tv Bloomberg Markets European Close Bloomberg October 4, 2016 11:00am-12:01pm EDT
i am vonnie quinn. you are watching the bloomberg clothes -- close on the bloomberg markets. we are going to take you from washington to london and cover stories out of germany, wall street and south africa. here is what is worth watching. itsbritish pound extending slump, falling to levels not seen since 1985. we will talk to a global economist on the mounting concerns of the heart brexit. -- hard brexit. vonnie: as we await news on the department of justice, we will hear from a german lawmaker. and google's latest hardware event takes place today and could mark the arrival of two new flagship smartphones.
apple andtaking on amazon. have a look where european equities are trading right now. just under 30 minutes to the close, the uk's ftse 100 up 1.7%. we have seen this hit a record high after it opened above 7000 for the first time in 16 months. 7104 and still rising on this u.k. benchmark in the netherlands. 1.2%uro stoxx 50 index of and the dax index as well as it reopens. a broad gain across european equities. we are seeing a weaker euro. sterling, of course it is one of the key things we are
talking about. 12747, this has fallen below that post-brexit low. it keeps falling and might do even more as i will show you in just a second if we take a look at the bond market. we are seeing a little bit of yield kick higher on the front-end and you can see the ,ommodities at the end as well down 2% at the moment. let's take a look at sterling three months risk reversal. the premium to sell sterling over the dollar has been widening. it has been hinting at traders being there most parish at least in july. on concern that we are going to see the u.k. edge towards a hard brexit. i want to show you what happened
. it is not just the ftse 100 that hit a record. also the ftse small cap. these gauges hitting record simultaneously for the first time since 1999. the first time in almost 17 years. it is a broadou, base today. this is headed for a six -- six straight day. wante: here in the u.s., i to point out some market moves. , upre at our lows although about 34 points. at 162,ally higher apple is gaining today. the nasdaq is up 3/10 of 1%. some of the moves we can thank the dollar for.
and ittrengthening today is partially on the yen weakness and forcing the british pound trading at a 30 year low. the 50 range right now, you can see that has to do with crude oil and trading above $50 a barrel as we take crude oil up to 2/10 of a percent. libya's output is rising and that is mounting for some of that. it distributes chips and it is up by five and a half percent on an upgrade. and pandora up four in a half percent. pandora was added to the bullmanon list because is looking for more paid radio business. well,e communications as upgraded by da davidson and creating a switching solution. all right, downgrades affecting
dr pepper and snapple. also, dollar tree stores down 3.3%. there should -- their sales trends are going higher. polaris, off road on road vehicles down five point 3% -- 5.3% and that was downgraded as well. higher rebate costs didn't boost sales. time to check in on the first world news. vice presidential candidates turn in the spotlight. face-offand mike pence at longwood university. they are expected to produce fireworks. you can watch here on bloomberg tv. founder julian assange says the group will publish a wide range of material over the next 10 weeks.
among the topics, the election, war, oil, and google. a statement from ecuador's embassy in london where he has lived for the past four years. he u.s. will try to keep an end to the fighting in syria even though it has ended negotiations with russia. john kerry spoke in brussels the day after the u.s. announced it was pulling out of the peace talks. continue, as we have before, to pursue a meaningful cessation of hostilities throughout the country and that includes the grounding of combat aircraft in designated areas. russia knows exactly what it needs to do. >> he accused russia of turning a line die to the use of chlorine gas. hurricane matthew has roared ashore in haiti with winds of up to 145 miles an hour.
the southwestern part of the country was battered overnight. many people in that part of haiti live in fragile wood and metal shacks. haiti could get up to 40 inches of rain. global news, 24 hours a day, powered by 2,400 journalists in 150 news bureaus around the world. i am courtney donohoe. this is bloomberg. let's getc? nejra: back to the u.k. economy. about,ave been talking the pound rocking to the lowest level against the dollar in three decades. -- mixed concern. hill,g us is neville cohead of gloec strategy and hed of european economic at credit. i want to get your take on this week of sterling. we will get more on inflation expectations and the like but
are you concerned overall about the potential impact of a so-called hard brexit is it happens? or do you see it as a positive? >> the weaker pound is a consequence of a growing prospect of a hard brexit. i think what we have seen, potentially, yesterday with the manufacturing numbers very strong, is that the manufacturing sector in particular does seem to be enjoying the depreciation of sterling. the consequences of the u.k. leaving the single market in two or three years time are going to tothat the u.k. needs to get a much more price sensitive and currency sensitive export and trade, given that it is likely to lose the manufacturing sector industry that feeds into european supply chains.
pound is a necessary function of what seems to be almost inevitably a hard brexit. glad that you brought up the data because i have the economic surprise index for the u.k.. you can see it is heading upward. far, the dates that we have been having post-brexit have been holding up but i guess the concern is that we just haven't had brexit yet. in 2016had the imf despite brexit. do you think that this positive outlook is going to continue if we do get that hard brexit? >> i think the lesson from the is a much more severe outcome than we have actually seen. the economy seems to be responding in a much slower and less violent way than we have predicted.
of the key uncertainties we had was this view that at the end of the day we were likely to remain members of a single market and have passporting rights and critically allow the manufacturing sector to continue to remain as members of the single market. that looks unlikely and the impact of that is going to be that business spending and hiring plans are likely to flow. the economy has already moderated from the breakneck pace we saw q2. it is likely to continue as businesses look forward to investing in 2017 and 2018. they are going to become much more cautious as they know the kind of relationships the u.k. has with the rest of the eu. i think it is another reason to expect the pound to be really an equally liberating mechanism. will it be up to the bank
of england to stabilize things? obviously we are going to get a one-off depreciation at one point. what do you see at that point? >> i think the bank of england has taken the view that their role is to stabilize the economy as best they can with the limited tools they have. and regard the adjustment in the exchange rates, which we think still has further to go, as a one-off shot. and those are likely to stop coming through as we reach the end of the year. we have to come likely to linger for several years. after sterling has fallen into , i thinkseven and 2008 their policy will be much the same again so they will continue to provide support in the economy and increasingly, it
looks at this policy doing the same. the chancellor yesterday suggested they would provide a role in stabilizing growth. nejra: it was an optimistic speech. where do you see sterling? some say there is further to go. obviously, that will decide what inflation is and vice versa. what are your forecasts? theo get down to the 122 in near future, the next few months, i think this is where we are starting to see the pressure build. in terms of inflation we will get up towards 2% but the bank of england will likely ignore it. the issue is we are likely to see the short-term boost to food and it is going to hit the cpi numbers over the next few months. this big issue with moves we
, and we have waited for in sterling of around 20%, brexit is that the core inflation through imported goods prices tends to pay two or three years. this will keep u.k. inflation high relative to other economies like the eurozone and the u.s. for the next 2-3 years. nejra: i'm glad you mentioned inflation. this chart showing a 10 year rate climbing to a high since june. looks as ifment it what you are seeing is a fall in real yields because you have not seen a huge settlement in the interim. to some, the market is starting to sniff out the response. a. , and anr inflation
ongoing decline in sterling would be an equal inflation rate. risk to the gilt market is that this becomes self-fulfilling. ultimately, policy is going to remain because you have the bank of england providing a backstop. likely -- the other thing is that the global economy seems to be on a modest acceleration at the moment and that should be -- to be fair in an environment where you have the bank of japan , the upper pressure is going to come more from breaking even. >> neville hill of credit suites, stay with us. more insight on the future of europe after the brexit in just a moment. vonnie: also ahead on markets today, we will be talking about manageable growth.
>> from bloomberg world headquarters in new york, i am vonnie quinn. nejra: and from london, i am nejra cehic. let's get back to the future of europe after brexit. our guest today is neville hill, cohead of fixed income strategies and head of european economics at credit suites. there is a lot of interesting things happening in the european bond market at the moment, where it has spread between italy and spain underperforming by the most in two years.
this has a lot to do in political risk. >> speaking to clients after is on, all of their focus the next two months. clearly, the market at the moment is very much in sympathy with the political news cycle we are having. so having no government it looks increasingly likely that they will form a minority government at the same time. the opinion polls for italy's record -- referendum look like they're going to lose that and they are thinking the risks are they would have to resign immediately afterwards. negative,ion is in a but more positive for spain. as it happens, investors are over exaggerating the short-term importance.
all the events over the next year, all the way to the german election, are likely to have a additional risk premium to europe and the electoral assets. generally, they are likely to provide near-term opportunities. i think the worst case is not going to materialize. >> i've got a chart showing the fading correlation between that and bonds. now, you were talking about opportunities and looking at european bonds, it looks like investments making a lot of distinctions even within the periphery. >> i think the best opportunities are clearly in spain. the removal of political risk fair,at class -- to be having bonds and equities to underperform as we run into the referendum at the start of
december, i think going into it and potentially afterwards, that would provide a good opportunity at that stage because i don't think it necessarily follows that the failure of italy's referendum will automatically and necessarily lead to whatever horrible -- that is just not going to happen. once investors realize that the italian government has changed those then suddenly high-end yielding assets will look for an enterprising opportunity. neville hill, head of global economics and fixed income strategy at credits week. -- credit suites. this is bloomberg. ♪
nejra: i am nejra cehic. this is the european close on bloomberg markets with under 10 minutes to the end of equity trading. vonnie: i am vonnie quinn. hsbc, stephenl by major says yields will be no higher in five-year time than they are today, citing the prospect of continued monetary policy. he made the case on this morning's bloomberg surveillance. >> this structural backdrop to markets is getting worse. it is not getting better. i look at the charts and everyone has got the same charts. yields have been falling. this move to lower natural rates is not a new thing. we all understand the structural backdrop so why are people thinking that the problems will suddenly go away? so on the one hand i think our goal is quite modest.
compared to what others are saying, it seems quite outrageous. >> let's bring this up with mr. major. steve major, the other part of your report, a lengthy report, there is the volker over on the left. as we have not cleared markets, you make it very clear he leveraging has not happened. why is that? >> the facts are quite clear. in the last 10 years, there has been an increase in reverend -- leveraged safety. developed markets have increased of their debts, emerging markets is even worse. many people are missing the private sector. you have it showing up in the italian banking sector or the chinese corporate or the australian household. and this says to me that the wherel picture is still
there is too much debt -- too much debt. it is all very wild, it is a easy call to make. there is too much debt out there. it really struck a chord when you say everyone is in the same chart. the way of different analysts, what do you think is the mass-market getting the most wrong? >> there is this hope that things will get better and i can be accused of being a bit grim because this doesn't suit any of us in the financial services sector. we all want to be optimistic that things will be better in the future but i don't really get the explanations that people have as to why that 30 year bond yield chart -- it seems to be more of a hope rather than a piece of robust analysis. that was hsbc global head
of fixed income research, stephen major. we are five minutes from the european close. european markets are trading in a broad-based rally for the stoxx 600, six days without losses. that is the most it can be in a long stretch. we have seen it hit a record high and it opened above 7000 for the first time in 16 months. that is pushing higher after holiday yesterday. let's look at sterling. lowest seen it hit its levels since 1985 today. this is bloomberg. ♪
european equity trading, let's take you to all the market action. there have been a lot of action. record hits on both sides, high and low. look at equities. it is a broad-based rally in europe. 7120 spots 62, looks like it is higher. 1.2% andstoxx 50 up the dax moved higher after german markets. in the fx space, seeing a week withwe have a chance sterling down 8/10 of a percent. we have seen it hit the lowest level since 1985. it has even fallen before the low it hit on july 6. the post-brexit low. it keeps falling. if we look at the stoxx 600
benchmark, up more than 1%. it has been a broad-based rally. a day without losses for european equities. if we take a look at industry groups performing, consumer discretion is following a little closely behind that 1.9%. but pretty much every industry group had an higher -- heading higher. the real set up for today has been the ftse 100. it started above 7000 for the and itime in 16 months has just gone up and up since then, pushing through a record high that it hit back in april, 2015. that 7000 120 spot 30, part of it has been down but it is not just that. well, itevious day as
is not just the ftse 100. we have seen the ftse 250 and the small-cap index all hit record highs in 70 years. -- 17 years. vonnie: at the moment, the dax is higher, it is a much more dollar story than non-dollar story. yen weaker at 102.80. one .20 740.ing at well, iten as increased outlooks as theresa may has mentioned a hard brexit. as close as 48 or 90. brent is up $51 a barrel. matthewat of hurricane
affecting things as well with the ideal of hard quotas come november 30 and it is below $1300 as risk takes investment. again, up 16%, the reports that black and decker are dealing with their crafts and tool business. as hongmpanies bidding kong's electronic industry and have exploredome possible options. the u.s. a look at markets, in the red for the dow and the s&p. the nasdaq is higher by a 10th of a percent but it is still helping out there with more details from abigail at the nasdaq. we have had the index slightly higher, lower, and higher again and behind all of this cross current and the
currency markets you have been talking about with dollar strength being driven by euro and yen weakness, that is pushing on goal. just some odd dynamics. that weakness is really weighing on the fact that we don't talk about too much. the worst performers within that space include pan american silver, royal gold and ramble. the chart of gold on today's weakness, when we take a look at 401, we see at #btv a beautiful uptrend but on today's weakness, it has started to crack. take goldin fact, back towards this year's lows, possibly even towards last year's lows. it is thes chart, dollar going to go higher? that is a conversation for
another time. what about winners? she -- funkyn direction for the day. after the winners we have a mixed bag of tech winners including apple and j.d..com. com was -- as for apple, although that is going to be having its tech press day-to-day where they will be releasing two flagship smartphones. alphabet is barely moving higher. apple is nicely higher, the boos from the nasdaq suggesting they are not thinking about the competition from those smartphones. they are positive, similar to what we have been hearing in recent weeks. vonnie: we will check back with
you later in the day. let's take you to first word news. >> the international monetary fund warns that political turmoil is posing a risk to an already weak global recovery. the forecast, three point 1% this year, 3.4% in 2017. advanced economies are likely to stay on a low growth path and the u.s. presidential campaign highlights the fight over trade and protectionism. minister theresa may wants to change the relationship between the government and the financial services industry. she will refuse to give priority to protecting banks after the u.k. left the european union. this also includes an interim deal. the way has been cleared for a global climate deal. the parliament has approved the most sweeping course to fight
pollution. it is likely to come into force more than a month from now. last year, nations agreed to capping. hundreds of migrants stranded in serbia have set off towards the heart area border -- hungarian border. every enforce a razor wire border fence with heavy patrols. hashighest court in sports cut maria sharapova is doping ban to 15 months. the tennis star will be able to return to the competition in april. she was banned for testing positive. arbitrators ruled the ban was too harsh. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. bank rose inhe
german trading today. this after industry and political leaders came out in support of the bank. merkel's party spoke about the lack of concern. >> they have to face the reality. they have done provisions in their balance sheets to pay the amount of my and they are capable to do so. i am not so worried about deutsche bank. deutsche bank is reasonable and they are doing a good job. bloomberg's caroline hyde joins us now from frankfurt. what is driving this optimism? >> hope. hope, optimism there might be a deal in the u.s..
it seems the executives of the bank just behind me really liked it. executives could be going to washington. we know they are going to the world bank meeting. are they going to strike a deal with the department of justice and will it e4 less than the $14 billion that was initially warned. the market capitalization is about $18 billion so it will be really eating up all of its market capital. we have seen a lot of players in the market coming out in support of deutsche bank. we heard michael fuchs saying he is not worried. we have a chemical giant in germany over the weekend saying, i am buying its stock. we also have jamie dimon in new york saying he thinks of no reason why they can't weather this storm.
notably, we have had some regulars saying we can't have low interest rates. one of the big questions we've been asking is whether there are more concerned about that -- systemic risk. we are saying that euro credits spread as tighter concerns stabilize but are there still signs from deutsche? >> i think there are. we have seen stocks perhaps not perform so badly. the systemic signs of risk, you hit the nail on the head. this is a measure of dollar liquidity. -55.ve seen it at it is still very near the -60 level. this shows stress on the market because they will have to pay an
awful lot to get their hands on the dollars. dollars borrowing in the ecb auctions jumped to the highest that we have seen since 2012. these are clearly signs of stress. earlier, david haro, he was speaking with bloomberg and he was not too concerned about the broader fallout. let's have a listen. >> the banking system in europe has strongerpe capital positions than they did. you have probably seen the data. two hundred 50 billion euros has been raising capital so it is much broader. deutsche bank's problems should contagion, this given the strength of the remaining financial institution. >> that is what we are hearing
from the likes of jamie dimon. it is not much help to deutsche that it has increased because depending on the size of the fine, that will change. or cicely. they have only got 5 billion to cover litigation cost. we could see the u.s. department of justice dole out about that in terms of the mis-selling of mortgage backed securities. russian transactions also could deal a hefty boost. all of this while you are trying to get a 50% market value. $14 billion is a cap of deutsche bank nowadays and it is a key concern. it was painful. we have heard it on bloomberg earlier and -- they said we shouldn't be worried. deutsche bank is so small
nejra cehic. interesting things about what is going on in euro politics. the white line is the spread between italian 10 year government debt and german government debt. spanish 10 year yields for germany, being the risk for the benchmark in europe, you can see the lines have moved together until recently. the white line has been rising ahead of anxiety about that. concerns over whether they will conform to the constitutional process, lots of anxiety in italy. supply, thato spread rising in spain. today, spain is looking at another election but nothing specific that would get people anxious so you can see
that gulf start to spread and widen out. , u can see that not even six weeks since that trend began. together chart brings two themes we have been talking about. the wider concerns because of deutsche bank's and european banks in general but also what is happening with the bond market. market not over and we are going to see low yields for another five years. i want to look at what is happening with bowl. .- bull what is important here, this white line is showing 25 delta. the difference, bulls have
almost crowded out bears in germany. looking for the safest in liquid premium the traders , it looks like futures will drop compared with that of an increase as they have shrunk to 0.1%. that is from a six-month average of 0.77 percentage points. it key thing to note is that hasn't tipped in favor on a closing basis since june 24 and that was the day of the brexit result. an important shift happening here in the bond market, you can see my chart at #bcb 4000. vonnie: i will be looking at 4000 to try and understand better. i am going to vote today on behalf of myself and pick joe.
that will be for 30 to give it -- 32 gigabytes. it has a five inch screen and it appudes at processors -- processors. also a fingerprint scanner and a gyroscope for balance. it has a feature to transfer iphone data. up 3/10 of a percent on those headlines, those developed their own supply chain. spoke onsenior analyst this. a rebranding of the nexus phone, so those of you who remember nexis, it is just a pixel phone now. this is going to be the most pure implementation of androids. it hero phone,
which is an inspiration for the hardware manufacturers to build a better phone. to answer your question, it is going to have better resolution and a better graphics chip which will enable vr. that is the platform they are calling. the pixel phone is the first daydream enabled phone. most, if not all will have this standard, which is going to make it easier for us to do vr with our phones. >> is that the move on the phone? i assume this is sort of like the cardboard thing they had where you put it up to your face. >> cardboard would be what you need to use the phone for vr. one, there ares other third parties that build the things that go in your head, not what drives the experience so what google is
trying to do is creating a standard that will allow peopl and manufacturers to really build to that. at the end of the day, the experience is just a little bit better for us. how important is this to them? how much money can they make off of it? >> strategically is not critical but it is where the national -- natural progression of tech is going. it is going to want to monetize have itthe vr and somehow placed with you. there is also the content play, they have a content platform p which is youtube for the are. ways they make money longer-term is capture off-line tv budgets to some of these the our experiences. david: their rival to the echo
is called home. what is that? >> it is their version of echo. this is the digital assistant. it actively listens to use a you don't have to queue it. echoes --ion of amazon's echo -- has been overwhelmingly positive. ishink what google can do add a search piece to this. one of the things echo struggles with is basic things really well, but if you ask it a complex search related question, that is where amazon has problems. google home can fill that gap. vonnie: that was gene munster earlier. we have headlines that actually transpired. percent that of a it's google unit will be
unveiling the pixel and larger pixel x l, the first consul design in-house. it will feature series like features and the first to post androids 7.1 operating system. one -- youu i am will be buying one? nejra: i am not giving that away day viewing, that commitment to the $400 billion market, it really does alienate smart phone partners like samsung. let's look at where european markets ended today. ftse 100 higher, broad-based gains, this is bloomberg.
headquarters in new york we are covering stories from columbus ohio and washington to london and italy and johannes berg. the euro spiking on the quantitative is set to end. the pound slumping to a three decade low. town -- pound the that is moving. the dollar is at its highest in two weeks. the vice presidential picks get ready to face off at the next debate in farmville, virginia. we will find out from columbus ohio mayor. we are halfway through the