tv Bloomberg Daybreak Americas Bloomberg November 1, 2016 7:00am-10:01am EDT
i am david westin alongside alix steel. let's get you started with a market check. aboutnes, smp, all up 3/10 of a percent of one point. looking at other ethics, -- --king at other assets strength in commodities. the japanese yen is weakening. zinc is that a five year high. hats those numbers have strengthened in asia and the 10 year yield is up by three basis points. here is what else you need to know. divergence in oil. third-quarter profits that beat analyst estimates. bp profits sliding on weaker refining margins. and out of options? the bank of japan sighting downside risks to the economy. they are leaving monetary policy
unchanged. donald trumpon and are preparing for a postelection day battle. both are deploying volunteers and lawyers across the country ahead of a potential contested election. david: let's go back to the story of the bank of japan. we are turning to enda curran, the chief asia economics comes correspondent. conceding on this? i guess he signaled today that they are on something of cruise control. no policy change, like you mentioned. with ave come back reality check. to 2019, after his term is finished.
even with pushing out the timeframe, there is a warning of a downside risk and the inflation forecast. pretty subdued even though they didn't make any new policy measures. is there an inherent contradiction on one hand saying ok, we are not doing as well as we said we would but we are not doing anything about it? enda: you can argue that they are doing a lot. they're keeping their base and they are adding to the economy. they can take further steps if they have to and they continue to blame this on externals. but what you could say is that they have gone so much further in closing the credibility gap with the market. agreej is saying yes, we -- perhaps they are winning
growth there in terms of the trust they have with the market? to illustrate what the statement said in terms of downside risk. the statement saying with regard to the risk balance, risks to economic activity and prices are on the downside. but on the price front, is maintained but weaker than the previous outlook. the rhetoric out of that staysent was that the boj in the easing mode. does that mean we will see a deposit rate cut going forward? out: they are not ruling it but let's not forget, let's see what janet yellen and the fed does. it will be important for the dollar. that could potentially mean a weaker dollar if they do hike. nowe is an increasing view that growth has been handed back to the government so the bank of
japan have done their bit. we may or may not see further stimulus over the coming months. and we may finally start to see top economic reforms. all of that is key in the inflation outlook. it isn't just the boj. but the boj has not taken anything off the table. but it does appear they are sitting back to watch and see if everything will fall into place. another important peas of data. pmi numbers out of china enda:. a big hit today. chinese companies are in a much better start than they were at the start of the year. we know that we had deflation for the first time in four years and now we are seeing pmi quite likely. cautious, there are people to this end that is that some of the pickup reflects a
pickup in commodity prices rather than internal. how sustainable is that and how long will it last, we just don't know. but chinese companies are better faced them they were at the start of the year. enda curran, thank you very much, and for more, let's bring in geoffrey yu. he joins us now from london. what do you make of this? they push their expectation to 2%, the six-time they've had to do that and then they did nothing with policy. when it comes to the inflation forecast, look at all the central banks. right now, it is far too early to tell whether the framework is working or not. but it makes about as much sense as they could make. they are trying to make it work but the question is, do markets
believe them? alix: a great point. they continue to tread water. they do not move up. if the boj keeps pushing back the inflation target, does that undermine their credibility? well, i'm looking at their projections right now. the boj have their own equivalent and what is unique that they have two single upside risk and downside risk. for people see this as balanced and five people see it as an outside risk but in 2018, there is only one upside risk. how should the market believe them? what: let's get back to you said about it is too soon to see if it is working or not. february can't be too early to tell. why would that drive inflation? geoffrey: this needs to be a
comprehensive framework. and the narrative in the markets right now are targeting the yield, and does that mean they are letting the currency go? allowing it to strengthen, somewhat? this is crucial. we know that in japan, there is a large open economy. toif there is a willingness let the currency go than i think we have to brace for deeper inflation over time. and that is the question they need to answer in the context of the overall framework. david: -- the dollar is up over the yen but overall, some have a very pessimistic view of the yen. now, we're back to the drawing board. they have taught us over the last 20 years and trillions and trillions of yen, that they
can't get out of it. it is a deflationary world and environment. and it isn't that japan can't get out of it. the big question is, are we going into it? that is why yields are the where -- yields are where they are. look at japan. it is a deflationary world. a world in which bond yields will remain low for a long time and there is no monetary or fiscal policy to get us out of it. aix: so forget reflation or weaker yen -- do you agree with that statement? yu: i'm afraid i do have to agree with that. we know there is a reform side of things. anyone who has really tried to -- i don't market,
think that will trade anytime soon. but if the rest of the world are going down -- it is too early to call on that. geoffrey yu, thank you for being with us. let's get an update on headlines outside the business world. emma: thank you. iraqi troops say they have entered the outskirts of the embattled city of mosul. the incentive to drive islamic state out of the city is in the third week. the u.s. justice department tells congress that will work as quickly as possible with the fbi on the new investigation into hillary clinton females. the clinton campaign accused the -- because it came so close to election day. have saidrepublicans that the fbi has not provided enough details. union representing 4700 transit workers in philadelphia went on
strike at midnight. subwaysrolleys and provide 900,000 rides the day. students also use it to get to and from school. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. this is bloomberg. equity futures are grinding higher today. flatness in europe. on the downside, the standard chartered is off by a federal percent. we still have the worst one-day fall since june. overall revenue is down. for 2015.4 billion and they get most of the money from the african and asian area so what does it mean for the area of business? ofthe energy market, a tale two big oil companies. bp and shell. bp had a profit cut for the
third quarter. production down, profit down. shell, a different story. up i 3.5%. of $2.79 profit billion. reduction up year on year thanks to the acquisition of the naturalglass there -- gas flair. up by 11% -- colonial pipeline had an explosion and it is shut down. it is the rigorous supplier of fuel products to the east coast. how will they get their fuel? take a look at this huge jump. we will be tackling this later on. we already have your favorite chart of the day and this will be a good day, i can feel it. coming up, governor carney says he will stay at the bank of england to see the exit from the
david: governor mark carney said yesterday he would be staying at the bank of england since 2019 which takes the focus off of who will be there for brexit but puts the focus back on what they will do to help with the process. geoffrey yu is with us in london. cut rightad a rate after brexit, will mr. carney had to turn around and go another direction? geoffrey: we doubt that at this point. it is a really asymmetric case.
there is the uncertainty of the outlook. but like any self-respecting central banker will tell you, we are case specific. so i think that is the appropriate case be boe will go. they probably don't want to make a judgment about that. talk about data. pmi numbers came out today and they were pretty good. getting a boost from the weaker sterling. when does this turn? and all the good data becomes bad data? geoffrey: it is interesting to note the manufacturing side of things. this sector was actually in contraction with services. again, sweden and switzerland will become the powerhouse in
the near future. probably not. so the boe will still be in the uncertainty mode up ahead. uncertaintygreater in the third of the sector, especially in financial services, there may be additional issues. andhey will be vigilant careful about talking about the downside too much right now given the politics we have seen. david: but we are talking about a long way off. what happens if inflation kicks in? we get inflation data out shortly from england. the question here is, will inflation eat into real income and i think we have to closely track what happens with wage growth and inflation, if at thatn will eat away for us, it is clearly a problem. if we look at the case of japan with the weaker yen and higher passeds -- has that been
down? in the last few years, waitrose has been stagnant and it hasn't been passed down even when profitability has come up on the path of corporate. so i think risk is skewed to the downside. 1.36, i your call is feel like that is the outlier. why? atffrey: firstly, if we look the long-term value estimates of the sterling, we probably will see more upside and downside. so we want to anchor an upside view. secondly, it is also forecast to be off the dollar view. it goes over a one-year horizon. and it has narrowed somewhat. they may surprise to the less dovish side given the market position for the euro with ecb policy. so we will see whether we can get there or not.
alix: the u.k. economy really ands to track the capital they have to attractively priced assets. but to do that, they need a weaker sterling. so wouldn't that make the case for the 1.20 or 1.10 instead? we use thisten, experiment with clients. we had a surprising tory majority, and we hadn't had the referendum, probably it would be higher. so already, we are below the anticipated level and that would have helped the financing positions. back,t 1.20, if you look we are already going to move in favor. so i wouldn't worry too much in the medium-longer-term. is, will thaton
derail the flow? people see value but they don't like the wider environment now. alix: if you take a look at the bloomberg, i tracked the bloomberg dollar index and it is continuing to rise while financial conditions are tightening. at what point does a stronger dollar start to suppress oil and rake evens and the reflation rate? dollary: so stronger will suppress inflation or reflation, we will focus that closely. but the u.s. economy is likely a closed economy when compared to the u.k. with france or switzerland. the fed has some room. if it eats into profitability then that will be a problem for the fed and for the negative
transmission, as well. so the fed will continue to talk about international conditions for the dollar. yu, thank you so much. head of the u.k. investment office in london. coming up, the tale of two energy companies. shell, two different reactions in the stock. plus, predicting more losses for oil. how far crude can fall? this is bloomberg. ♪
a few years ago, all the oil companies were in the same boat. this quarter, we see good and bad. walk us through. bob: the story today with show -- with shell, it came quicker than expected. quicker than expected in the .orresponding market wasg the same line, chevron able to post a first profit in a couple of quarters. postingon and shell profit but bp riding multi-quarter declines. there is a piggyback on that.
we could see impact made. so it is about being in the right stage at the right time. right place at the right time. a lot of the oil companies forecast they could make money between $50-$60 but that is highly debatable. some people can and some people can't. it really depends how close to the service the majority of the oil is. if you are going to be working in the tight formation spot where it is difficult to bring crude oil or gas to the surface, you are going to struggle. if you have a formation that is easier to bring gas or crude oil to the surface, you will profit. alix: so what do companies like bp or exxon have to do? do they have to buy growth? bob: that was successful for shell in this quarter and they turned around quickly. a permeable out there
in the united states, that is the place to be. everyone knows that so it gets more and more expensive. to go out and buy assets that already exist. you had some of the braver folks going out early in the fracking phenomenon and a lot of their assets have been brought up by bigger companies. so basically exxon and bp need higher oil prices so they need opec to cut. yesterday, the opec general said they are on track with the producers but we don't believe the deal is going to happen. what field you been? bob: i have put out to my folks that it is a one in three chance that a real deal gets done. there was no quota in algiers. 30 -- ia on november
think the most likely scenario is where they have a production 32.5 million-33 million barrels a day but there will be no quota allocated at vienna. so it gets kicked down the road. with noill be vague concrete deal. i think that is the most likely scenario. alix: a watered-down front. good to see you, that was bob yawger. a record, october was month for dealmaking with nearly half a trillion dollars in acquisitions announced across the world. this is bloomberg. ♪
profits after the acquisition. on weakerslid refining margins and oil production loss. out of options, the boj cutting the inflation were cast. the central bank left the monetary policy unchanged. and hillary clinton and donald trump are preparing for a possible postelection day battle. all caps a support volunteers and lawyers across the country ahead of the possibility of a contested election. david: let's take a look at how the markets are reacting on that news. pre-markets for dow jones and s&p are slightly up. both earlier they were up nicely, levering up. let's look at other asset classes. the australian dollar is up robustly. commodities are up somewhat.
but the yen is weakening off the news that governor kuroda will not be changing the monetary policy. -- iss that a five year at a five year high. and up two basis points on the yield on the 10 year treasury. alix: for another look at what is moving in the markets, take a look at gasoline. gasoline is up 11%, jumping the 2008.ince here is why. the colonial pipeline exploded and it is the largest fuel pipeline in the united states. apply to 5 million in the u.s. southeast. take a look at the map. it really takes a good look as to what this pipeline means for the u.s.. the orange line is the pipeline that goes to new york down to houston and you can see what areas are affected. tennessee, tallahassee,
virginia, north carolina and alabama. it can carry as much as 2.6 million barrels of product from new york to houston. what happens if it is closed even longer? this is something we have to check out as we see where the fuel product will come from to get to the southeast. and what a month for m&a. a big mover in october, a busy month for deal making. we have a chart to set this up. $489 billion of m&a in october, alone. and unbelievable move, the highest in 12 years. you had low growth, accommodating capital markets and it led to a jump. that if you dig deeper, it is what actually made the record interesting and it is mega deals. -- it makes up about $818 million of m&a so far.
so it is the mega deals that are supporting the market. today's morning must listen, we wanted to listen to a partner at jones day. recent time warner dale, he spoke to jeff mccracken about how politics and stock prices have been driving a lot of the recent action. >> well, i think the election would have mattered if equity prices had been more volatile. one of the things about the last quarter is that it has been incredibly stable equity prices for large companies. and a lot of the big deals typically involves some equity which has been helpful. but the fundamental factors, they are very strong. september was a little bit light. and i don't think anything will
approximate the fourth quarter of last year. but very strong and the fundamental drivers are still there. low growth -- bad for most things but good for m&a and accommodating capital markets. >> we mentioned the deals you worked on this year. are those deals any harder? $10 is the challenge in the billion plus deals? >> there is one challenge. which is obviously that there is a more difficult regulatory environment. to me, it is pretty amazing that the stuff that i do, not usually of interest to that many people, got into the presidential debate if you weeks ago. so size matters. that was the time warner deal. and the candidates had to comment because of the size. size matters. there is no question. particularly because we are in a challenging regulatory environment now. i think there have been more deals challenged in the last two then probably in the last
six years, combined. that's a lot. and regulators say what do you expect? you are putting giant, horizontal deals in our face and we had to look at them but time warner is not a horizontal deal. alix: david, you used to be an antitrust lawyer. the billions of dollars of worth yes,als -- he said megadeals and m a day but will it get done? david: it has been getting tougher and tougher. person after person has said that. and now we have the uncertainty of a new president. and despite that we still have the record number of deals. normally they would hold off because they don't know what the environment is. and yet still, they are forging ahead. alix: and they can rush to get it done but there is no guarantee they will get it done before the new white house. at at&t-time warner, they
are saying well over a year so it will be a while before they actually close. now, turning back to japan with the big story of the day. we learned that the bank of japan is keeping monetary policy unchanged but it is changing the inflation forecast. joining us is peter westaway. joining us from london. welcome back, or to have you here. the way we read this was that mr. kuroda said we would not get to the inflation target for some time. but he said they would not change what they were doing with monetary policy. so has he done all he can do? ifer: it doesn't sound as they are throwing in the towel, but they doing knowledge they will not hit the inflation state they had
originally hoped. the difficulty here is that at the last meeting, they also made a statement that they were going to try to reach their relation target but actually overshoot it. so there is a disjunction here. near-term.relatively david: and i think there were two meetings they said when they would have a strategic review, a top to bottom review and have we gotten the results of that view? what did they find? peter: you may have missed it but that was last month's policy announcement where they came out with the main policies. policy where they were going to target 10 year yields at 0%. interestingly, that has been
successful. but the second leg of that was the idea that they would try to overachieve their inflation pretty difficult when they are already underachieving on it. it really does make you question whether they are connected to this. and let's not forget, the governor's term will now run out before we get to the point where they are saying they will reach the inflation target. so there is an element of kicking the can down the road. alix: and the rhetoric was that had downside risks because there is nothing else they can do. illustratesmberg that. this is the population above 55 and in japan, 27 percent
compared to the u.s. at 15%. or what he can do -- no matter what he does, he cannot print babies. i agree. i think the fiscal side of support whatead to the bank of japan is trying to do rather than trying to get it. because after abenomics was introduced, inflation expectations were picked up. but then inflation got pushed in the wrong direction. monetary policy being completely ineffective, maybe in terms of the policy they are implementing now, it is, but perhaps there are other policies out there. helicopter money or moving towards a world where the bank of japan effectively engages in monetary financing. that may be a more radical step that they are not prepared to take yet but so far, i think
they need to start doing that. it reminds me of janet yellen having a more pressurized economy. when does that tell us about december? should they hold that? peter: i think it is an interesting parallel. to me, janet yellen talking about letting the u.s. economy run hot as she puts it, it is about the u.s. economy running soft for a long time so we need a time of compensation to bring production potential back to where it was. i don't think those comments will be enough to prevent the fed raising rates in december but the market is only 35% convinced that rates will go up then. and it is comments like that that make the market hesitant. but there is a lot of other evidence around the strength of the economy. gdp numbers last week were pretty good. core inflation getting up to the
sorts of levels where interest rates could go up. i think there is enough evidence there for the u.s. to raise. but i don't think we will see headlong increases thereafter. i think it will be a cautious and slow rate tightening cycle from the fed. i think we will see them bring down that estimate from the high levels it is that now. alix: again, the market wins. peter westaway, thank you for joining us. coming up, investors withdrawing from standard charter. share suffering because the klein in seven months after profits fell short of estimates. plus, the clinton campaign pushes back accusing the fbi of a double standard. we talked politics. this is bloomberg. ♪
emma: this is a "bloomberg: daybreak." eyman be hewlett-packard enterprise greenroom. using up, hans redeker joins to reveal just how low the yen can go. shares of standard charter are getting pummeled today. the biggest incline in seven months after profits are down. that was a record. $4 billion for 2015. joining us now is stephen morris. london.us from the reason why we love talking about standard charter is that they get revenue from asia, the middle east and africa. what did we learn about business there? stephen: we learned the
environment is challenging. this bank is based in london but he gets the vast majority of its profits in asia. and today, the ceo and other executives were lamenting a low level of global trade and low levels of cross-border investment into core markets which are africa, the middle east and asia. so missing on impairments and revenue, and they are also not striking an optimistic outlook which is why we see the shares drop so much today. alix: there was a lot of conversation about the division that houses the equity. $30 million doesn't seem like that much but considering that standard charter wants to sell that? stephen: exactly. the board is a liberating this at the moment. tos does increase the loss much more than that. nearly $100 million. and when you look at a bank run by a former jpmorgan executive
that is trying to become less risky, a lot of investments are writing about why shareholders and the board are less than comfortable. the bank says the decision has not formally been made yet. alix: we see a lot of u.k. and european banks pivot to asia, are standard charter more independent of that? well, they have gone in on credits wiest territory. they have try to expand the banking and wealth management because it gets better returns and the downside. so indeed, we will be looking to that but ise for think they're aiming at slightly different areas in the market. standard charter is a retail player in asia. good point. thank you so much, stephen morris. standard charter having the worst day in four months.
david: turning back to the united states with elections one week away. hillary clinton e-mails are again a top focus. yesterday, a loss was that about the unprecedented situation. >> hillary clinton wants to blame everyone else for her mounting legal troubles. she has brought this situation onto herself. she has nobody to blame but herself. hillary clinton: for those of you who are concerned about my using personal e-mail, i understand and i'm not making excuses. i said it was a mistake and i regret it. >> i have to give the fbi credit, it was so bad what happened originally and it took guts for the director james comey to make the move that he made in light of the kind of opposition that he had where they are trying to protect her from criminal prosecution. that.ow hillary clinton: now, they apparently locked -- apparently
want to look at e-mails from one of my staffers and i'm sure they will reach the same conclusion they did when they looked at my e-mails. for the last year. there is no case here. about that in investigation, the justice department wrote a letter to congress yesterday in which it said -- "we assure you the department will work closely with the fbi and mitigate all necessary resources to take appropriate steps." joining us now is marty schenker. marty, the real question we all have, will this affect the election? if you look at the polls that came out overnight, basically the race has stayed where it was. it looks like he'll are clinton has a few percentage point lead nationally. shoutingad and within distance in the battleground
states. so at the moment, it looks like this controversy is making for great headlines and stories on tv but it doesn't seem to be resonating with voters one way or the other. david: apart from the investigation, polls seemed to be narrowing before this happened. there was a point from we talked about double-digit differences in trina to but we are not talking about that anymore. no.y: and many had predicted that the race would tighten as the days towards november 8 with and that has happened. but the fact is, donald trump's -- they havery expressed confidence that they will surprise people on november 8 and it is still a possibility. david: a piece out on bloomberg today, as clinton and trump prepare for election over time, there is serious talks about the battleground states being so close we won't even know on the
night of november 8 who one. that is probably a nightmare scenario for journalists and the candidates. we are all looking forward to this election being settled on november 8 but there is a possibility that some of these states like florida could hang in the balance well after polls are closed. according to this is in bloomberg, it is in bloomberg, it isn't just the donald trump camp who is getting read of this -- getting ready for this. they have lawyers in battleground states for a possible challenge or recount? marty: that's right. and there are voter suppression efforts underway from the gop. the foreman of justice is giving fewer resources at polling places this year. so there are reasons why either campaign could file a protest tragedy would be a real for the markets that are looking for some certainty. david: exactly.
that is the ultimate volatility. marty: for sure. and it may not be that way but we all have to factor in the possibility that it may not be the end of the story on november 8. david: and for those of us who lived through 2000, we are not eager to relive that experience. thank you so much. that was marty schenker. boj trends for inflation forecast as a key is monetary policy unchanged. this is bloomberg. ♪
alix: the news of the morning. the boj pushes back the timecard 2019.inflation to it also sees a downside risk to growth. does the boj need a weaker yen to solve its problems? how do we judge if it is working? here are charts to show you how. this line shows the monetary velocity within japan. money supply versus your cash in the bank. down, it means m3 growth is going down. the monetary velocity is not happening. monetary velocity goes down, the dollar went down and the yen strengthened. kenf they can move higher, the yen depreciate against the dollar? so that is one area that you actually have to watch when it comes to the data. the other is a relationship
between japanese surplus and output. highery help support a yen so you need outflows to offset that. so the white bars are the current account surplus sitting at ¥2 trillion. the blue bars are the outflows, trillion.r ¥1 so more outflows need to happen. there are signs that this is happening. five major japanese insurers say they plan to cut japanese bonds or boost for notes and three said they would boost foreign bonds. so that could accelerate some kind of outflow from japan. the other portion of this is that you need japanese corporations to start spending money. here is the issue. this is the second quarter off by 10%. at the same time, corporate tax levels are around record highs. this shows that monetary policy is declining.
filtering through from the boj through companies and into the public -- this is another data point you need to watch to see if the boj can achieve a weaker yen and really help boost growth and inflation. david: coming up, oil hovering at a five-week low. blanch joins us to review his target. as we go to break, let's take a look at the futures in the united states. up somewhat, perhaps on the strength of the chinese pmi numbers. this is bloomberg. ♪ alix: welcome to bloomberg
happy november. i am alix steel along david weston. jonathan ferro is off today. this is where we stand. the dow is up. it slipped into negative territory. on the other aspect classes, my favorite is the australia dollar. , it'syou have the holding not getting into and easing cycle. dollar-yen it goes nowhere and my favorite commodity is zinc. it's up over 2% in china. that ia fiveear high. the 210 year yields are up i two basis points. the spread continues. david: here are the other things you need to know here in third quarter profits beat analyst estimates after the acquisition boosts oil production. profits slide on weaker refining margins and oil production and
loss. cuts itsof japan inflation forecast citing downside risks to the economy. they ease -- leave monetary policy unchaed. hillary clion and donald trump are preparing for a battle. they are deploying lawyers acrossthe potential for a contested election. alix: we want to bring in michael mckeon. of the day, this is about inflation and the inability to get there. michael: that's what's happening with japan. he said within two years we are going to get inflation to 2%. if you look at the latest numbers, the core rate is not even 2% did it is going down. they are throwing in their tax increase that they had recently that would raise prices.
they are not within striking distance. t big news todais that they ve their inflaon target date out to 2019. that is yr after his term i over. now we're going to talk about about whether he stays on or not. this chart we are looking at backs up your point. this is cpi without food and energy. the eurozone is picking up a bit. it's picking up a bit. michael: you can see from this one chart that it's between the lines. target,charge it -- it's the only central bank that is talking about raising rates. everybody else is on hold or cutting rates or e-zine rates. .here can't be a lot cut
expect them to do something at the next meeting. we are still in and easing cycle around the world. it's flattened a little bit. david: what is the worst cut secret -- kept secret in the world. they said we are going to do it. what do the markets make of this. michael: they don't make a lot of it. at this point, it's about the data. everyone will be reacting to that instead of the central banks. until we get some sort of additional movement from the banks, they stood pat today. there is not much to trade on. there is talk of them going beyond fiscal policy that would involve the central bank. i know you like to use the term helicopter money. there will be a market reaction in japan. alix: the last time we saw this policy to virgins, there was a dollar rally.
you had the risk of a rally the completely went to pot. why are we not seen that again this time? michael: one is the election. people are and hold waiting to see what happens with the u.s. election. much priced in at this point. the fed isn't going to raise rates this week. are not going to raise rates by much. the policy the virgins is already in these numbers. alix: thank you very much. david: for more on the central banks we are joined by the global asset strategy head. i've been practicing that a week. let's pick up on bank of japan and we will move on to other central banks. what do we make of this? does this have an effect in the market place? you look at what's going
on with the bank of japan, it's more demonstration. they are speaking much less about using the blunt instrument. that's clearly reached a limit. if you continue to drive into negative rate territory. removingnd up doing is profitability from the financial sector. central banks around the world are learning they need to be more creative and work closely. i think we are seeing an inevitability. japan is gradually doing better. how much it's able to turn around and turn around eight to decade dip is difficult to see with monetary policy alone. david: do we think there will be more stimulus? is that realistic? japan has a very high ratio of debt to overall gdp. is it realistic for them to borrow more money? >> i think we see a move to more
physical policy. if there is one thing that the two candidates can agree on, it's using more stimulus on infrastructure and cutting taxes. you are quite right. japan, it's actually quite limited in japan. when the central bank and the government works hand-in-hand, at some point those relationships kind of breakdown if the central bank is willing to finance it. that is not something you would generally like to see if you follow central-bank orthodoxy. alix: what does this mean for multi-strategy here? higheryield curve moves in japan, that is going to draw money out of u.s. treasuries and cause a curve. patrik: i think that's trying to distill all of the dynamics the
-- of the treasury market in the united states. that's not how it works. the thing to watch for japan is the yen. it's difficult to see if there is difficulty reaching the inflation target. that is probably moving beyond where the bank of japan wants to go. the u.s. assets look at one simple thing, in real yield terms, the u.s. treasury is significantly more attractive than any other g4 market today. if you look at the gilt market and the bond market, it's very difficult to see the u.s. treasury breaking away from what now andy easy policy move to the top spot in terms of yield. david: they are not going to move sharply. inis going to go up
december. to come back to the issue, we have an election coming up. either way, whether it's trump are clinton, there will be real infrastructure spending. how much has to happen in order to really move the economy forward? patrik: i don't think that's really where the problem is. we think the fed is going to go in december and they will stay dovish. i don't think the precise timing matters. at it, how much can it really be? that's worth having, but it's not going to shoot the lights out. on whatu wrote a paper you're looking for for 2017. we will get into that later. what is the upside for u.s. yields? are we at 2%? john: we will see very likely
buyers creeping in from 185 up to 210. the u.s. looks as if it is offering that are yields than g7 bondhe rest of the market. if you are buying and you are an international allocator, the u.s. becomes extremely attractive even though there is a rate hiking cycle beginning arrest the wrath -- head of the rest of the world. they are both sticking with us. let's and up eight from headlines outside the business world. iraqi troops of entered the eastern outskirts of most all. they have captured the last town without suffering casualties. they are driving islamic state out of iraq.
trumpy clinton and donald are preparing for the election to go into overtime. clinton has assembled a voter protection program that uses thousands of lawyers volunteering in battleground states. there will be a thousand lawyers ready to monitor polls and possibly challenge election results across the country. a pipeline explosion in alabama has caused the price of gasoline to surge. it's forced to shut its mainline. colonial pipelines terry's refined products from new york harbor to houston. global news 24 hours a day powered by more than 2600 journalists. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. this is bloomberg. alix: equity futures go nowhere. they are flat on the section. pfizer is up right 2%. this is the first earnings miss in three years.
big gave up on the megamerger. it gave up on the idea of breaking into two units. they are buying a cancer drug maker. this is a question mark for pfizer. the best first estimate for a quarter in six quarters. this is first time they beat and long time. you have a record corn harvest in the u.s. this helped make the corn supplier. we were just talking about it. i want to show what's happening by gasoline. it is up 11%. transported on that pipeline. it exploded and there is nothing flowing in that type line. no refineries are in between. refinery stocks are popping. how do you get products into the southeast? david: another dramatic oil story.
david: now it's time for bloomberg trends. these are the top stories on the bloomberg right now. you can find them yourself on the terminal. mine is quentin and trump prepare for election overtime. this may be so close at there will be a contested election were people will not know the results and thousands of lawyers
will pour in. they always pour in. there could be recounts. scenario --s a 2001 2000 scenario or is this trump going in and pressing for a recount because he already said he wouldn't believe the results. most states have a statute that says if it's within one half of a percent there is an automatic recount. in states like north carolina and florida, the polling indicates it could be that close attention. aere doesn't seem to be reason for them to concede. alix: we were talking about hillary clinton up by 12%. throw 11% in can terms of voting. i don't remember something like that. david: pulling has gotten more reliable as it technology has gotten better. we just don't know.
the uncertainty is wider than we are willing to admit to ourselves. alix: well said. speaking of politics, you guys just put out your outlook to the next 15 years. that is a big stack of papers. how do you do that when you don't of the president is going to be? i think you focus on the fundamentals. we're looking at fundamentals and market pricing. day, it'scs of the not that big of a driver in the long run. alix: when you are looking at things like trade, we are talking about infrastructure. it's more insulated. that or freefrom
trade, how do you focus on that? patrik: you've got to be more opportunistic. when we look at the short-term, markets abhor a backing. -- vacuum. until they know who wins, they won't know. if it goes into overtime, a longer-term investor has to look at the fundamental underpinnings of the u.s. in the global economy. both are generally doing ok. it gives an opportunity to buy into it. if you take a longer-term view, we don't try to base this on election cycles. there are two major drivers of the world economy. one is productivity and the other is population growth. very modestly positive one in terms of it. david: that makes good sense. the two are related.
take those two issues, demographics are very important as well as productivity. affect leadership is can through immigration, which is a major issue in the election. the two are related one to the other. patrik: the u.s. is not alone in this. we have difficult politics across europe. we've got 40% of the eu having elections next year. we had brexit. downgrading our long-term economic growth. as john says, at driver of that is demographic. they are easy to forecast. that's the simple. productivity is more the wildcard.
there is a long-standing view by our colleagues concerning immigration reform. that could lift the u.s. growth rate. we think it's down to something like 175. weaver once talking about 3%. this is not your grandfather's economy and politics play a role in that. alix: do you feel like strategies have a data did to that lower term trend growth in productivity? john: i think so. alix: we don't see volatility at the end of the day? john: we do have a stage-managed to comedy. we have central bank's being very cautious. you mentioned about financial conditions. monetary policy is ultimately the learning i doing. you don't know what it's going to do until you have set it did central banks are incredibly cautious today. that is less volatile than we
might have seen in the past. how are asset managers responding? we have to look for risk another asset classes. credit looks ok. forty is increasingly dividend and buyback. it's much more of a carry asset. has come down to the level of cash. is this forcing a re-think? absolutely. the asset management industry is looking for new venues for investment. alix: this is a really fun chart. looking at historical correlations, they jump back up in the last few weeks. they decline is asked sex started trading opposition to each other. you can find specific opportunities. asset opportunities can work in this environment. david: is that your experience? is it more easy to have a
diversified portfolio? patrik: we are just looking kerley at correlations within the s&p. if you take it back another decade or so, it is declining. markets are being more fundamentally driven. policy runs out of road a little bit in determining architecture and. if you look over longer-term history, there are things that mean it's never going to go back down to what you might have had in the 80's or 90's. we have more passive investing now. that means it's not going to decline all the way back. alix: wrapping it all together for us, i am an investor and i'm going to put my money with you. what do you tell me to do? john: there are three things we need to look at. we are in a world where lower growth and lower terminal interest rates means lower
return to asset markets. putting money to work in a passive portfolio which would have worked a decade ago is not going to happen. active management is going to come back. i think we've got to explore alternatives whether it be direct credit or real estate. that brings in the idea of manager selection. one has to be inventive. you have to be opportunistic. election is going to happen. the elections in europe are going to happen. whenallows opportunity dislocations happened the market and that will be crucial. alix: thank you very much. i wish i had a crystal ball. it's good to see you guys. coming up, the dollar is lower today. it had its biggest monthly gain
david: the s&p and dow are up slightly. the dax has turned down. australiaup the dollar. it is really strong. it is on a big holding. we also have sink. 's favorite thing. alix: gasoline is also one of my favorites of the day. it is up 11%. the colonial pipeline exploded -- that transports 2.6 miles
million barrels a day. it has disrupted all of the fuel product. that means a big surge in gasoline futures. to highlight what that looks like, this is your function on the terminal. it shows the colonial pipeline from new york to houston, you can see all of the areas that are affected. there are no other refiners here on the southeast. how will they get their fuel product? we will talk about that in the next hour and half. goldman says there is downside ahead. one of the most respected voice his outlookes with on accrued. ♪ ,: 830 a.m. on wall street and
there is an acquisition that boosts oil production. weakerfits slid on refining margins. the bank of japan is cutting its costs in down citing the economy. central bank is leading -- leaving monetary policy over change. donald trump and hillary clinton are preparing for a postelection day battle. they are deploying volunteers and lawyers in case of a contested election. where we trade one hour before the opening. we have a little bit of softness in europe. it's all about zinc. high over five-year 55%. we have stronger data coming up.
sink, it's iron ore and cold. that commodity is rallying. is that sustainable? francisco: thank you for having me. i think china is going through a process now. if it's cheaper to buy it then to make it, simply imported. that's what china is doing. the economy ise, picking up some steam. we are seeing chinese commodity imports staying very firm. is leading to prices. that is the story. alix: part of it is the massive stimulus. do they over import? is it decreasing? francisco: i think the metals complex has room to go.
we have been a five-year bear market now. we just started turning a few months back. have comenvestments down dramatically. toare down from 190 billion $110 billion a year. wounds that we carried for the last three or four years on the back of the reductions are going to be felt on the supply side. i think as long as the economy holds up, which seems to be where metals have room to go. i do think it's massive outside. alix: my favorite commodity is oil. he reiterated his stance for a deal. >> significant progress has been made. we still have two months before
the conference. we are on course. alix: goldman sachs disagrees. they say it's harder and harder to get a deal. francisco: i think a deal is going to be made. there are three parameters that drive this in particular. they have economic logic. you and i talked about this. we put out a piece about the oil price war. it does not make logic for barrels to come outside the cartel and bring inventory down. it doesn't make a lot of sense. is saudid reason arabia. saudi arabia it needs the money. they won't increase revenue. they need the money now. we have seen them doing a large
bond deal. they are needing more revenue for sure. internal politics is what people are questioning. they are not questioning the logic they are questioning the internal politics of the cartel. i think we will bridge those. russia is coming in to provide a push. that will probably keep the cartel together. i think we do see a deal. can the saudi arabians carry that deal on their back alone. they've got the non-opec nations like iran coming online. hen you have shale in the u.s. what effect does the deal have on the price of oil? francisco: what the deal will do is allow inventories to decline structurally over the course of
the next two quarters. if that happens, you're going to end up with a spot price. i don't think he shale producers are going to get a better price. the cartel could realize the higher price. i think that's exactly what the cartel wants. they want to change the structure. pressing shale production. you are realizing how much higher the spot price is. that's where this thing is coming. refininga potential spread of the cartel turns around crude oil. i think there is also a reduction and outside risk. there are three that to changing the structure of the market. that requires lowering rates and
board needed action. alix: it's great to see you. news.have some breaking then that is terminating talks to buy it. have more. just a few days ago, did not was committed to the deal. >> the financing one away. at --gannett really wanted to do the deal. pricead a handshake on a in the first week of october. both sides were in it. the money wasn't there. that speaks to the declining business of the newspaper nettstry in general and ga has tapped to banks. it's about a ilion dollar deal
for traonc. both bailed the middle of that the numbers. imagine theye to had an idea that there is going to be a continued decline the newspaper industry. if you can't go forward with this, based on my reporting from a few days ago, it's not much of surprised that they have decided we just can't do this. we've got to move forward and maybe we will look at other m&a opportunities. on thethis is a vote overall business of newspapers right now. what does this say about the nc.ure of tro the name will live on. >> everyone will be thrilled with that. they may not be in that bad of a situation. they come out with earnings today.
we will get a better look. have a certain business model in mind that gets away from your traditional newspaper. they want to get into monetizing content. they may have thrown in the towel on the traditional newspaper industry. in eyesmost people go wide open. that may be a bit of a pipe dream. there are fundamental problems with the industries are not going away anytime soon. it will be interesting to see if they look or other opportunities. gannett is. you may be a fan of the name, investors are not a fan of the stock. thank you so much, alex.
a morning meeting where we hear what key banks are looking at. we are focusing on foreign exchange. thanks very much for being back with us. let's talk about the u.s. dollar. he thought the dollar was strong. of the dollar's or its other end of the yield curve. it's this higher treasury yield. let's assume the data from the federal reserve meeting and the labor the park it -- department report on friday. that will get senate met up a few tense of a percent. it's not a big shift. yieldadual rise in u.s. is what's underpinning the dollar more than anything else. david: do you agree with the analysis about what's grinding the dollar higher? i think there is potential
from here. of whatbe reminded happened last year. the fed was preparing us for a december rate hike. the market was reacting to that in a very different way. we had a significant u.s. rally. curve not the yield steepening in the u.s.. we did see yields in the united states went higher because of inflation expectations coming down. rates,the fed was hiking the market was providing disbelief. this, theook into interest is steepening. real yields are not going up. you see that inflation expectations are covering the fees. ist means that financial
remarkably supportive. this is a major difference from last year. dollar has more legs to go. it's going to be a slower start, but it's going to last longer. that is a very important observation. david: talk about those inflation expectations. we see it strengthening and going up. jobs numbers this friday and we look at tightening job market picture, when the prospects in the united states? if you need to put the united states in an international spot, you have an economy that is closing. margins havee bond higher inflation rate. it's not like you have to expect
inflation to go through the roof and this will be a very bad inflationary environment. there's a reason why this is not happening. you have to look it inflation in the global context. in asia you have significant output. the utilization rate in china is following. they are falling in korea and tylan. -- thailand. we are ahead of an environment where it will widen in the year 2017. the fed may gradually increase rates and you have other central banks in asia where there needs to be monetary equity. that will create funds as agent uses its savings to invest elsewhere. they will very likely go into
the united states. alix: if the fed has a slow cycle, the dollar can't really rally that much. if you look at expectations for a fed rate hike for next year, versus where we are two years ago, there is not any more downside we can price out of a rate hike. hans: first of all, we have a very different rising in money markets. hiked,ar when the fed for the year we were pricing in additional 65 basis points. now we are putting in 22 basis points. this makes a fundamental difference. slow, the is going u.s. dollar wouldn't rally. slow for drive in the united states. on the other hand, both central
banks have more recommendations. the yield differential is going to widen. the biggest mistake is saying there is going to be a slow dollar. alix: great stuff. it's good to see you. coming up, new regulations of forest banks to be stricter in handing out loans. we will look at how bank lenders are taking advantage. this is bloomberg. ♪
david: this is bloomberg. i'm david weston. regulations of made the big banks hold more assets. bank holdings are soaring. lending standards are tightening. who is stepping in? -- the co-ceo is here. take us into this non-bank lending sphere that you specialize in. how big is it? >> 500 billion inside. it's small, but it's growing quite meaningfully. it started in the late 80's. there is a point where banks were the primary provider of capital. we stepped in and that became our core focus. david: what created the opportunity? why did that market develop? >> one a specialization.
the banks over time just weren't able to be consistent. a lot of them were in and out of the market. it's been very difficult post crisis with the legislative crack down on leverage lending. it provides a lot of opportunities for us david: the regulator said there was much more risk you we don't want the big banks having that much risk here in why is it not too risky for you? >> we have outperformed many others. high yield the that is risk year. returns have been greater in terms of the market. who is your competition? >> it varies on the deal. in smaller businesses, it's bacs and finance companies like ourselves. you are not in that business? others are and they tend to
play the smaller end of the spectrum. david: you specialize in a special part of the market area why did you pick that niche? why is that advantageous to you? it provides better outcomes. if you work with a company that has an existing managing team that is family owned, it's difficult to change. they are focused on emotional decisions. private equity firms are trying and resourcesy and people and they bring a lot of experience to the table. the outcomes are much better. we do it equity tag in a deal. it's very small. david: do you anticipate? we have been talking in here about non-bank lending. do you think regulators moving into more regulation in your area? >> it's always a possibility if
there are bad actors. most people are experienced and we find the market is more conservative than it was in 2007. as long as people are responsible, we will not have problems. david: you have substantial funding from pension investment. >> the candidate pension plan. seed: why is it that we pension funds from outside the united states get involved in financial transactions in the united states? >> it's a very strong market here. global markets are very challenge. when you look at our current aboutlio, revenues are up 10%. it's very strong compared to the global market. i think it's an attractive space to be in. david: thanks so much for being here. it's time now for other stories read here is emma.
short inzer came up the first quarter. estimates.missed that's the first time in more than three years. they had disappointing sales from pain medication. the company ended speculation that by decided not to split in two. there is a fraud case against valiant pharmaceuticals that could result in charges. the probe is focusing on michael pearson and howard schiller. they are looking into the specialty pharmacy that they secretly controlled. that hit -- profits missed expectations. they want to show that they have stemmed the banks losses and are on the way to restoring the dividend. they posted the first annual loss since 19 a nine.
david: it's time now for battle of the charge. lisa is going up against alix steel. lisa: i want to look at a chart that is getting attention. we are looking at flows in and out of the biggest investment grade corporate bond out there. this is the blackrock fund. you can see over here the past few days more withdrawals. these are notable withdrawals that have added up to $2 billion over the past week.
it's exceeding $500 million a day for three consecutive days. why does this matter? investors have fueled a number of mergers. that this may be coming to an end. little bitoing a micro. i am digging into what we saw from china. i am taking look at potential inflation coming. the blue line here is input cost. these input costs accelerated at the fastest pace since the timber 2011. this white line here is output charges. 2011, highest level since you have input and output costs rising. the deal is china is such a big global exporter and u.s.
purchases 22% of its imports, potentially we will see prices filtered through here. that is inflationary. david: that's great. i am going to go with alix steel. we are worried about china falling off a cliff. they are borrowing their way into success. hour, up the next of the we will talk about lawns. -- bonds. this is bloomberg. ♪
daybreak" on the first day of november. i am david westin alongside alix steel. let's take a look at the premarket. all morning long we have seen the dow jones and s&p 500 up slightly and the ftse has been up marginally, the dax down. the aussie dollar we have been watching because it is up nicely against the u.s. dollar. we also have the japanese yen weakening off the bank of japan, and crude is gaining. alix: here is what else you need to know at this hour. out of options? the bank of japan cutting its forecast. leaves its bank monetary policy unchanged and the fed is on deck. about two thirds of the companies on the s&p 500 are reporting earnings. we will look at how media and oil did. hillary clinton
preparing for a possible postelection day battle and both are deploying lawyers across the country ahead of the potential for a contested election. david: is a big week for central banks. we heard from the bank of japan and the fed begins its two day meeting today. the bank of england on thursday. joining us is michael mckee. -- caron and michelle meyer. you have got a lot of titles. welcome. let's start with michael mckee and look forward a little bit. we have the fed meeting and there is a broad expectation not a lot is going to happen but we also have jobs day on friday. take us through the rest of the week. michael: it is really about the election because all these things that happened will influence about how people think about the vote next tuesday, not the fed.
the fed on hold tomorrow. they do not want to cause any thes after james comey and fbi, they do not want to be in the same position. there is no press conference or there is no real reason they have to move. the data have not changed a whole lot and they can wait until december. on friday we are expecting to number,cent jobs 175,000 is the bloomberg consensus and that will move a little bit as we get some more data. right now, it looks like status quo, steady as you go for the fed so the markets can focus on the election rather than the fed and the data. david: there is all this hydraulic pressure for december because we have the gdp number coming in at 2.9%. if they get a decent jobs number is there anything that will keep the fed from moving forward? michael: know, they have pretty much promised they will move rates in december unless we get
some serious change in numbers. they prepped the markets for it. alix: three of the feds primary dealers think the fed will .ctually hold in december what do you see as a potential data point that could offset a hike? michelle: i agree with mike. i do not think there is much on the data front that will stop the fed from hiking. if you get a horrible jobs report, that is really an outlier and the fed will have to think twice, but they have laid out their path for a hike in december. they have communicated effectively. the market is pricing it in. we are talking about the trend in growth, and not just any single indicator. what could stop the fed is not necessarily the economic data, potential he some sort of craziness around the election could do it. without characterizing it as crazy or not crazy, it seems
not implausible that donald trump is elected. jim: it depends on what happens in the markets. the markets are not pricing that in. most statistical surveys are showing that hillary clinton is still around 70% favored. at present that is -- pretend that is what is priced into the market. if market -- if donald trump wins that could be a surprise to the market. i think there will be a risk premium attached to the equity and bond markets, but really the question is how long does it last? we have to cut through what it would really mean to have a trump residency for the financial market. these things are long-term and will not happen the wednesday after or friday, or a week later. these are events that could take place a month or a year later whether it is on trade or foreign policy. there will be a knee-jerk
reaction that we need to take it with a grain of salt. michael: what matters is how long the knee-jerk reaction lasts. how fast does the market come back and what is the damage to the economy? the other wild card, what if there is something in these e-mails, hillary clinton is elected, and that comes out after the election? the only thing that would deter the market is if something happened in the political world, or some unforeseen shock. at this point they are on track. david: i hope we'll know the answer by next tuesday night. let's talk for a minute about inflation expectations, how that might affect the fed's decision-making. we have a chart showing the relationship between inflation and unemployment. it shows there is a strong inverted correlation. the core cpi is inverted. that is the unemployment rate coming down.
as unemployment comes down and inflation goes up, might that affect the fed? jim: i think that is what the fed is looking at, price stability and full employment. we have strong employment or seemingly strong employment, and wages are creeping up a little bit. in theory that should mean some tightening of capacity and should push wages up and increase inflation expectations. i think that us what is behind the move in bond yields. alix: a great segue into what we have seen in the curve. this is the 210 year yield two, 10 year spread over by 1%. how much more inflation expectation needs to be priced into the market? michelle: i think there potentially is a lot more room to price inflation in because we have not really seen the divisive turn on the data.
we have seen hits of the yet aton but you are not a level that is consistent with what we have seen in prior recoveries of 3% and 4% inflation for wages. i think if the data really starts to confirm it, if we see decisive trend higher in realized inflation and wage inflation than i think you can get some moves in the market. alix: there are two theories, higher yields or hold off. jim: you could find sectors in the markets that have not performed very well because rates have been low and flat, for example financials and banks. thanks typically like a steeper yield curve -- banks typically like a steeper yield curve. you could just say do nothing, by tips, and hold on you that is not an optimal strategy. i think having tips in your
portfolio is a good thing to have that there are other things as well. david: when we talk about policy diversions, what about convergence and the slope of the yield curve? if we see a steepening of the yield curve in the united states will that necessarily affect europe? michelle: that is a good question and i think it ties into currencies, into the flow of assets across borders, because we know we are not a closed economy. we are not a closed financial center either. if you start to see inflation price in a little more maybe you start to see the data support that and the fed talk about the ability to go little faster, what is going to happen to interest rates globally and the policy divergence theme? the dollar starts to strengthen, that feeds back into the u.s. economy in terms of importing disinflation. we cannot think about the u.s.
in isolation. how it to think about will impact abroad and feedback into us. alix: take a look at the bloomberg. the bloomberg dollar index is that blue line, u.s. financial index is the white bars. as we head into central-bank divergence in december, what is the feedback loop from that stronger dollar to global financial conditions? michael: if the dollar continues to strengthen it is obviously going to have an impact on who gets inflation and who does not. we have not seen the dollar really push up on a sustained basis for a while. it was a little bit of a move and since the fed is only talking about 25 basis points it is probably less what the fed is going to do and more with the other central banks will do in 2017. the fed will probably raise in december and stay on hold while they wait to see what happens. i think the story of 2017 is going to be inflation.
with oil prices going up, labor markets firming, and the possibility of fiscal help in some countries, we could be talking about inflation much more in 2017. alix: michael mckee and michelle meyer. caron is sticking with us. turn into bloomberg television tomorrow at four clock p.m. .astern now for news made outside of the business world. emma: a new nationwide poll has donald trump pulling into the lead over hillary clinton. in the abc news washington post 36% tog poll trump leads 45%, the first time he has led clinton since may. there is a margin of error of three points. a pipeline explosion or and fire in alabama has caused the price of gasoline to surge. colonial pipelines carries
refined products to new york from houston. for the first time china has showed it j 20 still flight or -- fighter to the public at an air show in southern china. it closely resembled the f-22 raptor. china once do use stealth technology to turn its air force into one that can conduct defensive and offense of operations -- offense of operations. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. alix: u.s. equity futures clawing higher today, the s&p 500 up 2/10 of 1%. better data out of china in terms of pmi and nonmanufacturing, helping support equities in the u.s. and commodity prices. that is filtering through to some of the commodity names.
u.s. steel up 3%. copper futures up seven days in a row. iron ore futures are slamming higher and zinc prices are at a five-year high in shanghai. the other commodity i wanted to drill down into his gasoline. if we have the gasoline chart i can show you what has been happening. it is up by about 11%. and i was just talking about this. there was a pipeline explosion at colonial pipeline and that has disrupted supply from houston to new york when it comes to refined products. now if we can go into the bloomberg, i can show you in more detail what is going on. there are four lines within the colonial pipeline. one and two go from houston to north carolina. what is transported is gasoline and distillates. those are the two lines that are disrupted. all the way togo
new york and seem to be relatively ok for now. the question is, when did they start back up? barclays said distal lives can start back up into days but gasoline may be down for months as the line is repaired. where does the southeast get its feel from? you can get it overseas, by rail, or truck. you are missing 1.5 million barrels of product per day, and no where can you get that from shipping, trucking, or rails. david: we are going to stay on the subject of oil, the diverging world of oil majors. while shell'sde recent acquisition helps it beat estimates. how companies are dealing with the low crude price environment. , thetrouble for valeant doj is reportedly preparing a fraud case against the former ceo and cfo. we will bring you the details next. ♪
bp is letdown and shells earnings beat, a tale of two earnings. hit on all ends, downstream, upstream, revenue, not firing on all cylinders. lastt the u.s. integrated week and will get the european guide this week. what is your biggest take away? learningompanies are to do with this a little bit faster than others. the big winners have been shell and chevron. shell particularly because it is ontty much back to breaking
cash flows. it can cover its dividends and it is one of the only majors that can do that. chevron is still suffering problems in terms of overspend but they got through this pipeline of big projects, and have a huge position in the permian basin. alix: where does that leave bp? they spent so much time cutting their and costs that they are unable to grow -- cutting their costs that they are unable to grow. liam: you can see most of the majors are burning cash but they are getting their. if you go back a year, the big five, they were burning through about $16 billion in the third quarter 2015 and that has come back down to $6 billion. they have two problems, they need to get that even further
towards breakeven. the second thing is part of the way they are doing that is by not investing quite as much and that sets up a potential problem further down the line in terms of production growth. alix: especially when it comes to exxon. exxon is in shale, right? they technically did the right thing. they just got not the right -- the great play. liam: they did this huge deal in 2010 but a lot of that was gas and it was spectacularly mistimed, just before gas prices collapsed. exxon is having a big year for embarrassment. it lost its credit rating, did not replace its reserves and certainly does not look like it will do that this year. i have always traded a premium for the group and that looks vulnerable. alix: chevron is touting their permian but that is only about 6% of their output. what kind of valuation can expect? liam: about 1/5 of the market
cap. i think the best thing about the permian is something that can bring on quickly which helps them smooth out the production flow. alix: thank you so much. inpite having a steep loss october bonds are still set for their biggest advance in about 10 years. should you be buying any kind of dip? this is bloomberg. ♪
seems the bonds were going up and up and now they turned around. is this an inflection point for a blip? inflectionk it is an point. something that abruptly happened in september was a change in sentiment from central banks on quantitative easing and more negative rates. before it was thought the lower the rate the better. all of a sudden they start to realize there is a cost-benefit to low rates and when they go to low they start to hurt the bank. when he tried to return credit to the real economy, there is less profit. recession, doa you want to go into a recession with weak banks? i think policy has changed more in support of the credit creators. i could be a connection why inflation and inflationary expectations are rising because you get the velocity of money starting to move. when you start to support the entities that create those
transactions. i think that is what happened in september and it is somewhat unappreciated. it is hard to nail down every single step of this, but the market is telling us something. inflation expectations and yields are rising. data has gotten better. third two very different theories about why expectations are going to go up. one is central banks and the other is animal spirits. you are saying it is the former and not the latter, and that may have ramifications about the actual growth in the economy. jim: i am not wildly bullish. we have been struggling to get above 2%. could start to come together particularly as the credit creators find policy support. by credit creators i'm in the financial institutions, they have been under pressure and now
we are starting to see someone is a term. ,hether it is stocks or bonds it is the worst performing sector of the year and i think it will be the best performing next year, particularly if you get policy support behind it. alix: if you take a look at the bloomberg, this is risk parity. he owns 60% stocks, 40% bonds and if they are moving together, bonds go off a cliff and so do stocks. we are nowhere near where we were. but what we saw back in june 2013. why? jim: the market is very intellectually invested in the view that rates cannot go up very quickly, and it is hard to prove that is going to happen because where is the growth going to come from? and the inflation? nobody believes the rates can rise very quickly or bond prices can fall off a cliff, as a result other risky assets are staying in check.
if you look at equities, equity markets kind of taking this in stride and not looking at this with the same kind of alarm, and maybe it shouldn't. could 10 year treasury yields get to 2%? yes. 2.2%? yes. is it hard to make a case they could get much above that? yes, it is. the market is invested in the view that rates cannot rise that much gives you are not seeing the growth or inflation, will this be sustainable or just temporary factors? we need to see the markets believe this will be a sustainable movement higher in rate and you will see the risk parity chart start to move. until that happens i think risky assets will stay in check and this is good. rates going up shows that things are starting to really normalize and if other assets do well, perfect. sense it is good in the
it is stable but we put all of our eggs in the central bank basket here and there is a risk. jim: the way we look at this is through risk premia. the fundamentals in the market have taken a backseat toward the technicals in the techno. -- technicals classify as risk premia. why are yields so low? there has been quantitative easing. 150 billion worth of buying in bonds, all that is starting to go away and the rates will pop higher as a result. ca great to see youron,. the dow s&p futures up around the highs of the session ♪.
blowup in alabama, driving prices up. assets, we are seeing the japanese yen is unchanged. the yen had weekend after the bank of japan announced it was not going to change its policy. we have oil, oil is up to bit. opec i actually come through. now the market i think has formed up and we will find out what the actual trading is doing. alix: we see a little bit of allment to the upside, major indices up 2/10 of 1%, but it is commodities driving the rally. oil is recovering off the lows but gasoline has propelled itself higher. young backing up, 10 year -- yield up 10 days -- two basis points. that is leading to higher equities. the story of commodities is about gasoline, up 8%.
barrels a dayion of fuel products have been disrupted due to the colonial pipeline explosion in alabama, and there are no refineries from houston to new york on that pipeline. forare seeing a big boost valero, phillips 66 because there will be more demand for product. have you ship it, transported on rail or by truck? there will be a product shortage in the u.s. southeast. earnings a big focus in the equity market. in terms of where we are in the earnings season, i want to take a look at where companies are beating on sales and on earnings . the average sales surprises minimal, up by not even 1/10 of 1%, but the average earnings surprise is much higher coming in at almost 5%. we got pfizer reporting earlier. the s&p pharma companies, about 13 out of 25 have reported and it shows a lot of growth but
they are missing other estimates. earnings are about 12% year on year and sales growth up about 4%. david: there a bit of breaking news from general motors. 1.7%.auto sales fell the estimates were that they would be down 6.9% and this is part of a larger trend. the thought is that u.s. auto sales are peaking and coming down some, but they are coming down a little less than we thought. they beat their estimates on a decline in sales. now we want to turn to pfizer. earnings came up from pfizer after their earnings fell short of estimates due to weak sales from older drugs like lyrica. joining us from london is sam for zoe -- sam. talk about this they missed narrowly on their earnings that they are projecting they will be
doing better going forward. the they have raised revenue target for 2016 by just about half $1 billion. also obviously on the eps side have reduced their guidance because of this issue they have had with this clinical trial that i think is going to be the story here rather than the earnings, because the top line came in at a much flat versus consensus, the bottom line missed by a percent, mostly because of the older drugs rather than a key growth drugs. it is important when you look at one of these companies growing into the future. david: at talk about the older drugs versus the new drugs. it was thought that pfizer would be splitting the company and decided not to do that. did we learn anything from the earnings about whether that was a good or bad decision? sam: i do not think from today's earnings we will see much from that. the drugs that are called
established drugs or established health, it has shown some meaningful growth because of the addition of the business they bought. if you strip that out, the growth is not there. the point is, it is a cash generating business and this is a company that needs, and an industry that needs r&d. he thought perhaps it would not be the best idea to split that unit, and continue to use the cash for investing in r&d. david: what as an investor would you look at in their pipeline as the most promising new drug? sam: they discontinued the development of a product for raised cholesterol. that is a bit of a surprise and that is one of the reasons they have taken down their guidance for 2016 eps because of a charge they have to take. when you look at that product, why it took them so long so far in advanced trials to find out
it is not going to be competitive, that it has a side effect issue surprises me a little bit. really looking at pfizer's pipeline, the growth is still coming from their breast cancer drug with possible indications outside of breast cancer or within, still areas to grow into. there is significant drugs in development. it i like about their pipeline is a drug they have in development with mark for diabetes. -- merck for diabetes. that could be an interesting surprise. , thankthat is sam fazeli you. the news.ant is in u.s. prosecutors are building a case focusing on the former csl -- cfo and see ego. -- ceo. us, who andn for what is being accused?
in new york are taking a close look at whether there was accounting fraud at valeant, and this would relate to a specialty pharmacy with which it had close relations. this story broke about a year .go the company did a real test restatement of their earnings acknowledging they had not been done right in the first place, and prosecutors think there was actual fraud. alix: the company knew they were under investigation and they took a big hit. what was so surprising? elizabeth: it was not really that surprising. there have been numerous issues. alix: we have some like issues. m --ic issues. meal, what was new in what we learned? something they had disclosed before but it seems like the market may have discounted this, thought this
was something that would go away . a lot of people in the media have been saying, is valeant a buy? i think the story that we had yesterday indicated to the market that this is very serious. there are prosecutors in two other places also looking at different issues. valeant still has some very serious legal issues to face and of course the fines or penalties, settlements could be significant. alix: elizabeth, can you help us quantify what these kind of investigations mean for valeant? elizabeth: the biggest issue is the potential fines. they have over $30 billion in debt and most of it will be due in 2020, but they are running a very fine line between expected cash flow and what they can pay down in debt. any large amount the have to pay will severely cut into their covenant. is there a difference between what the company is
responsible for versus the individuals? elizabeth: what we learned yesterday was the investigation on two individuals, separate but valeant -- separate from valeant, but this certainly is not behind them. david: do we have any indication whether the company is cooperating? sometimes they will cooperate not to have the company liable. neil: certainly they are and have said that on the record and we expect that to be the case. as prosecutors find something has happened that they feel is criminal, they could still bring charges. obviously we do not know until things are decided by prosecutors what will happen, but it could be very expensive for the company. it could be a deferred or nonprosecution or something involving actual clinic -- criminal plea or charges. alix: the company versus the individuals, pearson is still working in valeant offices. what kind of relationship to the have?
we are just 11 minutes into the open trading today. about sevens up points, the s&p relatively flat, let the energy and materials stocks are leading the way. commodities have fought their way higher. abigail doolittle joins us from the nasdaq. abigail: we're looking at another flat open for the index following its first five day decline since the beginning or metal of june. benign that relatively surface, lots of movers. one of the big winners, wynn resorts after learning macau 7.7% revenue gained 23% -- 23 month living streak.
this could be auspicious ahead of the company's reports tomorrow. suggests theart near-term strength could continue. , asee a trading in a range tug-of-war between the bears and the bulls that we have a bullish consolidation pattern suggesting that shares could go above that range around $105 to $110 per share. ware's aftering missing -- worse after missing revenue by about 3%. their administrative cause nearly doubled after a recent acquisition. a bit of a rough patch for shire considering they are down three days in a row. david: not good news for them. now we are going to turn to publishing, the net -- gannett has dropped its bid for tronc. it would have put some of the
together.s. newspapers . set the stage. had gannett going after tronc and then they said we do not want it. alex: and then the financing fell through. problem happened when they changed the name to tronc. that offered a price of about 12.25. just a few months later michael ferro said no, that is not worth it and that raised eyebrows they just sold their shares and 8.75. at the same time they sold shares to michael ferro's friend for 15 dollars a share. besides keep negotiating and finally reach a price at $18.75 a share.
an agreement in the first week of october, gannett goes to get the financing. they were working with a couple of banks. they usually take a little more risk but maybe the money is not there, and they could not come up with the financing and the deal collapsed. david: in part because the banks want to make sure they get paid back. alex: correct, so in part it speaks to the health of the businesses. given that is not in great shape -- gannett is not a great shape and we will hear tronc's going forward plan but it is no question the newspaper industry is under pressure. time we broke our story two days ago and today they were looking at other alternatives, seeing if there were any other banks. they went to a few and were told no. they must have thought about some other structures per deal
and perhaps tronc decided none of that is worth it. we have resisted it up until this point and we finally have a price that we feel is fair. to some degree even if you are a tronc shareholder, you are not thrilled at this. share,ell under $18.75 a it is under $12.25 a share so if you are a shareholder you need to believe your company has a good ship -- a good plan to get over $15 a share. david: alex, thank you so much. we have breaking news, mark potter sales out from fiat chrysler. auto sales out from fiat chrysler. gm reported a much smaller decline. auto sales keep trickling out. discovery communications reported earnings just missing
analyst estimates. researchm securities estimate michael morris was on that call and is joining us now. they missed their earnings by a bit, what is the reason? michael: their operating profit came in generally in line, but the international businesses have been softer, both at the core and also with respect to the fx pressure on those businesses. that is probably the biggest difference you will see compared to street estimates with respect to operating results. david: when it comes to discovery, international revenues are all important because 48% or so of their business is international in their stock is trading down about 4.5%. much was fx as opposed to new growth? michael: i would say about half-and-half. you really had competition from
the olympics, challenges on the advertising side related to brexit. those are things the company has highlighted with respect to the underlying trends excluding the fx impact. about equal impact, but this is such an important part of the business. you mentioned a percentage with result -- respect to the operating results, but with respect to the story, the multiple, the international growth profile is the engine against investors excited so when you see weakness you have a bigger impact on the multiple for the stock. david: what did they have to say about subscriber growth or loss in the united states? that is something everybody is focusing on in the united states. michael: it is an interesting point and i think this has also weighed on the stock a little bit. a 2% annualabout decline in their subscriber base and that has been a relatively steady number.
i think the market has digested that being the trend for discovery and the overall. the interesting issue is the emerging over the top platforms that are becoming somewhat substitutes, i would say, for the traditional bundle. one of the most important is a product being launched by directv. to the extent that any of those subscribers are incremental to the pay-tv universe, it is great for companies like discovery. they revealed pricing is about a% what they receive from regular bundle. david: leads us right back to at&t which is also in the news. michael morris, guggenheim securities equity research analyst. alix: mark barton is here with us. what is the main focus on the show?
mark: we will be speaking to the global strategist at jp morgan funds and she will be asking the question, where is the revenue? where is the true topline revenue? then we have a bit of a young brands fast. we are speaking to the young brands. china asf yum! brands they make their nyse debut. they are losing market share in china. what can they do to stop that? and then a focus on bourbon. shortage,g bourbon did you know there was an ongoing bourbon shortage? should we be stock filing crates of bourbon? i will let our guests answer that. alix: mark barton, thank you so much. seven days until the u.s. election, how the clinton and trump campaigns are using the
alix: from key events coming today, 10:00 a.m. eastern will get manufacturing for the month of october, and after the bell we got earnings from steel and herbalife. the fomc meeting begins today. tune in tomorrow for the latest rate decision. david: and one week america will take to the polls. the department of justice yesterday sent a letter to congress saying they will work closely with the fbi to take appropriate steps as expeditiously as possible.
with us from washington is marty schenker, our senior editor for global politics. realistic any expectation we will know more about the e-mails before next tuesday? marty: there is not a realistic expectation. it is possible they could go through with some computer algorithm and make a determination that these are all duplicates and get it out before the election, but do not count on it. david: do we have any reason to believe that people are waiting to know what is in the e-mails before they vote or have they made up their mind? aware the people who are of hillary clinton's e-mail issue and supporting her are probably not going to be swayed. trump supporters who have given up on hillary are not going to be, or just going to be more convinced to vote for donald trump. the polling this morning suggests there has not been a lot of movement one way or the other since these revelations.
there will be more polling coming out in the next couple of days. the race is definitely tightening but that had been projected and that was going on before these revelations. david: if you are hillary clinton or donald trump, what do you need to do to get out your votes? .arty: that is the simple thing you have to identify who your supporters are and get them out and vote. clinton'snse, hillary ground game as they call it, her on the field people and offices around the country is much better and more extensive than donald trump's. if he is just relying on an air game to get the vote out it is going to be interesting to see if he can do that. david: what about social media, is it playing a large factor? marty: it is playing a large factor in donald trump's campaign but as many note he has had a hard time getting over 40%
numbers in the polls around the country. that may be the ceiling for what social media can do. in that sense this may be more traditional, identifying your supporters and getting them out. schenker,t is marty senior executive editor for global economics. alix: we are about 25 minutes into the trading session, the s&p flipping into negative territory dragged down by the proxies. take a look at other asset classes, it is the bond market selloff continues, 10 year yield backing up by five basis points. that does it for us. ♪
vonnie: we are going to take you from washington to shanghai and cover stories of new york, the u.k., and australia. u.s. data on economy is popping. julie hyman is with us now. 51.9 it, that is roughly in line with what was estimated. it's a small increase from the prior month. the component rises to 54.5. we are seeing an expansion. anything above 50 is expansion. we don't see much of an expansion. we see stocks that have been little changed. that is continuing at the moment and we have seen this trend in recent days. if there is any game today, it will be the first in six sessions.