tv Bloomberg Markets European Open Bloomberg November 14, 2016 2:30am-4:01am EST
quirks you are watching "bloomberg markets." i am guy johnson. what are we watching this monday morning? the trunk team starts to take shape. president-elect names rnc chair reince priebus as chief of staff, and right-wing media owner as chief strategist. which man will have donald trump's ear? xi jinping and donald trump talk
on the phone. the chinese premier said the corporation is the only choice. did the president-elect listen? the u.s. 30 year rises to 3% for the first time in 10 months. will trump be able to deliver his infrastructure plan, and will the bond markets play ball? let's talk about what is happening about these markets in a little more detail. nobody has changed their mind over the weekend. we continue to have this equity market rally on. european stock is going to be opening up 1% this morning. wall street looks like it is going positive as well. this is the fair value column telling you that for the moment zero stoxx 50 is up by 1% this morning. the rly is still firmly on. let's show what is happening with the gmm. this is the picture. the yen is one of the biggest moves overnight. it is moving again on the downside. kuroda was speaking earlier. pay attention to that. watch what happens to the metals -- zinc, lead, iron ore all
trading incredibly strongly this morning. what is happening in the peripheral bond market, really important. the bloomberg dollar index, up by around 0.5% this morning. that's find out what is going on with the bloomberg first world news. here is juliette saly. juliette: a powerful earthquake caused massive damage. the 7.5 quake struck just after midnight north of christchurch. it has been following -- followed by dozens of aftershocks. schools and many businesses have closed in christchurch and wilmington. -- wellington. china's economy held ground following measures to come property market in major cities. investment rose, just missing estimates. retail sales kind 10%, shy of a 10.7% estimate. increasedt investment
8.3% in the first 10 months of the year. japan's economy expanded with a offset by exports, week spending by people and companies. gdp grew at an annualized 2.2%. zero 20%. estimate of private consumption grew just 0.1 percent, and business spending was unchanged. shinzo abe has a knowledge that the transpacific partnership is in "a difficult situation" with the election of donald trump, and that he wants to discuss free trade when the two meet on thursday. south korea's embattled president will meet the country's main opposition leader tomorrow. the meeting comes as she tries to find a solution to a scandal that triggered the country's biggest protests in decades on saturday. this week, she also faces the prospect of becoming south korea's first leader to be questioned by prosecutors while in office. will.k. prime minister
give a major speech on foreign policy, the persons taking office in july. it will be her first analysis of donald trump's election victory last week. to her office, she will say changes in the air and it is the job of politicians to respond to voters who are unhappy with shifts in society. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. guy: a bit of breaking news already this morning. let's talk about what is lehmans, -- what is happening with an acquisition and united states. mental graphics is an industrial design company, a digitization product. clearly siemens feels it needs to the hardware into its base.rial product this is the shift in the industrial story. for thiss paying
company which is i think oregon-based. we will get more details as we work our way through this morning. size valued at $4.5 billion. i am not sure whether that is actually just the market cap, but we will come back. $4.5 billion acquisition from siemens in the united states in the digital space. let's stay in the states. u.s. president-elect don't trump .as made employments steve bannon will serve as chief strategist and senior counselor. a far right voice to the white house. -- andrg emery gordon murray gordon is in new york. i am fascinated by these guys. they bring different things to the white house. but the big question everybody is asking is, which of these roles is going to end up being the most important? how do these two balance each other out? >> you know exactly what is going on here.
you are here for a week. this is their way of spanning across the republican party. time will tell who will rise to the top, in terms of who will really be present in the late donald trump's key confidant. clear in theake it statement last night, saying these are people players, and they want to bring the teamwork of this leadership that worked so well and the campaign to the white house. was the formeron executive chairman of the far right website "breitbart news." he is the champion of the alternative right. many are saying it is a very controversial pick. but balancing offwe have reince priebus. he is classic gop. he is the longest-serving republican national convention chair. he is good mates with house speaker paul ryan. they go back not just as allies, but friends from wisconsin. the trump campaign is really balancing the appointments thus far. guy: yeah.
with a slight tilt to the right, i suspect, judging by those appointments. everybody is trying to figure out what a donald trump is ultimately going to mean. beijing definitely top of that list. have had a phone call, haven't we? >> we had a phone call between xi jinping and donald trump late last night, early this morning. it is mark of all, actually. these are the two biggest economies in the world. they sent a telegram over the weekends to thank him. on the phone, xi jinping says cooperation is the only way. donald trump said this needs to be one of his strongest relationships. this was a frilly conversation, but quite a turn of what we heard over the past month of the campaigning, were donald trump would bash china nearly every chance he could get, saying he would potentially -- he accused him of victimizing the u.s., saying terrorists were necessary. he promised to label him a current simulator. although she's a thing and
donald trump in this phone conversation seems to be friendly -- xi jinping and donald trump seemed to be friendly, there was an editorial. if trump >> sino u.s. trade, a number of industries will be impaired. the finished saying that any new tariffs would trigger a tit-for-tat response from beijing, and said sales of iphones and u.s. autos could suffer setbacks. this editorial is going after american companies. this is going to be one of the great relationships to watch and see how it develops. the latest overnight from new york. we are joined by the global head of strategy for socgen. what do we get? we are continuing with a market rally. do you buy that? does that need to continue on the coattails? >> absolutely. i think in the medium-term, this is very bullish for equities, in particular u.s. equities. the question is whether we are
going through this similar area of massive corporate tax and huge info structure programs, and whether companies are -- you can see this is as sustainable or not. to gdp ratio of the u.s. is likely to go higher from here. that obviously creates questions in terms of the selloff in the bond markets today. u.s., it am buying the is interesting the dow is up better than the s&p. industrials are the focus. do i pay my money on that? is that where i put my focus? kokou: it is more interesting to put it on the s&p 500. over the past five years, a lot of these companies have put, in terms of priority, share buybacks. you have close to $1.5 trillion of cash on u.s. corporate balance sheets. if that money was essentially transitioning towards capex and investment, being productive, a return on capital, we could see a pretty dramatic shift in the
earnings power of u.s. corporate's. guy: having to think that is going to be? you look at the homeland 2008-2010.act, you saw a lot of money flowing back. that money did as you say largely go into buybacks. do you think there will be resistance? the idea that we will bring this money back, will be stranded in infrastructure? marginaltimately, the propensity for companies to invest is a function of the return on investment capital rather than average cost of capital. every company has to figure out whether this investment will ultimately make money or not, and avoid making the mistake of 2009, and chinese corporate's and the chinese government made a massive fiscal stimulus and the whole thing ended up in tears because of excess capacity, and ultimately bankruptcy. the argument against this money coming back, there is a number of them. buybacksem is that
does not do anybody anything unless you are the investor, the 1%. it works against smaller companies. smaller companies are kind of the the action of the u.s. economy. the big companies getting this massive tax advantage because of this money flowing back and and the cost of capital going down do not benefit. how will they make the return, the flow of this money back into the u.s., actually deliver for the u.s. economy and for the small cap companies, and people getting jobs? kokou: i think this is ultimately the fiscal stimulus or fiscal muer altliument. a lot of these companies have money back, if you see wage inflation, ultimately demand in the u.s. is likely to pick up. those small companies are more sensitive to the domestic growth of an economy, as opposed to the global growth, which by the way could be challenged if we have more tariffs and trade barriers. 2000,ready see that in
outperforming the s&p in this current rally. i think small companies are still the way to play gdp growth. -- what by the russell me through the russell versus s&p versus dow argument. kokou: s&p is more exposed to global growth. they export to china, etc.. the russell is more domestic focused. the dow is a measure of transportation and industrial. ultimately, the biggest beat trade is the russell 2000. guy: we have so much more to talk about. thank you for joining us from socgen. of next, we are going to be talking about finance and fragrant. we discussed the european banking sector. just before the open, the right prescription for an -- the right prescription? novartis in discussions with uncertainties running obamacare. plus, britain and france snubbed. we cross to brussels for the latest. ♪
price in london on friday. it will help the maker of smartphones to expand in car audio. slump infit fell on a prices in europe's biggest market. net income decreased in the nine months through september, missing estimates. germany's largest power producer reiterated its forecast for a profit of $500 million to $700 million for this year. novartis is in talks to buy a pharmaceutical company. it could value the company for million -- $8 billion, depending on the structure of the agreement. guy: the ceo of germany's largest lender last week speaking in frankfurt to discuss the future of european banking. one member of the panel joins us now. this is the ceo of ing.
thank you for taking the time to be with us. what does a trump presidency mean for european banking? in the short-term, it is fair to say it will mean uncertainty. what is going to happen next? in the medium to longer term, let's say the medium-term, all of his decisions have seems to stimulate the economy. on that point of view, it should be ok. but the geopolitical situation is a little bit uncertain. guy: right, so geopolitics a bit uncertain. in terms of the financial background, starting to look a little bit better. we are seeing the u.s. 30 year pop higher on the yield again this morning. the curve has been steepening up significantly. again, what impacts are you modeling in terms of what that will mean for you? roland: to be honest, i think in the short-term, it is not going to mean much. everybody is watching with the ecb is going to do.
quantitative easing -- what does it mean for that? to be honest, this is an indication. the economy is doing pretty well. inflation is picking up a little bit, but not significantly enough for the ecb to make any decisions when it comes to quantitative easing. i suspect nothingis going to change for the next three to six months. for now, there is no big upheaval. see what is going to happen next. guy: you some remarkable economy, i have to say. to executives in the financial sector last week in the united states, and they are feeling pretty nervous. everybody is pretty jumpy about what is happening. it is nice to hear you sounded so calm. do you just not have an idea of what this is going to mean yet, therefore it is too early to make decisions? or do you think actually this is not going to mean as much as others do for the financial sector, and what it is going to do next? roland: well, to be honest, it is so unpredictable there is no
reason to jump up and down in excitement. first reactions we have seen had beenom mr. trump to become much more, let's say, middle-of-the-road, much more reasonable, less extreme. all of that seems to tend towards more stability and less surprises. reactedets have also very shortly, very excitedly, and then calmed down. it is no surprise for the short-term that it is -- the signals he has given for the economy have all been positive, to be honest. longer-term, they are going to be problematic, the cause it will mean a significant increase in leverage for the u.s. economy, which would be very detrimental. but for the next couple of years, all of those measures that he has said -- increased spending, investment in construction and military, those type of things, are actually going to stimulate, short-term, the economy. i do not think there is any reason to be panicking now. see what he actually will start
executing from the support he has raised during his campaign. guy: do you think it does signal we have reached the high water mark in terms of financial regulation? well, yes. financial regulation is a topic in and of itself. of course, the dark clouds, so to speak, hanging over particularly the european banking sector is what is going to be in the bottle. and the americans play a certain role in these discussions for the european banks. we will see how that is going to work out. for the polarization -- further polarization of that discussion is not going to help. i do not think he has given us much hope yet. guy: interesting he talks about dodd-frank and rolling that back. what would be the effect of dodd-frank being rolled back? that will mean that a number of people are going to be also increased uncertain. there is going to be a lot of
people looking for short-term opportunities to taking advantage of that. but i do not think anybody is going to jump the gun, because it is not so easy to roll dodd-frank back. i think people will be optimistically looking at it, but it is not going to lead to a lot of excitement in the short run, except for people reacting to statements being made. actual actions taken, i do not think a lot is going to happen short-term. guy: thank you for spending time with us. the ceo of ing joining us out of frank for. up next, we look at the house builder talking about brexit. we'll get that take and other stocks as well. the men's -- siemens on the move as well. ♪
guy: welcome back. minutes away from the european open. it seems like it is going to be positive. the men's -- siemens making an acquisition in the digital space, mental graphics being acquired at $4.5 billion. basically, it is bringing were digitization into the industrial process. novartis potentially making acquisitions. it is looking at a generics company. the pricing story -- we thought it goes away with clinton, but the pressure on pricing in the states is structuring away.
u.k., wimpey out of the the house builder, saying that actually the second half was strong. the brexit drawdown story that we thought was going to be part and parcel of the housing market just has not happened. keeping its forecast pretty much -- it is the results going to watch and see what happens. still think the margin increase coming through in 2016. a pretty impressive performance, continuing. i want to take you back to the weei function. this is a positive open in europe. we look like we are going to be up another 1%. the dow finished at another high friday. it looks like this morning we have the ftse up by 0.9%, the cac up, a positive, positive start coming through for the cash open. we continue to see money moving out of the bond markets. if you have a balanced portfolio, you have to assume bonds are a pretty big chunk of that. , are yoult of which
guy: welcome. i am guy johnson, in the city of london, moments away from the start of european trading. chief ofdent-elect's staff named as reince priebus. and right wing media executive steve bannon chief strategist. which man has donald trump's ear? xi jinping and donald trump talk on the phone. the chinese premier said cooperation is the only choice for the president-elect. yield rises to 3%, first time in 10 months. will trump be able to deliver his infrastructure plan? will the bond markets play ball?
we are expecting another positive story. on friday, the dow finished up near the record high. the s&p continue to rally. this morning, we are going to watch european stocks do something similar. we will continue to push higher. let's show you what is happening on my bloomberg. this is the option friday. the auction popped is a little higher into the close on friday. we are expecting a reasonably positive start. the ftse 100 rally in up by 0.3% already. we are expecting a near 1% move this morning. expected to join force with this. we are continuing to push higher on european equity markets, up this hour by 0.7%. market makers definitely liking it, pushing it higher. the bonds where the real pain is being felt right now. what does the gilt open look like?
here is nejra cehic. nejra: pain may be felt in the bond markets, but last week, we saw more than a trillion dollars added to the value of. . your opening higher. if we look at the imap, sector house, all in the green, all industry groups on the stoxx 600. i.t. stocks leading the gains. financials closely following. materials up 0.7%. we do see industrial metals pushing higher, particularly the copper price resuming its games today. , we are seeing gains on the stoxx 600. while we have the value of more than a trillion dollars added to stocks, a similar value, $1.2 trillion, a record, was wiped off the value of global bonds. we have seen the tenure treasury yield at its highest since january 30, above 3% for the first time since january. this is the 10-year gilts yield at the open. across europe, the yield pushing higher, up six basis points on
the 10 year yield in the u.k. we will also show you the impacts of the treasury market on what has been happening with yield curves in europe. you are seeing those curve steepen. we're looking here at italy, germany, and france. this could not bode well, possibly, for european bond markets in the event of a tapering of qe by the ecb. already on friday, what we are seeing is a yield differential between france and germany really widening on concerns that the populism that growth trump -- that drove trump to victory could spread to europe, and particularly france and italy. stocks to keep an eye on, quite a few to look at today, starting with novartis. novartis in talks to acquire a amnielnerics drugmaker, pharmaceuticals, looking to bolster its business amid consolidation in the industry, according to people familiar with the matter. we are seeing novartis move on
that. it looks like it is up 0.9%. rwe posting to third-quarter loss as power prices have been slumping in europe's biggest market. but it is opening higher. there we go, novartis up 1.1%. rwe up 3%. siemens agreeing to buy mental graphics to expand its industrial software capabilities. guy: thank you very much indeed, nejra. let's get back to what is happening stateside. president-elect donald trump has signaled he may take a more flexible view on what to do with the affordable care act. speaking to "60 minutes," he asked what would still just a pre-existing conditions would still be covered under what is currently known as obamacare. mr. trump: yes, because it happens to be one of the strongest assets. so will the children living with the parents. very much try to keep that. it adds cost, but it is very much something we are going to try to keep. guy: let's talk about kind of
what is happening with the sector story. let me bring this chart up for you. with someoneout it from socgen. this is health care versus the bank. the blue line is the banks and this is health care. they have been moving in different directions. but since we have seen the trump presidency confirmed, have actually seen health care stocks do a little bit better and the banks do a lot better. true sector rotation? where are the bond proxies getting bashed? what me through the trade here, because everybody piled into the bond markets. plus you bought into the bond proxies story. your probably on the wrong side of that trade right now. what me through how the sector rotation theme is going to work. kokou: clearly, if you were long equities at the beginning of the year, you will briefly suffered quite a bit. the rational thing to do with be to go into defensive and global stocks.
they honestly have performed quite well over the past three or four years. very big we have a positioning issue, and i think we are going into the great rotation that a lot of investors have tried to call for the past five years. it has failed so many times. this is ultimately what you are seeing today. financials and banks in europe in particular were value stocks. sadly with mining stocks, very themultiples with nonperforming loan story. a higher bond yield and steeper curve is very positive for that. ultimately, the value stocks are performing quality and defensive. because of the positioning, this is likely to persist for the next 1-3 months. you still have to remember the italian referendum on december 4, which could be a big tail risk event, and essentially unwind a lot of this rally and sector rotation we are seeing so far. guy: u.s. stocks have outperformed european stocks. we look at yields and multiples.
people are saying european stocks are going to do better. all of thoseity -- factors coming in. that is going to close the gap. that would help out the story. does the trump presidency term that argument on its head? kokou: the thing with the trump presidency is that it does not -- it has not actually happened. this is a lot of speculation. we could do an interesting parallel between what is happening in the u.s. and what is happening with exit area there is a trump -- there is a soft trump scenario and a hard trump scenario with how much congress is going to pass excess spending. the excess investment could wreak havoc in terms of the debt ceiling for the u.s. total debt, which is $14 trillion today. none of that has happened yet. so i think we need to be very careful in terms of the path of the equity markets. ultimately, buying coal is one
of the best traits here. guy: we do not know whether this in the structure spending -- it is hard to get stuff done in the states. there is an assumption it will all be frontloaded at the front d of the presidency. that is going to have a meaningful impact on fed policy. you look at how tight the labor market is. if things go wrong, it is frontloaded. if it is spread out more, it would probably be easier to manage. kokou: one issue here is that obama ultimately was trying to do infrastructure spending as well, but he was blocked by the republicans. today, you have both houses that are republican. i think the path of least resistance of getting some of these initiatives passed is likely to be a lot lower. we are likely to see a lot more investments in the short-term. the question is the sustainability of that investment. that still needs to be seen. guy: stay with us. you are watching the open. gdp is expanding, but
guy: let's take a look at how the european equity markets are performing. let's take a little look at exactly what we are seeing right now. as you can see, we have got markets up maybe a little bit more than we anticipated we would see. we have actually got markets up by around one point 2%. that is the stoxx 600. the rotation is interesting. talking about exactly what has been happening desktop me through this. tell me what is going on here. >> this is a chart that looks at all the sectors in europe and ranks them by their momentum and lead lag behavior versus other sectors. the top right quadrant shows you the sectors that are leading the market today. you can clearly see the financials -- guy: they are appear. kokou: -- they are up here. quadrant. right
the bottom left of the sectors that are lagging. these are the utilities, the defensive, the pharma, nestle. they are landing. this is -- they are lagging. this is looking inside the market and not at the market. guy: let's just see -- we are going to carry on playing here, just because it is monday morning, and why not? for today. this is the sector story. in terms of positive territory, you and i were looking around in the break. you get a similar picture if you utilities, food and beverage, real estate, all negative. utilities down by 4%. banksresources, insurance , 6%, 10% performances. the rotation has been aggressive. kokou: that is pretty aggressive. we have not seen such magnitude of rotation for the past sort of three or four years.
a lot of the sectors at the bottom have been performing quite impressively over the past few years. guy: bond proxy. kokou: absolutely. guy: we found some cool new functions. here is sebastian salek. seb: new zealand's dollar has fallen after a powerful earthquake that killed two people and caused widespread damage. the magnitude 7.5 quake struck just after midnight local time, north of christchurch. it has been followed by dozens of aftershocks, one at 6.8. schools and many businesses are closed in christchurch and wellington. south korea's embattled president will meet with the main opposition leader tomorrow. the meeting comes as she tries to find a solution to a scandal that triggered the country's biggest protests in decades on saturday. this week, she also faces the prospect of becoming south korea's first leader to be questioned by prosecutors while in office. ukip prime minister theresa may will give her first major speech on foreign policy since taking the position in july.
it will also be her first analysis of -- of donald trump's victory. she will say that changes in the air and it is the job of politicians to ripon -- to respond to shifts in society. this is bloomberg. japan's economy expanded in the first quarter. think that is thanks to a exports.n hiroki kuroda said this shows the economy is recovering, but if the transpacific partnership or to be torn up, the nation would be worse off. talking of trade relationships across the pacific, donald trump has spoken with xi jinping. pitching things that cooperation was the only correct choice for the world's largest economies. trump promised "one of the strongest relationships between the u.s. and china."
china's economy held its ground last month following new calmres to come -- property markets. how is the chinese relationship? this is one of the pivotal relationships. how important is it going to be russian mark the message from trump on the campaign trail was a very aggressive one. this is one area where he has styled it down. a lot of u.s. corporate manufacturer a lot of the parts in china. this is imported back into the u.s. think about apple or the auto industry. this is crucial. guy: who has more to lose in the relationship? kokou: i think ultimately the u.s., probably. it should be roughly equal. from pagan theory standpoint, both of these countries have to make sure the relationship is still strong. is a very good negotiator if you look at his history.
almost going bust in the 80's and 90's, and managed to recover. quite impressive. absolutely. guy: let's talk a little bit about how the currency is going to be forming and all of this, the yen and the yuan. the young first. first.yen the trade deal is important, that if we see a big pickup in the dollar, how much is that going to solve abe's problems? kokou: i think it will help, because he has been trying to weaken the yen but failed because once you hit negative interest rates, you see currency behaving in a very bizarre manner. think about the euro starting to rise in a risk up environment. i think it will clearly help. rely onn exporters do the u.s. economy and the u.s. consumer. this is definitely strong for the yen revenues. guy: the chinese currency is the
more interesting one. this is an opportunity to potentially weaken it. you have already talked about them being a currency manipulator. how do you balance that story? china gradually weakened the u.s. -- the yuan over the last few months. a lot of the volatility we have seen at the beginning of the year and the end of last year -- argued thehave chinese economy will have to deal with a trillion dollars of nonperforming loans, and this adjustment will have to occur with a lower gdp growth. ultimately, a stronger dollar does help china in terms of its and the differential with the u.s. guy: any concerns the chinese may don't currencies? kokou: i do not think so. it is not interesting to have the u.s. suffer because that is one of the biggest trading partners. guy: think you for joining us. he is the head of flow strategy
happening with bond markets. -- whatty market opened is happening with stocks? the bond market moved again, and impressive indicator. the is the bund yield over last few days. it has been climbing. this morning, we are seeing another gap to the upside. bond yields continuing to push higher. 0.52 does not sound like much to write home about. the considering where we came from, let's expand this out a little bit. overis where we have been the last few weeks. it has been a quite impressive performance we have completely turned around. this is certainly something to pay attention to. the yield foreign-policy chief -- eu foreign-policy chief says the block once a strong relationship with the trump administration. after an extraordinary meeting of e.u. foreign ministers who met to discuss ties with the u.s., and esters agreed to stand by international agreements with
the u.s., including the nuclear deal with iran, which trump has proposed to scrap. >> and on iran, let me tell you clearly -- i have said it already -- this is not a bilateral agreement. this is a multilateral agreement policyd by the u.s. resolution. it is our european interest, but it is also a u.n. interest and duty to guarantee that the agreement is implement it in full for the whole duration of the agreement, which is 10 years. chief joness bureau joins us now. one of the biggest concerns that the e.u. leaders have -- what are the biggest concerns the e.u. leaders have? caroline: -- jones: the iran deal is one of them. this is one of the international agreements that trump on the campaign trail was disparaging about. the climate change deal that was reached in paris -- this is
another international u.s.-led effort. a lot of work went into it, and it seems like trump has said he is not interested in it at all. the e.u. is trying to put down a few redlines, saying these are the things that are really, really important to us. they had this emergency meeting last night. a bit of a run-up to a regularly scheduled meeting that is today and tomorrow. but they really wanted to get their heads around and get their heads together about what trump means and what it is going to mean for the e.u., going forward. guy: can we talk about the united front? i don't think we can, can we. jones: it would be in the e.u.'s interest to have a united front. they want to cooperate and compromise with the trump administration from a solid footing. but unfortunately, as always with eu e.u., there is splinters and stuff. yesterday, boris johnson from the u.k. did not come to the meeting. he said this is a much of
ranging -- whinging and there is no need for this meeting, everything is great to be fine with trump. eastern europe, some of the populist sentiment over there is along the same lines. they are struggling to have this united front. we will see today -- marini -- mogarini is supposed to be arriving in a few minutes and we will see how things go. guy: thank you so much. italy is firmly in focus now. this is one of the things europe has now to grapple with. has watched what has happened in the united states. the market has been clear with what is happening in the bond market at the moment. i want to show you my terminal and what is going on here. this is spain versus italy. as you can see, we have pushed story, the outperformance of the spanish
market is at the most extreme, really, we have seen for quite a long time. let's extend this out a little bit. that takes you out to a year. you can see where we are now. buying spain and selling italy going on. what does that tell you about how the periphery is going to be performing, how the market prices in risk, how the bond market is going to go? an asset manager who helps oversee $115 billion of assets under management. the market pricing and nervousness about italy, a lot of nervousness? john: arguably, it has not priced in that much so far. if you look at the longer-term range we have been in versus bunds, we areus 170 over. we have a big decision coming up at the end of next month. chance renziig
would lose it. i guess he also gone up. you have to talk about consequences of that. be asequence could five-star government with a referendum on italy's place in the euro, and that is going to scare a lot of people if we get there. the ecb provides some support for the market, but they are not going to be able to stop it, i think, rising in yields. unless renzi wins the referendum, you need something in the btp market. guy: bunds and gas a little higher. where are the ones bunds going? john: this is being led by the treasury market, the broader move. policies, the markets is focused on his stimulative measures, but also some of the more negative aspects on trade, immigration. they are all likely to promote somewhat higher inflation. inis a bit more of a hawk terms of the fed, it would
guy: 30 minutes of trading equities.or european how are they shaping up? there you go. that is the picture you can see this morning. equity markets were up by 1.24% on the stoxx 600. the cac 40 outperforming. interesting stories in the banking sector. the banking sector front and center this morning. let's figure out the details of some of the stock stories we need to pay attention to. here is nejra cehic. nejra: when talking about the stock stories, you want to put them in the context of what is happening in market. these expectations of inflationary policies from president donald trump pushing
u.s. yields higher, dragging the dollar up as well, punishing a lot of the em space. expectations of infrastructure spending has given a stunning rally to copper and other industrial metals. copper resuming its asset today, -- it's absent today, -- is today.g its ascent minors are some of the biggest risers, anglo-american among them, of 3.6%. that are all miners rallying. gold bulls have been confounded. citigroup singled would go to 1400 on a trump victory. $4218, heading for the steepest three-day decline since 2013. these are two of the worst performers on the stoxx 600 right now. one stock i had to bring into focus outside of all of that biggeste is europe's
newscollector, up 60.5% on -- 16.5% on news it will merge with lindor, a nordic deal that will add to this company. guy: u.s. president-elect donald trump has taken part in its -- in his first tv interview since winning the election and seems to backtrack on some of his campaign policies. mr. trump: there are certain areas i would, but certain areas -- i am very good at fiscal conservatism. there could be some fencing. don't do it. that is terrible. i am going to bring this country together. >> they are harassing latinos, muslims. mr. trump: i am so saddened to hear that, and i say stop it. -- and i would say stop it if it helps. i will say this, right to the cameras. stop it. >> let me ask you about obamacare, which you say you are going to repeal and replace. when you replace it, are you going to make sure that people
with preconditions are still covered? mr. trump: yes, because it happens to be one of the strongest assets. also with the children living with their parents for an extended period. we will try to keep that in. it adds cost, but it is very much something we are going to try to keep. i have never commented on this, but the answer is no. i think i have to buy lot take one dollar, so i will take one dollar a year. i do not even know what it is. do you know what the salary is? >> $400,000. mr. trump: the salary, i am not taking it. now, soting fencing up the wall may be looking slightly different in terms what we are going to say. we have got a very strong exit market rally on our hands this morning. we are certainly seeing moves in terms of the bond markets pushing higher. i am looking at my launchpad. you have got dollar/yen trading at 107. euro-dollar trading at 1.0755.
dollar-mex is-- pushing up for the 21 level. we are joined by an investor in asset management come here to talk us through what is happening, and the great rotation story people are watching. john, i have pulled up very quickly the u.s. 10 year yields. this goes back to this book are the 70's andiod in 80's. then we get into greenspan. the amazing move, the compression of yields. it has got to end sometime. why now? john: i guess people were beginning to wonder whether extraordinary monetary policy had reached a limit. so the market was already trading in a sort of more cautious way, i think, going into the election. and now we have had the surprise of donald trump. it is slightly serendipitous. you have a candidate suddenly
who is talking fairly aggressively about using fiscal policy to reflect and boost the u.s. economy, just when people are saying, what is the next thing after monetary policy? maybe it is more aggressive fiscal policy. i think the market contemplating a change in direction, particularly when changes are inflationary. guy: i am trying to get the work function of. probabilityt 89.6% of a fed hike in december. john: i think that is pretty right. if you listen to what the fed is saying, they have been talking toward a fight in december. hike inng toward a december. there were fears of our growth as a result of donald trump, but you had the reverse. to some extent, they have a greenlight. more interesting is where the fed goes from here. it is potentially going to change quite a lot.
i think it potentially does go up somewhat, maybe 50 basis points, maybe 100 basis points. guy: that does not sound like much, but in terms of the way that we do pricing, that is a big move. john: i think it is ironic that the fed has been revising it down for a number of years now. i think we have finally got to a point where the markets have embraced this idea of secular stagnation, and maybe it is a perfect point. repriceet is having to a high normal growth rate, a high inflation rate, and more hawkish spending in the future. when mr. khan gets to a point -- when mr. trump gets to appoint members of the fomc, i think the direction of travel, we have got to the end of the market down of the terminal fed funds make -- funds rate, and the market may have to trade above the fed's dot plot rather than
consistently trading below. guy: what is the best way of trading this? is it breakeven? kokou: i think one of the -- john: potentially, medium treasuries. the forward market was massively underpriced for five years. in rateare pricing hikes, but the markets never believed the fed gets to the terminal rate they talked about. maybe now it will start to move. fives in particular could reprice cigna vacantly. relationshipthe between this and what is happening with bunds? japanjgb's, the bank of targeted this 08 at 10 years. when there was no upward pressure -- it was downward pressure on yields. they were probably not going to have to buy as many jgb's. -- now potentially, they are trying to anchor it against the background of a rise in treasuries.
guy: it is 40 minutes of exit trading under our belts. here is the bloomberg business flash with sebastian salek. seb: samsung electronics has agreed to buy harmon for about $8 million in cash. it is about 80% of the trading price in new york on friday. it will help the biggest maker of smartphones to expand its high-end car audio. on a slumpl by 58% in power prices in europe's big market. the index fund decreased to 2700 -- the index fund decreased, missing estimates. germany such as power producer forecasts a profit of 5 million euros to 700 million euros. could acquire a pharmaceuticals -- a generic pharmaceuticals manufacturer. representatives of novartis and
amniel declined to comment. guy: let's talk about what is happening with dollar/yen. we are pitching higher for the dollar. a whole load of other currencies. the euro is on the move. we are trading nearly 108 this morning. the other story i want to come back to is this chart. this is the mrr, with a story floating -- flooding around about unicredit and socgen. it is not something i want to get in hard. it is appearing to move the market little bit. we have some more details. ceo -- ceoe bank john cryan canceling an
appearance at the euro finance committee conference in frankfurt today. cfo is when to replace him at the event that is going to take place, and will be on the panel with the ceo of commerzbank. we spoke earlier to another man on the panel, from ing. it is a pan-european panel. john cryan is not going to be there. there is a lot of moving parts surrounding deutsche bank at the moment. we will see what is happening in the u.s. with the doj. a pretty important line for him to get solved at the moment. we will get some key guests from the conference of the later on, including one from the institute of monetary and financial stability in luxembourg -- financial stability, and luxembourg's finance minister as well. let's talk about banks. area.s a key john stafford joins us now,
still on set. the banking sector in europe is a bit of a two-way street, in my mind. --itive influence potentially lower regulation, yield curve steepening up. we are going to see some negatives. we do not understand what is happening in italy. we do not understand what the regulatory story is going to be in the european space, the u.s. space. big imponderables coming through at the moment. they clearly rallied. what is next? john: for the time being, the environment remains pretty supportive. we have the italian referendum coming up. generally, with what we are saying in bond markets more generally, it has been a more unpopular half of the market for some time, so people are underweight financials within the portfolios. we still think it is an area that can outperform. a lot of the problems in the european banking sector are quite stock-specific, so you just mentioned deutsche bank, some of the italian banks also being poorly capitalized, having
big nonperforming loan programs. but more generally, we would argue that a lot of european banks have put their house and reasonable order and can benefit from, as you say, steep yield better growth environment, potentially, and also potentially may be a lester comey and regulatory -- a less draconian regulatory backdrop. guy: is it easier to understand u.s. banks at this point? john: trump may be a game changer in the short term for u.s. banks. they have significantly outperformed. but we have added wells fargo to our portfolio recently. that is a bank that has been under a lot of pressure. guy: i am curious about that. i would have thought that wells would be one of the banks that would find life not as easy as others, inasmuch as it is largely a retail bank, and it has a consumer problem. he would have thought that consumer problem would be something that trump would be interested in, making sure it
does not happen again. is there a retail versus high bank split here? john: i am not so sure. generally -- ironically, he criticized hillary clinton a lot for her links to wall street. it looks as though he is starting off with a much lighter regulatory position, going forward. that should benefit firms. you have got the change in the shape of the yield curve, stronger nominal growth. those things should be beneficial generally to the monetary sector. was one of those companies that may be underperformed because it was sort of subject to a lot of scrutiny for doing some bad things. we felt it potentially offered an opportunity. it is well run, a well-capitalized institution that can benefit in this kind of environment. guy: bank credit? john: up till recently, we avoided bank equity. now that the world is changing, we are more comfortable selectively owning banks with
good franchises where they can environment.this previously, everything seems to be negative for financials. you could see that in stock prices. i think we maybe have gotten to a point where you can retake out of the most defensive part session rotate out of the most offensive part of capital structure into equity. but you want to be careful how you do that. guy: barclays is a case in point of exposure to the u.s. john: we have a defensive mandate. we are focused on the ability of companies to sustainably generate income and pay it back to shareholders. our interest in european banks tends to be on slightly more boring institutions where there is some growth potential, but -- guy: no scan these -- scandis. bankswe on scandinavian benefiting from a decent housing and mortgage market in that part of the world. and they have got clear income generation, clear dividend
targets. we think they are a safe way of playing it. more racy people might be looking for greater recovery stories or more risky bets where the assets have a greater upside. guy: does the mark -- as the market rotates and rotates from the more defensive bond proxy and the market, this story -- nestle and other big names -- are they reasonable? i want to know kind of the bond proxy bit of some of those multiples. john: i think we would be more concerned with companies where they have significant leverage. sort of utilities. maybe telecoms. where they have done fantastically well and are very much bond proxies. you can see the utility sector in the u.s. under performing reasonably significantly. we think that could go further. i think some of the more bellwethers, some of
them are a bit pricey, and they will lack the market, but fundamentally, they are good companies that generate cash, grow earnings, and in a positive growth environment, they should do ok, just maybe not as well as some of the more physical stocks. exactly. guy: john is good to stay with us. we have a little more. up next, domestic drivers story. chinese industrial production holds steady, but retail sales slow. is there reason to be concerned about the world's second largest economy? that conversation next. ♪
guy: 52 minutes past the hour. the mexican peso -- this is indicative of the phase we are still in, in the market moves. we are fast approaching some of these record positions. we are back north of 21. this is dollar-mex. the huge move as we saw the presidency confirmed, but it has continued to take higher. we saw a record on friday. now, we are beginning to move back up toward that line. 21.2.gh is 07 -- 21.07 at the moment. the asian economies in focus. the chinese economyhealth study
last month after new measures to cut property prices in cities. exports boosted japan's economy to a stronger-than-expected growth number. - -- andyrent a curran joins us now from hong kong. andy: china's economy still a relatively stable on track for growth target for the end of the year. numbers, caution on the retail sales side of things. an unexpected dip. we know the consumption side of china's economy has been up for despite widerear, fluctuations. analysts have worried this is a softening trend that could weaken further as property prices are expected to chill. there could be wider uncertainty around china's economy, especially the expert side, given the political change in
the u.s.. the headline was china's economy ticking over just ok -- just ok. people are worried there could be some retail softening ahead. guy: is the japanese data going to get better? we are getting a stronger u.s. consumer, we think, and about to get a weaker yen. big asianother economy reporting numbers today. we saw better than expected dividends. it is really all backward-looking. the floor now. what is going to happen to the asia trade story? the yen a possible safe haven flow. what direction we u.s. economic policy take. we have seen the administration unraveling huge fiscal stimulus that could drive exports. safe haven flows into the yen. a better-than-expected number for japan.
the bigger picture remains with significant uncertainty as to how sustainable that will be over the coming months. guy: thanks, enda. always a pleasure. enda curran, our chief asia correspondent. do you buy the equities market on a cheaper yen? john: i think it will get a lot of support. it has been highly correlated with the yen. the concern is the extent to which trade restrictions on asian economies might be less supportive. but generally i think, yes, it is looking as though -- it is a cyclical market. it is going to benefit from a weaker currency. generally, the more encouraging growth outlook for the market seems to be adopted, and it is starting to get to significant levels. terry's are going much further. it does look as though it has maybe got reasonable upside from here. monday morning, quite a week. are we still in capitulation in terms of people repositioning portfolios? john: this is an unexpected
outcome. you look at the violence of some of the moves. treasuries, emerging markets -- you have got up mexican peso. a lot of investors have been called the wrong way round. until they have got to a position they are comfortable with, you will continue to see moves. it has been quite -- people have not been particularly discerning about what they have done. it is hitting everything. many once we have seen a little bit of position shakeup, people have started to think about the real opportunities. guy: just have to rebuild everything from the ground up. john: you have to think about how the world has changed and how much it might be changing. it will depend how president trump has -- governs and what he follows through on. it is a different world than last tuesday. guy: the head of asset management. stay with us for "surveillance." francine lacqua kicking off the conversation. tom keene will join her a little
francine: donald trump announces an appointment. be chief ofus will staff. bannon takes over as strategist. xi jinping says cooperation is the only option as he speaks with trump. that's that the new president will need to spend big to fulfill his make america great again promise. this is "bloomberg surveillance."