tv Bloomberg Markets European Open Bloomberg January 11, 2017 2:30am-4:01am EST
welcome to bloomberg markets, the european open. we bring you the first trade of the day. i am manus cranny alongside matt miller. he is in frankfurt for a special conference on strategy. here is what we are watching today. the russian enigma. said to be told of unverifiable reports that the russian government has compromising information on him. how well the president-elect address this in his first press conference?
level will on what mark the end of a three decade long bond run. are -- or are we already in hibernation? the designated price tag accelerates. volkswagen closes in on a deal to settle a u.s. probe. what will it mean for the earnings? we are less than 30 minutes away from the start of the cash trade around european equity markets. were quite good. this was the european market open. we have a deal in terms of getting involved in the construction. haveean equity markets jumped back a little bit softer this morning. it really is a dancing moment. we will get the first press conference from donald trump. how is it -- he going to react from the news from the intelligence agency.
for europe and the markets, it is about what comes next for [inaudible]n terms gmm and what is going on with the markets. and in terms of the positions that we have, we will get there. there we go. this is what you are looking at. essentially the view is that on is there. get on the trump train. you'll get smashed and run over if you do not. why are the consequences of the reflation trade if you believe in it? , these are thep futures.
these are the qualities. this is what you want to focus on. you have had the ceo of bht -- bhp billiton. aboutre still talking copper above $6,000 and if you want to understand what is going on with the dollar, this is your fx. we have seen some drop in some of those currencies. record lira making some lows. juliette saly has your first word news. juliette: jeffrey good luck has set the tenure treasury yield topping 3% with signal the end of the three decade-long rally in bonds. webcast the ceo of double and capital said "if we take out 3% in 2017, it is by by bond bull markets. in an investment outlook related earlier that the benchmark treasury about 2.6% would spell the end for the bond bull market.
in on aen's closing deal to pay $4.3 billion in criminal and civil penalties. probe. hold a u.s. the agreement which will include a guilty cleat raises the cost of the scandal to more than $23 billion in the u.s. and canada. that is above the $19.2 billion tot they had set aside resolve the dispute. u.s. prosecutors's have charged three x traders at the heart of a criminal investigation that has ensnared the world's biggest banks over the rigging of currency rates. employees are accused of using an online chat room they called the cartel to coordinate trading of u.s. dollars and euros and manipulate prices. they are the u.k. and will have to be extradited unless they surrender voluntarily. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg.
matt: thanks for a much. also president-elect donald trump was briefed by intelligence officials that the russians may have potentially damaging information about him personal -- about him, personal and financial information, according to a person familiar with the matter and this is a story we will continue to cover. guy: trump took to twitter to deny it. emerged the net before donald trump is scheduled to hold his first news conference since winning the election. is beginning a confirmation hearing for rex tillerson. criticizedts have him for having close ties to vladimir putin. 's first news-elect conference is set to go at 4 p.m. london time. the world will be watching.
the chief investment officer here. enomics.to trump are you getting on the train? these patterns and markets all the time. once the momentum gets going it feeds on itself and we are seeing a lot of momentum. risk assets are buoyant. government bonds are coming under severe pressure in the dollar is surging ahead. this is a lot of momentum that will keep going. severe pressure indeed. bill gross says 2.6% is the end of the bull market. jeff gundlach said we would likely see 3% three that could be the end of the bull market and at 6% could be where yields are at the end of the trump first term. do you think that is a little overdone?
thet: even if you look at federal reserve they are expecting interest rates to rise in the next few years. it is to attempt three times three. they are expecting three rate hikes taking it to 3%. this inflation we started to see in the expectation will seep on yields rise. 3%se are technical levels of and that could leave the further selloff in the bond market. guy: let's talk about legacy. you had obama setting the stage for some of the gear shifting rhetoric toon from policy. as we look at obama's legacy, what you have got is unemployment cascading down. he has created 2 million jobs at the end of last year. you have unemployment and poverty dropping. debt to gdp is not looking just so pretty. of the u.s.state
economy? what is the potential growth that trump has promised that you believe in? guest: obama will talk about all of this strong economic data but will admit the fact that this came at a price which is as you point out, the increase in debt. the u.s. economy is on the mend. it is in a very strong position. donald trump has got a very hard job ahead of him because he is inheriting a very strong economy. the way thatl in wealth has been distributed but nonetheless, obama has had some of the last strongest -- some of the strongest economic recovery in the last eight years. argument,u make every you are off to a slow start. this goes -- rex tillerson goes in front of the senate. exxon's ceo. we expect him to talk about nato allies being right, be a learned by a resurgent russia, and he
was go on to say that there a lack of u.s. leadership. it is interesting he started by pressing nato and he is possibly going to say that russia is a danger. these are two very dramatic gear shifts relative to trump's burbage up until now. guest: the relationship is a tricky one. he is claiming the obama leadership for the fact that russia is a danger and a risk. as we know, donald trump has talked about how much he respects putin. it will be a tricky relationship. we will see if anything is revealed on these latest allegations in terms of the data that russians have got on donald trump. it is going to be an interesting relationship to watch in the next few months. up, we are live in frankfurt where matt miller is standing by with great guests. -- to davidk to the
compton. you do not want to miss the conversation. plus, scandal. it has been settled. vw is closing in on a deal to 3y an additional three point billion -- $3.3 billion. we give you the details. if you are wondering where guy is he is on his whirlwind trip around europe. he is in toulouse. how the playmakers repairing for the incoming trump administration. we discuss. we are 20 minutes away from the cash market open. this is bloomberg. ♪
guy: 7:42 a.m. in london. this is the european open. alongside matt miller who is in frankfurt. for the goldman sachs global strategy conference. let's get a business flash. juliette saly standing by. juliette: thank you. a construction contract. work onch company will the construction of the buildings that will house the two nuclear reactors. the company built similar plants in europe and france that use the same technology. shares rose on tokyo on
signs the lenders will support the company as it deals with potential losses in its u.s. nuclear business. according to people with knowledge, that congo walmart's main banks retain financing through february even though recent credit downgrades we make it in eligible to receive loans. "as to sheba'sd main bank, we will continue to mizuho declined to comment. the main assembler of apple's iphone's has recorded its 1st avenue -- annual revenue decline since 1991. foxconn posted a 2.8 percent fall in twice 16 sales is the global smartphone market went through its worst year on record. that comes as foxconn technology took control of japan's [inaudible] that is your bloomberg business flash. am at the goldman
sachs conference. times so much for your this morning. that's talk first about your outlook. a lot of it is contingent on the positives that the trump administration wants to put into play in the first 100 days, let's say. what do think are the most important of those? he has tax reform, you a tory reform, on his it's -- regulatory reform on his agenda as well. what do you see as he boost for stocks? inthe items are critical terms of increasing investor enthusiasm. the corporate tax cuts are probably the area that investors are most focused on. in terms of the magnitude of accretion turnings. the is a key driver of overall market. the concern i would have is some time in the latter part of the
quarter, probably in early march, we likely to get information from the senate and house as it as exactly how large a deficit congress is look -- willing to live with. one of the issues, the magnitude of the tax cut is what the effect would be on the budget deficit. a key aspect of positive or earnings revisions would be lower taxes and there is a cost to that from a fiscal point of view but the investor community is definitely focused on the upside opportunities. the idea of repatriation tax, a change in the ability of -- not the change but a change in the a company'sbout flex ability in repatriating overseas cast -- cash. people have said $2 trillion is being held overseas by u.s. corporations. he said he thought it would be more. you expect a lot of that money to come back into the u.s.? guest: this is one of the bipartisan items that hillary clinton and donald trump are
advocating. cash held overseas by u.s. corporations could be or should be repatriated back to the u.s., that would generate more tax revenues as well as free up lek's ability of companies to reinvest that money in the u.s. wasexperience from 2004 when there was a tax holiday, a lot of that money came back and ofewhere between 60 and $.90 every dollar was used to repurchase shares. that is the most immediate way for companies to pull at that cash. there will be something like $200 billion of cash that will come back later in 2017 with more coming back in 2018. of the money coming back this $150 expectations would be billion, 75% used to repatriate -- repurchase shares and that is a key source, one of the most important sources for demand for u.s. shares and that is likely to be the case this year as well. you expect and s&p 2400 in
the first quarter going back down to 2300. you expect the optimism to fade into the year and why? guest: the basic issue is the level of earnings. if you think about what has happened the last several years, the discussion was about how go. the multiple should there was not a lot of debate about earnings. it was a question of zero interest rate policy. at the multiple of the s&p 500 climbed from 17, 18, 19, perhaps 20 times. the idea of a pe expansion was the story of 2014 through 16. i-17 interest rates have been moving higher. we expect them to move higher in the balance of this year and in that environment it is about earnings, not about the multiple. and a question about earnings it is the lower taxes or changes in deregulation and less and enforcement of the existing regulations which would be potential drivers of higher level of earnings. matt: you are expecting 5%
increase. earnings willd grow 5%. the expectation of investors it will the much more significant growth in earnings. my concern as a portfolio strategist is the enthusiasm is overextended perhaps relative to the tax cuts that will be implemented as a result of the budget deficit. that would leave the market to rise about 2400 in the first quarter and the latter part of the year. trading is at a high valuation. the market as an index trades at of 90th percentile historical valuations. 10% of the time has the market had -- as an index traded higher. the median stock and forth for your managers who are choosing individual stocks for long or short or overweight, underway, trades at the 98th
percentile. this earnings are the key part of how you get to a higher market. matt: you have to figure stocks right. let me ask you about what you choose. we also have a third positive --t everyone is expected expecting from donald trump, infrastructure spending, stimulus. does that lead you to want to pick certain sectors over others? yes: one of the most important issues happening right now in the u.s. is a rise in labor inflation. wage inflation which is pushing highest 3%, one of the we have had in the last couple of years. companies with a low labor cost as a component of their cost structure would do better than ,hose with high labor costs sensitivity to labor cost inflation. that is one strategy. you can find stocks again in all parts of the market. another would be high tax rates.
it is unusual that companies that pay at the statutory level in federal taxes. the stacks have done poorly, they have underperformed. if there is a tax cut this year those companies ought to benefit and have the best positive earnings revisions as a result of lower taxes. that is another strategy. from a sector point of view it would be a preference, i have reference for financials and information technology. the financial stocks tend to do better in a rising interest rate environment and rising inflation. that is the environment we have had now. and that can continue in an environment where rates are higher. the dispersion in returns that have been low for several years and you will have a higher return dispersion in the market in 2017. matt: let me ask you what you stay away from. the world bank is concerned about trade barriers.
this is something that fed members have spoken about as well as kicking and later on and donald trump's term or as being a drag on the economy in 18 or 19 as opposed to what they expect to be a boost in 17. do this trade barriers make you want to stay away from certain sectors? think aboutay to that is yes and the area of focus are those that are more domestically basing. and avoid the companies that are more dependent on exports. there is three reasons why you want to be positioned in that fashion. there is a relative gdp growth story. faster economic growth in the as compared with europe or japan as an example. you have more unit sales that you are likely to experience. you're likely to see a stronger u.s. dollar in this year as a result of the fed hiking and goldman sachs economics is forecasting three fed hikes this year. that should lead to a stronger
dollar. that is a headwind for those companies that are dependent on exporting. the third issue is the trade protection which would be a risk of some of the companies more dependent on exporting. that is your macro argument on why you want more domestic focus. there is a concern about potential destination-based tax or a border adjusted tax reform. which may increase the cost of some goods that are being imported that are ultimately sold back to the u.s. consumer. there is some risk that we are concerned about. the number one issue is about enthusiasm of investors newrding the implication of administration in terms of lower potential taxes, less regulation which is increasing the enthusiastic -- enthusiasm in the market. does that enthusiasm, does that lead to inflows from foreign investors or do you expect the outflows? guest: foreign investors have had a significant selling in the
last two years. selling0 $50 billion in by international investors of u.s. equities. my forecast this year you would , positiveght demand net demand of $25 billion into put that in some context that is compared with 800 billion dollars of corporate share repurchasing. it puts that in the context of overwhelming source of demand theshares will be in 2017 repurchase of existing shares by corporations that has been the pattern for the last several years and this year will the the second time in the last two decades that you had the number one use of cash of corporations being repurchasing home stock. matt: thanks for a much. i appreciate your time. strategist.s. equity for goldman sachs. great interview there. fascinating lines coming from david. it is about the corporations tax
cuts. expects a rise of 5%. stocks that we are watching. better third quarter numbers came in today. comfortable beat. sales are up in the market is looking for 1%. online that grew by 9% and convenience stores group. we are keeping an eye on [inaudible] that is the most expensive nuclear plant in the world. in the history of the world. i should say. they will share a 1.7 billion pound expense. it looks as if we are expecting news from them. closing in on a $3 billion accord. this will be the criminal civil portion of their accord. that takes them [inaudible] it looks as if the issue could
anchor: a very good morning. you are welcome to bloomberg markets. manus: i am manus cranny, standing in for guy johnson. matt miller is on the move. he is frankfurt and has the goldman sachs boys and girls. moments away from the start of your trading day. matt, you have the morning brief. matt: starting with the russian and. donald trump has been told of unverified reports the russian government has compromising information on him. how will the president-elect address this in his first press conference later today? then heading into their country, bill gross differs on what
will mark the end of the bond bull run. are we already in hibernation? a $4.3 billion deal to settle a u.s. probe -- v vw closes in on a $4.3 billion deal to settle a u.s. probe. what will this mean for earnings? it is all down to what the president-elect is going to say. what is rex tillerson going to say about the relationship between the united faith and russia -- united states and russia? anna edwards, good to see you. take it away. anna: thank you very much. very good to see you. let us talk about the european open then. a lot of politics on the radar today on both sides of the atlantic and that's no doubt will capture imaginations. on that to be said about the russian story, no doubt.
let us have a look at where the equity market is opening up. the asian session was a pretty positive one. a bit of weakness coming through in china and we are a touch positive on the european start of trade, but things taking a while to settle down, but not much in it. a lot of politics carrying on the in the background. telecoms not doing too badly. utilities and energy, perhaps our laggards, but no great moves coming through on the stoxx 600 at this time of the trading day. opening up. mark carney in front of the treasury committee, talking about his expectations around the u.k. economy and talking no doubt about interest rates and what should and should not be done to support the economy at this time, so great investors might be looking at that for information. too early to start talking about any rate hikes. that was the view. i caught up with him earlier today. having a look at the ftse 100,
interesting story as we see the european equity markets opening up. a great story on the bloomberg about just how strong the ftse has been of late. the unitede of -- in kingdom, very much supported by what we have seen happening in currency markets. the ftse closed at a record every day since the opening of the market after christmas. that is nine days in a row, manus, a record streak of record closes, a record of a record, which is impressive. panic continues. overshooting technical indicators showing the ftse 100 overbought territory. what is moving around on the equity markets at the moment, let us bring up the stocks on the move for you this wednesday. moving higher, up by 3.6%. it was not only those mince pies bought as well. that chain as well.
still uncertain about the impact of the devaluation of the pound on their business though. that is interesting and ways in or plays into the u.k.. the construction at telecoms company in france, they got a contract with the nuclear facility in the u.k.. ouygues being built andb has a contract there -- and there.s have a contract as goldman sachs says, it is a positive catalyst and removes one of the five major no liabilities around these. waiting for an opening price on foxtons.s -- this estate agency, realtors are guiding the markets lower this year. watch out for that one when it does open. could be week amounts. bated we wait with
breath. stocks down and they give us their full-year revenue. billion is what they are telling us. 2016, west african sales volume, 1000, some shifting as well. the ceo paul has been appointed as the ceo. it looks as if the market is focused a little bit more in terms of the revenue they have given the market of $1.3 billion. that beat the operating cash flow of $1.7 billion. that is going to play on the stocks. you want to watch in the european trading session, but the bigger debate is this. what is going to mark the end of a three decade-long bond rally? ceo jeffrey said "the last line in the sand is 3% on the 10 year government bond."
meanwhile, janus capital fund manager not to be outdone -- ,hat is what makes the market lady and gentleman, a bid and an offer. the benchmark growth reads about 2.6%. that is the end of the bond market bull. and how borrowing costs they fared on in, and this goes , ford, nixon, and johnson. as you can see, george w. bush, they momentarily tripped higher under obama. then of course, we have been on a one-way cascade with a few volatile periods in between. let us bring in mohammed to mouhammed. are there bowls right -- bulls right? what is the consequence of that
on equities? definitionds on your of the bull run. you can see the peak in double-digit is only when we reverse that ball run that we can say we are back to where we were at the peak. we have seen the selloff already. mouhammed: we have tested it before in the past decade against the backdrop of economic uncertainty. this is not the first time we ine seen this had a selloff bonds so it is too early to say. manus: -- matt: i wanted you to tie this together with equities. does this mean investors will be using their money to buy stocks? anna: -- mouhammed: the argument in the past years is lower yield justify higher -- the compression and valuations. the behavior in markets is not consistent with that thesis.
our research shows actually there is still good returns to be harvested from equities independent of what you think of the bond market because valuations still offer some value here, some potential for return, and looking at the bond market as a separate as a class would be prudent at this stage. matt was doing the interview. i will do it live. here is jonathan earlier. this is the s&p at 500 and how it epically reacted. normally, those 40 six quarters of a rally, clinton bombed. obama, 160 7%. reagan, 118%. 46 quarters of a rally, clinton bombed. .bama, 167% reagan, 118%. is that the lead protagonist for you? mouhammed: what matters is the
starting point. you talk about the clinton rally, it was starting from a low valuation. and that is one thing. the reagan rally, a low valuation. the current font administration is coming in from a high valuation and that is a risky place to start. there is a potential for returns, but not as much as there were during the beginning of the reagan years and the other examples. you know, jeff was saying the animal spirits have been stirred by the trump presidency. can those animal spirits be maintained if we do not get a continued rally in the u.s. stock market? mouhammed: for sure. i think the key drivers of markets, if you look at it as a long-term investor, you are more of a medium-term investor and you're looking at momentum. right now, there is an abundant amount of momentum in the market that is on itself. people are taking this rally and that will continue. that persist. we see that time and time again with financial markets but it is
important to knowledge and pay attention to it. manus: we are ready for it. you stay with us. we have got a little bit more value to extract from you. mark carney faces his critics. the bank of england government is set to appear before the lawmakers. we will discuss exit battle and rolling, coming up plus, the price tag accelerates. here the latest on a volkswagen's latest probe. a headwind for airbus? from the hq.s live that and more, right here on bloomberg. ♪
to thewelcome back european market open. i am manus cranny. matt miller is in frankfurt for us today at the goldman sachs strategy conference. it has just gone 12 minutes past the hour. a little bit later this morning. -- lighter this morning. i can tell you this. there is an interesting chart. the market has stocked up on options relative -- this is european trading complex. the stock options -- the market is beginning to build up for a bit of a downside correction or indeed is it just fine production that is flight medic at the moment --
phlegmatic at the moment? down 0.3%. some of the main movers, st. mary's topping the bill -- sain sbury's topping the billboard. a fairly, fairly tough opening this morning. down 18% on this stock as we see them. 2017 dividend policy set after review that we do not recommend a final dividend for the year. auditeding profit is on draft at 245 million, so that is really what is rocking this morning. the biggest record low for this stock. matt, take it away. matt: yeah, you mentioned mark carney before.
the boe policy, brexit, and even his own 10 year, so we'll be waiting with bated breath, manus, to see how that exchange goes. manus: dated breath in germany. the pound has had a rough rise. that is the understatement. david bloom spoke today about the currency's downward trajectory. is, sterling is going down. how quickly a goes down is up to the politicians and that is the relationship now between cable and the politicians, so, you know, predicting politics is very difficult. i mean, the economy is bad enough. the structural stuff is bad enough. having to forecast politics on
top of that is a very difficult world as a forecaster. another volatile 12 months for the pound. hsbc is predicting sterling will fall to $1.10 if we have a severe e.u. exit option. so with us is mouhammed choukeir. pound.recast on the 3551. the white cliffs of dover and the wrath are preparing to leave the bbc. they are an unhappy breed. rats preparing to leave the bbc? from thatouhammed: perspective, we are quite happy, generating good performance for our clients, but the key point is what is reflected in the pound already? that is a question we need to ask ourselves.
it is already reflecting a referendum that says the uk's exiting the e.u.. it is reflecting a potential for a hard brexit, so it needs a further surprise to take it down to 1/10. that could be a constitutional crisis. let us not rule that out. this story is not over. manus: what shape could a constitutional crisis be ? what do you envisage that could be? may has saideresa she will trigger article 50 by march and she is not able to do that, there is lots of faith in the government -- if she is not able to do that and there is a loss of faith in the government, that could cause a crisis. matt: what are the other options beside the hard brexit? is that the only option on the table, really? mouhammed: all the options are still on the table. this is the one currently capturing the attention. there is an opportunity for a
second referendum. that is not getting talked about much these days and people say, theresa may says brexit's brexit, but let us make no mistake. in politics, things move very quickly. in the next 12 months, all things could happen to change that. manus: i mean, -- matt: i mean, if you are going to have a second referendum, you might as well have a third. don't you think at some point a decision has been made and has got to be followed through upon? mouhammed: without a doubt. the decision has been made and is being followed through. the question is, can it be followed through successfully? if there are a series of questions as have been raised by the civil service, the people doing this for years and years in terms of negotiating with europe, to find out it is not as easy as it first at least appeared, then you could see yourself in all sorts of scenarios that are not necessarily anticipated. that is not to say nobody anticipated brexit. there are all sorts of things.
manus: one of the pieces that caught my mind, we have written a really good piece. henry meyer, bruce douglas, and another have written "let's make a deal." apparently, out, there is a great big warm welcome to do a trade deal. mary kudlow could be one of those in the top administration. here is what i put up, ectr. says, one of the things that is going to happen very early is that the president elect will move from the back of the queue to the front of the queue. this could be one of the pivotal moments. this is our number two trading relationship on the ectr for the united kingdom. if there was a significant step forward in a trade negotiation with the united states, would that shift --? could that shift the thinking mouhammed: it would definitely if youement of hope that
could negotiate with one of the largest economies in the world, you stand a chance to negotiate with other economies, but your chart shows the biggest economy the u.k. trades with is germany, europe. you can see that in the top five. securing the u.s. is a starting point, but you have to secure the u.k. economy with europe to trade with the rest of the e.u. manus: and passporting is an absolute integral part of that with the banking voices for making very clear. mouhammed choukeir stays with us. volkswagen has bloated budget for the scandal. blown its budget for the scandal. that is more. this is bloomberg. ♪
matt: welcome back to the european market open. markets than across the board this morning. i'm standing by at a goldman sachs conference in frankfurt cranny inmanus london. volkswagen is closing in on a deal to settle a u.s. probe in cheating on its omissions tests. the admission will include a guilty plea and raise the cost of the scandal to more than $23 billion for another america alone -- for north america alone. upload the budget the carmaker
had set aside -- that blows the budget the carmaker had set aside. tom, what still means to be done to complete this settlement? settlement is a final chunk of a larger lawsuitnt and consumer which is being overseen in a federal court in san francisco, boarday, the supervisory of volkswagen is supposed to review the settlement and once they have signed off on it, it goes back to the court for final approval there. again, this is just a settlement -- the settlement portion, which distinguishes what they have agreed to. there is still consumer lawsuits with both -- that volkswagen have to face. guess,o those things, i have to be done before we get a
full conclusion to the settlement, to the hole crisis? -- the whole crisis? tom: yes. this is the biggest chunk, at least that anyone is predicting. no one is giving any particular figures, predictions, for these other lingering lawsuits, but, so, there will be a group of complaints and settlements or rulings probably in the coming years, but this is the largest chunk. manus: so how have the scandal and subsequent fines affected vw operation? they seem to be pushing towards the electric cars and they are doing a whole variety of things, but where are we in terms of the reality for operations? tom: that is exactly the issue. this has been a distraction for them. course, with this timeout of money, it means that they have got less money with which they can spend on developing these high-tech
electric cars, automated driving, or other particular mobility services, which are themselves very expensive. they said that they were going to be spending 10 billion euros over the next seven years to develop these. with these legal issues from the , thatl, the cost of those takes away resources that they could use for engineering and developing new services, new products to compete in a market which is becoming more high-tech. manus: tom, thank you ray much, tom lavell -- thank you very much, tom lavell. he is still with us in the studio. i want to have a look at this, 50,put ratios, the stoxx
which you can see in the blue. that is ratcheting away. this is protection. the market -- in the 2000 -- the market -- in the 2000. mouhammed: 2017 will be a strong year for growth. from that perspective, the equity market is doing well, but there are pockets of uncertainty, the elections in france, and germany, in netherlands, brexit negotiations, and protectionist cheaper today than it has been for a while, so investment would explain some of the dynamic you have shown on the chart. manus: who is going to play the qe game the most? you expect europe to be fully exchanged in qe2 the end of the year? our expectation is that the kiwi and europe could
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show me house of cards. finally, you can now find all of netflix in the same place as all your other entertainment. on xfinity x1. manus: welcome back, the european open. i am manus cranny alongside matt miller at the frankfurt strategy conference. stocks are up and running. volkswagen is one of the big corporate stories. what news flow will they give us? stocks are drifting that little bit lower as we wait for trump's first news conference. rex tillerson's confirmation, what will that look like in terms of russia?-u.s. relations we just had -- russia-u.s. relations? mouhammed choukeir saying we could raise rates in 2016. it could be the shock of 2017. the dax down by 3/8 to 1%.
you had david bloom talking trumpflation.io when the markets have momentum, you want to have a belief system. i had a few agreements highs. they were good. they came in better on argus numbers, excluding fuel, up 1.1%. a drop of .8%. 5.25%.llies, these guys make a lot of components for the aerospace business and what they are saying to the market is the final dividend will take a pass on it at the moment. they are forgoing the final dividend because it had a disappointing trading position. 24/7 million pounds.
255 is below the range of to 275. that is the top and bottom, down 18 point -- 19.4%. that is a record low, the lowest for the stock price since the biggest -- since 1989. matt. actually, we'll get to sebastian salek with the first word news. sebastian: u.s. intelligence officials have informed trumpent-elect donald about unsubstantiated reports they received that the russian government had damaging information on him according to a person familiar with the situation. on twitter, trump announced the report as "fake news, a total political witchhunt." made hisama has farewell speech, saying america is better now than when he took office eight years ago. he warned against personal all caps and -- personal attacks
and media bubbles. pres. obama: america is exceptional. nation has been flawless from the start, but we have shown the capacity to change and make life that are for those who have fallen. sebastian: russia has posed a danger to the u.s., that is what the nominee for secretary state and ceo of exxon mobil will tell senators at his confirmation meeting later today. his remarks are a sharp departure from comments for trump who called for a friendly relationship with russian president vladimir putin. u.s. prosecutors charged three x traders at the heart of -- ex traders. the former jpmorgan citigroup and barclays employees are accused of using an online chat room they called the cartel to
coordinate trading of u.s. dollars and euros. they are living in the u k and will have to be extradited unless they surrendered voluntarily. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than hundred 20 countries. this is bloomberg. -- 120 countries. this is bloomberg. matt: i want to talk for a moment because my coanchor, guy johnson, is right now at airbus 's annual conference today in to tulouse, france. we have been talking about -elect trump. for airbus, will trump be an issue? guy: i don't know. we will wait and see. we had already had an issue with trump. we have seen him sending out
tweets related to but win. what i think will be -- related to boeing. it is whether or not the new production plant, which they've recently inaugurated in alabama, is something that will insulate airbus on the donald affect. it will be interesting to see whether that will be enough or whether he starts to go off the european manufacturers, whether thetart to see protectionism story reaching into europe. remember that most carriers in the u.s. probably use boeing and most in europe use airbus. it there is some crossover. it will be one of the interesting stories. the other thing to watch out for is whether the french executives are talking to each other. that is another thing we want to raise. manus. manus: you mentioned the trump effect. let us talk about the le pen effect. what do you think the political
and business revocations are for a company like that? thisit will not be dull year for airbus. they have the trump effect to deal with and how they work through that, but in some ways, the 10, a victory for the pen, and the most people are still saying that is not going to , and mr. for le pen gore say net is not going to happen. this is a pan-european company. they make wings in the u k and -- in the u.k. marine le pen wants to walk away from that. i think, i am fascinated to find out, are they starting to model that? at a starting to figure out exactly what that would mean for their business model? how would it change?does that start to have a significant impact if the euro disappears, what impact would that have?
what impact would they have? they have special planes they call belugas. they put them all together. happen under a marine le pen presidency and it will be a fascinating story, 2017. airbus has a lot of skin in the game, manus. manus: and in the u.k.. one of the questions you mentioned briefly is to what end is it a long goodbye or au r evoir in terms of making the wing production in the u.k., or is that was -- overstating the withdrawal? guy: it could be an increment of story. you have to watch this carefully. the wings are one of the most highly valued part of an airplane. an airplane onto its engine, that is the joke in the aerospace sector, because the engines are so obligated. they are made in the u.k. are verygines
complicated. after that, it is the wings, the really high value. what we are starting to see, and you have really got to want to see it is that may be airbus is starting to move some of that reduction away. what they have done is taken some of the manufacturing they put onto the wings, carbon fiber they put on the wings, and that has got to northern germany. >> little bit here, little bit there, that starts to add up. guy: politics is absolutely front and center right now. matt, what you think? can we draw a line with what is happening with volkswagen, what european companies are saying to each other about that transatlantic tiff we have seen? us wonder if this is setting up for something more on the production's front. matt: i would sit -- protectionist front. matt: the germans get their carbon fiber from the u.s.. bmw has a big carbon fiber operation in washington state,
so it is interesting that airbus ir carbon fiber from northern germany. i'm blown away by your airplane knowledge. you mentioned the engines from ge, rolls-royce. in trouble.viously would new engines save the a380? guy: well, tim clark at emirates has been pushing for what they call it a new engine option, the neo. neo, and now a 330 neo. will we see an a380 neo? that program has incrementally started to roll over a little bit. others too inspire buy that aircraft? have guys at airbus will
two faces challenge for what did they do with the program, where do they take it from here, and what about the engines? that is a big question a lot of people are asking. we will ask that question to the coo, the guy who runs the show in toulouse. back to you. very comprehensive roundup of the issues facing airbus from politics to the mechanics of putting planes together and how they do it. have a good day down there, guy. let us see whether matt wants to go into a little bit more. he is very busy with these goldman sachs more than girls. great conversation with david kostin. backxt on the show, we go to that conference where we will be speaking to the senior manager, harald sporleder. this is bloomberg. ♪
sebastian: 1.7 billion euros for the controversial nuclear plant in the u.k. the french company will work with a british firm on the construction of the building to house the two nuclear reactors. the company built a similar plants in finland and france for the reactors. shares trading higher this morning after it beat sales estimates. .1%.s rose by the u.k. retailers of the market remains competitive. the devaluation of sterling remains uncertain. toshiba shares have reason -- risen. according to people familiar with the matter, they will maintain financing through
february even though recent credit downgrades may make it difficult to get loans. "as toshibas main bank will continue offer support -- we will continue to offer support." that is your bloomberg business flash. manus, matt. very much for that. as i said, i am here at the goldman sachs strategy conference in frankfurt. i am talking with harald sporleder. thank you so much for your time today. we spoke earlier with david about a u.s. equity outlook and you are focused on europe. he was not overly bullish. he expected a slight gain. you are not overly bullish on european equities, either, are you? >> correct. we're taking into account the political movement of the equity market since mr. trump is elected. we have to consider that already -- and in a global context, i still
prefer european equities so far, but what we have to consider, and that is our biggest concern going forward, is the inflationary numbers going forward, and there will be reach across when it comes to the interest rates. probably all european central bank. ,att: the donald trump effect the policies we expect from him, the world bank said they could be good for business. we heard another saying we could see a stir in animal spirits, but the problem is, i'm guessing, there is so many risks, so many unknowns, so much uncertainty out there, right? harald: the markets are starting first to anticipate this kind of positive news into the share prices. that is already done, but we are waiting for the real matter, the statements,, the the effects, and when it comes to the structure investment, but all of these kind of measures taken time. especially when it comes to the
fiscal measures we are talking about in 2018 and offers quarter 2017. matt: you mention inflation, inflation expectations have risen. we have seen five years climb. dcfs already from the inflation picture on european equity -- do inflation picture on european equity? harald: we have to consider the commodity price, inflation kicks in, and all of this one comes together and the central banks are focusing on the numbers. now, the inflation expectations are going up faster, the markets in thejust this one daily discussion. what does this mean for mr. raghi? this could come as a price, a negative price. matt: in what sense?
harald: in terms of increasing the interest rates faster than we had anticipated right now. matt: and reducing, i'm guessing, for mario draghi, reducing his position in the market? program,sing the qe but fair nature kind of industry defense. matt: how does that lead you to pick stocks or industries? do you pick industries that are somehow averse to inflation? are you looking at specific industries that may do well in different export markets? harald: we are focusing right now on something which is not as popular. be away from the consensus, and what is currently not very popular are the telecom names and health care names in europe and we are focusing on these kind of names because we could believe that these kind of names could surprise in a positive way, and something we .hould consider going forward
when this currency movement continues, in a way, as the u.s. dollar strengthens longer, we should consider more activities. the european assets for cheaper money. that is exactly what we are expecting when it comes to the health care companies and when it comes to the telecoms, but us to --t, europe, we have let us face it, europe, we have to learn something from the u.s. markets. i believe the regulators, politicians, and all of the corporate leaders, they know we have to act. that is exactly what we are expecting in 2017-2018. requireat would consensus, some agreement between the european member states. do you expect this to be a strong pro-europe your even amidst the brexit? harald: it is always complicated
to predict allocations, especially in europe. taking into account the learnings from 2016 and in terms of what does it mean? what all of these market events mean for the u.s. equity markets, there is a kind of learning, and we have elections in europe, german, french, dutch elections, but the market and investments we have already anticipated, and these types of events, we have learned something from 2016. in a way, we have to learn that with macro events and understand that not all of these equity market movements are eerily fundamental, -- purely fundamental, unfortunately. matt: you mention your anti-consensus, contrarian plays with telecoms and health care, as far as what you like. give me a secular industry you want to stay away from here in europe. harald: i guess we have to
consider the consumer statement sector as a sector which was in favor for many years. toy of these companies have deliver arguments for investors which are in the kind of name s for longer, where they should stay in, where the valuations are high and the rate potentially low. this could disappoint investors, especially when the rates are rising. and i would consider the statement sector a sector where i would not be bullish. matt: thank you, appreciate your time. sporleder, senior advisor to allianz on european equities. manus, back to you. manus: thank you very much. matt miller, with great interviews coming out of frankfurt today. up next, executives from the world's biggest dhp. -- bhp/
out this morning. the metal was seen as a bellwether for the global economy. is it up? there you go, just under 3% for the day. cannot rally continue? we had a meeting -- can that rally continue? powerpledges to develop for the mining industry. , managing editor for commodities. they are all on a journey, aren't they? tell me this, how much more of a leg up do you think this copper we havean have? will: had a couple of calls the last couple of days that's a 6000 as well within sight. we have had that from citigroup, who are pointing towards potential mining unrest in the industry. that from japan's biggest smelter today. that is being driven by optimism
about the u.s. economy under trump, but also more certainty about prospects in the chinese economy, the one that really matters for copper because they can see the metal. will, -- matt: i wonder, about bhp benefiting from trump's infrastructure investment. are they hoping he will be able to spend this trillion dollars they have been talking about or give them a benefit in some white? is clear that since the election, the idea of all this in the structure spending in the u.s. has given a further boost to commodities prices across the board and bhp is the world's miner, would be a beneficiary there, and investor in an enormous mine in the u.s., but the other thing to remember about bhp as they are the biggest foreign investor in shale and clearly trump wants to boost domestic production in the u.s., so, you know, they will
francine: trump tirade. the president elect slams what he calls fake news and political witchhunt amid unverified reports that russia has potentially damaging information on him. how will he react in his first official news conference since winning the election. the bank of england governor is said to feel the heat over his post-brexit decisions. volkswagen closes in on a $4.3 billion settlement with the u.s. shares are higher this morning. this is "bloomberg surveilla