tv Bloomberg Markets European Open Bloomberg January 9, 2017 2:30am-4:01am EST
♪ guy: good morning. welcome to bloomberg markets. this is the european open. i am guy johnson. look who has decided to show up. matt miller is back in berlin. what are we watching this morning? hard brexit. soft pound. the british prime minister signals that immigration is her priority. how low will the currency go? pay day. more hawkish.
what is a more normal rate? years.o motown's moving production north of the border. who is in the drivers seat when it comes to the auto sector? matt: happy new year. i have not seen you since. let us take a look at futures. we are up across the board. you can see the ftse futures are up about .5%. we have gained more than a quarter of a percent over in .aris on the cac and a third of a percent on the dac. looks like a positive week were equities. guy: i think that could relate to what i'm about to show you on the gmm. the british pound is down by nearly a full percent. johnson-ferrohe
cross rate. the dollar index up by 0.2%. keeping a firm i on what is happening with the potential candidates to replace janet yellen. i think that is coming on the a gender as we see a more hawkish stance being taken. we will talk about oil later. firmly in focus. here is the bloomberg first word news with juliette saly. agreede: mcdonald's has to sell 80% of its operations in china and hong kong to a consortium including citic and carlyle group. the deal includes a 20 year mass franchise rights will value the business at nearly $2.08 billion. they will jointly take a 52% stake while carlisle will hold 28%. senior republicans have warned
president-elect donald trump that he faces a risk -- a rift with members of his own party if he does not punish russia. graham said he and senator john mccain plan to introduce legislation for tougher sanctions against russia. he says the measures would hit the country in the financial and energy sectors "where they are the weakest." no line or as johnson has met with donald trump's top advisers. -- boris johnson has met with donald trump's top advisers. to washingtoned to visit congressional leaders. the trip comes after britain is with theo create ties u.s. the aiib remains open to the u.s. opening, that is the
message from the president. he was speaking exclusively to bloomberg. >> the door is long open and -- open and itflung will remain open. i have highlighted on many of thens that regardless membership of the u.s., we can work very well together. juliette: workers in london's financial sector are facing a tougher than usual journey to work this morning as thousands of underground workers are on strike after their union rejected a last-minute offer to avert a 24-hour walkout. they have warned commuters extra time to travel. carries asrriers -- many as 4.8 million passengers. global news 24 hours a day powered by our 2600 journalists and analysts in more than 120 countries. this is bloomberg. juliette, thank you very much. 25 minutes to go until the european equity markets open.
the week will be dominated by politics and it will be an interesting year. the gbs president spoke exclusively to us from shanghai. a bumpy road ahead for markets. ofthere is a large number political uncertainty. , there is au.s. risk of u.s.-chinese relationships. athink what you are seeing is bumpy road and more political risk in the global economy than we are used to in recent years and that will shape markets and economics more than it has in the past. potential candidates to suggested theave monetary policy could be tighter. glenn hubbard, john taylor and -- thealsh are accusing
monetary policy cannot solve. joining us is jane. good morning. when does the market price and the possibility of janet yellen being replaced by someone more hawkish? shehe said recently that intends to stay until the end of her term. is inauguratedmp on january the 20th, the market will start to look for signs about what he might do in the months ahead. foricism of yellen is easy an opposition politician to do but once he is in power and what's to retain the populist vote and he cannot retain the votes of many of the people in the middle of america, he may
come around to a more dovish point of view. with very difficult to say certainty that he will definitely want to push her out. matt: nonfarm payrolls now. on friday, numbers came out below estimates that the market seems to think this is going to lead to more rate rises from the fed. how did you read that data? it was not just the headline number that was disappointing. hours worked were also less than what we would like to see and the increase in average hourly earnings was still under 3%. we are certainly not with the market in terms of our fed view this year. onceink it will only hike this year. from that point of view, it did not do anything to change our viewpoint. what the market is holding onto was better number than last time around. uptick 2.3.
i would argue that the you wouldnt rate -- generally expect to see higher earnings data above the 3% or even above 4%. we still think there are signs that inflation still remains contained in the u.s. guy: let us discuss that further. i have on the screen the five-year -- they have fallen from 2.6 down to 2.4 currently. we have seen the market pricing out some of the inflation expectations that we had as we started to work our way through what donald trump might deliver. will that number continue to fall? will we see the unwinding of the spike that we saw post the november election? >> i think we have a lot of good news in the dollar and other assets. in the last week, the market is beginning to wonder if that is
realistic. are more pieces of news to give us more direction. we have the donald trump press conference this week. and the and a eurasia. and after that, the economic data to see how much inflation is really in the system that i do think that without a number -- another piece of bullish news, assets like the dollar will have it covered going from here. guy: should we talk about what is happening with the german data? we have seen a strong current coming through. strong data being posted by germany. the ecb conversation will not go away. increasinglyre posting strong numbers. how does the ecb deal with this? spaine decent data out of but not such great data out of italy. in and weonly a week
have seen strong inflation data from germany and the eurozone and the german press is full of talk that the ecb policy is to dovish. dragu like, the ecb will its foot forward on what it will do. it announced last month that it will have quantitative easing going through to the end of the year. we have a year to debate this but i do think there will be resolution in the next few months whether or not the market will face a steeper tapering in the early months of next year. matt: telegraph had an alarming article over the weekend. an interview with the boss voicing not new concerns but saying that if the ecb is going to try to insulate countriesrperforming
out of their debt at the expense of the over performing countries like germany, that will be a problem. do you see that as a european front -- a european problem on the front? >> it has been a bubbling problem all the way. you can draw it back to the concerned that we had during the crisis. it is difficult to run a european union. those problems have not gone away. the cracks are still there and they will come through in different forms such as this debate. i think this throws us back to the political debate regarding we brexit and whether or not would have a victory which could bring more pressure points onto the emu. guy: it only goes in one direction. jane, it thank you. coming up, going it alone.
the u.k.ay signals will leave a single market as she displays muddled thinking on the brexit and promises more detail in the coming weeks. donald trump pressure and the auto pressure. we speak to analysts about the future of the auto sector. househe u.k. halifax price is out. we will speak exclusively to the economists that helped compile the data. this is bloomberg. this is the open. we are moments away from the start of trading europe. ♪
guy: good morning and welcome back. theesa may has signaled regaining control of immigration and lawmaking are the brexit priorities even if it means leaving the single market. she said "we will be able to have control of our borders and laws but we still want the best possible deals are u.k. companies to be able to trade in and within the eu." mark, i want to go to the bloomberg and talk about where sterling is this morning. i am looking at the candlesticks on the table rate. we have had these moves. this is the 122 line. we have held that over the last few sessions. we are now trading below it. do you think that 122 is now broken?
what is the next target below it and what will sterling do next? >> it is looking very negative technically for sterling this morning. when 22 had been a double low in the last few weeks since the recovery after the flash crash. index isberg pound breaking its upward trend line. and that is more negative. there is a lot of dollar uncertainty. every cross is looking negative for sterling technically. it is looking quite bad after may's comments. matt: have you heard any news from the big thanks -- big banks? are we looking at parity? >> i have not heard many people say parity. the key thing at the moment is that sterling is still at a very negative real yield.
until they hike rates and with the large current account deficits, sterling will continue to suffer. it is not overly cheap. on purchasing power parity measures as well. of the reaction function, this is clearly a leg lower in the british pound. more inflationary than it has been. we are are ready seeing evidence and supply chain coming through. how much tolerance has the bank of england got for this? it is going to be inflationary and that will be a factor to think about vis-a-vis the mandate. >> that is the key question. that is when we will see the turn in the pound. at the moment, we are playing the theme of the hard brexit. at some point, the bank of england will be forced to hike rates to do with the
inflation pound and that will close the negative real yield and support the currency. very much indeed. market is joining us from singapore about the pound and how it was trading overnight. we won't watch how the trading decks areding stacked. take a look at your bloomberg. another leg lower for sterling this morning. how much downside room to we have? sterling will be very volatile. you talked about parity. i think we are going to be buffeted about by political comment. is going to be a lot of that as we run up to march. matt: what do you think about the euro pound cross.
when we talk about parity is that going to go beyond? >> not necessarily, no. but it is a difficult call on the individual number. what we will experience is as news breaks, a lot of volatility on the upside and downside. currencyoing to be a that is going to be driven as much as anything by politics. investor, a a ftse u.k. investor, i see this headline this morning, do i just purchased the ftse? is that the right trade? >> i think you need to be more selective. you need the overseas earners. i would say you also need to be careful because on the same headline you saw that the australian miners had a very tough day. talking about lower iron ore prices.
you need to be quite selective where you put that. but i think overseas earners .ill do better as sterling bobs around. and i think people will worry about the domestic economy and the effect that brexit negotiations will have on consumer confidence. trade is commodities an interesting one. they had a great year. especially iron ore and coke and coal last year. will china continue to demand as much? will the supply constraints hold? what you think about commodities in 2017? >> i think they had a great bounce from the bottom. the chinese economy is basing out. a love in china as well. -- there has been a lot of stockpiling in china as well. i wonder if we will see as big a pickup in demand in 2017 as
people anticipated. i think you could see a bit of pressure on metal prices and volatility although the chinese economy is not going to be that disappointing shall we say. i think growth as we go through the next couple of years will be onwer and much more focused growing the domestic economy as opposed to expanding some of the old industries particularly cement, steel, etc.. back to sterling. we can see what has been going on as of late. you can see that we continue to move ever higher in terms of expectations. how big an inflation problem is the u.k. going to have? >> the debate ranges on. thead a one-off hit from higher energy prices and the weakness in sterling. it is whether or not we see a push through in wages.
where we often was the pressure coming through on wages. it is not coming through yet but it is something we are keeping a close eye on. that will be a big driver for inflation expectations. julian, we have a lot more to talk about, especially re inflation expectations around the world. you will stay with us. we take a look at the movers in today's trading and it is all about autos with news on fiat chrysler and volkswagen. continental earnings are out. we will watch for price moves in those stocks. this is bloomberg. ♪
guy: minutes away from the market opened here in europe. i am giving matt a late christmas present. car newsso much stock around at the more -- at the moment, we have to focus on that. investing in the cheap -- jeep production in the u.s. those -- that is the fiat version of the mazda miata which is pretty cool. a little more powerful. a bigger story i think is the
watching bloomberg markets. this is the european open. i am guy johnson in london and --t diller is back in berlin and matt miller is back in berlin and has your morning brief. nope, he does not. i am sensing there may be an alarm going off in berlin. i will take it out. let us talk about theresa may. sterling trading at 122 against the dollar. the prime minister is signaling immigration will be her issue. stance, what is a more normal rate? deliverrump promises to
as fiat chrysler promises to keep production north of the border. who in the auto sector is in the driving seat? let us talk about european equity markets. we are expecting a positive start. let us take you to the markets. let us see how many are at their desks. there is the british currency. zero .1%. we expected to rise a little bit more. london beginning to outperform. we are expecting about 0.4% higher. other markets expected to be softer. the pound is opening a little bit up this morning. germany will be interesting. manus cranny is here. manus: the americas s&p made a record. never quite made 20,000. european equity markets are trading on german day debt and the latest nuances of brexit.
energy down 0.4%. it will be a moderately better tone to it. the big story is the pound. i have taken it all the way back to the 1980's. this is 1985. our guest this morning talked about undervalued on a relative races of purchasing power parity. you will have a political overhang for quite some time. last year's drop was the biggest on an annual average basis since 1985. theresa may's comments yesterday the pointuilt into that we are stiffening into a harder brexit. three stocks to watch. including air france. they have guided to the lower end of the market.
william hill. gross margins are up in the last nine weeks. you take on the risk and you got the reward. gross margins in the last nine weeks have been below expectations. continental. the margins. slight increase in the light truck sale. air france up 1.7%. in december, they carried 7.2 million passengers and their low-cost airline numbers are out. ryanair. ryanair carried 117 million passengers in 2016. aransylvania has a -- transvani has a long way to come. i am off to radio.
cranny.us bloomberg radio, not to be missed. julian from rathbone. let us talk about how we are positioned. it is already turning out to be fairly volatile. we are working our way towards the inauguration, 11 days to go. your 2000 17 does look compared to 26 thing -- how different does your 2017 look compared to 2016? valuations in certain areas looking stretched. you do worry whether or not quite a lot of the optimistic --tements we have heard from or the tweets from donald trump
around infrastructure and tax cuts all can be delivered quite quickly and it may be an area of disappointment for markets as they anticipate a quick fix to some of these things that do not materialize. matt: i was wondering that same thing. a trillion dollars is a number that is being bandied about for infrastructure spending. will we see anything close to that even in one or two years? >> it is difficult to call around an absolute number but i do believe that a number of the havelicans in the house undoubtedly made a pledge to their of electorate that they would doubt boost public spending dramatically and that is a bit that donald trump's team has to square in getting this through. i think therefore there will be a lot of negotiation around infrastructure spending, where it goes and how much and that
could take some time. guy: let us talk about the numbers. -- the dow isding just shy of 20,000. do we make it north of 20,000 on the dow and how much more headroom is there on the s&p? short-term, ithe suspect sentiment is good enough running up to the inauguration that things will be quite well behaved. i suspect we will break 20,000. that is a big figure in the states. it does not in reality mean that much. i think what people will then wait and see is what the new team in the white house actually can put in place and how quickly they can put it in place. to of the easiest things achieve will be some form of corporation tax cut and how long that will take to deliver.
but probably not this side of june. we talked about commodities. what do you think about gold? people have used it historically as a hedge against inflation. we see more inflation coming to the u.s. but on the other hand treasuries will start to pay more interest if the rates continue to hike. >> unfortunately, i am the wrong person to talk about gold. i came into the market in the 1980's and, early the first 20 years of my life owning gold was something that you definitely did not want to do. so i am slightly highest. i don't see it in the modern investment world as being a great inflation hedge. i think there are a lot of other ways to play that. i also think that gold has been
offered did around by the dollar -- i also think that gold has been buffeted around by the dollar. i would expect it to be quite a volatile counter, much more driven by a weaker where a stronger dollar than anything else. guy: let us talk about the bond market. >> we continue to like a position that is linked. we have not returned to the government market particularly sovereigns at all. we remain cautious. moving up but they are getting into more interesting territory. we are seeing a reasonable selloff. if we see more cautious markets, you may see a bit more stabilization around the treasury market and the gilt market. it will be more brexit focused. guy: thank you. matt: coming up on the program,
donald trump pressure and the auto sector. carmakers gather in detroit for the annual auto show we speak to an analyst about the future of the sector and the certainty of that future. plus, safe as houses. the u.k. halifax house prices are out. we speak exclusively to the economist that helped compile that data. oil holds gains as u.s. drilling dampens the affect of saudi cuts. we get the latest out of abu dhabi. this is bloomberg. ♪
guy: good morning and welcome back. 11 minutes into the session. let us take a look at where cash is this morning. london outperforming. maybe the fact that we are treating cable sub 122. to track ittinues into record history. the deck and the cac -- the dac outperforming this morning. we will talk about the airline sector later on. cars. your favorite subject. firmly in focus. chrysleree fiat
they're gaining more than 2% right now. that company has announced it will invest $1 billion in making three new jeep waddles in the u.s. after donald trump pressured carmakers to hire american workers and produces vehicles in the u.s. instead of down south. the to -- the detroit auto trader starts today. 17.5 5r sales raised million units and analysts see that rising this year on donald trump's policies. now artists now -- with us is art. great to have you in the studio. let me ask you first about the fiat chrysler news. they say they are going to spend a billion dollars through 2020. going to cancel a 1.6 billion dollar investment in mexico and save some of the jobs that would of been lost in the u.s. are these carmakers really doing donald trump's bidding or are
they throwing him a bone? >> there is currently a competition of announcements. who will invest what in the u.s. most of it has been committed before. they will produce the majority of their cars in the u.s. anyhow . we know fiat chrysler is spending a lot of money on cheap in particular. especially at the -- spending a lot of money on jeep in particular. for general motors. they came out last night and said they will build their new upscale gmc terrain in mexico. rather than canada. being a little bit too daring? is this a little bit of hubris from gm? >> i don't think so. gm is producing 24% of their
nafta production in mexico. fiat chrysler, 26%. fourth, 14%. you cannot just change that overnight. you have encouraged suppliers to come with you and your skilled workers there. i don't think mexican production will change overnight at all and it should not. guy: can u.s. car production improve its competitiveness to make this work? >> no, you cannot. you have labor costs at about two dollars. $20 in the u.s. that has come down from levels north of $30. it means it has become more competitive but it is nowhere close to being as competitive as mexico is. mexican auto workers earn an average of eight dollars -- $8.46 an hour. u.s. auto workers earn an average of $46 -- $46.35 an
hour. if a carmakers bring their production back to the u.s. are they going to price themselves out of the market? >> 100%. this is not an industry that has the profit of margins or great valuations on the stock market. in a totalating global connected economy. true, the u.s. auto industry has $145 billion negative trade balance so they are importing more than they are exporting but trying to break that system up will be extremely painful and it will cost more jobs than it creates in the u.s. guy: how do i change that with tax? if i was looking at the tax base of the economies and make them bring jobs home and make it a viable option in the long-term, what taxes would it require me to change? >> you could first come up with
huge import duty tariffs to bring anything into the u.s. to get itry tricky through congress anyhow. can you now single out an industry or a couple of industries where you create huge tax subsidies in order to bring jobs back and you know that over time you will not be competitive anyhow? i think that is just a really poor strategy. and these companies make investment decisions way beyond four years or eight years. matt: that is exactly what i wanted to ask about. saying theers are uncertainty under donald trump is becoming a real problem. when you plant a new car production product -- project, you are doing it five years out or so. do you think there is uncertainty? whether or not you agree with him, it seems donald trump has
been pretty clear about his demands. >> there is uncertainty because of brexit, because of donald trump and that is poison for an industry and that is why we are seeing the auto industry, because it is so global and connected, to even underperforming in the u.s. to give you another example. the biggest car exporter from the u.s. is bmw. who would have known that? it is not just that the u.s. is importing cars, they are exporting quite a few. try to delicate issue to impact trade. you will stay with us to talk about bmw and we will continue our conversations around the auto industry. also speak with the ceo of rolls-royce. art will stay with us. this is bloomberg. ♪
imports were up 3.5%. sellald's has agreed to 80% of its operations in china and hong kong to a consortium including citic limited and carlyle group. the deal includes franchise rights will value the business as $2.08- at as much billion. they will jointly take a 52% stake while carlyle will hold 28%. warnedirman of ubs has of how political risks are set to impact markets and economies. he was speaking exclusively to bloomberg. what we are seeing around the globe is a large number of political uncertainties materialize think just if you look at the united states, and outlook for a different china policy from the administration is a risk for u.s.-china relationships and global relationships. what you're seeing is a dump he
wrote an political risks and the aglow global economy and we have seen in recent years and that will shape markets and economics more than a has in the past. workers in london's financial sectors facing a tougher than usual journey into work this morning as thousands of underground workers are on strike after their union rejected a deal. commuters have been warned to take extra time to travel. 4.8 million passengers on normal days. global news 24 hours a day powered by our 2600 journalists and analysts in more than 120 countries. this is bloomberg. rolls-royce was out with its annual sales figures. the luxury automaker it delivered just over 4000 cars last year. bloomberg spoke with the ceo earlier this morning who stressed the need for good trade relations. >> we are interested first of all let me get clear
regulations. uncertainties are not good for the business. number two, i am personally convinced that we need to have excellent trade relations with all of the countries. areof all roles races exported worldwide. i am interested in staying in a customs union in the u.k. which allows free flow of goods, capital and talents. with us is art. on the possibility of huge terrace. you mentioned it would be difficult to get through congress but is the world swinging bridge more of a protectionist slant? exporting of less autos in the next five years as compared to the last five years? >> i truly do not expect that. as i said earlier, the auto
industry is a hugely complex and connected network of relationships. it is not just cars being shipped around the world it is engines and components and people. at the end of the day, who is benefiting, the customer. if you make it more difficult, the only thing that happens is that you import inflation, things will get more expensive, and that is normally not what your customers like. most geared story to this is germany. we have data out this morning. german current account balance. you can see what the chart does. automakers have benefited from huge trade opportunities and an incredibly weak currency. how geared are they to the negative side of that story? the auto industry, the german auto industry is basically what germany stands for. it is a greatly engineered
product being exported around the world. if you talk about currencies, the three german oem's have 50 billion net exposure. you could lose $5 billion of your earnings. the current system of making cars in germany would not be .ossible without the euro companies would shift production big-time. abroad. as you point out, bmw is the biggest exporter of autos from the u.s. model ofally made the producing locally when they brought the three series to the u.s. in the late 1970's, early 1980's. do you think that will continue? will volkswagen be producing more in other countries? do you think more and more
companies are going to be producing locally to avoid the currency swings that may hurt them? >> and that has been a development over the last 20 years. you want to produce the cars where it makes sense and where you can sustainably sell them. every suv that bmw sells is being produced in the u.s. and it is a great product. i am expecting volkswagen to shift more products into nafta. possibly mexico or chattanooga. that remains to be seen. andou have a certain volume it usually starts north of half a million units, to produce cars where you sell them. guy: stick around a little longer. head of global research. a reminder. auto show live at the in detroit. we sit down with mary barra.
manus: welcome back. this is the european open. 30 minutes and the trading day, how are things shaping up? most markets are not. most markets are shaking down. dax and cac both low, the pound is trading 1.22 this morning. we're seeing outperformance in the ftse 100. taht's the breakdown of the day. matt, in terms of movers, what are we watching? matt: it's interesting to look at the mov screen for the stoxx 600. i like to look at this because you can click on this yellow drop-down box and look at index points, to see which stocks are moving in the broad index.
total -- when it comes down a little bit, less than 1%, it still pulls on the stoxx 600. the big gainer is anglo american and rio tinto. volkswagenestingly, also boosting the index, up 3% right now in frankfurt even though the fbi made that arrest of the volkswagen executive in the u.s. a lot of interesting stories to keep your eye on. it's interesting the way they are moving the market. guy: nice work. let's take you to another bloomberg screen. this is my eco-screen. we have seen the halifax house price data drop this morning. 6.5, versus the prior of .2 the previous number as well. much more positive news coming out. let's get on the phone to join the economist at halifax -- good
morning. what would you put the stronger data down to? >> good morning. we have quite a finish to the year, and i think this is really reflecting the fact that the u.k. economy has performed quite strongly towards the back end of the year, much more strongly than people were expecting. certainly in light of the referendum results, when there was a dip in both consumer and business confidence, that has now bounced back and the economy has been doing quite nicely. that has driven up house prices in housing demand has strengthened a little bit toward the back end of the year. guy: break it down. what are we seeing below the initial headline read? what is going on within the market? what's happened here is that we got very tight supply conditions. we're seeing the availability of properties a lot to say on the market, people selling on record lows.
there is not a great deal of choice people looking to buy somewhere or looking to move on. there aren't that many properties available to choose from, and we know that house builders are producing new homes which are well below the levels at which new households have been informed. there's this quite strong demand/supply imbalance. demand is picking up toward the back end of the year, and that as combined with an acute shortage of properties and is given a little bit more strength and pushed up prices right at the end of the year. so we have seen the quarterly rate pick up a little bit in november and december. although it is still worth noting, 6.5% on the annual rates, quite a bit below where it was back in march last year when it peaked at 10.0%. it's still has a little bit of a kick in the tale. matt: when do you think we are
going to see real movement, as far as properties other than distressed or people who have to sell or buy changing hands, martin? >> well, actually, we think we are going to see a slowdown in house price growth during the course of 2017. from the of continuing overall trend we have seen since the spring of 2016. things are likely to cool down a little bit. we do expect the economy to be a bit softer during the course of the year. it's a lot to do with -- matt: but martin, as far as transactions, the problem right now is that no one is willing to let go of a place unless they have to. >> that's right. changing anytime soon. there's still going to be a reluctance. you have to bear in mind, for example, transaction costs of moving house, that's expensive.
high,ates are particularly in the southeast of london where property prices are higher. people are very much more thinking about, well, let's improve our existing home, rather than thinking about moving on. there certainly is this expect towhich we persist over the short term, probably into the medium-term. it's difficult to see what will unlock that, especially if there is more uncertainty around, which we expect during the course of the year. if people are uncertain they are going to think, well, i will hold on a bit, it's not really the time to think about buying or selling. guy: the market is pricing in quite an inflation push over the next few years in the u.k. at some point the bank of england is likely to say enough is enough. how would the markets start to react to rate rises? >> well, it's a difficult one to call. obviously at the moment we are seeing a position of
affordability that is very good. if you can get across that hurdle, you can raise a deposit, and your mortgage payment can be quite low in proportion to your income, certainly on any historical basis. interest rates go up and that is going to start to change that dynamic, and that will make things a little less affordable that may have been. i think the key point is how high do interest rates go, and how quickly does that happen? we think interest rates to start to move, it will be a pretty slow growth process, and that will provide the majority of to beers breathing space, able to adjust to that increase in interest rates and to absorb the pressure that it will put on their finances. martin, thank you very much for your time. thank you for breaking down the numbers. martin ellis, at halifax. matt: up next, oil drilled. wti's advanced calls continue to add rigs.
according to bloomberg data, blackrock is now the biggest shareholder. it received a $20.5 billion bailout in the wake of the financial crisis. according to bloomberg data,ther volkswagen executive, who faces charges of conspiracy to defraud the u.s. that's according to "the new york times." led thechmidt, who regulatory compliance office from 2014 to 2015, is expected to be arraigned today. the lawyers did not respond to requests for comment. donald trump is facing pushback against his america first policy. he has been putting pressure on the u.s. auto industry to stop making cars in the mexico and bring jobs back home. however the general motors ceo says she won't change production plans just because the president ends a tweet. you can see the first interview
of the day for the north american international auto show at 1:40 p.m. u.k. time. the latest installment of disney's "star wars" film top china's box office over the opening weekend. according to a box office tracker, it made $30 million since friday, a third less than last year's "the force awakens." twoue one" faces roles from prominent chinese actors. that's your bloomberg business flash. guymatt: thanks. let's talk about oil. halted,nce has been with wti dropping below $54 per barrel this morning after an increase in u.s. drilling, counter signs that opec members are sticking to planned output cuts to stabilize the market. here with us to walk us through the latest news is bloomberg's tracy alloway, in abu dhabi. tracy, we saw prices rise to $55 at the start of the year, and
now we are back down again. it looks like this is what the saudis have feared all along. the u.s. shale play is really kicking back up, isn't it? [no audio] is, we all know, a talented mind, but we would like to hear what comes out of her mouth. you will get tracy's sound fix ed and will come back to her. we'll talk about the airline sector. it's kind of the derivative trade of what's going on here. oil, jet fuel, a they contribute annging factor. ryanair outpaced easyjet with the 15% rise, and this week we have had more news from the sector. another rescue plan is on the
keyda for italia, as investors are set to meet with ministers today. interesting times for the aviation sector. john strickland, aviation analyst, joins us now on the phone. john, let's deal with your price story. how big an effect are we going to see from higher oil prices this year. the carriers, if they are big, can hedge forward, but that doesn't mean they all can. are the small guys going to suffer this year? >> well, as he said, so many won't notice, because they are hedged at pretty good prices. ryanair,ups like aig, but last year, we saw a big expansion in capacity on the back of these low oil prices, particularly across the north atlantic, which ordinarily would have been quite short. seasonal operations were extended, oil aircrafts were
kept in service. given the difficulty in ratcheting fares up in line with rising oil prices, the north atlantic was already evidencing capacity last year. so with higher costs and competitive pricing, it's not accommodation for those in the weaker financial position. are clearly going to see some pain this year. it's interesting that we have talks going on at the moment surrounding alitalia. we'll figure out how they will deal with that. when we start seeing, if we do start seeing, airlines going out of business, how do the others react? is this a buying opportunity? people have talked about picking up a few more businesses around europe. is this an impetus to consolidation, or does the capacities and we disappear? >> i think it's largely an opportunity for consolidation. when we look at alitalia as a
case in point, they lost what they did two or three years back, that airline would have certainly disappeared completely, and similarly is the story playing out in germany. that would have shrunk even further in size, but is not disappearing completely. we look at the capacity on airlines like ryanair and didn't need to get into a complexity of reorganization and dealing with different business cultures, they can just move capacity around and fill the gaps. when that hungarian national airline went out of business, d nobodyput a base in an else was given a chance to fill the gap. they just to get themselves. matt: so, john, these gulf someers are sayinving european carriers. they really aren't welcome in the u.s. as the big oligopoly of
u.s. carriers tries to keep them out. will they be able to hold them out of the market for much longer? >> will, of course, they have made headway, all of them have been adding more u.s. cities, and if you talk to the management of these airlines, they're all very clear in saying they have had proactive visits from meryn entourages. a number are working to start air services in a number of major u.s. cities. in addition to headline cities like new york and los angeles, they have seen real economic benefit. the process as going to be interesting to look at for the new administration, because on the one hand we want to create u.s. jobs and bring jobs back home, but a major source of jobs to the u.s. is the aerospace manufacturing industry, and who are some of the biggest customers? the gulf carriers, not least the
new boeing 777x, which isn't even in commercial service yet. guy: john, quick question. lufthansa. out this morning, a stock on the move, talking about a clearly negative pricing environment. when we're seeing topline on the negative side, pricing is tough. how much capacity, how much ability do individual airlines have to take out costs in the middle, and how much pushback to think they are going to get? this will be a tricky balancing act as airlines try to manage and take costs out. who is best positioned to do that even further? >> lufthansa and air france are two major groups in europe who are struggling in the u.s. right now. we are seeing a lot of strikes in the last two years from air france klm, a calm period of industrial relations, but that doesn't mean whicone which is
solved. left has a is quoted in some information today, 100 million euro impact by the most recent strikes, and that has been going on for a couple years. now been has up till best placed to deal with the issue of reduction in cost is iag. they had a strike two days on a small percentage of their cabin crew, based in london, which the airline thinks it is going to navigate quite comfortably by small numbers of cancellations. they can't afford to step back, because the pressure is still there. for market pricing and for lower-cost competitors like ryanair, who don't have those same labor challenges, it does require a toughness by management teams and these legacy carriers to keep that pressure. i'd also think pressure on capacity -- they have to make sure they keep it under a tight
lid in this market condition of overcapacity to avoid further pressure on yield. john, thanks very much for joining us. john strickland, aviation analyst and consultant at jls consulting, on the biggest cost for airlines. let's get back to tracy alloway and talk about that cost as well as far as the oil prices. i trust, tracy, we have fixed the audio issues, so let me ask you what the saudis think about the rig count climbing in the u.s., on doing all the work they have done in vienna? tracy: sure. it's not just the rig count. we have seen a slow drip of interesting information under the u.s. oil patch showing renewed optimism there. for instance, the dallas fed's energy survey came out recently, showing an increase in activity. we also have some oil majors like halliburton saying they
were going to start hiring again, especially in the permian basin. alliburton specifically is company that reduced its headcount by something like 40%, and is looking to hire 200 people. take all these anecdotes together, and it really revives the old chestnut in the oil market about whether or not opec still has the same pricing power that it once did. that's what we are seeing come back. we are seeing lots of analysts talk about whether opec, even if it follows through, will get the impact of desires. guy: he got there in the end. thank you for your patience, tracy alloway. up next, pound under pressure. theresa may signals immigration control in her brexit priority. we will discuss that next. this is bloomberg. ♪
guy: london has a lot to deal with this morning, one of which is a strike, the other of which is a weaker sterling. theresa may has signaled she wants to gain control of integration and lawmaking, even if it means leaving the single market. the comments came in an interview, and analysts put the pound under pressure. sterling has weakened against the dollar for a second day. let's talk about this in detail. we're joined now from singapore. i have a chart up, the last few sections. you can see the 1.22 touches.
what is going on here? what is moving the story? >> well, it's getting to look a bit like another winter of discontent for the u.k., for people with long memories. it's a terrible start to the year, and obviously theresa may wasn't too convincing in her tv interview. people are very concerned that hard brexit is back on the table, and at the same time you have industrial action going on, which foreigners view very badly. as soon as you go through levels 1.22, which had been holding up for a while, you really open up to much lower levels below that. we're already hearing people talk about the flash crash, which was around 1.18. matt: if this week this continues, how likely is that the bank of england will actually raise rates to defend the pound and fight off the coming inflation? englandnk the bank of
would be quite happy to get behind the curve on inflation. it's taken such a long time for inflation to take hold at all that they would be willing to see inflation rise quite a bit further before they start to raise interest rates. the pound when get much help again, the thena g bank of england with themselves position, because they can't act too quickly because the market will think they are deliberately raising rates to support the pound, which they probably wouldn't want to do. we can see them to for rate hikes for quite a while, and just let the pound go where the market intends to push it. guy: i'm looking at the five-year, five-year for the u.k., trading 3.6 five years out. that's above target by some considerable margin. at some point, the bank which looks further out than the market does is going to have to react. >> certainly. they can't put it off forever.
it could go for the second half of this year, that they really come down and do a rate hike. and when they do what they will probably have to follow with others, as well. adding to their growing problem is the fact that the united states has re: started to raise interest rates. the u.s. dollar is pretty strong, and traders know that during periods of strong u.s. dollar, the pound usually does pretty badly. guy: we'll watch this one. mark cranfield thank you very much,. matt? matt: hey, guy, later on today, i am looking to david weston's interview from detroit, the north american international auto show ther ein the capital of cars. we can sit down with the gm ceo, mary barra; for ceo, mark field; an and nissan c carlos go. it's going to be a various exciting show to watch this year as -- a very exciting show to watch this year. guy? guy: looking forward to that
francine: tightening up. potential candidates to head the fed suggest monetary policy would not be so lose if they are in charge. volatility continues as the offshore currency tumbles for a second day. a pboc advisor tells us that more efforts to stem capital outflows are unlikely. >> at the moment, things are stabilizing. they took some measures and the measures became effective, and i think the market s