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tv   Bloomberg Markets European Open  Bloomberg  January 27, 2017 2:30am-4:01am EST

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download the xfinity tv app today. ♪ >> good morning, you are watching bloomberg/markets. your first trade of the day is coming up. i am guy johnson. d.c.,in washington, alongside matt miller in berlin and here is what we're watching. a mexican standoff. the u.s. edges towards it trades were with its southern neighbor. this as trump floats the idea for a 20% chance on imports. will this war of words become a protectionist story? the trump card. u.k. prime minister theresa may
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will meet with president trump at the white house. she looks for leverage in trade talks. and he beat for ubs. profit more than tripled in the fourth quarter at the swiss bank. come back for good, matt? than half anless hour away from the european open, guy. we saw a lot of investor confidence yesterday. here and throughout asia and the u.s.. here we see ftse futures futures have dax little changed after a couple days of rallies. we will see if anything happens in equities today. i'd say the focus is a lot more on other asset classes this morning, guy. look to your foreign exchange column, it is the second one in on your bloomberg. drop it down to a g-20 on the top and what you can see here is 1.2 percent down
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versus the u.s. dollar. japanese yen on the move that as well this morning. bojstory rounding the biting more and more. cue, the south african rand has overtaken the mexican peso is one of the worst performers out there. you can see if i drop this down, where the peso is, down by 7/10 of 1% this morning. british pound also down for tenths of 1%, making theresa may's shopping trip that much more expensive. about theresa may's trip to d.c. and the united states in a few minutes. let's catch up with the first word news with juliette saly during. relationsu.s.-mexican plunged thursday, pushing countries closer to a trade war. mexican president scrapped his trip to washington after donald trump doubled down on scrapping nafta and building a wall.
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the trump administration retaliated to the cancellation by floating the idea of imposing a 20% tax on all mexican imports. ubs profit tripled in the fourth quarter as rising interest rates and in rally in equities boosted security and u.s. wealth management. 800 48before tax rose to million francs, far exceeding estimates. the most important thing for me is to see our clients atimistic, and there is little positive momentum, particularly with u.s. investors and clients. i think this could be a turning point, but it is important to see the new administration also puts in action their plans and give our investors even more confidence. juliette: german finance creditorsays greece's want to keep the country afloat
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unless the government in athens keeps its reform promises. the nation's bailout orders ended in disagreement. japan's consumer prices fell in december for a 10th straight month, though the pace of decline eased. supporting expectations for a return to inflation later this year. core cpi was down 2/10 of 1% from a year earlier. a weaker yen and pick up an oil prices are likely to drive up inflation this year, although questions remain about which growth and lackluster consumer spending. global news 24 hours a day, powered by more than 2600 journalists and analysts in more .han 120 countries this is bloomberg. guy: time in washington, why am i in washington? theresa may will be here later. british prime minister may will be the first leader to meet
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donald trump at the white house. traveledber, abe shortly after the election to meet trump at trump tower when he was not the president. he is now. the big question is what kind of relationship are we going to have here and who is going to have the upper hand in this relationship, if anyone? att, let's kick this around little bit because there are a number of angles to pursue. trade and security are the two main ones that theresa may will likely focus on. let's focus on the trade story. theresa may comes to the united states in need of a card to play with the europeans. in some way, she needs a global relationship. the u.s. would certainly fulfill that. donald trump, with the mexican story hanging over his head, probably looking for a way to find a convincing narrative that shows that he is not a protectionist, that he is open to global trade. maybe actually sidling up to the u.k. is one way of doing that
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question mark -- doing that? watchit is interesting to as an american, this from an outsider. i am used to thinking about the u.k. and u.s. as strong allies, but i see the coverage in great britain, the backlash that theresa may faces are going over there in the first place. i wonder if it is worth it, considering that it would take so long to get a trade deal done, anyway. i can't officially negotiate until after article 50 is triggered and then it takes years to pass a trade deal. so donald trump may not even be in office anymore before they get to that point, nor theresa may. it is an interesting risk that she is taking. guy: see, i wonder about that because yes, we have jeremy corbyn talking about the risk. yes, if he goes too far, maybe it presents a problem for
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theresa may. certainly russia, torture asains a significant problem she needs to find a way of dampening that and focusing on positives rather than negatives. does providetory her an opportunity to do just that. what is interesting is that the trump team talked about being able to get a real done within a week, it only on favorable terms. theresa may wants to put the u.k. first. let's listen to what she had to say. >> a new trade deal must work for both sides and serve both of our national interests. it must help to grow our respective economies and provide high-skilled, high-paid jobs in the future for working people across america and the u.k.. guy: the british prime minister talking about what could a deal you -- deals look like an house and biotic that relationship could be. i want to take you to my terminal.
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let's get this up here on the screen. this is the united states. this is its trading relationships. i have dropped down to the deficit. the u.k. has a reasonably balanced trading relationship with the united states, unlike china, mexico, germany, japan where it runs a defecate -- deficit. issuesre significant surrounding gm foods, access, a whole bunch of factors that need to begin with. macro the broad brush story, the u.k. and the united states are fairly equal, but clearly the u.s. economy is massive compared to the u.k.'s varied -- you k's. how significant is this trip? >> i think it is important. the fact that trump sees the relationship with the u.k. being theical to discuss --
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success of his administration. what is important is trying to flesh out what he has in mind in terms of a relationship. ofresa may, the challenge the economic slowdown post-referendum is still out there. if the pound pressure is taken off since the referendum. what we really need to see coming into 2017 is clear plans or how to see investment into the u.k. and continue to enable the economy to grow. we have historically had a good relationship with the united states. obviously using the analogy between ronald reagan and margaret thatcher. in many ways, the history is not the similar between --dis similar. what we have always wordpress is the u.s. that are observed being behind the curve with respect to strength of the u.s. economy. they are not in a poor position
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at this time. jobless rates are at historic in terms ofta, nfib confidence indicators showing the u.s. economy is in reasonably good health. the bond market is starting to wake up to that issue because donald trump put growth at the forefront. the thing that is more alarming here is that at this point in the economic cycle, classically you don't expect to see more expansionary policies. that isg for us slightly contrary into the view is that because we are so aggressive in cutting rates into post-2008, that as we start to see some form of normalization in interest rates, we may have the contrary in scenario of seeing more countries go bankrupt as financial leverage starts to bite on businesses with narrow margins. the critical thing that the markets have been optimistic about what trump can do from growth and it is easy to talk about, the reality is a little
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harder. having worked on capitol hill briefly when i was younger, i appreciate the time it takes to get legislation through. executive orders are easy, that is the headline grabber, it will take time for more important legislative moves from trump to make their way through congress and come onto the statute books. matt: i would point out that ronald reagan came in after a withlide victory to office 41 million people tuning in to watch his inauguration, whereas far fewer people watched the trump inauguration. he lost the popular vote by about 3 million. there is a difference in the mandate here, certainly. still, i wonder with relation to the u.k., does this matter to -- investor?estor that theresa may is in washington, d.c., or is it interesting to you as someone who follows the political science? does it make a difference to
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your bottom line? >> i think it does. we have always had that strong trading relationship. the fact that she is the first g-7 leader to come to washington and meet the president, understand the agenda, it is quite important for us to understand what that potential relationship is going forward. that at the moment when outlook for our economy is somewhat uncertain. actually, the underlined performance of the u.k. economy mostyear was better than commentators thought. the reality is that what we are seeing his business is --tinuing in and to position anticipation that article 50 is moving forward. when we talk about long-term capital deployments, corporate's are much more cautious about that. having a clear trade relationship with the united states is one thing that would help to gain and garner confidence. to your point earlier about the fact that it takes years to negotiate trade deals, i am not a trade negotiator exception.
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i won't try to opine on this. its not that we have to wait for our engagement with europe to negotiate with the u.s.. a conversation about what an arrangement would look like and once we formally leave, you cement that. we are not sitting around waiting two years, we can frame that and it may come in two years time. guy: the trump administration is talking about wanting to get a deal done by the midterms. exactly how the u.k. relationship advances with the eu. do i price this into the pound? if this goes well, do i say by sterling? piers: we have already seen a substantial devaluation of sterling. in the short term, we are finding a level around the 125 point. it is reflection of what steps the government takes in terms of trying to address longer-term growth points that i have raised.
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if we look at the economy now, where the interest rates environment is, the bank of england being wrong about cutting rates last year, why we are not seeing bond markets moving to price longer rates -- is that a long-term outcome that we are concerned about? it is really important that we crack on and identify the way forward. sterling continues to be the pressure valve that takes the pain for those of us who are resident in the u.k.. guy: when i look at the financial services sector, when it comes to trade deals, services are difficult to deal with. is largely. dependent on financial services. you look at the components of the gdp read and its absolutely huge. does the nature of what the u.k. does make it more difficult or less difficult? you said you are not a trade
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negotiation, but what does history tell us when you look at how difficult it is to get deals done. is it more difficult if you have a large financial services sector? that is a huge topic. we could spend the rest of the day talking about it. but from my perspective, one important thing that continues to make the u.k. attractive is our legal system. there is a perception worldwide that people respect the u.k. legal system and the rule of law that we have. we do a lot of international deals negotiated in u.k.. financial markets are deep. if you look at the ftse 100 as a -- barometer, on we are an international market. post 9/11, we were the biggest beneficiary of people moving from new york to london. the biggest risk to u.k. financial services is not a my -- migration to europe, it is if
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we don't create an attractive environment for investors to the u.k., the flow will go the other way. to talk about mitigating dodd-frank and other acts passed since 2008 and post-9/11, but for us, we have to make sure we create an attractive environment that people want to invest in financial services in u.k.. matt: you will have to stay with us. you will be our guest host for the hour. let's get the business flash. juliette: thank you. missed profitt estimates after spending heavily on promoting consumer hardware. alphabet promoted more than $3 billion in capital spending. up 46% from a year earlier. shares fell more than 2% in extended trading. toshiba's board is meeting to take to discuss a range of turnaround options. to sell part of its chipmaking business will be on the table. they are facing up to $6 billion
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in write-downs. we understand toshiba is holding a press conference very shortly. exceedft quarterly sales expectations. customers more signing up for cloud services and what the company sees as stabilization in the personal computer market. shares gained in after hours, adding to a 23% rise over the past year. bt reported a sharp drop in third-quarter earnings as a right down in years of profit in italian units. rockets fell 53% after a provision to a an accounting scandal in italy. shares were crushed as the telecom giant unveiled the extent of that right down. that is your bloomberg business flash. matt? matt: thanks. fell inconsumer prices december for a 10th straight month. although the pace of the decline eased, supporting expectations
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for a return from -- to reflation later. 1%e cpi was down 2/10 of from a year earlier. a weaker yen and pick up an oil prices are likely to drive up inflation or drive it back to the table this year. questions remain over slow weight growth and lackluster consumer spending. bloomberg caught up with goldman sachs japan vice-chairman about the boj reaching its inflation target. most forecasters assume that is not going to happen immediately, although conflation momentum should be improving later this year, that is likely to result in the reality that the boj is unlikely to change framework. bonds,is is japanese rose as the asian central bank steps in to buy debt. billionhas bought ¥450
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of tenure securities. that number is up 4/10. to control the yield around the 10 year mark. piers, can the boj keep doing this? camping up its qe program? biting more and more? where does this end, are they boxing themselves in? piers: it is a tricky scenario for them. the way we have always framed this is the japanese create an environment that is attractive to corporate investments to support their businesses. there is a real social engineering requirement needed through corporate japan in terms of efficiencies. we have seen in our engagement in corporate in that market that there is a recognition of governance starting to improve. it is corporate leadership that will help drive japan going forward. that is what the boj is looking forward to with its actions. trying to stimulate corporate investment to reinvest in growth
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domestically and delaying japanese corporate's and develop future growth. we are seeing three major car manufacturers located here. for us, the boj are taking sensible steps. that i expect to see more his support in addition to the corporate investment to consumers in terms of, generational and demographic in japan that needs to see the sort ,f younger generation have embedded value and housing markets. housing market has always been an anomaly for the japanese market. thatis the japanese curve we can show on the screen. i don't know if you can see this. this is the curve where we are here currently. he see how much the japanese curve has steepened because the
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boj is focused on the front and middle of the curve, rather than the backend. backend being able to do what it wants. is there a trading opportunity with the shape of the curve in japan? piers: i'm not a japanese curve specialist, but i would observe generally about yield curves is this is a trend we are seeing across markets. the u.s., u.k., europe, we have seen that act unity. the u.k. has seen the least because we still see schemes immunize themselves up along and. there is less prevalent japanese and u.s. markets, the japanese boj has stood on the front and growth. of stimulating the big beneficiaries will be the banking sector in japan. that has ultimately been the problem, the bank says can you generate and carry in terms of the funding profile you have. curve steepening is an aid to that trade. you will stay with us.
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from loyal london asset management. we are minutes from the open. up next, a look at the movers in today's trading, including ubs after a massive profit blowout. more than tripling in the fourth quarter, blowing expectations away. this is bloomberg. ♪
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matt: we are minutes from the european open. let's get a look at stocks to watch. ubs is one we will focus on this morning because the bank came out with a profit that blue estimates out of the water. it was more than triple the profit in the same quarter last year. 878 million swiss francs, about the francs in dollars as we are around parity. that bank doing doing well. wealth management in the u.s. expecting another $50 billion in assets to come in this year. continues to scale down its investment bank, it started that four years ago, continues to cut costs, has a 1.6 billion euros in cost cuts done, looks to continue to boost profit and wealth management. guy? guy: a will be interesting to see how stock goes with the outflows. maybe the market focuses more on that the none -- than the numbers.
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tesco could have a positive get-go. london, looking ok this morning. this is bloomberg. ♪
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guy: morning. welcome. i'm guy johnson. today in washington, d.c., alongside matt miller, we are moments away from the start of european trading. matt has your morning brief. matt: it is a mexican standoff. the u.s. edges towards a trading war with its southern neighbors as trump floats the idea of a 20% tax on all imports out of mexico. becomee war of words protectionist policy? and, trump card. will.k. prime minister meet with the president at the white house today. can may take advantage of the situation with mexico as she looks for leveraging her trade talks.
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plus a big beat for ubs. profit more than tripled in the fourth quarter at the swiss bank as investor confidence comes back. will the market concentrate on outflows as the wealth management unit? the market opens imminently. guy: here comes the market open. maybe not the fireworks that we've seen in equity markets of late. maybe a slightly more steady-state. as you can see, we have the ftse 100 trading positively. going to be interesting to see how tesco opens this morning. to get the details, let's go over to nejra cehic. : i'm starting with the gilt markets. interesting moves in fixed income today. jgb yield moving. the 10-year treasury yield rising. we have seen bureau move more in
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line with what is happening in japan. the 10-year guilty of down one basis point -- gilt yield down one basis point. the equity markets opening too. taking a look at the stoxx 600, we're seeing consumer discretionary and utilities leading the gains. overall, more industries gaining than losing, but not a huge move upwards. finally, a big focus on banks today with ubs reporting. justhis great chart comparing european bank performance over the past year. you can see how ubs has performed against various peers. this is the first book that i wanted to bring up in terms of stocks that i'm watching today. profit more than tripling in the fourth quarter as the banks less money aside for litigation while rising interest rate and stocks boosted the securities unit and u.s. with management.
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we will talk more on that in just a moment. stockup, we saw this dropped the most since 1986 earlier this week. it cut its outlook and tripled its italy right down, a sharp drop in third-quarter profit, 53% drop in profit. bt is opening slightly lower. ubs stock taking more of a hit. lv mh moving higher. you've got lots more on ubs, matt. let me pick up, actually. we will talk about one of mats favorite subjects, the u.k. grocery sector. piers hillier is still with us. i'm just waiting to see the price of tesco this morning. this book or transaction will be very well-received because it allows for growth, but it also brings on a fairly solid
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management team. you own a big chunk of booker. was not based on any expectation that we would cnn a? -- notnot subsequently specifically. we look at the management ability to deliver strategy. that ideally pays dividends to investors overtime. 3.5 percent of the company? the management team came in with a clear strategy. in some ways, tesco recognized that management leadership have paid a premium to buy the business and incorporate some of that management in terms of helping them deal with some of the problems they've had. that, we do said see this inflation problem. we do see the scarcity problem in the u.k. due to the weakening pound. do you expect that to cause more m&a?
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do you think there are more targets out there? piers: certainly do. with sterling heaven weakened, we've seen a lot of inward investment from overseas. we've seen return of buyers of property assets and buildings in the u.k.. after a sharp fall, that market has come back. i alluded to this earlier, with respect to operating margin and businesses. the one thing we've got to look at is, classically, in an environment where rates are rising, people generally think that is because of inflation. normally topline inflation cascades down into higher and faster earnings growth. markets have moved to price in double-digit earnings growth quite quickly. the reality may be a little harder than that. when you see sterling fall as fast as we do, input price comes in faster than companies' ability to pass that on in terms of topline sales.
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if you are in a business with operating leverage and financial leverage, rising cost of financing does not make a great picture. we saw that earlier this week in consumer staples reports, where companies were struggling to pass on import price inflation. i think we will see more of that in businesses, where there is that -- particularly sterling-based businesses. matt: all right. group. touched on ubs i want to bring in manus cranny. he sat down with ubs ceo sergio ermotti in zurich and asked him about that profit beat. the success is in equity. the investments we have been making in the last couple of years to rebalance our business makes a little bit more towards the u.s. is paying off.
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if you look at our u.s. businesses in general, but in particular in equities, we have been having a strong performance. when you look at a little bit more activity, that has helped to sustain this business. manus: everybody's looking at america. your chairman hinted there could be deals in the offering for ubs , that you may look at m&a. will you scale up in the united states in wealth management and ib? >> i think we are already convinced in what we do in the usa. losing $150were million pretax. last year, we posted $1.25 billion of pretax profits in the u.s. the momentum in the u.s. is still very good. we're focused on growing organically.
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of course, as i mentioned in the time of consolidation in our industry is clearly starting and is almost inevitable to address both overcapacity and in some cases profitability issues. that you wantsay to be one of the players in that consolidation? >> consolidation is one option. whatve to always look at fits into our strategy. we have a clear strategy and we don't want to dilute our strategy just for the sake of consolidating. there has to be a merit, strategic and financial merits, so we are open to exploit any option that makes sense. ubs ceo, was the sergio ermotti, speaking to manus cranny. let's get the thoughts now for piers hillier from royer london
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asset management. why would i own ubs when i can own one of the big u.s. banks that have big exposure in the bond market, that are generating from the pickup? piers: from our perspective, you've got two very good businesses and ubs. they were early in addressing the post financial crisis issues. in addition to that, they do have a very strong franchise in love management. , oncerket this morning you understand what happened in terms of outflows, the rest of the world management on is actually improved. that is the reason why the shares are down this morning. that slight concern is, what has been happening in asia. if i look at where the returns are in this business, i look at where the capital position is. most of the post financial crisis issues have been addressed. you are then looking at two good
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businesses. it is a question of delivering on the strategy they've talked about. matt: i wonder if a little bit also is profit taking here. i'm looking at ubs shares since the brexit vote. .25% sincep one dollar june 24. our investors taking money off the table as people realize the value in european banks? piers: it is a perfectly fair challenge. shares don't go up in a straight line. there will be that view that they've risen quickly. in some ways, this is reflective of bond markets. as i said earlier, that is the thing that does help these banks in terms of the carry. it is reallyoday having clarity around that wealth management business.
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generally speaking, the backdrop -- we remind ourselves where historically earnings were. we are not active precrisis type levels. granted businesses have changed. but i think what we want to focus on today, is the operating performance of the wealth management, the focus of where they've applied themselves, and the ratio is still one of the strongest in europe. in the investment banking space. guy: stay with us. we need to carry on the conversation. lib onody, go to t bloomberg. the top live, something you should really be having up now. up next, we're going to be talking about a profit lunch. 's italian business weighing on earnings. the pound remains in the doghouse.
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we're going to talk enough foreign exchange as theresa may arrives in washington. later, do opposites attract? we're live in washington as the u.k. prime minister prepares to meet president trump at the white house. this is bloomberg. ♪
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matt: welcome back to bloomberg markets. this is the european market open. i'm matt miller.
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guy johnson is in washington, d.c. right now, where theresa may is preparing to meet with president donald trump. let's get a check on how equity markets are faring after a couple of days of gains and records in the u.s. we've seen losses on the tax in acankfurt, losses on the c in paris, and the ftse gaining slightly. very little change in the indexes. the individual movers are what to watch. there's some great corporate news stories. function got the mov set up the way you like it, so this is the stoxx 600. as you can see, in terms of what is acting as a brake on the stoxx 600, ubs is the biggest hit in index points terms. astrazeneca, credit suisse, barclays, so the banks are certainly weighing on the upside. tesco is up massively.
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7.3%. the market really likes this transaction with booker. booker shares rising as well. tesco also trading significantly higher. that is something the market is paying attention to. nestle and roche trading higher. rio trading higher as well in london. let's talk about a stock that has had a rocky road. bt reporting a sharp drop in third-quarter earnings as a write-down of years of profits mutes gains. profit fell 53%. shares crushed earlier on this week at the telecoms giant. ouring us in london, european telecoms reporter, erhan gurses. what does this tell us about where the risk lies for bt? this italian story is catching all the headlines, but what
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really i thought comes out of the numbers is this slowdown we're seeing, particularly in the u.k. maybe a brexit story starting to filter through. give us the balance of what is going on. erhan: the problem comes in public and corporate markets. you are right. there is slowly increasing signs of brexit effects, especially in the public sector. many contracts come for termination but they are not replaced, resulting in double-digit decline in revenue. more importantly, we see international companies, which are the largest clients of bt, having global order intake. this inevitably results in a significant slowdown as we saw with a profit warning at the start of the week. as you mentioned, this profit warning. bt wrote down $248.5 million in
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provisions because of that accounting scandal in italy. piers, i wonder if you think that enough. sometimes -- do you think they've gotten everything out of the way here? piers: that was all we were looking for this morning. i know the call has been ongoing with the chief executive to address this issue. call me an old skeptic. but when a new finance director comes in, normally something comes out of the woodwork. what we were looking for is a line in the sand. that is the message bt are delivering this morning. they recognize where the problem was. they've taken steps to address it. in a business where you've got such a big pension deficit, the variables are quite stark in terms of free cash flow generation. it has been a dividend story for a long time. one of the things we're looking for today is some comfort that
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that statement is still valid. ahead for the stock, some sort of decision around open reach. for us, what has been an interesting way of support has been the strategy around what i might describe as quadruple play and the integration of the, which is a positive today. that has been running on track. ultimately, i want to see an improvement in the return on investor capital. inant to see an improvement customer base and that they've got some sort of pricing power that recognizes the significant investment that generates a proper return. guy: let's come back to the dividend. moody's coming out and voicing concern about what is happening here. i think putting the company on negative. how well is that dividend cover? then: they maintain
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increase in dividend. going forward, we see increased risk of higher pension contributions. open reach risk is quite significant. there's also a slowdown in the consumer spending because of the prospect of a rising inflation. if that starts to kind of affect the consumer group, we will see lower cash flow generation. bt's dividendat, at 1.5tively comfortable times in terms of free cash flow. for the next two years, going forward, the risks are increasing. matt: erhan gurses -- yet? on the pension issue, you can't analyze the company if the consumer is impacted by rising rates and not recognize that the
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pension deficit will go down. we've got to recognize that the pension issue is a real one. there's a bit of a balancing act that comes there. ultimately, i think what we're about is the operating performance of the business. can they actually deliver? italy was a big blow. it is important to see the core u.k. business start to show improvement. matt: got it. stay with us. piers hillier is staying with us. a reverses, appreciate your time. the biggest losers, the pound and the peso, huge drops over the past 12 months. we will talk fx when we come back. this is bloomberg. ♪
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matt: welcome back to the european market open. let's get to your bloomberg first word news. sebastian salek. sebastian: u.s.-mexican relations plunged into chaos, pushing the countries closer to a trade war. enrique opinion until scrapped nieto scrapped his trip to washington. the trump administration retaliated by floating the idea of a tax on all mexican imports. a wave of senior state department officials have quit as the trump administration exerts control.
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the foreign service officers held positions that require presidential appointment and senate confirmation. president trump is keen to shakeup bureaucracy and make a break with what he sees as decades of failed foreign policy. japan's consumer prices fell for a 10th straight month. apporting expectations for return to inflation later this year. fromcpi was down zero .2% a year earlier. a weaker yen and oil prices are likely to drive inflation. slow wageremain about growth and lackluster spending. global news 24 and was at a 2600 journalists and analysts in 120 countries. guy: since the election, the mexican peso has come under pressure. it has broken through three standard deviations. let's bring up this chart. you can see those standard deviations on the right-hand
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side. i guess the question we need to , the marketllier is is in some ways acting completely rational here. if donald trump were to impose a significant tariff story surrounding mexico, maybe 20%, i don't know, we don't know where they stand on that number, but presumably the currency just deals with that. and like the u.k., acts as a buffer. piers: i think your analysis is fair. markets of or a vacuum and uncertainty. they respond to the challenge laid down by donald trump. the headline news this morning of the mexican president pulling out of a meeting only adds fuel to that. from our perspective, the u.s. and mexico have been importing trading partners for a number of years now. there has to be some form of meeting of minds. in the same way that sterling,
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post-brexit, it has taken heat, the peso has taken heat. ultimately markets want to see where is that relationship going to go from here. matt: are you thinking there's more likely to be an agreement between the u.s. and mexico on freer trade than there is between the u.k. and that you? -- and the e.u.? piers: it is very difficult to judge at this stage, partly because the u.k. continues to have a trading relationship with europe. we're technically still in the e.u. that relationship continues. it is more a question of what is not relationship going forward. there have been other models that people have issued, a norway model, etc. the issue has always been with the creation of nafta, there's a clearer trading relationship tween the u.s. and mexico. there isn't an obvious alternative as to where that goes. that is why markets are most
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concerned. guy: great to see you this morning. thank you for manning the fort peck in london. piers hillier of royal london asset management. up next, more on ubs. ♪
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.uy: welcome back you are watching the "bloomberg markets," this is the stoxx 600 is softer. london benefiting from the tesco transaction this morning which seems to be providing positive impetus, certainly helping out. calmedn markets largely it seems. let us top about the stock's story this morning. here is a nejra cehic. deal that hasging come completely from left field. that is how one analyst has described tesco. booker is a food wholesaler.
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its shares have hit a record today and risen the most since 2009. we are seeing tesco gaining sharply, rising the most and october. it is paying a 12% premium for this deal, but investors must think it is worth it. to chat beenies coach meant of discounters. this is the ceo's m&a debut going into the out of home food market, so these are two of the biggest gainers on the stoxx 600. there are likely to be questions from regulators on this deal as well. ubs, we have been watching that closely. profit was a heat and more than tripled. because we are breaking down what is happening on the earnings. according to t-live, the reason we are seeing the stock down today is margin concerns. matt. matt: thanks very much, and it
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takes -- may rush a -- manus, break it down for us. what was behind the big beat, first of all? well ahead of the estimates. it was so far ahead of the streets estimates because they did not take as big a litigation charge as the market thought they were going to take. around 160, so that did not come through. costs are also under control. the investment bank, we'll talk about that in a moment. transactions and wealth management hit a record low. the question, the distance to travel between optimism and transaction, it is going to take time. >> the most important thing for me is to see how clients are optimists and the reason they will be in positive momentum especially with our investors
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and clients, i think this could be a turning point, but it is important to see that the new administration also puts action on their plans and to view our -- to give our investors even more confidence. that optimism. it is not on a global scale. they are just almost -- ubs were pushing deposits away from the bank. that mission is complete. however, what you still have our clients regulating -- are clients regulating themselves. outflows and asset management and outflows and wealth management. they continue, they are there, and they are not going away. guy: what is interesting, manus, is the i bank has a good set of numbers which if you think about director and of travel is, it it has often
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pointing there at all. the market could not have expected that at all. what ubsok, many hail did a number of months ago, reducing the amount of capital getting sucked into the income business. if you look at the u.s., you are bang on the money. they grew them out of the water in terms of revenue on fixed income. here we are with equities blowing it out of the water at the investment bank, over 300 million in terms of revenue. it definitely is knocking it up there. he emphasized profitable business and also the derivative business coming back in the fore. a market is not necessarily focused on that. matt: thanks very much, manus cranny in zurich, interviewing the ceo of ubs. the managingw is
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director. let me ask first about animal spirits. we have not seen ubs, the same kind of revenue revival we saw in the u.s., but it is still there in equities. are animal spirits back? >> i think the investment banking business is always, you know, a bit sort of variable. i mean, it fluctuates from quarter to quarter, like it was just pointed out. ubs heads scaled-back fixed income quite significantly. yes, maybe a small disappointment if you like that it has not sort of been as strong as some of the u.s. investment banks have been in that area, but you know, i would not necessarily read anything major into that. otto: animal spirits back in the market, there has certainly been a very strong return to bank stocks and bank investments,
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sort of, in recent weeks. they have been one of the are performing sectors so yes, clearly. ways, ubs hassome had the right business model for the last few years and maybe it has not been easy, but compared with some of its peers, they have been heavily invested into fixed income, they have done well. if we see the return of animal spirits, does ubs have the best this is model or do banks like goldman sachs or even deutsche bank have better models? ubs's model, think to me, it still makes a lot of sense because i mean, the reason for the significant changes they made and to some extent actually, there has been made by othersas well and again, are in the process of implementing something along those lines, so the reason is really that regulation has
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changed, and that change in regulation has fundamentally of fixedhe economics income trading, in particular. not so much the primary side where the ubs did ok, really, but on the trading business, know, a balance sheet heavy approach to fixed income trading is just very difficult to make profitable because of the high capital charges you have nowadays, and you did not have in the past, and that is really going to change, and i do not think that is going away, really. matt: we have seen bank of america merrill lynch came out and upgraded european banks today. a lot of people have been saying european banks have turned the corner. do you think that is the case in general, european banks are now a safe investment? me, ines, i mean, for the fixed income market, in the
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credit market, i would certainly subscribe to that view broadly. maybe not for all. clearly in italy, there are still issues to sort out. a few other countries, mostly in southern europe also, and in portugal, really. in europe haveks come a long way. they have basically fixed the capital by and large. in most countries really fine. no big issues. there is improvement in others, such as spain, very noticeable steady improvement. italy still has some issues, but apart from those well-known problems, i think the banks are really in a decent shape now, and i think the market is reflecting that, and looking i think from the equities markets perspectives, more dividend distribution rather than capital rebuild and from a fixed income perspective, i mean, study
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earnings, and as long as asset quality does not deteriorate, it really is sort of a pretty benign environment for the time being. to stay with us. whatstifel will talk about is happening with the banks. shrugging off theresa may's trade talks with president trump, but how worried should they be? live shot of washington, d.c.. this is bloomberg. ♪
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guy: welcome back. this is the open thread let's talk about where the stocks are moving this morning in europe. the european markets largely negative, flat. it let us have about what is happening with some of the stocks moving the markets this morning. let us show you what is going on. booker surging on its takeover from tesco. the market likes that story from a tesco perspective. ubs, softer on outflows concerning the market. i'm trying to find out exactly what has happened. the other stock story is has caused a which sharp pickup in trading volume. the astrazeneca trading softer, down by nearly 3%. this is causing that consternation. matt: no doubt.
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clients are searching for news on that as astrazeneca news readership is up to the highest level it has been in 30 days on the bloomberg, so very interesting stocks to watch and indeed, the biggest drag on the stoxx 600. theyfinance ministers said are not troubled by theresa may's meeting with donald trump over a future u.s. trade act, easing fears her trip could harm her brexit negotiating. philip hammond was conciliatory saying the u.k. will play by the rules for as long as it remains in that you -- in the >> we will continue to abide by so long asf the e.u. we are members so we want to strengthen our ties with the many trade partners we have around the world, but we are mindful of our obligations of the treaty and we both follow them precisely. matt: caroline conan is in
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how have the finance ministers been reacting to theresa may's meeting with president trump? caroline: of course, the u.k. hammondor philipp tried to -- thecially the french one, french finance minister, who told me theresa may can go see wherever she wants in the u.s.. she is not, he said, in a position to negotiate, as you know. of course, the u.k. is barred legally from negotiating any trade agreement independently while it is still in the e.u. the portuguese finance minister who i also spoke with called me it is actually important to see someone might donald trump, who has been talking about protectionism all along, now talking about some possible
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trade deals, so of course, a lot of discussions ahead of the brexit negotiations, ahead of article 50 being triggered in march. given trumpricky wants america first and theresa may wants britain first and the e.u. does not want to be the loser in the game. guy: give me a sense of how nervous they are about this. the french came out really fighting on this one and clearly, therefore, indicating some concern about what is washington today. is there a sense that the game changes significantly if theresa may can deliver positive outcome from this trip? actually, apart from the french and the portuguese discussed the visit of theresa may in the u.s.. what we heard of course from every minister over the past few beks is the u.k. can
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speaking. at least the u.k. finance minister has got some clarity that the u.k. is ok to create the single market. of course, this might add some pressure on the e.u. finance theresa may cantiate negotiate something with donald trump. guy: the reaction from the french is really indicative of what the story is, particularly the french election as well. caroline conan in brussels. still with us, otto dichtl. if you are looking at the u.k. banks and financial sector at the moment, where does the bigger advantage lie? does it lie in doing some sort of deal with the united states and harmonizing with new york and london? at the moment, new york looks like it could be the real winner from all of this. or does it lie in looking too far and therefore allowing some sort of deal with europe? how would you be positioning
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yourself if you were the united kingdom financial sector? otto: well, i think it is probably a mix of what you described. it is clearly already in the press that many banks are looking at alternative locations in the e.u. for at least part of at the samess, and time, there might be some shift of some activities also to new york. but i think both. i mean, clearly, for business, the investment banks and international banks will want to do inside the e.u.. post-brexit, i mean, at the moment, it looks like they would potentially need a presence inside, so that is clearly were they have to go on as they want to completely give up on that part of their business, which seems unlikely.
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matt: terribly a mike lee. thanks so much for your time. otto dichtl, managing director. guacamole!ll avocados,uld impact beer, tequila, all the things you need in life. more on the potential trade war, next. this is bloomberg. ♪
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matt: welcome back to the european market open. the 20% tax on imports floated by the trump administration on that begin goods would affect a wide range of agricultural products. that includes avocados, chile peppers, and tequila. joining us now is bloomberg intelligence's duncan fox. the income a how would tariffs on these who then important drinks affect the business relationship in the u.s. and mexico? duncan: it is a bit of a difficult one to understand, but it would essentially mean consumers could end up paying for any tariffs put on. you cannot replicate your recipes very quickly and replicate the supply chains quickly, so you end up paying the cost. go back into will
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the political story as well. how does it work in terms of the way this is likely to be imposed, how the legislation will ultimately end up working? will this be an trump's power or will it go through congress as well? it is: i'm assuming part of the nafta agreement so it would have to go through congress to be ratified, but i think because we are seeing already, he fired from the hip and we are not sure what he's actually going to do. if you are a company, you work out how you get the supply chains in place if something happens. sorry, what was the story with the wto? do they have to weigh in on this sort of thing or can the u.s. make this agreement unilaterally? really don't know exactly how it would work, but
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i'm assuming the wto is ratified in the nafta agreement. the dealsgned off on in europe. on assuming it is the same sort of policy situations that as you know already, we see from president trump, he will say something and then may well sign it off. whether he can get that through congress, i really have absolutely no idea. duncan, thank you very much indeed. duncan fox joining us from bloomberg intelligence on what matt'sening with some of favorite ingredients. my producer tells me avocados have started getting tree per year -- getting cheaper here. , right before i left new york, i tended to go to chipotle every day for lunch since the crisis, and the aptly had run out of avocados. the salad bar had also run out of avocados.
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there was a real issue with a shortage there. maybe this tariff would help to ration that very important and healthy lunch stable. staple. guy: let us talk about what is going to be on the political menu. i think this will be one of the most interesting trips because what we have got here is the mexican story really playing into the u.k. story because onald trump needs some wins the international front and the mexican story is a bit of a mess right now. it is unclear what the administration's policy will be. you think he will come out and say, you know what, i want to do a deal with the u.k.? matt: i think he has offered that up with theresa may. he may want to look like he has this lifeline to throw to the u.k. and may be another way for
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american businesses to trade if he closes up the mexican border. i'm just not sure on the mechanics of this. mean, how long will it take to hammer out a trade deal? takeong will it to implement a trade deal? this kind of thing takes years. how unilaterally can he impose tariffs on a country like mexico? both of those things will be interesting to understand the mechanics. guy: what we have been hearing is that, and this is coming out of d.c., is the idea they want to get it done by the midterms, but i guess that kind of hinges on exactly where the u.k. is in its exit process because it cannot really do any kind of transaction, final the and the timeline and ats difficult underst
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this stage. it will be difficult on the timing for his ability to negotiate and her ability to negotiate. no deal is possible until this whole process is done. in some ways, you could end up in a situation where the u.k. has been negotiating and at different two years and then is able to do trade deals, but i think probably, we'll see a lot of things going down behind the scenes, matt. interesting toe see how the u.k. reacts to theresa may's performance with donald trump, whether she embraces him, or whether she puts up a strong front and then how that plays out in the telegram and the times and the guardian. it is definitely something i will be following. guy: absolutely. we have got plenty of coverage coming up, matt. i will be here all morning in d.c. i say all morning. it is nearly 4:00 in the morning. bc is very dark. we will be warming our way up. going to the white house later on to continue coverage as well.
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stay with bloomberg television. up next, it is "surveillance," talking to the former u.k. ambassador to the united states. this is bloomberg. ♪
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>> opposites attract. theresa may's words as she prepares to talk trade with donald trump. the u.k. prime minister is going all out for the most special relationship possible. will that cause a backlash here in britain? meanwhile a trade war brews on president s mexico's cansles his trip to washington and the u.s. fights back with a 20% import tax. wealth management woes.


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