tv Bloomberg Markets European Close Bloomberg January 16, 2017 11:00am-12:01pm EST
the imf releasing its latest world economic outlook. the imf expects only a modest boost from a trump stimulus for now. it's also maintaining its overall growth forecast. mexicorabia, india, among them. joining us now is lawrence of spelled, imf chief economist. you are talking about the pace inglobal economic activity 2017 and 2018. what's behind that? 2016 was a weak growth year in the world economy. we are happy to see this uptick in growth. part of it is very stressed but important emerging market economies.
some of which have been growing at negative rates and are expected to bounce back. other than that, there's more growth momentum in the advanced economies in china. wide dispersion of multiple outcomes around the projections, especially given we don't yet know the details of president-elect donald trump's policies? absolutely. we think the uncertainty has risen and we still see the risks as pointed toward the downside. it's not just about the u.s. certainly there's a lot of uncertainty about what the policy package coming out of washington will look like, but in europe, there's a crowded electoral calendar going forward. details of the brexit
negotiation are not known. we may learn more tomorrow and think aboutt to when we try to forecast next year. it's worth thinking about the spillovers of trump's changing policy mix of which we only have notions right now. we are talking about global inflation rising and trump listing all boats. is that the case? does a rising trump tied raise all economies? what are your thoughts? guest: it's important to note that from the middle of 2016, we've seen a broad-based recovery throughout the world. butso much in latin america if we look at asia, europe, the u.s., all of them getting stronger prior to the election. we can expect the new
administration together with bring in some tax reform, some lowering of tax rates. impart a stimulus and some of that will flow over to the rest of the world. one worry is the stimulus will be so great that the fed will have two rates rapidly leading to a strong dollar and that could cause problems for emerging markets that face tighter financial conditions as a result. you say a less gradual pace of hikes than projected in october, can you give us an idea of how many rate hikes you think the fed will undergo in 2017 potential for different policy mixes from the trump administration? the market consensus
seems to be consistent with the famous fed. plots, that there would be three rate hikes in 2017 based on what we know so far. we would not dissent from that view, but we would have to see the details of the policies and how they affect the economy as they are rolled out. say: within the report, you the outlook has improved. growth prospects have marginally worsened in developing economies. what's behind that that? the falls in some emerging market economies are quite idiosyncratic. from brazil to mexico to india, and in the, a big factor has been currency reform which has led to some cash shortage.
is seeing the effects of financial tightening and policy uncertainty in its trade relationship with the united states. amongard to generalize lower income emerging markets. is the credit fueled economy storing up problems for further down the line? we do worry about that and have expressed concerns in the report we released today. keepingolicy support growth at 6.5 and have a lower growth forecast for the following year. we think longer-term, china does need to deal with the effects of somethe mastic growth,
impaired corporate debts, overcapacity in some sectors, these are factors that might be a drag on the chinese economy down the line. do you think the chinese will be able to engender a 2017r yuan throughout without disrupting global markets? guest: it is unclear how their policy will evolve. they've announced a wider basket and i have been trying to keep the currency stable against the basket. strengthening,s which is what we expect to happen in 2017, it is likely that the currency will have to weaken against the dollar. talk about things
closer to home. in london, we are awaiting theresa may's big brexit speech. you have raised your forecast to 1.5 from 1.1%. many accused you ahead of the referendum of seeing one of these scare mongers. had a fairly pessimistic view of the u.k. economy if the u.k. voted to leave the eu. is this eating some humble pie? you look at what we actually said as opposed to the press accounts of what we actually said, the report that we issued on the u.k. laid out to scenarios. one that was grim and one that was much less room. the gremlin was predicated on a severe, negative financial market reaction after brexit which we did not see. it, we did not see
forecast 1.7% growth for the u.k.. 2.4 percenteen is growth. it's been somewhat higher than we have projected and consumption has been strong in the u.k. we can talk about the reasons for that but we do foresee further down the line, particularly as consumers adjust to lower real incomes and the pound has depreciated considerably, the economy will slow. mark: how much further do you think the pound will decline? guest: if it is foolish to growth, it'sut insanity to forecast exchange rates.
the u.k. still has a considerable account deficit. it has been testing lower levels in the last little bit of time, but i would not want to hazard a guess. three brexit, it's down 10%. i would not hazard a production on a particular number. mark: thank you for joining us and giving us a wide ranging interview. the imf chief economist there. let's check in on bloomberg's first word news. >> president-elect donald trump is signaling a major shift in transatlantic operations, calling nato obsolete and floated lifting sanctions on russia for a nuclear arms deal.
the comments came in a joint interview with the times of london and a german publication. germany's foreign minister says trump's comments are causing astonishment and agitation across the eu. there's concern at nato headquarters. a nato spokesperson says the alliance is looking forward to working with trump and his national security team. kurdistan come a cargo plane crashed while attempting to land, killing at least 37 people. the crash destroyed two dozen homes. fromoeing was on a flight hong kong and was attempting to land in foggy conditions. the plane belonged to a turkish company. in south africa, president jacob zuma may try to clear the way for his ex-wife to succeed him. appointing herg to his cabinet.
that would bolster her chance of replacing zuma as the leader of the ruling african national congress. global news 24 hours a day powered by our 2600 journalists and analysts in more than 120 countries. mark: thank you. u.s. markets are closed for the martin luther king day holiday. let's look at where equities are trading 30 minutes before the close. stocks falling today ahead of the big policy speech and head of -- by theresa may tomorrow. media, theyn to the are worried that vision will be a vision that leans toward the hard brexit -- hard brexit, which is why sterling is down. the core european bond markets are rising today.
periphery bond markets are falling and we see money move into gold. you can see the other commodities falling today. a busy day today on an and a. 22.8 billion euros is the price and it's solving a bit of a management issue at luxottica for the founder, leonardo deltek year. creates a branded powerhouse second only to hermes. they expect revenue and cost synergies of between 400 million and 600 million euros. the two big gainers today. shares up by 7.8%.
operating profit was at the upper end of its forecast, proving a boost for its company. just getting back to sterling is the pound falls ahead of recent may's speech. you can see five bars there, rising for five straight weeks, the worst run since the brexit vote took place. as many fear we are headed toward a hard brexit. coming up, more on the possibility of a hard brexit. we will find out how the treasury is taking steps to prepare investors. this is bloomberg. ♪
i'm marke from london, barton and this is the european close. time for the bloomberg business flash, a look at some of the biggest business stories in the news right now. bmw pushing back after president-elect donald trump threatened to jack up tariffs on its mexican built cars, telling the newspaper bmw will face a duty on cars exported from mexico to the u.s. bmw replied saying it's biggest worldwide plant in south carolina, bmw says the factory in mexico will make cars for all its global customers. stock transaction
combining the largest manufacturers and retailers in eyewear -- luxottica owns the ray-ban brand. hong kong billionaire has agreed a company for $5.5 billion. boosting an earlier bid, seeking to expand his structure assets in australia and diversify. your bloomberg business flash for this hour. let's get back to brexit as theresa may lays out her vision for brexit. reports it could be a hard brexit, sending sterling lower. at one point, it had been below 120 but the government is preparing to help investors should there continue to be negative market reaction.
why are investors so jittery? we have been talking hard breakfast -- hard brexit. new.rdly anything guest: no, indeed and we have had some clues from theresa may talking about curbing immigration and freedom of movement not being something she was willing to accept going forward. habit ofay has a opens a handful when she her mouth. i think people were hoping for some kind of compromise, some kind of deal. in october, her speech caused a all of ation because sudden it was certain >> it was going to happen. there has been a tendency to slightly underestimate the fact it's a matter of when, not
if. mark: and the treasury wants to soften the blow? done a pretty has good job of ensuring investors by talking about a transition and is pushing this idea that even though we may leave the single market that there would be a long adjustment, say three years where a shatter system could pick us up. he's also open to you budgetary contributions, so he's the measured, reasonable voice. hand,a may, on the other is mindful she has to face a majority in parliament. we will have to see whether tomorrow has more of that.
the u.k. as a tax haven? i think that would sit uncomfortably with those who saw brexit as a vote against establishment and with the promise of ringing back a more democratic form of conservatism justify doing that in turning the u.k. into a tax haven? we will see you tomorrow, no doubt. coming up, the founder of the this isonomic forum, bloomberg.
mark: you are watching the european close. i'm dark barton. the presidency of donald trump which starts on friday is a key topic at davos. erik schatzker spoke to the founder and executive chairman of the world economic forum. trump what he said about who has said some things that are at odds with many attendees. guest: we look forward to the state of the union message, what actually is the policy of the united states will be. areink at the end, we living in a global community and a global world which is interrelated and interconnected and interdependent. just move out of globalization.
maintain ae to certain may be more fair of global trade, so let's see what's coming out of the developments that we have seen not only in the united states that in the u.k. and other countries. given everything you have advocated for more than four decades, are you concerned, frightened or worried about what mr. trump has said? guest: not at all. he always advocated that there has to be economic development, but it should be coupled with social responsibility. we should not have people who are left out. way, we join some of the arguments for which president trump was elected for. you met with members of
his staff last month. what was the purpose of that meeting and what came of it? it's very clear that the world economic forum has cultivated relations with all governments around the world. we always wanted to be truly global. since many of our partners have important positions inside the you -- inside the new administration. erik: were you hoping to extend an invitation and hopes he would be here before the inauguration? not age reamer to ask him to join us now. maybe in one of the next years. the world economic forum founder their speaking with erik schatzker.
stocks are lower and investors turning attention to tomorrow's theresa may's speech. her vision will become clear and investors are concerned it will brexitsion toward a hard even though the prime minister doesn't use those terms. tomorrow is the biggie. i will just leave you with the currency board sterling falling head of the big speech tomorrow. 1.986 against as the dollar. this is bloomberg. ♪
the best run since november. an interesting run for ubs today. beat growth by over 206 days and value has been growth as 2009.0% as powerful might want more evidence before pushing value stocks higher. earningsting to see growth. interesting note from ubs which i will talk to our next guest about. it's settling after 14 days of gains on the ftse. it looks like it might close lower. gains onrecord run of
the ftse through friday. mainly because of sterling pasta klein, not boosting. ahead of theresa may's big speech. a wonderful chart showing the brexitf may toward hard executed -- extricating itself to be in charge of its borders and courts and laws. theresa may took power and we saw the conference speech in the autumn decline and we had that interview with sky last week with further high brexit talk and the biggie tomorrow. sterling,y can move theresa may can move the markets and tomorrow is the one we are all waiting for. the house prices.
home owners showing a reluctance to put their property up for sale. the average asking price of a property rose 1.4% in january. for the country as a whole. london property could drop 5% this year, which is an interesting call, but how things have changed since brexit and the tax changes implemented here. let's check in on the bloomberg first word news with more from our newsroom. >> president-elect donald trump is firing back at the outgoing director of the cia. trump'snnan called comments about the intelligence committee outrages and suggested trump has an incomplete understanding about russia possible intentions. whether brennan was
the leaker of fake news and said the cia could not do much worse. nine allegations that flew too close to u.s. jets in the sky over syria. a u.s. air force commander has told wall street journal let his pilots were having close calls with russian fighters despite a year old safety agreement. russia says it is the first time it has heard such claims. leastico, police say at five people were killed and nine wounded at a shooting at a nightclub. the shooting took place at playa del common -- playa del carmen. a stunning turn of events for a member of south korea's richest family. -- thetors are seeking scandal led to the impeachment
of the south korean president and has been groomed to take over samsung from his father. dayal news 24 hours a powered by more than 2600 journalists and analysts in more than 120 countries. the pound falling, equities sliding and concerned --resa may will make a move the president-elect is suggesting other countries could break from the block. $35 billion under management. happy new year. breaking news, sterling's winning run comes to an end. was it looking a bit stretched? i was looking at that
chart and thinking maybe put it in u.s. dollar terms. does over exaggerate the fundamental story that backs that up. let's put it in dollars really quickly while we are here. guest: that is far more boring. , given the lift to equities, what is on board the trump flechette and train -- it was derailed somewhat after he neglected to give us as much detail as we wanted or needed. is that detail going to be forthcoming soon? could there be a leg downward? it could be the classic traveling and hope. the markets are priced into a tradition where you've got to see the money. show us the money has to be the
mantra from the time trump gets into the white house. sayuld go back a bit and the trade perceived donald trump . it goes back to when jackson hole took place and the central bank came to an unofficial consensus that we got to an and of the monetary process. maybe some of the outcomes would have been more negative than positive. they've been quietly sending a signal to politicians around the globe. you need to do something more fiscally and we've been supporting the global economy seven or eight years and now it's your turn as we've done as much as we can. mark: what is going to come from this fiscal boom? guest: this word is bandied around and is different in different countries. maybe the infrastructure could
be something. scope for tax of cuts in the u.s. if you look at europe, infrastructure, if you travel around continental europe, they've been spending a lot on infrastructure for many years there and it's softening on austerity. from 2008 to the end of last year, we've seen a massive fiscal contraction in the eurozone. now well under 2% or 3%, so there's a scope for the germans to be less austere in the demand for fiscal probity. we have seen spain be threatened and fine for letting its deficit run high. different in different places.
over the longer term, some infrastructure. mark: ubs released a report showing values beating growth over the last 980 three days. has that trade run or has a got further to run? a lot of that value trade with low quality rather than just cheap stocks were good value stocks. we had a very long time with value being absolutely decimated. i think we've seen some very crowded and oversold trades. people have been forced almost through monetary coercion into quality. interest rates are going to remain low or negative forever and people hunted for quality at almost any price and forgot valuation mattered. valuation matters when condition changes.
steepen's socurve you are no longer colors so much in going into quality growth, there's a hint the global economy would pick up. now it takes those value stocks to be able to deliver because it's equally as redundant as growth without value. mark: where is the value in value? guest: some of the quality stocks have gotten d rated very severely. looking where everyone else's not looking at the moment, this time last year, everyone was rushing into high-quality and now they have been dropping them like they have an infectious disease. i think the good thing from an active stock pickers point of view is we should see dispersion rise and we have the narrowest amount of dispersion in the last
few months which has made a hard for active managers to outperform. that's a pivotal point in the economy. mark: the active manager is back question mark guest: rumors of our death have been greatly exaggerated. mark: thank you very much. by britishng news airways commenting on expectations ahead of an expected strike this week saying it will fly all customers during the planned strike, saying it saving it will merge a number of flights from heathrow airport. british airlines owned by iag. .&a off to a big start helped by a major i wear deal. this is bloomberg.
mark: live from london, i'm mark barton and this is the european close. time for the bloomberg is this flash. facebook taking steps to deal with news and germany. the social network will work to post fake news warnings. angela merkel's government says it will fine companies like facebook and twitter if they'd don't fight fake news and hate speech. saudi arabia sees no need to extend the opec production cuts deal beyond six months according to the countries energy
minister. the oil markets should be rebalanced by the end of the first half of the year. concerned ending the cuts to soon could leave the oil of clearing the global glut unfinished. homeowners in london reluctant to put their property up for sale. 14%listings this month fell from a year ago. that's the latest bloomberg business flash. the m&a function on the bloomberg, global deal made thing is off to a 100 $30 billion start. the resurgence of m&a should continue through 2017. i spoke about this with its global vice chair of transaction advisory services. >> there are a few key drivers. one is the search for growth.
ceos trying very hard to grow their businesses at above gdp type rates. the concept of future proofing, preparing your business for digital disruption that is creating a blurry of section lines and changing buying patterns is causing a shift in business models. sometimes the fastest way to tackle it is through an and day. throughout 2016. two other factors that are important -- one is geographic expansion, so despite the nationalistic discussion, geographic expansion will continue. private equity is going to come back. the stats are wonderful
and this is one of my favorites when you talk about cross border overhaul. worth 1.3border deals trillion dollars. that's 37% more value. canarea that stands out -- china still dominate global headlines when it comes to cross-border deals? guest: i believe china will have another very strong year. the kind of volume we saw in 2016, which was at an all-time high. china, if you look at outbound 2016,ition volume, in china eclipsed the eu, excluding the u.k. china had bigger numbers and it's the kind of trajectory. mark: you are going to be neon
on every stat. which other countries are going to join? to securetrying supply chains in this era of increasing geopolitical uncertainty. who's going to join these countries in this quest? guest: certainly japan. you've seen japan become a popular trade route. if you think about the u.k. footprint with japanese companies. the u.s. will continue with germany. the better question is who want? there are not many that won't make the list. a negativeation is and many deal with antitrust regulatory concerns and in 2016, the regulatory aspect will be important if not more so. guest: the regulatory aspect
will still be important. this is a hot topic in the boardroom right now. companies have gotten good at planning for regulatory challenges. in the case of large mergers, you see a lot of the vestige or planning going on. also, you will start to see a more favorable regulatory regime in the u.s. under the new administration, so that could help as well. ofk: donald trump talks tariffs and trade restrictions. if that vision is rolled out, what does that mean for global m&a? that can't be a positive for global, day. guest: i think you have two separate rhetoric from reality. any new world leader, especially one with a business background, they will want to come and negotiate the best deals they can. you have to remember paul ryan is very pro-trade and the
reality is the world has gone global. you are not going to go back. about electoral property. we can't build walls around our countries. we are not living in game of thrones. mark: private equity has a big role to play. which areas will be most interested in 2016? guest: i think you'll see private equity playing across the board. technology,s, energy, you will see private equity playing across all of those. what you have to remember about private equity as they are sitting on a lot of dry powder just on the buyout portion.
$550 billion of dry powder and leverage that to $3 trillion? there's a fantastic chance i believe they will move forward believe -- before interest rate increases. if you look at the u.s., that's already happening. latew that happen in december. pipelines are a heck of a lot bigger than today. back private equity coming in a big way. last year, the volume of private ilion that was done, 325 dollars roughly, it was over twice that. is 13% or 14%. that's not where it should stay long-term. mark: let's finish with london. exit is going to play out in the
next two years. extent could brexit hinder m&a from u.k. companies? let's take currency into effect? great those are questions. in terms of the overall impact, i don't see brexit having had a big impact on, day. -- it's u.k. practice performing in line and ahead of where it was a year ago. why is that? it's because u.k. companies are looking beyond brexit. one thing we heard from a client is i can worry about exit or i can worry about a digital business model at will bend my business model. u.k. businesses are still transacting. post-brexitat deals
2016 versus 2015 and take out the one big megadeal we saw with the big year deal, you are pretty much on even ground and we see a strong start as we enter into 17. what happens longer-term depending on how brexit plays out over the next several years is something we will have to all pay attention to, but i don't see a negative impact. mark: in your notes, you say strategic growth plans drive deals rather than currencies, but when you see that pound down double-digit against sony currencies, corporate raiders are thinking this is an opportunity. , it's notmey corporate raiders. you are not going to buy a house you don't want because it's cheaper. but if the house you want is 10% cheaper, you might buy it or you
will if you can. i think the currency has created a window of opportunity to take advantage of a strategic asset that you want. they will take advantage of the window. mark: breaking news on the german foreign minister speaking about today's eu foreign ministers talk and says donald trump dominated those talks today. he adds the comments trump made about brexit are not helpful. further members could leave the eu and he said nato was obsolete. this is bloomberg.
barton in this is the european close on bloomberg markets. the world economic forum officially gets underway tomorrow. we're live in switzerland with interviews with some of the biggest names in business and government. chinese president will speak on tuesday. we will also get the view from the sea suite from david and then a global view with a south african central bank governor and george osborne, chief executive officer of saudi arab go. the big day on bloomberg television tomorrow. for bloomberg markets. have a look at where european equities and today. this is bloomberg. ♪
♪ mr. buffett: i said what do i do with this money? he said, investing it is about assigning the right use for the money. i did not want to go to college. i went to omaha. i had $175,000. i thought that was all i would need to let the rest of my life. david: did you ever run into that guy again? mr. buffett: he needs protection now. david: when you had your first annual meeting, how many showed up at that? any advice to a young investor who would like to emulate you? >> would you fix your tie, please? david: most people would not recognize me if my tie was not fixed. let's leave it this way. all right.