tv Bloomberg Markets European Open Bloomberg February 14, 2017 2:30am-3:59am EST
♪ guy: abby johnston stay. welcome to "european markets." matt miller is over in berlin. this is what we are watching. swung? pendulum the climate is better for banks. better for management businesses. a bigger net loss than expected. trumpslar dips after's national security advisor michael flynn quits.
janet yellen, will she put march back on the table? german fourth-quarter gdp comes in weaker than expected but with -- flat that -- fast this fastest inflation since 2015. manus: -- matt: let's take a look at where the buns are -- bunds are. futures pump -- pointing to a lower open. yields down a little bit as investors buy into german tenure debt. 0.327. 83 -- two-day chart. yesterday's trade a little bit of a try -- rise. this morning, it looks like german investors are wary of the numbers that we are seeing coming out. inflation number, cpi at 1.9 year-over-year. gdp numbers not quite as strong
as may be have been expected at 1.8%. guy: pretty comparable. you think about the united states, bonds .3, treasuries 2.3. we will talk about that for a program. dollar index, what else is interesting this morning? the yen is trading higher. tohiba, go thing i want mention as well as iron ore is bouncing around. one of the contracts trading down by 1% to the story we are being paying attention to. the one thing i want to mention is at 130 be get u.k. inflation data. keep an eye on this pair here. really interesting levels. this is euro-sterling. a 30 day chart that has been dipping. watch out for that one. a really solid prince today. you could see that popping below some of that key points. really interesting from a fx point of view.
a fourth-quarter loss of 2.3 5 billion francs. after taking a charge to settle u.s. investigation into the role of its mortgage security bit -- business in the 2008 crisis. the second consecutive annual loss for the swiss bank, bigger than the 2.0 7 billion dollar loss protected by analysts. steven mnuchin has been sworn in as the secretary of treasury. 3347 in favor of the former record sachs, his winning one west bank. he will take on the role of chief spokesman for the dollar and stewart up for trumps economic policy. the index rose 6.9% in january from a year earlier, beating estimates you the global
reflation with the world's biggest exporter poised to give more to gains. the consumer price index climbed 2.5%. boosted by the weeklong lunar new year holiday. global news 24 hours a day powered by more than 2600 journalists and analysts in more .han 120 countries this is bloomberg. guy: think you very much indeed juliette. white house national security advisor michael flynn has resigned amid deepening controversy over contact with russian officials. unfortunately, because of the fast pace of events, i have been vertically briefly vice president elect and others with incomplete information regarding my phone calls with the russian investors. -- investors. -- ambassadors. matt: the focus of the market will turn today. janet yellen will testify to the
senate banking committee from 3:00 p.m. u.k. time. bloomberg users can follow all the news and the testimony on key life go. y live maybe the fed could be to hawkish. how is that? guest: that policy is not particularly expansionary. we don't have high inflation, fast growth, it is not like policy is actually super easy where it is. with a small but of tightening it could reach contractionary policy and hit the economy. is there a reshuffling of people who are working for janet taken aas janet yellen new view on the u.s. economy? does that all trump presidency
play into this change? how is still set up? guest: three governors need to be appointed by the white house. there is a view in the market that the white house wants the officials to get more hawkish. i miss suspicious of that myself. it and somehow hawkish she is and how hawkish and interpreted -- she is interpreted by the markets. if she said that march is life, the market will take it as a pocket -- hawkish move. that is what she has to say. in reality the overall statement will air on the dovish side. policy from the white house is too uncertain. the balance sheet would be a market i would certainly ask. whether or not there is a strategy is being put into operational use that we will see the balance sheet come out.
that could be hugely significant for the market. it is a massive thing. i think it will be one of the developments we will watch later on this year. i'm not expecting anything eminence because it is a process that will take more planning. they will seek advice from banks and talk to many people so it is not something quite for the next meeting or two. guidancet to get more when they start bringing down the sides of the balance sheet. that is a whole other form of tightening. partially out of confusion and lack of understanding. gdp, one .7. cpi numbers pretty punchy. you compare the data to what is going on in the states and look at the bond treasury spread, you have to be left scratching your head a little bit. bund is a safe haven in europe. the bond spreads generally have widened significantly.
the german one is much tighter. german bonds are the one place of safety in the european bond market was about -- which is relevant at the moment. not trading off the inflation prints. actually misspoke at the top of the show, 1.7% is the german gdp number we are looking for 1.8. thanks very much. i suggest you follow that function on your bloomberg and you can see things like these german prints as soon as the pop-up along with commentary on how they are expected to shape of the market day. coming up on the program, so setback. fourth-quarter loss on litigation. we have more from the ceo. the ceo of german services firm joins us to discuss results and shareholder activist. getting to the grassroots, how do french farce feral about marine le pen that and more to
to 813 million pounds. estimates of 685 million pounds. ceo has a limited and hundreds of office jobs and shuffled in your management to make the company more responsive to the oil price slump. shares plunged in tokyo at the company fell scheduled. announcing a new deadline for the new financial statement of march 14 as it continues an internal probe. toshiba previously warned it may has had -- may have had to write down cost overruns. the menacing prospects for the atomic -- diminishing -- apple shares may highest on record on the optimism phone will drive sales. the stock climbed 1% in new york trade. -- puts the
capitalization at the most valuable company in the world. aalysts are predicting further gain in shares in the coming 12 months. that is your bloomberg business flash. german industrial furnaces -- services report and improved earnings margin. activist shareholder's campaign for the company to downsize and improve profitability. the ceo joins us from frankfurt. me ask you about the cap. -- let me ask you about the capital. you also want to shrink the company and split it into two positions. tom: a good question. it is been quite a while developing strategy.
two divisions or business lines. the strategy we developed inside the company, manage it at all levels to develop a strategy. we shared the supervisor board where it has a permanent place. in other words we are online. -- aligned. you are going to be doing engineering and technology on the one hand, maintenance and operation on the other hand in pharma, i attack, petrochemicals , how is that business looking in the u.s.? tom: we focus on plants that
exist. we help those plans perform better. we increase efficiency. the numberoutput to of plants globally including in the u.s. continues to grow. it is complexity, efficiency. overall legislation from the government. we see quite a robust market there. guy: let's focus in on that. you talk in the past about acquisitions. if you were to -- you were to look of the geographical areas, where you think they will come? tom: it is important to understand that we have strategy , which is actually measures and milestones. three phases, the stabilization phase to get the company stable.
the growth phase, the buildup phase. the buildout phase. really they can be across the board. if i had to prioritize i would probably say that europe and north america and -- are the candidates. about stopping the brain and the cash drain. is that achieved? guest: we have stopped the brain drains. and lunches.les i meet people throughout all levels. quite a lot of people have come back and said i was thinking of leaving as now i am to stay you the fact that we have a strategy that everyone contributed two. it is quite simple.
a focus.e they say if future and he wants to be part of that future. -- they see a future and they want to be part of that future. legacy items are still negative. we expect to change that towards the end of the coming year. we are well on the way to reaching our targets. whichping the strategy, we can kickoff as of today. --matt: do expect them see them -- do we expect to see them or will they be causing margins this year? guest: you will see is continuously picking up. the announced a target for 2020. a 5% margin.
what we expect to see quarter to quarter improvement. 1% of the 5% target. how does the european economy look from your perspective? you have a pretty unique perspective. asyour business it suffered we had a downturn in energy, and power plant production. if that, do you expect, to turn around? or do you find new businesses before you see a turnaround? that i think about our business model, working on existing plans, you can delay maintenance for a wild. if you're short of cash you can push these things out. at some stage you have to catch up. redundantly the u.k. and norway
have been impacted by the low price of oil. oil is bottoming out, it is stable and we see that picking up over the coming years. we have a very large installed base. a mature market. don't expect to see growth but we expect to see stable business. and i ask you what is coming politically in europe and any concerns you have surrounding that area the financial markets are beginning to indicate nervousness. tom: we have a regional model for mmo regions. -- we don'td by import, export. we generate 95% locally. we are not as effective as other companies may be look at
cross-border transactions. you're not concerned about the flow of people because you hire locally as well? the case.s we have 4000 people in the u.k.. they are local and will stay there after brexit. adding value and generating the -- business. guy: thank you very much for your time. snap credit suisse has posted a loss after taking a litigation challenge. the setback resulted in a second executive -- consecutive annual loss. in zurich where she is speaking to the ceo. he was pretty optimistic these earnings. kept on telling me that you
can't say these were the end of it. he certainly pointed to cost cutting. that thed to the fact ratio is 11.6. bankit is below deutsche but had they not had the litigation it would have been much higher if you look at the litigation in december, he was very relieved that was out of the way. the other big questions that market wants to know is whether people really go through with this. he says he may not have to do it because cost-cutting measures and profitability has improved. cards forill on the those he is keeping all options open. take a listen. guest: today 14%. 13% last year.
areof their interest rates negative. we think it is very attractive. reporter: you're looking at other options, the markets will test you. what is your percentage of the swiss ipo happening? we have always taken a approach to capital management and think that given all the uncertainties, the french elections, all the uncertainties around us. get a not ready yet to better finality. the second half 2017, give us some time to look at all this. expect, we look at other options as well. continuously and always have. reporter: how many job cuts in
2017? guest: we've been clear we were targeting job reductions over three years in total. we also said that we fought that for years. to maximize job losses. where trying to maximize savings and we try to do that with as you job losses as possible. job losses as possible. reporter: we talked about bonuses, he did not say much. he said his that it is almost too early to talk about them. they leaked some of the bonus years and that was a splash across the industry. as far as the specific earnings that the bank put out, a loss of 2.3 5 billion francs was bigger than the loss of 2.07
that the street was looking for. we knew about the 5.3 billion dollars settlement with the doj, what did he get wrong? why was he lost so much bigger? we spoke for a couple of minutes over expectations. he said some of the analysts were too optimistic in some of the revenue streams from certain units. if you look at trading, they did ok but they could have done better. margins were quite strong in the world management but they kept so much of the investment bank that a lot of analyst will be questioning whether they cost too much. muscle they cut too much with the fat. i think that is where probably he will be in that coming months. a three-year overhaul and we are a year and a half into it. guy: fascinating you will hear. a lot more as we work our way through the morning.
we are working our way towards the equity market opens this morning. adjusting to see exactly how they opened given the complexities. a number of other stocks watching out for as well. gl co is worth checking out this morning. so is copper. continuing to rally. copper continuing to rise. the currency market, pretty focused on what is happening at the dollar as well. the other story is worth mentioning, what is happening with rolls-royce. in the u.k. is reporting a huge loss. the markets looking at the adjusted number. that is the figure that people are going to be looking for. how that stock opens considering those two different stories. matt: rolls-royce, the engine , boosting production a bit to keep up with some late in the quarter boosts.
we are starting to see the numbers, little bit more red. it looked like we are going to see a mildly negative start for the day. is interesting to see which stories move the market today and how much of an effect the resignation of mike flynn in the u.s. has on the markets because that is not going to strike any specific sector, you would not expect, but really move the currency market and in place into the confidence. it is fascinating. guy: the news cycle is going to get overtaken by yellen, don't
you think? matt: i'm sure it will be taken by yelling, but will that move the markets? typically, markets like to sit on their hands during the fed chairs testimony, and wait until afterwards to try to figure out exactly what she said. let us see which direction the markets are moving now. guy: absolutely. let us take you through my screen and show you exactly what is going on. we have a market that is expected to open mildly negative. that is exactly what we are seeing. the european opening softening up a little bit. 9:30 is going to be really important with that cpi for the ftse 100. the cap is expected to open negative -- the cac is expected to open negative as well and the docs to open positive. dax to open positive. have had a fairly
heady run in the united states and europe has had a decent bid. we are slightly lower this morning. has the trump administration really gone? that is perhaps overstepping the market. down .11ollar dip, percent. it is a story of inflation. that is what the markets are dealing with. whether it is indian, chinese, ppi up at the highest levels, and a german gdp number with cayman -- which came in less than the market. the road to 100 million euros. how do you do it? bunds will go down to zero. you have a crash in yield, a rise in price, and the trade is spreads, so it allows you to take advantage of any drop in yields on the netherlands. what is happening with global
markets, the msci all world index. i know people say, forget about that. over..day rsi is msci, all within one person of a within 1% of its all-time high. bank of america merrill lynch saying, you do not want to underestimate the dutch elections and the feds for cody to tightening -- said's proclivity for tightening. fed's proclivity for tightening. the ceo joins us and he talked about global diversification and getting through. they all say that in the front. let us see what they say when the results passed through on march 15. guy. guy: manus. thank you very much indeed. in terms of the rotation we are seeing this morning, miners generally on offer today, so they had been welded over the last few sessions.
you have some of the other names softening up a bit. what is interesting is that if we move to the other side of the are tradinge higher. copper is actually reasonably bid today.y -- well maybe some diversity disparity within these moves. anglo american trading down by 2.09%. matt. matt: yeah, we are just getting news about a story you brought up in the morning. toshiba is going to hold a news conference at 6:30 p.m. today. i am assuming that is local time. the company says it is incredibly sorry about extending or asking for an extension and then effectively getting approval for the extension, further earning release. it was supposed to put a turning release overnight out in asia -- put its earning release out
overnight in asia. that has been forecast as much as or more than $6 billion for that right down -- that writedown. it may be so big, the company cannot continue as a solid business. it may have to file for some sort of creditor protection, so very interesting news coming out of toshiba. it says it is getting approval for this extension and it is going to hold a conference to talk about that at 6:30 p.m. tonight. interesting story. an amazing pivot. --t is after taking lacqua spoke with the ceo about the results and the
environment for this sector. >> positive. swungnk the pendulum has so it is hard to call a turning point, but we think the pendulum has swung. the climate is better for banks. the market is better and you have all kinds of indications of that. now, the ceo. i think the environment is getting better. the numbers from credit suisse are not great numbers. the numbers from european banks are not great. it is good. look, we have got reasonable gdp growth and an interest rate environment that is improving, granted u.s. banks will improve. we are encouraged by what we are seeing. the cost-cutting is a concern. we do not want it to be too extreme as suggested by some of the country that some of the commentary we heard this morning. guy: the german gdp data missed
a little bit today, but 1.7 is that performance. you would have thought high beat would be the bank players. >> i think europe is looking much better than it has done. you have seen it increase its growth forecast, and valuations at reasonable. germany, the big beneficiary of the euro that was extremely weak compared to ppp levels. 106, we areing at 18% undervalued. the dollar is super strong and germany is the big story. political risk around france and the elections coming up, but this is an good environment for european many investors have been looking for this pullback to come, but it has not happened. trump has been a spanner in the works that caused a lot of volatility and uncertainty, but markets seem to be trading
higher and higher and higher. the caveat to that is the u.s. is up 4%. there is room for europe to play catch-up with u.s.. as we speak, trump's policies become clearer. matt: we see bank stocks, it is amazing to me. credit suisse has a bigger loss than expected, trading on a day when asian banks are under so much pressure, and yet, it is still up 2.5%. financial services, as you point out, have done really well. d to tangiblee assets, value is good, and i'm looking at group ranked move in the stoxx 600 over the last year to date. financial services up, but don't the banks still have to cut a lot of headcount? i look at banks in germany and the u.k., and they have far too many people working for them. yogi: i don't necessarily agree with that. i think the story for the banking sector is more about
revenues. you have to focus on revenues. remember, earnings equal revenues minus cost. lots of their business is very complex. regulation is very high. they need a lot of people to actually develop the business and grow the business and of course, the biggest risk they are concerned with is operational risk. i do not think the headcount is too high. we have seen masses of board ining across the financial services and banks in particular and i think that is in-line with expectations. the focus has to be on revenues going forward. stay with us. thank you very much indeed, yogi dewan. i want to talk about rolls-royce . the stock this morning has open .igher there is a big headline number out there this morning that is catching a lot of attention. the market generally looks in a -- at unadjusted figure.
the company sees pop in terms of jet engines. there has been late orders coming through from airbus, yet the stock is softer to 2.16% aboutcome back and talk that later. up next, we will talk europe as german gdps coming weaker than analyst estimates but not by much. more about that rolls-royce story beating expectations for the big, big annual loss which has been largely kind of disclosed. we'll talk about that, which weighs should the stock be trading this morning, and getting to the grassroots. farmersrench feel about marine le pen? we missed much of the brexit story. are we in danger of doing the same thing when it comes to france and marine le pen? all of that, still to come. this is bloomberg. ♪
biggest gainers on the stoxx six we saw a fourth-quarter loss for the bank, but the loss was wider than expected. the second consecutive annual loss for the swiss bank, and the reason for it is that it reached a settlement with the u.s.. up because the legal settlement does provide some certainteed for credit suisse now, and the ceo said it was a game changer for us. what it does is leave us more comfortable to look today at our capital planning and speaking of capital investors, we will be looking at that ct one ratio cet1 ratio.- biggesteurope's operator. we had numbers from the company. it announced it is going to sell its travel units to kkr. there has been a lot of speculation about the sale of and unit, who would go to,
for how much. it will allow a focus on hotel and cruise brands. gained in theas last month. this bakery company issued a profit warning which erased about one third of its market value. it is said that three of its top executives are resigning, the ceo, the cfo, and the head of the americas unit have to leave their roles by july. stock is up. matt. german growth accelerated less than anticipated in the fourth quarter. strong fundamental than europe's largest economy with increased uncertainty abroad. this as consumer prices rose at the fastest pace since 2013. dewan.ith us is yogi
how much of a political problem does this cause when growth is not keeping pace? it is not a horrible number, but it is not quite keeping pace with the inflation numbers that germans notoriously do not like. yogi: you know what, the growth figure, i do not think we should pay too much attention to it. i think we have got good gdp growth in europe. it is much better than it has been historically. if we do see signs of inflation, i think that is encouraging and a positive for both equity markets and also supportive of the currency as well. i go back to the comment i made earlier which is the euro is some 15 to 18% undervalued on a ppp basis. this is great news for germany, greatness for exports, and we start to see things improve considerably. the big risk is political risk with all the elections that are actually going on, and obviously talk around brexit and negotiations, and the greek debt
issue. greece is a tiny economy. as an economy, it is no bigger than pfizer. let us not lose sight of the bigger issues which relate to elections, andh brexit talks, and i think gdp will slowly follow suit. we think valuations are much more reasonable than in the u.s.. in the u.s., up at 17.5. this is an attractive reason to allocate capital to risk at the moment, granted there is a lot of uncertainty around french elections. when you say you think the euro is 10% to 15% undervalued, is that because of brexit concerns? because of french elections? if so, when do you see it bounce back to a better evaluation? and: ppp levels are at 133, we have been off that mark for
some time. i do not think the french elections have had a massive impact on the euro. what has been driving the euro is talk in the u.s. and following trump election victory, the fiscal spending, rate hike expectations in the what hast is really driven dollar strength, which has led to euro weakness, but of course, a week euro is great -- a weak euro is great. is out- guy: toshiba with some of the details it is relating to the market. the rights down it is going to take in terms of the goodwill that is applied to the nuclear business, that write-down is 712.5 billion yen. this was a company that pivoted into the nuclear business, some would argue, just at the wrong moment. it is now affecting a nine-month net loss of ¥499.9 billion, so those details coming across the screen.
we are now starting to get the details coming out. the vice-chairman is one that will certainly be leaving this business. we will not dwell on that for the moment. we will come back to that. talk about the ppp members and i have the metric on my wcrs screen. there is a danger that are actually, in an environment where the ecb says we are out for 2017, we are going to do what we are going to do and deliver upon it, the fed may end up being more hawkish than anticipated and the dollar may go from strength to strength. parity, there is plenty of calls out there as well. a lot of political risk. euro going from strength to strength. to get down to parity will be driven by some sentiment and
momentum him rather than fundamentals. we arelevels are at 133, massively undervalued. that is laptop about momentum and sentiment and we have to be respectful of that, however, the crux of what is going on with euro-dollar as a cross, is your interest-rate expectations. i seem to remember this conversation taking place at the same time last year. our view is we will get two. the reality of the situation is i do not believe the fed will be up to increase rates anywhere nearly as quickly as they would like or markets are expecting. there is too much quantitative easing in europe and japan to offset this at the moment. we do not think it is going to happen. consequently, you see dollar weakness. you are likely to see strength. it does not mean we will not reach parity. all right, so, then that me ask something that i was talking about earlier.
what do you think about the possibility of the central bank even approaching the idea of shrinking its balance sheet, because that would be a defect though tightening as well, wouldn't it? yogi: i think there is also quantitative easing in the system. we wonder whether that will continue, and to what extent it will continue, but at the moment, if i were in germany, i would be looking at a weak euro and thinking this is good, and if we go down to parity for sentimental reasons, this is ok for the economy as well. i would be more concerned about the political risk of le pen winning in the french elections or inappropriate or difficult trade agreement with the u.k. that leaves fundamental issues going forward. the reality is, a weaker euro is great news and if it is at 106 or gets even weaker, that is not bad news for europe and the food be a good reason to be overweight from a risk on trade from an equity perspective. yogi, you are to stay with us. yogi dewan. posts a record
the engine maker rolls-royce has revealed a record loss in its results. that is just a time issue. we will discuss that in a moment. the adjusted figure underlying that the estimates with earnings 813 million pounds, which was good. so why is the stock down? let us bring in our aviation reporter, ben katz. first of all, a lot of people are going to be out there looking at headlines that have been blasted around by the british media talking about a massive loss. what that fail to understand is that rolls-royce takes a hit when it builds an engine and develops an engine until itself an engine and then there is an accounting issue that needs to be digested, but underlying that is a different business which is actually outperforming. ben: absolutely. this morning, we were expecting pretax profit of about 618 million. that is a massive beat in terms rolls-royce.
the headline figure we are seeing splashed across the british media is an accounting thing relative to currency exchanges, so because after brexit we had such a big drop in the pound, the hedge book is pouncey dollar, that kind of impact and it has a massive book. the point being, as soon as they engines andring the bring in the dollar revenue, that will be completely offset, so it is an accounting error and does not explain why the stock is down so much today. you can see that investors started the day thinking that maybe this was good news. i think on the 2016 beating, it then dropped a bit. 2017 outlook of that things will only be marginally better than this year. jeffries came out and said the 2017 outlook at worst support consensus forecasts. is that just -- are we seeing the shares just a lack of
excitement for what rolls-royce season the future? ben: it may be. i think rolls-royce also has an asue of -- it is a fact -- history of profit warnings. they are cautious to give the market, you know, maybe over positive news. he would rather ease himself in there. i do not want to say it cannot say that -- perhaps we'll see profits, the outlook, improve as we go along. what they have committed to his continuing or really focusing on their product and portfolio review which could see them selling parts of the business, could see them refocusing some of the technologies they have. it is the next step. it is now how do we really position the business? i guess they are not entirely sure how quickly remedies will go from there. matt: thank you very much on
credit matt: matt: suisse ceo says the climate is better for banks as his wealth management business sees inflows, but the firm post a bigger net loss than expected. shares are getting a boost this morning. the dollar dipped after trump national security advisor overel flynn quit russian contacts. und bullshe b excited. bunds catch up with the treasury market?
guy. guy: matt, i'm looking at my screen, trying to figure out what is going on. the euro caught quite a strong bid. it is against the dollar, it is against the pound. you are seeing it against the as well. you are seeing a decent turnaround. brent has gone sharply to the upside asbrent has gone sharplye upside as well. with is interesting is within the equity markets, we have seen quite a bit turnaround in the basic resources sector. it has gone from being one of the underperformers of the morning. let me get you names on my launchpad to give you an idea what is going on. utilities and basic resources are now the gainers. that is not a big game, but it was down here. around --.urned turned around.
it does seem to be helping some of the gold minors. which seemser story to be driving that. the euro has just flipped around a little bit, which i think is interesting. to show you, the thing is, the dollar has had a pretty sweet run against the euro. i told up the gip 10 to look at the last 10 trading days of dollar euro, and you can see the euro has been steadily moving down, down, down and has had the best string of gains since november, so dollar strength has been pretty good, and may be euro is playing a little bit of ketchup with the german gdp figures, with the german inflation figures. uncertainty out of the trump white house and expectations for janet yellen's testimony today. i want to take a look at what the equity markets look like in general right now.
a little bit of a mixed picture, but to the downside as we wait for janet yellen testimony, so already arrows, even though we see very c little change on theac. we see very little change on the cac. we have seen the inverse correlation on the pound a british equities. guy: maybe a leg lower for european equities is down to the fact that it has gone higher. the cable rate is popping up a so maybet as well there is an fx factor going on as well, matt. i'm not sure she has got some sort of magical property brought with him this morning, but we'll come back. let us talk about what is going on in europe in a little bit
more detail an interesting angles on what is happening in france. it has been one of the worst years for french agriculture. rural dwellers make up 20% of the population and could be key when the national front is leading the polls. let us talk about what is going on with the shift in sentiment amongst french farmers. what is happening here? >> it could be an interesting year in that sense. french farmers have to that the for the center-right and than happy with the establishment, well served by you subsidies. now, they are -- by e.u. subsidies. they are blaming them now. farm prices are down and they think many of them that only marine le pen can do some thing
about it. can they give marine le pen a victory? votingong is this block? >> farmers and their families account for 8% of the french electorate. not a lot. ruralu add in the entire communities, that is 18%. thank you. we are going to recommend viewers go to bloomberg.com and check out the story because i thought it was fantastic this morning. anne in paris on french farmers and how they could sway the vote. obviously, there were constituencies we were not listening to loudly enough during brexit and during the u.s. presidential elections. what do you think? where do you
handy cap the chances of a marine le pen election in france? yogi: she will get through in the first round, but it is the second round that really counts. the whole talk around frexit is really detrimental. i do not think it is great for french economics. is negative sentiment definitely there, bearing in mind what we have seen in america and also with the u.k. acron has been quite careful. he's likely to go through to the second round as well. he's very growth orientated, so that is a more positive outcome from a market perspective. the bestuld have been outcome because of his full employment policies and his desire to cut corporate tax rates as well, but he is unlikely to go through to round two. i think round two, le pen will struggle to get the votes in as
there is a ridiculously low turnout to unprecedented levels never seen before and the french farmers' comments that have been made, that is interesting. 18% will not be enough, but if you go up to 20%, it will clearly be a close call. guy: i want to go back to rolls-royce this morning. ben katz was talking about the complexities of the rolls-royce hedging book. airplanes are sold around the world and they have done so in dollars. they have a complicated hedge book. it is dealing with the discrepancy between dollars and euros. what happens if i have to throw francs into something like that? risk of figure out the owning a company like airbus? i don't think and you don't
think that marine le pen will have an easy run, but if she gets there, the effect is going to be massive. ben: absolutely. this will be bad news from a market perspective, without a doubt. the comment you made about rolls-royce and complexity around the hedging book is a very valid one. it will get even more messy. i suspect most cfos and ceo's will ignore the hedging issue and choose not to hedge if it gets too complicated and just take the hit. guy:? really? they have a if i do jury duty to their shareholders. over a five-year period, it tends to level itself out. if you look at it on a 12 month basis, you end up managing a book rather than -- currency but rather than a business. shareholders need to invest for the long term not in the 12 month basis. there are a lot of cfos already when you look at the hedging strategy. it is too complicated, too expensive, let us just leave it.
we accept the fact that there will be volatility, but over a five-year period, it will play out, level off and be fine. publishinge companies take this view. it is incredibly complex to get hedging strategies right and incredibly extensive as well. pen's chancese le of taking over france are low in your estimation, but if she does, she wants to redenominate 80% of french debt, essentially exitlt on french debt, and the euro. is that kind of nuclear scenario actually priced into the market? ben: definitely not. the market is not expecting le pen to win. i know this was said around trump and brexit, but the frexit impactdtime and its wil be quite devastatings, and markets are not looking at that
or counting for that. the member, round two is not until the seventh of may and at the end of the day, there is a lot that can happen. her tone can be moderated, as i suspect we will see, and we will 'st more clarity on macron policies as well. the market is not positioned for this. guy: yogi, say with us. plenty more to come from you. yogi, thehe ceo -- ceo. if you are a customer, you can watch using tv , follow our charts, the functions we talk about, and you can email and ib us directly. trying to figure out exactly what is going on there. useful insight being generated, i can promise you. takingworthwhile, part. this is interactive television. use the bloomberg to make that happen. that is next. this is bloomberg. ♪
ceo on daybreak europe and they asked him about the company's american business. >> american business is rather stable so we have growth of 1% in q4, and that is pretty much what we see into the new year, .o we do not see a trump no sign of weakness and no big swing upwards. the other big gainers of course on the stoxx 600 is credit suisse. it did post a fourth-quarter loss that was wider than expected and also the second consecutive annual loss for the swiss bank, but the reason for that fourth-quarter loss was the u.s. settlement and that has provided some legal certainty for the bank. perhaps why the shares are getting today. the settlement was a game changer. it leaves us in a more
comfortable position to look today at our capital planning. to don follow everything with credit suisse on the bloomberg as well, so i urge you to do that. looking at rolls-royce, one of the worst performers on the stoxx 600. annual earnings fell less than expected. cuts.as deepened cost a lot of analysts were calling that stock down at the open. guy, matt. thanks very much. i want to give everyone some breaking news on donald trump's visit to london. the u.k. government says that donald trump should be given the full courtesy of a state visit. this in response to a petition that had been brought up calling for a ban on the trump visit here he will be visiting the u.k. i believe the queen of england has indicted president trump to have tea with her, so he is
going -- has invited president trump to have tea with her, so he is going to. a huge test in the shape of president trump you are treasuries are america's top export by a longshot and foreign demand is a slipping. for more, tracy alloway joins us from abu dhabi to read you wrote about this in ap is for bloomberg view. walk us through the dynamic here, because there is a downward trend of forward of foreigners holding u.s. treasuries. what is weighing on their holdings? right,that is exactly matt. so look, what is happening is one of the biggest stories in markets around right now. we have seen this reduction in foreign demand for u.s. government debt, and it is being replaced, to some extent, by domestic buyers. insurers,on funds,
banks, money market funds, those sorts of players. why is that happening? there are a whole bunch of factors on either side of this. china has been drawing down its reserves to try to stabilize the u.n., but on the other hand, we have had a spike in u.s. interest rates since donald trump elected. that hurts the value of u.s. government debt. we have had some foreign investors also suffering from currency hedging costs and again, the homegrown buyers of u.s. bonds, they are not really troubled by things like fx risks. u.s. treasuries are still a relatively safe bet. guy: so why is it a bad thing this is happening? is it a bad things is happening? pluses and, there is minuses. on the one hand, if you have more demand from a domestic and inr, that can -- fact, that is what we have seen. it is one of the reasons why the quite substantial selling from china's central bank in
particular has not had more of an impact on u.s. treasury yields, but on the other hand, if you think the classic economic theory, right, think about the import substitution idea and the criticism of what when you for with on your domestic production only ended more exports. it means you miss out on all the benefits of specialization, including lower prices for consumers. that same dynamic applies to the u.s. treasury market, right? purely on focused domestic demand, then you lose a potentially substantial paul of demand from outset -- substantial pool from outside the u.s.. that stimulus will eventually need to be funded through debt sales. guy. very much indeed. interesting charts. let us talk about what this anns for yogi dewan, ceo of
asset management company. foreigners have been telling u.s. treasuries for quite some time. at the same time, we have got another big fire in the market beginning to reconsider its use as well, and that is the fed. massive balance sheet, big holder of you would -- of u.s. treasuries. do you think this would deter the fed from lightning that balance sheet up? >> i think it will. you have seen china selling, japan selling, a lot of europe are actually selling as well. i do not think the domestic market can prop up all the selling taking place around the world and let us look at the reason why everyone is selling u.s. bonds. it is because of interest rate hike expectations. in a years time, it may rob u.s. 3% were higher. higher. if you have interest-rate hikes being expected, nobody wants to hold bonds and all the uncertainty that lead to 10 year yield going
down to 1.4% has now been removed. this is not a great asset class to be holding at the moment. equities - pay dividend yields o that you get an extra coupon kick if required or dividend kick if required in that regard. where would you allocate your money at the moment? it would not be to the bond market. guy: let me put a counterargument to you, and steve major makes this point at hsbc that actually, if the trump administration decides that it wants to deliver deficit spending in a massive way, that that may end up being growth negative in a way that we fully do not understand yet and that story has yet to be fully priced in. steve major at hsbc has a call on u.s. 10 years. it is way out of consensus, but his concern is that actually, a trump administration is going to be reflationary but not growth orientated in the way we
anticipated it would be. yogi: we believe that trump, with all his fiscal spending plans, will promote growth in the u.s. in a good way. guy: in a short-term way or long-term way? yogi: when you implement fiscal spending, it takes six to 12 months before you start to see the impact. maybe even 18 months or three years is the way the trump administration would be looking at this. certainly within a four-year period. he would like to see things improved considerably for political reasons and in the next election, thereafter. it is hard to believe that bond issuance will die down and fiscal spending is going to increase. however, the yields that have to be paid out will have to increase to support that. you have to see the rate you have to see the rate increases take place and you have to see bond yields increased towards 3% and then
you will start to see this all make sense and then you will see the growth follow-through. mark.k that is off the it is really an insurance that in case the world actually blows up. perhaps a le pen type lacks one event is what hsbc is talking about in this regard, but we just don't agree. matt: what you are saying is foreign investors selling off some kind this is not of political protest or concern about the stability of the trump white house. it is purely a pricing issue. after the fed raises rates a few times and if you have something leaving theuntries european union or problems in asia, do you see foreign ownership in u.s. treasuries resuming? yogi: agreed with you, matt, and yes, we do. if you see i rates drifting u t 3%, this is good news, and you will see buyers go back into the marketplace internationally as well as domestically. remember, the u.s. is an $18 trillion economy, the biggest
economy in the world. europe is only 11 trillion dollars. china is hovering around the $90 billion mark your germany is at mark. .ermany is that $3.5 it just cannot be avoided. tot: yogi, you are going stick with us. ceo of hassium asset management. we want to get to toshiba right now. the company says it expects to book a $6.3 billion write-down in its nuclear power plant business and is considering the sale of a majority stake in its chip is best to save it. at the same time, the chairman is going to step down. toshiba's shares plunged earlier today after it failed to release its earnings as scheduled and said it would ask for a one-month extension. joins us.amura
how bad is it for toshiba? >> yeah, very messy day for toshiba. of $7ite-down is short billion. that was more or less in line. what we did not expect was that they would fill up a majority stake of their chip is this, their memory chip business. they are one of the leaders in the industry and this was their last prize crown jewel. they came out and said they are going to sell the majority. it means toshiba is a shell of itself. is nowlear business tarnished, taken a giant write-down. is left really, not much left, so that is the big takeaway. the chairman stepping down just nine months after he was appointed. a huge messengers of management of toshiba. might start shrinking very quickly.
we'll see how the shares react, tomorrow. presse have got this conference coming up. anymore surprises from that? yuji: never underestimate toshiba to disappoint you, so that press conference is going to start sin. the headlines will be on the terminal. the press conference lasts for about one hour. we expect them to talk about how goingwhat they are really to do with nuclear. they will sell it and get a dues amount of -- a decent amount of profit. what is uncertain is how much cost they will incur for restructuring westinghouse. we wrote about them take -- about the huge mess there. nobody really knows. we talked it up to people on the ground working on the nuclear power plants, to management. everybody doesn't really have a good idea. that is what you should focus on for the press conference that
will start in about 35 minutes. what is the cost of restructuring the nuclear business? forward to that, as you say. you never know, there could be more surprises. yuji nakamura durin joining us out of tokyo. it tells us that these big industrial moves, these big investments we make, we can get wrong and get wrong on a horrible basis. there are so many of these at the moment. if you look at what is happening in the car sector, energy sector, how do you invest in an environment when this happens am a very briefly? yogi: you have to be very careful. those calls were very wrong when you look at toshiba and what has actually come out, but we tend to want to get broader marketing to eliminate these risks, so we buy the markets and that way, we avoid some of the stock specific risks that take place, particularly in this sort of sector. strategies change and it is so reliant on trending innovation around the nuclear sector, which is quite hard to get right.
climbs,: credit suisse despite reporting a bigger fourth-quarter loss than expected. an update about the outlook. >> overall, we are positive. swung,k the pendulum has at a turning point. but we think the pendulum has swung. market sentiment is better. you have all kinds of indications of that. slaton acquits. donald trump's national security adviser resigns after allegations of improper contact