tv Bloomberg Markets European Close Bloomberg December 8, 2016 11:00am-12:01pm EST
am julie hyman and this is the european close on "bloomberg markets." ♪ mark: we will take you from washington to moscow and cover stories out of frankfurt, new york, and hong kong. here is what we are watching today. fresh action from the ecb. president mario draghi warning the newest stimulus might not be the last as it strives to reach the inflation goal. cutting deals to shake up economy markets. they join forces to buy a stake. we are awaiting a statement from the u.k.'s attorney general. mark: have a look at what european equities in trading
under 30 minutes until the end of a session. go. it will extend until the end of qe 17. the caveat, the ecb can expand or extend if the outlook worsens, it can buy assets below the deposit rate if needed and abide bonds maturing between one and 30 years come a whole load of measures. look at the move in the market come equities are rallying and we see the euro fall and bond yields are rising. let's look at the other big stories. it is a month since the u.s. election, the $2 trillion shock is what some could call it because since last november 8 a month ago today we have seen global stocks, the blue line is risearket capitalization by $2 trillion and the bond
market, the bloomberg global aggregate market value, a tongue by $2r, but it has fallen trillion, one rising $2 trillion and one falling $2 trillion. you know why come all about the reflation train come a lovely chart and very simplistic. i want to show you about the differential in performance between the european stock market and the u.s. stock market, european stock market trading tohighs -- highs today, 15% lower than the valuation for s&p 500. that is the cheapest since 2009. -- preferring europe over u.s. because they say europe is more geared to improving global economy which is forecast to show -- grow faster in the next two years. jpmorgan says european shares
benefit from a rotation. we will talk about value and growth with our next guest. do not move. let's finish up with a big corporate story in the oil sector. glencore up by 2.7% and russia selling this $11 billion stake, the biggest oil producer to commodity trading. decisionouncing this on state tv. the buyers will share this 19.5% debt --oughly 5 million 5 million barrels of oil a day. it signifies a massive turnaround for glencore. a year ago it was forced to tap shareholders and the qatar investment authority is glencore's biggest shareholder. rosneft is subject to western
sanctions, glencore said it to thee -- from exposure russian state company. shares in glencore up 2.7%, up september 2015. 90 minutes into the trading day in the u.s. and let's get over to abigail doolittle. abigail: we are looking at record highs for major averages in the u.s.. not a lot of action, very small gains for the dow, s&p, and the nasdaq. the dow on pace for its fourth record closing high in a row, lots of strength for the u.s. and something similar to yesterday. when we take a look at the sector composition come earlier we had been looking at mainly red and now it is creeping toward more green than red. yesterday we fluctuated between small gains and losses and we finished with a huge rally.
we have one stock surging today on the year and that is advanced micro devices, the philadelphia semiconductor index is up at a and amd up 11% today and 267% this year. bank of america merrill lynch doing a double upgrade and a rink amd with a buy, saying this is the only vendor that can take on intel and nvidia. big movers on the day, especially in the retail area we are looking at lululemon and taylor brands. lululemon is surging on a better than expected third-quarter and they beat earnings by 9%, the holiday quarter is turning fornd and taylor on pace its best day ever since 1992 after they raise the low end of the forecast. julia: interesting for lululemon
because stock has been down quite sharply for the last month and a half. thank you so much, abigail. let's check in on bloomberg first word news. courtney: president-elect donald trump lands to name restaurant executive andrew as labor secretary. of a parent company of carl's jr. and hardee's fast food chains, he is a critic of the labor policy. more americans are optimistic about finances, especially the u.s. stock market according to a new bloomberg national pulled it shows growing optimism about the u.s. economy following the election of donald trump. that ll shows 38% say they expect a better financial year at about the same anticipate higher household income. half surveyed view the federal
reserve favorably come up from 42% the last on the question was asked in 2010. in london, it is the fourth and final day of the supreme court hearing on brexit read justices are being asked to decide who has the power to trigger the exit from the european union. the government argues they can use "oil per -- royal prerogative" -- theresa may -- in greece, unionized workers are facing a 24 hour strike protesting labor reform measures that would make firing easier. creditors demand changes in return for new bailout loan payment. global news --global news 24 hours a day, powered by more 2600 journalists and analysts in over 120 countries. i am courtney donohoe. this is bloomberg. mark: let's get back to the big story, the ecb.
walk us through the big stimulus changes. are we still going through the semantics of the word? that.eel like we are past proven thishi has is not a taper and he is establishing a stronger and longer foothold -- maybe stronger is not the right word. he will steep the -- keep the stimulus through the end of 2000 17. altogether it will be much more stimulus than it would have been had he gone with plan a, the consensus plan that he was expecting $80 million -- 80 million euros a month for extended six months. now we are going to only see 60 billion euros a month of purchases, but for nine months. instead of 480 billion dollars
of stimulus, he will be around longer and given themselves wiggle room. he and the council said they are reserving the right to buy even more bonds if they think the inflation warrants it. someone asked if they would also reduce the stimulus if the inflation warranted it and he said they -- we do not have that kind of high-class problem. mark: thank you for joining us, matt miller in frankfurt on the day of the ecb. let's get more reaction on where the markets are heading. joining us in london, joe anna hanna kyrklund. she will give us an exclusive outlook for 2017. thank you for joining us. draghi delivered?
johanna: i guess so. i think it is best not to focus on every twist and turn of the policy. he seems to have resided in the banking sector. has that run as far as it is going to go? highest levels since january up 45% since the drop in july. johanna: i think in the u.s. the banks have gone a long way. they will be looking to take profits in the next few weeks. is potentially more value in the region which we so far have not taken advantage of. mark: why are you taking advantage of it? been concernede about the financial sector, we did not feel it was cheap for no reason. one has to consider that there is maybe the potential for outside surprise. julia: you just mentioned that for u.s. banks you might take
some money off in the next few weeks. why is that? do you think the run is already getting ahead of itself? johanna: when we screen for value, u.s. banks stand out in the way they have been two or three months ago. we made something like 25% on our opposition versus the s&p 500 which at this point i think it might be prudent to take a little bit in profit. julia: do you think -- on the flipside, the movement in yields will continue or the widening of spreads in the u.s. or europe because that has been a rapid move? johanna: we will have to stand back from the bond market for now. i think as we move into the next year, at some point we need to consider the double whammy of a stronger dollar and higher bond yields is tied to conditions in the u.s.
i would say that is a story for q1 next year, now we are continuing to avoid u.s. bonds. mark: what about european stocks in general? this is valuation stoxx 600 versus the s&p 500. is europe luring you in? radara: it is back on our screen. we heavily favored the u.s. market because there has been a quality bias and it has generally done well. generally, be -- we have been rotating aggressively to value this year. mark: within thy you we talked about banks. what else you categorize in value right now? johanna: we bought too much in market assets this year. we have been buying them for five years. are almost ignoring what
central banks are saying and focusing on valuing opportunity. enough value is that when you take into account the fact that merchant markets are cheap, there is enough value to be able to fit through the volatility in the short-term and we will wait and see whether trump's bite is as bad as his bark on trade. julia: another area you are looking at is japanese equities, which is interesting in this environment. what is attractive to you? is there a question of value? johanna: it basically turned possible -- positive on japan about a month ago and for us, it was the fact that with bond yields selling off, the fact of ,he boj what have to cap yields it would also be industrially
cyclical. it is an inflation market and that is how we have been thinking about it. mark: sterling, cheap. how cheap? johanna: it is cheap. mark: against what? johanna: against the dollar. having watched sterling for 20 years, it is the cheapest i have ever seen it against the dollar. it will put it back -- what put it back on our radar is that the bank of england indicated they saw upside inflation risk. one central bank that does not want a cheaper currency and that makes it stand out. we may get bad news, but that is better than uncertainty. whohe month, we have seen the players are and their reaction functions and that reduces the range of outcome and
the political risk. mark: we face another big year of political risk with elections in europe. att have you learned schroder investment management for positioning ourselves for major events? what a be learned from brexit, the italian referendum, the u.s. election? johanna: we have always had the view you need to consider a range of outcomes. the way we cope with political risk was not something we expected, but we make money off of it because even if you did not expect it to happen there is still a 30% probability based on the polls. that is something we need to address when people are looking at political events brady you cannot just take --. you cannot just take a bet either way. that helps you to consider the need for hedges going into these events. i think that is the key, think about a range of probability as opposed to focusing on central scenarios. mark: tell us what hedges we
should put on ahead of the french election, german election, maybe an italian election next year. johanna: i will think about it. mark: you have christmas to think about it. johanna: -- i think a lot of new investors are probably thinking about that very question. on oilp, glencore bets -- oil prices are higher, what is behind this surprise deal? ♪
mark barton counting down to the european close. julia: from bloomberg world headquarters in new york, i am julie hyman. let's turn to the big news in andtoday, glencore,qatar, -- joining. putin said this is one of the theest acquisitions in world in 2016. if we could look at a chart of oil prices because as we showed before the break, they are taking a leg downward and now bouncing back to some extent. agency out of russia appears to be reporting that russia is talking about a potential delay in the opec meeting with non-opec nations, scheduled to take place this weekend and we are looking for confirmation or more information on that. we did see a market reaction. we will follow-up on that for
you. joining us from our moscow bureau to talk about this rosneft situation is bloomberg's editor from moscow, tony. what is behind this deal and how much of a surprise was it? is a surprise to a lot of people and i think vladimir putin must feel satisfied today, but -- a basic triple whammy, he enjoyed -- he insured privatization took place and the russian government can -- a budget hole. putin has demonstrated to the u.s. and european union that are nots against russia succeeding in isolated it. he has good reason to think he had a good day. julia: what about the u.s. and e.u. sanctions that have been in place since 2014? what kind of effect does this have on them? sanctionedft is a
company and the u.s. and the e.u. have sanctions over the conflict in the ukraine with the intent of applying pressure on russia to change political property -- policy or behavior, demo -- demonstrating the economic cost of its actions. aroundproven he can get the sanctions when necessary and can attract prominent players into the russian economy and the oil business and demonstrate to the rest of the world that he is somebody they have to take account of and constantly isolate. he is showing that sanctions are weakening. mark: it is worth noting that glencore already had -- has fairly close ties with russia. it is a big bet on russia and it is a big bet on putin, isn't it? tony: it is. it demonstrates his dominance in
russia, of course. were saying basically the deal would not have happened involvement.'s glencore is betting on him as a leader in russia. mark: great to talk to you, bloomberg's government editor for russia speaking us from moscow. still ahead on a bloomberg, why mcdonald's is moving its not u.s. tax base to the u.k. in spite of the brexit vote. this is bloomberg. ♪
you down to the european close. julia: from bloomberg world headquarters in new york, i am julie hyman. itonald's has decided deserves a break. it is moving the non-u.s. tax break from luxembourg to the u.k. kne they are creating a new international holding company based in the u.k., which decided to leave the e.u. mcdonald's has been accused of avoiding $1 billion in taxes over the years. another sign of trouble for sears as they enter the crucial holiday season. the company posted a $700 million loss in the third quarter and sales fell 13%, the biggest decline in the year and the result put more pressure on edward lambert. he is the ceo and largest shareholder. company afloat by
selling assets and loaning the company money. that is your business flash. london, is 4:25 in 11:25 in new york. five minutes away from the close. it's all about mario draghi and the ecb announcing they will extend qe until the end of next year. but reduced the qe program, they can expand or extend that if the outlook worsens and by below the deposit rate if needed. stocks are rallying, bonds are falling, the euro is falling as well, the close is four minutes away. this is bloomberg. ♪ ,l ♪
single industry group rising today after the ecb announced a host of new measures. stocks fell initially and then rebounded up for the fourth day, best run since october and highest since january. abovey's dax rising 11,000 for the first time this year. with bombard you statistics, wonderful statistics today. the takeaway, the ecb is extending qe from april to the end of the year. the amount of bonds will be 60 billion from april versus 80 billion. that is why you saw the initial selloff in stocks, the euro rise. things changed when the ecb said they could extend it things change and buy bonds maturing in than the0 range rather two year range and above. stocks rally today.
these are one of the best performing industries, the banks . the reason why the banks are rising, we see short-term bonds gaining and yields falling and long-term yields falling and yield curve expanding and widening, steepening and consequently, that benefits the bank. highest level since january, rebounded 45% since july. the relative strength shows us this is the most overbought they have been since the beginning of 2013. lovely chart tells you everything you need to know since -- about qe. he euro spiked initially, falling now against the dollar to 1.0621. so much to tell you about, german-italian 10 year spread widening. we see bond yields rising. in germany, we saw short-term yields bought because the ecb
said they could buy them below the deposit rate. the ecb basically saying we will taper or reduce bond buying from 80 -- 80 billion to 60 billion. we see the yield spread expand between germany and italy. earlier, julie, you had records for all of the major indices. julie: we have all major averages strengthening now, not seeing a lot of a change, but the s&p touch to the intraday record. nasdaq doing the best. if you dig in and look at the groups on the move, we have strength in the financials today as we see bond spreads widened out. technology shares are stronger. and lagging and energy shares as well.
i want to come back to oil because i told you that news in russia had questions about delaying the opec meeting with non-opec members and then they came out and said the russian energy ministry said that is not the case and the meeting is going to go on as scheduled this weekend. that accounted for the initial drop in oil and it came back near the levels where it had -- oil now and oils up 1% on the day. let's check in with bloomberg first word news. courtney: prime minister theresa may is distancing herself from comments her foreign secretary made about saudi arabia. boris johnson said saudi arabia joined iran in pursuing proxy wars in the middle east. for theresa may said johnson's comments do not reflect government policy. the u.s. and russia held talks on a syria and the battle over the city of aleppo. john kerry says he is hopeful
the siege of the city can be lifted. john kerry spoke with the foreign minister. russian backed syrian troops have tightened their groupon onppo -- their group -- grip aleppo. according to "the new york times" trump may turn over operational responsibility to his two adult sons. daughter says trump's would take a leave of absence from the company. if she may move to advocate for various issues. the u.s. surgeon general is calling e-cigarettes and emerging health threat. they say they need to be -- there needs to be more research into the health effects. global news 24 hours a day, powered by more 2600 journalists and analysts in over 120 countries.
i am courtney donohoe. this is bloomberg. julie: we are now exactly one month from the election of donald trump as the nation's 45th president. the result spurred u.s. stocks to all-time highs. how long will the trump rally last? that is a question a lot of investors are asking. from minneapolis has been a well-known bear, but you have been tilting more bullish lately, particularly going into next year. the you buy the trump ceases or the trump economic thesis so-called that we will cad crease in -- that we will see a decrease? lens of a bullhe market is always rose-colored.
in terms of market action, for us it is hard to call a cop in the near future. yesterday you made new highs virtually across the board. the transports had peaked two years ago and they broke out and market hit a new high yesterday. it is very difficult to call for an imminent market high when you have financial, small caps, transports come across the board knew highs. i think things look good for the next 4-6 months. i am not confident forecasting beyond that because of where valuations are. yesterday the s&p closed a little over two times sales. we cannot make a valuation case for the market, that doesn't mean it will go higher. we think it will for the next 4-6 months. julie: i want to look at the
different groups you mentioned postelection. what we have are the financials in the top spot, that is something we have been watching closely. industrials as well. we have had utilities, staples, and health care lag. when you look at that action because you say you look at the various groups when you confirm the overall move. is there anything that gives you pause? the fact we do not see those three groups participated in the rally? doug: out of those three defensive groups, utilities have the best record of peaking in advance of a bull market talk -- top. that is a concern, typically you see that weakness confirmed by we can financials. we called the distribution process where the market begins to thin out and a generally call them the generals, the dow and s&p are lonely at the top and we are nowhere close to such a situation.
what is going on in utilities reflects pain in the bond market. i think that will continue. warningve to be more flags are before we get concerned. at this point it is a market action argument. despite the moving fed increase later this month, since the market low, annual growth in the growth has expanded and in the federal debt has gone from 2% to 9%. there is plenty of liquidity, it is like janet yellin saying we are finally raising rates, but they accelerated money supply growth and there is plenty of fiscal stimulus. the liquidity situation is actually ok. mark: can the stock market whether to or three rate hikes? doug: i think so. the movement in bonds has been equivalent to that many hikes.
the stock market has absorbed to that well. in some sense, the bond market got tired of waiting around for janet yellin. i am impressed with the way the stock market has absorbed the stock market selloff. bonds,n stock versus which bull market ed -- ends first? maybe the bond already has? doug: i agree with that. i do not think there are a lot of people still calling for 1%. i think the low was in july of this year. up one point in four months. julie: i am curious about small caps specifically. small caps have outperformed pretty considerably since the
election. it seems to be domestically oriented companies perform better. do you think that will continue? is that a good bet going into next year? doug: a lot of people would argue that because of the dollar. we like to call the situation initial conditions. what do the valuations look like? i think that matters more than the foreign exchange situation. just caps traded down and last month broke to a new high. they have grown in their valuations over the last 2.5-3 yearear -- period of stocks. we were verygo cautious on small caps on a relative basis because of big pe premiums. i would not say small caps on cheap, but they are -- their
comparative valuations have improved a lot in the last three years. my concern is the stage of the cycle. you are closing in on eight years of a bull market. i expect over the next 12 to maybe 6-18 months the market will thin out and small caps will probably begin to underperform. julie: i have an interesting chart that the anchor of "what did you miss" created. this is the ratio to the dow and the s&p 500 and he looks at at -- at it under the lens of republican and democratic administration. outperform theto s&p under republican presidents. i do not know if that is just a: students. i was curious as to your thoughts on that. sorry to put you on the spot. doug: depending on how you measure it, the stock market has done better under democratic administrations.
it would stand to reason that in a week or period the loo chips would tend to do better -- the blue chips would tend to do better. hasially, the stock market done a little bit worse under republican administrations and therefore you want to be more slanted toward the blue chips in the case of the dow jones industrials. mark: is there a view to be said marketump wants his bear asap? might he get his wish? might he get his bear market in the first half of his presidency? doug: first half gives me a lot of leeway, that is two years. i would love to have a crystal ball with a longer time horizon. because of where valuations are
we are reliant on liquidity indicators and market action it's self. that looks good for the next 4-6 months. given where valuations are, look at where the economy is 4.6% unemployment. the odds of this expansion lasting another four years under that scenario, barring some magical acceleration in productivity, it is hard to fathom. i think in the next six to 24 months there is a good chance you will have some kind of a ownturn from 2007 -- mark: 2017, what keeps you awake at night? what are doug ramsey's three biggest worries? doug: one is the dollar. we just boosted our asset allocations. if this dollar rally continues, that that is not going to pan
out and it will put more pressure on our manufacturing sector which we are trying to rescue now in sort of an ad hoc basis. continued dollar strength in a way is tightening, that is a concern. the build up in corporate debt has not been talked about. you can only see it in some measures. you cannot really see it on a balance sheet because rates are's -- are so low. the stock of corporate debt has end?y shot up and to what has it been for productive capacity? no, it is been for financial engineering, for m&a and share repurchases. i do not know how that is reconciled in the next downturn. again, getting to a situation that we became concerned about way too early in the cycle which is the initial conditions of high valuations and what scares
me the most -- there are many ways to look at earnings and cash flow -- the simplest, cleanest measure to normalize is to look at the price to sales ratio and it is astronomical on the s&p 500 type companies. of 2.0 that wele just hit yesterday, that has only been exceeded in the 12 months preceding and succeeding the march 2000 market high. at least on that one measure, we truly are in bubble territory. i can make a case, sort of a flat three years until recently for the average stock for small caps and mid-caps, they have grown into the high valuations that existed three years ago. i think the prospect for the broader list and for active managers which typically do not own 3% of exxon and apple and microsoft, i think i am talking my own book, but i think the odds that active managers do
much better are their sibling because of the evaluation situation we are in, sort of the bifurcated valuation situation. julie: thank you so much for coming in. it is great to see you in person . we usually see you from a little monitor. up, arguing that parliamentary approval for brexit is so obvious a child could understand it. we are live at the supreme court as the hearing wraps up. this is bloomberg. ♪
toward brexit as the appeals hearing wraps up. they argued they are giving the prime minister the authority to leave the e.u. without parliament approval would "crucify human rights." joining us is patrick, scottish, welsh always a ramping up the pressure today. what were they arguing? : first and foremost they were saying they were not here to try to block brexit or stall it, but clarifying points constitutionally. we heard richard gordon, the may would bethat crucifying human rights without approval from parliament first. 4 come to a
conclusion, we will not know the outcome until january. where do we stand after four days of intense hearing? justices doled out a healthy amount of skepticism for everyone. lord knew berger said the referendum act was at legislation back in parliament, did it concede power to the people then? they said it was a joint effort when we joined the european union itself between parliament. shouldn't leaving be a joint effort as well? and the supreme court overturned the ruling about 50% of the time. you could flip a coin at this point. julie: it sounds like we don't really have any indication one way or the other which way this is going to go? they are supposed to be
impartial. the supreme court judges are supposed to be politically impartial and they work hard to make it seem that way in the courtroom. they say now that they are going to deliberate as quickly as possible. there is a lot riding on this, they will not rush it read we may know around mid-january. mark: where does this leave theresa may because we had the motion in parliament yesterday , it carolebated article 50 will be supported until the -- it carried that article 50 will be supported until the end of march and theresa may have to give more detail. how does that influence or affect or change from what is going to happen after these four days of deliberation? actually didink it influence the judges themselves. they brought up for quite a long
period, would there really be any need for legislation? wouldn't it seem a little odd to the man industry when they had that unanimous support, why would we have to go to parliament again and have a bill? it is looking more and more like this is about timing and the government is doing better than mark carney predicted in the wake of brexit. now it is about whether the legislation in the readings in both houses push the deadline passed the end of march 2017. mark: you have done a fantastic job. patrick live from the supreme court. much of the markets ahead. this is bloomberg. ♪ ♪
mark: live from london, i am mark barton and you are watching "the european close." bloomberg world headquarters in new york, img julie hyman. starting with national grid that agreed to sell a majority of their business through the buyers -- 39%onal grid will retain a stake in a new holding company for the business. german regulators may be opening a new front in the volkswagen's emission cheating scandal. they are now investigating whether porsche -- porsche said the cars complied with emission laws in place at the time. that is the latest business flash. getting a quick check of what is going on in u.s. markets.
we hit records for the major averages for the russell 2000 as .ell as small caps the nasdaq doing the best of the three majors in the u.s. today with strength in tech stocks and just like in europe, we have on yields rising. mark: it is all about mario draghi, he extended the bond buying program to the end of the year. instead of tapering from 80 billion to 60 billion. if the outlookt worsens and by assets below the deposit rate if needed. stocks are rallying, bonds falling and euro falling. this is bloomberg. ♪
from bloomberg world headquarters in new york, we are covering stories in new york, paris and athens. southwest ceo gary kelly says the airline industry has never been more competitive. he will weigh in on passenger demand. ducati northf america. abigail: the gains may be small, but we are looking at record highs once again for the three major averages in the u.s. they are all trading at record highs. what really stands out is the momentum around the recent rally.