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tv   Bloomberg Markets European Open  Bloomberg  November 17, 2016 2:30am-4:01am EST

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welcome to bloomberg markets. alongside matt miller. what are we watching? let's talk about curve control. its bondnleashing buying operation but is the central bank really in the driving seat or is it the markets that are setting the pace? the dollar index holds above 100 but is the trump rally running out of steam? fed chair yellen speaks later
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today. u.s. market is challenging. flation change the picture? less than a half hour to the european open. take a look at what futures are doing right now in london up .2 is1% on the ftsi, the cac positive and the dax is a slight negative. the boj news that you just mentioned, we will hear from janet yellen and get u.s. inflation numbers and so there is a lot going on with the economy and markets. even outside of donald trump. i run for bid we should talk about anything else at the moment. we'll talk about what is happening in japan a fair amount and what is happening in europe. the dollar and -- the japanese 109.37.ing at
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we are watching what is happening with the japanese story. etal story remains interesting. i and are continuing to retreat. we saw that affecting the miners. and what is happening surrounding policy around the dollar and is that something janet yellen will talk about later on question mark we will find out. let's get up to speed. key member of donald trump's team says the incoming administration is considering how to ask roads and bridges in a way that hillary clinton provided in the campaign and the falcons derided. republicans derided. >> a very big focus is regulatory changes, looking at
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the creation of an infrastructure bank to fund infrastructure investments. there is a lot of things to do and economic priorities are clearly [indiscernible] regulatory trade and infrastructure. president barack obama and german chancellor angela merkel have made a joint call for a socially responsible economy and free trade, pushing back against donald trump's agenda. writing a joint article in a german weekly newspaper they say, we are struggling we work together. the future is already here and return to the world before globalization won't happen. fastestomy grew at its pace, underscoring the nation's resilience to global risk. investments surged and consumers spend more. economists surveyed think the countries gdp is said to expand or than 6%.
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ranking it among the fastest growing in the world. billionaire has said all his stake in public companies which includes citigroup and twitter are potentially for sale. he reversed his long-standing policy that some shareholdings are "forever." citi shares since 1991. and a 436% rise since then. it owns about 5% twitter, valued around $1 billion. >> everything is on the table. we are invested in twitter and seasons, we are invested in tens of companies. it is our impetus to acquire [indiscernible] from any company. open opec nations and
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russia are meeting. oil ministers from iraq and iran will not be there. they are on a campaign. to rent and baghdad pose the biggest hurdles to the deal. 18 hours and -- hours of talks failed to bridge the divide. bloomberg. seekinge governor is [indiscernible] you can see them here in white. the world's second biggest bond market has been caught in the the betoute sparked by
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trump's policies will drive up inflation. and becoming the first foreign leader to me donald trump face-to-face as president-elect. reynolds joins us from tokyo. what are the prime minister's key concerns here when he meets donald trump? isabel: donald trump has sparked an awful lot of concern and confusion across asia but particularly in japan. during his election campaign. the first reason is because of his attitude on trade. the transpacific partnership, the deal that linked the u.s. with a lot of asian countries, he says he does not want any part of that anymore and that is something that prime minister it has worked on and been pastor the japanese parliament. he wants that to come into force. the second thing is trump has made statements that have undermined the alliance between
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japan and the u.s., he has threatened to remo u.s. troops from japan, he said he would be ok if japan develops its own nuclear deterrent. these are not things that a pacifist country like japan wants to contemplate at this point. the feminist or does have a lot on his plate as he heads into this meeting. guy: you do not want to start off with all those big issues, you want to start off with a relationship. isabel: right. that is the way he is going about it. warm thede attempts to relationship with trump. he sent a message of congratulations in which he talked about trump's extraordinary talents and business and how he wants to work with him hand in hand in trump has responded in terms that they have had a conversation and donald trump said he did see the japanese -u.s. alliance is important. took off for abe
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new york, it was a great honor for him to be the first world leader to get to meet donald trump after the election. having a forward to discussion about the respective dreams for the future. he is overseas trying to turn on the charm ahead of this meeting. in generalse issues terms, such as the general benefit of free trade, and the good relationship between the two countries, but i do not think he will get into the nitty-gritty of the problems. he will not want to pick a fight with donald trump at this point. guy: probably not the best policy. us from tokyoning as we watch trump tower for the arrival of mr. abe later on. we have seen an aggressive move when it comes to gtb -- jtb. spikingsee it is sharply. that is the move we have seen
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since the election. that brings us back to the story about what abe is trying to do and what kuroda is trying to do. is the market now driving the story? guest is with us. who is in control of the market? guest: boj. it is a big enough player in the market to credibly defend that target. of zero. the interesting thing will be what happens elsewhere. the biggest -- the bigger the selloff becomes, the bigger the trump tantrum gets, questions will be asked. but in control but having to work harder for that control. guest: i probably said this on here, when the boj -- this is the end of qe but as it has
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turned out to my because we had this bond rout, they could end up buying even more. that the an assumption yield target was going to be part of the boj tapering but in fact, it could be a really large extension of qe. the one thing that supports the boj in the near term i think is limited amounts is credible because they still have a deflation problem guy:. guy:his kuroda -- is kuroda going to last much longer? he always seems to run into these stumbling blocks and never seems to be able to achieve with the boj wants. sayt: the one thing i would about the yield target move, right now, there were questions a couple of months ago about, this is the abandonment of [indiscernible]
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because they will taper. it looks like quite a smart move because it gives them the opportunity to do unlimited qe. having a yield target in an environment where you are having this fixed income shock is quite a sensible policy because it allows you unlimited scope to keep buying 10 year yield. guy: dollar-yen trading at 109? the focus where watching at the moment. how much higher can ago, the dollar -- can it go to month the dollar versus the yen? guest: we think fair value for the yen is 100 and 105. we have gone from a point where -- the yen is getting cheaper. it is interesting in all the dialogue about trade. the focus is usually with the -- china. everyone makes this comparison of what -- the focus was on japan. there is a question about the couldhat the japanese
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drive the dollar yen to 120. in this environment, that is a lot harder. a lot harder for them to do, i think. it is reflecting yields but i do wonder how much further it can go. matt: i am not sure that unlimited qe is a fantastic thing. this would not fly at least in the u.s. and in europe, you would be in more difficult. the bank of japan, this is assets per person. is the purple line, the white line is the fed and the blue line is the ecb. assets person, their balance sheet is exploding, it has come down a little bit over the past few months. it is getting set to go even higher. yeah. here is the [indiscernible] even with that massive expansion, they have yet to
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generate inflation expectations. -- if it was a different economic environment in japan, you could question the quote -- credibility quite clearly of continued purchases. yes, growth is a little bit stronger but i think because of the deflationary environment it is still credible. one thing to watch is the performance of japanese banks -- low we now though you yields have big implications for the financial system. this is not about driving yields more negative, this is about keeping yields at zero. even the impact of that might be mitigated. right now, while they still have deflation, their policy is to keep printing until they create inflation. and the bond market selloff ironically will allow them to do that. thanks very much. you will stay with us throughout
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the open. i want to get to the dutch grocer. reporting earnings slightly below estimates and started ongoing challenges in the u.s. market. the ceo joins us live on the phone now from the netherlands. thanks for your time this morning. you see that the u.s. or analysts say the u.s. market was slightly worse than anticipated because there is more difficult -- a more difficult trading environment, more deflationary environment, does that change now with the trump presidency? thanks for having me on the call. the company is named [indiscernible] byt is good to be known everyone. if you look at the u.s., the year already, we see deflationary environment continued in a way, putting pressure on the u.s. market. we have seen that everywhere in all our markets, mainly by
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, which helps the customers because they have lower prices but for us it is how are -- hard to work because we continue to need perform -- to perform with more volume growth and that is what we did. we saw some more competitive pressure but in general if you look at the whole year, we continue to feel quite solid on the performance we have shown over the first three quarters, i must say. to thest a come back original question, do you think all of those factors are going to change my we have interest rates on the bond markets rising in the u.s. we have a new word to deal with and that is trumpflation. a newt going to have impact as to how your business operates in the u.s.? before, withaid deflation it is harder for retailers and nicer for customers. customers are looking at the us of our product. i do not think that will change
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radically at this moment. meat production and dairy is on the high levels. i am not sure that is related to much to the new presidency, i would say. is going to be an effect, the market is signaling that there will be an effect here. maybe we get higher interest rates coming through from the federal reserve. maybe we start to see wages rising more quickly particularly in certain sectors like construction. i surprised that you are sounding as if you'd do not expect to see a big effect here. guest: the impa on our deflation is driven by commodities. if inflation picks up, that is positive for now. that is positive for the retail industry because we have raising cash rising costs and wages. we can compensate it easier by inflation, that would be helpful for us. if the economics start growing
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for a big market like ours, where -- two thirds of our business is in the u.s., it is also positive. about competition from walmart and others that have a big online presence. how key is that in food and produce, is the market starting to switch for those products the same way the market has switched for other consumer goods to an internet model? guest: it is a great question. we are the number one food online retailer in the u.s., which covers most of the east coast, the largest cities and urban areas, we see customers picking up more and more the ability for shopping online. it is not on the level as nonfood and general merchandise is but people want to trust the supplier in this case. people know our products, our
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fresh products are good and that will drive our opportunities in the u.s. market because we are as i said, one of the leading online grocers in the u.s. also in europe and the netherlands, we have strong presence in food online. do think the regulatory environment will get easier over the next four years? guest: that -- it is too early to judge. the president was just elected a week ago. what for us is important is as you said in the beginning, the economic environment, customers, unemployment, when that goes down, they are positive things for our industry, the retail industry. we are less dependent on -- because people are eating every day and good or bad times but when the economy starts getting more traction, it must also support our customers. the regulatory side, we have been in the u.s. but also in
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europe with strong positions in local markets. we are well-positioned for the future and a merger, we have stronger positions in all our markets than before. matt: i wonder about the infrastructure -- you going to ask a final quick question? guy: you go for it. not only with online product delivery, you have to get all your product to market. how bad is it in the u.s. and how excited are you about the possibility of improvement in infrastructure, bringing down your cost per mile? investment in infrastructure in the u.s. would be welcomed by all the citizens, i am sure. we get a lot of our products out of the southern part of the u.s. and to think about our produce in florida and california.
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that would bhelpful. on the online distribution, it is important that we can reach our customers in an easy way. we can do that in the largest cities wh our vans. if investments rose thugh it is helpful but i do not think that will impact our logtical costs. matt: thank you very much, dick boer. ank you for joining us. we are minutes awafrom the european open. next week take a look at the movers in today's trading. some of the possle movers that you need to watch. this is bloomberg. ♪
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guy: seven minutes to the market open this thursday morning. let's look at the stocks we are focusing on. miners have been volatile. own specific its issues it is dealing with right now. -- two executives were fired. is making it clear that he has not been privy to the internal investigation no has seen any evidence with relation to his termination. it nevertheless, this is going to be a focus, a payment to a withactor the company
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retrospect is saying maybe it had issues with. the two people involved obviously making it clear they do not feel the same way. matt, vw, cars, go. i am at volkswagen, bentley, lamborghini, porsche. of carsnd has a lot under the hood. it is their 14th straight month of declining market share for vw since the diesel scandal last september. you can see the shares over two years and there you see a big drop my september of 2015. stock is still down 25% since then. 10% year to date. we will see how it trades. still with us is like a metcalf from state street global markets. how do you see, michael, the intervention, how do you see the interaction between the u.s. and european member states after trump because germany has been battered with such bank and
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volkswagen getting huge fines in the u.s., not all of them going through getting paid yet. do you think that we will see relations continue to deteriorate? think the risk of political contagion in europe just more broadly than that, is quite high. it is definitely something that investors are focused on. mainly just because it is really unfortunate of the european electoral cycle being what it is. we do have rising political risk generally. you have to assume that there is going to be a difficult relationship between u.s. and europe going forward. the u.s. has become more isolationist. when it comes to the
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spreads -- we will come back and mr. michaelhat with metcalf. we need to start thinking about that. the open is four minutes away. this is bloomberg. ♪ ways wins.
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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. 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. 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.
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there's more in store than you imagine. visit an xfinity store today and see for yourself. xfinity, the future of awesome. guy: good morning. i am guy johnson. matt miller is in berlin. matt has your morning brief. matt: you go. curb control to kick it off. is the central bank really in the driver's seat, or is the market setting the pace? the dollar index holds below 100, but is the trump rally running out of steam? will the next again central-bank the moreto deliver
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than 15 basis point hike expected. we will discuss and break those headlines as soon as they roll across the bloomberg. right now, european markets are just opening up. let's take a look at where they are trading. nejra: well, i am actually starting via 10 year gilt yields. what has been interesting of course, is what the boj has done. that bond route with jgb's a has gone too far. the 10 year jgb yields has gone down. in europe, yields are coming down, too. the same is happening in the u.k. year gilthat 10 yield. in terms of what is
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happening with the stocks, i am looking at the imap. we see a very mixed picture. financials are underperforming, down .4%. perhaps that is related to those fields coming down. the telecom stocks are outperforming, up .5%. materials are up, .2%. oil is holding its voices. the stoxx 600 is pretty much unchanged today, but do not let the lack of huge movement s ince donald trump's victory fool you. i have a chart showing you the intraday moves in the stock600. investors have had to deal with the wildest swing since brexit with the stoxx 600 fluctuating 1.4%. calm, but weparent have seen one of the wildest
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days this year. now, let's move on to the individual stocks i am looking at today. starting with rio tinto. it has fired two of its top executives overpayment connected to a giant iron ore project. holde also looking at a thihold this morning. this is the first consolidated earnings report since it completed that consolidation. and then zurich will cut off $1.5 billion through 2019, a bit of an overhaul for switzerland's biggest insurer. matt: now, let's talk about what is going on in fixed income. the yield gap between the u.s. and german debt levels has widened to a level not seen since 1989. expectations are that president-elect donald trump will expand fiscal stimulus,
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pushing the benchmark u.s. 10 year yields higher. i wonder, michael metcalfe is still with us, the global head of microstrategy, what this tells us about germany and about europe. i mean, is this austerity attitude still prevailing? stoppedaghi has only short of begging for fiscal stimulus. is it ever going to come from the european governments? >> well, i think it will. again, this kind of unfortunate coincidence within the european political cycle will make it difficult. we have got -- we might have elections in italy. we have elections in holland. we have the presidential election in france at the end of next year. i think this is a potential stumbling block. if the world really is going -- g-20 remember thae statement back in september.
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everybody was saying, fiscal stimulus is coming and nobody was caring about austerity anymore. in europe, because you have the political cycle where it is, it might be difficult for them to implement fiscal stimulus. if that route of difference between the u.s. and european fiscal stance continues, that will only drive that gap wider. the inflation in the u.s. is higher as well. guy: we were talking about the idea that the euro, which is trading at 1.07 out, still not pricing in the risk we have seen with previous elections. we are seeing this, which is the italy-germany spread, which is kind of blowing out. why are we seeing it only in the
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bond markets, and not the fx markets? >> this is an interesting question. how the euro as a currency come how to the price individual country risk? right now, we can see the italian referendum risk, as being reflected in the spreads. guy: so, the market is not pricing in any kind of systemic risk or risk to the euro. they do not believe that if italy goes the wrong way there will be any feedback into the strength of the euro. >> i would not quite go that far. risk i think the political is a reason why the euro will depreciate. i think it is different in the sense that if you looked at the skew in sterling ahead of brexit, the risk reversal. which showed a massive premium for investors fo protecting
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themselves. if you look at the same skew for the italianlar for referendum, there is no skew. it seems to be that investors are very much focused on the rate spreads. that does not mean the euros are not going to weaken. matt: if there is downside, it means it will be much more magnified, i guess, because they are not protecting themselves. is that what you are saying? >> i think we are just making the observation of people are protecting themselves from the fixed income space. it does mean that people are less prepared for the euro downside, yes. matt: they're interesting stuff as we look at 1.07. we actually took it down to 1.06 and change earlier.
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right now we are up, but we were down one hour ago, the ninth consecutive day of declines for the euro-dollar. up next, i'lall eyes on janet yellen. then, a fond farewell. obama, the president, bids angela merkel goodbye and passes her a baton for promoting free trade. we will get details, live her in the german capital. then, how times have changed for the chinese currency in the last couple of weeks. could it be something to do with a certain real estate investor turned politician in the u.s.? all that, still to come. this is bloomberg. ♪
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matt: breaking news here on the european open. the royal bank of scotland is opening down. at one point it was down more than 3%. right now, it is down 2.3%. the department of justice is going to want $12 billion, a fine, for mortgage backed security issues during the financial crisis. let's take a look at the rest of the market here and see where we are doing down across the board. the eurostoxx50 is down by .3%. the ftse is very little changed,
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because it had been gaining in futures. of dax and cac are down, 2/3 1% or more. big bounces, guy. guy: we will keep an eye on that. i want to talk about this rbs story because i think there is a deutsche angle on it. if you are john cryan running deutsche, do you say, we are going to wait and see what happens with the new administration? the european banking story is fascinating right now. rbs and deutsche are two of those. but if you look at how the regulatory story is going to evolve from here and the banking story as well, if you are john cryan, how do you play it? will you assume that your bank trades on a steeper yield curve now, and therefore, you will be less worried about the doj
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actions? comment --can't i think the point you make is a very good one. the external environment for banks, because of the steeper yield curve, it's going to be more favorable. i think right now, that is what everyone will be focusing on. that's why banks have done ok, because of the focus on the steeper yield curve. and in some places, the end of qe. guy: that is a big number. i need to come back and look at what rbs is provisioned for. get caught up with the bloomberg first word news. reporter: a key member of donald trump's team says the incoming administration is working on ways to fix income growth and
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britain. they are talking about the infrastructure bank to pay for the work that is being controlled by washingto and funded by 25a $250 billion tax. >> we are looking at regulatory changes. threre are a lot of things to d. economic priorities are clearly taxes, regulatory, trade, and infrastructure. reporter: president barack obama and german chancellor angela merkel have pushed back against donald trump's agenda, making a joint call for free trade and a socially responsible economy. the two leaders said, we are working stronger when we are working to gather. they are standing at a crossroads in the future is already here. saudi prince has told
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bloomberg that all his stakes in public companies, including citigroup and twitter, are potentially for sales. his investment firm has owned shares since 1991, which includes the 98% plunge, and a 436% rise. he also owns about 5% of twitter, valued around $1 billion. >> everything is on the table. everything is on the table. we are invested in lyft, in twitter, in the four seasons. we are invested in many companies. really, it is our interest to divest from any company. global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries around the world. this is bloomberg. thank you. guy: fed chair janet yellen
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gives a much-anticipated testimony today. trumpncludes how donald could affect the path of rate increases. there was plenty of fed speak overnight. mat,, what do we -- matt, what do we see? matt: current nonvoting minneapolis fed president says big moves in financial markets since the election merit watching, but it is too soon to reevaluate the outlook for the u.s. economy. kashkari is the one that said the fed does not pay attention to the political situation, or theoretically should not be. saidhile, patrick parker that he continues to support a 25 basis point rate increase in december. he had this to say on the current policy outlook. >> in our case, the economy that, was two weeks ago, that is
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still the economy today. the markets are reacting differently, but the fundamental real economy did not change dramatically in two weeks. we have to take into account what potential changes would happen in policy that would affect our behavior. luber will speak with -- bloomberg will speak with kashkari, which will come before janet yellen's her speech since donald trump's election. plus, on friday, we will have an interview with the st. louis fed president at 12:05 p.m. london time. by now, i want to get back to michael metcalfe. michael, we heard some talk of the possibility that the fed might want to consider more than a 25 basis point move. most people have sort of poo -pooed that talk. obviously, they will have to follow the market more than the market is following the fed now,
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won't they? poo-poo" wouldnk " certainly be the market reaction. unless you go all the way back to the 1994 cycle, the fed does not surprise when it tightens. now, we are almost 90% priced for december. that gives them plenty of room to do their 25. the interesting thing of course, will be what they do with the dollar. the challenge they have with that is right now, we have no idea how much more fiscal expansion is coming and so, they may not actually change that. the one thing, two things i would say that are important. the first, they do not need to be concerned about inflation getting to 2% anymore. it is almost there. even the for all the -- even before all the trade stuff.
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inflation is there already. and we know that already, the labor market is showing signs that finally, it is generating some wage inflation. the fed will deal with its uncertainties and decide which rate stocks need to go up and i think that will be that communication that will be difficult for them. guy: what will be the losing factor here? this it going to be the dollar? will it be something that comes theater and acts as limiting force on how far this is going to run? >> firstly, i certainly agree there is more on the table. there is a potential for further dollars during. guy: how far, another 5%, 10%? >> yes, 5% to 10%. the other part of it of course, i would say it is not just the
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llar, but the monetary coalition. if they get too tight, too quickly, they might hesitate. remember, the fed is international in its outlook. guy: stan fisher has a pretty global view of the world. matt: what is the fed's biggest concern here? that the market expects the fed to follow with rate rises, but you do not see the economy to get the kind of growth that would merit those kind of expectations? >> the concern on the inflation expectations, you have to remember for years and years in the u.s. now, it has been the other way. actually, if what trump delivers is a more expansionary fiscal policy, and the current fed inflation was pushing it that
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way anyway. i think the question, the risk, as much further down the road. ofm thinking the second half next year, maybe even into 2018, where you could potentially get some of the more negative impact on growth from things like protectionism, which might mean you end up in a stagflation environment. but that is at least six, if not nine months, away. guy: russia's energy minister meeting opec members in qatar today. this is bloomberg. ♪
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guy: 8:23 in london. let's talk about the commodity space. u.s. stockpiles rose, plumbing for a third week. for formalrussia talks today in qatar. the cartel is on a final campaign to reach an output deal before ministers gather in vienna on november 30. manus cranny is in dohar. manus, this meeting is not really about who is there, but who is not there, isn't it? manus: absolutely.
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the iranian oil minister is not there. the iraqi oil minister is not there. let's see who is here. more importantly, this is a gas forum.ng very relaxed going into the conference. the russians are here. iranians are not here and the iraqis are not here. is heatar energy minister ar re. these are the two protagonists. they are the two men who sat behind the algiers agreement. when it comes to doing a deal, it is detail. the market wants to know if they will be cuts and who was going to bear the pain of those cuts.
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matt: how bearish, manus, is the market on the possibility of a deal? manus: matt, you will like this. we surveyed analysts. 1420 analysts say you will get a deal. seven of those surveyed say you look at actual exacting targets and you need exacting targets because those are the hallmark of opec deals that work . without exacting targets, it cannot have a benchmark. what does opec stand for, everybody? oil producers exempt from cuts. not my words, but what i heard in the alleyway in dohar. back to you. matt: actually, manus, i will take it in berlin. we will continue to monitor those operations. still with us is michael metcalfe from state street global markets. the market is fairly bearish on
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the possibility of a deal. oil is still falling, but seems to be holding some ground. if we don't get any deals, is it just demand holding up oil here? >> well, the demand trends have ok. more broadly, you would say that the commodity trends post-trump have been pretty firm as well, which is why we are concerned about inflation. the other question on iranian output is what will u.s. policy be towards iran? trump has said many things during his campaign. we are not sure how many of these things will actually come to pass. ofiously, there is potential limiting the iranian output. i think there is a good deal of uncertainty, i think you are right. demand is one of the things holding it here. guy: thank you, michael for sharing your time with us. joining us from state street
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global markets. coming up, president obama talks trade and says farewell to his german allies. we are live in berlin, next. this is bloomberg. ♪ seeing is believing, and that's why
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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. with high-speed internet up to 10 gigabits per second.
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you wouldn't pick a slow race car. then why settle for slow internet? comcast business. built for speed. built for business. guy: welcome back. you are mocking "bloomberg markets -- you are now watching "bloomberg markets: european open." london is performing a little bit better than most, but i think you can argue that is a fairly flat session with no sense of direction coming through from the equities this morning. you can see that in other asset classes as well. there are other individual stock stories need to focus on. nejra: let's start with zurich insurance. this is an accelerated cost-cutting program. the ceo says the insurance
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industry has a cost issue and we decided to attack it. the challenge to the industry has been the low growth and low interest rate environment. today, zurich insurers also announced a dividend boost. we spoke to the ceo, and we asked him for his take on the incoming administration of donald trump. >> donald trump is definitely a big change, but it is a very new change. we have been in the u.s. for more than 150 years. we have been under a number of american presidents. we look forward to the changes that he will bring. we will face them and we will adapt. nejra: on to another gainer. investec, up 4.6%. asst half earnings, rising
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inflows into the asset management increased, offsetting a decline in the specialist banking division. moving onto one of the losers today. lhaize'sking at ahold de third-quarter earnings slightly below analyst estimates. this is the third earnings reports since the merger was 2.6%.ted with guy: let's take a look at another stock on the move. i am curious why rbs seems to be dropping. there is a report coming out of the "financial times" that seems to suggest the mortgage backed security fine could be as big as $12 billion. now, digging around this story, james pemberton, who chairs the holding group for the government's share in rbs, speaking for the treasury select
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committee, was asked about this issue yesterday. he was saying, it could be anywhere. i just wonder whether or not we are getting into a slight spiral surrounding this story. the market reaction has been a little bit negative. nevertheless, i am wondering whether this is the market -- whether there are balloons being floated here, or if this is feedback into the u.k. f.i. story. taking it back, you can see the banks have done a little bit better, but nevertheless, this is very similar to the deutsche story. matt: exactly. the interesting thing, i think, you know, from the u.s. perspective, the foreign banks seem to get hit harder. the bank of america, jpmorgan, the u.s. banks did not get the
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fines the doj is threatening deutsche with, $14 billion. barclays have come out and said under president-elect trump the european banks might get a slightly better deal because they are the ones that still have a deal left to cut and trump is not a very pro-regulatory system president, ari is not expected to be. -- president, or is not expected to be. that will benefit those that have not cut deals yet. guy: it will be interesting to see what this means for volkswagen as well. tghohose two stories seem to be going hand in hand. -- it will be interesting to know what the conversation is surrounding this one. it would be interesting if they did not talk about it between angela merkel and president obama. i wonder what happens next. matt: president obama and angela
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merkel are great friends. so, you would think she would get better deals for her company under him, but under trump, not the case. they are not the best of friends. guy: are they good friends? rkel? obama and me very good friends. he learned a lot about her and he likes her much better now. she said he was her preferred partner to work with. of course, she has said in the past that she was a little bit concerned about some of president-elect trump's comme nts. we will see how these relationships shape of. up next, peso pain. what will the mexican central bank's next movie as it battles inflationary pressures and crumbling currency. we preview the meeting, next. this is bloomberg.
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matt: 38 minutes into the trading day and this is the european open. let's get to the bloomberg business flash right now. reporter: volkswagen has lost the market share for the 14th straight month since the emission scandal. the german company counts for 29% of the region, compared to
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29.3% one year earlier. zurich insurance will cut costs by $1.5 billion. the new plan should say $1 billion by the end of 2018. the company will also target a dividend payout ratio. switzerland'suls th biggest insurer. underlying operating income rose by 4.3% to 513 million euros. the first consolidated earnings since completing the merger with its belgian company in july. guy: now, we have inflationary questions, the central-bank is yikely to hike basis points b 50 basis points at today's
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meeting, that is according to those surveyed. clearump guide was pretty that much of a guide it was. the emerging market strategist joins us now on set. good morning to you, simon. do any more than 50 basis points? >> the market looks like it is pricing in at least 75 basis points. the mexican peso has recovered 3% to 4%, versus the chilean peso. metals versus protectionism. i think the market is definitely looking for more than 50 basis points. guy: what would be the impact of those higher interest rates? you have an economy that would be dealing with a cheaper currency, but is facing protectionist issues and it is not quite know how it will all fit together. we do not understand fully how
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trump will fulfill his promises. what will be the effect on the real economy? >> mexico is the quintessential of globalization. passed veryhas quickly. we have to follow exactly what mr. trump says on his tweets, probably. the mexican peso will be dependent. this is the media world, basically. that is what we have to focus on. ofen that 80% exports go to the united states, mexico will be very hit of the u.s. decides to go down to this protectionist rruling. matt: donald trump would probably say this is what modern globalization looks like. it is a one-way street. for example, you know there are a lot of workers of mexican
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origin in the u.s. sending money back to mexico every year. roughly 2% of the mexican gdp. are there american workers in mexico sending money back to the u.s.? gdp0% of the philippine comes from people working abroad. in liberia, it goes almost up to 20% of gdp. essentially, what the american economy has to take into account is the fact that it has been very much integrated together with mexico and canada. we are talking about hundreds of millions of exports going to canada and mexico from the united states. matt: i want to pick up on one key word, integrated. they are really sort of irreversibly integrated, aren't they?
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donald trump talked about turning nafta around in reversing these agreements. how possible is that? >> you can ask the same question andt brexit, the u.k. the european union. these strategies and agreements have been made across the decades. to unravel all of that is going to take some time and a lot of legal implications. as you insinuated, it is going to be very difficult. guy: michael mccaul talked about another 5 -- michael metcalfe talked about another 5% to to 10% on the dollar index. can i make that same story therefore, for the emerging markets? where are we? >> the interesting thing is, compared to 10 to 30 years ago, most of the emerging markets are not flexible. you are not protecting your currency through the use of fx reserves. local currency bonds in emerging
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markets has more to go and is more dependent on trump. that is why we prefer to be more exposed to the sovereign credit space, which do not have this implied fx risk in them. matt: where else are we going to see big currency moves? we were talking to a guest earlier who pointed out that maybe the euro has a lot further to fall. some analysts said it could fall to 95 cents by the end of next year. >> that is a very good point. if you look at the fx performance in developed market currencies, there has actually been some underperformance. you can see this relative benefit that emerging market currencies have in some countries because real interest rates are that much higher. in brazil, the currency is relatively protected by a high level of fx reserves.
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so, the ones that are going to be more reserved will be the ones with the lower interest rates. that turkey, south africa, to a certain extent, also russia, but that depends more on mr. putin'sd mr. relationship. guy: we need to figure out what is going to happen with this currency. what have we got coming up? what a difference two weeks make. hebloomberg survey says t chinese currency will hit seven against the dollar. this is bloomberg. ♪
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guy: welcome back. you are watching the open. the yuan will weaken against the dollar in tehe first half of next year. this represents a sharp turnaround since donald trump's election victory. the chinese are going to be ok with this, aren't they? >> i think so. if the united states were to slap on a tarrif, they would
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just say, we will do corresponding weakening. guy: that is a tit for tat kind of relationship, which is not healthy. >> you are absolutely right. we are 100 years after world war i. before world war i, capital markets were very much more open. you had a lot of trade, especially in europe. he would a lot of people traveling around without passports. this is the kind of situation we could theoretically get into some clash on that side. the first step would be a trade war, which we really do not want. matt: so, simon, howard traders prepared for this? are they hedged for this kind of action? >> i don't think you can head yourself for this kind of action. -- i don't think you can hedge yourself for this kind of action. we saw german exporters to russia taking the first brunt of the spillover from the
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depreciation affect. they have to take the brunt. it is very difficult to hedge yourself in the fx universe. matt: aside from a survey, you cannot see anybody putting their money where their mouth is to say, we think donald trump will slap tarrifs on, resulting in a depreciation, you can't measure that by market action? >> i think as we go forward, we will see more and more leaks out of the trump team. we had this talk about the 100 day, 200 day plan. at the end of that, mr. trump could say, we will just tear up the nafta agreement. i think the fx markets will follow those tweets very closely. matt: simon, thanks for joining
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us. , thanks foro-evans joining us. president barack obama and angela merkel have made a joint call for a socially responsible economy in free trade as well, pushing back against donald trump's agenda, writing a joint op-ed. the two leaders say, "simply put, we are stronger when we work together. we are standing at the crossroads. the future is already here and a return to the will before globalization won't happen." during the here in berlin is a german counselor on foreign relations director. thank you for your time. i know you had to struggle to get through the massive their barricades here around brandenburg gate. how important is this? >> well, the visit was planned in a very different way because
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the expectation was that hillary clinton would win. so, this is not a celebration of a continuity with the transatlantic relationship, but it is a reminder of the importance of close transatlantic relations. and a lot of hope is being put into those statements, which claim how important the relationship is, and how important it is that the united states does not turn away from the western liberal order, and they do not question internally their standards of democracy and values. guy: won't a lot of people in germany though, be looking at president obama and saying, effectively, your legacy is about to be torn up. you have failed to maintain any kind of momentum out of your administrationr. is in his presence here in europe going to work against the story that both merkel and obama would like to proceed from here? >> well, europe is also questioning itself in many ways,
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but angela merkel stands a very clearly as a political leader who claims that the achievement of integration remains important. anbd obama with his speech in greece reminded all member states that this is integral. he actually spoke about the fundamental values of european integration. it is true. there is a political backlash in europe as well. populist movements on the left and right of the political spectrum. but if the political center does not claim the value of what we have achieved, i think political ground would be lost to those forces more strongly. that it is interesting president obama has said he loves to work with angela merkel. they have worked so closely together and of so well together and yet, the u.s. department of justice has passed on these massive fines to german companies.
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i mean, companies that are incredibly important to the german economy. volkswagen employs hundreds of thousands of people here. deutsche bank is incredibly important and it could falter under these fines from president obama. isn't there a little bit of relief coming from donald trump, because he is so opposed to this regulation? >> it is hard to predict, but it is true that the fines that have been imposed, that they have seen as being extremely high in europe. it goes to the core of the company and yes, it might collapse because of that. the problem here is, you can hardly do anything, but the perception in europe is there is a lot of politics in the thinking. yeah, from today's perspective, though donald trump speaks against regulation, it is far from sure where he will go.
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matt: how will angela merkel work with donald trump? it is not something she has been looking forward to throughout the campaign. you think she accepts an apology? will she just overlook that? >> i think there will be a lot of pragmatism, simply because the relationship is seven portent. it is not about personal pride. it is really about defining what the shared interest is. i think that is a political task, not only for germany, but europe to point out to the united states where shared interests are, and if donald trump went back to all of what he said during his campaign, not only europe would have huge problems, but the united states would undermine their strategic interests as well. your past to present itself as an interesting partner -- europe has to present itself as an interesting partner. guy: if you were president obama, would you be providing
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angela merkel that she would have to spend more on taxes? currentrump views the architecture as not fit. >> this kind of pressure is well-known in berlin and it is not something that is new with donald trump. the obama administration had also put pressure on europeans, and in particular, germany. the nato summit committed to 2% defense expenditures and germany has not reached them yet. but obviously, the task is far bigger than just the expenditures now because if the united states retreats from nato, europe needs to organize in a much better way. matt: i think guy's question is a good one. unfortunately, we do not have any more time, but we will talk about this during the commercial break. daniela, thanks so much for
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braving the security. stay with us. next up is "surveillance." francine lacqua will kick off the conversation. this is bloomberg. ♪
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francine: the prime minister of japan travels to new york today to become the first foreign leader to meet the president-elect. the businessman versus the president. donald trump navigates more potential conflicts of interest than any other president in u.s. history. and the boj takes on the bond markets. intoentral-bank steps halt the surgeon yields for the first time since kuroda announced his plan to t

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