tv Bloomberg Markets Bloomberg August 31, 2016 3:00pm-4:01pm EDT
vonnie: live from bloomberg world headquarters in new york, covering stories out of boston, south africa and japan. here is what we were watching. a five-month rally as oil tumbles. the market at the end of the month, signaling headwinds. ousted from the brazilian government for breaking the country's budget laws. appealing that verdict. we will bring you the latest fallout on this developing story. >> fighting to keep their economies going. we will speak with a goldman sachs senior economist. , let's getom trading
.n update looking at the major averages, we are down for the s&p. at four -- .4%. let's look at how the agencies have performed for the month. session, abe it's 38 1% move. down insee the dow is the s&p is down and the nasdaq is up .8% in august. let's move to oil and we can see a reversal. right now, oil is trading at or before and 71 is down 3.5% today. it began the month with its worst day. talk about symmetry there.
3.7%, stillown trading below $45 per barrel. oil is up 7% and it is the first monthly gain in the last three months. exxon is down about 1% and chevron is down about 1%. given the move in oil. a look at some stocks on the move. going tosaid it was stop or at least try to stop any are merger acquisition they thinking of doing with monsanto. both stocks are down today. we will move to the first word news. mark crumpton has that from our newsroom in new york. mark: thank you. donald trump has landed in
mexico city and the flight touch down a few minutes ago. with theeduled to meet mexican president, at the official residence of the mexican president. comes as a surprise. the u.s. state department says only this secret service was aware of the planning. arizonamp flies to where he will lay out his plan on immigration. supporters and brazil have been told "we will return. but voted 61-22 mph legislators decided not to ban her from seeking public office in the future. of using accounting tricks to hide the signs of a budget deficit, a charge she denies. in response to the vote, a tweet was sent out earlier which read "today is the day 61 men, many corrupt, through 64
million brazilian votes in the garbage." -- confidenceer of parliament to form a new government. more than half the legislature voted against. trying to piece together the first administration since spain passes traditional two-party system broke down in of -- in december. the national hurricane center said tropical storm estelle can shape in the gulf of mexico. the storm has sustained winds of 40 miles an hour, about 450 miles west southwest of florida. she should turn more to the northeast with increasing speed on a track that would approach the northwest florida coast on thursday afternoon. global news 24 hours a day powered by more than 2600 journalists and analysts in over 120 countries. back to you in washington.
david: thank you. let's get back to the markets, s&p 500 wiping out gains to end a five-month winning streak. joining now is the chief market strategist asset manager where he over the is it hundred $47 billion and asked its. energy, we have the data showing stockpiles grew, vonnie is highlighting their stock prices falling a bit. to what extent are you concerned about energy policies role? question not very concerned. it is a good question. even off to the lows when we were in the high 20's, our view was supply would equate with demand probably in 2017, maybe late 2017. wouldpectation was oil write its way back where our
terminal is spirit we do not spend a lot of time worrying about a few dollars up or down. and normalized 60-60 five dollars barrel. i wonder what that means for your attitude and your sense of emerging markets? do you see much value in emerging markets right now? .> we do see some value i would say have the end of last year we were a bit more bullish. thought fundamentals were bottoming, but we thought valuations were impelling as well. most factors leading to the underperformance of the emerging market index is the spillover relatedinto other economies, commodity collapse
and the dollar funding crisis. those look priced in. we liked the emerging markets at the beginning of the year. you mentioned brazilian stock market up, skyrocketing this year. we still like emerging markets. we do not think the entry point is quite as good as five or six ago. in the long run, we think it is a good place to be. vonnie: your team focuses on assessing capital markets trends in particular. what are the trends that are most concerning to you? i think the most about is what is the effect of the u.s. election? right now, there is a lot of certainty.t a lot of a lot of people are trying to handicap the election in terms of what it means for portfolios. in little too early to do that.
a lot of voters will not decide until they come back here and we have not had the first debate yet. there could be surprises in september and october and we do not know what the down ballot effects are. we're thinking a lot about the election but not losing any leap over it. the other thing we think a lot about his china, not just the growth rate but the discussion of how much debt they are racking up. much they arehow accruing to support that growth rate. that is what we hear quite a bit from clients. how much should we still be worried about it? those seem to be things we hear from clients. let's talk about something we do not know whether it is short-term or long-term. the federal reserve. we heard from the capital fund manager bill gross, who urged the fed to raise rates after a september meeting and beyond.
as a listen. >> let's raise interest rates, and six to nine months from now, let's do it again. capitalism cannot really do well. it can survive but not do well rate so wenterest are negative interest rate. vonnie: he is clearly frustrated. still inking there is value to be had. what do you do at this point when it comes to investing in terms of interest rates? >> you have to be careful with interest rate risk. all the time, with what direction we think interest rates are going in, the fundamentals, interest rates should rise and the global economy should start to improve, inflation pressures may begin to pick up but we do not think interest rates will go up much. we think they should but we do not think they will go up much. held down by central banks and
other artificial stimulants. not because iit think it is up so much but the durations and portfolios are very long and the global aggregate bond index has a duration so even if you think rates will not go up very much, the pain associated with a small increase in interest rate is pretty significant. i do not worry about the likelihood of higher rates but the severity. i think you have to think in terms of both when you measure interest rate -- interest risk. >> a couple of months after that happened, you said it was good for investors to set a true risk tolerance. what is your sense of where thats are headed after vote? >> the smartest thing they probably did was not rushing into the article 50 process.
-- i think what they did was a dangerous move with a lot of uncertainty. they did not need to compound that and start the withdrawal process. a main reason why most of the markets other than sterling have gone significantly is the delaying of article 50 and stretching out the runway for how the u.k. will deal with it. that has allowed cooler heads to run,il and in the long there will be significant trouble. not rushing into anything. thanks.our david: coming up next, more turmoil out of south africa. the company's's biggest tribe -- private debt manager stop
create 20 jobs for residents each year. soon sold at toys "r" us, a major expansion. currently, on its website, they will be available at all u.s. toys "r" us stores beginning next month. that is your business flash update. thanks. a weakest level against the u.s. dollar and more than seven weeks. the biggest private fixed income money manager future growth asset management saying it has stopped lending billions in the largest state-run companies. mark barton and i talked exclusively about us yet -- to a cio about why.
>> we realized we could not make decisions. how other asset managers can make different investment decisions. barely meetngaging as asset managers and we will try to make it easy to answer questions. we will send group letters to answer as a group and answer as a group. >> all this takes place as and agenciestinues have no doubt -- no doubt that there are on what is happening to enterprises. company's are being managed. do you fear south africa the
will loose its investment-grade credit rating for whatever reason? >> of course i do and it is important to contextualize this. they are the critical delivery mechanism for power or water or agricultural and industrial development. we have no desire to make the decision. south africa will be downgraded below the investment-grade and that is a bad thing. it is manageable. you could get the right place at the agencies have to get -- i am an asset manager and i did not do policies. we do not know which stories are true and false. we can assess the companies we lend money to and make appropriate decisions for our clients, which we have to answer for. vonnie: how will this affect your business? weaker versus the u.s. dollar,
10% this time last year. >> we are an investor so in a inflation,s bad for higher bond yields, which we have seen today, that is something we watched closely. it improved sharply and you reduction ofir interest rates. we badly need to avoid the downgrade. we have substantial exposure to them. be market toly to market losses. that is a reality we have to deal with. supports a sustainable framework on a five to 10 to 20 year view. mark: give us the idea of a selloff we might see if gordon
loses his job. >> that is a big question. the who and the how and the when. we saw what happened in december , unexpectedly by an unknown party to us. it depends on the who and the how. domestic and international investor very bad, and where the money sits in the power's it's coming would not play well at all. it would be a substantial selloff. in december 200 basis points in two days and we have not seen that kind of move since mid-1990's. long-duration bonds, it hurts. that was earlier today from cape town, south africa.
premium coming or doing alright but the volatility has not been their head of any of these traits. -- been there ahead of these traits -- trades. vonnie: maybe it is time to change strategies to tomorrow? david: what we're looking at now is you have got a little bit of data coming in the form of payrolls on monday and another quiet week in terms of the labor day holiday and after that, another week and then we will have the ethel lance the meeting. we hope we will get a little volatility there because ahead of this, if you look at friday's to 1492, we213 traded within that range all week so i think you have got to look a little further out to finally get some of the volatility back in the market. vonnie: it seems like there was a time when we could not get too
much of it really. moved. 500 has not talk to us about your trade? a proxy for gopro, anything that happened with gopro would come on down because they supply the chips for those gopro cameras. everyone thought it would be like the truman show and they just massed produced this and it turned out they oversupplied the market so they had to take a back seat and were not making any more gopro's. comings like this is back in production for the next quarter. that is where they will really set up and finally start supplying them again so what i'm thinking here is it is not up at 140 when it was more but it has come pretty test here over the course of the last months but
i'm still bullish on this not just for here after the close tomorrow, but i'm thinking more next quarter, 70 to call spread here for september after the earnings report, and it will cost they one book 40 with one book 60 on the cost side. and you will see a result on that one. what about further out when we look at federal reserve interest-rate increases and when they potentially come? could that give operators something to do? absolutely fear we're pricing at about 15% of earnings hike prior to last's payroll and now we're looking at 27% chance of a rate hike here in september. that is a worry here in the market.
if you look at bonds at the 10 year, here on the next we have not seen a huge spike. chance, there could potentially be a 20% chance in september. there are plenty of people in the background so you are obviously keeping busy. thank you. david, you have a big interview coming up for us in d.c. in a little less than an hour. speak with the secretary of treasury for international affairs in a few p.m. test 4:00 15 -- 4:15 p.m. eastern time. this is bloomberg. ♪
bloomberg's wrestler news. for that, we go to mark crumpton in the newsroom. mark: uk prime minister theresa may's cabinet today concluded there is no -- no need to hold a vote before starting the process theolding britain out of european union. they risk alienating opposition parties. they believe lawmakers should cast votes before our 50th you's treaty. in venezuela, put opposition will try to sweep the suite -- strays tomorrow with the biggest margin years. they are put to death pushing for a referendum. he is wildly unpopular and the economy is suffering through triple digit inflation. they're planning a counter demonstration. the first commercial flight between the united states and cuba in more than a half a century landed today. jetblue flight 387 from florida to santa clara marks a new era
in travel. bankscarolina's outer have been spared from a tropical storm ivette has been moving toward distaste for two days. the national weather service says the system is moving away and the strongest winds were 30 miles an hour. news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. back to you. >> market close in under 30 minutes. let's go live with abigail doolittle. applico: modestly, slightly lower today but the nasdaq is trading higher by more than .8%. u.s. equity averages finishing higher at least at this time and if the nasdaq has managed to pull this off, it will be the second up month for the nasdaq
in a row and the longest month joining streak since last year. most.has helped the this reflects about 7%. the stock was up about 2%. because of that, some of the from thedoes reflect company's better than expected june report reported in which i. launch the will iphone 7 -- in late july. the company launched -- will launch the iphone seven. they may be partnering up with may have bought a cable company, good stuff on on here but when we look at the monthly chart i looking at dtv 3214,looking we e selling pressure, the downtrend is still in effect. this is important because we look back at 2013, stocks in a
big way on margin issues, it took quite a bit of time to overcome the selling pressure. it is important to see whether or not this stock could in fact break out of the range to climb higher. >> any big stories for the month on nasdaq stocks? >> there is indeed. percentageworst performers for the nasdaq, down more than 10% in the month of august, all around the tennis hillary clinton'tis rate -- did raise and a brewer. , which seek -- she said was outrageous. some politicians did say this was pr the company is also going to offer a generic version. we had the biotech index right
now on pace to close down 2.5% for the month of august. snapping its went for the month of july, as some investors may fear there is more selling pressure ahead, per hillary clinton's to the last august around concerns around health care prices that set the sector into a bear market that even continues right now. >> thank you. joe: international monetary policy spillovers have been the subject of much economic debate. are they positive or negative and how much impact to they have? our senior economist recently attempted to quantify those effects in a note saying travel abroad. eurozone, the largest effects on u.s. rates. thank you for joining us. the world is totally transfixed by the never-ending declining , barring a little bit of
noise. your research says unconventional easing abroad in the eurozone, u.k., boj, has a significant effect on pulling u.s. rates. why is that? from an investor standpoint, these are all substitute, not a perfect substitute, but returns look similar. if you move forward, you can treat these markets as substitutable. one market, that will have an effect on demand for another market. it is not want to one but there is a significant degree between the two. >> if rates are lower in my home country than they are in yours, i might think about buying your debt to get the higher yield and then that drives down rates. >> that is right. the church is they are not exactly apples to apples. some arts nominated in euros and some are in dollars and you need to account for currency risk and for volatility.
to account for all of these factors and quantify what these might be and they came out with large numbers, two thirds of decline and rates since and of 2013. explained by global factors alone. >> you say central bank easing can account for 100 basis points of reduction since the end of 2013. we talk a lot about janet yellen theg a central tanker to world. as in the rest of the world acting like a central banker to her? global divergence has had two effects. it has raised the value of dollar and that is a head went for u.s. growth. on the other hand, it has lower bond yields, a significant offset. it is unclear to what extent global divergence has been a negative for the u.s. joe: explain a little further. you say in your research that unconventional policies, the
reason it is significant is because you do not see the same issue with hedging. >> that is right. it does not quite have the same spillover because the yield differential is raised i hedging costs. >> it is not correct to just look at yields in one country theanother, germany and u.s., on an apples to apples basis. the short-term interest rate that you are going to pay in order to remove the currency risk is an important element. most global investors of the big hedge fund are going to try to take into account the hedging risk. they need to look at yields on a hedged acis, removing the currency yields from them. unconventional yield is -- it's wishes the yield. it is the definition of unconventional policy. we get has a greater spillover effect and standard banking. >> what about term structures? , for any term premium
layman's listening and for me, and how important is this? very simple thing, a standard measure of valuation and the bond market. i will give you two investment options. you can either take your money and roll it over for treasury yields for 10 years, or you can buy a 10 year note right now. the difference is the term premium. usually, the 10 year note has an extra yield to compensate investors. they can lose money as rates go up and down. today, that is negative. if you lock of your money for 10 years, you have a higher -- just putting it in your closet. why is that, as we see clover spill out for -- the crux of it for investors is when you have low term premium environments, it tends to be associated with low returns for the treasury market and interest rates sensitive parts of fixed income. >> if we get a rate right of -- rise early this
year -- >> we do not think so. preconditions are quite different today than we were in 2013. the market was thinking the fed was going to continue quantitative easing for a long time. ben bernanke you to repeatedly remind people this is not going on forever and you have got a lot -- large selloff. today, no one be -- would be surprised if they raised it later this year. be the not seem to factor weighing on yields. instead, what needs to change is better growth and inflation such hikes look like the right thing to do, or the global back from you to change. we are in an environment in one month window, we could see easing from the ecb and the boj. it is difficult to get a lot higher interest rate and that needs to change. >> september is looking like a
jampacked challenger because that aside, we have all of these events, boj and bank of england, all kinds of stuff is going on. saying that u.s. yields are so effective, it should be important for people to keep an eye on the meetings. >> yes, probably the ecb and the boj are bigger than what the fed decides to do in a september meeting. they may very well hike in september, but it will probably be packaged in a dovish way. it is global drivers that are more critical at this point. technical things like hedging costs, term premiums, does that really make up for almost 200 basis points? japanese in the situation drive yields down too much closer than where they are? >> these things are not necessarily like for like. downe c yields all the way
, there really two different things, two different types of bonds. they do not move around very much and are not very volatile. treasuries are much more volatile. you need to kind of compare them on a like for like -- like for like basis. research shows they create a home bias. regulators may force banks to hold bonds issued by their government. across largengs sovereign, create a wedge between different markets. joe: very good, fascinating stuff that we love to hear. you will stick with us. we will continue to talk to a senior economist. this is bloomberg. ♪
matt: it is time now for a look at some of the biggest business stories right now. parts of the company. about 120 job cuts. this will not affect next year's plan to buy a new type of cancer treatment. facebook says it will launch a satellite this week to spend across rural parts of africa. intended to let facebook add users and to increase the company's reach, also for altruistic reasons, as he would expect. lenders to digitize national
currencies and sub-saharan african countries. announce ines will two months. that is your update. >> we're back u.s. senior economist at, zach. i want to get your take on a speech. what did you make of it? >> low productivity growth. hike over theo next few months, they should be going very slow thereafter and probably not very high ultimately. they are going for a very gradual rate increase over the next couple of years.
>> there seems to be a wide consensus that it will not take off any such -- anytime soon. there are more concerns out there and i think the market roughly agrees with that. there are more concerns about financial stability and so forth and he suggested that even those probably were not a concern. you worry what appeared to be ultralow rates are not causing bubbles? >> i would not say that. it looks like global easing. what the fed was doing, qe and forward guidance in the lower anel of rate, it was intention of policy, the goal is to push rates low. the rest of the world needs slow real rates. i would not call it a public all. it is a policy goal of these he be in the boj.
financial stability is interesting. we had not heard about this in a while. you remember back in 2013, jeremy stein talking a lot about issue. debates in them last couple of years but popped back off interestingly enough. what is going on between the hawks and adults on the committee, the hawks are pushing back on the idea that we should just a 50 basis points for an indefinite time because it may , whether imbalance financial stability problems or imbalances in the real economy. matt: are there any argument against raising rates other than domestic concerns that it would be bad for consumers? are there worries it would create a negative feet act loop with foreign economies? >> absolutely. a big concern is we will repeat what we saw in the first quarter of this year. an increase in december and a lot of financial conditions tightening in late is overcome
early january. there is a significant worry that that will be repeated. the world is more prepared now than maybe it was in december, but that would be a concern for the committee. int: what about domestically terms of stimulating growth? is it possible raising rates would get people off of the fence, and my friend said you should now because they may raise rates. >> we often hear these kinds of arguments. rates go up and there may be some scrambling at one end before they go up. rate hike far could a cycle go? even the idea of getting to 3% on short-term rates seems almost unimaginable these days. not think it, i do is unimaginable. do we have a recession in the next read to five years and if we do not, we could see a continued process of normalizing interest rates, without a significant downturn. that was probably we be a
reasonable baseline expectation. i do not think 3% is an unusually high number and i think the bond market does not really disagree either. you are look at real yields 1% at in the vicinity of the long end of the curve. 70 basis points or so. it is not like the bond markets and the fed disagree with where they need to be in the long run. it is more about if they do, maybe it is reasonable for them to keep hiking and maybe it is the global factors. they need to unwind to allow rates higher. >> the fed is primus ruled out negative rates. how the path will be slow, that is what most people say. does it have enough quality tools outside of taking raise any lower? qe and forward guidance: that basically be enough?
>> fed chair yellen address this at jackson hole. a lot of researchers behind it. the punchline of her remarks was, we did it once and we can do it again. wehad to invent new things, had to experiment with policy and in 2008 in 2009, it was an extremely large shock to the economy and we'll totally recovered through a combination of monetary policy, utilizing the system and what the fed is arguing is we can do it again if faced with the situation. >> zach, thank you for coming on. matt: we have some breaking news are taking the oath of office in brazil, serving in that role in the interim measure. he will now be officially installed as the president of brazil after we heard today that oute f -- that was a push of office and impeached. she will have an appeal, which
remains an option to her at the supreme court level. officially it was said that michelle will take this office until 2015 when new elections are held. live pictures of breaking news and we could have more breaking political news in this hour as we await donald trump, coming out of the office in mexico city. they will make a statement as well. stay tuned for that. coming up, shares of gold producers showing signs of fatigue. how much they have declined in a nifty little chart next. this is over. -- this is bloomberg. ♪
i'm matt miller. time now for a look at them of the graphs that show the day's market trends. i will kick it off with the banking sector. around the world, a fascinating subject today. you will see u.s. banking stocks is up 28% from its lows, hitting its high for the year. this is a two-year chart and most of the shaded area you are looking at, it is 2016. argument for the equity bulls out there, although, it looks like for the month, we will see a loss for the broader s&p 500 index if we do not hurry up and rally in the next cointreau minutes. i am looking at another part of the s&p and it is more signs of fatigue than anything. the bloomberg intelligence gold share index and the bloomberg intelligence base metals index in white. what this is showing is these are some of the best-performing
industries on the s&p 500 this year but a stronger dollar, concerns of the prospect of a rate hike helping send of these cages lower to the biggest monthly decline in more than a year with a baselevel index sliding toward its first such losses. also, citigroup cut its stance on the industry to bear. joe: speaking of losses, you know what has taken a loss this month? treasuries. we always talk about how they always go up. they actually fell not even 1% overall but it was the worst since june of 2007. in the grand scheme of things, a pretty big move considering where it was. very tiny, but we talk all the time about how treasuries seem to be in a constant bull market but if you were not paying attention, you might not have noticed that it had one of its worst months in quite a while. >> even though it was so bad, it
was not even a decline of 1%. you are talking a lot about the correlation. normally, that does not happen. it did happen again in august. theseis my favorite topic days, the fact that there is no diversification between bonds and stocks. it looks like a loss for equities and a loss for the month of treasuries. matt: that is it for bloomberg markets p are what did you miss and the market close our next. here are the major averages. less than four minutes to go and close. not in rally mode. equitiesee a loss for this month. this is bloomberg. ♪
lower,.s. stocks closing wiping out august gains. joe: the question is "what'd you miss?" ask about the g-20 the easen china and decision over apple's tax bill. joe: ridesharing companies have a flawed model, that is according to our guest. >> u.s. auto sales expected to slide, while annual sales fall for the first time in seven years. matt: we kick it off with market minutes. let's take a look at stocks. we had been looking for another rally. that would have made it five or six months in a row for the s&p 500? >>