Skip to main content

tv   Bloomberg Markets European Open  Bloomberg  October 27, 2016 2:30am-4:01am EDT

2:30 am
guy: welcome to "bloomberg markets: european open." we have your first trade today. we are alongside caroline hyde. deutsche delivers. the bank posts a positive surprise. does it matter until we get the boj magic number? berkeley profit jumps on fixed income revenue. qe just a one-off for these banks.
2:31 am
the brexit slowdown. at 9:30 a.m. drop we will speak to the bt ceo, gavin patterson, following that with christine lagarde. we are watching how the dax might open after deutsche bank's surprise profit. futures signaling the lower across the board. this swept up with the fact we are seeing oil trading near that three-week low. we are seeing more views at the fed will hike sooner rather than later. it will be such an neo-syncretic day. -- idiosyncratic day. guy: a big day for earnings. we will carry on that conversation as well, caroline. the dollar story. it was much stronger over night. it began to fade a little bit
2:32 am
into the european session as we start to see some of its liquidity coming back. the dollar index still up, but only just. the british pound is down by 0.2%. 121 handle.ve the gdp number of little bit later on. the big question, is it just recession deferred? does the dates i get worse from data get worsee from here? are we going to see these numbers deteriorate going in? fairly negative session. probably more to do with a of stocks today then a stock market. here is the bloomberg first word news with shery ahn. shery: die, thank you. shareholders of the sony electronics have elected the heir apparent of the groups
2:33 am
electronic family. they reported a 17% slump in third-quarter profits. tesla jumped after hours following its first profit in eight quarters. net income for the period was $.71 a share. alice estimated -- analysts estimated a loss. elon musk also said he expects to get through the rest of the year without raising cash, it easing one concern for investors. he prepares to acquire money-losing solarcity. global banks will probably lose their current legal rights to provide services in the european , according toexit the u.k.'s trade minister. the most detailed headline yet. they are trying to create a "new model for single market access."
2:34 am
global news, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. guy: thank you very much indeed. they kept the outlook unchanged. been hittock that has hard since the brexit vote considerably. you can take a look at my bloomberg. underperforming, the ftse 100. there is a group of stocks was in it that are very exposed to what is happening in the u.k. that have underperformed. you can see that under performance on this chart. gavin patterson joins us now from the offices in london. good morning. do you worry it is a brexit proxy? can see from our results today that the business is performing well. underlying profits are up and underlying revenues are up. we have underperformed, as your charts show. that is predominantly do to a
2:35 am
--due to declining bond yields. if you look at the core of the operation, business is performing well. guy: first point, the pension. yields are beginning to pick up a little bit. we have seen evidence of that. do you expect to have to make further crunch beach and into the pension? mindful. are do you see a better environment going forward as yield start to yields start to rise? gavin: we don't need to do anything for a year. the triannual is not due until june 2017. since the last try animal, business is a lot stronger. we have stronger cash flows. we provide a stronger covenant. it is not something we need to address today. it is something we will look at next year. guy: we'll see what it looks like for the bond market than. coming back to the brexit
2:36 am
conversation, inflation looks like it is going to pick up. it looks like inflation will become a factor. how does that affect people's income, the you think and their ability to spend on the services you provide? u.k.: we are predominantly oriented in terms of currency have seenso what we when markets contract is the consumer businesses, both on the mobile and fixed side, tended to be pretty resilient, and sometimes, we see some contraction in the market. , but what i would say is that compared with the last recession, bt is a stronger business. as inflation rises, do you think we will see, do you think people's disposable income will go down and as a result of which, they will spend less on service and, by less broadband on their mobile phones, spend
2:37 am
less in terms of movies and sports, etc.? gavin: we find both broadband and mobile tend to be one of the last things to go in the household budget. they become critical to the way people live their lives. give up thingsll like vegetables before they will give up broadband, which i am not sure is a great thing in terms of a healthy lifestyle, but good for our business. [laughter] caroline: the priorities of the british consumer. give us a sense of british competition as well. is revenue getting higher because sky is not marketing as much because of the likes -- how much is his to do with what you're pushing in the business? gavin: our results are good on both mobile and broadband. 65% share of the broadband market. 280,000 mobile ads. both up year on year. we are finding we are focusing
2:38 am
on value, innovation, the strength of our products. the markets are every bit as competitive as they have always been. we had new engines in the last have comeom vodafone in strongly on the broadband market. i do not think there is any question that there is a lack of competitiveness hearing we are focused on what we do best, and you can see that in the results. caroline: what about content? in theseeing that move united states, at&t buying up warner bros.. do you need to get into the content action is all? -- as well? gavin: the point i was going to make is we have been in content via bt sports for over three years. it has performed well for us, so in that respect, this is confirmation i think that content and networks go very
2:39 am
well together. the right content, must-have content, it will drive usage of the network and that is ultimately what is the core of the at&t/time warner deal. guy: where are you with your negotiations with open reach governance? are there any big points of kind of disagreement still remaining? well, and negotiations are still ongoing. we submitted our input into the closed inon, which early october. we are still talking tossed come -- to the company. we have to find a deal that is ,ight for competition shareholders, and pensioners as well. conversation is still ongoing. caroline: what about looking at the politics of the united kingdom, how concerned are you
2:40 am
about the policies that are currently being discussed by the u.k. government and is there anything you are looking to be debating going forward? the want to get that year of the u.k. government -- the -- do you want to get the year of the u.k. government -- the ear of the u.k. government? gavin: we are one of the biggest investors in infrastructure, r &d in the u.k.. we are ready to increase investment, driving coverage of broadband, 4g and 5g, so i think we are going to play a key role and we look forward to continuing those discussions with governments in the next few weeks. sensean you give us any of whether or not there is a spending push coming up? notous to know whether or projects could it involve
2:41 am
telecommunications, a big push in terms of digitizing the u.k., any kind of feeling that could be coming down the pipe towards us? gavin: it is hard for me to say. is that we are ready to make these investments without any government support, so we have made a proposal to complete the last 5% in the u.k. and superfast broadband make that funded by our own shareholders, and we are talking to government about that at the moment and we are also prepared to make the investment in the next stage of broadband, to go from speeds of up to 100 megs to one gig per second. we are prepared to do that out of our own funds as well. guy: great to speak with you. thank you for joining us and sharing your time, et ceo, gavin patterson. volkswagen numbers just beginning to drop.
2:42 am
operating profit, 3.13. the estimate was for a number three point -- 320 23. the audi story is interesting. it is a big profit contributor, though it is cutting its outlook on the diesel scandal, which is something we need to pay attention to as well. we will update you on those numbers very briefly and be talking about what is happening with deutsche bank. deutsche has delivered this morning, the price on the upside in terms of the numbers it has been able to post. do we really care? do we actually have a handle on what is happening at deutsche bank until we get that boj number? we will discuss that next. , andve got barclays, basf many stocks we need to pay attention to this morning. we will round that up. do not miss our conversation with christine lagarde at 8:00 a.m. u.k. time this morning. this is bloomberg. ♪
2:43 am
2:44 am
2:45 am
theline: welcome back to european open. so many stocks to be looking ahead to. a sweep of earnings today. that is catch you up with the business flash here is shery ahn. shery: nomura's second-quarter profit jumped 31% as income made up for a slump in eighth we tell brokerage business. net income close to $585 million
2:46 am
in the three months at the end of september, beating analyst estimates. bloomberg customers can follow all of nomura reviews online. lowerxpected loss among energy prices. it reduced its ojected investments this year. the first of the major oil companies to reduce third-quarter earnings and the adjusted loss which excludes financial and other items was $261 million. that missed analyst estimates of $136 million profit. barclays has said profit rose 35% in the third quarter, pretax profit climbed to 837 million pounds as revenue from fixed income trading surged to the highest in more than two years. that may help ceo jes staley convince investors the advantage of keeping an investment bank even after it posted lower returns and then the lender's other businesses in recent years. that is your bloomberg business
2:47 am
flash. caroline. caroline: thank you very much indeed, shery. bank set to rise on the open as it beats across the board in terms of third-quarter numbers. let us get a portfolio fund manager's perspective, eric. are you impressed? a beat, but there is still an elephant in the room. is the boj fine? guest: there is more than that. deutsche bank is at the heart of all of the issues facing global banks at the moment. the spectrum of global banks, at the weaker end of the spectrum in terms of its capital ratios, a big investment baking part of its business which is some fundamental challenges around profitability and then in one of the worst developed markets in terms of retail and commercial banking in germany,
2:48 am
where it is really struggling to generate serious economic returns. bondis happening and markets is critically important here as well. eric: if you like it -- if you look at the behavior of banks, what is driving share prices now is about the rates environment and look at happening in the yield curve. this is a reassuring set of numbers, but the big picture, there is serious estions still out there with respect to european banks and deutsche bank is at the heart of that. caroline: eric, why should deutsche think about scaling back? it has done well like the u.s. counterparts in that trading, equity trading also picking up. should there be no move away from its investment banking unit? eric: i think there is some serious challenges. the real focus, i think that is where they are focused, is about strengthening their capital position. as an investor, if you were to compare and contrast jpmorgan at
2:49 am
the other end of the spectrum, they are among the biggest in the world. you look at the leverage of jpmorgan is half of that of deutsche. jpmorgan is twice the profitability. oft has got to be the focus deutsche, about raising return increase inan capitalization. what they do with domestic german commercial and retail huge challenge because there are fundamental issues about the interest rate environment and the shape of the yield curve. there is a medium-term deutsche bank really has its work cut out. guy: there is a story on the front page of the financial questioning that, u.k. banks concerning continental banks. the call is on right now. people are asking about how much time he is spending with clients and what he needs to do to make sure the clients stick with the
2:50 am
institution. how big a concern is that? if the clients walk away, that is extremely difficult to get back. eric: absolutely. it is a nontrivial concern. it is worth putting this in the context of a post lehman brothers environment which is if you look at the real problem with financial institutions is liquidity. liquidity ratios are the highest in history of banking. from a liquidity standpoint, deutsche bank, like other banks, is extremely strong. there has to be a focus on improving capital strength. the broader issue, there is another dimension to this, which is important, which is that central bankers are aware of this. i think that is partly what is behind these moves in the government bond market. if you think where 10 year bond yields are today, close to zero, a year ago, they were 80 basis points higher. this could be a significant fundamental shift in the nature of bond pricing and that will be really important in terms of the
2:51 am
sustainability of profits in european banks. talkwe'll come back and about the bond market in detail has worked our way toward the fed's december meeting. eric will stay with us, fund manager at energy investment management. the call is on right now for deutsche. if you want to check out what is being said, i urge you to take a check on that. we will take a look at the potential corporate movers in today's trading. deutsche called higher on the trade date platform. european operator earnings, deutsche bank, bt, barclays, big numbers today, big day. this is bloomberg. ♪
2:52 am
2:53 am
2:54 am
a couple of financial targets for cells when we laid out the strategy on march 1. a double-digit return on tangible equity. guest: we delivered that again in the third quarter. managing our cost us, we are on target to hit our cost target for 2016. the ceo ofaley, berkeley, talking to the daybreak team earlier. numbersways, today's justify the continuation of the current model, which is one that includes an investment bank. other divisions continued to be profitable. today's numbers justify a conclusion within this group, or is q3, caroline, just a blip?
2:55 am
do the fixed incomes out of qc change anything -- q3 change anything? we'll talk about that later on. it helpedindeed, deutsche bank, just behind me. we'll see whether those third-quarter revenue can be continued. volkswagen beat in terms of profitability, beat in terms of revenue. 3.3 billion euros in terms of- - half a percentage point higher. interestingly, luxury unit audi not doing as well. return on sales had to be downgraded. yes. let us talk about christine lagarde. she has the big picture story. we'll talk about her expectations for what is happening in the gulf. we will talk about hurt flirtations for what happens in
2:56 am
global growth. all of that, coming up. christine lagarde, joining us shortly after the european open. deutsche bank and berkeley, absolutely front and center. maybe more transparency in london. ♪
2:57 am
2:58 am
2:59 am
guy: welcome. you are watching bloomberg markets. i'm guy johnson in london, alongside caroline hyde. today in frankfurt, we are moments away from the start of european trading. caroline has your morning brief. me,line: guy, back behind deutsche delivers. the bank posts a positive surprise with unexpected profit. but how much does it matter until we get the doj's magic number? big bond boom. barclays profits john's 35% on fixed income trading revenue. is it just a one-off? brexit slow down. :30.data dropping at 9
3:00 am
is there worth to come? and of course, we spoke to bt chiefs executive, but now it is christine lagarde that we will speak to. guy: looking forward to that conversation. let's talk about this market open. we are expecting a mildly negative story, a bucket of stocks rather than a stock market. this is what we are seeing, ftse 100 rolling over a touch. they will be dealing with individual stock stories, and as you can see, a spade coming through, starting to be represented. some of the individual names are going to be critical, and it's going to be interesting to see how quickly the market can get open. i am trying to look for numbers on barclays. we'll wait for those to come through. we have a price on barclays, trading up by 2%.
3:01 am
we're waiting for deutsche to open, to give us an idea of what's happening. we are expecting you to open a little higher. lufthansa just shuffling, basf and vox as well. i can take you through into some of the other stock stories and show you what's happening in the stoxx 600. abb, down by 6%. is the lead gainer by over 5%. you are seeing gaining strength but abp is one of the big stock stories we are watching carefully, dropping to 6.3% on the back of its numbers. the fund manager at energy investments is still with us. is today the day that convinces u.s. investors to buy into europe? the banks are doing a little bit better.
3:02 am
the signs of life may be in critical stocks, outperforming on the back of what happening. >> well, it's not going to be today necessarily, but yes, i think it gives us further evidence of a broad shift occurring in markets. but it is worth bearing in mind that banks have already outperformed this month. as we have been talking about, the bond environment appears to be a major shift, and these numbers will reassure them that the banks in europe can generate profit. it isn't all doom and gloom. there are legitimate medium-term questions. certainly if you look at the likes of barclays and domestic u.k. business it's a profitable business. certainly there is good scope for global investors to reassess the opportunities in global banks and in european banks as well. guy: hold that thought, we will come back to it. let's talk about what's happening with christine lagarde.
3:03 am
what is her view on what's happening within the gcc and around the world? let's find out. we will go now to the gcc finance ministers meeting. yousef is there. over to you. f: we are going to get off with a reaction to a lot of earnings we're getting on the european continent. mixed results, for what does that mean for the sector as a whole? christine lagarde, managing director for the imf, thank you for joining us on bloomberg television. >> pleasure. read on the is your current health of european banks, especially those that has been fragile and that are systemic and in portent -- and important? >> it has gone through a lot of improvement in the last few years, and has significant re-strengthen its capital position, as indicated by most banks.
3:04 am
as far as the systemic international concerns, they are under much stronger and more theematic, if i may use analogy, by the authorities. it's not a pan-european level, and i think it is certainly a reassurance to the markets that they are in better health. clearly, it has to be continuously monitored. the status of the economy is going to have an impact on banks, and it's going to have an impact on the nonperforming loans that accumulate eventually. there are some banks in southern europe which have a strong percentage of nonperforming loans, and we are certainly advocating it be dealt with. yousef: it must be credibly frustrating for you to see how weak global growth is feeding into a political climate
3:05 am
growingly against free trade and globalization. is that going to get worse? >> what you describe is very frustrating. we know that it is counterproductive, and we know that it is not by withdrawing behind borders, by reducing trade that the situation is going to get better. equally, we think that international trade, globalization, has to work for all. they cannot just work for a few and ignore the rest of the population. reassessingrobably those who lose out of globalization, those who are left to the side of the road. policymakers have to make a determined effort to improve education, to provide safety nets, that will guarantee people benefit from international trade and globalization. yousef: a point to pick up on,
3:06 am
what's going on with a possible hard brexit. how would that impact the u.k. and europe? how damaging with that be? >> what is damaging first and foremost is the uncertainty. what will be the relationship? will the financial institutions which have been the strength of the city in london continued to benefit their passport to deal with the rest of europe, particularly the eurozone? where will be the centers of european banking strength, supervision, and all the rest of it? that is what is undermining the currency situation, the uncertainty. then clearly the fact that one country which was a member of the 28 is going to adopt a separate path. having new rules, possibly relying on the wto standard set of rules with other members, which has been the core of its
3:07 am
trading relationships. that's another big question mark for those who want to know what the future will be before they invest. i think it is not healthy. the only thing we know better now is the timetable, and that is good. so for the next two and a half years we know the situation is unchanged, and yet everything has changed, and it's a stark contradiction of everything unchanged, which will have to be addressed in the best possible terms. yousef: let's take you across to the united states, where we might have a rate hike from the federal reserve. ready for a normalization of interest rates by the federal reserve? the u.s. economy likely rey but the rest of the world might not be. andhere was such a hike -- presumably very gradual, phased-in and well communicated, as chairman yellen indicated --
3:08 am
that would mean the u.s. economy is faring better, that unemployment is lower. those are strong positives for the global economy. the u.s. is the largest player in that game. so that is a positive. countries,eloping emerging market economies have rehearsed that option already, and they have done that a couple times now. i think they are much better prepared in terms of monetary policies, in terms of proof that they can use, in terms of prudential measures, in terms of response to what will inevitably ndeate a capital flow, a probably will draw some capital out of the markets back to the u.s. yousef: i would like to take you to the region, one of the countries high on your agenda, going through a foreign-currency crunch. you have said that egypt needs
3:09 am
to move on certain policy options. doesn't egypt need to have enough foreign reserves to meet the perspective demands from a devaluation? >> well, first of all, we really strongly welcome the fact that the egyptian authorities are deciding to address those issues, and it's the egyptian authorities, for the egyptian people, for the egyptian economy. we welcome that. if they decide to move forward, we will certainly support that move, accompany it, put money on the table to help them along the way. therems of exchange rate, is currency, a crisis, because if you look at the official price, if you look at the gray market price,. there100% difference that needs to be addressed. we believe that the authorities are right to prepare for that. yousef: how do policymakers address this most effectively?
3:10 am
do you believe in shock therapy by way of a free float, or would it be a devaluation? >> the right methodology and the right speed and the right timetable will be dictated entirely by the circumstances. reserves,ven very low when the difference between official and unofficial rates is very wide, historically, we have seen rapid transitions being most efficient. but it is really a matter of circumstance. in other cases, it has been gradual. it is really going to be dictated -- yousef: so specifically as to how to address that disparity between the spark rate -- >> if it had, no one would be talking about it. those decisions are made rapidly, and the issue is to keep confidentiality and to move on. yousef: the other part of this puzzle has been the $5 billion
3:11 am
to $6 billion that egypt needs to secure. how much progress has been made? >> i think they are very close, and clearly the financing is one of the aspects that they need to lock in and align. hopully we will be able to secure the imf board approval in the next two weeks. yousef: the saudi capital just had their inaugural international bond met with much success around the world. when it comes to those structural changes in the economy, new ways of innovating in terms of economic progress, what happens to the peg? what conditions need to prevail for saudi arabia to revisitits relationship? >> the very ambitious plan that has been developed under the new leadership of saudi arabia, vision 2030 and the new transformation program, provides for a massive
3:12 am
transformation of the economy. massive transformation of the processes, the substance of the economy. moving away from a massively oil dependent economy to a more diversified economy. once that as s accomplished you can go toward a different rate. when you are still highly dependent on a mono industry, pegging is adequate. i think it will be a matter of time, of implementation, and sequencing properly the measures that will actually lockout the forces of the saudi economies in order to reach the goals. yousef: we will see how it plays out. christine lagarde, thank you very much for joining us. i will hand it back to you, caroline. caroline: yousef, a great interview. thank you very much.
3:13 am
talking to christine lagarde. let's bring it closer to home. deutsche bank currently trading up 1%, coming off highs as we get more headlines coming through. john cryan the chief executive saying he is not in control of the litigation timetable, but he does want to see it wrapped up by the end of the year. let's get back to our guest. given as a sense of whether any -- give us a sense, there's barclays, rbs, credit squeeze. -- much do you think unknown, and it is part of a broader regulatory environment. it's still the case that regulators globally are on the front foot, but there is still a lot of retrospective issues that they are chasing, of errors made in the past. of the this is part
3:14 am
reason why it is such a big risk premium in the global banking sector. the only thing that is moderately encouraging is there's a big risk premium. markets are entirely aware of this risk, and that is part of the reason banks are trading so cheaply and why the premium is so large. in terms of what deutsche bank actually controls, the fundamental issue is really about the property of investment banks. there are too many investment banks globally. big secular headwinds coming from technology, low barriers to entry. and this is going to take a long time.that industry needs to consolidate , and that is the big challenge for deutsche bank and investment banks in general. guy: talking of technology and automation, adb trading done. i think it is probably the auto inflow that's hitting them. this is a swedish engineering group, robots, plant automation, down by 6.5% this morning.
3:15 am
a company that is in a similar business is samsung. dominated by what has been happening with the note and the problem it is having, but we baton.passing of the eric, you like this stock. there are many reasons why you shouldn't like this stock, and you think about the mismanagement that has happened as a result of the push to beat apple, and the fiasco that surrounded that. we have jae-yong coming in, the prince to become the king. and you think he has an opportunity to change things. >> absolutely. fundamentally, this is a great business. it is very, very strong in
3:16 am
components, part of the duopoly in handsets. it has been a huge success as a consumer electronics and components business. that has a rocksolid balance sheet. the problem is this stock has traded cheap and will continue. it's at 10 times earnings. that's about corporate governance. if there is one number i look at, it's the dividend yield. i think markets are willing to look through short run issues, these things are going to happen. that is why the shares have been doing pretty well; the market is willing to look through these individuals. the much more fundamental -- if they really want to change the outlook for shareholders and investors, they have to tackle corporate governance. guy: canada trade on a similar multiple? apple trades at a hardware multiple, but software multiple
3:17 am
is where that would happen. can samsung it up to those numbers? >> i think so. samsung could trade on 15, 16, 17 times. it is a great business with a strong balance sheet, consistent strong free cash flow. the real issue is that, as a global investor, are you really a part owner in this business or are you a passenger? guy: i think maybe there is a mix, but it is weighted toward passenger. eric will stay with us. up next, passport to where. the u.k. government lays out the plan for brexit with a new model of single market access. we will discuss that story next. this is bloomberg. ♪
3:18 am
3:19 am
3:20 am
caroline: welcome back to the european open. let's check in on how one of the key stocks is doing right now. deutsche bank was up as much as 3%, now losing some of those gains. a lot of talk from john cryan about the big elephant in the room, the department of justice. he says he is not in control of the litigation timetable. look at how this affects the other banks still waiting for the doj find settlement, the likes of credit suisse, barclays, rbs. let's get you up to speed with shery ahn. shery ahn: thank you.
3:21 am
an unexpected loss of that lower energy prices and reduces projected investment, the first of the major oil companies to report third-quarter earnings at an adjusted loss that excludes financial and other items. that missed analyst average estimates of a $136 million profit. expectsen has said it 2016 profit to be at the upper end of the range. it reports a return on sales at the high end of its range of 5% to 6%. that is as growth in china helps the german automaker whether the fallout from the emissions cheating scandal, which is sapping probability. nokia has reported a smaller profit third-quarter sale than predicted. sales fell about 6% to 6 billion euros, as wireless carriers
3:22 am
maintain spending to improve networks and advising mobile data usage. slash global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. this is bloomberg. guy: thanks very much. a brexit slowdown is predicted to hit the u.k. economy. growth figures for the third quarter are due out at 9:30 a.m. it's expected to have grown at .3%, down from .7% in the last quarter. the global says banks will probably lose their currently the rights to provide services and the european union after brexit. we spoke to the barclays ceo about it. >> there is a lot of capital in the u.k., which is put to work in the european union. we would help as the brexit negotiations go forward that the politicians and regulators keep up the free flow of capital and continue to allow participants
3:23 am
to europe to have access europe to make investments. guy: jeff staley, talking about what's happening with the relations of the european union, which may or may not improve. we simply don't know. us, somethingth you know is that we should be buying pound. >> yeah. i think sterling at these levels think it is now discounting some pretty extreme outcomes. i think there's a lot of noise around sterling, some people saying it was overvalued but i don't think that is true. it depends on which cross rate it was cheap against. it is super cheap against the dollar at these levels, if you look at an inflation-adjusted basis. but i also think there's a lot of noise with the trade deficit. the rest of it is nested come,
3:24 am
largely accounting. profits of overseas investment is high, and the european economy is depressed, that's not even an fx flow. that current-account should turn around very rapidly for precisely this reason. i think that stirling on the fundamental basis is offering some value. there's a lot of sense i allowing it to stabilize. it might be stabilizing now. i think there will be a reassessment of the interest rate outlook so i wouldn't be surprised if the bank of england raises rates. i think sentiment and attitude towards stirling, the risk reward has fundamentally shifted. caroline: eric, what about the fact that you are saying, don't get into gilt? is that curve going to keep on
3:25 am
steepening when it comes to the united kingdom? disinflation the main driver of that? >> this is one of the fascinating, unintended consequences of brexit. countries in most the world are close to zero bound and would love to have a lot of these dynamics. a much, much weaker exchange rate which, on balance, is a stimulus to the economy, and broadly a higher rate of inflation that allows interest rates to go up eventually. isthat die mention of it something that is positive. i think one thing we need to look to in the gdp data is the components of the u.k. economy could do very different things. area -- we haven't really seen the data on this yet -- what happens to corporate investment spending. i don't want to some complacent. the way i think about brexit is that this is a two-hour movie
3:26 am
and we have just seen the first 10 minutes. it's way too early to draw conclusions, but if we roughly assume that people in the end are going to be pretty sensible, which seems a reasonable supposition from my perspective, i think you can see a scenario into the medium-term where we see stirling trading higher against the dollar. guy: do we avoid recession? is it recession deferred? give me a sense. >> i think the key issue is look at what happens to the investment component. the final demand of consumer spending will be pretty stable. the wildcard here is investment, the bit to look at in the gdp data. our corporates materially contract investment spending. guy: thank you for sharing your time with us. eric lonergan. today, itv, unilever,
3:27 am
some big names. up next, we will be talking about samsung. its third-quarter profit. eric says we should buy it, or at least take a look. this is bloomberg. ♪
3:28 am
3:29 am
3:30 am
guy: top of the hour in london. let's take a look at what's happening around the world. you're watching bloomberg markets: european open. it's just coming out now, repo rates coming through. government bond buys are extended in december, leaving key rate unchanged. at -are left unchanged .05%. a quick look around the markets -- let's start off with the oss rates and have a look at what's happening with euro stokcks.
3:31 am
riksbank is saying it won't raise rates until early 2017. i think it might be the outlook that's changing things around, and also the expectation for when the rate story -- it won't raise rates until early 2018. the euros selling off on the back of this. we'll get more details later on, the look at what's happening to the currency market. riksbank won't raise rates until early 2018. we will have a conversation a little later on with the governor of the riksbank. hope, inersation, we "surveillance" today. we'll see what he is trying to signal. their other aspects that are blooming. let's talk about a big stock
3:32 am
story out of asia. samsung shares closing higher despite the company reporting a 70% drop. when the smartphone division did take a hit, no surprise on what was causing it. the group says its display business did well, the chip business doing well. bureau. to the seoul lots happening here. we also have a change in terms of the board composition that we need to talk about. but the elephant in the room -- had to the note7 impact these numbers? >> well, not as bad as some people were thinking. mobilenoted, yes, the units business, there operating profits plunged to the lowest ever, and that was expected. but overall the business did relatively well.
3:33 am
the display, the components, the chips, they did well. i think that may have mitigated some of the impacts from the note7 fallout. another thing we should note, if there is a silver lining, one is that samsung executives talked about how the note7 problems didn't seem to have spread to other sales of samsung phones, particularly its flagship galaxy s. guy: peter, these are incredibly, located in terms of corporate governance structure. new member ona the board, the prince becomes the king. is he going to modernize the structure? i think you can see that happening. >> i think that's the hope,
3:34 am
particularly of foreign investors. he's been pushing for a restructuring of samsung, and in general, these korean conglomerates have this very intricate family structure. it's basically a corporate family dynasty and he is on top of that here in samsung. investors want to see more transparency, reforming the governance level, and apparently jae-yong has talked about meeting those proposals. they talked about how they need to modernize samsung and bring it to the 21st century. there may be some progress as he takes over samsung. guy: peter, we will wrap it up there. thank you very much. our seoul grow chief.
3:35 am
caroline: talking tech, moving on to the auto sector. looking at volkswagen in germany, it is saying it will be hitting the top end of its guidance range for profitability as it weather the continuing scandal of the mission street. it's eating into the profitability of its luxury unit. let's get more on the details with chris reiter. was it all on the back of china? well, underlying rose about 17%. the underlying business is still stable. they have solid cash flow, and earnings are still good, but with the audi hit, volkswagen is still not out of the woods. caroline: talk to us about that. what is going on? it seems to do with the takata
3:36 am
issues, the fact of what you have within the car, takata taking a hit on audi and th enginee v6 -- and the v6 engine. >> yeah. we just got earlier this week their approval on the two- leader engine, a big hit. 85,000 cars have these tainted three liter engines and there is still no resolution on that issue. takata was an ee-litreut the thr diesel engine issues specific to audi, and that hit their third-quarter. they are now saying that their operating profit margin will be
3:37 am
considerably below their 8%-10% margin quarter, which will put them at a disadvantage to their rivals, mercedes and bmw, which will still be producing and that kind of range. audi still has this issue to resolve. it'ss no insignificant. general,lity in their portfolio. guy: we will leave it there. lots of work to do. interesting stuff. chris reiter out of berlin. and remember, we will talk to the ceo of ford motor's. that at 12:20 p.m. up next, we will talk hasbro, barclays, and deutsche, with their earnings today. shares softening, as you can see. this is bloomberg. ♪
3:38 am
3:39 am
3:40 am
guy: this is the european open. let's talk about what's happening with euro stoxx. this is the story you are seeing; let me what you through this chart. we have news from riksbank that is going to keep rates where they are for now. it will not add stimulus. the bank called initially for euro to go down, but then it popped. why? because the central bank says it
3:41 am
will effectively hold off from changing rates until 2018. it's not going to raise rates until early 2018. that forward guidance has changed things around, and that is what you are seeing the jumpy chart as we are witnessing, because the forward guidance element is the big story. we are hoping to talk to the governor later on, what he sees in terms of the inflation story going forward. caroline. caroline: yeah, indeed. we'll be looking much more across the board at u.k., the u.k. banking sector. guy: yeah, let's talk about barclays. the whole banking sector is beginning to shift lower, and i think that's interesting. earlier on we spoke to jeff staley and asked him about the figures. >> we're very pleased with the results. we set a couple of financial targets and laid out the double-digit return
3:42 am
on tangible equity for the core part of the bank. we delivered that again in the third quarter. we're on target to hit our cost 2016, continuing progression and capital build. we like where we are, given that we have taken some provisions for ppi and had headwinds from our pension. resultseased with the and we have a long way to go. lead to close in 2017, and then we will deliver what we set out on march 1. manus: and that will be your barclays? that will be a bank shaped in euro vintage? we will talk about that alone let more ppi, not a charge on ppi. let's get the u.k. issue out of the way. is this the last major charge on ppi, mr. staley? >> give it everything that we know, we feel that we are fully
3:43 am
chart that wethis have taken. we think the have the reserve levels right, and we will see what happens down the road. manus: you are right. who knows what will happen with the rest of litigation? talking about the investment bank, i talked deutsche bank numbers -- looking at the investment bank, not about number. does this justify keeping the size of the investment bank? what does it say to the marketplace in terms of your strategy? >> again, our strategy is anchored on being diversified, both a consumer and wholesale bank. we are pleased with our investment banking results in the third quarter. not only did a number of our principal trading debts -- they are up 40% versus this time last year. we also gained quite a bit of market share, particularly in the united states. we feel good about our investment bank performance. it's a key part of the bank
3:44 am
strategy. it balances a strong retail franchise in our consumer credit card business. they did very well and we are pleased with the performance. guycaroline: let's stick with te banking sector. behind me is deutsche bank, which has been seeing a deteriorating share price. it started up more than 3% higher and seems to be losing that. let's dig into the numbers we got from deutsche and speak to ne-- with their search alpha value. thank you very much for joining us. give us a sense of whether these numbers are good enough for you . >> no, not really. the figures are better than expected, but the market expected a lot. they expect a small
3:45 am
return of equity, 1.7% of it is not a good figure. the reason why the profit is higher than expected is the litigation costs were much lower than in the third quarter. lower than what the market expected, especially if you have negotiations of the doj . caroline: so litigation and restructuring charges lower health profitability. what did deutsche do in the underlying business? --t trading looks better should they be thinking of shrinking the u.s. and banking unit? >> yeah, absolutely. -- you mentioned mentioned fixed income, deutsche participated as well. if you look to the global market figures for third quarter, the
3:46 am
return on equity is only 3.4%, much too low in a good trading environment, especially if you take into account all the hidden burns which might still be in deutsche bank's balance sheet. assets are 66%, so if you would close or reduce the business by 50%, or risk assets down by 50%, you would get excess capital of more than $12.5 billion, which you could use to settle all this litigation risk. and deutsche has -- caroline: is john cryan -- sorry, is john cryan doing the right thing in terms of management of this business now, talk of fully integrating?
3:47 am
they are thinking outside the box in terms of shoring up capital. is he doing the right thing? >> in my point of view, obviously not. deutsche said in 2012 that they have to increase profitability strongly, and they set up a ok,tegy for 2015+ and said, we have to cut costs, reduce employees, and settle litigation risk. then we will achieve in 2015 a andrn on equity of 12%, what they have achieved is the cost increased in 2015, the number of employees increased, litigation costs were on a lossd level, and it was a
3:48 am
of $7 billion. he was appointed and maybe six months later he said, ok, i will continue the strategy of the former ceos. you, what do you think the future of's bank is? >> it's up for sale. john cryan said in the conference call, said we are price toor inadequate -- four an adequate price. that is a strong strategy if you are selling, in the weight of the investment banking business would increase. guy: thank you very much, joining us from their search of the value. up next, exit is poised to take a bite out of u.k. gdp. we will preview the figures. this is bloomberg. ♪
3:49 am
3:50 am
3:51 am
>> what it really says is you can do things under budget and do great work. this will be one of the great hotels of the world, under budget and ahead of schedule. our country has to do things under budget and ahead of schedule. guy: that was the republican presidential candidate, donald trump, speaking to "with all due respect" yesterday, taking of a break from electioneering.
3:52 am
the u.s. election is less than two weeks away, looking forward to some clarity. talking of clarity, let me take it to the markets. a big morning for stocks as we see earnings coming through. the brazilian miner. remember that and you have a mix of equities and stocks in london. itv going ex dividend. we're just over half an hour away from the u.k. release of third-quarter gdp data. a brexit slowdown is predicted to hit, we are expecting .3, due at 9:30 a.m. the economy is forecast to have grown a little bit, but affected by brexit. something to be alarmed about, something to cheer about. we are joined now from gadfly.
3:53 am
how should we read the u.k. economy? we are slowing down, but it is not the armageddon somehow protected. is notink this number going to reassure us much about brexit. quarter one was week, quarter two was a bounceback, quarter three will always slow down. we don't get much real information from quarter three. i would look forward to the bank of england inflation report, the autumn statement coming up later. guy: absolutely. but what we might get today is the components telling us about what's going on. maybe they will get a read in terms of investment. and this is where corporate has made it clear -- after pricing in, we need to take it off. >> you are very right. business investment was bad well
3:54 am
before brexit was a twinkle in the eye. but clearly services is the strength. we might get a strong manufacturing number. but we can't get too excited. but consumption expenditures, perhaps the cbi retails, that will be something to look at. what we get this time around is static data from june to august. all this was weaker in terms of analysis and spending concerns, but all we are getting is a guesstimate. we will get something but i wouldn't read too much into it. guy: ok. caroline: mark, we heard mark carney in front of the house of lords saying there was a limit to how much inflation they could stomach. what do you see in terms of the updated boe numbers, and how much will that factor into consumer views? thatll, again, we saw
3:55 am
inflation report with a clear idea of what the bank of england is thinking, and i would expect them to post both forecasts. obviously mr. carney was quite careful to mention the fact that sterling weakness has been weacted, and that is what will see -- the effects of brexit will come through in terms of food and oil inflation. in sterling terms, crude es have doubled since the start of the year. the food inflation first, the rest of brexit will be -- clearly, mr. carney has said they are prepared to see the effect of the next targets, particularly the currency that they target, that currency has an impact on their inflation and they are going higher. caroline: where do these gdp figures go longer-term? brexit effects will start to drag it lower? do we see it stagnate? a technical recession?
3:56 am
>> i think so. -- i don't think so. we haven't seen anything particularly effective. we have to wait for sterling weakness. but on the lending numbers we saw, the weakness there, there isn't any real worry at the moment coming through for the u.k. economy. it's how quickly inflation comes through and whether or not the bank of england will alter their path. i think most people are expecting that there were some hopes that they might cut the balance 10 basis points. guy: certainly has been a shock. great to see you. stay with us. up next, "surveillance."don't miss the conversation with the riksbank governor, saying that rates will not rise until early 2018.
3:57 am
if you want some forward guidance, you are getting it. that conversation coming up later. that's on bloomberg. overcast skies in london ahead of the gdp number. this is bloomberg. ♪
3:58 am
3:59 am
4:00 am
>> a surprise return to profit as trading jumps and costs drop. bonds grew largely profit jumped 35% on fixed income trading revenues and a post referendum reading third quarter g.d.p. comes at 9:30 here. will the numbers be enough to stay another cut? just expecting a decision. and as expected its

46 Views

info Stream Only

Uploaded by TV Archive on