tv Bloomberg Markets Bloomberg October 5, 2016 10:00am-11:01am EDT
vonnie: we will take you from new york to frankfurt and cover stories in the u.k., china and washington. first, breaking economic data in the u.s.. julie: the isn nonmanufacturing composite, the index of the reading on the services industry, coming in at 57.1, 53 is what was estimated by economists. a drop of 2/10 was what was expected. durable goods orders, the final reading for august showing a gain of a 10th of 1%. --looks like a pretty good across the board, we are seeing these numbers come in better than estimated, in particular that services reading at the
fastest rate in almost a year. 57.1 is the highest since october 15 after an august rating that had been lower -- the lowest in six years. already we are seeing this growing view that we are going to see the fed raise rates one more time this year following some comments we have gotten from federal reserve officials. the s&p 500 nothing around to some extent, we are not really showing, i wondered we could show the bloomberg so i could share what is going on with the s&p 500. let me zoom out so you can see in more detail what is happening. we saw a spike up on the numbers , now stocks coming down a little bit. let's look at the other asset classes to see what is happening. the 10 year note, we have been
watching push higher in yield and you can see it took another leg up on these numbers coming up -- coming out. we have also been watching a streak in the u.s. dollar versus the japanese yen. it is also seeing a leg up, the dollar, up about half of 1%. eight straight sessions that the dollar has been gaining. groups on the move, we have energy shares performing the best. you can see mostly green on the screen. consumer staples lower, telecom. financials and energy are the two best performing groups. we've got oil prices moving higher today after the american -- american petroleum institute the government data out
at 10:30 out we had some comments from a venezuelan oil toister, getting very close $50 once again. nejra: here in europe, we are seeing european stocks under pressure, about 90 minutes to the close of trading. stoxx 600 over two days. have snapped a six-day winning streak, which is their longest winning streak in almost a year. down six cents of a percent at the moment. stocks coming under pressure after that bloomberg news scoop that an informal consensus was building in the ecb to rein in qe. whether it is justified or not, that is the question. we see how various industry groups are performing on the imap function, to look at sector health, most of them heading lower, real estate providing the biggest drag down, 2%. financial outperforming, up more
than 1% at the moment. that is how we are looking in terms of the stoxx 600. we wanted to show you the euro sterling. we are hearing -- seeing the -- we are almost $.88 per euro -- 88 pence per euro. bond markets, we are seeing yields ticked higher across the core and the periphery on this ecb news. you are seeing the yield curve steepening in germany, so very much kind of a mood in the bond market in reaction to that and finally, one of the show you what is happening in the emerging markets. dropping aally little bit after two days. vonnie: let's check in on the first word news with courtney.
haveney: mike pence may closed the provincial race. the vice president shall candidates held their debate in virginia, last night. at one point, mike pence attacks hillary clinton for her performance as secretary of state. after being the architect of the foreign policy of this administration, america is less safe today than it was the day that barack obama became president. it is inarguable. we trust hillary clinton, we trust her with the most important thing in our life. we have a son deployed overseas. we trust hillary clinton as for the event and commander in chief, but the thought of donald trump scares us to death. >> according to a cnn poll,
48%'s -- 48% say mike pence one big -- won the debate. -- clear that she's not have the support of party officers or her european parliament -- chronic colleagues. -- a became a serious political force under nigel farage. the u.s. and china are negotiating new sanctions on north korea over its latest nuclear tests. and china are considering limits on north korean energy trade. other nations are debating separate sanctions. three european scientists have won the nobel prize in chemistry for their work in so-called molecular machines. they will probably be used to develop new materials in energy storage systems.
global news 24 hours a day powered by more than 2600 journalists and analysts. this is bloomberg. vonnie: let's get back to that bloomberg scoop. a consensus is building in the ecb to gradually rein in quantitative easing. investors are also weighing comments from federal reserve officials. for more on all of this talk, let's bring in bloomberg's european economy editor who helped break the ecb story. thank you. a great exclusive. the ecb is talking about tapering, get many houses are talking about the ecb may be extending quantitative easing in the next six months. one does necessarily exclude
the other. they basically said that once the ecb is comfortable that the economy is strong enough, that inflation is on the -- on the way up towards its goal, once they decide that qe can end, then the preferred way at the moment is to taper purchases and let them run out as opposed to stopping the program. what we did not write was anything about the timing of such a move. qe is currently scheduled to run through march 2017 and policymakers might decide to extend it be on that if they find that the economy needs it. to the wobbler that due euro, and does that play into the ecb sinking? is -- it depends on how the economy develops. a forecast inhed
september that showed inflation would be at 1.6% in 2018, which is below their target. the ecb try to keep inflation just under 2%. decisiont guide their as to how to go forward. nejra: is there any sense that the ecb leaked this sort of information to test the market and see how they might react and on this occasion, they might not be too pleased with the reaction? central banks are known to conduct flight tests here and there. if drug he wants to fly in official one, he would have done it himself. our reporting is based on talks , peopleple in the know
involved in the debate. it is probably not right to say it is an official trial balloon. people are having discussions. the ecb has not officially discussed tapering, or the future of qe. clearly people are talking and thinking about it. vonnie: i want to bring in matthew on the subject of central bank liking things to the market. we have had a number of hawkish signals from fed officials, but the bond market does not seem to be buying it, certainly not where november is concerned. >> november is the property -- product of a november rate hike. it is still very low, but people are starting to increase those probabilities a little bit and -- ecember,
even overnight, we have one of the more dovish officials speaking in new zealand, saying he expected to see a rate hike this year so you can get a sense that does seem to be in train at the moment. vonnie: another puts it as the stock data on unemployment and inflation at the moment points not hike but the slow does and we saw great services data, but some mixed data in the rest of what came out. >> the adp report on private payroll employment release this morning was a at less than expected, so we are seeing steady job growth, but certain key sectors like construction are showing continued the celebration.
payrolls have decelerated for the last six months and it is unclear what the reader cross is for friday's report, but if we continue to see this deceleration, we get three reports between now and the thanks december meeting, there is plenty of time to derail these plans and the data very well could. heard julie talking about the dollar and we have seen its strength against the yen for six or seven days. is this stronger dollar likely to play in any way into the fed's consideration? >> if it were to keep going, that would be a major concern. they have tried to get interest rate tire, so certainly any upward movement, you will hear a lot more talk about concerns over financial conditions and is impact that it potentially having. we have this big easing and
financial conditions are the last several months and we really have not seen much of a pickup in economic growth from that, so we are still waiting for that to actually filter in. this is just another thing that officials are paying attention to. thank you for joining us. tomorrow, theup u.k. chancellor will join bloomberg editor in chief for conversation on the british economy after brexit. that conversation at 10:00 in new york, rick locke in london on tv and online. ♪
york. you are watching bloomberg markets. it is time now for the bloomberg business flash. seed companyargest is forecasting lower earnings for fiscal 2017. monsanto's customers remain under pressure with depressed farm profits which has led to aggressive price cutting. at&t is now wanting a new acquisition path, focusing on media companies. at&t started with the purchase of directv, last year. they say in the next five years, they hope to become a producer of programming. the company will shift models. and new twist in the investigation into lending club, the online lending platform or. regulators want to know if they -- that telling the board it was also a conflict of interest. said -- has founder
not been accused of any wrongdoing. that is your bloomberg business flash. nejra: let's head over to bloomberg's julie hyman who was looking at a few early movement. julie: we have been talking about energy of performance. that is after the company, which is one of canada's largest energy exporters said they were inc. -- they would increase capital spending by as much as 4% to increase production. we are seeing a reaction among the other drillers as well. the company plans to spend $1.8 billion on its capital program, next year. you can see pioneer natural and eog are on the rise. we are also watching constellation brands, the big booze company raising its forecast for full-year earnings. it is also raising its forecast for beer sales after its earnings last quarter beat estimates, those shares of by
nearly 1.5%. 's gross margin missing estimates in the fourth quarter and analysts are saying expensive and gross margins are remaining a concert -- meaning a concern. earnings-per-share guidance was ahead of estimates but analysts say that was because of accounting changes. and looks like the shares are recovering. the company says its numbers missed because of labor shortages, but the numbers would have been better if it had found people to tell the orders. interesting read through for the jobs market. at&t, we are watching those shares. we have seen a general pullback in telecom. at&t down more than 2.5%. bloomberg news is reporting that the most recent big deal that at&t has made has put it on a path for bigger acquisitions, potentially in the media industry.
earlier, erik schatzker spoke about the investment changes with the global head of ishares at blackrock. >> we see a lot of money coming into motion over the next few years and we want to win, we want to be number one across the board. globally, as we have been for the last years, we want to make sure we maintain that leadership edition and we make it up on volume. we expect to see rapid growth over the next five years. >> there is one problem with cutting prices. walmart and amazon know all about it. and starts a race to the bottom. where does this end? >> we are seeing that in this price-sensitive segment, price does matter, if anything prices have written over the last few years -- have risen over the last few years. liquidity, exposure of the football -- quality of the portfolio management, these
things matter more. >> why four basis points? tool is the most efficient that institutional retail investors can use. we think it is a good deal. >> certainly a better deal than seven. what is the lowest foreseeable cost? let's say you attract $1 trillion. that,we are talking about that is 12 times larger and i look forward to talking about that scenario. for now, we think cointreau basis points is a killer deal. >> who can afford to compete? street, they are and they offer a lot in the way of passive investing products. can they compete? >> etf is a scale game. who are we really competing against?
you know where the growth is going to come from? peopleoing to come from swapping out of individual securities into using our etf's and last, from under -- underperforming, more expensive funds, they will be shifting and we will try to gain as much of that share as we can. >> you don't foresee a trail of destruction in the asset management industry? well rules a deal which will force advisers to ship to charging their clients directly for advice and not through the product. you will see very big shifts. we are responding and trying to get ahead. >> you and i were both too young to remember that, but would you like in this to 1975 when the fcc give related -- >> that is a perfect analogy. it was the biggest regulatory change that we have seen in our lifetime and even before. the 1975 shot created the rise
of the discount brokerage. we think deal well is that. >> on the one hand, you are charging four basis points for ,xposure to s&p 500 market data the cheapest in the industry. at the same time, you are charging comparatively high fees we are actively managed equity mutual fund products. the large-cap core fund, 36 basis points plus 450 basis points of backend load. 425 basis points in the large-cap growth fund plus 50 basis points management fee. does that persist, not just a blackrock but elsewhere? >> the challenge for anybody who delivers value to a customer is, is the price worth what you are getting for it? you will see the deal will rule will not in fact actually surprised -- suppress active
management, but it will force greater clarity on what is worth paying for. 36 basis points may be cheap if the asset manager is delivering great value. he or she is not, then we think why not a nice -- why not an i share? rocks that was black global leader of i share talking 's erik schatzker -- blackrock global leader of i share talking to erik schatzker. vonnie: still ahead, oil splurging with $50 a barrel ahead of inventories. this is bloomberg. ♪
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oil approaching $50 a barrel, the latest industry data out in just seconds. julie hyman joins us with the latest. julie: as we await that data, we should note that industry data out last night showed a 7.6 million barrel drawdown in oil and we are seeing a drawdown can firm by the u.s. of nearly 3 million barrels. we did see a building gasoline inventory. a larger than estimated drop in distillate inventories would theoretically be positive for oil prices, so we will be watching to see the reaction. we had this drop in inventories and there is concern that there could potentially be a further supply disruption and that is as we have that hurricane that is bearing down if not on the gulf of mexico, it could affect the florida coast.
i am calling up the change in inventories that we are seeing on a relative basis, week over week and how it does compare. let me call that up. you have the most recent weekly drop in inventories all the way to the far end of your screen, so it looks like the 5th street drop we are seeing a weekly basis in these inventory numbers. but skip back to oil prices and see the reaction in this oil prices. looks like not too much of a reaction. we are seeing a bit of bouncing around in the wake of this number, but oil prices remaining pretty steady and we will check on them again in about 30 minutes. vonnie: staying with oil, the changing nature of the supply and demand is some goldman sachs is tracking. the head of commodities research described the business of oil producers. >> if you start to see a stronger dollar, that will put downward pressure on the cost structure and put downward
pressure on oil from a macro perspective. on a micro perspective, you still have a lot of supply in the market. see,hree big places we places like nigeria and libya, so the probability of them adding supply is higher. that is the big international oil, projects the invested in, the sweet spot coming online is next year, then the third one is low-cost players, places like russia at post soviet highs. vonnie: what about demand? we have not talked about demand, china, china is slowing. it is growing a lot more than the western countries, but what is demand like coming from china and india? >> it is boring. you look at demand growth since 2010, it is basically a flat line. that is the case. we have seen a slowdown in china.
it is not growing at the same rate like 2009 and 2010, but there is not a story in demand and that underscores a broader issue facing that only the commodity markets but in terms of looking at the global economy. domestic demand is stable. what we have going on in these markets is an investment problem. >> what is the risk of a lot of these companies cutting back or even countries cutting back too much on investment? we don't consolidate so in 10 years, we see oil should backup. >> that is the core thesis when you look further out. you see you can get to that state, it is 2019 or 2020 because when you look at the overall increase in supplies coming from these projects, the sweet spot is 17 or 18 and they start to taper off at 19, the other factor we have not talked
about, the other source of supply is shale. it is that marginal barrel and the one that responds when you get into that $55 barrel range. we are years off from that. >> how much there we understand about how many producers are in jail? do we have a better grasp than we did, last year of these show producers and what their and game is? and whatproducers their endgame is? -- even against the low-cost players on an international basis. that is the area where we have seen the response to drilling activity, the area starting to slow the declines in production. the ones that have opec cuts are likely to steal market share when we go into 2017.
>> within this range, when the you know which way it will break? do you have to wait to see prices or is there some other indicator that will tell you above 52 or the low moving average of 43? >> will we have seen right now is when prices get up into that 50 to 55 range, producers come in and sell that market. that tells you there economics are in that $50 $55 range. they have drawn a line in the sand at $50 and we have seen that by looking at that behavior. it is hard for this market to go above $55. vonnie: that was jeff currie on bloomberg surveillance. other commodities news which also impacts oil -- oil, hurricane matthew may delay petroleum deliveries to the unit states east coast by as many as
-- united states east coast by as many as four days. i want to point you to a function on the bloomberg be map and this is hurricane matthew as it makes its way up here and this is the cone of uncertainty which is a hilarious, but it shows what is at risk. one major refinery at risk around savannah and if you go to the ports at risk in terms of delays, you see along the east coast, there are so many ports, it is unbelievable. there are ports all over. a cluster around new york and all of these ports may see delays of up to four days. i would advise anyone interested in tracking hurricane matthew to bmapre the be map -- the function. nejra: corny collins has more. courtney: hurricane matthew has a collision course with the u.s.
east coast. it slammed into haiti. at least 11 people have been killed. matthew has lost a little steam but is still a category three hurricane. thes expected to hit bahamas tomorrow in florida possibly tomorrow night. residents in matthew's path have been told to be ready to evacuate. beltre prosecutors say two police officers have been stabbed in brussels in an incident that could be terror related. the suspect was shot in the leg by other officers. belgium has been on high alert since 32 people were killed in suicide bombing attacks on the brussels airport in march. outlinee most specific yet of what the you cable demand in the brexit negotiation's. chronister theresa may has ruled out contributions to allow british companies access to the single market. they told the conservative party
conference center that they would for the right of working-class people. brexit. talked about week,n we came to this some big questions were hanging in the air. do we have a plan for brexit? we do. are we ready for the effort it will take to see it through? we are. can boris johnson stay on message for a full four days? a spokesman also says there will be no compromise in the jurisdiction of european judges. global news 24 hours a day powered by more than 2600 journalists and analysts. this is bloomberg. up, globalng central-bank policy could derail this year's junk bond rally. what else could derail it?
vonnie: you are watching bloomberg. nejra: this is your global business report. goldman sachs as out of the alarm on the chinese property market, warning of overbuilding. vonnie: -- making his 10th purchase and under a decade. nejra: we look at the fight over who owns the south china sea. the british economy is showing resilience in the wake of the brexit vote. service industries grew more than forecast in september.
the central bank had cut interest rates and reinstated asset personages -- asset purchases. nejra: goldman sachs is sounding the alarm on chinese real estate. firm says the chinese property market is at risk of overbuilding and rising speculation. they warned that any downturn will lead to problems for metals, especially iron ore and deal. -- and steel. eli lilly will buy products from a german company, paying $185 million in a deal with a that medical unit. --with a that medical unit vet medical unit. vonnie: we provide context and background on issues of interest. tiny island the middle of the ocean are being fought over by china and its neighbors because of an increasing strategic significance. there was a look at how things -- here is a look
at how things are escalating. >> these islands to not look like much, but they are at the center of a simmering dispute. seven countries have overlapping claims in the south and east china sees and there is one common player, china which has been jostling over maritime territories for more than a century. tensions threaten to boil over, potentially dragging in the united states, even talking about possible war. china claims more than 80% of the south site -- south china sea within the border it calls and is proven by a 1940's map. a decade ago, country started making formal declarations under new u.n. rules. that led to several motions from several nations to show ownership.
china started building islands. that led that led the looking's the challenge china's claims in an international tribunal. the philippines won the case on july 2016. china's reaction, the award is null and void and has no binding force. the reaction of the u.s. states will stand with allies and partners in upholding fundamental interest. >> washington calling for a peaceful resolve. beijing says it has no intention of preventing commercial traffic but is protecting its territory. china has also locked in a dispute with its age-old rival, japan over another rocky out up. -- the u.s. them does not take a full position on their sovereignty but in 2014, president obama vowed to defend them. the dispute has been confined to jostling for position ships and aircraft.
there is one big incentive for countries like china and japan to stay friendly. it is called trade. the south china sea is a critical artery of global commerce, hosting $5 trillion of trade every year. on the other hand, given how quickly china has been building his military positions, and how nervous that makes everyone, some analysts say there is a significant risk of armed conflict, perhaps as a result of a miscalculation or mistake. the u.s. has responded to china's island building by upping patrols of its warships and surveillance planes. greater resolve may mean greater risks for the u.s. and the region. vonnie: you can read more about china and all our quick takes on bloomberg. had to bloomberg.com for more stories. angst isntral-bank weighing on the global markets
with effect pairing for a potential rate hike as early as november. warning signs are flashing in the junk bond market. high-yield bonds have run of more than 15%, but a rate hike could derail the rally. joining us now is the head of global high-yield. he is a top 10 global asset management -- manager. great to have you on the program. before we get onto the central bank impact, i want to ask, are we in a dangerous bubble and if not, what could be the trigger to make it one? >> i am a bond guide. we are -- bond guy we are always worried about something. we are always looking for things that can go wrong. if we are looking at where spreads are for credit at the moment or high-yield, we would tell you that we are trading at about average levels. if we look beyond that and say what kind of other risky things
are we looking for? we can look at the level of triple issue ian's which is about a third of what it was prior to the recession. with can look at companies issuing debt to buy back shares or issuing debt to make risky acquisitions and those levels are also significantly down. at the moment, we think that the market is fairly priced, and we see a lot of risk on the horizon. that does not mean there is some potential for volatility. nejra: let me show you this chart i have. it is the jpmorgan loan index yield in white versus the bloomberg barclays high-yield index. it shows junk yield is dropping towards those on more similar loans. that is actually at its narrowest in two years. is this not a sign of risk being a little bit skewed? >> it says that loans are
attractive at the moment and we agree with the analysis you veryded that loans are a good place to be, and we are buying more and more of them for our portfolios that can use bank loans. vonnie: that would apply that the risk and reward is imbalanced -- imply that the risk and reward is imbalanced. >> i do think bonds are fairly valued. i don't think they are extraordinarily cheap or rich. if you look over the last five years, we asked ourselves how many times have we had a blowup and we figured maybe there were three or four events. we went back and counted and there were eight different episodes where we had high yield spread gap out by about 100 basis points or more over a period as short as 30 days and as long as it's months.
-- six months. we could have a similar event where spreads widen out, giving investors the opportunity to buy bonds cheaper. we are seeing a lot of one-off occasions in the amount of debt that is in negative territory. why mightn't we see some kind of event? >> you could look for an event from a number of different headlines. if you are looking at the fundamental events, we are less concerned with headline or risk that is fundamental in nature. we know defaults have risen. we think they may rise further. they are likely to tail off want to start hitting 2017 because the type of defaults we have seen have been concentrated in energy and minerals and mining.
the companies that have had difficulty in those sectors have already defaulted. when we look at the fundamental credit questions we are concerned about, we don't see anything on the horizon. we recognize that we were very late in this recovery and ultimately we will have a recession and recessions tend to come periodically, but we don't see one on the immediate horizon. nejra: what would a fed rate hike do? betweenhe correlation the u.s. high-yield marketplace and the treasury bond marketplace has been pretty low, so over a long period of time, when treasury rates rise or when the fed raises rates, the high-yield bond market does not necessarily respond in kind. if you think it true, that makes sense because if the fed is comfortable with the state of the economy and they think gdp is continuing to grow, and if it is continuing to grow, one would
expect corporate earnings would continue to grow as well and that to mean that corporate credit spreads have the ability to narrow. i don't think that the fed would whetherincrease rates looking at december or 2017, it was concerned about an immediate recession or reduction of gdp growth. vonnie: where are you nibbling? energy defaults have peaked. that is fully not the best place for value -- probably not the best place for value. >> we are looking at the u.s., europe and emerging-market corporate credit. we do find there are opportunities on the software inside -- on the emerging-market corporate side. we have seen flows going into emerging-market corporate debt and we put money to work in those places such as in companies in latin america. we also find there are opportunities with energy bonds and there are opportunities in other sectors like steel where
we have had quite a bit of theess during 2016 because industry has benefited from trade barriers because steele had been dumped into the united states. vonnie: we have to leave it there, but we will have you back, soon. thank you. ahead, bill gross ways and whether the ecb should bailout deutsche bank. ♪
nejra: live from london and new york. vonnie: you are watching bloomberg markets. deutsche bank shares rising on speculation of a settlement with the department of justice. the debate continues on whether the german -- german government should rescue the bank. bill gross spoke to erik schatzker and he thinks deutsche
bank should be saved. >> it has been protected as are other banks by their constituent central bank and that is not a bad thing. you don't want an illiquidity situation, but we should realize that the price we pay for that is low to negative interest and as an investor, you have to begin to find another route to prosperity. vonnie: eric also asked gross about -- in the conclusion of qe. >> your article suggested that ecb may taper its purchases of approaches march 2017 and perhaps they will, perhaps not, but taper is a word that characterizes a drop in treasuries in 2013. we have had a drop for today.
is it totally significant? will he not, but it caused me to reverse positions in terms of being long-duration to short duration. vonnie: we will have much more ahead on the ecb and central banks and latest policy moves with blue kick or -- luke take more -- luke hickmore. let's look at how stocks are trading. stoxx 600 off by 5/10 of a percent, snapping a stay winning streak. other indices dropping as well. ♪ . .
european close on bloomberg markets. nejra: we are going to take you from new york to bogota and cover stories out of the u.k., china and washington in the next hour. here's what we are watching. monetary policy may be turning someaccommodative for economies. european central bank officials held discussions on the best way to bring quantitative easing to an end while fed officials talk up the chance of a rate hike in 2016. vonnie: we will get investors take on the many taper tantrum. riskacency is the biggest for investors, they say. an exclusive conversation with columbia's finance minister. planning