Skip to main content

tv   Bloomberg Surveillance  Bloomberg  November 24, 2016 4:00am-7:01am EST

4:00 am
francine: the dollar dominates. the u.s. currency drives the markets as investors position for a fed hike. emerging markets feel the fallout. a make or break meeting former rally. monte dei paschi shareholders vote. could the summit spell the end game for the italian lender? trump reveals he will need to borrow through 2021 as he cuts his growth predictions. pre-brexit lawmakers attack the gloomy outlook. this is "bloomberg surveillance
4:01 am
." i'm francine lacqua in london. to our u.s. viewers, happy thanksgiving. we still have a very packed show. in currencies, the dollar extending gains at its highest level in more than a decade as the stronger case for a fed rate hike ways on bonds, gold, and emerging-market assets. u.s. markets are closed for thanksgiving. we will keep you up-to-date with the other market moves. the ecb has published its financial stability review. it goes through a little bit of what we've seen on the markets. they are looking at stability, saying the euro area banks have significant vulnerability. ecb also saying there are sovereign debt concerns and they may return on political uncertainty. the ecb mentioning political instability and policy changes as increasing risk. they look at the things
4:02 am
"surveillance" has also looked at. monte dei paschi is meeting in siena. for more on the banks, we speak to the ecb vice president, vitor constancio, in just over an hour. a meeting is underway at monte dei paschi. we will bring you headlines as investors vote on plans to safeguard the world's oldest bank. we are 10 days away from that italian referendum. juppe gets a final chance to salvage his campaign. italy'sdays until crucial constitutional reform which could see matteo renzi quit as prime minister. later on we speak to one of the most respected italian businessmen. now let's get straight to the bloomberg first word news. president-elect donald trump has urged americans
4:03 am
to put the divisive campaign behind them and rally together. in a message for the thanksgiving holiday, he offered words of conciliation and unity. >> it is my prayer that on this thanksgivingthanksgiving, we bel our divisions and move forward as one country strengthened by shared purpose and common resolve. sebastian: lufthansa's ceo says giving into pilot pay demands would threaten viability. they say the firm stands no chance of surviving if it accepts the workers requests. germany's economic growth was supported by domestic demand last quarter. gdp rose by a seasonally adjusted 0.2%. that is in line with estimates. government spending and private consumption rose.
4:04 am
conservative lawmakers have attacked britain's fiscal watchdog after the office of budget responsibility warned that brexit would cost 60 billion pounds in extra borrowing. a tory mp said he wasn't buying what he called an endless slew of gloom and doom, adding that the prediction should be taken with a pinch of salt. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. francine: thank you so much. these are your markets. the dollar, the story to watch out for. the dollar surge weighing on bond markets. topix is gaining. this is on the back of markets pricing it in. the dollar extending gains at the highest in more than a decade. gold is actually on the other way. japanese stocks climbing.
4:05 am
emerging-market assets dropping. would point out is what we are in terms of oil. at $47.93. there seems to be a little confusion about what russia wants to do. we have that opec meeting next week. watch out for any move in oil. dollar surge continues. officials see a strengthening case for a u.s. rate rise. let's introduce our guest. .rench chief economist great to have you. you look at politics and economics' impact on the market. our the markets getting thing right? there's a reflationary hope on donald trump. will he deliver? simon: i don't think he will. the selloff we've seen in treasuries i think will be contained. 2016,o the start of
4:06 am
everyone was talking about the divergence trade. everyone went weak in the knees. you saw everyone on their parity calls. we are back where we started the year. the dollar doing the job of the federal reserve, moving treasuries higher. the smart money is expecting the u.s. to lose control of its fiscal policy. a lot of the fiscal commitments on the spin side and the tax cut side just add to what has been a very poorly managed fiscal budget for the last 15 years. therefore, treasuries really have to react to the fact that they are going it alone in terms of an expectation of growth. it will have to be with inflation coming through. francine: and if you are going to make america great again, his words, not mine, then you are going to struggle to do it if the dollar is too high.
4:07 am
simon: it is not serving his core vote, who really need not just the policy protectionism that really was dominating the primary and the election campaign, but also he needs a weak dollar to have the bottom equityrcing corporate back into the u.s. he needs both levers working to maximize the benefit. francine: is there any doubt in your mind that the fed will hike in december? do they even care about the jobs report? simon: when we last spoke was a day before the november jobs report. francine: we were still data dependent then. simon: i thought we needed a negative number in order to change course from a december rate hike. i think the federal reserve now will have big question marks over their credibility if they reverse the situation. never rule out the left-field
4:08 am
problem of european politics, but i don't think there's enough events. [indiscernible] i don't think there's material enough to derail what i think is a nailed on path. trajectory,ong-term whether we are going to go on a trajectory of one rate rise a year. francine: pimco still expects three. they are, the markets are, expecting 2% next year. if the dollar is too strong, they might cool off. simon: i expect one next year. francine: 25 basis points each time? simon: that's right. this is because the u.s. is on a path divergent to the rest of the world economy. the dollar is doing as it has fed,periodically for the
4:09 am
doing the job for it, and will take the pressure off, will keep inflation under control, and will generate an automatic tightening in the u.s. labor market. francine: we understand the president-elect may have a heavy hand or would like to have a heavy hand. when looking at the fed, he has two appointments. we understand from hinges visors -- from his advisers that he would make those appointments. he said he wants higher interest rates. does he really? keye does and appoints two positions, does it change your view? simon: i don't think it does. the majority of the fed remains quite dovish. i also think donald trump's comments around the fed preceded his election. am i suggesting the president-elect might be timing consistent? i think he was keen for the fed
4:10 am
to get that rate rise and break of his election. once he gets into the white house, and loose monetary policy supports his policy goals, he will be supportive of a dovish stance from the federal reserve. francine: simon, thank you so much. simon french stays with us for the hour. breaking news from monte dei paschi. we will get back to it later. shareholder meeting has reached the forum. what happens is, they have to go through what they want to do in terms of the share sale, but they need 20% of shareholders to actually show up. we understand there were 22.4% of shareholders, which means they can vote. stay with "surveillance." plenty coming up, including brexit billions. some lawmakers attack britain's fiscal watchdog. we will break down the government's autumn statement.
4:11 am
plus, saving the world's oldest bank. an extraordinary meeting underway at monte dei paschi. we will analyze the banking sector. until italy's crucial constitutional reform. we will focus on political risk in europe. this is bloomberg. ♪
4:12 am
4:13 am
francine: this is "bloomberg surveillance." let's get some corporate news. sebastian salek. sebastian: advisers to donald trump are said to be exploring ways he can greenlight the keystone oil pipeline on the day he sworn into office. according to people familiar with trump's transition, the
4:14 am
issue is being discussed as the president-elect looks to jumpstart infrastructure development and approve the pipeline. is courtinge investors to raise as much as $2 billion for a fund that will buy stake in hedge funds. that is according to people with knowledge of the matter. they say the unit will aim to buy minority stakes in 10 to 12 money managers. thyssenkrupp has proposed keeping its full-year dividend stable. the management and supervisory boards recommended buying a dividend of 15 euro cents a .hare for the period that is the bloomberg business flash. francine: thank you so much. getting some breaking news out of south africa. group, theylabor have huge powers, a little like labor unions in the u.k. pre-
4:15 am
margaret thatcher and we understand south africa's biggest labor group is backing ramaphosa to succeed jacob zuma. on the news just a couple you cannot, and underestimate how much power that group has, saying they back amaphosa. we will have plenty more on that breaking news. equity markets up across europe. let's head to the bloomberg for your asset check. happy thanksgiving. mark: no trading in the u.s., but the bloomberg dollar spot index is tracking. this is the gauge of the dollar against 10 years. it has risen since trumps speculation his
4:16 am
policies will mean a quicker pace of monetary policy. minutes from the fomc meeting say officials saw a case to raise rates, with some saying the hike should have in december. asian currencies trading at levels we haven't seen since just after the financial crisis. 2009.west level since since trump was elected, this gauge is down 2.6%. today, the rupiah in india, record low. you get the gist. spanish gdp, big data today in line with expectations. 0.7% growth led by household consumption and public expenditure. a year ago, the economy grew 3.2%. prime minister rajoy aiming to negotiate the budget for next year in a highly fragmented and
4:17 am
hostile parliament. the u.s. is closed today but i thought we will look at the s&p 500. the blue line is at a record. the white line is the credit suisse fear barometer index, which has fallen since the day before the presidential election. it has dropped to the lowest level since february. francine: thank you so much. coming up, is it all doom and gloom? the u.k. chancellor has warned that grexit will cost 60 billion pounds in extra borrowing. we will discuss the outlook next. this is bloomberg. ♪
4:18 am
4:19 am
4:20 am
4:21 am
francine: this is "bloomberg surveillance." pre-brexit lawmakers say they don't believe the doom and gloom being forecast by britain's fiscal watchdog. the office for budget responsibility warns that leaving the e.u. will cost 60 billion pounds in extra borrowing. philip hammond presented the forecast. >> today's forecast is for growth to the 2.1% in 2016, higher than forecast in march. growth, the obr forecast to slow to 1.4%, which they attribute to lower investment and weaker consumer demand, driven by greater uncertainty and higher inflation, resulting from sterling depreciation. francine: let's bring the u.k.'s
4:22 am
shadow international trade secretary, barry gardiner, and still with us is simon french. overall, does it feel a little bit nasty? we have the obr forecast. they are neutral as far as i know. then you have pre-brexit lawmakers saying they are tainted. is that youoint have to take the forecast seriously. nobody is saying the forecast is going to be absolutely spot on, but it is a forecast. it is the mid estimate of where we are likely to be. we've got to work to that figure billion, at the cost of brexit. that is a heck of a lot of money. most people in the country would be saying, i thought this was supposed to be good for our economy. we were told before him that this is something we should do because it is good for britain. francine: without politicizing,
4:23 am
and on the economy, and i know you are on the opposite side of the chancellor, what did you make of the statement? barry: i'm always pleased when a sinner repents. for the past six years, we've been saying we need to have investment in infrastructure, and this was really important, that we should barter -- borrow in order to invest. have,lighted that they i'll be at in a more limited way, decided to do that. i think that will boost growth in the economy. there are other aspects of what was announced yesterday that are worrying. if you think of a marginal rate 63%, that is quite staggering. yet that is what the chancellor introduced for those on universal credit, saying that as long as they only took back 37
4:24 am
pence in every extra pound they managed to earn, that was enough incentive for them. if you look at what he's saying for the richest 1% of the economy, he saying you couldn't possibly ask them to take less than 55% because that wouldn't provide incentive. there's something deeply wrong with the structure of an economy that says 37 pence in the pound is enough to incentivize the very poorest, but not the very richest. simon, first of all, i thought a quality was one of the big things theresa may put in her speech on monday, but at the same time, it is a tough line. they still need to attract investment in businesses. they do want to make a more fair society. simon: picking up on barry's point, the marginal withdrawal rates, moving it down to 63%, it
4:25 am
is a distinct improvement from what the government inherited. when i worked at the time, there were marginal rates of greater than 100% on a lot of taxes. that is not to say that a marginal tax rate as high as it is is great, but it is the balance that government has to strike right now between fiscal discipline, particularly on current spending, and trying to provide what is much-needed on the infrastructure side to make sure that not just is the corporation tax environment attractive, open labor market, but crucially, both the hard infrastructure and the soft infrastructure is consistent with running a world-class business. francine: can we reflate the u.k., a little bit like what donald trump is doing in the united states? inflation is already going to rise. simon: we do need to be much
4:26 am
more careful. the case for big fiscal expansion was when unemployment was at it percent, 7%, 6%. now we are at full employment in the u.k. and the u.s. the case for stimulative fiscal policy is much reduced. barry: the problem here is, you can decide that you are going to put this investment into infrastructure to grow the economy, but if you don't have the skills to do it, you are not going to be able to grow those companies. francine: thank you so much, barry gardiner and simon french. stay with us. we talk trade next. ♪
4:27 am
4:28 am
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.
4:29 am
you wouldn't pick a slow race car. then why settle for slow internet? comcast business. built for speed. built for business. i've spent my life planting a size-six, non-slip shoe into that door. on this side, i want my customers to relax and enjoy themselves. but these days it's phones before forks. they want wifi out here. but behind that door, i need a private connection for my business. wifi pro from comcast business. public wifi for your customers. private wifi for your business. strong and secure. good for a door. and a network. comcast business. built for security. built for business. francine: this is "bloomberg surveillance." i'm francine lacqua right here in london. let's get to the bloomberg first word news with sebastian salek. sebastian: donald trump has urged americans to put the
4:30 am
divisive political campaign behind them and rally together. in a message for the thanksgiving holiday, he offered words of conciliation and unity. >> it is my prayer that on this thanksgiving, we begin to yield our divisions and move forward as one country strengthened by shared purpose and very common resolved. ceo says: lufthansa's giving into pilots' pay demands would hurt viability. he says the firm stands no chance of surviving if it accepts the workers' requests. european parliament president martin schultz said he will vacate his position to return to german politics. schultz, who has led the european body since 2012, will .un for a seat in the bundestag the move comes as speculation swirls over who from the social
4:31 am
democrats will challenge angela merkel for the chancellorship. little news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. francine: thank you so much. monte dei paschi has been on the edge of collapse for seven years. the new chief executive has until the end of the year to raise 5 billion euros, seven times its current market value, and almost 28 billion euros in soured loans. his proposal faces shareholder scrutiny. a meeting is currently taking place. let's bring in bloomberg's managing editor for european finance, elisa martinuzzi. also with us, simon french and barry gardiner. all, a sigh of relief. they needed 20% of shareholders to show up. they've reached that. what are the actually voting on?
4:32 am
elisa: the shareholders are voting on this big recapitalization, unloading 21 billion euros of bad debt, and of course, raise capital to mitigate the hit from that, from those losses that will emerge. that will involve a combination of debt for equity swaps, plus straightforward share sales to what we think are going to be new investors. francine: i think we are just getting a little bit of breaking news from the ceo, saying the plan will allow the bank to the more solid. that seems pretty self-evident. what happens next? what are the chances of this not passing and not reaching their goals? elisa: i think the focus is going to be on how this plan will unfold over the next few weeks. you've got a very rocky period. you've got the leader for the
4:33 am
italian referendum, which we understand is going to be quite critical on investor appetite for italy, and for banking stocks. this will represent a premium to the rest of the industry. investors are going to ask themselves, what am i paying for here? francine: let's say it all goes horribly wrong. we don't know, so we don't want to speculate, but is it a systemic risk? francine: potentially. you had the rocky path in the summer where shares were falling considerably and you had the fed pointing to the italian bank as an area of concern. dominory is it has a effect on the rest of the industry. you've got a lot of italian banks facing similar issues. piles of bad debt and needing to raise equity. the other italian bank that is soon on the market is unicredit. francine: the major problem is
4:34 am
these mailing rules. is there any way to get around them? elisa: at the moment, this is what has forced them a little bit, this idea that state money is no longer on the table because of the law that would force losses on stakeholders. in italy, a lot of the bonds -- exactly. that really isn't something that governments would find passable. francine: we're also hearing precedentlan has no in the italian banking industry. you've covered this industry for a very long time. is it too ambitious at a time of political uncertainty? elisa: i think investors would agree the timing could hardly have been more difficult. francine: thank you so much. always great to have your insight. you have an eagle eye on what is going on. italy's referendum, as we were
4:35 am
hearing, is a key factor in the monte dei paschi fan. let's break down a little more on the political risk. we are back with simon and barry. simon, when you look at italy, i don't know what you concerns the most, italy and the banks, or france and the elections? simon: probably italy and the banks because of the question that poses over the european currency and the structures that underpin it. i take slight issue that the bank rules have changed the game. what we've learned from almost a decade of crises is that the rules change quite quickly when things become quite a cute. we found that in 2008. we found it again in 2012. i think we find it again if this bailout starts to spread into a systemic risk. the french presidential election, by contrast, feels very repetitive on a political level with brexit, with the
4:36 am
election of donald trump, and one of the things -- we will have the same questions over marine le pen if she is successful in that election, whether the rhetoric that gets her elected will be followed through. then we talking about the restoration of the franc, a referendum on the european union, then you get a political rather than a systemic risk. francine: barry, you are a politician. -- was brexit similar to what we saw with donald trump? is there anything that european politicians in italy and france can do to take the sting out of this voter anger? barry: italy and france are intimately connected. the reason that we're thinking the elections may go to the far right in france is precisely because of this anger within europe, and across the world, with the way in which big
4:37 am
financial institutions seem to be able to get bailed out, the way in which people feel at a very local level globalization is not working for them, and there has been a very clear response from the political right, which has said the reason for this is immigration, and the reason for this is that you are losing your jobs because the big financial corporations are taking this. we need to have an alternative political perspective to that. it will be interesting to see if the french candidates against marine le pen can provide that. francine: there's a tv debate between francois fillon and alain juppe tonight. barry is talking about, i don't know if it is hatred, but the anger against bankers or banking systems. in italy, it is different. i guess the italian families have held so much of these bonds, and it is a different
4:38 am
relationship in italy. elisa: i think for the italians, it began to bite last year when there were a couple of small bail ins, then it hit home. aside, itpaschi hadn't effectively need in any bailout, as we seen in the u k and other countries. francine: how can you be sure, .imon -- this is a catch-22 how can you be sure the european union would change the rules if we haven't had any indication so far? merkel is going up for election in seven months. simon: the behavior in terms of, times like this we always like to quote dennis varoufakis. he comes up with very quotable quotes. the rules change on a sixpence. they make them up as they go along. that is not a criticism. you've got an evolving unitary system.
4:39 am
without fiscal and political deepening, that is a problem in france and italy. it is a crossroads right now. we either go down that journey note recognize that it is political and you start to pull back. they are reluctant to have that debate. barry: varoufakis also would point out that it was the european central bank breaking its own rules in order to bail out countries like italy that has precipitated part of this whole crisis. and the way in which you do this would not be, well, we've got to get closer political union to stabilize the financial system. we've put the cart before the horse. without the political union having been there in the first place, you do not get solid financial systems. francine: he also quoted "hotel california" once. from vitorhearing
4:40 am
constancio. we are speaking to him about stability in the banks. he's saying it is quite difficult to anticipate the impact of the italian referendum. thank you so much for a stimulating conversation. elisa martinuzzi, barry gardiner, and simon french. coming up, stay with "surveillance." as italy faces a potentially disruptive referendum, we speak to the former ferragamo ceo about luxury and reform. the ecb warns of market correction on heightened political risk. we speak to the central bank's vice president. the indian rupee hits a record low as e.m. currencies drop to lows last seen in the wake of the financial crisis. we break down the mornings market moves. ♪
4:41 am
4:42 am
4:43 am
francine: this is "bloomberg surveillance." in 10 days, italians vote in a crucial constitutional referendum. at stake are not just the reforms on the ballot paper, which include slashing the number of senators, but also the future of prime minister renzi, who threatened to quit if the measures don't pass. we have the former ceo of ferragamo. simon french is still with us. always a pleasure to have you on the studio. you are italian. you follow italian politics. that we gocerned back to political turmoil? michele: the point is the
4:44 am
referendum is a very unsophisticated instrument for a constitutional reform, which is itself quite complicated. you are modifying a number of articles in different parts. for voters, it becomes quite difficult to understand the mechanism and to enter into the context of reforms. pro or vote tends to be con the government because of the past two years. and there's also a lot of people who may not go and vote because they did not understand exactly what happened. i think it is an exercise of democracy. in this case, you have no alternative. you cannot modify the constitution without the referendum. i hope people will try to understand. francine: we saw it with the
4:45 am
brexit referendum here. you were in charge of ferragamo, one of the best and biggest italian listed companies. there is an italian discount that goes on to a lot of the companies that are listed, which is completely out of your control as ceo. michele: i would say that the political impact could be less than what is currently expected. and the end of the day, i don't expect, even in the case of a refusal of accepting this reform, there may not be an immediate change because our limit is going to stay longer. probably it is going to be spring 2018. the impact on the economy is going to be mostly financial. italy has high debt.
4:46 am
impact.ld be an volatility,se is the unpredictability. while we did have for the last 18 months, if you want a government which was able to volatility, theperform, we have companies in the luxury very active internationally, promoting italy, promoting the brands, so hopefully stability -- simon, this goes back to the moves in yields. how much does it have to do with treasury movement and how much does it have to do with political uncertainty? you could potentially have a technocratic government. simon: we have seen the spread bundsn italian bonds and blurred a little bit, but you can barely see it on a long-term
4:47 am
chart. with a very active ecb, the big question would be whether anything would affect the bond buying program, and i don't think it would. i think what is much more interesting is to see whether the result, when it comes to pass, develops the kind of political turbulence we've seen in previous referendums. what i found fascinating is, you've got a very complex referendum question, difficult for people to work out. whether to vote in what is a binary outcome. perhaps there's a lesson there. if you are going to use a referendum, you have to have a very narrow question in order to get the kind of outcome that promotes democracy. norsa, it is ale very unfair question, but do you think matteo renzi could stay on if it was a no referendum? michele: i hope so.
4:48 am
i think the majority has been working nicely and at a decent speed. parties which are supporting the no, it is quite a complicated group of people who could not really joined together. and i believe that the stability should be for everybody in a country which is starting to accelerate its economy and increase the number of jobs. then there will be elections and the new majority. i think stability would be a win. francine: michele norsa, thank you so much. simon french, thank you so much for your time. up next, sluggish sales at home and slowdown in china. we will focus on the challenges facing the sector. we want get more thoughts from michele norsa. this is bloomberg. ♪
4:49 am
4:50 am
4:51 am
francine: "bloomberg surveillance" looking at luxury. european stores struggling to
4:52 am
attacked tourists in the wake of terrorist attacks. what does the next 12 months old for the luxury sector? with me today, michele norsa, former ceo of ferragamo. great to have you on the program. when you ceo, we spoke quite often. you were numbercrunching. you were looking at a lot of data to see where people shopped, what they bought, and what they spend on. do analysts in the markets get wrong about luxury? michele: i think it is the speed. what i've been facing is for many years, the growth of all the sector, the strong domestic consumption, and in addition, some travelers. all of a sudden, it changes dramatically. the travelers are the spenders. the chinese are becoming the number one driving force in the industry.
4:53 am
inside the chinese is a very young group of chinese. i was reading yesterday that 87% of young chinese travel with a shopping purpose. chinese, maybehe one fourth is younger than 25 years. so we are talking to a totally new consumer who is very well-informed. francine: what do you mean by well-informed? what do they want to buy? is it classics, is it new? michele: for several years, it was logo. it was more compulsory and imitation. people wanted to have something they had seen. now they look more for the product. they look more for quality. gifting was the most important movement. now we see that the young people , and there is a concept of global pricing, which is not only related to luxury.
4:54 am
but in luxury, it really moved the market. they change destinations. the change has created ups and downs in the different regions, and in distribution of the company. not all the companies are distributed evenly. them, fashion -- [indiscernible] less, everybody is more or depending on china. combiningbeen now traveling spending with domestic spending. the government is very strong in trying to implement domestic spending with control at customs. geographically, inside china, it is difficult. francine: what makes a good luxury company? we see the turnaround at gucci because they did something the
4:55 am
consumer wanted at that moment. how can you make that happen? i think product and creativity are fundamental. it is very difficult to create value. we did for a certain time, even with limited creativity being well-balanced, well-managed, the active market and the changes, but if you have genuine creativity as they did, if you are able to promote it, develop in a very short time -- because in 12 months, they were able to -- francine: is it advertising? michele: it is a combination. it is mostly the reputation, the perception. people get the perception. media looks always like being something which has been driven, prepared, manipulated.
4:56 am
bloggers, and i'm talking about the smaller bloggers, not the bigger bloggers, but the small blog people who have 12,000, 15,000 followers -- francine: that seamlessness, right? michele: they spend all their time on the web. they see the product and the message. and probably people had also been looking for the difference. the luxury product must be unique. francine: i could speak to you for another three hours. come back very soon. michele norsa, former ceo of ferragamo. we look at a lot of emerging-market currencies. we are seeing a huge retracement the cause of dollar strength. this is bloomberg. ♪
4:57 am
4:58 am
4:59 am
francine: the dollar dominates. the u.s. currency drives the
5:00 am
market. emerging markets feel the fallout. turkish lira hits lows. shareholders vote on the rescue plan -- could the siena summit spell the end game for the italian lender? cutting growth predictions. lawmakers attacked the gloomy outlook. have forecasts become too much politics? this is "bloomberg surveillance." i'm francine lacqua in london. to our u.s. viewers, happy thanksgiving. to all the others, it is another day on the markets. this is your asset check. the dollar, i benchmark it .gainst again -- yen dollar extending gains at the
5:01 am
highest in more than a decade. about a strong case and it is basically the minutes. japanese stocks climbing. crude oil, $48. inhave the opec meeting vienna next week. we will have plenty more on your markets. let's get straight to the first word news. marcus: thanks very much. in france, one last chance to salvage a campaign for president. fillon in a nationally televised debate. juppe was the favorite to win the presidency, but he finished a distant second to fillon in the first primary round. pre-brexit british lawmakers are attacking the fiscal watchdog over how much it will cost to
5:02 am
leave the european union. it warned that brexit would cost $75 billion in extra borrowing. several lawmakers say they don't believe that estimate. in iraq, residents of most so -- thel are fleeing by hundreds. they are trying to avoid being caught in the crossfire. mosul is still home to one million people. the iraqis began the result last month. u.s. president-elect trump is expected to name billionaire investor wilbur ross as commerce secretary. ross made his fortune by acquiring and restructuring several companies. it is a sign that chinese billionaires are expecting china and the u.s. are not on a collision course.
5:03 am
they think the u.s. president-elect trump will move away from his protectionist pledges. the leaders of both countries are smart enough to find the best way to cooperate. i'm not particularly concerned. i'm optimistic about the changes a businessman turned president will bring to america. it to america. it is worth looking forward to. maybe there are some opportunities. markus: guo says trump won't be able to engage in a trade war with china because of the two countries' common interests. this is bloomberg. thank you so much. hour is theor the blackrock institute senior director and the bloomberg senior columnist. we have so much to talk to. we need about 20
5:04 am
hours to get through all the news. our markets ahead of themselves? just givehey seem to it the rubberstamp the donald trump is going to reflate the u.s. economy. >> they are picking up on some of the trends that were in place anyway. the stronger economic news has been coming for a while. the employment numbers are very full. expectations have been rising. electionhat the trump has done has magnified those trends. and created this duration tantrum on the bond markets in many ways. are the markets ahead of themselves? they are bound to have a full at some point. if you do see any degree of animal spirit on top of this full employment level, then the inflation numbers are going to start looking up in actuality.
5:05 am
not that that matters. what matters is the shape of the yield curve and the shift up. francine: there is a funding problem. if yields go up. if dollar goes up, there is tightening for the fed and if it goes up to much, it is not the america -- ewen: we are crossing the divide between where everything was going to be terrible. party.e: two now, ewen: we have been wishing for animal spirits for a while and we are getting too far out of control. the pendulum will shift to far and it will be a rotation in due i mean, there is bound to be this rotation.
5:06 am
the controlling factor is where long yields go in real and nominal terms. francine: mark, quantify animal spirit. we are near full employment. what exactly are we looking at for animal spirit? >> it is still all about the central banks. it is what they do. the only thing driving the markets at the moment is exactly that. what all guesswork with trump is going to do on infrastructure spending. u.k. yesterday. that did not look like a fiscal reset to me in any way. ewen: the capital spending in parliament has been moved up by 20 billion pounds. mark: look at the base level. i would say the same about bond yields. at italy. you have had a big jump in italian 10 year borrowing costs.
5:07 am
the real thing that matters is what does it mean for central-bank action? what we still don't know is whether -- francine: it is a hike, isn't it? is there a way you see it reversing of the dollar is too high? mark: the policy has been incredibly accommodative. we are coming back from incredibly accommodative to fairly accommodative. ewen: the question is whether that and the widening of corporate bonds and high-yield spreads relative to this backup and bond yields raises real rates enough to dampen down the bonfire. back at it.go last december, we thought we were going to get for more rate hikes after we got one and we are getting one. next year -- francine: now, we are spending, now we are building roads, aren't we? mark: we are guessing at whether
5:08 am
we will build roads and what donald trump will do. ewen: here's the pushback point about the truck plan. essentially, he is going to hand legislation to house republicans . they are not fans of the deficit expanding. francine: he is their guy. ewen: they wanted to be funded. it to be funded. there is a big-time last between saying you are spending the money and then the spade in the ground. francine: mark, let's bring in the bloomberg terminal. can we ever call a fed rate hike a done deal. this is for next year. there are expectations of two increases next year. are getting ahead of ourselves? mark: that is still really not a lot.
5:09 am
you still don't have much nominal tightening. .wen: i would agree with mark numbers are the sticky aspects, nonfood, nonoil, they have been driving up. inflation expectations are rising, as well. we are going from super accommodative to accommodative. francine: i know, but you are the only one that is trying this. divergence play is huge. iside in what is in the u.k. getting bigger and bigger. can the u.s. sustain it? mark: rate cuts, no question, bank of england. rate cuts, rate cuts come all next year. if you look at what the futures market says -- francine: they are not going to increase anytime soon. mark: hang on a minute. the doom and gloom scenario for brexit has not gone through.
5:10 am
you could see people expecting a bank of england increase in net -- the next year. ewen: i think the fed is on its slow pathway. , the ecb,l banks next of course. the question of whether there is pushback within the government council to lead to any sense of desk on the september -- december statement, everyone will be pausing to hear about any sense of a pullback. francine: the problem is that if you have political risk and we will talk about the italian referendum, the french election, and mario draghi has tried to keep these bond yields artificially low so you can't
5:11 am
see that risk, it would be unwise, i would imagine, to unwind that safety blanket. mark: i think there is interesting potential around this question. francine: the dollar has been there for a while. ewen: the reasonable lending figures, an economy which is not exactly in a disastrous stage in northern europe, whether that starts to get -- mark: that, to my mind, is the most important switch of the pendulum. not whether the fed does two or three next year now because the fed has already -- francine: what are you expecting them to do, the ecb? mark: i think they will probably stay where they are and they will try to do nothing and december and then the market will say, why are you doing nothing? francine: but the banks. are they worried about the banks? ewen: i think they are worried
5:12 am
about the banks. ,he facts they keep repeating how bad with the banks be if we had not done what we did? mark: the banking industry needs to sort itself out. it is not the ecb's job to keep the finance industry afloat. to your point about the banks, the ecb providing liquidity because of the shortage of high-quality collateral. that is an expansionary policy. francine: it certainly is. coming up, we have a great interview. thank you so much. both stay with us for the hour. the ecb warning of an abrupt global market correction. coming up, we speak with the ecb vice president about what investors should be watching.
5:13 am
5:14 am
5:15 am
francine: let's get straight to the bloomberg business flash. markus: the ceo of move tons a warnsthat -- lufthansa that getting into striking pilots would be dangerous. they say it is about the future of the airline. have forced the cancellation of 1900 flights. hundreds more may be scrapped tomorrow. germany's largest steel maker plans to leave it for your dividend unchanged. they posted yearly profits that matched estimates. they have been trying to turn into a more diversified group. they get more than half its
5:16 am
profits from its elevator use. the world's largest tequila maker has put its plans for an ipo on hold. according to a person familiar with the metal, who is a cuervo j --ose -- jose cuervo wants to take a look at investor demand. that is the bloomberg business flash. francine: i know a couple people on the markets, possibly sitting here with me, who could use tequila shots. [laughter] hascine: the indian rupee tumbled to record lows. added to this, local yields have .ampened so, we are seeing a record low. is it going to be a problem politically? >> it is not.
5:17 am
is 86 to the u.s. dollar they have been selling to the tune of nearly $3.1 billion in stocks and bonds -- if you compare the kind of situation that india is in today , 2013 low was when they faced the current account crisis. compared to $1.3 billion. macro economics are far stronger than what they were in 2013. this is largely dollar gaining ground then rupee losing ground, in a sense, thanks to president trump gaining office. , itulation has been rife will be going on all sorts of deflationary policies and that will perhaps coincide with hiking interest rates. on the
5:18 am
this is not a hostile concern, at this point. francine: right, but i'm looking at a note from a central bank official, saying that it will take appropriate action, very central bank speak, to deal with the currency's decline. are they thinking of intervention or does it just mean that they are monitoring the situation? , the bank oflly india does not have a specific level of rupee that they intervene, it is only what markets speculate. india undernt of narendra modi's leadership withdrawing currency in 500 and thatrupee denominations, has caused headlines and disruption in the life of the common man. the bond yields of tumble this
5:19 am
month. the fall in the rupee at this point in time, while it is an important milestone, it is seen as yet another level of the currency. the democratization story is the real important part of this story is theation real important part of this. it is why non-indians have been taking money out because of concerns around how sharp the short-term impact does the de -monetization impact cap. emerging market, are they in a better place.
5:20 am
are they strong enough to withstand outflows? currency gets cheap, it becomes interesting to buy those markets. that is what will happen in india. ok.funding positions are this notable increase, sales of bitcoin are up, macau gambling revenues are up. there is clearly, the pace of the devaluation is beginning to develop domestic -- that is what happens. it is less whether you or i take out money, it is of the domestic employers lose confidence in the currency. francine: thank you so much.
5:21 am
ewen both stayd on. troubled bank can turn a corner, they say, but will his proposal be bought? we will discuss the plan and a potential reaction later this hour. this is bloomberg. ♪
5:22 am
5:23 am
5:24 am
"bloomberg surveillance" on this thanksgiving day. i'm francine lacqua in london.
5:25 am
the ecb says rising political uncertainty poses a threat to banks. let's go straight over to frankfurt. matt miller is there with the ecb vice president. over to you. matt: we are thankful for this new stability review. it only comes every six months. let me ask, first of all, vice president, how you view , given thek policy jump we have seen in yields. so far, it has only gone in one direction. conclude if soon to this is a continuing trend in the same direction or not. we will keep the expansionary stance of our monetary policy,
5:26 am
which we have announced and have cap -- kept. we will have to see if this trend will continue and become more significant. i think the market has been dominated by institutional investors and they will really have also to consider the reaction to any potential continuation because they are invested in the market in a big way. matt: so far, though, we see some strong economic numbers coming out despite brexit. spain posted a gdp of 3.2%, not bad. expectation is pretty strong. inflation expectations are also up. does this mean you won't have to extend the bond buying program past march? mr. constancio: well, no comment on that.
5:27 am
inwill have our assessment the governing council of the ecb in the near future about that, so i don't want to anticipate. ofcould keep the degree monetary stance in our policies. our policies, including the unconventional policies, would be in place until we are convinced that there is a sustained path toward our objective in the medium-term inflation just below 2%. that is our commitment, which is also behind our forward guidance concerning interest rates. and ourward guidance program as background objectives of being expansionary until we
5:28 am
can conclude that, indeed, we are in a sustained path to normalization. matt: will you be able to reassess the current qe program at the december meeting given that you will have had more than a month since the election in the united states? mr. constancio: almost certainly, we will have more information. time considering the new data. we are encouraged by the fact that, as you mentioned, there are better indicators both to growth and inflation. no major shock will happen. that is very likely. willhile, next spring, we have an place and well above 1%. .hat is a beginning
5:29 am
we have to be convinced we are in a sustained path to our goal regarding inflation. matt: would a no vote on the italian referendum constitute a shock to the system? you warn about this wave of populism, is that a populist vote, no to the referendum, or is that more a vote of confidence, no confidence in matteo renzi's leadership? mr. constancio: it is very difficult to interpret help people consider their vote in a referendum. people vote for all servants -- sorts of motivations, including judgments on the government in place. it is very hard to predict what will happen and what will be the consequences for the political situation in italy. just have to wait to see
5:30 am
what could happen in case of a know in the referendum. as you know, a yes is still possible. the polls have been wrong in many places. there are also many undecided. so, it is not useful to speculate too much at this stage. we will have to see the repercussions. the chance of a market correction amidst this volatility. how serious do think that chances? do you think all of the participants in the european markets are prepared for market correction? >> let me elaborate a bit. seeing ae are correction coming from the u.s., because the market perception is that there will be more growth and higher in relation in the u.s. -- inflation in the u.s.. to other parts of
5:31 am
the world and particularly europe, are not totally clear. accompanied may be by some protectionist measures that would reduce the impact on other parts of the world. that development has also increased the exchange rate of the loan. mostlys been disturbing emerging countries. not so much europe. for europe, i think the ecb will continue to exert its role. i don't think there will be significant contention to europe. and that the changing financial prices could only really continue in the same way as the u.s. if growth and inflation would increase also in europe.
5:32 am
any case, it would be a normal thing to happen. >> what other results, the u.s. has seen a strong dollar, the euro last week had 10 consecutive days of declines. of course it was famously mentioned that there were , are youoves here concerned about that? and does the strength it -- of abilityar hamper your to be accommodative? the exchangeo: rate is not the target of our policies. it is the market that commands -- it has consequences, of course. but it is not our target. i would be more concerned with the impact of these developments in your emerging countries and
5:33 am
potential deceleration of growth there. this would affect world trade, also. indications on europe are not the concern for us. anything, it should potentially an werease in inflation but don't account with that. pathnt to confirm the same towards our goal based on domestic drivers of inflation. that is our mandate and that is thesey to ascertain normalizations of inflation. >> thank you so much, for your time. back to you. francine: thank you so much. at mark gilbert
5:34 am
and what we just heard from the vice president, it is one of the first time the ecb has said there may be a market correction. a lot of what he said is very straightforward and clear and excellently put. particularly the point about a sustained recovering, sustained inflation and being behind the curve. policy routes central banks are taking. side, there are a lot of populist movements , populist parties in italy over 50% now. lastdiscussed over the election cycle. be internally looking into stimulating directly the domestic economy.
5:35 am
it would be unkind to describe it as a sugar rush, but it involves borrowing money to bring demand for the future. if ecb is concerned about the thing actually gets away from them and they are chasing it. francine: much more on the interview and the ecb next. but let's get to the first word news. marcus: president-elect donald trump is calling for union -- unity after a bitter election. >> it is my prayer that on this thanksgiving, we begin to heal our divisions and move forward as one country, strengthened by shared purpose and very, very common resolve. marcus: trump acknowledged that emotions are still raw from the election and tensions and heal overnight. trump is expected to name billionaire investor william
5:36 am
roth to be commerce secretary. fortune byis restructuring trump's companies. meanwhile, the president-elect nominate nikki haley to be ambassador to the united nations. she is the daughter of indian immigrants. he also offered the secretary of housing to neurosurgeon ben carson, who ran against trump for the nomination. the federal reserve isn't likely to go against the evidence. the economy looks strong enough to withstand another interest rate hike, according to the minutes of their meeting earlier this month, central bankers -- stock markets are hitting record heights and indications of inflation have moved up. they meet again on the 13th of december. global news 24 hours a day, powered by more than 2600 journalists and analysts in more , this iscountries bloomberg. francine: thank you.
5:37 am
forecastss lowered for next year and amounts -- announced and increasing government borrowing. with me on set, mark gilbert and cameron. first, i don't know if it was a good idea to scrap it, but it tends to be largely applauded by economists. what did we learn? still austerity, but he is loosening up a touch. >> i think they are playing --sum to give himself themselves and of breathing space so you are basing your planning on facts rather than supposition. that is informing our thinking. his speech versus all sports speech two years ago and the
5:38 am
word infrastructure was used twice as often this time as before. fiscal, a shift towards but he is not ready to make it yet. francine: the former chiefs of -- chief of staff of george we were talking about fiscal spending and he said at the time that under osborne, a had looked at infrastructure projects but weren't appetizing or would take too long. are we just putting too much ,ope on infrastructure projects like a switch that needs to be turned on and everything gets better? >> there are considerable side effects. yeararrative around next is the kobe are forecast see a number that is less estimated six -- pessimistic than -- money -- sales, retail strip
5:39 am
are strong, where is the downside? , what we areas looking at with obr is the worst-case outlook. the outcome is not one where fiscal spending in itself is going to accelerate the economy in the next 12 to 18 months. mark: one of the things that i didn't get from osborne is innovation, technology, broadband, those kinds of technological investment that a government can make to kickstart growth. that have got nothing to do with roads and bridges. francine: how do you see it playing out? you payknow how much attention. a high court now an appeal, --
5:40 am
>> the appeal is the fifth tonight of december. the justices will rule on this, which shows how sensitive it is. i think the government felt it had to go through with the appeal. largely to test the point about the road prerogative. i think this is all ishaqi -- sideshow. if you have to put a book to parliament, the commons will vote to trigger article 50. the opposition may be in the laws, but i expect -- >> thank you so much. both stay with us. theng up, crunch time for oldest bank. we get into that discussion next. this is bloomberg. ♪
5:41 am
5:42 am
5:43 am
♪ francine: this is bloomberg surveillance. welcome back, am francine lacqua . happy thanksgiving. a strong day trade for the world's oldest lender. investors at a general meeting will vote on the italian banks plan to raise fresh capital. now with me on set, mark gilbert and cameron watt. you have written extensively on ,talian banks, monte dei paschi they are asking shareholders to do a gargantua thing and that a high premium. -- maybe political
5:44 am
instability in italy. >> the transaction was sort of aging the tower. the blocks eu stability with are so weak. you have a bond exchange that may bring in one billion euros, and you have to find an anchor investor hopefully who will bring support for the rest of it. it is so complicated. it was already very risky to begin with. , do wee: it is up 7% care about these market things? it is almost any stock. at least we have are a quorum, they had 22.5%, but you believe the share price is something good? >> tough decisions is it any stock. -- tough to say, it is a penny stock. trying to raise 5 billion is five times its market cap. yes, you can read something through the technical string --
5:45 am
screen because of the bond exchange, it is too hard to tell. francine: one thing we keep talking about, will the eu step this is thet -- crux of the problem. whole yearwhat this and plan have been trying to avoid. that is what italy is trying to avoid. the whole question has been is monte dei paschi and idiosyncratic unique risk that even if that goes wrong, it can be restricted to monte dei paschi, or does it become a problem for the whole region. we don't know yet. -- emphasis of avoiding politicians have a way of kicking the can down the road. thatine: you wrote a piece goes to the referendum and you believe markets should be worried in a sense. sometimes we are over worried, but you argue it is a different case.
5:46 am
everyone watching, you can check out his article on twitter, or else on terminal. run us through your thought process. mark: it is. it is terrible. is don't have referendums. francine: in this case they had to. personal.'t make it and ramsey has made it personal. people vote on a wide variety of issues are not going to deal with the questions in front of them. the risk is the government falls and you have early elections which the chief of staff says he wants anyway. what happens next year when unemployment is still high, banks are failing, that is not a good outcome. >> i think there is a complexity which is, if you get an election next year, the constitutional reform fails, it will be largely
5:47 am
under the old system and wall street can see there could be a majority or significant position in the house for a populist party. the senate voting system and the fact that, a system where the senate and the house have the same degree of legislative power. what will get in the way of it. >> you pointed out that more populistis for antihero parties. you are still going to have investor shock if you have an election with that outcome. no matter what the engineering -- >> is it investor shock because it is priced in or is there going to be a problem with the banks? political instability so as an investor, you say i don't want to be part of monte dei paschi because it is dangerous. or is it because you have a
5:48 am
transition government that is less fugitive? >> monte dei paschi is having trouble holding onto deposits. how long -- if there is a. of in's -- period of instability , what does that do for monte dei paschi's business? is bigger than monte dei paschi at the current credit cap. him, you want to be best in class in the european banks. you want to be the national banking champion for the eu. i think he is going to walk away large provisions. somewhere between 10% and 20% task cuts. he wants to have a coherent -- >> unless he -- >> look at deutsche bank. a chipped away and that has not worked. credit you can see a
5:49 am
real radical reformation of the banks so he can rates capital -- raise capital. people talk about the need for rationalizations, governments and regulators don't want it. i don't think ceos want it. francine: thank you so much. gilbert and cameron watt's stay with us. coming up, donald trump's transition team. a look at who he expects to become the next commerce secretary in his. this is bloomberg. ♪
5:50 am
5:51 am
5:52 am
♪ francine: this is bloomberg surveillance. let's get to the first word news. swiss is trying to raise as much as $2 million for a fund that will buy stakes in hedge fund firms. that is according to people with knowledge of the matter. in the united states, a federal judge in forces striking highlights company for packages of amazon to go back to work.
5:53 am
the strike disrupts holiday deliveries. denied a request for a temporary restraining order. an aide to president-elect looking for are ways that he can bring light to the controversial keystone pipeline between united dates in -- united states and canada. he could end up rescinding a presidential order signed in 1968 that allows pipelines across the border. that is the bloomberg first word business flash. francine? francine: we are talking about the political risk linked because it is a big day for monte dei paschi. is it -- is it links to stability in the banks? let's see what happened with the referendum. mark was saying that it is extremely dangerous that the referendum goes in a way that it
5:54 am
brings much more instability. you want to push back against, because of the way the two houses are with first of all -- >> first of all, it depends on how big the outcome is one way or another. secondly, as i said earlier, there are 50% for the populist party. the with each other violently on many fronts. we saw populism didn't come through very much at the end of the day. if we have an election, it is going to be under the old system and unless you can really get a majority in the senate, the house is fine, a majority in the senate. and remember, the house and the -- that is what the referendum is trying to deal with. situation which happens
5:55 am
if the six parties agree on one -- getting out of the euro is quite hard. you can't have consolidated referendum, its not as easy as -- >> but the problem is if you have populists in italy, it could go very left wing. to a point where they don't match at all what the eu wants. or no common ground. i think investors won't look at any of the nuances. if you look at the 10 year , it has 60 odd basis points, that would only go one way. if you lose the referendum and it looks like an early election next year, i think the money will say, why would you want to hold a tiny risk in that situation? francine: risk in general, what is your biggest risk? >> tightening of monetary policies through the markets.
5:56 am
in the u.s. leading to stronger u.s. dollar and inflation arising from that. >> the word that hasn't come up yet is currency war. i'm surprised no one is talking about currency war. donald trump is going to try and declare china a manipulator. >> is going to be an interesting time and i've predicted that we are also going to have -- if china is a currency manipulator, it could mean market risk off of that. francine: thank you so much. what a great parent. up next, the latest decision from turkey. his is bloomberg. ♪
5:57 am
5:58 am
5:59 am
francine: the dollar dominates.
6:00 am
emerging markets feel the fallout. a make or break meeting for the shareholders. on the rescue plan for the world's oldest bank. the chancellor reveals he'll need to borrow $220 pounds. pro-brexit lawmakers attack the gloomy outlook this is bloomberg surveillance here in london. thanks for joining the show. we have a packed show and we're looking at emerging markets and looking at what is happening in south africa. there's an emerging market theme and we're looking what's happening on the markets in europe. the u.s. closed for thanks giving. turkey central bank coming up with its interest rate decision, the benchmark rate has been raised to 8%. i don't know we can bring in the turkish leader. i think we have a graphic for
6:01 am
that yesterday. we were really following the news closely especially because of the prime minister. he was unleashing fury at the market and highlighted his economic criticism of the bankers last night, saying they were provoking his intervention and the euro weakening and today we had that interest rate rising. again, it's now at 8% for the benchmark rate. turkish leading 3.752. beal have -- we'll have plenty of that and the markets but here's marcus. marcus: in france, one last chance tonight to salvage the presidential campaign. on sunday there will be a runoff election to see who will be the republic party candidate. until underjuppe was the favorite to win next year but
6:02 am
finished a distant second in the first primary round. pro brexit british lawmakers are attacking the u.k. fiscal watchdog over how much it will cost to leave the european union. phillip hammond presented the forecast for the office for budget responsibility. it warned brexit would cost as much as $75 billion in extra borrowing because the economy will slow down. several lawmakers say they just don't buy that estimate. and the u.s. president-elect donald trump suggested that u.k. independence party leader would make a great ambassador to the united states but the chancellor phillip hammond said he shouldn't hold his breathwaiting for an appointment. hammond told i.c.b. if ever he needs advise from farage, he'll give him a call. speaking of trump, the president-elect is expected to name billionaire investor wilbur ross to be the next commerce secretary, according to one familiar with the
6:03 am
transition. ross made his fortune by acquiring and restructuring troubled companies. and as it is the thanksgiving holiday for the united states, the incoming president is calling for unity after a bitter election campaign. mr. trump: it's my prayer that on this thanksgiving we begin to heal our divisions and move forward as one country, strengthened by shared purpose and very, very common resolve. markus: trump acknowledged emotions are raw and tensions don't heal overnight. global news 24 hours a day powered by over 2,600 analysts in more than 120 countries. francine? francine: let's get to the markets with peter, head of f.x. research and the chief european economist. what a day to book you.
6:04 am
the benchmark raised to 8% and what it did to the turkish lira. we had the turkish president heightening criticism of economic policymakers and they have to deal with the fed. what's happening and why were the markets not expecting an interest rate rise? >> i don't get that we weren't. we put in our daily we expected a rate hike. better looking than good. they had no choice. if you look at what's happened to the lira basically within the past two weeks since the election, the lira has gone from levels from 320 to 340. you saw rates selling off aggressively at the front end of the curve with much higher rates and given what was happening with the lira and broadly stronger dollar they simply had no other choice. francine: you can see that spike november , around 4:30 in
6:05 am
the morning london time we find out that donald trump is elected president. does it mean they'll have to raise interest rates a lot more? >> i think they will. the real key for lira for me is it the central bank comes along and says we're just doing 15, we'll see this move we've seen will be reversed and the lira will sell off again. the key is the central bank willing to take further rate hikes during the coming two or three or four months? then that should be enough to stabilize the lira. francine: you have a president that's purging around 100,000 adversaries since the failed coup in july. politically what does it mean a win making it less independent and what does it make for his populars? >> if you look at the explicit, they have a formally independent mandate and you might discuss that one way or
6:06 am
another but it's been interesting the politicians have been leaning so heavily on c.b.t. to cut rates in the last couple weeks or months. so you've had this dichotomy and it's a complete dichotomy, the fundamentals arguing for much higher rates and politicians arguing the other side. it doesn't bode well, frankly speaking, for longer term military. because the interference with the c.b.t. it can only end up in further lira depreciation long term. >> there is a theme, right, because of the president-elect we believe the fed will hike and reprized a lot of these emerging market currencies so a lot of these central banks will face pressures from their own government officials saying we want lowering borrowing costs but they can't deliver that. >> that's right. look, at this point there's a huge political opponent as well. in tokyo versus europe.
6:07 am
so i think that relationship is dowan, the way he handled the coup, they're playing a key role in the migration policy and hosting a lot of migrants in march. this political angle, the relationship with europe, erdogan could raise the stakes against europe. it is a critical issue for europe and turkey is playing a ey role. how closely is it related to donald trump and the aamericanning markets? we'll see it in a lot of countries that are similar. >> you've certainly seen a change in long end rates which is bad for e.m. in a broader sense. i think what is happening with
6:08 am
turkey is ideosiyncinotic. they have been a reluctant rate hiker today. so this situation, you look at how e.m. currencies have performed since the election two weeks ago in the states, the lira was probably the biggest lagger besides the mexican peso. francine: the markets are pricing in an interest rate hike from the fed. when they hike will we see more outflows and more impact on emerging market currencies or are they now done? >> probably we'll see a little bit more currency weakness over the course of the next year. you're likely to see the dollar appreciating in my view in a broad sense but make it consistent with what we've heard from trump and an intrapolicy perspective and put e.m. currencies in the broader sense. you're likely to see rakes from the central banks. the critical difference this time around compared to the
6:09 am
temper tan trem two or three years ago is that external balances are in much better shape in e.m. and interest rates are higher than they were. you see modest deappreciation and the case of cascading currency declines is not justified at all. francine: does it have an impact in your world and the european economies. i know everything is linked but you if you have a huge repricing of what the emerging markets are, they're in a better place than two years ago, what if we had huge outflows, would it put extra pressure on e.c.b.? antonio: i think so. so far the markets are quite complacent about the future of trade wars in the trumped a administration, meaning not much expected between the u.s. and china but if the country is true, europe is a very open economy and very open economy such as germany, netherlands so i don't think they'll come out unscuffed but if all of a sudden you're doing a trade war which you only know how they
6:10 am
start and how they end and also the economies, and europe has several emerging economies and they'll suffer. yeah, i think so. francine: antonio and peter, both stay with us. we have plenty coming up on the program today. this is what we'll do on "surveillance." you up next as the odds rise, emerging market currencies fall for a second day. we'll look at the headwinds they face in more debt. this is bloomberg.
6:11 am
6:12 am
francine: this is "bloomberg surveillance." i'm here in london. let's get to the bloomberg news flash with markus. markus: the c.e.o. of lufthansa
6:13 am
said giving way to the pilots would make it weaker. it's not about being tough but about the future of lufthansa. they've forced the cancellation of 1,900 flights and tomorrow more may be scrapped tomorrow. routes will have to be cut if union pay demands are agreed to. a u.s. federal judge ordered striking pilots for a company delivers packages for amazon and others to go to work. it threatened holiday delivery and a.b.s. air was granted the request for a temporary restraining order. and the biggest bond sale ever is approved by a russian company. $17 billion has been approved. they say the sale won't have a significant impact on the load. the units can purchase the bond and rosneft may buy its own shares later when the russian government sells a 20% stake.
6:14 am
that's the bloomberg business flash. francine? francine: thank you so much, markus. the rupee at a low and they're dumping indian assets for the fed hike fully priced into the markets. let's look at the head wins these aamericanning markets ace with the head of the economics research and antonio. peter, rupee, a record low but you believe the currency is stable? peter: it's been pretty stable. if you look how it's traded the last two years it's had an effective range of 66 to 69, in that range and has been a stable currency. the central bank has been able to increase the f.x. reserves to an all time high and they use this period of e.m. sort of the e.m. weakness of two or three years ago and increased their rates aggressively and closed the current debt
6:15 am
massively. this time three years ago india was one of the so-called fragile five and it's not any longer. in fact the current account is pretty much in balance where it had a deficit of 35% g.d.p., it's in better condition than it was. the weakness we see at the moment is a reflection of two things. the first thing is the rate hike and the second being the dedeamortization of the rupee. what will happen is we're likely to see weak q-4 g.d.p. data and see how it comes out and may be carryover to q-1 and may have an effect to lead the r.b.i. to cut rates a bit more aggressively than people thought and consequently more rupee weakness but won't be excessive by any means. francine: you're not expecting defaults, i think but are were there antonio in lima, peru and one of the warnings for stability was the fact you could see something that was ugly because they can fund themselves [an tone joe: one of the best
6:16 am
exarts you antonio pifment -- fund themselves, antonio: . peter: emerging markets find problems and a stronger dollar equals big default problems are rising, probability of e.m. difficulties. and i'm sure this time will be no different. that said, we have seen some significant improvement in the external balances. so sure, turkey will be difficult, i think next year south africa could be difficult next year and i think rush will be fine and brazil improved marketedly and it's a more i deosyncratic story. francine: overall, countries between latin america and spain and also some of the emerging markets are stronger than the relationship between the u.s. and some of these markets. is there a risk that if something turns, i call it ugly
6:17 am
but if something turns bad for investors, europe which is already facing political instability will be hit further by these emerging markets? antonio: that's right. there are what we discussed earlier and these bilateral links and brazil wasn't doing so great and there were some spanish assets, utilities that were hit hard. i think those links are there and your point is quite relevant. also the fact the political uncertainty is picking up. you also have some stress economies to look at the more sort of the ones with high credit rates, greece has been doing ok with talks about relief and portugal offers a high interest rate as well. ere's also e.m. looking into europe now that rates are picking up. francine: what's the one thing we actually discount?
6:18 am
a trump presidency come january 20 and before that, you know, the fact that the fed will hike, does it make mario draghi's life easier because the dollar is strengthling and the fed hikeing? antonio: you see the curve and it helps the banks and bottom line. in that sense it is helping. still, you know, europe is fragile so the issue is they'll have to continue to accommodate. the big question now is the issue of tapering. we're there to announce that in december or not. i think already, they acknowledge probably they don't need to buy 80 per month but the question is how to convey that information and when to convey that information. francine: thank you so much, peter and antonio. both stay with us. coming up in the next hour in the wake of brexit and donald
6:19 am
trump's election, are we at risk of seeing world changing implications in every changing political event? that's what we'll be discussing. this is bloomberg.
6:20 am
6:21 am
6:22 am
francine: this is bloomberg surveillance. it's time for our morning must reads and mark gilbert wrote a article and he talks about the referendum and says bond markets are right to worry about the italian vote. in the wake of the u.k. brexit
6:23 am
vote and donald trump there is a risk that will jump at shadows and change the political events and a referendum may an case in point but the bond market is no good or in no mood to take chances. with us is peter from commerce bank and antonio from berkeleys. the problem is you're dealing with banks in italy. there's a time line if there is political upheaval it may push back the kind of reform or at least getting these frail backs back on their feet. antonio: this should be the priority in our mind there's no q.e. the you look at monetary policy has pushed about and helped on inflation. when you look at the countries it should have helped because there was leverage and was in good position to be helped in italy it did not help and part
6:24 am
for was the inability monetary policy. there is hope for this to work and this is one of the main constraints. francine: with or without a bail-in. do we accept the rules will have to change or what we have we want to keep? antonio: no one wants to shock the markets and no one wants further unrest because the bondholders get barely in. if there was to be a bail-in to be applied probably there would be a compensation to the retail bondholders, as we saw during the crisis in spain they didn't go down well politically and the listing at italy need is political unrest. and i tell you one thing. if you have retail holders there will be -- francine: bloodbaths because they're own by italian families.
6:25 am
peter: it's a shame we have this bail-in mechanism and we're asking do we really want to bail people in? the point is it's been done for political reasons and not for reasons of solvency or economics and so on. i understand people's concerns. local depositers who bought in the bonds in various banks don't want to lose money. it's clear. francine: the problem is it they do lose money do they vote for a party that wants out of the euro zone? peter: sure. that could be part of the issue. ultimately speaking, you either have rules or you don't. if you don't have rules, then policy becomes one based on discretion rather than one based upon rules. and that's been the story of the euro zone crisis management the last five or six years. you can argue that the recovery in europe has taken so much longer, you know, than the states and it's probably in part because of this dilemma we have. francine: would this be a
6:26 am
lehman moment? i don't know what the domino effect would be but could it be a disaster actually if it goes wrong? antonio: blind bail-in. if there's no private sector solution it very well could be the case that there's not, they'll have to apply it. i think it would be a mistake to bail-in retail investors in any case. you need to bail in italian investors in this political condition and would not be wise to do. francine: thanks very much to our guests. stick around. coming up, it's crunch time. a
6:27 am
6:28 am
6:29 am
francine: this is bloomberg surveillance. look at new york city. what a beautiful way to wake up in new york city. a lot of you with plans are out of the city. a special thought to the
6:30 am
surveillance team. a lot of you working for our global audience. thanks giving is really like a time of coming together and thinking about how lucky we are to live in some of our free societies. let's get to the bloomberg first news now. with markus. markous, the spread reserve isn't likely to go against the evidence and looks like could withstand another interest rate hike. the central bankers strengthen the case to raise rates. stock markets are hitting record highs and stock market inflation have moved up and the fed meets on the 13th of december. donald trump is expected to name wilbur ross as commerce secretary. ross made his fortune by acquiring and restructuring troubled countries. meanwhile the president-elect will nominate south carolina
6:31 am
governor nikki haley to be ambassador to the united nations and is the daughter of immigrants. trump offered the job of housing secretary to retired neurosurgeon ben carson. he ran against trump for the republican nomination. the european central bank is warning there could be an abrupt market correction because of rising political instability. the warning came in the central banks yearly financial review. is says donald trump's victory increased volatility and signals profound economic changes. in eastern china, at least 67 workers were killed when scaffolding at a power plant construction site collapsed. two others were injured and one worker is missing. the china state broadcaster says 100 paramilitary police are involved in rescue attempts. and voters in columbia won't get a second chance to ratify a peace deal aimed at ending the half century long civil war. instead columbia's congress
6:32 am
will be asked to approve the proposal and gives the rebels guaranteed seats and imposes some restrictions to those who confess to serious crimes. columbia voters nearly rejohn kerried a similar deal last month. global news 24 hours a day powered by more than 2,600 journalists and analysts in more than 120 countries. i'm marcus carlson and this is bloomberg. francine snipe francine: shares are trading up more than 6% because of investors at a general meeting or expected to vote on the italian bank's plan to rise euros in fresh capital. with. us is a economist you focus on the italian banks and the referendum. this is a unique inflection point and you say we seem to be on the brink of failing banks and crisis and the european union always recovers. why is mont esks paschii
6:33 am
different? >> this is the last opportunity to fix mone paschi and we'll be talking about it next year. this is seen as an important moment because if monte paschi removes the nonperforming load from its book at a discount seen as appropriate by the market, then you do remove the one big problem. it's a very small bank at a huge discount because of the nonperforming loan problem but to get there is a risky trans action. it is complicated but if it does happen you moved one big problem and hopefully for the sector. francine: what's the investor case. if you're a shareholder or investor why get into this exral raising exercise you have to pay a premium at this moment? lionel: you talk to investors
6:34 am
eager to dive in. if you're brave with money to spend and see this potential opportunity because the discount is so huge, there's a lot of greed and fear now. people do want to believe in the italy restructuring story but there's a big unknown as to what will happen with the referendum and what will happen with this particular operation. trust me, there are a lot of investors who do want to get some kind of profit from the italy trade. francine: monte paschi is a biggest bank but small compared to the two biggest. if they don't manage to do their capital increase, what does it mean for the number two? there is concern it may merge? lionel: it's seen as more able to raise these kind of big sums than monte paschi. the problem with italy, starts to affect the valuation of
6:35 am
unicredit and it's been called upon to help the smaller, struggling banks in italy and it's not purely tired. i do think that unicredit can get its capital increase away d there's an easier way than monte paschi and investors could get harder. francine: it's important for an economy barely growing and not growing at all with huge unemployment to have the transition mechanism that these banks, the first role they have is to pass money. where will atally be in six months? antonio: that's a -- francine: a $500 trillion question. antonio: as politics, the banks, there is the fiscal budget, right. francine: how do you fix unemployment? antonio: let's not forget, they
6:36 am
did pass a jobs act and did pass the change from the type of contracts. so we're asking there be a hope on the labor market because of the reforms but criticically there's the issue of growth and the issue of the banks and structural reforms. growth can work its magic in producing this amount of debt and can help to clean also the nonperforming loan process, right? but you do need to clean the banks. it's not just about one bank. it's about the system as a whole. we have estimated three or four months ago the system needed overall north of $40 billion. in you really want to get this economy growing. from the systemic side this is not large but has to be done. francine: why not do trumpism and replate the italian economy by spending. the e.c.b. is staying put. why not spend your way out to infrastructure.
6:37 am
antonio: there are two issues. one is important, how you spend it and whether you do it efficiently. in theory, long term growth, growth will help you reuse your public debt. the problem is you have already 134% debt to g.d.p. and you're reducing your primary surplus a little bit. and you're in a situation you do not have a lot of fiscal space, unfortunately. that's the problem. monetary restraint, the fiscal space is not there and the banks are not helping you. you do need to start fixing the banks and then you have to start thinking of spending more on infrastructure. there's no space in italy. francine: it's very important we remind our global viewers, italy, when we talk about bail-ins. it's the bank of moms and pops and retailing investors, a lot of these bonds which is different from the u.s. and even in the u.k.
6:38 am
peter: whatever happens will be a political solution and monte paschi, bonds is 11% of the total bonding and it's a political situation and why they're still talking about it. francine: i remember as a small child not getting legos but getting bond from my grandmother. it's a cultural thing. thanks so much. coming up, is it really all doom and gloom the warning brexit will cost 60 billion pounds in borrowing but is it a fair assessment? this is bloomberg.
6:39 am
6:40 am
francine: this is bloomberg surveillance, i'm francine la
6:41 am
cqua. leaving e.u. will cost $60 billion as it falters. the clans lower presented it in his statements in 2017. >> today our forecast is for the growth to be 2.1% in 2016. higher than forecast in march. in 2017, the o.b.r. forecast growth to slow to 1.4% which they attribute to lower investments and weaker consumer demand, driven respectively by greater uncertainty and by higher inflation resulting from sterling depreciation. we will maintain our commitment to fiscal discipline while cognizing the need for investment to drive productivity and fiscal head room to support the economy through the transition. francine: the lawmakers don't believe the doom and gloom but
6:42 am
have a brilliant record and it's kennedy, you see been since june 24 alongside simon is tim ross and he's a , oomberg new freshly reporter uthor of the book "why the torres won." thank you so much for joining us. simon, what do we learn from the statement? i feel like it's been welcomed, right? because it is quite sfrained -- strained when you look at western economies to have two statements. >> there will be a spring statement. phillip hammond playing down the statement saying it will be more of an update and he'll end them with plans to overhaul fiscal policy. it's his first and last as he points out.
6:43 am
the important thing of yesterday was kind of get a bill for brexit, so to speak and you saw that with more than $60 billion in borrowing the next five years will be linked to a decision to leave the european union so a lot of coverage of that in the morning papers. francine: it's been politicized. are we in danger where everything that is meant to be neutral or forecast is going to be taken on as well, this is against brexit and seems like the conversation could get quite ugly? simon: the office of budget responsibility, it's going to be slightly worried. the creation of george osborne and the idea they would provide the numbers and the treasury then would plug those numbers in and accept those numbers but it does provide treasury with some protection. and they say these are the numbers, very strong economists bring them together but certainly what you saw in the aftermath aftermath from the pro brexit conservatives and larson and
6:44 am
lily, lots of them lining up to criticize on two fronts one, saying they're not as optimistic as they should be and two, their track record isn't particularly good and therefore these forecasts should be taken up with interest. francine: one question i want swered because of this book, brexit is now seen as kind of an inequality place with teresa may and she wants to unify the country, bridge the southern, northern divide and the torre's won by large margin in 2015 so is there a misinterpretation what teresa may is doing and what the brexit vote was? >> it's difficult to know what the weatherity vote was until you -- brexit vote was until you look at the analysis. it's clear you say the torre's won last year and got a majority which no one expected them to get and there's going to be a question, i think, about how far they'll deliver on the key plays they made in
6:45 am
the election which is to balance the books by the end of the parliament, phillip hammond got in the house of commons and said we're not going to do that and was the one policy on which david cameron campaigned last year and delivered the success against labor on the fiscal responsibility. francine: we were talking about the rise in populars and the rise in posterity is popular at the moment because you're trying to keep voter anger at bay. antonio: indeed, these times are complex ones because we have elevated public debt, you know, forced war, and we haven't had this low debt and at the same time a accomplished political background. it has to be recognized to go back and at the same time you have this political constraint. i think that is a major issue in the u.k. but also in europe. when you look at the budget, i think they're trying to strike that balance. i think the part -- there's been a lot of discussion about
6:46 am
whether the growth becomes politicized, there's a question, indeed, i can see that. at the same time when i look at the forecast, i look, for example, at bank of england forecast and look a longer time beyond 2017 and see the forecast, they are more on the bullish side, north of 2%, the bank of england averages around 1.r5% and we tend to concur more with the bank of england particularly in the years when brexit is supposed to happen. francine: how difficult is it looking at the forecast, possibly in the best of times to believe the forecast or forecast where the economy is going and especially when you're dealing with brexit, the autumn statement was cautious and trying to make it make sense. >> phillip hammond speaking about the uncertainty of making a forecast and if anything we learned from 2016, anyone who makes a forecast and claims it to be right is a bill foolhardy in these times. when you look at brexit, you don't know the line brexit
6:47 am
means. we still don't know what that means. the o.b.r. made some assumptions and that's the number they cranked out with the 1.4% growth next year in the various budget measures. we're all in some kind of fog but phillip hammond is with their best attempt, the upshot of the o.b.r. forecast of yesterday. francine: when you listen to chancellor hammond, did he strike the right tone? you talk about soft power and whether you want to be in the country as an investors, he seemed fairly balanced. simon: he's a very evenhanded, unflappable character and came across in his first statements to parliament yesterday and in terms of politically for his own colleagues in the conservative policy and government he struck the right tone. tim: he went to a meeting private and closed to the media with other lawmakers yesterday afternoon and i spoke to a few of the people there and they
6:48 am
were all really happen with how phillip hammond performed and he is not getting a hard time personally but i think that's going to be good for him in the future. obviously, the fact that simon says, these forecasts are done by an independent body is a good shield for hammond himself. francine: absolutely. thanks so much. we'll be talking more about brexit and the political risk and the conservative government and see or look, they look very different in terms of how they were voted into power and could we see an early election. we'll discuss the supreme court decision that it be released in january. discuss that and a little bit of pound. this is bloomberg.
6:49 am
6:50 am
6:51 am
francine: this is bloomberg surveillance. i'm francine lacqua in london. let's get to markus. markous: amazon is in talks to buy the online retailer for $1 billion.
6:52 am
according to people familiar with the matter. the deal would give amazon a foothold in the high growth medicallies -- medleys market. credit swiss is trying to raise $2 billion that will buy stakes in hedge fund firms. according to those familiar with the matter. they'll try to buy minority stakes. and the world's largest tequillamaker have put its plans for an i.p.o. on hold according to a person familiar with the matter. halted matters to get a sense of the demand and was hoping to raise as much as $1 billion. that's a bloomberg business flash. francine? francine: we could talk about tequilla, happy thanks giving for those traveling to your families. phillip hammond says they're committed to discipline but
6:53 am
after the brexit vote they abandoned their pledge to balance the books by 2020 so much faith can you put in promises made by those in power? antonio from barclays is here and tim ross and simon are here. simon, when you look at the brexit debates, we have the supreme court ruling in december. does it make a difference in terms of negotiations? i know you wrote a great story analyzing the story analyzing the contributions the u.k. makes with regards to nato and because the fact trump is in power, they could have the upper hand. is it more dangerous to debate in parliament that you show your hand to the e.u.? antonio: that's what teresa may is arguing. it's not up to her but the supreme court and they'll meet in december and make a ruling in early january so she'll be hoping for the lower court to be overturned. simon: but there is a lot of momentum and seems there is
6:54 am
momentum behind parliament having the say and the worry is that teresa may, the amendments will be put on and votes extended. for the moment in public at least they're confident they can lose the supreme court battle and yet still deliver their plenl to enact article 50 by the end of march. francine: last night there was a party. it is one of my favorite stories. and rather bizarre. nigel is looking pleased with candy. handing out the and he tweeted him with donald trump and he should be ambassador to the u.s. i think the spokesman for teresa may was never as quick as saying there are no vacancies at the moment. what role does he play in the future u.k. if any? simon: for now it's handing out chocolates and don't think teresa may's government is willing to give him a bigger job than that but it's pretty clear nigel farage is close
6:55 am
enough to donald trump's new team and will be a problem for teresa may and her government. tim: they don't know how to handle him and you have to look at the history of nigel and his influence on the political party and how difficult a problem he has been to deal with. the party leaders david cameron didn't know how to deal with him and teresa may is facing a similar problem. francine: when you look at trade overall, is there a chance this brings the u.k. and the u.s. closer together because they're both retreating from certain treaties? or is that just far-fetched? antonio: i think at this point everything seems possible. we have a new u.s. government with many trade possibilities on top of the table and they still need to tell us which ones they'll push and which ones they will not. so i think it is a possibility. we need to know about the trade deals and need to know about the trade wars, what they really mean by that. so i think all possibilities
6:56 am
are open and a closer trade, you know, trade links between the u.k. and u.s. should be a possibility. francine: thank you so much to our guests. before we go, we've had a little bit of market movement, about an hour ago we told you turkey central bank unexpectedly raised the one-week purchase but also overnight lending rates which meant the lira actually gained and now reversed all those gains. remember, the prime minister erdogan was saying he is against falling lira and we'll discuss that next. >> i am anna edwards.
6:57 am
6:58 am
6:59 am
welcome to bloomberg markets.
7:00 am
anna: this is what we are watching this hour, the dollar dominates. the currency is driving the markets. emerging markets are feeling the fallout of the rupee and the lira hitting record lows. the ecb is warning the central banks saying the global market correction is intensifying. it poses a major threat to european banks and beyond. , make or break meeting shareholders vote on the rescue plan for the world's oldest bank. could the summit spell the end game for the italian lender? let's have a look at where the equity markets are trading right now. we're four hours into the trading day. let's get to the


info Stream Only

Uploaded by TV Archive on