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tv   Bloomberg Markets European Open  Bloomberg  February 16, 2017 2:30am-4:01am EST

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♪ good morning. welcome. this is the european open. your first trade of the cash session. i am still in london. matt miller is live from opel headquarters in germany. we will be watching that story carefully. what are we watching this morning question mark we are watching -- marching toward a mark. the fed chair janet yellen will be hiking, she is striking a hawkish tone and inflation seized the biggest jump in almost four years. why did the dollar decline
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overnight and why is it now beginning to pick up a little bit? estimates and see significant restructuring costs. 's efforts be enough to reignite growth? we will speak to him at 745 gmt. and going on a charm offensive. britain's biggest union says it will not support the loss of a single job. 830ill speak to its head at gmt. let's talk about what is happening with these markets. will have seen over the last half an hour is a turnaround. it is fascinating to see what is going on. these are the futures here, calculated into a fair value. this is the london market, most cac is onerkets, the exception. the s&p's price for a negative as well. we have not seen that since 2013. this is the story, focus on this
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line here. when i got in first thing this morning the euro was up, the dollar was down. that was fascinating given what we have seen overnight in spreads and how they affect pricing. we will talk about that. that has turned around as london liquidity kicked in. the bund yield is interesting. we have been in this range here is the moment. will we break out of it? we're watching very carefully as theork our way towards release of the accounts from the ecb. 1230 london time. in your a car, you are natural environment. we have been expecting some news, where we going to get today? get depends on who could betalk first, the unions cannot we have had pretty much radio silence from the german unions and we have just will talk to the u.k. union
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momentarily. we have not heard much from the german unions and they are important. labor highs half of the executive board of awful. -- it is owned by at subsidiary of general motors. a have a huge state in what gets done is far as big strategy decision like a sale to be joe. you have the politicians. the economy minister said she will fly to paris to talk with the government there which owns a huge stake in pew show. angela merkel government said they have not made a decision an opinion on exactly how to decide on this. they have to talk to a number of people, they talk yesterday to the gm president in berlin. it will be interesting to see first.ide budgets i can tell you that the german government and the unions are not happy about how they found out. bloomberg roca story of couple
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days ago and that was the first they heard in berlin of this planned exposition -- acquisition. let's go to juliette saly. juliette: thank you. u.s. intelligence agencies and the fbi are conducting multiple investigations of a contact donald trump's advisors and associates had with russia during and after the presidential campaign according to for national security officials with knowledge of the matter. are say several agencies conducting the inquiries into russia's efforts to meddle in the u.s. election and coordinate as needed. president donald trump house administration is considering several possible contenders as a laborreplacement to the secretary nominee. he employed and undocumented housekeeper. he had been scheduled for senate confirmation hearing today. securities regulator is
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considering limiting the frequency of additional share issues by public companies possibly to once every year or 18 months. they said the china securities may cap at market value. they did not immediately respond to a fax seeking comment. postcards have set the valuation on its ipo between it between 19.9 billion dollars in 22. it is valuing shares between 14 to $16 on a diluted basis. that is what set it on track to be the biggest technology ipo $25 billiona raised into my 14. charlotte howred to shake things up. she may be a candidate to succeed in as governor which would make her the first woman
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to hold at all. she will become deputy governor starting next month as well as keeping her role as chief operating officer. that extra as well as keeping her role as chief operating officer. that extra did give her the whitest amounts of powers two years before he plans to depart. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. matt: thank you. it is day two of janet yellen's testimony. this tended for the highest -- house financial services committee. she said the trunk budget will not necessarily prompt higher rates. she defended the fed's revelatory moves since the crisis. is recovering from a very severe crisis. we have put in place stronger financial regulation. banks --our-star forced our banks to ill that their capital buffers to do with problem loans.
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and to strengthen themselves to the point where they have been growth support economic and recovery. the u.s. economy has recovered more quickly, for example than , the eu economies have in the aftermath of the crisis. the federal reserve is -- has put in place highly accommodative monetary policies meant to spur spending in the economy and restore a low unemployment or two achieve the goal of maximum employment and price stability. you have been assigned to us by congress as a indicated in my remarks. i believe we are coming for a close to achieving those objectives. guy: it was interesting was sent -- listening to mr. dudley. we have an exclusive interview with fed vice chair stanley
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fischer. followed. u.k. time, by a discussion with the fed president dennis lockhart. the fed is firmly in focus. let's talk a little bit about how we priced it. we see some interesting diversions is. you have got interest rate expectations rising, the dollar going down. explain. on thewe are getting dollar. let's get his take. with dust are starting to see a move in expectations for march. you get into the middle of the summer it is almost a done deal to have one that hike ride in. why is the dollar not responding? chris: that is a good question. two-year swap rates have pushed up and so normally you would expect the rate spread to drive
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the dollar stronger. ahead of those the retail sale -- sales in the cpi data which pushed retire, what we were seeing is strong demand for carry trade for high-yield commodity currencies. typically, and that environment, that dollar tends to underperform. i am wondering whether the amount of money that investors are putting to work having been underweight emerging markets back in this more synchronized global growth trend which could be a story for 2017, that is perhaps holding the dollar back. if there is to be some dollar strength it will be against the low yield. it is a matter of time before we see the euro-dollar a little bit lower. guy: do we have to wait till we get core pc? of nextes out the any month. if i extrapolate the cpi yesterday into the pce number, above target. can we convince anybody we will
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see a breakout? mentioned,ou focusing on the statement about comfort, whether there is comfort or conclusion is moving back. so the moment the market is pricing at a 40% probability for march hike. we're going for the march hike. for thel be positive dollar against the euro in the end. -- and the yen. matt: matt miller here in germany. how many rate hikes to you think are priced into the dollar right now? chris: i think probably to by the end of the year. the rate hikes might come in slightly more quickly than the market price. idly -- ideally when they do move, they like moves to be
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fully priced. we have a long way to go. economicoking for strengthening the first quarter of this year. and expectations as well of the trump tax plan perhaps being approved later this year. stability growth into 2018. it is pointing to a repricing of the fed story. especially over the next 12 months. the dollar should do reasonably well against the low yield of the euro and the yen. does the market believe that trump will come out what a phenomenal tax plan and we will a dollarslation and of infrastructure spending? chris: i think it is early days of the moment. short-termng about moves we have seen over the last 24 hours. last week we did see the dollar turnaround, it had been a soft week for the dollar but the flaw
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was put under the dollar. trump talking on his phenomenal tax plan. the market's take notice. we think it will definitely add to growth in 2018. we're waiting to hear. from where we are priced right now any further details particularly top of the list might be that tax holiday. bringing cash back to the skates. the first read of that will be positive for the dollar. guy: a little later on we get ecb accounts, will that throw the spotlight back on the interest rate differentials, what are we expecting to learn? chris: they will be focused on the ecb, the operations about shorterolumes at the end of the curve and there is evidence they are doing that already. you make a good point with regard to it should serve as a reminder that the deposit rate will stay low.
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arehose european rates locked on the floor at a time when u.s. rates are rising, in theory, that should be pretty positive for the dollar against the euro. we are seeing that short-term two-year spreads moving close. it is the undervaluation, we our heard that from companies we deal with based in europe and america that the euro is undervalued. that is why it is proving quite sticky, this move on the downside. has thatreal money view and the political noise as long as fines. germany is benefiting from an undervalued currency. we saw what happened yesterday with the data which would suggest for those in washington there is some validity to this. to what extent is the market paying attention to the political noise regarding currencies out of washington?
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think there will be absent flows whether it is a fed story which we think will be positive or we return to the political currency war story. we will have to time that. timing that, the next big moment will be in the middle of march ofl have a g 20 meeting finance ministers and central bank governors. it is hard to see. the u.s. treasury dominates that communicate. we just got steve mnuchin approved this week. there will be a big focus on the undersecretary for international affairs whether it is david malpass, when he has to say about the dollar, typically it is his group that drives policy. the market may shift to that story. as we move to the first couple weeks of march guy: it has been great speaking to you. thank you for speaking to us. nestle sees
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profitability below its long-term target. carolyn cohn and spoke to the new boss of this business about these difficult results. what did he have to say question mark let's find out. organic [inaudible] was a bit below expectations. especially in the second half. what we did see 5 -- fairly widespread is a reduction in the second half. that was the general trend of the industry not just specific to us. pricing did not quick in -- kick in as fast as we hoped. for 2017 it is a balanced view. there is some hope that pricing will be more favorable. we're facing a lot of macro uncertainty. to 4% of organic growth
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guidance, that is what we have seen for the last three quarters. i think that gives us caution on both sides. generally in this somewhat volatile and somewhat deflationary environment we are better served with straightforward annual growth and earnings guidance and this is what we are looking at 42017. what we have said is that our focus on organic growth will remain. insightlieve with some -- internal initiatives we can achieve organic growth in the mid-single digit range by 2020. that is what we are attempting to. carolyn: can you tell us where savings would come from? onck this is building cost-saving effort that was achieved in 2016.
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we will continue that. we have reaffirmed our cost target of 200 basis points by the year 2020. this will be mainly from non-customer facing structural cost. network basically our which needs to be optimized. >> is that [inaudible] performing not as well as other such as the chocolate business? to fix our businesses and get back to growth. we see ourselves as operating managers, not as traders. if something does not fit into the longer-term strategy there is no hope of turning around organic growth and profitability been nos, we have strangers to portfolio management in the past and that will continue. given the performance on the chocolate business does that
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mean that you are excluding disposing of that unit? >> we have no specific deals to announce. >> in the u.s. it is your biggest market, are you concerned that the new u.s. --inistration protectionism is protectionist? >> in most markets our top line and what we make locally are almost ideally balanced. the u.s. is no exception. what generally has -- as a global company we are no fan of anything that smells of protectionism. in this circumstance we have no reason to be worried. >> i believe that most of your brands in the u.s. are produced locally but some have to be imported. u.s. border tax impact those brands? >> when you look at the balance overall and the relationship of what we make locally we are at
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the lower end of the list. there are other industries that are ahead of us. >> in europe, you had good internal growth but pricing was negative. how do you see the effective deflation in europe, is it and in? >> in western europe, there was quite a bit of a deflationary sentiment toward the end of the year. we hope that that is beginning to turn around. there are some general signs of that but it is hard to turn the corner and to call that moment in time exactly. there's hope for 17 and beyond. you have not raise prices in europe for years. is -- the top end of the market when it comes to resistance, top and light comes to coffee quality and variety. that is a business generally where consumers do appreciate what they're getting and they're willing to pay for it. >> will you be able to increase
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prices significantly this year if commodity prices kick up? >> that is the general trend we have seen. slowly,ever so commodity prices are coming around. there were tailwinds in some of the past years. there may not be a tail wind 2017. that situation, managing that situation starts with good and prudent forward-looking hedging and we have done quite a lot of that. the immediate question is there and that gives us more time and more patients to have a discussion with our trade partners and consumers to make them understand that eventually the might be some selective price increases. >> the u.k. was a challenging euro 2016. adjust, are you going to toer brexit, are you able just price it? is one of our historic
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and core markets. we are committed to it and staying close to the british consumer. we believe going forward we are pricether there are increases, we will do that. what you will not see from us is a general across-the-board increase. >> we be able to increase prices -- ofust to the weakening the pound? >> there are raw materials are being used for some products, some are local and some are imported. that is an end -- a discussion we are engaging in it -- at the right time. >>'s companies could be one of the stocks you want to keep your eye on. the open is just 10 minutes away. this is bloomberg. ♪
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guy: which stocks do we need to pay attention to this morning? we have been hearing from the loss of nestle. the company coming out with a mess. the stock will soften up on the back of this. there is also the factor about the -- nestle is a proxy. the other thing i want to mention is what is happening with air france. air france has come out with some fairly positive numbers. the net income line has jumped.
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the revenue line is in line with consensus. for air france that is a good thing. this is not airline that has a very tough time of things of late. we are -- they may end up being as weed by shareholders can see around five minutes time. let's talk a little bit about what is going on with some of the stocks in the u.k.. wi screen.e london looks at it will underperform. possibly because it has some big heavyweight stocks going dividend. bdbd. going and imperial is going askll is dividend. these are big chunky stocks. that is why you're likely to see some underperformance coming
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through. the other thing is sterling is popping on the table. probably more so on euro sterling. keep an eye on the currency strong -- story. this is bloomberg. ♪
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guy: welcome back. let us talk about this market open. we think we are going to see a negative start. remember, the s&p has had seven updates. what are we expecting this morning? we are checking your to be opening reasonably flat. this is what the fair value is on my bloomberg. london looks like it is going to open a little light. we have a stronger sterling's morning and an awful lot of these going into the london market. the cac is expected to open flat. talking of what is going on in germany, matt miller. what is going on? well, guy, this news that
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bloomberg broke that opal may be sold to peugeot causing shockwaves in berlin through the merkel government has not figured out how it wants to decide on it, but we have other german ministers that want to fly to paris to talk to peugeot's owners. we have a wait and see. guy: wait and see to see how these markets open as well. ftse 100 down at the 7300 level. shell, bp in the market this morning. that is something to pay attention to. opening negative. very negative session yesterday for the italian market at the back end of the day. let us see how it comes through and delivers this morning. it is excited to be negative. down by .2%. the mildly negative start that we expected.
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manus cranny, over to you. manus: you're right. softer opening. those dividends are weighing on the market. french unemployment at a four-year low. did not come exactly as the market had anticipated, but it is a four-year low. is this rally a rally of breath? one of the stock stores this morning says it has potential. defenses are rising as well as cyclicals. health stocks rise by nearly 5% in the first half of february. he said, look, the consensus trade is moving towards pick up more europe, but we are not positioned so aggressively. as if the european markets are not in any way overbought. are the markets overbought? do you bother, are you bothered by rsi? this is the msci all world index, which hit a high the first time in 18 months. we are technically in an
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overbought situation. sincew has put on 19% trump was elected. corporate profits rise by 6%. european markets are moving. this is something to consider in terms of the interest rate market. guy, 10 year yields in the united states of america are negative nine for the first time 2013, in contrast to what you're seeing in japan. the question for the markets is this. are we heading peak inflation for now? protagonist, petroleum is the protagonist. i'm off to a global radio to carry on the debate with caroline. join me on digital radio. in the meantime, guy. guy: that is get to some of the
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stocks on the move we highlighted before the cash got going that we saw a number of big equities in the market this morning. a weighted story here. in terms of what is dragging on the stoxx 600, it is london stocks. royal dutch shell has gone xd, bp has gone xd. schneider is down on his numbers. you are seeing. this is a mechanical process. they are trading at dividends -- ex-dividends. ist is why the stoxx 600 acting a little more softly than it would on this kind of a morning. let us talk about what is going on more broadly with the macro story. i want to get another chart up. u.s. cpi extremist strong. fed rate hike odds rising considerably. i advise you to drop down to the
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hasspread and the dollar been mixed. it was down overnight and has been firmer this morning, but only just. let me show you this chart. this is important. this is the june move that is being priced in. this is the march move and you can see the upswings we have got here. you can see the downward trajectory that we have for the bloomberg dollar index. what is going on? let us cross to mark cudmore and ask him that russian. mark. : i'm sorry to disappoint you. i don't have all the answers great what we saw after very strong data yesterday, strong retail sales, not only the headline number, but the x energy number is strong as well. we saw the dollar rise initially and then slump hard. that seemed to be a different direction from yields. today, yield him off a little bit.
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the dollar price is interesting, but what i think it emphasizes is how the psychology has really changed. traders were desperate to buy the story even though there was no sign of inflation. now, they say, we want to see more evidence. could it be that other central banks occasionally intervene to weaken their currencies slightly? had inflation information out of the u.k., which was not quite as strong as the street was looking for. maybe we will market arise there there and-- a rise maybe mario draghi will keep his foot on the gas. mark: if you are looking at divergence, as you mentioned, in the u.k., we had lower than it expected inflation, which should be good for lowering the negative yield, and yet, the currency got hit.
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in the u.s., we got higher than expected inflation, therefore widening the negative real yield , so it looks like traders are being haphazard with currencies at the moment. as for whether central banks are intervening to weaken their currencies come obviously, a controversial issue at the moment, but what is happening here is the dollar is selling off and it looks like central banks are happy to keep the dollar out of -- dollar at a stable range. and cpi is interesting certainly was yesterday, but the pce is the real number. if the pc pops north of two, do we start to get excited out that point? mark: yes, i think so. i would certainly get excited. one of the big things is that stayedce -- core pce has too low for too long. aboutget a couple 2%, we are off to the races on rate hikes. it looks like traders really
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want to see the evidence. even though march is priced in the market to a certain extent, it is really unlikely. i do not see them doing so now, so but the market does believe there will be a hike in the first half. what is in play is whether it will be may or june. matt: does the uncertainty in the trump white house perhaps play into this conundrum of its? -- conundrum a bit? mark: i think that is what is happening. the market had bought into everything that trump was going to deliver on the positive side while ignoring the possible negative threats. they are getting very worried we are not going to see some of those positive fiscal stimulus measures come through, so they want to see more certainty. what they are waiting for is certainty from the trump, you know, what he will deliver in terms of the measures, and until they see hard measures delivered by trump, they are not going to buy into the dollar reflation trade to aggressively.
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there is real change in sentiment from the market, and that is a bit negative for the dollar in the next few weeks, that backdrop. guy: thank you very much. i'm really disappointed you don't have all the answers. you usually do. mark cudmore joining us. matt and i will continue the conversation. i urge you to do so this morning. really fantastic coverage. what is up next? we are going to hear what janet yellen had to say yesterday in her testimony. health of the u.s. banking sector. we will talk about the story matt is so focused on with gm. opel tontial sale of psa. later, tech. asinitial evaluation as much $22 billion in its ipo. that conversation coming up at the back end of the show. it is a great show.
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this is the open, this is bloomberg. ♪
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guy: welcome back. you are watching the open. eight minutes into trading. the owner of corbyn, it is an aerospace subsystems provider. on a number of different programs. one of those programs, kc 46, a refueling aircraft, it is
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acquiring the kc 46. is going to take an impairment charge on the kc 46 program. not exactly great news for the british engineering company, so another charge coming as a result of what is going on there, so that is one stock to watch. the stock is down 20% on the back of this. not exactly a great day for u.k. engineering. that is talk to nejra cehic. nejra: pretty i watering move on eye-wateringpretty move for cobham. profit, that number beating estimates and so air france is going to try to boost or will boost passenger capacity by 3.5% this year to try and win back the initiative, particularly in the long haul market. this is one of the biggest
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movers. schneider electric, missing estimates. the issue was an industrial slump in western europe and north america hurting its infrastructure business, so where does it go from here where it is working on cost control also being more selective on projects? it did say it plans to increase the dividend, but that is not enough to give a lift to this stock, which is one of the worst performers on the stoxx 600 in this session. i'm looking at the world's biggest food maker, nestle, down 1.3%. the number we avoid watch is the organic revenue growth and its forecast 2.4% organic revenue growth for 2017. in other words, forecasting slower sales. not only that. it is forecasting slower sales itsprofitability also below long-term targets. this as the new ceo, marc schneider, who we spoke with on bloomberg, is stepping up
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restructuring efforts to meet nestle challenges, but those latest numbers pushing the stock down. guy: thank you very much indeed. a quick move on the dollar. bloomberg dollar index softening up over the last couple of of seconds. let me show you what is going on. the euro is a bit better bid and we have the pound a bit better bid. the market is selling the dollar, which in so many ways is a head scratcher this morning. let us talk about one of the reasons why it is a have scratcher. janet yellen rejected president donald trump's attack on dodd frank, saying banks are now safer. able to things are now support economic growth thanks to regulation. >> the economy is recovering from a very severe crisis. we have put in place stronger hasncial regulation that forced our banks to build up their capital buffers to deal with problem loans and to strengthen themselves to the
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point where they have been able to support economic growth and recovery. >> liberal may have serious consequences for corporate bond market functioning in stressed times. do you agree with the staff paper of the federal reserve? >> i think the evidence on this matter is conflicting, and i think this paper did find evidence of an impact in one particular area. >> you have been looking at it for years. >> it is difficult to come to a conclusion because by most in corporateidity bond markets still remains healthy. janet yellen testifying to the house financial services committee there late yesterday. the s&p 500 is on a rare streak in the u.s., in part driven by ratetestimony, interest
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expectations, and bank moves. s&p 500 closing out for a seventh straight day and another new record in the session. it has hit record after record. even the fed's bill dudley said this is unusual given u.s. policy uncertainty is so high. with us now is william hobbs, head of investment strategy for europe at barclays walter investment management. william, do you think that fed policy uncertainty as high? it does not seem at high. william: i'm not sure. it did not seem at high to me either. what you are asking at the moment and what you saw on the -- what you saw yesterday with the possibility of a march hike becoming a little bit more possible. the market seems to be warming up to it and getting the fed option audi. we are leaning towards second half hikes. we'll see what, happens with pc, but in the core cpi measures, there was a fairly
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across the increase various inputs, and that suggests core pcu will rise as well. we look like we will be on target so interest rates should rise and the economy should be able to handle it. matt: so the direction is pretty clear. the only uncertainty really is are we going to get two or are we going to get three rate rises this year? how many do you expect? william: at the moment, two. we would not be too dogmatic on that. we think interest rates will rise considerably over the next several years. the u.s. economy, like i said, if you look at what is happening at the moment, we look around the world. you know, you have got very easy monetary policy still, easing fiscal policy, business and consumer confidence at multi-year highs, consumer confidence at a decade plus highs, and these are going to be quite a heavy cocktail if we do
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not start normalizing monetary policy in the leading u.s. -- leading capitalist economy, i think. guy: how much of a discount is there in the market at the moment? what is going to happen with a border tax, etc.? and the unknowns surrounding all of that. how do i price that back in for a more positive picture that seems to be emerging largely from the data? william: really difficult. generally, what you tend to say, when you look at policy in general, certainly the method policy in the u.s. when you look at postwar u.s. economic history, harry truman's second term on words there is a massive difference between immigrant and republicans in terms of economic performance, but when you control for external factors, there is very little difference in reality, and that puts the idea that the presidents who have been able to affect change are the consensus gatherers, and they have had the advantage of a very extreme economic that's up to
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force that consensus. think, you know, those kind of things. do we have a unifying force in the oval office? it seems on might be. we have to be skeptical about what is happening. view is that generally, you are going to find economic self interest is going to mute some of the extreme promises but the threat of protectionism are greater than they have been. guy: and they may come unexpected causes. if a border tax comes in, the europeans may see that as a protectionist measure. it is a known unknown at this stage, but a big unknown how the rest of the world will respond to that. that is what william dudley is talking about. the uncertainties are enormous surrounding these. you could see the biggest wto case ever brought by the europeans if we were to see a border tax come in. that is something that is mind blowing in terms of how you
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think of it from a global trade point of view, and would have to be priced into the market. william: what you can say at the moment is generally, when you look at most of the stuff we are talking about, and after renegotiation, p.a.t., the control, it is mainly reflationary. if you are looking at sort of rules of origin in terms of agreements, right that means you are going to have more expensive imports generally, so that means more inflation is probably bad for bonds. is it better growth? we are yet to see. at the moment, what you are left focusing on, and the easiest thing to do for an investor, is to tune out a little noise and focus on the fundamentals, and those lead indicators for the u.s. economy are very strong. that is the really interesting thing. the isn, sadly, the most long-term indicator we can look at, that still seems to point to foster growth ahead, so in a
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sense, that is what you're looking at, and worrying about policy stuff on the side. guy: ok. william hobbs will stay with us, the head at investing management. unds are being bid. .737 at the moment is where we are talking about the bund yield being at the moment. interesting unemployment over today. up next, time to turn off monetary drift. what is happening with the bund market. we'll talk about the ecb. it is -- its latest accounts come out at 12:30 gmt. we will discuss. this is bloomberg. ♪
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guy: welcome back. you are watching the open. let's talk about spreads across the atlantic and where they go next. yesterday, we saw strong inflation data out of the u.s. we had strong inflation data out of germany. not as a strong as we thought we would get, but pretty punching numbers. this is the bunds u.s. spread. it is trading up its recent highs, but still trading t211. what does that mean for the euro and what is the account story? william hobbs, head of investment strategy for europe at barclays. earlier on, we were talking to i and j.
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the data in the u.s. are getting better and better and better in the fed may end up looking behind the curve. william: i mean, that is the problem here, guy. that is the view everyone has got. that is a defensible view. the u.s. economy looks strong. the data is picking up your a you are talking just now about the tce, on the upside. in europe, core inflation looks much more benign. the ecb is talking about looking beyond this latest sort of pick up, so that should mean dollar beats euro. but i think what you have had is already that seems to be something a lot of people have latched onto. there is a big consensus on the market on the dollar and that is why you are seeing it go in slightly confusing, the other direction. the major point we could make right now, if you had a beauty parade of the major currencies right now, the dollar and probably sterling, come up somewhere near the top.
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your conviction have got to be pretty low to be honest and everything else is in the middle. matt: what do you think about european stocks right now, william? toy are priced pretty cheap earnings, especially relative to u.s. stocks after seven days in a row of new record highs. william: yeah, matt, we like european stocks. i'm in, in order of preference, u.s. is still first trust. u.k. is second in terms of our favorite develops equity of regions, and the reason for that, i mean, what you are starting to more plausibly see is that yawning chasm between starting to narrow. this season is good. you are seeing upgrades. that is adding fuel to the fire. it is an under allocated area. consensus is warming up, but this is an area where you can probably see it doing well this year. guy: great stuff.
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william hobbs, head of investment strategy at barclays. he's going to stay with us. next, we are going to get back to matt to talk about this gm story. this is bloomberg. ♪
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matt: marching towards a height. the odds of tightening rises as janet yellen strikes a hawkish tone in u.s. inflation -- and u.s. inflation sees the biggest monthly jump in almost four years, so why did the dollar decline? nestle crunch, the world 's largest -- efforts to restructure the company. will it be enough to reignite growth? opel to psa, britain's biggest union says it
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will not support a single job loss. we speak to his head, len mccluskey, next. welcome to bloomberg markets, the european open. i am matt miller in germany at the opel headquarters. guy johnson, alongside me, in london. guy. guy: we are 30 minutes into equity trading. let us take a quick look at how things are shaping up here. the one thing you need to be aware of, it is thursday. dividend on a ex thursday. bp shall going ex dividend -- bp shell going ex dividend. 600 is the biggest loser .own by 1.44% the other thing i want to make everybody aware of, matt, is, and i guess this is a related story, the price of oil has spiked within the last few minutes. negative and is now positive. we are trading nearly at 56,
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55.93, matt. as much of anot deciding factor as to whether or not opel makes money in the last year as brexit has been. let me walk through what is going on here for you, gaia, and why i'm here in brussels brusse- in germany. they sold it to the owner of peugeot and citroen. here in germany, opel pays its 52.53s an average of euros per hour. in england, they only get 25 to 26 euros per hour. the problem is, because of brexit, this unit is losing money yet again. it has been losing money for the past two decades, but if it had not been for the brexit vote and evaluation of the pound, they would have finally been able to claim a profit this year. because they have not, at least,
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that seems like one of the deciding factors, mary barra is looking to sell this units now. that is concern both politically and socially and that is why we are talking to the labor unions. guy. absolutely. still with us here in london, matt, william hobbs, head of investment strategy for barclays and joining us now on set as well, len mccluskey, general secretary of the union. good morning. >> good morning. guy: i had said this morning that maryborough was on -- that mary barra was on a charm offensive. nejra: i flew over to detroit last year to speak to the president of general motors. them, including that there had been no surprises. the channel of communication would be open to us, so it has come to a shock and obviously
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demoralizing many of the workers at the moment. them this morning. he has flown in from america, and i'm going to meet him at 11:30. there result of questions we are going to be asking. i met with our british government yesterday, and they are going to get deeply involved in this in order to protect the jobs here in the u.k.. we have got no intentions of allowing a single job loss as a result of anything that might happen. at the moment, we do not know whether gm are talking about an alliance with peugeot, whether it is an allowed sale, whether there is any other purchases in the market. we will be linking with lots of people including of course matt at the moment, our sister unit, we will be speaking to our sister union in paris and france, the cgt, to make certain that whatever is planned is not going to result in wholesale job losses for working people across
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asope and i am as determined ever to protect the jobs here in the u.k.. len, can you come from a real position of strength given that brexit looks like it is going to slap tariffs on the cars you make in britain and you export the majority of the product you produce their? len: that is a fair question. the reality is of course that brexit is a factor in play, and that is why of course, we are in discussions with our government about -- from my union's point of view -- hoping to keep access in your market. there is lots that will have to be done in the next two years in those areas, but with the general motors, we also need to make sure that nobody is looking to use brexit as an excuse to attack our jobs. britain, the u.k., it is opel's
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largest market within europe. fifth largest in the world. it is a profitable market, and the plants in the u.k. are amongst the highest productivity plants in the whole of the automotive sector, so there is a strong case to maintain the plants in britain and of course, we will be liaising with our sister unions across europe to make certain that the solidarity we hope to create would make peugeot and general motors respond in a positive fashion. len, are you concerned, that in the event of a sale, the brand would be shut down? len: wow, that would be a disaster. the voxel branded the u.k. is one of the best brands. it would effectively result in the collapse of the u.k. market for any new owners, so we are not going to allow that to happen anyway. it would be wrong for us to
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allow british plans to close, and yet, peugeot, the new owners, for them to still have access to the u.k. market, i'm afraid, we will have to engage in forms of activity that stop that happening. i hope we knew not get there. -- i hope we do not get there. i hope we can meet with, if it is peugeot, the new owners, and reach a satisfactory conclusion and move forward together. one thing is for certain. we are not going to sit on the sidelines and allow this to happen, and hopefully, our government is not going to either. our governor is committed to involve the government, which is critical given the french government owns 14% of peugeot and they are already talking .bout meeting with the germans angela merkel may be getting personally involved and this will be to no doubt put out -- no doubt protect the french plant and the german plants. we want to make sure our voices
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listened to as well. that is a great question, guy. i was with the secretary of state yesterday and asked him the question. he tells me it will all be revealed soon, even our members in this, we have 100% organization of the plant. at the moment, nobody is quite sure. it is not dramatic. it is more to do with skills and providing -- guy: he was pretty convinced by a though, and you wonder whether -- is a similar deal on offer? len: i'm saying it will be, otherwise the automotive sector, which is critical in the u.k., and of course, it is critical. this is a big moment for the british government. they have talked about an industrial strategy, and frankly, this is a big test for them because automotive, and the the automotive sector, is critical to a
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resurgence of the manufacturing sector in britain, and i would imagine that whatever deal was ill the offer to the other automotive companies otherwise there would be a lot of anger amongst them as well. matt: william hobbs, is the u.k. automotive market to lucrative to sacrifice or is this just going to be one of the things that that country has to deal with as a result of voting to leave the european union? personally, i do not think brexit should be definitive. we go back to the view that we long-held actually that if the u.k. did decide to exit the e.u. , votes to exit the e.u., that brexit would prove a headwind. william: if we are talking about tariffs, the fact is, global tariffs have come down such a long way that you are not dealing with, you have, it should not be a game changer in terms of the tariffs even in a hard brexit scenario, which
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probably seems the most likely one. in our opinion, the automotive industry can survive. technological advances are likely going to continue to come over lavrov of time, reduce over ayment -- reduce -- long period of time, reduce employment in the sector. that does not mean productivity cannot continue to increase and output cannot continue to increase. the u.k. workers in are already incredibly productive. let me ask you. we have been seeing inflation numbers come through relatively high in the u k, but it has not been pushed through to wages, yet. workers here in germany make more than twice what workers in the vauxhall plants in the u.k. make. can you really expect these workers to continue at such a relatively low level of pay? len: while, of course, the situation in terms of,
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certainly, the automotive sector, is the whole question of costs is determined by the capacity and the plants. it can take a much higher capacity than it is currently producing, but in general, that is a problem with the u.k. economy. that is why there is considerable concern about sustainable growth within the economy, because wages are not keeping pace with inflation, and the job growth in the u.k. tends to be located. we have a race to the bottom culture. we want to turn that to a race to the job society, so in the automotive sector in general, it is considered to be a reasonably paid sector within the u.k., but as you point out, compared with paid arethe rates much lower. british workers are somehow pricing themselves out of a job.
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the only thing i can say is that it has been proved that in union organized workplaces in the u.k., they get paid much better wen nonunion workplaces, so will continue to strive to improve pay as best we can in a difficult climate, as you indicate, and was mentioned about brexit, there is a lot of uncertainty, a lot of uncertainty with many of the companies. the ceo's i talked to about future investments, there is the key. we have to grapple with that over the next two years. guy: we look forward to hearing what your meeting delivers later on. thank you very much indeed for spending time with us at bloomberg this morning. len mccluskey you would william hobbs is going to stay with us. if you want to join the conversation, tv on your bloomberg is where you need to go. that will provide you access to the tv, radio, and i b extreme an som of the great church we are able to use. b use it. -- the ib stream, and some of
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the great things we are going to use. how should the bondholders be pricing and the possibility of redenomination? marine le pen is talking about taking france out of the singles currency. we discuss that next. this is bloomberg. ♪
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is go to nejra cehic. nejra: one of the most i watering moves on the stoxx 600 in the session is with this company which manufacturers airfare refueling equipment and the stock falling the most in 25 years. that is a record drop after it announced 150 million pounds hit after it would be bearing the brunt of the cost over on 46eing's casey 46 aerial -- kc aerial tanker. a statement today, the ceo said the 2016 has been a turbulent and disappointing year, so down 22% at the moment. looking at another big decline as well on the equity benchmark is the dutch insurer that is
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buying its competitor. fourth-quarter profit dropped by 60%. hurt by negative results on divestment. insurance industry as a whole has been suffering somewhat, but nns is an and -- this is group. here is the number we look at. organic revenue growth forecast 2% to 4% organic revenue growth for 2017. that means it is forecasting slower sales. facts, it is below its long-term targets. this as the new ceo steps up restructuring efforts to mitigate a number of challenges. caroline collins spoke to mark schnider and asked about possible protectionist trade policies in the united states. >> as a global company, we are no fan of protectionism. in this particular circumstance, we are not worried. nejra: those are the stocks i'm
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watching. guy: here is the bloomberg business flash with sebastian salek. sebastian: snapchat's parent has set evaluation of it ipo between $19.5 billion -- they are valuing their shares between $14 and $16. that is on track to be the biggest technology ipo since alibaba raised a record three $5 billion in 2014. the head of samsung has arrived at court in seoul for his arrest hearing. he has been concealing criminal profit and hiding as it overseas with claims of writing, embezzlement, and purring jerry -- and perjury. he has denied any wrongdoing. fallen fort risk has the first time this week after people familiar with the matter said lenders pledged financial support. on tuesday, the tokyo-based
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conglomerate says it expects to book a write-down in its nuclear power business. a to achieve a spokesman says the company is not in a position to comment on the move. that is your bloomberg business flash. guy, matt. guy: let us talk about what is happening -- matt: yeah, i wanted to -- redenomination risk, and it is interesting that the french prosecutor coming out with some headlines on the bloomberg saying the investigation will continue and that there is no reason to drop that fillon probe. that maybe would have been fillon's last chance here. it is hurting his campaign. he made impassioned plea for people to forgive him. he said it was a mistake to put his wife and kids on the payroll. the question is, will voters believe him or do we see macron and le pen going through the first round? guy: it feels it really
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familiar, doesn't it, to a number of other elections? people are talking about it. eurozone bond investors watching closely. this kind of a story -- and also italy, cannot ignore that -- starts to rise. the public debt is ed currencies. it defies tail risks because it is enormous in terms of the magnitude of such a change that would come through. let us get bloombergs tracy alloway from abu dhabi. ofle it is only a small risk a probability point of view, the asymmetry in terms of the size of the risk is absolutely enormous if it were to happen. how seriously do i take this and how do i factor it in? is exact the right, guide. don't forget, you have the psychology going on with investors who have been twice burned by tail risks in the form
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of trump and brexit, so people are being more cautious perhaps than they would otherwise, and what they are doing exactly is something they do not always do. they are reading the fine print in various financial assets, specifically, they are looking at credit default swaps, the insurance like derivatives that offer payouts if government bonds default or have a restructuring. they are also looking at their ond documentation, collective action clauses. these are certain covenants that have been mandated but du law to be inserted into government debt since 2013 and what they essentially do is require a supermajority to approve to any changes in the bonds currency, so the thinking is that they would offer some form of protection if we do actually get that ultimate tail risk, as you put it. , i remember a lot of these conversations when we were covering what was going on in greece, and i suspect we may
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have those conversations surrounding greece again. france is a bigger issue. language verye carefully at this stage, those collective action clauses, which law are they written under? tracy: that is exactly the question that you and a lot of other people are asking right now, so the debate is whether or apply unders domestic law. those were actually mandated by the you in the wake of the greek debt crisis from 2010-2011, it was to make restructuring slightly easier if they came around again. if you have them under domestic law's, something you should be protected, but there is agreement. thereof people think -- is disagreement. a lot of people think he will be at the whim of the issue. i imagine we will be reading a lot of estimates in the coming months about the proportion of
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government debt that are governed by domestic versus foreign law when it comes to italy and france. tracy, thanks so much. tracy alloway joining us on that. let me bring william hobbs back , william, how you think this will all shake out? [laughter] william: that is an easy question. matt, i think there is a couple of points to make on this. the first one is, is marine le pen going to get through the first round? probable yes. the polls are indicating she is going to get quietly thumped by macron.- by fillon or in terms of polling error that we solid brexit or trump, you have to have a multiple of that for marine le pen to secure that second-round victory. you then move on to june, where
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you have the lower house elections. in order for her to have the parliamentary clouds, you have to be a life she has only got two big seats at the moment. she would have to get up to 116. polls indicate 60. those are three quite big hurdle for her to get to. the public has to vote in terms of wanting to exit the euro. veryrench population is strongly in favor of remaining in the euro. those barriers for us are pretty strong. you are right. all of those conversations are about however small the tail risk, if it does come to pass -- to be honest, if marine le pen does get into the presidency, you will find market getting pretty scared anyway. this is the reason why, although we still think very firmly that stocks are going to outperform bonds, you still want to own some high-quality bonds and most portfolio. within that, you can own journal and -- you can own german bonds.
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furthermore tactically minded among you, that is quite interesting trades to be had. if, for instance, peripheral debt widened out significantly, you can probably bet on a significant ecb reaction in the short term. that makes for it and interesting trade, not for the think of heart, but generally, our overarching point is that the constitutional defenses, the safeguards that were built up in the aftermath of the second world war were designed precisely to keep the extreme ends of the political spectrum out. to undermine that, they probably continue to hold safe through this very turbulent year. guy: william, thank you very much indeed. very going to be a turbulent year. william hobbs, head of investment strategy for europe at barclays. matt, walk us through what the rest of the day looks like for you. what -- matt's gone. i will have to talk about this on my own. watch out, later on today,
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fairly interesting events taking place. you have got -- he is there! matt, what is the rest of the day looking like? matt: i'm not going anywhere. it will be interesting to see what the german unions come out -- what they come out and say because we have had kind of radio silence, and remember how important they are. opel is a unit of general motors. of labor unions occupy half the seats on the supervisory board. they have a real say in what goes on here, and that includes in the decision of whether or not to sell to peugeot, so we are waiting for them and waiting to hear what merkel has to say. she says she will form an opinion. let us see if it is favorable to a sale of opel to peugeot. should also point out, so what was interesting yesterday was that this story did get talked about at the
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german cabinet meeting, and mterday, sure the -- nuchin. ♪
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mark: traders turn hawkish on yellen's latest comments and the biggest u.s. inflation jump in almost four years. the u.s. secretary of state prepares for his first overseas visit. how will his g-20 counterparts treat trump's man? and nestle crunch. the world's leading code company misses estimates and sees significant restructuring costs, but the ceo tells us he's not troubled by trump's protectionism. >>


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