bhp billiton earnings fell. the worst since 2001. a the company seems longer-term brighter outlook for copper and oil. inflation in the u.k. picked up last not -- last month. the week pound lead to a big
jump, the biggest since 2011, the first hard economic number since the u.k. voted in june to leave the eu. that is the latest bloomberg business flash. vonnie: now to a shift in the 100 till you dollar -- $100 trillion bond market. asset managers and hedge funds take on a larger role. alastair marsh wrote about this trend in the 80's -- latest issue of bloomberg markets magazine and joins us now. boil us down to the very simple facts. the central -- is this a central bank created phenomenon? alastair: the central bank has made the market this liquid, the real story is the investment banks and they have been
dethroned by post crisis regulations intended to make to discourage risk-taking and that has meant that the traditional role they held or played in the bond market was the so it hating trading, holding large inventory of bonds to allow investors to buy and sell -- they cannot do that anymore. they are not incentivized to do it and they do not. that has meant that the equilibrium has shifted and you now have firms that manage an ever larger pool of assets and bonds and they are flexing their muscles and starting to say, we want to have greater control over how the market is traded and the prices we can achieve and that has been a big change. vonnie: who holds on to the inventory? what happens from higher to seller -- buyer to seller? alastair: the statistics for the
bank holding bonds have gone down so their inventory has been thinned out. if you look at companies like blackrock, you can see the holdings of bonds and assets has gone up and up. you see that more that bonds are held on the buy side and they are using that weight and influence to get a better deals. buy: is by side king -- side king? sort of the leader or the emperor of the fixed income market and how is that realized? alastair: in some ways yes and other ways no. an interesting conclusion of this analysis where we spoke to different investment firms is they are not looking to replace banks. they are not saying that they want to do what they want did, they just say they want a better role.
they do not want to be treated as the junior partner. -- rathertalk about than being a price taker, they are a price maker. an old way was that if investment firm wanted to sell a bond or get rid of it they may ask three banks for the best bid and take the bid. now it would say, based on their inside -- whatr level they think the bond should be traded at and say, i want to bond at -- trade at that level. one of the big stories here on the bloomberg. we will take a look at where markets ended today. this is bloomberg. ♪
>> from bloomberg world headquarters in new york, good afternoon. i am scarlet. >> and i am matt miller. here is what we are watching. stocks falling back after a record finish on wall street yesterday, the dollar sharply retreating against the euro, yen and the pound. >> a september rate hike is possible. and housing starts advanced. he has been a bear on new york office space for a long time. rental properties and investment ideas this hour. scarlett: we are halfway through the u.s. trading day so let's head over to julie hyman where