tv On the Move Bloomberg September 20, 2016 2:30am-4:01am EDT
guy: welcome to "on the move." 7:30 in london. we are counting it down to the european open. i'm guy johnson, alongside caroline hyde in berlin. here is what we are watching. the fed and the boj begin their meetings.we will talk about risk at two of the fence primary dealers. deutsche bank getting creative. the lender is said to secureitize loans. what else can he do? and the case for commodities in the world of rich equities,
volatile bonds -- anna: we will be digging into those commodity stories, but in less than half an hour to the european open, lackluster if you are looking at risk appetite. calm before the bank of japan and fed storm tomorrow, off by 3/10 of a percent. new female news as a takes them for glaxo in march. guy: let's talk about was happening to the gmm. great way to start your day. great gains yesterday for equity market, the ftse outperforming, doing solid business yesterday to the upside. today, the focus is going to shift toward what's happening with the central bank story. the yen is on the move. fx markets are reasonably calm, the little bit of strength coming through against the u.s. dollar. zinc also on the rise, up by 2%. we'll really dig into the
commodity story a little later on in the program. a great conversation coming up, the relationship with equities front and center. i want to quickly show you deutsche bank, with what's been happening at the selloff. stabilization, but we will watch that creativity coming out. it's a big story. can't take your eyes off that one. let's get the bloomberg first were news with tom mackenzie in beijing. tom: thanks. authorities have charged the man they believe responsible for the new york bomb attack. the 28-year-old, naturalized u.s. citizen and afghanistan native, was arrested after a shootout with police. he is facing five counts of attempted murder of a law enforcement officer. officials say they do not believe he operated as part of a terrorist cell and are not actively seeking any other suspects. the off the dollar rose following the release of minutes from the rba's september meeting.
the central bank left borrowing costs unchanged, saying it is helping the economists absorb a fall in business investment. the minutes also showed new governments pay tribute to his predecessor, saying glenn stevens made exceptional judgments during a challenging period. wells fargo ceo john stumpf will say that the bank failed customers and the wider public by reacting to slowly to signs of false accounts. he'll say he is deeply sorry and lay out a timeline showing how the bank will tackle misconduct. wells fargo stock has tumbled as a result of the scandal, losing his title as the world's most valuable bank. global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. this is bloomberg. caroline? caroline: thank you very much. japanese stock market reopens todays as traders position
themselves ahead of the key boj and fed decisions. let's see how markets are moving. david ingles has it in tokyo for us today. david, walk us through the market moves, the caution before the decision. david: as you would expect. have a look at my chart behind me. this is last friday. this is what markets closed, a mixed picture. a lot of that was down to the heaviest weighted stock in japan, 7% of the index pulled down. topix a little bit higher. but in all fairness we did see most stocks in japan with a higher as well. but as he mentioned it is really just a lack of volume, a lack of big bet. the boj started their meeting today; this time tomorrow we will get a better idea. we'll that the press conference from government corrode a. -- governor corona. kuroda. we will shut yesterday, your trading tomorrow, that things shut, and then the fed comes up
in a few hours. calendar and you don't understand -- why they have been closing their yen positions out there. guy: let's talk about the positioning and what's happening here. or potential for a big move, as one of our columnists has written, a messy move, on the backend -- he talks about them getting neutral. how are we positioned? david: right. if you look at how leverage funds were positioned as of friday, they were still net long on the japanese yen, almost double the average for the year. but that being said, we don't know which way it will move. what's clear is that any move is going to be big, not because of the big bets but the lack of liquidity in the system. let me flip this and have a look at implied volatility. there we go. the green circle is where we
are. that was right before the previous meeting of the boj. we did get a spike overnight. the bank of mitsubishi, they are commenting on the strike. that is your normal level in blue, the 50 day moving average. what they are saying is that we are not back to the level of july, simply because markets are not expecting the boj to exceed expectations. guy: thanks, david. david warming is up for what could be an interesting trading session. ofember that we have got two the primary dealers in the united states, are clays and bnp, both saying we could see a shock from the fed. we're pricing in a 20% chance that we could see a hike from the fed this time around. joining us now is our guest, the head of fixed interest at invest
ake. good morning. how messy could be at the back end of the week at the boj? >> they could be messy. i don't remember so many permutations as to what the outlook could be -- there are four or five things. no one really knows. guy: what do you do? >> you probably don't do much. is iyou sit in the sidelines and wait. it will be too large a risk. caroline: give me a sense, i want to look at my screen, on the bloomberg we are starting to see that is at the boj we care about when it comes to the end, where is the fed we care about? on the blueline we are seeing the law to the fed rate hike, and the white line -- as we build up toward a higher probability or lower probability of a rate hike, that affects the yen. if we go lower probability we're likely to see a spike higher. how much is the yen dictated by what the fed does rather than the boj? shouldrly the dollar
mutate on with the fed does. but i would say that the boj is definitely in the driving seat with regards to the yen, although clearly we have seen a strong yen all year, despite the weakness we saw in january. some things don't work out. the boj is definitely in the drivers seat. do you buy this theory that the primary dealers of the united states are going against the market? it is right to do this in advance of going against the market. their argument is that the fed is going to reassert its independence, that refers to the government and not the market. they will be interesting to see whether they make that decision that we are in charge. the dog like the tail, not the other way around. >> i think the fed will be very worried but the negative consequences of not informing the market sufficiently beforehand. i think everything is in place
for the fed to hike. thereinancial conditions, -- if the fed doesn't doin it now, it is running out of time. december will be the next opportunity, quite late in the cycle. i understand the arguments. guy: i just have to show you a chart before we wrap this chunk up. this is usd, three-month libor. chartit has been rising quite aggressively. financial conditions are tightening. discuss, discuss, discuss. the things i look at -- >> the cost of corporate debt has tightened, particularly since the middle of february. guy: what is the fed me to do it? >> because we are very late in the cycle. interest rates are too low for where we are and we have unemployment allison 5%.
traditionally this would be quite late in the cycle. guy: you aren't going to accept the phillips curve to be working. darren will stay with us, joining us from invest tech. caroline: great discussion. coming up, from the boj to the fed, will talk the other huge central-bank meeting today as two of the fed's primary dealers warn of a shock hike. plus, nigeria's crude reality. in an economy battered by low oil prices, we get a rate decision from africa. we get what to expect. still to come, in the world of volatile markets, is a time to get physical? we hear the case of commodities. this is bloomberg. ♪
caroline: 50 minutes of the market open. let's get your bloomberg business/. tom: thanks. promoted thene has head of the is a result business to be the new ceo. she'll 16 andrew witty at the helm of the world largest drugmaker when she retires. she will join the board on january 1 and take the ceo role by the end of march. the move means gsk will be the only major global pharmaceutical company with the female head. -- is considering dropping the monsanto name once its takeover is complete, according to people familiar with the matter.
they say the german company is considering the move to avoid sullying its reputation. the monsantoew, ceo signaled he is open to a change. has raised ayer combined annual sales peak forecast of over 10 billion euros. some of the world's largest hedge funds are expanding in asia as they seek new areas of growth. haveding to filings, three incorporated units in singapore this year while asian hedge funds haven't been immune to withdrawals that have placed the industry. some investors, including china's sovereign wealth fund, may increase holdings in the region. they are betting they can be rivals in developed markets. guy: thank you very much. two of the biggest banks are defying the market forecast. a federal reserve rate hike tomorrow, an economist says
traders haven't taken the fed's intentions to heart. the head of fixed interest is still with us. what do you make that call? you have already indicated you think the market probably is pricing it right, but the problem is that argument becomes so circular so quickly. the fed is worried about the boj, it starts getting shaky, it backs off. we are seeing the script so many times. >> we have. maybe it's the political dimension as well. a couple months ahead of the election, trump has already been antagonizing about the fed and its independence. they do it now and he will say, they are trying to take part in the political debate, and that is the wrong time. guy: before caroline johnson, can i just -- that argument to work the other way.
if they don't go now they could be accused of getting involved in politics. , dammed if they do stand if they don't. that's why most people would say, leave it until december so there can be no debate. caroline: tell us how you would advise investors to trade this out amid the political volatility, amid the rate discussion. do you hold onto u.s. treasuries for timing? >> generally we are holding on bonds. i have to say we are a lot more circumspect about that. we think interest rate and bond yields now are so low, that they don't represent -- quantitative easing is working very effectively, forcing us to invest in spread product, investment grade bonds, high-yield bonds, emerging-market debt.
qe is working perfectly in terms of what we are doing, the portfolio effect pushing you into more risk. guy: they will be interesting to see what happens when it reverses. let's come back to policy. why hasn't the market price did more risk? 49 days to go into the u.s. election. line is that market waking up and getting were concerned? you talk to people and they are worried, that you look at market pricing, flat as a pancake. >> i agree. there is nothing in the markets. we should start to worry about this for at least a month ago. i guess we have got this week's decision from the boj, the fed, a lot of focus on that. i suspect was we get past that there is not much, other than the italian constitutional reform in october. i think the u.s. election will become front and center. caroline: darren, how does that affect assets prices? where do you want to be within
the buildup to the election? >> i suspect asset prices will go sideways for a period of time, just because there is so much uncertainty. but i have never known there to be so little conviction in what people are doing in the markets. i think the outcome of what could happen, particularly without regard to the u.s. election, which is heard we must get through. in terms of monetary policy, i think the people who are discussing it are discussing low rates, negative interest rates, fiscal policy. i think because of that, there's a chance of outcomes that i don't think has ever been greater. caroline: by darren, that's just saying it's not being placed into the market yet. what should investors be doing, if it is going to trade sideways? which immediate doing if we see this risk? and is currently only 18% of the risk. >> that the obvious thing you
would expect to come out. more volatility, which usually means markets going down . some people will take this as an opportunity to get more cash, see what happens, then invest after the event. i guess what we have learned is qe, through the policies of they have continued to push asset prices higher and i think everyone is worried about that. at the same time, people don't want to lose out on price gains . guy: i wonder how much more there is still to come, and i wonder, looking at the risk, is my upside worth taking the risk, or is the downside becoming greater and greater, and therefore that is what i should focus on? you talked earlier about the portfolio effect. when the tide turns and it starts flowing the other way, a a lot of people could be left without. >> but to give you another famous quote, back in 1996, greenspan warned of
irrational exuberance. you can take big decisions and markets and choose not to be in you might miss a number of years of the gain that is the risks. guy: they are quite long in the tooth. caroline. caroline: just a few minutes away from the open now. up next, we will look at the potential corporate movers in today's trading. will glaxosmithkline react to the news of the new ceo? keep an eye on kingfisher, which could be on the downside. details next. ♪
caroline: 7:53 in london. a rather gloomy berlin. . stocks you need to watch. two germany's to keep an eye on -- deutsche bank securitizing their loans, trying to continue to service, but get the risk out of the bank it into the investor base. $5.5 billion was what they did last year. look for deutsche bank, currently unchanged. one stock that is called hire is bayer. bayer chemicals and pharmaceuticals, buying into seeds in a big way with monsanto, but notably today raising its peak sales forecast
for drugs it recently started selling, signaling some optimism about the pharmaceuticals business. it splashing $66 billion to get into monsanto as well. guy: we will watch that stock carefully. in westthkline out london, andrew witty stepping down on the 31st of march. emma wormsley will be taking over, replacing andrew witty. let's talk diy. good,sher stocks look done well, beating profit estimates. both the uk and france doing reasonably well. i'm not sure you can read anything into that, but it does seem that we are into it a little more. five minutes to go to the market open.
what do you think about equity market valuations at the moment? it really depends -- are you in this pina world where there is nothing else, there is no alternative? cannot change quickly? >> we are in the tina world. we are very light on the bond proxy story. if you are bearish on bonds then surely you must at least be concerned about the equities that look like bonds predicated on bond yields. against what we are most concerned about is the rotation within the next two markets. let's say we get steepening in the yield curve, one of the outcomes being discussed at the boj. you could see a different type of equity doing well. that's all we have to be -- from an equity point of view it will be about the rotation. guy: always a pleasure. darren will stick around through the market open, coming up.
guy: good morning. you are watching "on the move." i am alongside caroline hyde, it was over in berlin. we are moments away from the start of european trade and and caroline has the morning brief. caroline: the fed and the boj are about to begin their meetings. deutsche bank gets creative. the lender could prioritize loans to offload risk. and a case for commodities in a world of volatile bonds. is it time for investors to get physical, guy? guy: we will talk about that a
little bit later on, the relationship to equities is absolutely fascinating. let's talk about what is going to be on the move. we think the stocks are going to be a little bit softer. keep an eye on john cryan and deutsche bank. let's show you what is happening here. let me take you to my bloomberg. we expected a little bit of softness, as you can see and that is what we are getting, creeping in here, showing you what is happening. the london market is softening up a little bit. 100.hite line is the ftse cac is expected to open up a little bit more softly as well. we are beginning to unwind some of those gains with all yesterday, but not by much. let's show you what is happening with the imap. this is the stock 600 breakdown on a national basis. 0- this is the stoxx 60
breakdown on a national basis. let's get the details of the gilt market opening as well. caroline: we have seen yields tick lower. it looks like we can see this in the u.k. as well with the tenure year gilt yield. so, this yield, ever so slightly lower here at the open. living on to -- moving on tot stocks to dig into. there is definitely more to the downside. energy stocks look to be leading the losses right now, down 0.8%, not a surprise given the weaker wti and brent prices. and then health care, the second-worst performer, down 0.4%. industrials are following closely behind. materials are the best performer, pretty much unchanged. energy is still the biggest
loser. stocks to the top three i wanted to look at. i wanted to start on glaxosmithkline. we heard this morning they have named emma walmsley to be the new ceo, succeeding andrew witty when he retires, a move that will make it the only global major pharmaceutical company with a female head. glaxo was called a little bit lower by some analysts at the open. it is down by 1.2% there. i want to move on now to kingfisher, another u.k. stock. we had numbers in the 7:00 hour. the company said they have remained cautious on france in the short-term and that the eu as created uncertainty. this is perhaps why we can see the stock move a little bit .igher there come up 1.2% i wanted to take a quick check on bayer. it has raised the peak sales forecast. this signal some optimism for
the pharmaceutical unit, even as the company spends $66 billion to purchase monsanto. guy? guy: now, let's talk banking. deutsche bank is under pressure. it is trying to secure millions of dollars in corporate loans, john cryan is getting creative. let's get to the details with the creativity we are now getting to. certainly looking at all the assets. ultimately, it comes down to the thee they get from prioritization. this is a way to offload some of the capital from these assets without going the through a full sail and while continuing to service the assets. that makes it a little bit easier than doing the entire sale. caroline: give us a sense,
michael, of just how much concerned there is in the market about deutsche bank. it was tumbling on friday and we have been down 11% over the course of three days. clemmons yesterday and he said we have to tackle this quickly. how concerned is the market? >> well, the market certainly got sticker shock from that $14 billion opening bid from the doj. the problem deutsche bank has is, on the doj side, they don't have full control of the timeline. certainly, they can try to speed up negotiations, but the doj has to play along. they will try to do things in the meantime that they can have full control over, like this of securitization to calm the markets, while not being on some deals's timeline. bank, tradingche
at 7576. of securitizationwhat is the m? and, kind of, how does the market work in these kinds of scenarios? why do i want to purchase the db coco? >> i think both teh coco and the equity share price are excellent barometers. i think the market will be concerned about deutsche bank. there is no doubt about that. the problem with deutsche bank's coco is they will not be purchasing things like the deutsche bank coco. there are significant returns , where you can achieve yields from the present 10% without going to deutsche bank. the downside risk is huge, and it won't come from the deutsche
bank coco from being triggered. it will come from the being turned off. that is the real risk. caroline: give us a sense, ckchael, quickly, of the knod on effect from the rest of the community. they are still yet to find out what they could do to the united states. how much are we in a story of how hardball the u.s. regulator will play in terms of european banks? >> that has been the fear, that the doj would be tougher on the european banks than they were on the u.s. banks. if you look at this opening bid, that reinforces some of the fears the market had and you can see that within the other european banking stocks. almost all of the other major european banks still have to reach their own settlements with the doj. so, there is certainly concerned for rbs and for
barclays. rbs certainly has other mortgage fasa.he fa guy: we are raising money by the equity, incredibly diluted at this stage. i think this is my you can see them do some creative moves, like today's moves. that is just a creative thing and you had john cryan, last month and say, "we don't want to sell the asset management unit." as taking away the equity issue, selling off a big chunk of the business. you have to get creative. guy: i have another question for you. is this a reverse twist, or something length that, from the boj? ecb is looking at this as well. how big of a change is this for the european banking? >> it could be a massive change.
people could say, japan is the start. they could go to europe and the u.k. because the invitation in equities second -- we could see a rotation in the equity sector. caroline: i've a question for both michael and darren. italy seems to have moved back to our rearview mirror, but it looks like they are getting close to selling some of the pioneer asset management part of the business, seven to eight parliamentary offers, according to the italian local press. i we misjudging the risk in the italian banking sector at the moment as we get toward the italian referendum, or is italy not summing to be concerned about? -- or is italy not something to be concerned about? >> i think unicredit is an example of the value of moving quickly. new actionshas made to raise capital right off that bat.
that seems to have been appreciated by the market. there is some value in the european bank sphere to act quickly on some of these concerns. guy: darren, do you want to weigh in? >> i think the italian bankers have not gone away. they have been put to one side for the moment, but they will come back. guy: guys, we will wrap it up there. darren is going to stay with us from investec. caroline: a fascinating conversation. coming up, we will be digging into a week dominated by the fed and boj. we will look at two other central banks you need to pay attention to as well. volatiled of the littlvo bonds, is the time for investors to return to that shunned as a classet class? this is bloomberg. ♪
office supplier. it is down some six percentage points as the founder looks to offload some of his shares. and also, ig group, also falling today. this is the brokerage company, being a bit cautious on the outlook, saying july and june were pretty subdued in terms of trading. there are some of your big movers. remember, today is flat. let's dig into bloomberg first word news now. reporter: thank you, caroline. authorities have charged the man a believe responsible for the new york bomb attacks. the afghanistan native was arrested after a shootout with police and is facing five counts of attempted murder of a law enforcement officer. officials said they do not believe rahami operated as part of a terrorist cell, and are not actively seeking any other suspects. the aussi rose after the release
sf the minutes from the rba' september meeting. the record low rate is helping the economy absorbed a fall in business investments. glenn stevens made exceptional judgments during a challenging period, the new successor said. will killo's ceo congress later that the bank failed customers and the wider tell congress later that the bank failed customers and the wider public. he says he is deeply sorry. wells fargo's stock has tumbled as a result of the scandal, losing its title as the world's most valuable bank. global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries around the world. this is bloomberg. guy: tom, great stuff. on a week dominated by the fed and the boj, a smaller central
bank with a big challenge on its hands make the big decision in nigeria. the bank is contending with very high inflation and a contracting economy. let's bring in our reporter. what are we expecting today? >> a big challenge, indeed, guy. nigerian policymakers will have to balance record high inflation and an economy that is expected to contract this year. this is the first time in 25 years. 17 economists surveyed by bloomberg, eight predicted the benchmark will be kept unchanged. the rest expect policy will be tightened. it does seem as though the markets are quite uncertain as to what the central bank will do thedeal with h policy dilemmas. caroline: give us a sense of how the currency adds to knowledge
dilemma.ia's current >> whenever the finance minister saying yesterday that he wants interest rates to be cut so that can stimulate growth. what has been very apparent is that since it was removed in june, the currency plunge has contributed to accelerating inflation quite rapidly. before, inflation was preaching record highs at 17.6%. -- was reaching record highs at 17.6%. guy: thank you very much, indeed. southlitical story in africa is certainly warming up as well. let's bring back darren ruane. emerging markets. we are in a world where we are watching so carefully thate
boj, and the fed. this story has captivated people since the start of the year. does a carry on? is now the time to worry? what is next, in your view? >> we are not sure if the stories have improved, and the think it has. or, is it just about the search for yield. about 4.5%.ow at as more emerging markets improve. the jury is still out on that one. caroline: if you are looking at the biggest exchange trade focusing on emerging market debt, the money is being pulled out at a rampant rate.
on my bloomberg, you can see the money that has been pulled up, particularly in september. is the caution purely about the fed? >> part of it is about the fed, no doubt. is,i think part of it people use it as a way to get into and out of trade. those people that are more speculative, that want to try to more than own it, so it won't be traded in that way. guy: how much cash should i have in my portfolio right now? doing?r clientare clients >> they are asking, can we make it work? against that, we are nervous of marcus, to some extent. markets, torvous of some extent. we want to make sure we have the cash to put to work.
guy: welcome back. you are watching "on the move." where are you putting your money right now? we have been watching serious moves in the bond market. stocks are delivering relatively muted returns, compared with bonds, but multiples continued t to gain altitude. is it time to get back into commodities? we are checking out this chart with commodities trading a multi-decade lows versus stocks. people arewhere saying, are you going to buy equities, i think the case of commodities needs to be made again. cofounder ofeo and the tiberias group. haveast few years area contractn the
. >> it helps to look back at the last decade. in 2008 when commodities crashed, it was a very swift and volatile crash. people did not have the time to get out. they did not consider the investment as much. over the last four years, the slow grind is pushed people out. not only be short-term investors, but the long-term money has left the party, so to speak. more than 400 billion investors globally have gone down to 20 billion. for commodities, that has an impact and that is why prices are where they are today. what we see today is a lack of alternative, whether it is the real estate market. so, commodities have come back. as is shown on the chart, if you look at the other asset classes,
commodities have completely detached and looked cheap on a relative basis. when you look at the fundamentals, you will find some attractive places, not necessarily on the whole spectrum, but there are good picks to make. caroline: we heard from the chief executive of rio tinto yesterday, saying they are optimistic, cautiously, but cautiously optimistic about china, in particular, talking to officials, looking at some of the data. are the fundamentals in china starting to move the same way as the technicals in commodities? >> we like to think we need to look more at the supply-side rather than the demand side of things. we are skeptical about china and we continue to remain skeptical, especially because of the shadow banking system was a lot of commodities being used for financing, actually companies that should not receive any credit in the compliment. we are trying to understand, how much has, actually, high grading
led to a deterioration. i do agree somewhat, with what said, butnto ceo has it would argue more from the supply-side, rather than the demand side. guy: in your view, how did qe change the commodity world? >> actually, i would argue that qe should have led to higher prices, though the opposite happened. in the long run, qe worked to continue the way we expected it to continue. whether inflation targets are increasing over a longer term durational five years and whatnot would be possible. that is part of it. but what we feel actually, is the market is neglecting commodities as an asset class, which is fine somewhat because it has underperformed.
it was overdriven in the last couple years. guy: what would a steeper yield curve do? how would that change the relationship? >> i think what we would see in the commodity price, we would see carries change, the market prices overall. with higher interest rates, we would see overall carries expanding, which should make investments less attractive. that impact weber, i believe would be so marginal compared to what you have on the underlying flat price of opportunity that it can be neglected somewhat. guy: you are going to stick around. we are not done with you yet. christoph eibl, still on set with us. stay with bloomberg television because we will be talking oil, next. that story is a big focus right now. plus, we have been hearing from the miners, as caroline said. algeria, coming up. the need to freeze, that is coming up. this is bloomberg. ♪
caroline: welcome back to "on the move," 30 minutes into your trading day. let's check in on how the markets are performing. it are risk aversion ahead of the fed and the boj. on the upside, real estate and chemicals. on the downside, the banks for the worst performers, along with oil let's dig into some of those significant movers with nejra. nejra: caroline, i am starting with the biggest loser on the stock 600 righxx 600. what we heard yesterday is that the founder, mark dixon, was to cut his stake by 4%.
today, he placed 37 million shares. so, we actually did see the stock drop 1.5%. 272.50 at the moment, the worst performer on the stoxx 600. would you, another one of the worst performers on europe's equity benchmark. what we have heard from deutsche bank today, if i could find my notes. it is under pressure to boost its balance sheet, but it is working to secure billions of dollars of corporate loans to offload risk. this is according to a person with knowledge of the matter. the bank is structuring the transaction as a synthetic move, meaning the bank would keep servicing loans while transferring risk to investors. germany's biggest bank has been doing similar deals to manage risks from corporate lending. one of the best performers on the stoxx 600, kingfisher, up
1.8%. referendaay the eu penetrated uncertainty. we have heard the cfo and ceo talking earlier this morning at the top of this hour on a conference call that said "too early to predict the impact of al the weaker pound." they are optimistic that the u.k. won't do silly things on trade. "won't do silly things on trade," interesting. of course, many investors are waiting by the sidelines ahead oilhe main event for the market that happens next week. the possibility for an opec supply freeze, a pan oil market supply phrase.
what effect would that have, if any, considering the output levels of the moment? are you watching the? >> of course. i believe opec has become a toothless tiger. there are many officials from there is countries, trying to follow their own political agenda. the bottom line is, opec production is not the same for saudi arabia and iran. we need to look at the u.s. somehow, and somewhat out of left field in the last five years, we have seen fracking and shale appearing on the charts and changing the entire equation from a u.s. demand point of view. that is what we need to look at, which price levels will this industry be sustainable at? it appears to me that prices above $40 will not lead to any distraction. you will eventually first need to destroy that industry. you can only destroy it by
longer, yeah, longer-term lower oil prices. we cannot foresee that, given what we see with political turmoil. we see that in nigeria on a regular basis with the supply cut. we think oil will be range bound going forward. they could dip below $30 briefly, but that is about it. caroline: what about the dollar playing into that, chr istoph? >> the dollar any long-term will determine where overall commodity prices will lead. that has always been the case, but i think it is the driving force. the driving force, and that is what we need to understand, how will the iran-saudi relationship layout? ho-- relationship play out? will they continue the
10 million barrels each day output? at the same time, russian output has increased. i would say yes, the dollar is relevant somewhat, but to determine an oil trade, you would need to understand the fundamentals. guy: let's talk about how we make money. we have seen talks regarding how you should not view oil as a singularity. where is the opportunity, and kind of, how big a factor is currency in all of this? >> first and foremost, we argued very much from the supply side of things. that makes the base model very interesting. you want to look at zinc and l ead. within the oil complex, it is very much range-bound. we have seen grain prices on low s, which makes sense to investors. with regards to currencies, since the beginning of the year, when we have seen the lows of
currencies linked to commodity producing countries, we have seen that raise once again. this means the cost will appreciate. guy: you want to be in places like nigeria and russia. >> as we discussed earlier, it looks pretty weak, making it attractive for a producer. gold, that is and the attractive area. you will see with the appreciation of currencies like the aussi dollar, the is and the countries where you want to be invested, from a mining point of view. caroline: what about gold as a metal point of view? as well as the demand tha dynamics? hase think gold somewhat,
seen its best days. many of our investors perceive it as the solution for every problem, inflation, deflation, our next qe problem. we have seen a super strong correlation between etf, flows, and gold price. ,he more people believe in gold the more gold is invested in, that will lead to higher gold prices. what we feel is, the majority of those investors have accumulated gold already and have achieved their target allocation levels. so, the question is, where does demand go from here? saturation ofs, demand, which will most likely lead to a continuation of that slow grind of lower gold prices. guy: what is trading like at the moment? people are trying to watch the big trading houses, trying to understand what is going on. >> i think the most interesting
observation is that liquidity is super, super low. that actually, is a challenge. when you end up trading with yourself, when you don't get the volumes you want to play and push around -- i remember the - levels07 to 2008 0- physical trading houses would dream of working into. second, you can actually see that investors, and consumers, have become more reluctant to price long-term supply. this leaves the manufacturer exposed to the price fluctuation. however, having said that, if the market will reverse, and we believe they will, then actually, the manufacturing side
will get hurt. guy: nice to see you. come back to see us against them, christoph eibl, the cofounder of tiberius. a quick check on the banking sector. we were talking about deutsche earlier. we want to talk about monte pasche. it is trading at 19, a 5.8% move, it bounces all over the place. nevertheless, it has been holding us down once again, caroline. caroline: the once cent move. up next, we will be talking this week about the federal reserve and the bank of japan, and may bebe , the bank of china. we will tell you why, next. ♪
guy: 42 minutes after the hour. this is "on the move." let's get to the bloomberg is in it flashed. reporter: glaxosmithkline has promoted emma walmsley to be ceo.be the new she will join the board on january 1 and take up that ceo role at the end of march. this means they will be the only major pharmaceutical company with a female head. bayer it's concerning dropping the monsanto name once the $66
billion takeover is complete. people familiar with discussions say the german company is considering the move to avoid sullying its reputation. in an interview with bloomberg last week, the ceo signal they were open to a change. meanwhile, the peak annual sales number has been raised by about 1/3 to over 10 million euros. some of the world's largest hedge funds are expanding in asia. they have incorporated units in singapore this year. while asian hedge funds have not been immune to a state of withdrawal, some investors, including china's sovereign wealth fund, could increase holdings in the region, betting they can beat rivals in developed markets. the is your bloomberg business flash. guy: tom, thank you.
in a week dominated by the federal reserve and the bank of japan, we could also see another unexpected source of action. we have seen a major selling of u.s. treasuries from china and saudi arabia in the last few months. yore on m wh tightening could become a problem. this is a big deal. break it down for us, tracy. cast youro if you mind back to august of last year, the deutsche bank economists came up with this idea of quantitative tightening. it captured the idea of investors at the time, who were struggling to understand why the yuan devaluation was such a big deal. the idea here is basically, as emerging market banks have to defend their currencies, they start selling off their dollar-denominated assets, such as u.s. treasuries, which ends up tightening, essentially
quantitative easing in reverse. there were a lot of discussions regarding whether it was happening last year. we can see those discussions pick up again. we have seen some signs in the data. saudi arabia and u.s. treasuries have dropped lower. caroline: anything to be concerned about significantly amid the selling? iscy: so, the question exactly, how worried should we be about this? it might be a little bit early to be sounding the alarm bells, given we have the bank of japan and european central bank engaging in quantitative easing on a mass scfaale. things start to get a little more interesting if you think about the ecb or boj bumping up against the technical limits of those programs, or if you think of the fed raising rates again,
which would put pressure on the dollar, forcing those emerging market banks to defend the currency. whether or not you believe in quantitative tightening, just the idea could be enough to add additional volatility on the edges of markets in a time of massive uncertainty regarding monetary policy. caroline: tracy alloway in abu dhabi, thank you. we want to bring it back here and talk about trade. it has been a complicated year for getting trade deals signed here in europe. yesterday, canada's trade agreement overcame its last hurdle. germany's vice chancellor received strong support of the deal from his own ranks. we are going to bring in someone with significant experience in that field. it is chrystia freeland, canada 's minister of international trade. first of all, congratulations on
tightening things up with germany. we have the rest of the eu to really, find out is it, the last finessing of the deal to get it done? >> that is right. we have a big moment this week. the eu trade ministers are coming together and they very kindly, invited me to join them. i am looking forward to that. as you said, caroline, the meeting yesterday, which i was invited to address, and i was really happy to do that, that was an important moment. the coalition partners here in germany, the vice chancellor is the leader. there were some concerns inside the party regarding whether the party would be willing to support this trade agreement. i am really happy to say at the end of a long, and really fascinating and well informed and long debate inside the party, they came out yesterday more than 2/3 supporting the
agreement. so, thank you very much, germany. guy: minister, can i ask you a question from london? the story seems to be getting more difficult for international trade. globalization, maybe we have hit a peak. ofbe we are hitting the peak the idea that countries want to be more involved. you have spoken about how tough it was to get this over the line for germany. what does the next job you have to do look like? >> guy, i think you are absolutely right. the story is very tough right now portrayed. i would say, for the idea of an open global economy overall. you and carolyn, baedsed in europe, are seeing the rise of ugly, protectionist anti-globalist sentiment in europe. we can see a lot of those feelings be expressed in the u.s. election campaign.
and speaking as canada's trade minister, canada is very worried about that and canada is proud to be a voice in the world speaking against that. we really speak for the open society. we are a country that believes in open trade, and we are open to immigration. we think that is best for canadians, and we think is best for the world. we are out here, talking to our friends, our partners, our allies, and making that case. caroline: how do you negotiate with potentially, donald trump taking the helm? does that bring open trade to the standstill when the leader of the united states is against it? >> well, the u.s. has not happened yet. we have an incredibly close and tight and productive and fruitful relationship with the u.s. there is more trade done in goods and services between canada and the united states between any other two countries
in the world. we are confident the american voters will make a great choice. we are also confident, this is a relationship that has endured before canada and the united states existed. we will continue to trade and be great friends, the matter what. guy: minister, the world seems to be moving toward the idea that we will see fiscal expansion may be taking over the heavy lifting from monetary policy. this is being talked about around the world. the logical extension of that idea is you could see more protectionism. if you are going to spend money, you don't want it leaking out of your economy. would you raise trade barriers? is that something you think could happen? >> let me offer a different perspective. so, we were very happy in canada, i think it was just last week. i am traveling so much that i am losing track of my time zones. i think it was last week that we had christine lagarde in toronto and in ottawa.
we spent a lot of time talking with here about canada's domestic economic policies. as you know, guy, we have been early advocates of using fiscal policy to get our economy going. we campaigned on a significant infrastructure for jobs and growth. that is what we have done. garde was in canada to talk about what she thinks, what canada is doing is what the rest of the world should emulate. but you are quite right. a strong fiscal policy in one country alone does not have the impact that a united fiscal policy would have. that is what the imf is calling for and what canada has been volleying for in the g-7 and g-20. i think quantitative tightening is a very interesting point. both the boj and the ecb could be pushing up against the
technical limits of quantitative easing. so, we really think that now is the time to be using fiscal policy to get our economy is going. stagnation is real and it is something we need to be concerned about. it is time for all of us to be investing in infrastructure for jobs and growth. we will be talking about at the imf and world bank meetings this fall. caroline: you are reading from the same sheet that draghi is reading from as well. thank you for stopping by on your tour of europe. good luck and bratislava. up next, the boj takes on the yen. how can the central bank avoid a way? i by going all the we will discuss the next. ♪
guy: let's talk currencies. i want to show you a couple charts. volatility at two year lows, the euro-dollar. this is the warm-up act to the end of the week. let's talk now to the "daybreak" anchor. we can see little volatility coming back into the euro-d ollar, but the yen, what is going to happen at the end of the week? >> i think it will be a messy week for the yen. i think they need to do
something properly radical to weaken the yen sustainably. given that expectations are quite high. we are very close to a multi-year low in the dollar-yen. there'll be a lot of stocks lined up below that level. caroline: i love your line in your latest piece. a melodious sandwich, the boj, the fed, and the technicals. talk to us about the fact that afect how the yen moves. >> the boj is concerned about how their decision can be affected. you can't decide your policy based on whether or not another central-bank will make a decision later in the day. i think the risk from the fed is the downside to the dollar. most likely, they will not hike rates. , that canthe dot plot
mark: trade cautiously. investors await the bank of japan and fed decision tomorrow. bnp bet on a shock hike. the debut. theresa may on the new brazilian migrationsays the -- takes center stage. bolstering the balance sheet. -- to securitize billions of dollars of corporate loans. ♪ mark: welcome to "the pulse."