tv Bloomberg Markets European Close Bloomberg November 4, 2016 11:00am-12:01pm EDT
vonnie: we're going to take you from new york to london to los angeles, frankfurt, and istanbul. it is jobs day in the u.s. and inrolls moved by 161,000 october. wages also improved. the election is driving market volatility and the final days before the big vote. what will happen after tuesday? we will break down which sectors will see the biggest swing. vonnie: turkey's lira has plunged to a record low and stocks are falling. police rounded up pro-kurdish -- and saying -- leaving people believe a more autocratic government is taking hold. we are 90 days into the trading
day. julie hyman has the latest. julie: stocks are fielding on some fluctuation earlier, a little more of a positive by. even though the jobs number was weaker than estimated economists are saying it was a solid report. we had a day losing streak going into today, so looking at breaking that streak which is the longest since october 2008, stocks are still on pace for their second weekly drop and perhaps the worst since september 9. the groups on the move, health care. after bloomberg news reported the justice department was planning to file charges at the end of the year alleging price collusion. health care down sing up, up -- bouncing up. lagging our consumer staples and real estate. in the wake of the jobs report,
wanted to look at the 10-year note. that has been seeing some fluctuation but right now, 1.78%, down three basis point in the 10 year as we see some buying in the wake of the jobs report. there has also been a lot of interesting action in oil this morning. oil earlier was falling sharply after reuters reported that saudi arabia would have to raise opec members to not agree to cut, and then sharply reversed after the opec secretary-general said that did not happen, there was no saudi threat. it reversed and is back down by two thirds of 1%. if you look at the five-day chart of oil, oil is on pace for its worst week since january, down 9%, 44.39 a barrel. starbucks coming out beating animist -- analyst estimates. sales up 5%.
-- cbs also boosting earnings. five, missing earnings. activision, its forecast for the holiday season is not so good. mark: 90 minutes away from the fridays nation. stocks are falling for the ninth day in 10, the second consecutive week. the 4.5% fall is the biggest since february. the drop is the longest since october the seventh. the volatility index is rising for the 10th day, the longest stretch since august 2011. investors nervous ahead of the election next week. earnings season is in full swing. let's get to commerzbank, germany's second biggest lender,
it explodes -- expects to have a profit. the chief executive has responded to record low rates, isreased regulatory, and cutting jobs. , cartier one of its brands, shares up 6%. the biggest gain since 2008. it unveiled today the most sweeping management overhaul in years in responses to plunging sales of luxury watches and other goods. essentially the ceo and cfo will retire next year, eight directors will step down and new managers will lead watchmaking and operations. the ceo will be abolished. operating profit fell in the six sales in all of its
main regions declined, the biggest drops in europe and japan. it is the overhaul that is sending the shares higher by 7%. sticking with switzerland, this is the smi index. stocks in switzerland are trading at the cheapest since december but still they cannot track investors. smi, thehe rsi of the relative strength index is below 30 which means it is oversold. it is the third worst performer among developed markets this quarter, and why is that? because of health care companies. they constitute more than one third of the gauge. declining.re nothing beats a look at the rsi. vonnie: nothing beats our producers because we have somebody coming on to talk exactly that, health related stocks and what you should do with them.
let's check in on the bloomberg first word news. in our newsroom we have courtney donohoe. courtney: four days and counting to the new election and an abc news poll has hillary clinton with a 47% to 44% lead over donald trump. she campaigned yesterday in north carolina with bernie sanders. trump was in north carolina where he appeared with veterans and said he could not imagine clinton as commander in chief. while polls show the race is tight, trump's path to winning enough electoral votes appears to be harder. according to a bloomberg politics analysis trump is showing strength in iowa and ohio well clinton looks to be stronger in north carolina and nevada. the fbi and new york police department are investigating the possibility of an al qaeda effect -- attack on election eve.
they are reviewing information that mentioned texas, new york, and virginia as potential targets. the information received is not specific. police in turkey have continued their crackdown and rounded up a number of kurdish lawmakers in a late-night wake. a court has ordered that the two cochairs of the main pro-kurdish party be out of jail. in paris police are cleaning out about 3000 migrants who turned sidewalks into a makeshift camp. they are from sudan, ethiopia, countries, and they are being taken to shelters to apply for asylum. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am courtney donohoe. this is bloomberg. vonnie: let's get back to the u.s. jobs report for october. 161,000 workers and the unemployment rate dropped to
4.9% as wages rose. this report provides further evidence the fed says it needs before hiking rates. officials decided to hold off on a rate hike earlier this week. joining us from irvine, california is mohamed el-erian. nothing to change the perspective on a december rate increase. what about the labor market? mohamed: what this will tell the fed is from a cyclical perspective the labor market is doing well, adding jobs, and wage growth is going up. cyclically everything is fine. structurally there is more warning in this employment report because the participation rate went down. the hope had been that more people would reenter the labor market but that is not happening. cyclically fine, structurally more challenging. vonnie: what about the argument
that the 2.8% year-over-year wage gain would argue for not that much difficulty? mohamed: there is less slack in the economy and the labor market. that is fine if it were not the fact that the employment ratio is 60%. yes, it tells you on the wage front that things are fine but there is less slack, which means if we stay at this low level of employment to population there will be less people powering this economy forward in the future. mark: you said it is just going to be a matter of time before participations, rate or wages move higher and we know whether they have been impaired by demographic factors. which way are you heading? both heading higher or are you going for the structural side? mohamed: i hope is that both
will had higher. my worry and expectation is that wages will go up but the participation rate will disappoint, and that will simply emphasize that we have structural headwinds and we need a policy response that goes well beyond relying just on central banks. mark: paul krugman spoke to us yesterday and said the fed does not know what is coming down the road, does not know what is coming down the path so what should not be raising rates in december. do you have any sympathy with that view? mohamed: have sympathy with the view that we are facing unusual uncertainty and it is economic, financial institution, and political. i have a lot less sympathy that the fed should move because it some point, the collateral damage and unintended consequences of unconventional measures outweigh the benefits. i think we have gotten to that point.
today's employment report tells you absent a major shock to the markets because of the elections , the domestic indicators for the fed suggest they should hike in december. vonnie: so they hike in december and then what? is the economy going to see some real inflation at that point? mohamed: we are going to see a pickup in inflation. it is not going to be something we won't worry about excessively but we will continue to see a pickup. what we should worry about is the extent to which markets have been disconnected from fundamentals because of reliance on central banks, and whether by hiking the fed signals it is less willing to support the market, and then you have the bank of japan less able to support the market. the big issue really is can the market continued to do relatively ok without the support of central banks? i have my doubts. vonnie: the federal reserve not going to abandon the market,
right? why should it now or why should work it are dissidents feel like it would? mohamed: first because the economic signals suggest the fed should be -- get out of being hyper stimulative. secondly, within the central bank, there is more concern today about the threats to future financial stability. the fact that you encourage extensive risk-taking -- excessive risk taking in nonbanks, that could be a headwind to the economy in the future. does the reasons why one has to because it's about this notion that the fed will be -- two reasons why one has to -- mark: it is the essence of your argument that the central banks, the fed leaving it have replaced -- repressed financial
volatility. if the volatility rises as the fed normalizes policy in a smooth and gradual way, and the boj has its hands tied behind its back, volatility might rise. does that hamstring the world's major central banks? mohamed: the central banks are increasingly in a very tough position, but it is not because it is their fault. they simply made the wrong bet in terms of how other policymakers would respond. they were building a bridge, never delivering a destination. the hope was that the politicians would deliver the destination by enabling a comprehensive policy response. what they have found out is this bridge keeps on going and the destination is elusive. vonnie: mohamed el-erian is staying with us. more bloomberg markets. this is bloomberg. ♪
vonnie: this is bloomberg markets, i am vonnie quinn in new york. mark: live from london, i am mark barton. with two trading days left or polls open in the u.s. election investors are having flashbacks to the brexit vote. this chart shows the upheaval that happened after the u.k. decided to leave the e.u., the referendum sparking price swings in commodities, stocks, and isds, and still with us hamed el-erian. wins the trump election on tuesday, do we see a
similar or more extreme market reaction to the one we witnessed after brexit in june? mohamed: if donald trump wins the election, and if in his acceptance speech he reiterates his anti-trade rhetoric, two ifs, then markets, risk markets will sell off significantly. mark: give us a sense, i'm going to put you on the spot, how much does the s&p 500 fall in a day or two? how much does the 10 year yield to go up? what happens to the dollar? mohamed: if the two it's materialize i would expect a 5% to 10% decline in the s&p with the balance of risk towards even a greater decline. why, because of liquidity issues. the bond market, the only thing you could say for sure is that
corporate bond markets and high year bond markets with the hit -- high-yield bond markets would be hit and station protected securities will do well. currencies will be in a tug-of-war and at the end of the day people may be surprised but the dollar may end up stronger if the two ifs materialize. vonnie: he said you would keep 30% in cash. what would you do with that? mohamed: that has been an important call because it has allowed you to stay on the sideline with a lot of resilience and not worry about what has been an eight-day drop in the s&p. i think the message of the markets so far this year is that the money is to be made in two ways. one, be more tactical than strategically positioned so look for overshoot and two, be very name focused. name selection matters a great
deal and in particular you want names with strong balance sheets , a good business model that can take advantage of real disruptions going on from a technological point of view, and a good management team. it is not great news for most investors that are just buying indices and hoping for the best. vonnie: yesterday paul krugman said the u.s. was "dangerously close to a failed state" and that was not even related to the election but about congress and how extreme both parties have become, and how big the wings have become. characterize that statement, is it an overstatement? are we going to be able to hold on to our investment grade rating? mohamed: yes, we definitely hold onto an investment grade rating. i do not think that is threatened. what professor krugman was pointing to was the gridlock on congress and the inability to
get anything done, including where there was agreement. there was agreement among many people on the need to improve infrastructure. there is agreement on the need to make the corporate taxes more growth friendly, and yet, no one is willing to be seen collaborating with the other side. we have not had a proper budget approval process in six years. this gridlock is inhibiting the source of policy -- the sorts of policy response you need to unleash a huge potential for this economy. ask you what exposure you have to u.k. assets right now? mohamed: i am a rather boring investor so i am not exposed to u.k. names per se. i am much more barneveld. -- barbelled. i think it is time to reduce
exposure to public markets and have more cash, and go the liquidity spectrum to places where central banks have not distorted valuations. mark: mohamed el-erian, chief economic advisor at elian's. vonnie: in addition to jobs data and elections, investors are investigating corporate results. we look at some of the biggest movers in the early u.s. session. this is bloomberg. ♪
vonnie: this is bloomberg markets, i am vonnie quinn in new york. mark: from london, i am mark barton. vonnie: time for the bloomberg business flash. another roadblock to the plan to create the world's biggest chemical company. the european commission is demanding more information about the merger between dow chemical and dupont. dallas is the deal is expected
to close in the first quarter of next year. it has been a big acquisition in china's investment banking sector. china investment capital has agreed to by china investment securities for two and a half billion dollars in stock. it gives them access to small retail customers. that is your bloomberg business flash. let's head to the markets desk where julie hyman has been looking at u.s. trading. julie: looking at some of the biggest movers to the up and down side, i'm looking at the three best and worst performers in the s&p 500. nrg energy is coming out with estimates -- numbers that the estimates. analysts told us the third-quarter profit was driven by retail sales and renewable energy generation. we are seeing alexi on rise because they canceled on presenting at a credit suisse press conference on november 7.
sometimes these kinds of cancellations lead to speculation about a strategic move, perhaps some kind of acquisition so that appears to be accounting for the rise in shares. industries, their third-quarter earnings per share rising 21%, revenue up 7%. that is for the upside. on the downside we have an energy engineering company, the stock down sharply and the most in eight years. it cut its profit forecast because of a delayed construction project and its earnings target next year is short of analyst estimates. rvo as well, concerns about gross margins pushing shares down. isantec as well, the company still falling after its earnings report. i want to talk about earning season overall as well. you can take a look at the
bloomberg at spx ea. earnings analysis. 400 22 of the companies in the s&p 500 of reported and share growth of about 2.3%. snapping the decline we have been seeing in earnings per share for four quarters. mark: julie, great job. london, 11:26 new york. how the election is impacting pharmaceutical and health care stocks. we will break it down with one fund manager. ♪ seeing is believing, and that's why
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courtney has more from new york. special: iraq key forces have resumed their push and to the city of mozilla. heavy fighting has been reported on tuesday. they are being backed by a us-led coalition. both u.s. presidential candidates have people they are considering for treasury secretary. atlary clinton is looking facebook's sheryl sandberg. and roger ferguson. among trump's possible pick, his campaign finance manager, hedge fund foundered stephen nugent. steven mnuchin.
the singer will perform on november 12. 130 people were killed in the attacks. and we have breaking news involving the new jersey issue. plotting toy of punish the mayor. are lt on all counts. we continue to have breaking news for you throughout the day. powered by 2600 journalists and analysts. this is bloomberg. the u.s. presidential election and his its final
weekend, global markets are -- we want to take a deeper dive into how much this political season is affecting pharmaceutical and health care. i want to bring in the polar capital fund manager. assets with almost $1 billion in health care opportunities. this is the stoxx 600 health care index. gauge is byee the 9.6%. we have had some huge decliners. via sentiment so negative? why such a beaten-down industry? >> i think we have been on the naughty step all year. have as as though they bit of a by strike.
largely because what is going to happen next week, which is -- this rather depends on what the result is. there was theo potential for a democratic sweep, which would have been negative for health care and even in the last couple of weeks. people worried about the government taking control and creating a national health service. hasink that has to -- that dissipated a little bit. vonnie: i'm carious, is this purely an obamacare issue? or will they rejoin those exchanges, or is it something broader than that?
i think there has been a lot of politics around drug pricing. some of the things with the off pattern drugs where we have had some of the large price increases. are starting to see the structural transformation of health care. the insurers are beginning to push back on some of the large farmers. glass gallon 2014 and 15. are there areas that you would be completely staying away from for the moment? guest: we try to avoid anybody under pricing pressure. was a goodblackstone thing to buy a beginning of the year. the other area we are looking
for is there is a lot of innovation going on. there are points we believe are underappreciated and under estimated by the markets. >> what sort of changes have you been making? it's not a small cap. we have been having a lot of large-cap names. medical devices, they have been under pricing pressure for six or seven years. they have been a bit of a safe haven. >> why do we see them climb on that court decision here yesterday? how big of an influence is brexit going to be on drugs stock? the legal and political process continues in the next couple of years. guest: it is really the pound
impact. they are dollar earners. they have some expenses. you see that reverse a little bit. large global companies, u.k. has about 3% of sales. vonnie: so we have seen many deals in 2016 and acquisitions and consolidations. what do you anticipate for the final quarter of next year? -- tax of version version has been on the head. aversion has been on the head. if you look at some of the insurance deals, what we are
seeing is the large companies getting larger so they can take cost out of the system and they will take a share. we are looking at small companies that are distressed give -- that are disruptive and innovative. the big guys will go out and buy innovation. , i don't think it is going to increase. >> give us a stock or two. guest: if you see a trump or republican sweep, the buy will go up. seattleat sort of move guest: look at the moves you
have seen today in some of the stocks like insight and m&a suspects -- mende specs -- m and a specs. if he really is going to repeal obama care, easier said than the, the stock will hit service companies like hospitals and the insurers. mark: a lot to chat about after the election. you better be at work next week. police are rallying up kurdish lawmakers. this is bloomberg.
live in london and new york. >> this is bloomberg markets. falling. an explosion rocked the largest city in the nation southeast. i want to bring in more. quiet a little bit. things kicked off again in turkey. >> late last night police detained members of the pro-kurdish party and a few hours ago the court has ordered
some of those to be arrested, including the co-chief of the htp party. looking at the reason behind these arrests, usually turkish politicians are immune to prosecution. but they lifted that for the party, saying they have links to the kurdish group, the pkk. turkey sees the pkk is a terrorist organization. -- situation mark: please carry on. guest: these arrests could further deteriorate the situation with the kurdish conflict. we had an explosion in the has thetern city, which
highest population in turkey. 100 were wounded. mark: give us an idea how the markets are reacting to this. this recent political stability that political instability has sent turkish markets stumbling. record low after record low against the dollar. perne point it past 3.17 dollar. it is the worst performers emerging-market currencies due to political instability. vonnie: at-bat does this get to? -- how bad does this get to?
to receive more popular unpleasantness in the country before it is all finished? we see more popular unpleasantness in the country before it is all finished? stability --h and turkish instability has been going on for a year now. we are expecting more afterility especially these arrests that could be kurdish groups attacking areas within turkey. turkish security forces have been clashing with pkk for the leaving hundreds dead. despite the german banks being the biggest leg or this year, they believe they are in a great state.
>> the solvency and the liquidity of the german banking in no doubt, the german banking system is stable. time you have to admit the profitability of the ratherbanking sector is low in a european comparison and international comparison. due to the fact that the sector is competitive and has a lot -- has a large number of banks competing with each other. it is not my job to recommend what the level of competition should be. a need that we now have for investment -- that we do have a low interest rate environment. about -- thinking
it is not up to me and the public sector to decide who should consolidate and why and when. are gearing up for possible changes in policy from the ecb. what is the bank doing right and what couldn't do better? >> with regard to monetary policy stance, i have a clear opinion. clearly the consumer inflation rate is not where we have it in error mandate. according to the projections it will stay for some time.
the low interest rate environment is appropriate at the time. as we are in this present economic environment with moderate growth, i think the interest rate environment we are in is appropriate. >> is that a case for increasing support from the ecb? >> i am not a member of the ecb, so i'm not a part of that decision, and we have to wait and look at that -- it is far too early to comment.
just have seen volatility days away. what measures are you taking to mitigate that volatility for some of it? >> it's a good question and i'm seeing what you are seeing. the experience i am having is it is not unusual to have volatility ahead of a tight u.s. presidential election. what we have seen in the past is that the american system of checks and balances in politics, president, congress, senate, has worked in the past mitigating think that will hold true once november 8 has passed. >> speaking earlier.
the white line is essentially money markets. what is going on? >> a lot are thinking there might be an opportunity here. we have seen safe haven flows. we don't see much priced into the swiss rate curve. it is about four basis points below where the swish national bank target is. -- the swiss national bank target is. on any uncertainty next week, on any surprises, a lot of people thinking we don't see the seals come down sharply. >> the unofficial floor for the s&p. 1.077 right now.
for a long time it was considered the floor. we have seen that breach. should it fall even further? then that becomes very interesting. anxiety ratchets higher. i'm wondering what will break it out of that range. doesn't impact next week do that? >> anything that gets us away from a continuation of what we already have an markets right now. we will see more continuity and is the policy than before.
a trump presidency is the wildcard. if we look at that's was sealed, that is an indication of the nervousness there. we see a lot more volatility in the fx space. look to thed you peso to tell us more or would you rather look to see for current sees? >> i think it has been a good trump policy. that's a haven. even keep an eye on something like euro-dollar. i think the euro would be one of the bigger beneficiaries. if you look at the traditional havens, look at the yen, the
swiss, and the euro. volatility, this is one week of volatility. dollar white line, pound, blue line. >> what is interesting is the white line, it has very much jumped pricing in uncertainty about the blue result. the volatility is still very high. we should always have had that's red. the fact that it has tightened up -- we seen the lows in the pound or has the pound continued to be moved by the political imagination?
how does sterling trade in the next week? >> if you look at the flash crash we haven't broken out of the top or autumn of that range. if we break either of those extremes, we break through the top of that range. >> you will be here next week to comment on it. trades are wrapping up a from the end of the friday session. at that. the ftse down by 1.6%. the closes next.
mark: we are to take you from new york to london to washington and paris. here is what we are watching today. entering the final days of the presidential campaign. hillary clinton has the upper hand. while donald trump is demonstrating some strength in iowa and ohio. and the impact can be found in the metal markets. a weekly gain on the u.s. brexit vote. and a shakeup in the luxury world. the owner of --