tv Bloomberg Markets European Close Bloomberg August 26, 2016 11:00am-12:01pm EDT
you are watching the european close on "bloomberg markets." we are going to take you from washington to tokyo and cover stories at of the u.k. in germany in the next hour. here is what we're watching. janet yellen says the case to raise interest rates is getting stronger as the u.s. economy approaches the central bank's goal. we will talk to a former fed president on whether it is time for lift off. vonnie: according to the taylor role, it is several years and rate increases behind. we will hear from the man himself this hour. inbevts coming for ab with as many as 5000 positions to be eliminated over the next
three years. we are 30 minutes away from the end of the friday session. macro movers, these are your equities getting a boost from oret yellen's public speech private speech which is public now, in jackson hole, wyoming. the economy is strengthening. you will notice there is green across your screen. got some individual companies to tell you about today. volkswagen of course has been in the news in the last year. 652 u.s.ment to pay auto dealer ships for losses caused by that diesel cheating scandal will cost about $1.2 billion. theirill raise
settlements to resolve u.s. lawsuits that include those by car owners and regulators to $16.5 billion with the automaker still facing investor claims and possible criminal charges. we were at 75 billion euros and came down to roughly 47 billion and have been coming up since then. we are not back to where we started that we are off the lows of 47 billion. let's go to jim all to, one of the biggest providers of mobile phone and bank card chips. it reaffirmed its full-year and setrgin forecast its 2017 target of a billion revenues. they have expressed interest in buying saffron's more faux unit. shares are up by 7%.
it was not just about u.k. gdp today, we have had french gdp. the economy stalling in the third quarter, no growth whatsoever after rising .7% in the first quarter. the flat performance is a perfect -- correction from an exceptional first quarter rather than a sudden halt to the expansion momentum. it forecast .3% growth this quarter. household consumption which was mainly the big driver in the first quarter stall, that was expected after a strong rebound from a fourth quarter when terrorist attacks probably hurt house cold consumption -- household consumption. let's get over to the markets desk. ramy inocencio has the latest. you are seeing is what we are saying after fed
chair janet yellen's remarks. a lot of people sitting on the sidelines with volumes down 10% to 20%. i just checked volumes and they are up a couple of percentage points so it looks like investors are getting back into the markets. coming off session highs but still positive in the last half 2182.r so, the s&p 500 we are coming up to record levels that we saw last week. we are still about 20 points off for the nasdaq and the dow up about 80 points. it has been a little bit of an up-and-down session even though we are still early on. take a look at what happened after janet yellen's remarks. we did see this leg down as she talked about the strengthening cause or strengthening reason for an interest rate hike. after she was talking about that
are labor and guidance for economic inflation, we saw investors take a breather and say, maybe this is not going to be as bad as we thought. we are up about a half a percent on the s&p. i want to show you what is happening right now in terms of its sector health of its 10 sectors. it is across the board in the telecoms the least of the gainers but information technology is the biggest gainer, up 6/10 of 1%. in poleeeing financials position but it has paired some of its gains. let's continue on with information technology. i will show you some of the tax that are up -- techs that are up now. quarterising its third guidance. apollo global says that it wants
to buy its cloud services for about $4.3 billion and intel says it might challenge taiwan's tsmc for apples chip orders. that might happen by the year 2018. across the board we are seeing some good green. vonnie: ramy inocencio, thank you. that's check in on the bloomberg first word news, nina melendez has more. : there's a report yemeni forces have filed missiles at saudi arabia and oil industries. there is no information about the damage. -- turkey's blaming kurdish militants for a suicide truck bombing and the southeastern part of the country. exploded at a police
station killing at least 11 officers and 70 others were wounded. hundreds of security personnel have been killed. u.s. secretary of state john kerry and his russian wayserpart are discussing to coordinate the fight against islamic state in syria. they met in geneva. it is yet another attempt to resolve the five year civil war in syria that has killed at least 250,000 people. there is a new problem for the region in italy devastated by the earthquake. aftershocks have damaged roads to one of the villages hit the hardest. before that, even the roads were congested with emergency vehicles. the death toll is at 267. france's top court has overturned a ban on the so-called brca.
burkini. it is expected to affect all 30 or so towns have issued bans. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am data melendez. -- nina melendez. this is bloomberg. vonnie: back to markets as they continue to digest janet yellen's speech where she said the case for an increase in the fed funds rate has strengthened in the recent months but provided no further guidance. broaddus. alfred did you learn anything from janet yellen speech? she said the case for a rate hike has increased but most everything else we have heard already. alfred: a lot with respect to the short term is going to be with you. it is a long speech.
i have not had a chance to read it carefully. the first few pages deal with the short-term. the rest of the speech, which is the majority of it, deals with issues having to do with how the fed should conduct monetary policy in this current challenging environment with very low interest rates, and persistently low inflation. about the short-term outlook for the remainder of the year and what the fed may do, clearly she strengthened the case for the rate increase. expectations already are in place to have an increase either in september or december, conceivably at both meetings. , think one key point here whatever she may have said today, there is one particularly important additional data point that will come in before the september meeting, and that is the labor market report, the jobs report for the month of august.
if that is a very strong report, i think that will up the probability of something in september and if it is weaker that is likely to not be the case. vonnie: we can talk about the long-term in a few minutes because i want to get your thoughts on how thinking might be changing at central banks and particularly the u.s. central bank. the other comment i wanted to ask you about was her idea that we will reach 2% inflation within the next three years. about thethat say u.s. economy that it is going to take a few years? alfred: we have been below the target on inflation for a long time. for an old fellow like me who spent his career dealing with excessively high inflation, it is difficult to get used to inflation not being high enough. credibility has been
resting on that. mind energy markets and the initial decline in the price of oil has been a factor. recent reports of u.s. inflation isleast, the global picture different, but in the u.s., inflation has been gradually moving toward the 2% target. they look at the pce inflation index and while the overall index is still low, it is beginning to move up, but the core rate has now moved up i think it is 1.6%. that is pretty close. that is within shooting range of 2%. can i dare ask you which cap you would be and if you were a voting member of the fomc? we know back in june looking at the dot plot, there seems to be a split within the fomc.
we know that from the debate over the last few weeks. which cap would you put yourself in? alfred: mark, i do not want to dodger question but in terms of , i immediate policy action would still be waiting for that job market report. to try to answer your question, i would like to see rates move up. that in thejustify fed can comfortably do that, i think a higher level would be a good thing for the public and the markets that we are beginning to move back to a more normal environment, so i hope it can happen. if i was on the committee and saw an unexpectedly weak report like we saw back in may, i would have to wait and think about that before favoring a move. mark: let's talk about further
out. a lot has been discussed about the neutral rate and a lot has been said, and yellen referred today to how the fed has little ammo because the neutral rate could be lower than that historical level. what does that mean for fighting the next recession, for fighting the next economic slowdown? alfred: it is hard to give you a short answer but i will try. much of the speech was about exactly that. we have not just what central banks are doing but fundamental economic underlying conditions that are pushing the natural rate of interest down. that means the fed has to operate in a low interest rate environment so the question is, what can they do now to still do a good and positive job in that kind of environment when you cannot just drop interest rates --stantially eight
substantially like you could in the old days? she goes over a number of things that have been suggested, go back to qe but run the range of assets. the bank of england has been doing that. there has been talk about raising the inflation target. john williams has a speech recently where he does not recommend that, that talks about the possibility of doing that. finally there's the potential for negative interest rates, and i do not think that is likely in the u.s. in the near term. i notice marvin goodfriend, my former colleague i think is speaking at jackson hole right after chair yellen about negative rates. that does not mean it is on the table. they are looking at all of the things they could do over the next few years to try to contribute to a stronger economy. vonnie: marvin goodfriend is speaking right after with
someone from the riksbank. al wasto show what talking about, the pce. the grass has been going down since 2012 with just an exception the last couple of months, it has been flattening out. if you look at expectations, that is more concerning. why isn't janet yellen or conserve -- more concerned about moving expectations higher? if you look at the five-year forward, the breakeven rate is down to 1.43%. is only a 15 basis point premium on the five-year or 10 year when it comes to an inflation hedge. why aren't inflation expectations moving higher? alfred: i think janet yellen is concerned and the fed generally is concerned about low inflation, longer-term inflation
expectations just over the whole period since the end of the financial crisis in 2009. expectations have been low. always at the far end of this the possibility of deflation which is very difficult to deal with, and i think the fed has done a lot to keep us away from that so i do not think she is not concerned, and i think she would like to see inflation expectations move up. my guess is that is one of many of the reasons people in the fed would like to see the target move up. that would be consistent with stronger expectations about real economic growth and probably some further upward move in inflation and in inflation expectations. former alfred broaddus, richmond fed president. , inflation inp japan falling for a fifth month.
vonnie: from bloomberg world headquarters in new york, i'm vonnie quinn. mark: from london, i am mark barton. we are literally 11 minutes away from the european close. let's talk about the reaction to janet yellen speech in jackson hole, wyoming. check it out on the bloomberg, check out our work function. world interest rate probability. richard jones is here. it has not moved much, has it?
32% beforewere at and we are at 30 now. richard: it tried to move and you saw u.s. deals climb a little bit higher, probabilities climb a little bit higher, and then reverse. now we are going to be little changed on the day and i do not think investors heard an awful lot new from janet yellen. mark: nothing, absolutely nothing. all she said was maybe, maybe, maybe, nothing that was new. may be brutal but sort of to the point. richard: i think what she said today echoed some of the comments of other fed speakers. they highlighted when the next move is, is not as important as what the rate path is. it seems that the fed is catching up with what the market says the rate path is. we will not have rates nearly as
high as we are used to during a typical cycle. everyone will look at the, when is the next hike for a trigger point. september is not really in play, december is looking much more likely. you see the odds approaching 60%. as long as the data is agreeable i think we will see a move in december. vonnie: already i am looking at tomorrow morning and we have ,uroda speaking on a panel which should be a very interesting panel. then we have the mexican central bank governor. what do you anticipate kuroda might let out of the bag if anything? richard: it is interesting that he is speaking tomorrow and that might be the most interesting of the speakers at jackson hole. we have japanese inflation data
out today for july. , we take the noisy aspects out, and that measure actually fell in july, weaker than even what the bloomberg survey was expecting. that is something giving the timeliness, that is something that will trouble the boj because that metric is very much heading in the wrong direction. they have thrown the kitchen sink in terms of monetary policy and fiscal policy so i will be interested in what he has to say. vonnie: will they mention brexit given that you saw u.k. gdp figures? richard: i think they are a little backward looking to the extent that it was in the run-up toward brexit. the ecb has a meeting and a couple of weeks time and i think that will be increasingly the next focus from marcus participants. it will be interesting what they
have to say. not expecting too much but would not rule it out. ,iven the strength we have seen the euro has climbed quite strongly. survey justiling released this week was also a nice little rebound from what we saw in the initial july readings. it is probably too soon to jump to any conclusion of the lasting impact of the brexit on the u.k. economy. richard jones, fx and rate strategist for bloomberg first word. this is bloomberg. ♪
from the end of the friday session. stocks have given a bit of a boost after janet yellen spoke. the case for a rate hike is strengthening, that was the key take away from jackson hole, wyoming. it has been a five-week period where we have seen gains and declines. check out what is happening in the currency market today in light of yellen's comments. sterling unchanged against the dollar, euro down against the pound. i want to finish with bonds because we are seen bond yields declining in the u.k. and germany, italy yields higher. the close is four minutes away. this is bloomberg. ♪
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rising further week. -- rising for the week. resources, oil and gas is leading the game. alternated on a weekly basis between gains and declines, but we are up for the week. shares of vivendi down. it's paid television unit continuing to lose money in the home markets in france and by 300g to reduce costs million euros. objective is to reach break even in 2018. chart.this this shows the correlation between the euro stocks 50, the euro area stock benchmark, and the ftse 100.
generally before the brexit has happenedhat since then is a divergence. because of the fall in sterling. it has risen 7.5%. this is the 30 day correlation. right now it is at its lowest. in dollar terms down by 4%. it shows the correlation hasn't been a strong. strong second quarter for the u.k.. signs of reticence. business investment up.
sterling's decline on a trade data basis since brags it should brexit -- ce it was a strong second quarter ahead of the brexit referendum. spike: we side bit of a in back below 95 again. you can see as well with the yields, a little bit of treasury selling. the 10 year yield at 1.5%. the five-year, this is the -- five-yeare even
break even at 6%. at 18,534. up 11 points, and the nasdaq is up 7/10 of 1%. we have abigail doolittle in mid-down been hadn't -- midtown manhattan. abigail: after opening slightly higher on the open, the nasdaq was on pace for a weekly decline. we now reverse that. the longest weekend winning streak since 2009. a pretty big number. we will see how the -- how they trade out. just having a great way on a big rating rate quarter. they beat earning and sales estimates.
expecting a company lower than expected loss. very important here compared to bloomberg intelligence communities. the revenue grew by 14% year over year. it really offers investors predictability. perhaps explaining why the stock is up 10% on the year. less fortunate, shares down 4.5%. nonetheless having their worst day since february. after the company offered a slightly disappointing third-quarter earnings of view, expecting to make $1.25 per 35 centsd one dollar per share. a consensus around 129. they have beaten some of the times in a row, the bar's high expectation. uptrend.beautiful
we'll secede the stock is well above the 200 day moving average. happened the that stock has reconnected with the 200 day moving average, in this case $205 per share. vonnie: thank you from the nasdaq. i want to update viewers. oil and gas are operating as normal. had risen as the dollar was dropping as well. oil now up 1%. let's head back to the fed conference. the economic symposium. michael mckee is standing by. michael: i want to start with janet yellen's speech this
morning. she devoted 22 of her 24 pages --a defense of the defense defense of the fed's policy. she spent two pages talking about the current economy and says we are in a case where the rate rise has strengthened. would you agree with her assessment and does that make it more likely that we will see something soon? guest: the case has gotten fed increase. federa i think there was the message there. michael: they brought unemployment down to its terminal rate. they haven't been able to move inflation. the headline number is still at 9/10 of 8%. -- 9/10 of a percent.
john: just because you have inflation rate below the target doesn't mean you have a foot on the accelerator. you can certainly begin this ovement towards normalization. even with the inflation rate where it is at this point. a certainhe devoted amount of time to the uncertainties being faced. assesskes it hard to where the proper setting for policy should be. john: she did emphasize certainties. but she went through analytics. rates are going to be low, it will be different, use forward guidance more. it is good to emphasize that. she did bring up your
famous rule, the taylor rule. the taylor rule contains a comparison between the potential growth rate and where we are actually. the difference between the two -- nowadays can you say the rule not withyou don't potential growth is? there seems to be a great debate about how fast the economy can grow right now. john: i think there's not much -- unemployment is close to what you would want under normal circumstances. the real debate is equilibrium interest rates. it used to be 4% a couple of years ago. i think that was the real issue. michael: where would you put it? -- jon: partly as a
result of policies central bankers have been following themselves, lower interest rates and even negative interest rates. say it is no to longer 4%, it is 3% or even lower than that. michael: we have roughly 2% growth. you add in one -- add in 1% inflation, not quite at 3%. john: when the taylor will was first presented to central when 2.2% was better than growth rate. it is terrible to have these low growth rates. it doesn't really change the nature of those kinds of rules. michael: what do you think about her argument from the fed
forward -- fed board that suggests they can't cut rates enough in a stimulus economy manyse many of the re--- of the previous downturns started with the fed excessively tightening. john: they were at a higher than normal -- if they were higher than normal it would be easier to have fed rate cuts. the situation now does make it harder and they ought to be thinking about that. that is why one of the reasons getting back to normal would be good. the questionsf she rate is word we go from here? was just a fed fund rate lower than a policy rate has been. think they should be cautious about the discussion of this conference. the success of negative rates in japan is really questionable at this point. they should be careful about that.
a lot of microeconomic things going to the markets. i think it is right she laid it out how you do to -- how you do it without negative rates. mark: michael mckee with professor john taylor of stanford university. my big plasma. vonnie: we're going to have reactions from janet yellen's jackson holes speech. we will speak with mohamed el-erian. this is bloomberg.
vonnie: janet yellen says the case to raise rates is getting stronger. joining us now on the phone is mohamed el-erian, bloomberg view columnist and economic advisor. joining, did you feel that anything in the speech lead you to believe a september rate increases more on the table than it was before? mohammed: i think she confirmed what i shared with you, which is the markets had to low of an expectation for september. she reminded us yet again that the fed remains data dependent. they will have a close look at the next jobs report next week before deciding. i didn't find anything really surprising in her speech today.
didn't surprise me that she didn't move forward in terms of speculating about what other tools the fed could do or whether the fed could change its inflation objective. vonnie: why then, didn't the market -- wide then didn't the market -- why then didn't the market -- ed: you have to consider what is going on with the rest of the world. ofhink the 30 year segment the u.s. curve is heavily influenced by what is happening elsewhere. and elsewhere isn't looking that great. the latest german numbers [indiscernible] remember the fed controls a short end. as you go through the yield
curve, international influences play a larger role. mark: the question of the day that mike mckee has asked all these fed officials, the new tool rates. interest, what is the long-term neutral rate from where you are sitting? mohamed: it is being impacted by things we don't fully understand yet, including productivity and investment behavior. but it is certainly a lot lower. we have does not mean to continue to focus just on the fed. reasons why it is slower is because of a given event -- because other government agencies haven't stepped up to discuss policies. mark: what about inflation?
it has been discussed ahead of jackson hole. suggest or even should boost its inflation inflationghting is war seems to be last year. this inflation war seems to be last year. : i would not for the following reason. the fed is having difficulty reaching the current inflation target. that is no -- the notion it could reach a higher inflation target goes against what is happening. changinge you start the inflation target you open yourself up for political and -- political interference. thing the fed wants right now is to threaten its political autonomy. so i'm a little bit puzzled by the argument that the answer to the current style, is to raise
inflation target -- raise the inflation target. the answers to widen the discussion to make sure we don't continue to rely excessively on just one policy. this notion of the fed being the only game in town is what should be addressed. vonnie: janet yellen did admit that growth, while not rapid, is enough to keep the labor market growing. she sort of said that side of the mandate is find. -- is fine. she says we will reach 2% in the next couple of years. that seems awfully slow. did you get any clarity on that? : i think they are encouraged by the fact that the inflation rate is hedging up, and they believe that is going to continue. don't forget the employment objective has been met in a
significant way. lots ofnue to create jobs, wage growth is going up. importantly the participation rate is finally edging up. they are drawing comfortably from the employment objective. we get that means if another good jobs report next week then we still may or may not get a september rate increase. the proportion of the calculation doesn't seem to be impacting the fed much anymore. i wonder if there are any structural changes you see in the economy that janet yellen is not seeing herself yet? : if we get a really higherreport with a much wage growth, they would find it very difficult to resist a hike, probably in december.
that depends on getting such an unemployment report. -- such an employment report. why is investment behavior not to the pickup on the consumer side? and, what is ahead for globalization and trade? it is easy to identify these easier toit is identify these issues than it is to answer them. mark: a lot of investors, once referred to as masters of the universe, are fed up. let's say there is a fed credibility index, because many bond investors have doubt the fed -- doubted the credibility of the fed. let's create this index. how much credibility does the fed right now -- does the fed have right now in the bonds universe?
mohamed: people respect the ability of the fed to influence the yield curve. the mean outage credibility but effectiveness. zero is not just ineffective but counterproductive, and you would put the bank of japan very near that. canis a central bank that deliver macro economic outcomes, and there are very new central banks that can do that. the fed would be around 50 to 60. and the bank of japan would be below 10. doing thehe fed is best out of the major central banks yet kill mohammed: -- central banks? d: absolutely. buy much more on the fed and the jackson hole symposium throughout the day. live from jackson hole next.
♪ vonnie: live from london and new york i am vonnie quinn. mark: and i am mark, barton. time -- mark barton. time for the bloomberg business flash. british consumer confidence is bouncing back after the initial shock of the vote to leave the european union. an index of consumer sentiment rose this month by the marxist -- by the most in three years. this may turn how into economic activity for the bank of england -- economic activity. sluggish sentiment will allow -- 1.2 billion dollars to the emissions testing scandal. the deal calls for vw to buy back unfixable used cars.
theprice take to resolve lawsuit is now more than $16 billion. starting next year passengers on -- flights will have access to airborne wi-fi that is faster than anything pre-existing existing in-flight wi-fi services uses satellites or -- but not both. mark: and a push back to cut 5500 jobs once the takeover of sab miller is complete. of itspresents 3% combined workforce. the cut will be made over three years. it can save $1.4 billion per year after the takeover. that is our latest bloomberg business flash. mark: take a look at where european equities finished the
day after the yellen speech in jackson hole, wyoming. we had gains all around. games for the ftse, games for the dax, gains for the weekend. look at the currency board. reaction inch as a the fx market as it was in the stock market. down against the pound. the pound up against the yen. the euro up against the dollar. -- year road down against the dollar. let's look at the bonds. little movement in the u.k. 10 year. german spread as well. bloomberg market continues. this is bloomberg. ♪
scarlet: from bloomberg world headquarters in new york welcome. matt: here is what we're watching. world has been waiting for finally arrives. federal reserve chair janet yellen says the case to raise interest rate is getting stronger as the u.s. economy approaches the central banks goal. scarlet: and markets are reacting to her bullish comments. she gave no guidance on when the move could come. so the question is where can you invest your money? what area may you want -- one area you may want to know better is etf's. joins us this hour. scarlet: let'ad