tv Bloomberg Markets European Open Bloomberg June 16, 2017 2:30am-4:01am EDT
he just sat down, so we will get some commentary from him as we work our way through the next hour. to get my greek right or my producer will be angry, a mixed result. the greeks reach a bailout deal, releasing much-needed aid. the critical question of debt relief is being dodged here. when will this issue be resolved? and the luxury of low rates. it is dangerous when companies are paid to borrow. so is there a bubble waiting to burst? matt: we have less than half an hour before the european open. let's look at futures right now after a fairly weak session yesterday. we had gains across the board and in futures. the ftse futures up by zero point -- 0.1%. we have dax futures up stronger, i am going to make an
audible. normally i show you bunds and it is an interesting trade today as well, but what i think is more interesting, guy johnson, if you take a look at the european car registrations. i have up a five-year chart of that right here, and you can see that even though we have had a jumped today, so add a gain of 7.6% to the end of this chart, you start to see a rollover in the 6, 12, and 24 month averages. car sales up in europe over the last month, but still, it looks like we are trending down. i think what is interesting is what is happening with the diesel story. maybe that is for another day. a bit of context where we were yesterday. european markets were off yesterday, so it is interesting to see where we expect them to open this morning. in a terms of car and see --
currency markets, the british pound is a little big. we are up by 0.2%. we are watching what is happening with the boj. the yen is a bit off, but not by much. we will watch what happens over the next hour. phil governor kuroda give us any clue on what is going on internally with the boj in terms of how the exit will work? let's get a first word news update with juliette saly. juliette: greases creditors have agreed to release a .5 billion euros for new low -- new loans for athens. short of providing definitive steps. the decision caps a key chapter in the country's bailout and ends months of uncertainty about whether they could release -- meet bailout goals by july. there is outrage over a blaze in london.
it has highlighted divisions society, and the official death toll stands at 17. police warned that fatalities may reach triple figures. the international monetary fund has said the euro zone economic recovery has -- some high debt countries may face problems when accommodation is reduced. the fund cautioned that inflation expectations remain inflation at undesirably low levels. in the u.s., special counsel robert mueller is investigating the finances in business dealings of jared kushner, president trump's son-in-law and advisor. according to the "washington post," fbi agents and prosecutors have been studying the financial dealers of other trump associates, including normal national security adviser michael flynn and former campaignpost," fbi chairman pau. willdent donald trump
later today announced a ban on american and u.s. companies doing business with cuban military, and a rollback of the obama administration's will later today announced a ban plao solidify relations with the island. they will announce the changes, which will also prohibit educational trips to cuba outside of to a groups -- outside of tour groups. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. guy, matt. matt: juliette, thank you. kuroda, the bank of japan is starting to take questions. he has made his statement and he is starting to take questions. thatstatement, he said japan's economy has turned to a moderate expansion, saying inflation is not rising as much
as they would like, even as the output gap titans, but growth is growthng the potential rate. as many central bank governors are facing this problem around the world, he is seeing growth that does not displease him, but he does not see the kind of inflation that the boj is targeting. market participants were focused on whether the boj would focus trillion purchasing target. that has been maintained, so the purchasing target. that has been maintained, so the central bank can expand their purchases up to ¥80 billion. toy maintained their promise keep stimulus in the economy, but inflation is far from its target. the central bank will continue to manage the yield curve there a negative interest rate in buying trillions of yields. joining us with more from singapore is wes goodman from our live team.
wes, why doesn't governor kuroda want to ask -- discuss his exit plan, which is what everyone has been talking about? wes: good morning. that is what everyone wants to know. how are they going to unwind it, how they get out of it? i think it is premature to expect governor kuroda to discuss this, to give any kind of details on it. i wonder if he is watching, what is going on at the fed. everyone knows that the fed it raised interest rate yesterday, and there is some talk already that it was a policy error, that they are moving too quickly, moving rates too high. governor kuroda does not want to be put in that position, especially in japan where inflation is still close to zero. everyone thinks he will steer clear of that subject today. per appeal point of view here in london, the boe
seems to take a different approach. i'm curious about the thinking behind those three that decided to go the roots of suggesting the rates go up. do you think the independent members of the bank of england are trying to talk up the pound? wes: i am not too sure about that. the bank of england faces the opposite problem of the bank of japan, with inflation at 2.9%. i think it is instructive in how important inflation is. it is the premiere central-bank indicators weer might get from the economy. i think it is instructive in how important inflation is. and maybe kind of a warning to, right -- warning too, right? maybe a warning that if inflation goes up, the rate will, too. matt: let me ask about the
damage in tech stocks. you think it is unrelated to the bank policy, though i say there are quite a few people asking tech stocksn about at the meeting, probably because they hold such a big position in equities. is this route reverberating around the world? wes: well, i have heard some people call it the tech wreck, which i think is a fun term. charts,ook at the especially on a longer-term basis, and our stock index -- it is true that stack -- tech they are still near record highs. when i look at these indexes, they still look buoyant. if people want to find something to worry about, i go back to --somedea that the fed
talk that the latest fed hike is a policy error. if that is the case, that means the fed will raise weight -- rates fast enough to crush the economy. a much bigger issue for stocks than the latest tech wreck we have seen. guy: it is interesting if you take a look at financial conditions. i have gotten looser as the fed has hiked rates. your thoughts. thank you for joining us this morning. wes goodman joining us from our mliv team. smart analysis throughout the day. it is fantastic. your thoughts. thank youi urge you to use it. it is one of the top hits every morning for me on the bloomberg when i get in and i check it for the rest of the day. tliv currently running on what is happening with haruhiko kuroda. i cannotunction,
emphasize this enough, that is function.> i would urge you to look at this thing here. thedata check which has all breaking news coming out on kuroda. if you want to use any functionality, they are all on this sidebar. if you want to get in touch with us, one is this button down here to get in touch with the guests, f us directly and let us know what thoughts we should put to our guests. great functions. matt? of myi do read 20% to 30% emails, so i bb me as well. there is one trend that is worrying, and he is not talking about rompers for men. that interview is next. this is bloomberg. ♪ matt: welcome back to "bloomberg
paris. she started by asking him how much they are investing in startups. we are investing in startups of many kinds. fashion startups. i think it is the best example i can give you. it was a start up. but today, it is maybe the largest retailer of beauty products in the world. in the beginning of 2000 it started operations, based in san francisco where we have some of the best digital teams in the world. is extremely successful, plain and simple. we are the number one seller on the web of beauty products in the u.s. startupsow to manage and how to make them good, the startupgoal of
is not to stay a start up. the goal of a startup is to grow and become responsible. caroline: you are talking about the u.s. markets. you went to the u.s. to meet with the president, donald trump, before. what was your take? bernard: i am interested in business. i think the are in a very strange period for several years. is approaching zero. there is negative interest, which means governance -- when you borrow money, it is dangerous. two, we have a lot of money in the markets. three, stock prices are extremely high. so, i am very optimistic for the
but i see it as unavoidable that a crisis happens within the next few years. i cannot tell you win, but it is youitable. -- i cannot tell when, but it is inevitable. i have seen it since i am in insiness, and since i am u business, i have seen prices go up every 10 years. caroline: political, not financial? bernard: why not? it is common. one one very quick question on emmanuel macron,. . do you think it is creating the best environment for startups in france? bernard: i have happy to see
france with emmanuel macron. we have the chance to reform france and contribute to give more strength to europe as a whole. fascinating, one of the most successful businessman who has ever been warning about the very cheap cost of money. compare and contrast that with what is happening in tokyo right now and what mr. kuroda is talking about. they are continuing to push the button on the stimulus that is in place, and we have gotten to the point in the press conference where he is being asked how on earth does the boj exit? the lines are straightforward. showing exit stimulations are not appropriate now, it is too early to forecast what the balance sheet will look at -- look like when the exit goes through. he is making a bunch of comments result -- related to the exit. he is not giving details.
whether or not there is an internal discussion going on within the oj, we do not know. we have to assume based on these comments that there is, but it will not take place at the moment. it is fascinating to see what is going on. the boj clearly does not feel it is the right time to start talking about how on earth it program, andhe qe the entire stimulus program it is working with at the moment. that you can see what is happening with the moment. we are spiking a little bit higher, maybe a bit more dovish from what was anticipated coming out of this press conference. let's turn our attention to what is happening in the eurozone. uncertaintynths of over whether athens will be able to meet the large bond payments that are due in july. but the deal, to be honest, was not enough to get the imf to
agree to lend to greece. is debtnow need to see relief, which once again was not dealt with in the kind of detail some suggest it needs to be for the imf. nejra, the imf is one foot in, one foot out. will the germans be willing to go the extra mile? outlined what is needed. the imf has always said that stability -- debt stability. finance that eurozone ministers came to last night did stop short of the imf committing funds right now. instead, what they have said is they will recognize -- recommend the bar -- the board to standby alone, but it will be made
against more assurances against that debt sustainability. is still some work to be done, but the commitment of the imf is very clear. the wording about major steps being done has all capacities to be optimistic. be honest, a lot of the people i spoke to were fairly optimistic, including the greeks. nejra, is greece happy with this deal? well, that is a different question. a were optimistic, but wasn't everything they were asking for? they were asking for the imf to say that yes, the debt sustainability to classify greece that way so that they can get access to the bond buying program. that is where this deal fell short. greek finance
minister after the meeting yesterday and asked him about this. what he said was, we did not want perfect to get in the way of good. there is going to be debt relief. it has started with the short-term measures. --re will be more to debt more debt relief at the end of the program. is it as much as we wanted? it isybe not, but something. financehe luxembourg minister also spoke to me. he says everyone is 90% happy with the deal, but i will leave it to you to decide if this was real progress were kicking the can down the road. matt: thanks very much. we are minutes away from the open. and, we look at the movers tesco, as the u.k. growth
guy: let us take a look at the fair value on the bloomberg. we think we will get a positive start to the session. looks like we are going to open up shy of a 1% across europe. 1% israge, about half of the kind of story we are going to see here in europe this morning. bee stock stories that will quite interesting including tesco. central banks, matt. matt: we have a russian decision out later. kuroda.atching governor
he is answering questions about growth which he considers good aboutove trend but also inflation which is not strong enough so he will continue his ¥80 trillion bond purchase program. guy: cash is opening. we see the rally. we are still down but at least we rallied into the closed and we are carrying that momentum into friday morning. 1/5 of a percent. -- 1/5 of 1%. other markets expected to open a little more firmly including the cac. something of an interesting day when it came to the british economy. anna: good morning.
let us give the equity markets a moment to open up. i talk about the gilt morning. gilt yields up a fraction. following on from yesterday, the bounce in yields in tenure government gilts. the bank of england adding to uncertainty about where do the gilt markets go right now. not sure which way to go in terms of the bond markets. daily swings in guilt have have widened gilt this week. we thought we would get a few clues yesterday. if you clues from the chancellor but for very good reasons that address was canceled. we will wait to see what they had to say about spending. let us talk about the stock markets. it positive start to the european trading day and that is what we were expecting to see
based on the futures. interesting, yesterday we saw the retailers in the commodities sector coming under pressure as a result of the weakness in the statements. today, a mixed bag. energy sector and materials jumping to the top and up by about 0.6%. there are bouncing back after yesterday. turning to the chinese markets. shanghai composite. here is the closed. down a touch in china. a great story on the bloomberg this morning about whether china with the handling of the insurance crisis. the article talks about whether the insurer is more important than lehman. there -- we will hear much more about china. whether they will include the a
shares in their global benchmark. we will wait to see on tuesday evening for that. attentions turn our to the equity markets in more detail. tesco, well bid this morning. the -- we have seen some big-ticket items not selling that well and u.k. but when it comes to groceries, we are seeing tesco doing the business right now. a big boost. the stock is rising quite sharply. on the downside, kings been .roup -- kings man group bid thisrkets are morning in europe. they started to rally yesterday afternoon and we have carried that momentum into friday morning.
yesterday was interesting when it came to u.k. monetary policy. it caught a lot of people by surprise. alarm bells are ringing for some policymakers at the bank of england even as they kept rates unchanged in aggregate. unease prompted three officials to vote for a rate increase. five maintaining the rates. as they are at the moment. division inbiggest six years. it is also a week that saw wage growth. independent members as well decided to vote in this way. was there a mechanism that they think they can prompt up the pound. were you surprised? >> undoubtedly. the 5-3 vote took the entire
market by surprise. the bigger point is that there are times in the world when monetary issues are easy. is a time where it is very hard. you have competing factors. on one and you have inflation. running out of control. waspercent inflation number a surprise. you also have a tepid growth story and increasing challenges to employment, wage growth, and some of the underlying fundamentals in the economy. what do you do? the story is quite mixed. when you take that into account, it becomes clear why the vote was so split. guy: the inflation story was down in large part because of the devaluation in sterling. logically, if you want to get inflation down, you raise sterling. is that what they may be trying
to hint at? they are not worried about the , but you story per se could get inflation down by jacking up rates by 50 basis point to see what effect it might have on sterling. >> you will have second or fourth order effects. sterling will immediately rise. there is also the other side of the equation where if you raise sterling ismpact on something that will not necessarily be tied in for quite some time. the important factor is that caused push inflation and in that sense, i do error on the side of the numbers that keeps rates stable right now. matt: do you have any
explanation for the lack of wage growth we're seeing? i see -- i have a chart here that shows you get a unemployment rate in bird it. we could have used the employment rate which is at the highest level since 1971. what we do not have any increase in average weekly earnings. why is that? >> that is a good question. it is surprising. the unemployment rate is extremely low. and the employment, the number of people employed in the u.k. is at an all-time high. usually, this would result in wage pressures. there are not coming through at all. it is a mystery. there are probably a number of factors as to why that is. in or miss amounts of political instability. there is still a lot of productivity headwind that the economy is facing. while people are employed, they
are not being employed in particularly wealthy jobs. are a lot of headwinds to capex that companies are facing because they are not really sure what the future holds in terms ofregulatory and in terms their trade vis-a-vis europe. there are not -- there are a number of reasons that could explain that. matt: if we had political stability, not just in the u but throughout europe, would we see wages climbing or is this a new structural issue due to demographics, due to tech? >> there is undoubtedly an enormous demographic headwinds taking place around the world. and that is something that is likely to stay. if you look at even where rates expectations are for markets, they are much lower than historic averages would suggest. there is enormous tech disruption taking place in
markets. the biggest factor is productivity. that is very low. and no one has cracked the puzzle on how to increase that. guy: circling back to the kind of structure of the market we have at the moment. up here, we have -- so, this is breakevens here, the white line. 2.9 percent. here is the u.k. 10-year. it has a real negative yield here. and that is pushing money away from the u.k. the u.k. does not need money being pushed away right now. you think it is incumbent upon the bank of england to think of a way to solve this? one of these lines are in the wrong place. -- is in the wrong place. can we fix this with a bank of england monetary policy? >> probably not.
monetary policy can solve some of the bills but not all of them. many of the issues are political instability, people are unsure if they want to increase spending or not to predict or the continues to be a problem. wage growth is happening, undoubtedly. the economy is amazing -- is amazingly producing a number of jobs but they are located jobs. and the future remains cloudy in terms of what companies can and cannot do. our guest will stay with us. i want to quickly show viewers the tv function. you can use it not only to watch what we are doing on the video stream but also you can take the charts that guy and i are pulling up and you can use them on your own bloomberg. you can also click at the -- on the link at the bottom of the screen to ask the guest a
bloomberg markets, the european open. let us check in on how the equity indexes are doing right now. the cac climbing 0.8%. the dac is up half of that. 0.4 percent.ning equity markets are up across the board right now. swap traders are starting to wonder how much further the federal reserve can go with interest rate hikes as janet yellen remains confident that labor market strength will eventually spur inflation despite a slew of economic data mrs.. expectations for the rates to be to multiple months from now. that is the forecast as the bloomberg u.s. market surprise index turned negative for the first time in a year. you can see that here in white. the white line is the surprise index. now dropping. strategist isket
with us. what we are saying here is that is file -- is that the fed tightening and may be surprisingly hawkish in tone at the same time when the data is coming in a little soft in the u.s. how do you see that? to reiterate what i said about the bank of england, there are times when monetary policy in the world is easy but this is not one of them. the core inflation is down somewhere around the four or five months market as well. some of the economic dislocation in terms of the data is there. for example, you have consumer confidence and those sorts of india -- and those sorts of indicators. what to do? the fed has painted itself into a corner this month. they said it was going to raise. credibility was on the line. what remains is what will happen next and no one knows that.
they painted a hawkish picture but the market does not believe it. the market 10 year yield has fallen significantly. the dollar has taken a bit of a hit in the last year because for rates trajectory that the fed is setting up in of thatets expectation trajectory are miss located. if you look at the last five or six years, whenever that happens, the market has been right. matt: where do you see the 10 year yield? aboute or take, it is at 220 today. it has fallen significantly since the heady days of the trump euphoria. i expected to end the year around the 230 market, give or take. the important thing there is next orn rates are hike what the 10 year yield and's up, it does not matter as much as what you expect the long-term trajectory to be.
it is going to end somewhere around 3% is the -- is what the -- is what the fed says and that is what we expect. what does that tell you about the world? demographics are slowing down and the returns that we are used to are no longer what we expect them to be. that makes for a low return environment across the board. guy: i would have thought that if the fed had hiked, financial conditions would be tighter. but they are not. toonder what it will take make economic conditions in the u.s. to be tighter. the #40 on your bloomberg. those are the fed rate hikes. the more those go up, the easier financial conditions get. you wonder what it will take. the strangene of
anomalies of the current world world wethe current find ourselves in. again, while the fed is tightening, you have to realize there is still a huge amount of liquidity in the system struggling to find a productive home. and that is why he really when and people are stretching for yield and looking for productive homes for investment and that is why any business that wants to borrow finds it very easy no matter what the fed is doing. and you think about the actions see thatd, you will the flattening of the yield curve is becoming quite acute precrisis level. while the short end of the curve is going up along with the fed's hikes, the curve is still pretty flat. this includes companies. it is down there near 80
matt: welcome back to bloomberg markets, the european open. we continue to monitor the kuroda bank of japan a press conference. he continues to answer questions. growth is above expectations, or inflation still cannot get halfway where he wants to go. -- he ising right now continually asked about his exit strategy from quantitative easing but he does not want to give any scenarios right now because it is not desirable and it would not help the strategy at all. this has been brought on by the fed action. what is happening in europe and with the ecb as well. right now, let us get the business flash. sebastian: european car sales
are back after slumping the previous month. registrations rose 7.7%. after plunging by 6.8% in april. that comes as a brightening economic outlook and political stability and france helped the sector get back on the path to recovery. tesco has posted its strongest u.k. sales growth in seven years. domestic sales rose 2.3% in the 13 weeks. beating analyst estimates. this, as the giant resisted raising prices in the face of brexit food invasion. nestle may be selling u.s. confectionery brands as its new leaders respond -- response to sluggish chocolate purchases. the sale of the unit would be the first major strategic decision by ceo mark schneider. that is the bloomberg business flash. guy: thank you.
oil is heading for its longest run of weekly losses. the global glut is putting pressure on the price. u.s. stockpiles remaining stubbornly high. and libya climbing to its highest level in four years. we have a chart here. it lays out some of the key levels of wti. 43.76. we have $40 down here. do you think it will go sub $40? >> it will be relatively ranged $45 and $55, give or take. and the reason for that is the same that has been for a long time. it is producing far too much oil. the world needs about 96.5 billion barrels a day. do the math.- without the 1.8 million production cut would help.
and it would have except for shale ended shooting opec in one foot and opec ended up shooting itself in the second. away a big part of the production cut. and libya and the others are producing more than expected as well. so, there you are. matt: is a low oil price good for stocks in the sense that other producers -- other manufacturers get a discount on the cost? adage is that oil prices are good for one sector, higher oil prices are good for one sector but bad for others. what we have seen in markets is that there are various signs that oil prices and other equities are highly correlated but these are not particularly correlated.
the affected markets on a broader level. at the moment, they are not correlated. what is happening in the world of oil is reasonably -- the impact has been narrowly correlated. guy: are you comfortable that bp shell and other oil majors can cover? rates dividend level stayed the same but prices have fallen. once again, do the math. in terms of dividend yield, that is looking fabulous. ,hether they can cover or not in the short-term, there is no worry but going forward, the longer they can keep covering dividends, when their cash flow is become affected, that becomes a worry. the yield being offered by some of these big producers is very attractive. matt: thank you so much for joining us. fahad kamil.
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which is why comcast business delivers consistent network performance and speed across all your locations. fast connections everywhere. that's how you outmaneuver. matt: where is the exit? the boj kept its stimulus program on cruise control. governor kuroda says giving specifics on how it plans to get out is not appropriate. the yen falls. in mixed results should creditors reach a bailout deal with greece unlocking much needed a. once again, the critical question of debt relief is.. when will that issue be resolved? the luxury of low rates. bloombergeo tells that it is dangerous when companies like his are paid to
borrow. is there a bubble waiting to boot --waiting to burst? i am matt miller here in berlin. along with guy johnson in london. guy: let us talk about the equity markets. bid as you can see. the cac is getting along particularly well this morning. or broadly across europe, the 600 is up by 0.5%. at the end ofted yesterday's session. we have carried on that moment. a positive story here at the end of the week. more positive story for equities here in europe. as set prices at record highs. the ceo of the world's largest luxury company is worried and he says that a crisis is unavoidable. this is worth listening to. talks with thed ceo of lvmh at the tech fair in paris yesterday.
she started by asking him how much lvmh is investing in startups. we are investing in startups of any kinds. digital startups. i think that is the best example i can give you. invested in the 1980's, it was a start up. today, it may be the largest retailer of beauty products in the world. and we have started also very early, beginning of 2000, a digital operation which is based in san francisco where we are working with one of the best digital teams in the world. it is extremely successful. the number one seller on the digital, on the web of beauty products in the u.s. far above amazon. startupsow to manage and how to make them grow.
a startup has a goal of growing. caroline: you're talking about the u.s. markets. you went to the u.s. to meet with the president, donald trump, before. what is your take on his analysis and your business there? >> i am interested in talking business. i think we are in a very strange period for several years. -- it is not a negative interest. when we borrow money, we are paid to borrow money. you have a lot of money in the markets. like, the prices of assets start prices are extremely high. so, i am very optimistic for the
world, for the long-term. unavoidable that a crisis will happen within the next few years. i cannot tell you exactly when. things are inevitably building up now. that is one thing we are looking for. it has been the first time i have seen this since i have an in business. -- y soon a political one and not a financial when. -- and not a financial one. >> it is not political. onoline: one quick question your meeting with emmanuel macron. is it creating the best environment for startups in france? >> yes, i am very happy to see a
to see france-- with the leadership of emmanuel macron. i think this will contribute to giving more strength to europe as a whole. matt: these comments, as president emmanuel macron's party is expected to gain a clear majority in the national assembly after french rotors rally behind their new had of state and the first round of legislative elections last week. the second and final round of voting will take place on sunday. joining us now from paris is caroline. what was his call at the the ech lastat vivat night? entrepreneurs committee state nearly three hours at this tech conference meeting. speech, first in
french. reminding the startups and investors that he wants to cap the nextains tax in budget in 2018. he knows that to really make an impact, he had to say a few words in english. at the end of his speech, you know, a few weeks ago, he called for u.s. scientists to move to france after donald trump moved out of the paris climate agreement. this time, he called for all of the foreign startups to move to france. to -- iwe have to do is want france to be a startup nation meaning both a nation that works with and for the startups. thinkso a nation that and moves like a startup. that is a long way but we will walk the walk together.
and his call seems to resonate so far with the business community. all of the executives i spoke on --ere very a leash were very bullish on emmanuel macron. they have high expectations that the reform we are expecting over the summer. he will have to deliver on this labor reform. on: round two of round two sunday. the legislative vote coming through. the pools point to a clear majority. how many seats is he expected to or and is it irrelevant now is every seat important? >> every single seat is important. nothing is done yet. the runoff is this sunday. all the european polls are
pointing to a very crushing majority for emmanuel macron. according to the latest opinion poll, he could get between 440 and 470 seats of the assembly. -- wequarters and 80% have not seen this in more than two decades. the only strong opposition party that should remain is the right wing, the republicans, they should probably get at least 70% -- 70 seats or 100 seats. the socialists has been decimated losing more than 300 seats. the national front, because of the system, would probably not get more than five seats. and now, we are watching the abstention rate. if it is very high, like we expect more than 50% of the french may not go to the police station on sunday.
, would impact the legitimacy of his majority. much.thank you so remember, if you are a bloomberg customer, you can watch the program using tv as well as a video stream. you can follow all of our charts and functions. you can also click on the radio tab to listen to bloomberg radio and event coverage for the tea live function. right now, you could be following the kuroda presser with that. plenty of great functionality. after the selloff of the mining sector, we speak to the head of the goldman sachs, south african sector. he always has an interesting angle of what is happening. do not miss that conversation. coleman is up next. ♪
matt: welcome back to bloomberg markets, the european open. i am matt miller here in berlin on a date when we are seeing equity indexes rise into the weekend. reportsn: preliminary say the leader of the islamic state may have been killed during a russian bombing near syria. he was among 30 leaders killed
in the attack last month. the report also said the information is still being verified. greekeek crisis -- the creditors. ministers also reinforced their commitment to extend relief if needed but stopped short of providing definitive steps. this cap a key chapter in the debt issue. the bank of japan has maintained its promise to continue pouring stimulus into the economy. it central bank had says will continue to emerge the yield curve with a negative interest rate. the decision comes to days after the u.s. federal reserve raised interest rates and set out more details of its plants to normalize policy. in the u k, anger is growing over the deadly blaze that devastate a tower block in west london.
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this is bloomberg. south african regulators have fourth companies to give more ownership to black shareholders which has sparked a selloff across the industry. joining us now is colin coleman, the head of goldman sachs'south african office. ui so much. for coming to see us. let us lead with yesterday's news, first of all. how big a surprise was it? schizophrenicther as your question suggests. between parts of the government that effectively wants to transform and grow and other parts that want to effectively take from the cake and without growing the
economy. and that is causing a lot of tension in the short term. you see that in the mining charter. the mining industry is not against transformation but it is against surprises. a metaphor, is there light at the end of the tunnel when it comes to south africa? when we think about what has been happening in the last year and a half, so much turbulence and unpredictability. can you see a point where we start to get more understanding of what is going to happen? >> short will be very pressured leading to the elective conference in december. a showdown between the supporters of two leaders. quitehort-term could be an extreme set of pressures and i believe they will call rising tension in the next six months. the on that, we have to print -- we have to plan for the future.
have ongoing plan -- we have ongoing problems of poverty. between a strong business community, prospects for growth that could take us back to a 3%-5% growth rate trajectory, arrays of -- a range of outcomes. in the last three or four years, we have been driving at a growth rate of 1%, way below population growth and is doing nothing for the unemployment problem which is gone from the 1% to 27%. to 27 %.1% matt: what is holding back the recovery? >> a number of issues which we raised with the finance minister a couple of days ago. we talked about the problems of state owned enterprises. regulatory issues.
rising liabilities in the state including financing of entities. ongoing corruption. and we have called for an independent judicial commission inquiring into the allegations about this corruption. that is going on in south africa. we have informed the president that we believe that she is best advised to follow the public prosecutor's recommendations to have that inquiry. cane are always that we bring back certainty and confidence into the equation. what we are missing the most at the moment is investment and certainty around growth rate if we do not solve those problems, he will face a situation likely in february 2018 but the coming budget vote of the new finance minister where those issues well all the cumulate and he could have a lot of pressures around his fiscal revenues, lower growth, and rising demand
particularly in relation to public sector wages. that i would have thought the currency volatility was off the charts but it is now. i have a chart. if you take a look at that, you can see the rand month -- one month volatility recovering of late and now down below the five-year average. does the currency help with stability? issues the stabilization over the last year in commodity prices has helped significantly. seeing a fair wind. south africa has very liquid the result, it is tending towards appreciating.
there is disinflationary pressures notwithstanding low growth of about 1%, rising to 2% . that is a view of goldman sachs in the next two years. that is way below potential. we are obviously benefiting from a disinflationary environment and with it the rand moving down, i think that the view is that there will be pressure on the reserve bank to lower interest rates in the next 12 months. as early as july or italy september. guy: how will that change the international perspective? this chart has a real yields. there are higher markets out there where you can pick up some yield. do you think that the central bank has to think about that in
terms of its expectations moving forward from here? you talk about the disinflationary fx coming through. will that undermine investments in south african bonds? not probably want to get ahead of itself. but the disinflationary pressures are sending a message to the central bank and growth is low. putting the rate down will help the situation. i think the real issue however is that the global markets want to south africa to succeed. what it is getting behind the broad business community in the markets, both on the bond and the equity side. clearly, there is a potential swing to the upside if it december goes well for the market reformers and the progrowth camp in south africa. ofhink there is a little bit what i call a post zuma exit pricing into the market already.
we continue with the head of the south african office of goldman sachs. markets globally are fairly tolerant and are actively positive in emerging markets right now. benefiting from that in the totality? in thepolitical risk emerging markets, pretty much everywhere at the moment. is africa on the up or is it catching up? >> coming up from the bottom. we are not benefiting as much as we should from the global fair wind. there is significant, ongoing interest from multinational companies. we see a lot of the ceos coming and payingica attention to how they can take advantage of the long-term opportunity. people see past the short-term and that is positive. the chinese are an ongoing
factor. the local countries, particularly the larger ones like nigeria are doing better at taking advantage of these very favorable conditions. matt: was losing jacob zuma as president help or hurt the case for south africa? >> i think -- he has been president now for 10 years of the agency. -- that he that that has been a very controversial presence, particularly in the last five years. within his own party there have been calls for his resignation. his alliance partners are calling for his resignation. it is not for business to call for the resignation of a one can sayt what is that the prospect of a new president of the nancy and -- of and provide an
francine: o the pressure mounts drawingith her handling criticism. the challenges facing the prime minister just days before the breadth and negotiations begin. recalibrating inflation expectations. some of the world's biggest central banks. the bailout deal reached for greece, but it is not enough to get the img lending to them for now. good morning, everyone.