Skip to main content

tv   Bloomberg Markets European Open  Bloomberg  November 3, 2016 3:30am-5:01am EDT

3:30 am
manus: good morning and welcome to "bloomberg markets." i have the first trade of the day. or, caroline and i have the first trade of the day. caroline hyde is over in berlin. what are we watching? summing up the fed's holds fire. will december see a hike? brexit gets its day in court. at 10:00 a.m., we look at the
3:31 am
ruling on whether theresa may can trigger article 50. and the ceo of credit suisse, good news as the cost-cutting push continues. will investors be convinced? caroline: that stock was called higher. as our number of swiss companies. -- as are a number of swiss companies. it is a down day on the futures market. 30 minutes now until the market open. %. are called down t2 manus: let's walk around the gmm. bloomberg dollar index, down 2%. the japanese yen, trading higher this morning, up by about .6%. the kiwi is up and the swiss franc has been moving over the last few days. it looks like we are going to
3:32 am
see a softer open this morning. some individual stocks could rise. but stocks were down yesterday. it looks like we are focusing on the election. yes, we have got governor carney on deck today and a big decision out of the u.k., but it really is about what is happening with the u.s. election. let's have the bloomberg first word news. reporter: thank you. credit suisse has posted a surprise profit in the third quarter. net income fell to 31 million analystancs, but it be forecasts. this comes as the ceo tidjane thiam continues to cut costs a nd eliminate jobs. from have eliminated 40% the previous year. we think that is a very strong performance. we think we will drive costs down.
3:33 am
we are well on track to beat our 2016 target. societe generale has reported a third-quarter profit that exceeded estimates. speaking exclusively to bloomberg, the company's ceo explained how the lender is doing with negative interest rates. >> this is the kind of magnitude based on the business, which is around 8 million euros. it is in hundreds of millions of euros. as i said, we are able to post a relative profitability because we are transforming the market. and of course, we benefit with more customers. prices andeclining low interest rates hurt income from investments.
3:34 am
the world's second-largest net income fell to $1.8 million. they also announced plans for a share buyback of up to $1 billion. we will be speaking to the cfo at 8:45. egypt's central bank said it would raise key lending rates by 300 basis points. the announcement is part of a series of measures designed to tackle a hard currency shortage and restore investor confidence in the economy. $12 billionking a loan from the imf, which has said publicly the government should act on the exchange rate. and the chicago cubs have won their first world series in 108 years. they beat the cleveland indians longest drought in baseball.
3:35 am
global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries around the world. this is bloomberg. caroline: thank you very much. now, today is bank of england's super thursday. mark carney is faced with a new set of brexit problems to solve. senior judgesneio will rule on theresa may's plan to trigger article 50. the ruling will be issued at high court at 10:00 a.m. u.k. time. let's get straight to nejra, joining us from the bank of england. what are the emerging, perhaps, fires and challenges for the bank of england? nejra: yeah, it is freezing. so, economists are not expecting any change to the key rate today. they are expecting the bank of england to keep it at 0.25%, but
3:36 am
to upgrade the growth and inflation forecast. since the last super thursday in august when we had the rate cut in the bank of england signaled we could get further cuts this year we have had better than expected growth and the weaker sterling fueled inflation and the inflation expectations. if you look at the 10 year breakeven rate, we are at almost a three-year high. the challenge will be for mark carney to look ahead and really keep options open. we could see more rate cuts next year if growth deteriorates. with rising inflation another challenge that comes with that is the impact of brexit weighing on productivity and making more difficult for the bank of england to look past that higher inflation. the market is pricing in more probability of a rate hike than a rate cut. manus: arguably the most
3:37 am
significant event today will take place up the hill, what is happening with this court ruling surrounding the triggering of article 50. how carefully do we need to be watching that? nejra: well, we certainly need to be watching it carefully when it comes to sterling. we could see a little impact higher if the court and the three judges rule against the government. now, the reason of this is of course, if mp's do have to vote on the trickling of article 50 we could see that process delayed for months, even more than a year. which ever side loses, they are likely to appeal. we are going to get that appeal heard in the beginning of december sometime and the decision could then not come until january. either way, a little bit of uncertainty in the short-term, but if we do get a ruling against the government, there could be some expectations of a softer brexit, or at least that
3:38 am
delays, which could push sterling higher. manus: thank you very much, nejra. nejra, mentioning what is happening with the position on sterling. this chart shows you the data relating to what is happening with sterling. we are off our lows, but still very short in terms of the positioning with the bank and the court decisions today. .oining us in the studio, kate i want to turn to another chart, the next one in line, which is growth in the u.k. and inflation. which one of those should i be worried about more? >> i suspect the one is growth. we saw ahead of the brexit vote the mpc was spending more time talking about growth. they gave this great warning we would see growth slowing if we voted to leave the european union. of course, we did vote and the
3:39 am
growth in the short-term proved better than expected. there are many indications that growth will slow, investment expectations in particular. expectations certainly are down. i think most people would expect growth to slow next year. that is what i will be most interested to see out of the forecasts today. we know they will forecast a stronger second half, but they cannot ignore inflation. it is supposed to be their target. anna: we heard from nejra outside the boe, saying the market could be pricing in a likelihood of a rate hike next year. would you therefore think that is the wrong course of action, or that the market is wrong, given that the boe cares more about growth? kate: well, i was very opposed to them cutting rates at all in august, but for very different reasons.
3:40 am
so, in some sense, whether they raise or not, i don't think that will make a great deal of difference to the economy. i am not sure that people are right to be putting in a rate hike. i am sure the bank will adopt the policy it did in the early part of this decade when they look through a very big rise of inflation on the back of higher oil prices because growth was weak, and there were no signs of inflation feeding into the labor market. we could see inflation feet into thd into the labor market today. migration is one of the factors that helps keep wages down in th e economy. the second reason is the market is a lot tighter than it was then. of course, it is tighter today. there is a slowing of business investments, and the leabor market could slacken off a li ttle bit. manus: how is the inflation
3:41 am
story working for me at the moment? we have the sterling story, and the labor market to keep an eye on. as you look at what we should be focusing on, is there data we focus too much on, such as the sterling depreciation, and not enough on the output gap? kate: i pretty sure the bank will be focusing on how much is occurring in the economy. -- there is very little prospect that we would see rates going up, unless it would feed into wages. thanages are tighter they were during the previous period when inflation was higher. but consistently for about a decade or so, when i was on the mpc, we did not see inflation respond. we willpretty confident
3:42 am
see conditions in the domestic economy. manus: let's focus finally on what is happening up at the high court today. the volatility surrounding sterling is something that must be difficult for them to model. kate: it is hard for them to model. unless they will see a second referendum with people voting the other way, which i think is pretty unlikely. the truth is, all you are doing is delaying something and making life for the companies potentially worse. because the companies want to know what kind of brexit we have got and how trade will progress. i don't think they want this process to take longer and longer. manus: kate, stay with us. we need to talk about what is happening on the other side of the pond as well. kate barker, former member of the monetary policy committee. the rate decision, along with
3:43 am
the growth and inflation forecasts. followed by mark carney's news conference, which will come 30 minutes later. anna: coming up on the show, hikeederal bank hints at a next month. is a december move guaranteed? later, we hear more from the ceo's of credit suisse and societe generale. plus, we speak to the ceo of s wiss re after profit falls in the fourth quarter. income, but it managed to outperform the market. this is bloomberg. ♪
3:44 am
3:45 am
3:46 am
welcome back to the european open. minutes into that open. but let's turn our expectations to what is happening over the pond. the federal reserve left interest rates on hold at yesterday's meeting. minutes into that open. there was no press conference, but the fomc's statements that only some further evidence on inflation and employment was needed before a move. two of the three officials from the september meeting stuck to their guns, though the boston fed president decided to support the decision.
3:47 am
joining us now is kate parker, former monetary policy committee member. it is interesting, we have on one side, the belief that rate hikes are likely to come in december, but the dollar is weakening. what is more important for the u.s. assets at the moment, the election, or the fed? kate: in the short-term, it will be the election. we have known about the fed for some time, and it is not a surprise that they are coming around to a rate hike in december. it is interesting they are prepared to signal that ahead of the election results. i would think they would throw the economy into some confusion. also, about how much influence donald is going to be able to carry. i don't know how many in the republican party would support him if he was going to produce some of his more extreme policies. he clearly is limited to what he can do on his own. there is a lot of concern as to
3:48 am
what might happen in terms of foreign policy. of course, it might be that the elected donald trump would be different than the donald trump running for the election. it could turn out to be a better and more calm influence on the market. nevertheless, i am pretty confident that is what people are focusing on today and i think it is brave of the fed to singal ahead of the election results. manus: they are very cautiously signaling. kate: and i think rightly. one thing i learned on the monetary policy committee, if you signal too much, the trade will move against you. manus: how different would the world look, though, under donald trump? he has suggested that we need a significant fiscal push. hillary clinton has suggested this as well, but donald trump would likely be back by both houses of congress. do you think therefore, from an economic point of view, a big
3:49 am
have bigl push would effects? how to change the landscape? kate: i think it would be a reasonably good idea, but at the moment, the passion has really shifted everywhere. actually, all government positions are pretty awful. i have a few that they will have to start turning down. i would be rather concerned about a big fiscal push. what worries me most from the global economy point of view with a trump election is what he does on trade. already, we have seen the brexit decision that would suggest some kind of retreat from the global trade. if the u.s. pulsls back as well, then those who argue the really market, it is distracted. that is the price we pay for ignoring the fact that there are big groups that have been paying the price for liberal trade and
3:50 am
we have not bothered to look after them. manus: that is interesting. and they can do that all with executive privilege. thank you, kate barker, former monetary policy committee measure. edna kenny has warned that break the negotiations could get quite vicious. -- warned that the brexit negotiations could get quite vicious. there will be a ruling today on whether theresa may will need to get the approval vote to trigger article 50. clearly a lot of uncertainty and difficulty when you are trying to run a financial firm based in london right now. can i get a sense from you as you talk to financial firms on both sides of the irish sea, what they are seeing at the moment, and whether they are more hesitant then we first envisioned they would be in terms of leaving the u.k.?
3:51 am
>> they want to enhance their trade relationship with the u.k. so, trade is going to continue between the two islands. but i am also meeting with companies who are trying to plan ahead to see what options they would need to have outside of the u.k., depending on what kind of brexit we would have. it is a very uncertain time. manus: what are they saying to you? >> they are asking if they would have certain rights after the brexit, whether it is passporting. where can they get that access, and where would be the best location to go if they have to leave, or move certain elements outside of london or the u.k. anna: great to have you on this morning. what are you thinking in terms of the competition potentially, friendly that what might be, between dublin or frankfurt here in germany, or it might be paris, giving you any sign that dublin might be the priority in terms of where they might move? >> i think it is still too early
3:52 am
to know where they will move. of course, companies are looking at ireland in dublin as well. we think because we speak english and we have the same, lawommon jurisdiction, we have a lot of related ability. --we have a lot of relatability. have you had any pushback because of the apple ruling out of brussels? >> i think it is important that that was a decision made in terms of one company. the government, they claimed, gave a special deal to apple. we do not give special treatment. we are appealing that ruling to the european court. caroline: how are negotiations ongoing with you in that respect? are you expecting more technology to continue to build
3:53 am
within dublin? where will you see the sectors move the most from the u.k. into ireland? >> we have been a gateway for technology companies out of the u.s. into europe. we are trying to position ourselves as a gateway for the financial sector as well. but people are still doing contingency planning and the negotiations have not commenced yet. but we are seeing a lot of interest because there is so much uncertainty and companies have responsibilities to their customers and shareholders and they need to make sure they are planning had so regardless of what might happen they are ready to move. manus: our tax rates in any way important? when you walk into the room and say, these are the reasons you want to move to ireland, is the whole fiscal package something
3:54 am
you are putting on top of that list? >> it is a consistent reason and transparent, but we have about 187,000 jobs. often i find myself talking about cuts. 35, welook at the age of have more people employed than anywhere in europe. we are asking if these people would be suitable for the company is coming to ireland. we are seeking to make sure we are filling skills, so should the company's move across, we have the skills to fill those needs. manus: we are minutes away now from the european equity market open. we are watching the financial stocks this morning. we have been talking to the minister of credit suisse. that stock is called up. remember, markets are called down this morning.
3:55 am
any of these stocks delivering on the upside today, that is a decent performance. socgen, we will walk you through that as well. we will wait and see what they deliver, bhey are in an interesting place right now. we will talk about that in more detail. let's talk about footwear. what is happening with swiss re as well, because that will be a stop we want to watch later? caroline: swiss re will outperform the market as well about 2%. they are beating expectations, but not by as much as was expected. overall, we can see $1.2 billion brought in. on the other side of things, they met expectations, but they traveled too far in terms of share price and it could fall on the back of a weakening market. as a mentioned, we will be speaking to the cfo, david cole, later this morning for his first interview of the day.
3:56 am
time.s at 8:45 u.k. we will be digging into the trends. how long will those yields going higher last? , it is the market open. futures are lower. this is bloomberg. ♪
3:57 am
3:58 am
3:59 am
guy: i am here in the city of london. caroline hyde is over in berlin. moments away from the start of european trading. caroline: summing up. the fed hints december will see a hike. its it all about the election? brexit gets its day in court. the court rules whether the prime minister can trigger article 50.
4:00 am
ceo delivers good news as his cost cutting push continues. will investors be convinced? guy: plenty to think about this morning. we are called low, but not by much. let's take a look at the bloomberg and show you what the open looks like this morning. you can see that fell off into the close yesterday. another leg lower during the auction. we're expecting these lines to move down. the ftse 100 not down by much. the market taking a more positive view of the world. there goes the cac. markets now softening up a bit. let's get the details. big moves in the gilt market. anna: we talked a lot about anxiety around the u.s. elections, how that's playing into market sentiment. whether that is in equities are fixed income markets.
4:01 am
it remains very relevant today. let's talk about where we are seeing the gilt markets opened up. a little bit different to yesterday, although no great change at the moment for the gilt markets. in recent sessions we have seen increased appetite for fixed-income, less appetite for equities. as a result of the latest polling that has not been working in the favor decreasing the lead of the continuity candidate, hillary clinton. let's talk about where we are opening up on the equity markets. looks as if we are weaker across the european equity space. no surprise there. we're down by 0.2% on the stoxx 600. utilities down by 0.4%. more appetite for some of the more resilient sectors, perhaps like health care. utilities is down. let's get to some stock specifics to show you where
4:02 am
these potential movers are going. we've got credit squeeze down by 3.5%. that is as the company reports suissebers -- creiddit reports a surprise profit. a challenging outlook. the ceo says they are on track in terms of cost-cutting. schroders is down by about half a percent as we speak. this is europe's largest publicly traded asset. adidas taking a moment to decide where it is going the is morning. is that and enough to boost the stock? no, it isn't. down by 4.7%. a company that has downgraded its guidance four times this year. guy?
4:03 am
guy: thanks very much, ineeddee. a realdit suisse is surprise. only calls were that the stock would be higher than expected. the market is down. on what is heads up going to be happening today in the u.k. cases, decisions coming out of the bank of england, press conferences, data. joining us now to get a handle, the head of the u.k. macro rate strategy and economics at ubs. also the ceo of -- asset management. good morning, gentlemen. we have watch the gilt closely closely since brexit. carney have to do to
4:04 am
calm the market down a little bit? >> i think most of the recent moves since the beginning of october has been a variety of factors behind a but one of the main ones has been the question about the future of q.e. and inflation. what the rank of thing that will try and do it strike a balance between on one hand reassuring the markets that they are very focused on inflation beyond any potential near-term flareup, but at the same time, reiterating weak growth forecast for the next year or two and if that unfold on depending on what is going on with inflation, they stand ready to do more q.e. if they can get that message across, the selloff will carry on reversing as it was yesterday. i'm going to divert our attention from the u.k. and look across to egypt. unprecedented moves coming in currency.ts the devaluation of the egyptian pound is seeing an 8.3% jump in egyptian stocks. they have also been making
4:05 am
changes at the central bank on thursday. basis point increase to key lending rates. interesting we are talking about the pound to egypt and changes to monetary policy. we will bring a back to the u.k. pound and changes in monetary policy. give us what your view is. the set up you have seen -- the sell off you've seen in u.k. gilts. yesterday we saw yield snapback -- several basis points. >> i think the markets are going to continue to be very volatile with respect to gilts. gilts are the ultimate safe haven. so, everybody says. but the reality is investors are not keen to own them when they have been so expensive. i think moves in sterling also have a significant impact on how people are feeling about holding gilts. i would not be surprised to see yields go higher in the current environment, irrespective of all the uncertainty as we get
4:06 am
clarity from the election, a bit more clearly on -- clarity on today's court hearing and whatever carney has to say about growth. we are not expecting any changes to interest rates going forward for quite some time. that will provide some stability in the gilt market which is what everybody is looking for. are people viewing the market? you talked about the court case. incredibly hard for a market to judge. the court has not even released a statement it is so nervous. the politics into the mix, we don't understand the politics surrounding article 50. you put them into the market and price that market. >> they are separate the connected things. we talked about the growth of
4:07 am
inflation. that is being affected significantly by the weakness of sterling which itself is largely driven by politics and the events of recent months in the u.k. the data has not done anything one way or the other, really. yet, he we are with sterling 20% lower. that tells you the politics or the impact of all political exit situation is affecting everything. i think in terms of the court case, the triggering of article 50 and everything else, and in market,ext of the gilt what people are desperate for is some sort of clarity over how the process is going to unfold and when. so, if the court case can give us some resolution on that, there will be a degree of relief, but clearly there is a lot of uncertainty. guy: gilts, treasuries and it is re-based and in dollars. it strips of the currency effect we are seeing. for foreign investors, they are underwater on treasuries. -- on gilts, sorry.
4:08 am
when you look at the u.k. you are saying, i'm making a bet today, tomorrow or 10 years down the road. ofit depends on what sort external investor you are. this makes an important point. they are far more sensitive to the currency than they are to shifts in yields. their view will be colored by what they think sterling is going to do next. it was a crisis when sterling fell 13% over 18 months. ended, they came back and started buying in record amounts. that was a currency play. here, as you show, they have lost money in local currency terms. if and when they think stirling is stabilizing, that may change. caroline: how much are you looking at the fiscal side of the equation, as well? all eyes on monetary policy.
4:09 am
we expect that fiscal spending will go up. but before anyone cared about u.k. gilts and trimming the hopes wenow is it all will see some physical impotence and will that caution you or inspire you to buy gilts/ ? >> it would caution me. fiscal spending is a very good way to finance growth. as you get growth, gdp numbers improve. you get the change in interest-rate policy to support that as well. so, i think fiscal spending and also bank lending are very supportive of gdp growth, which is supportive of equity growth in this marketplace. but i think the comments being made are important. the move we are seeing is more to do with currencies and more to do with investors not feeling confident about what is going on in the u.k. that would traditionally going to gilts. if they are holding gilts and sterling depreciates, then the
4:10 am
argument for holding gilts is it used to bp i suspect it is more to do with the currency play. fiscal spending is very important if that does increase. that funds growth and we start to see numbers improve. guy: can i ask you a quick question about linkers? prices are elevated at the moment. when i look at how i should judge the u.k. inflation picture, though, at the moment, how do i do it? sterling massive factor. but when i look at the output gap and where employment is and how wages are going to develop, growth is going to be a factor for the bank of it went. how do i read the inflation picture? >> we would split the yield curve up into different sections. at the shorter end, there is a reason why break evens are rising, which is people want inflation protection because we are likely to get a spike, a significant one, in inflation over the next two or three years perhaps.
4:11 am
the bigger question when you move further down the yield curve is what comes next? this is where we come back to the bank of england trying to strike a balance. one thing are worried about is if we have a weaker labor market going forward which is a possibility as companies become more defensive in a world of high uncertainty, wages are likely to decline or cool down. at the same time, inflation is going to spike. the consumer is going to get squeezed on real incomes. therefore, domestically generated demand is going to following. one the impact of the pound inflation comes out, it is likely those medium-term inflation pressures will grow. break evens further down the curve should be lowered. guy: it is a pleasure as ever to see you. thank you for spending so much time with us this morning. yogi will stay with us. plenty more to come before the open. credit suisse surprise. we spoke to the ceo about earnings and ongoing cost cuts.
4:12 am
we bring you that interview next. then we will talk the outlook for insurance and uncertain times. we will speak to the cfo -- at 8:45 london time. courts overshadow carding. we discussed the potentially monumental discussion on brexit. that's all to come. this is bloomberg. ♪
4:13 am
4:14 am
4:15 am
setting aside features which fell, the stoxx 600 is in the green. function.the mrr this breaks out where the stoxx 600 is moving. currently up 0.2%. the dax in the red. here is shows the winners and losers and you focus in on the upside. seent lile up 6.5%, as we first-half revenue in line for adjusted revenue. soc gen doing pretty well. profit down 2% but better than expected higher revenue on traded. they saw trading revenue up 42%.
4:16 am
not so true for credit suisse on the down side. they raise the limit on possible losses from or litigation. a maximum 2.6 billion swiss francs. the stock down even though the numbers beat for the third qu arter. adidas, the margins not looking so strong. guy: swiss market is underperforming on the back of what is happening. credit suisse the story there. i urge you to take a quick look at what is happening with the swiss franc over the last few days. let's see what is happening in egypt. soared after a decision to devalue the egyptian pound. our middle east anchor his onset, which is great timing because he is here in london, not in dubai. tell me what is going on, walk me through the story. >> we have been waiting for this
4:17 am
for a long time. the egyptian authorities coming through with the devaluation. the latest we know is they will hold foreign currency auction the rate atl put 13 against the u.s. dollar. you can put this up on the chart and you can see the egyptian pound spot rate is there. that is the white line. we also circled the, the red circle sis the first devaluation. the blue line is where the foreign currency auction is going to be at. after that, it will be driven by supply and demand. it could go even weaker. as a reference, we added the twelve-month non-deliverable. you can see much more to go in terms of potential weakness. guy: what is happening with the world bank and the imf? how embarrassing is this? >> it has been a tough road. downkeep kicking the can
4:18 am
the road because the political capital that is lost a move like this is immense. there is concern that there could be unrest in egypt as well. as you pointed out, this is all part of an attempt to try to lock in that $12 billion agreement, the loan from the imf. as part of that agreement, the understanding is that they would move on subsidies and move to liberalize their currency. christine lagarde said it would be a matter of weeks. has lived up to her word. we saw the central bank moves finally after we heard whispers over and over again, then they kept extending it. now finally, it moves. investors reacting positively to that. we have to see whether this fixes the us..s. dollar shortage which has been crippling a lot of the companies there. guy: we will continue to wah what is happening in egypt with a great deal of care. caroline: credit suisse really down hard this morning, one of
4:19 am
the worst performers. this as we saw it beat on the profit side for the third quarter. there is breaking news they look to be raising the limit a possible losses from litigation, so they could possibly see losses of 2.6 billion swiss franc. now down by 4%. as we see, we did actually notably see net income fall overall, but it was a surprise profit. the ceo did indeed speak to us earlier. he's pushing ahead with cost-cutting measures. his plan is on track, he told bloomberg. >> we have now collected 31 billion swiss franc -- this year, up 40%. up 40% on the previous year. we think that is a strong performance. we said we would drive costs down. we are well on track to beat our 2016 target. caroline: still with us, the tv executive of -- chief executive
4:20 am
of hassan -- litigation risk is obviously important. the real issue is we are in a lower interest rate environment. there are nonperforming loans out there. these are all having a massive impact on bankat have been beaten up for many years. you look at the 2007 peak. banking stocks are down over 70% from those levels. so, it is not surprising that everyone is expecting good numbers and surprises from the banking sector. because they are so beaten up. here what we are really looking for is a good revenue story as opposed to a cost-cutting story. we're looking for good guidance. again, if we are not getting that information, we are not getting clarity around things like brexit and interest rates going up, banks take a hit. there is also a massive amount of speculative activities,
4:21 am
particular european banks. everybody is so negative at the moment. 's interesting, you ieldthis low ye environment. we have got the yield rising and we saw the ftse 350 rising with it. how much do you see yield continuing to rise and painting a rosy picture for banks going forward? >> yields will slowly start to creep up interview because they safe haven trade for quite some time. investors have been allocating huge amounts of cash to this space. the bond market essentially has been in bubble territory for quite some time. there is an expectation that rates will go up, and a forex go u, banks become more profitable -- that rates will go up. if rates go up, banks become more profitable. is really quite a negative environment, despite yields creeping up for banks.
4:22 am
they need to start seeing interest rate hikes taking place before the become more profitable. bank lending is a big part of gdp growth. in the macro story that everybody is looking for over the next year, two years or three years. guy: how vulnerable is the european banking sector? i was talking to steve risen, yesterday in his view that lot of leverages come out of the u.s. bank system. it is much more stable but he cannot say the same thing about europe. >> we're actually quite concerned about the nonperforming loan figures. figures banks -- with around 5%. in italy, it is as high as 18%. in the u.s. it's 1.8%. we know there is a big problem with nonperforming loans and european banks. the ecb have try to provide lending to banks. they are using this capital not to lend out but to firm up their
4:23 am
balance sheets because of the nonperforming loan angle they actually have. so, this is problematic. it is very hard to see them make money if they are not lending it and interest rate are so low. and this is the problem at the moment. nobody really wants to take the risk of investing in these banks with so much uncertainty. then we get the numbers coming out, earnings look good from -- a low base level. but the reality is most of it was cost of an. -- cost driven. and that is not encouraging for investors. guy: right. let's pivot to the united states. the election is coming up, less than a week ago p still do not know who will be the president of the united states. it is quite an asymmetric story in terms of the risk the market runs. tell me how i position myself in advance of this. it's so difficult to understand what the politics look like right now. how do i get some stability into my portfolio? >> for stability right now, there are so much uncertainty about who is going to win.
4:24 am
i remember there is an air of around 3% either way when it comes to sampling. telling usren't anything. in this environment, you have to start taking risk off the table. and that is what we are seeing. u.s. equity markets down for the seventh day in a row. european markets down for the eighth day in a row. everybody is taking risk off the table slowly but surely. they are not going into the bond markets. yields are creeping up. they are just holding cash and waiting to see what happens. that is all you can do in this environment. cash, reduce risk, sit on wait to see what the outcome is next tuesday. anybody that things we're going to get a very definite outcome on tuesday next week is very optimistic. because i suspect whatever the outcome, it will be contested. once it's contested, things could take longer to filter through before we see exactly what is going on. now, the really of the situation is how do you position yourself with a trump or a clinton victory? wins, markets will
4:25 am
selloff. if clinton wins, we will likely get a relief rally short term. the dollar will behave differently as well various sectors, as well oil and other asset classes, too. caroline: once the dust has settled and it is clear who has won, a clinton or trump, give us one sector or one asset class that you like if clinton wins and one if you like if trump wins. >> the obvious sector to live it is financials. if you invest in financials with a clinton victory you will likely do well because interest rate hikes will be built forward rather than take now. will be ains, there lot of uncertainty. the interest rate hike will be pushed out well into 2017 and financials -- guy: there a lot of people telling me the opposite. the financials would do well under trump because he will change the regulatory story and
4:26 am
they will not do well under hillary clinton, if she gets a full suite and is able to start changing some of the legislation surrounding the financials. >> i think financials are more likely to trade around interest expectations than before any structural changes that will take years to play out. you're looking at a sector that is already quite beaten up. valuations look interesting. expect the move is more likely to be geopolitically driven, interest-rate hike expectation driven than any other factors. some sectors say they are going to be immune from whether clinton or trump wins will be technology. it looks really interesting. whether clinton wins or trump wins, the technology space will continue to do well in the u.s., particularly if it it is a domestic u.s. story. lookingstic economy is robots. you look at gdp growth, inflation and the unemployment picture all looking good and encouraging -- the to mystic economy is looking pretty robust. -- the domestic economy is looking robust. guy: coming up, we will talk
4:27 am
about the financials. back in focus is some of europe's major lender's posting third quarter earnings. will discuss what is happening in your. that story next. this is bloomberg. ♪ . seeing is believing, and that's why
4:28 am
4:29 am
we're opening more xfinity stores closer to you. visit us today and learn how to get the most out of all your services, like xfinity x1. we'll put the power in your hands, so you can see how x1 is changing the way you experience tv with features like voice remote, making it easier and more fun than ever. there's more in store than you imagine. visit an xfinity store today and see for yourself. xfinity, the future of awesome. speed always wins. especially in my business. with slow internet from the phone company, you can't keep up. you're stuck, watching spinning wheels and progress bars until someone else scoops your story. switch to comcast business.
4:30 am
with high-speed internet up to 10 gigabits per second. you wouldn't pick a slow race car. then why settle for slow internet? comcast business. built for speed. built for business. guy: we have been trading for 30 minutes, what to talk about a couple of banking stocks. let's talk about credit suisse. this is the stoxx 600, credit squeeze down 4%. the outlook statement at what is happening in terms of the litigation that surrounds this business causing concern. credit squeeze down 4%. socgen come a 4.740 not to be
4:31 am
sneezed at. the company reported third-quarter figures that beat expectations, net income down on the last year, falling 2.4%. we have been talking to the bank's ceo, about the industry challenges including negative rates and how hard it is to reach their r.o.e. target. >> we set the timbers and would be difficult because the capital base has increased. i would like to say that at the at of the day we had a ratio 11.4, the fact you have a return on equity above 9%, it is something consistent with subjective. going forward, we have to work to ensure that it is a stable and it shows that we are not that far from the subjective.
4:32 am
you are confident you can percent will be reached early next year? >> that is what our shareholders are expecting given the cost of capital, yes. we have showed we are delivering step-by-step to meet this target. cost of negative rates in europe for a back like bank-- back like this -- like this? managing the net interest margin, difficult to pass the clients, in particular, the fact we have a lot of deposit, we have to put them in the central bank at -0.4%, it costs a lot and beyond this, the fact that the curve is flat means that no more revenue in terms of transformation, technical but that is what the transformlly do do
4:33 am
short-term deposits and long-term assets, it means less interest margin. thanks to the development of new fee driven activity and we are harboring a lot of new plans in france make me confident in the long-term capacity of the return in france. the rest of the activity are more immune from that rate or outside the euro zone's of not facing the same impact of negative rates. rates aree interest costing them several hundreds of million euros, is it less for you? >> the kind of magnitude based on the business around 8 billion euros. practice, it is in hundreds of millions of euros and not dozens of millions of euros. we are able to post profitabity because we are transforming the network.
4:34 am
we benefit from the good credit which means a low cost of rates. >> that was the ceo. joining us now is carsten brzeski. -- hundreds of millions it is costing socgen negative rates at the ecb, is there a light at the end of the tunnel? so, in i do not think think the ecb continued qe and we will stay in the low interest-rate environment. banks are facing many challenges and low interest rates is only one of them, we have increased competition from outside of the banking industry and a need for new investments in high technologies and we have a change in customer behaviors and this is putting pressure on the banking industry. guy: how stable is the european banking industry? could we see the in pl problem
4:35 am
becoming a real issue? we are watching italy very carefully but it is not just italy. carsten: the industry is much more stable than it was five or six years ago. we would have instruments put in place at the european level which would help us to tackle any banking crisis. the prior -- the problems across european countries are different. there are so many challenges facing the banking industry plus we will stay in the slow growth environment so i think it will linger. the eve think we are at of a big banking crisis in europe. trump, someld suggestions the euro could be a beneficiary, particularly if emerging markets drop the dollar , particularly china could rebalance, how would mario draghi be forced to react if we saw a spike in the single currency? carsten: he would have to extend
4:36 am
qe and any other things are out of the question now. another rate cut, i do not see it happening. will refrain from cutting rates again, the only issue they have is stepping up tv, that would be -- stepping up qb, that is the only answer for draghi on the trunk victory here -- yti -- trump victory. >> economic experts of germany came out with a report yesterday, the whole of germany is worried about the pickup of inflation, saying it is an inflation trap and particularly conserve desk concert with quantitive easing. how is mario draghi going to answer them, will he keep pushing back against the german viewpoint? carsten: i think he will, i do
4:37 am
not think you will answer that come in germany inflation 0.8%, far from hyperinflation and although the economy is at full employment etc.. what he will say is that this is the ecb be viewed to policy, it is doing everything it is can come doing policy for the entire euro zone and not for a single country and that there is no risk of overheating or inflation getting close to 2% in the next 12 months. guy: what should the u.k. be doing? the court case on article 50 and the triggering of why parliament and mark carney talking at the press conference coming up later on. how should the u.k. be managing the situation now? we are waiting to see what happens with the fiscal front and what time should -- what should we be looking at in the meantime? carsten: if you look at it on a
4:38 am
daily basis, we get different opposing views on the brexit strategy. the best thing would be to come up with a clear brexit negotiation strategy so this would help and enable the european partners to react and find a amicable divorce scenario. that would be the best outcome. will it happen, i have doubts. >> we will be speaking much more about u.s. coming up with carsten brzeski. next, a conversation with a swiss ceo. the world'sr second-largest insurer reported better that expected third-quarter profit. this is bloomberg. ♪
4:39 am
4:40 am
4:41 am
guy: welcome back. the european open. the open, still figuring out what is moving but there is so much to focus on now. that, the sock -- the stock almost flying. the satellite operator up 10.21 and the revenue coming through, looking ok. lowering its guide. on, weks want to focus sete socgen up 5.15%.
4:42 am
suisse down -- 4.3%. the outlook statement is causing concern. there is a bloomberg business flash. reported third-quarter analyststhat met predictions. revenue rose 14% and operating profit increased 12%. job andmonth into the has raised its annual forecast for times this year. air france klm group has said third-quarter earnings slumped 16%, europe's biggest airline saw operating profit fall 27 37 million euros after terrorist attacks depressed tourist demand and overcapacity across european markets wait on airfares.
4:43 am
a quarteras reported past expectations but shares fell in extended trading after executive suggested a will not be able to repeat the permits. the third-quarter sales grew 56% to more than $7 billion, the fourth straight quarter of more than 50% revenue growth. the ceo said revenue growth rates will come down next year and capital expenditures will rise substantially. that is your bloomberg business flash. caroline: let's switch our reported to swiss re better than expected third-quarter profit. higher investment returns help offset the falling prices, net income fell by just $1.2 billion from $1.4 billion from a year earlier and the ceo david cole joins us on the phone for the first interview of the day. thank you for joining us.
4:44 am
the numbers better than expected but our comments -- the industry has a fundamental problem at it is pricing. will pricing improved or do you have to get more tailored? david: thank you for having me. i do not know if i would describe it as a fundamental problem, a fundamental nature of our business in that we go through pricing cycles and we have been softening cycles. our life and health businesses are not subject to that cycle. we do need to continue to focus wetailored transactions, have been doing that for many years and are a market leader in that space. it allows us to provide different services, products, and value to our clients and earn different shares of returns for a return holders -- shareholders. about thislk tailored solution helping out your combined ratio, combined
4:45 am
ratio around 93 come how much lower can that number go? combined ratio that we report in the quarter is subject to a lot of items can be difficult to predict. there is an earthquake on june 30 or july 1, what is a order to and the other is a quarter three of that and we look at our combined ratio of longer times and reported a 93.8 combined ratio for the first nine months of the year, a very healthy overall result that benefited from the nine large net cap over a long time. we had a little bit of larger if losses in quarter two but you look at it over a longer time it is fair to say we have benefited from a relatively low level of large net losses and it is difficult to say what the number will be in a given quarter but we remain focused on disciplined underwriting and making sure the business we write is as that will be attractive for our clients and shareholders.
4:46 am
sideine: on the other there is investment, higher investment, what has driven that, has it been the yield pickup and it is across government here to stay? david: we have not seen a lot of yield pickup over the course of the last several quarters and the last several years we have seen a relatively continuous decline and interest rates across most major economies. if you look at our case, what has driven his two things, a very solid and will position asset portfolio, solid in terms of equality and well-positioned in terms of the overall asset allocation. and the second but quite important is the growth, we are required guardian at the beginning of the year that left in increase in the total size of asset porolio contributing to an increase in the net level of investment income. are you buying more you liquid assets and if so are you having to barbell them with more liquid assets at the other end and how is this mix changing?
4:47 am
david: i have heard barbell in and i under stand what people are talking about it but we do not think of it that way, we pick of matching our liabilities and we continue with the assumption of maintaining a high wallpaper olio. -- high-quality portfolio. we are seeking leslie would real estate, infrastructure types of investment. it is a gradual process of finding attractive assets inis. andave a balance sheet financial conditions that allows us to hold those types of assets and have a massive equity position. i would describe our portfolio as balance, long-term balance. guy: thank you for your time. ceo.d cole the swiss re let's get back to carsten brzeski. the u.s. election, the outcome asymmetric in terms of how the
4:48 am
market will react, we could see a big reaction if donald trump were to take the white house. how would that affect europe? across the atlantic, what it means for us? carsten: with mr. trump entering the oval office, i think the relationship between the u.s. and europe would become more difficult. that is the biggest problem because the u.s. and europe need each other. similar cultural backgrounds and some trade backgrounds, it would put more attention on the diplomatic relationship and be bad for both sides of the atlantic. you could expect more financial market turmoil and maybe even a strengthening of the euro exchange rate which would also be bad news for mr. draghi and european exporters. caroline: longer-term perspective if we see a hillary
4:49 am
clinton when -- win. you have a divided government, how difficult does that make policymaking in the united states and how much does the long-term trajectory for the u.s. economy matchup? carsten: a phenomenon we also see in europe. making politics is becoming harder and to find a coalition, an agreement is getting harder because populism has polarized both sides of the society. that is hard to -- you have a majority for brexit and a tiny minority against brexit and how do you balance these interests? how do you unify a society and economy? that is putting tension on politics and making implementing policy extremely difficult. guy: how would the united states a fiscal push? if you look at the economics and
4:50 am
the best way of making this work, if you were advising either candidate, what would you be saying to them? is --n: what you could do if you look at the business cycle in the u.s., it is quite mature and you could extend the business cycle by more fiscal policy. invest in infrastructure and obviously be cautious that your government debt is not through the roof. caroline: great to have you. carsten brzeski's chief economist at ing-diba. has beenthe spotlight swept away from mark carney as the uk's high court makes it big decision on brexit today, we get into the details next. this is bloomberg. ♪
4:51 am
4:52 am
4:53 am
guy: welcome back. today brings a distraction from the mostly charged u.s. political scene and instead it charged u.k. scene, judges are scheduled to roll up whether brexit music ripple of members of parliament, triggering article 50. good morning. they have not released a statement to the lawyers which they normally do, they are nervous about the impact this will have, what can we expect?
4:54 am
>> for a start, i do not think it will get any more predictable in the short-term and whatever happens today it will likely be immediately appealed from either side which means the cloud of uncertainty over the u.k. and over sterling will remain until december at least. on the other hand, there is speculative short positions in sterling which could be available to a short squeeze unless we get a headline that is a surprise. chart showing us about the shorts on the british pound but the longer-term, may be cloud above the british pound might lift a little bit? >> there are a couple of things going on, the data has remained ,arkable resilient exceptionally strong on this long forecast and consistently pushed back recession does not look like it will arrive at all next year, one good part. it seems the u.k. is getting the full benefit of a weaker without
4:55 am
getting the negatives of the uncertainty of brexit or at least not before negatives. one part of that is we are not seeing financial firms leave the u.k. yet, they want to wait until the final moment to make the decisions of whether they actually leave. the downside of leaving early and finding out they do not to leave the u.k. seems to be greater than the downside of leaving later, being behind other banks because the infrastructure in the u.k. is so much better than the alternatives in europe. the missing transaction made between the governments and carlos gone has changed people's thinking? mark: it is a positive message and it shows how the government may fight for certain businesses for people to stay. saying, if they will do that for every company and industry it will cost the government way too much and is not viable. but it sends a positive message and we have seen that trend in the last few months, despite the
4:56 am
rhetoric, companies have not abandoned the u.k. and are willing to continue to invest. guy: great to see you, thank you. us ahead of the big decision from the boe at the big decisi from the high court, banks and focutoday, socgen outperforming strongly, we were talking to the ceo who will be a happy man this morning. the headline numbers when we first saw the numbers crossing look better but then you get into the outlook statements which is causing concern this morning and the stock is talking and not. ing up 3.8%. imported, the litigation clouds around the banks it in credit squeeze but stay with us because we are much more on the banking scene. surveillance, francine lacqua and tom keene and there will be a big u.s. focus on the election
4:57 am
and the u.k., the boe super thursday, the notable high court wrecks of ruling we have been speaking about all morning. we will be keeping a close eye on how we trade, stocks currently in the green. the pound.
4:58 am
4:59 am
francine: jump angst fires up gold -- trump angst fires of
5:00 am
gold. day.ecision the uk's central bank is said to leave rates unchanged but what about inflation? brexit rolling, and the next hour -- ruling comes. the pound gains ahead of the ruling. surveillancemberg ." i am francine lacqua, tom keene in new york. it is all about the pound and the u.s. presidential election. tom: the fed meeting yesterday. meetingank of england more important than this court ruling we're supposed to have in london? 50/50 because we will get some crucial inflation data from mark carney and at the same time, the ruling may put political angst once again. tom: i want to

28 Views

info Stream Only

Uploaded by TV Archive on