tv Bloomberg Markets European Open Bloomberg June 21, 2017 2:30am-4:01am EDT
names a new crown prince, replacing his cousin. what does this mean for reform, the region, and the markets? speech.queen's u.k. parliament opens with the monarch presenting theresa may's agenda. but where is the deal with the dnp? take a look at pages across the board. you are looking at, as far as the futures go, you .4% drop on the ftse index. add ine bit more if you the peripherals. take a look at funds -- bunds. a little bit more nds pushing down the
yield. i know there are some green numbers there. -- less yield. investors kind of got a width of this and the drop in oil and already were hiding. guy: saudi arabia, fourth time in. great stuff. the market was softer. argentina, stays as a frontier market. keep an eye on these two. they are fascinating. peso, again,an similar sort of story. move onto to the next animation and talk about what is happening. argentinian bond
market. this story, it is important. it is not just a china story, it is a whole bunch of other things. story, the argentina absolutely fascinating. let's get a first word news up date. juliette: the saudi crown prince has been replaced. son'snsolidates the king's power. belgian soldiers have shot assist the assailant after a explosion at the train station. it was a vector did after 8:30 p.m. -- a vacuum we did after 8:30 p.m. -- evacuated after
8:30 p.m. u.s., a republican has defeated a well-funded opponent in georgia. it is a setback for democrats. she won in a suburban atlanta sincect held by the gop 1979. despite raising less money than the democratic opponent. global news, 24 hours a day. this is bloomberg. : let's get back to the uber story. resigned may be the wrong word. it looks like we may have had senior shareholders decide. this is the world's most viable
private company. matt: a lot of controversy there. he seems to have been pushed out by the largest shareholders yesterday, demanding his ouster. ofause there are allegations sexual harassment. allegations of a little bit too journalistst in backgrounds at uber. a big caru are company this morning and you are watching uber struggling, what are you thinking? it is potentially a massive competitor. it is going to see how they run cars. companies are talking about becoming clubs and a service driven company. uber.as impacts beyond for lyft.as impacts
they have been gaining market share. secondly, other car companies like ford have been looking to come in and take uber's lunch. not to mention companies like bmw and were cities. germany, havet in a easier zip car solutions for people to use. there is a lot more competition than in 2009. he is going to stay on the board as well. is still going to be there, influential. he has had a huge role in the success of uber. you don't get to be a $60 billion company for nothing. there are still a lot of competition out there. it's taking of, chinese stocks
have gained direct access to msci. chairman spoke to bloomberg on daybreak asia. there was strong support with the proposal we put in place. we were able to get even to revise it to a larger number of large caps. that is one thing that was important. the second, a lot of the investors are concerned and sensitized about the data issues to create all sorts of investment vehicles. that is what happened. working together with the shanghai exchange, were able to solve a lot of the issues.
yvonne: i remember a month ago, you said those were some of the issues. this two step process, next year, they are going to be included that in two separate parts. why is that mark -- why is that? >> that has to do with the that can flow through. when you do all the computations on the number of shares in the market cap, all of that, and then you look at what could investors put into the market, program,he shanghai the ceiling was restricted. what we are able to do is spend time with regulators as well. they will work together with us to see if we can get it done in one step.
in twoouncement was steps to make sure we leave flexibility. >> i want to say hello to you. you mentioned the two tech -- step process could change. you mentioned the daily limit on the stock connect to be abolished or extended. do you get any indication from chinese officials that they are willing to do that before these inclusion dates? >> we get quite a lot of good feedback and positive views from them they will work very closely together with us at that time to see how they can facilitate the flow of assets into the country. we may what gave us hope be able to get it done in one step. today, the daily limit exists. we want to be cautious, unless
there is a change, it will have to be done in two steps. guy: let's get analysis. our china market editor. ways, the market was already in front of this one. msci, can i call it behind the curve on this one? why has it taken so long? >> msci was always keen for this to happen. institutional investors who are reluctant to buy into a market, $6.9 trillion but subject to capital controls. what the move shows is institutional investors were finally content china had done enough to be willing to invest. also it shows msci had scaled down a proposal that made it
less controversial to include chinese shares in indexes. we have got a chart in the bloomberg. which shows investors have been piling into the a share etf. they were positioned well. reaction was say muted. it is only 0.7% of the emerging-market index, a very small fraction compared to how big it is. what kind of chunk is that really of emerging-market equities? akker then -- it is smaller then resell's largest bank. that reflects how much further china has to go in terms of opening up markets.
in that interview, you heard him talk about limits being abolished. china has opened the channels. they are still only channels. capital controls remain. while the two shall investors will be owning more shares, they will only be a fraction of the overall size. what risks does this bullying -- bring the global economy? this is going to change that, t?n't it >> some people say, you might have a good hedging opportunities. chinese shares are inversely correlated to global equities. chinese shares have struggled. maybe this is actually, provides
some alternative universe as opposed to everything going in one direction. because the size is so small, at worried, people are not it will make a dramatic impact in terms of their portfolios. guy: the stories surrounding china. and msci. if you are a bloomberg customer, you can use this fantastic function. this fantastic sidebar which allows you to access to. -- data. all the breaking headlines. you can also use the id. -- ib. this little blue button. oil slides into a bear market once again. what is behind it? we will tell you.
behind this. drop thatsee the reverberated around equity markets? >> oil is the big story. it was down right away. sending energy shares down in asia. to rise werep chinese shares. will, falling oil prices, is supportive of treasuries. my favorite market. it supports the idea the fed, which is raising interest rates, may pause as text dictations are falling. it will help keep inflation in check. it comes at a time when some fed are voicing concern about this inflation issue. it lets credence to the idea the fed may pause. read across from the
saudi story relating to the crown prince and how that could affect the oil market? >> i can say there is really at this point. the last time i looked at our articles, we did not have details on whether or not this would affect saudi policy oil policy. at last look, oil had not moved on these headlines. still waiting for details to come in. you mentioned treasuries are your favorite market. 238.ave a chart, b 274., guy: this shows the compression we are seeing. with that. i was going to tie the oil and treasury together, but that's ok.
talk to us what you see about the treasuries market. the fed is seemingly ahead of the curve. >> when you talk about a flattening of the yield curve, you were talking about decline in long-term treasury yields. investor demand for long-term treasury bonds. this makes sense if inflation is real low. from a borrower's point of view, this is a good time to borrow. ourh is why we have treasury secretary saying his considering selling ultralong bonds in the u.s. he said it would not just be a one-off program, but indicated it would be a program in place for a while. , ultralong bonds, 50 drawn 100 years, have demand. argentina sold one a couple years ago. italy sold a 50 year bond that
surprised people. , long-term rates, good for borrowers. 100 year 50 year and bonds from the treasury department this year. argentina can sell long dated stuff. matt: my mistake. i was looking for information, we have a great chart. it is to 74 in the vtb library btv library. that could be a negative feedback loop for the fed. thanks for a much for joining us. you can follow live market insights on the bloomberg.
market open. matt: i do miss it, although it has been lovely in london as well. your stocks to watch. just about five minutes to go until the open of cash trade. guy: housing market, always interesting. further additions to our unrivaled land bank, we are facing a number of headwinds. you could type about the entire u.k. in those sentences. definitely interesting, when looking at u.k. housing. u.k. construction. especially in light of brexit. i am watching will stocks. a big drop yesterday. inut a dollar a barrel drop
west texas intermediate. look.s the year to date have had fairly rough years with the drop in the price of oil. less popular today. will in a bear market. the question is, will it hold? the majors have taken a hit. they are so heavily weighted, they do tend to move indexes around. guy: the critical question is less the capital appreciation. divies or not those are covered. guy: a lot of investors are going to buy vstoxx for the dividend. by vstoxx for the dividend --
guy: welcome back. we are about a minute away from the market open. cash let us take a quick look at where we feature on the fair value line. take a look at what is happening with the the oil stocks. the pound, a factor in all of this. other markets looking softer. are seeing a bit of a gain in the underlying commodities today, but after yesterday. oil in a bear market. take a look at a chart on the bloomberg. to 75. shows you long positions in crude and you can see investors are getting less and less list. these are net longs in the white
histogram. the red lines are fed rate hikes. in 16. see the first one we showed you earlier with 274 negative feedback loop of real rates and oil prices. here, you can see long positions are less and less. in: big story this morning terms of the energy complex and equity markets. oil stocks yesterday got crushed in the back end of the session, and that is a feature we need to pay attention to this morning. the london market is opening a little bit firmer this morning. we will get to the mov screen in a moment and show you what is going on. that is the story we find ourselves in right now. equity markets softening up. market just opening up your the ftse is flatlining. elsewhere, meta-see what is happening with the cac and you will see the market is trading lower. let use to the move -- go to the move screen. inwill see what is going on
terms of the individual stock stories. findis the picture we ourselves with, the sawtek 600 breakdown. roche -- stoxx 600 breakdown. roche is lower. some of the pharma stocks are well bid on the upside. it looks as if some of the oil stocks are just continuing to run lower. matt: if you look at the imap, it is interesting, at least from what i am looking at, it looks like financials are the biggest losers and i.t. stocks, it is not really the energy. guy: they were down 2%, 3% yesterday. they are not carrying on with that move. matt: they took the brunt of the drop yesterday and are not carrying it through today. may will publish a
legislative program heavy on brexit and light in controversy in the queen's speech later. will meet outh ii the plans to start parliamentary crown. sans the first test for the pm will be winning i enough votes. in westminster, we are picking up on all of this. anna, why is this going to be interesting? >> good morning. this could be interesting or not very interesting for investors. it depends on how much granularity we get. anna: the big point of the queen's speech is that this sets out the legislative agenda for the year or two years ahead, so we are going to hear something about brexit. what they intend to do. it could be written in a great deal of high-level language and not much detail. there could be very little
investors will get into because they need to write in a high-level enough that they make sure it passes the vote. today, the queen reads the speech. she does not write it. the government rights it. she reads it in the house of lords. that is the timeline from here. what will not be in here is the more controversial domestic policies such as around social care and education. we are probably going to hear about immigration, counterterrorism, and other policies. specificbe to industries, insurance may be. that could interest investors as well as the biggest questions around brexit. guy: what is the deal with the dup? anna: the deal is a long time coming. there has been talk of a deal that we would see the details of a deal as early as the weekend after the election. that clearly did not happen. the week after the election, we were talking about maybe
tuesday, when we see the leader of the dup in london. we have not seen them yet. we might get in the queen's speech some clues as to what kind of agreement they have with the dup. certainup is demanding things in exchange, we might get some clues as to that. ashave not got in this deal of yet. as it stands, they need that. is aup has 10 and he minority government. it does not have enough to pass the more controversial agenda by itself. we know the dup is for brexit, but they do not want the hard border between the two parts of ireland. that could be interesting. on that front, a kind of depends how much detail we get from the government here. that wasomething talked about a lot at the conservative party conference, the brexit. in the whole year since the brexit vote, the great repeal bill has been talked about.
we will see what detail that will include. that is the piece of legislation that turned e.u. law into u.k. law. very much. thank you anna edwards, westminster. with us now is peter chatwell. why don't we start on brexit here. in the u.k., it is interesting. the dup can ask for pretty much anything it wants and they are going to get it. peter: it seems like they have a lot of power. matt: how is that going to affect brexit negotiations? will there be an opening at the border? peter: my assumption is that it has to tend towards a softer brexit. what is most interesting in my view is going to be how the has the phrasing, and whether or not they start to show any signs of creating issues within the conservative party. because that is how this is
going to pan out. you see, by having a coalition due with the dup, that will put strain on the conservative party, the remainders in the conservative party. problems withave it. going forward, that will be the point of weakness the labour party tries to attack. guy: the party does not seem to be pricing this in. we get a soft brexit. my question is, are we going to get a soft brexit, a pragmatic brexit? or are we going to get a really soft brexit? the other option is we do not get a deal done with the dup. then we had to think about who they could possibly do a deal with. hasr: yeah, vince cable been in coalition with the conservatives before and had a fairly good run on a personal level by being business secretary. guy: what is the price they would ask? peter: clearly, they would ask
put ont the lib dems their manifesto, which is for a referendum on brexit. that was number one on the referendum, so that has to be what they stand for. and then the conservatives in this coalition, with the lib dems, if it were to happen, could pursue a pragmatic brexit. the electorate will answer the question at the end of all of this. guy: the market seems to be pretty negative on the pound right now and that is my basic barometer for how the market field about what we are looking at. matt: you mean if brexit were softer, the pound would go up? peter: yes. guy: the pound is down. we are continuing to move softer. peter: the point you have got to get through, the inflection point for sterling would be first you have to have the conservative government failing. so we would be tending negatively as the conservative government moves towards failing that then you have the
uncertainty of another election or not knowing what the government would look like -- what the next government would look like, and whether it would be led by jeremy corbyn. that could still have some negative connotations, but thinking beyond that, i think it still does point to a softer brexit, which would ultimately be more positive for sterling than negative. matt: what you think about what we are going to hear from the queen's speech today? how much does she reach across the aisle to offer an olive branch to labor? peter: the main expectation i have is that now that she has seen that the youth vote is very much alive and well, the conservatives will have to try to make strides towards capturing them. the traditional conservative vote, the older voters, they do not really have any need to try to capture that vote anymore, particularly because -- is missing from the political
landscape. it is about seeing the conservatives even under theresa may moving slightly left. i would be surprised if they dropped too many of their policies that they took from the labour party. it seems like they are going to be dropping the cap on energy prices, but i would not be surprised if we see some noises about real estate, trying to make it easier for young people to get onto the property ladder. guy: this kind of is related a little bit. providence financials -- a short-term loan company -- you can find it on the screen. but this in. you get an expiration of what the company looks like. it provides small, unsecured loans in weekly installments. they are putting out a line this morning. the stock is down heavily this morning. disruptions of collections performance and sales will reduce the 17 plea exceptional profits and consumer credit. have stretched is the u.k. consumer right now?
peter: it depends on the demographic you look at. the rate is not very high at all. savings rate is very low. and i think that there is evidence that we are overextended in some parts of the demographic. i know that in the younger demographic, they are struggling to say that all. to have any purchasing power, they have to reach for credit here. it is significant in the u.k. want to thankt, i you. we will keep you here with us. peter chatwell, head of european rate strategy at mizuho. so much to cover today from oil to saudi. if you are a bloomberg customer, you can watch the program using tv . as well as the video stream, which is the most important part, right, seeing the two of us onscreen? [laughter] matt: you see the information
you can get out of the bloomberg terminal. the charts that we use, the functions that we use, all on the right side of your screen. the guest am, ask question. you can put in a question to peter. click on that link and our producers will patch it through to us. guy: you can also find us on the terminal. matt: you can i.b. us directly. saysrobert kaplan shrinking the balance sheets should start. the u.s. yoga, flatter. all of that, next -- the u.s. yield curve, flatter. all of that, next. this is bloomberg. ♪
guy: matt has gone shopping. can i explain why? let us take a look at what is happening with the pound. we are 126, the cable rate. you are an american and you get the option of doing it by euros as well. matt: it looks good to me. while i am here in london, obviously. to be honest, things here are so expensive that even this discount does not really help that much. it is almost laughable how expensive london is. guy: there may be some compensating affect your quick look at the markets to show you where we are right now. rate, 126.ble that is obviously if you are a u.s. tourist. let us not call matt a u.s. tourist. matt: there are a lot of
tourists here. they are getting a bit of a discount. things like harrods are still very expensive. guy: can i suggest you maybe don't take a taxi to harrods? matt: it is a bit of a conundrum. if brexit is indeed going to be softer, you would expect the cable rate to rise. guy: a sequencing thing, i think. it is playing out in the equity market. take a look at what is happening here. the london market is benefiting. the trumpflation affeffect -- the cac 40 is trading softer, nearly full percent. matt: a week after the federal reserve's interest rate hike, kaplan said muted 10 year yields suggests expectations for sluggish economic growth. kaplan, who backed the rate hike, set out his preferred
timeline for shrinking the balance sheet. >> it is my own view that we should begin the process, begin the rolloff, sometime later this year. my best expectation is that it is appropriate to begin this process before the end of 2017. matt: still with us, peter chatwell. kaplan wants to stick to the rate schedule, re-think schedule, that is forecast, and start to unwind the balance sluggishn with a more economy and inflation that is not really meeting target. are they getting ahead of the curve? peter: the market is calling their bluff in a very big way, not just with the flattening of the curve, but with the outright level of rates, and i think it is most prominent on the curve with the strong performance of the five-year because the five-year part of the treasury curve is what is probably the best estimate of where that
terminal fed funds rate really should have an impact. as the market has gone from believing 3% -- that is nonsense. now, it has thrown that into the trashcan and is rallying the five-year. i think we should be thinking about this curve flattening now taking place in a very -- much bigger way at the front end of the curve. i am thinking about potential he getting to a flat level. it is at 80. where am i going? peter: tens is interesting because tens will start to cheapen up on the curve at the balance sheet rolloff begins. so now, the balance sheet rolloff will be more slower than we were expecting. that capping and phased introduction is slower than what we were expecting.
from what was communicated at the fomc. we are thinking the balance sheet will have the most significant impact mid-2018 onwards. that is when it reaches the peak level, reaches top speed in terms of the rolloff. and so, you are going to start getting that rising term premium later than we have been expecting. is a 2018 story rather than a 2017 story. it can keep flattening. 2-10s will flatten directionally. it can flatten on a policy area i someone like kaplan says see inflation being softer so we are going to put the rates up in september or december. that will flatten 2-10s even further. it will move to the market actually passing rate cuts.
it is a constantly moving target. guy: sure, but is it south of where we think it is now? peter: i am trying to be forward-looking. matt: a little jargon alert. we are looking at 4.2%, which is relative to history very low in the u.s. peter: the point at which route -- guy: it is a point at which wage inflation should kick in. matt: it gets active and it has not been. guy: you are using your jargon. [laughter] peter: the problem we have with trying to estimate where it is, is as inflation -- that disinflationary offense will be happening for the rest of this year on headline inflation. wage centers do not have a strong argument. should we pay you more because
headline inflation will be less than 2% this year. guy: what is interesting about all of this is that every ceo i listen to on bloomberg tv that comes on tells me that they are struggling to find the right talent and struggling to find the right people. at some level, you are starting to see ceo's talking about labor being an issue in the states. we have not seen that represented when it comes to the wage numbers. there is a gap here somewhere. matt: it is not that they cannot for the people they want. they literally cannot find the talent they are looking for. you heard philip hammond reference this yesterday in his speech and at mansion house. i guess you need to be able to bring people from across borders. unfortunately, we are going to this brexit negotiation. peter: there is a very specific skill set, one premised on ai, that are in high demand. when you are on the brink of a technological revolution, being able to automate at a low cost,
it does suggest that it could be a lot lower than currently estimated. oft: peter chatwell is head european rate strategy at mizuho international. he will stick with us. when we come back, oil holds steady right now, but after sliding into a bear market. guy: this is a big story for the fixed income market. we will talk about the implications, next. this is bloomberg. ♪
guy: 23 minutes past the hour. welcome back. matt miller and myself here in london. also here, sebastian salek. resigned,kalanick has with a series of controversies that has rocked the start up. stepping aside to avoid another conflict. the right hailing -- ri de-healing company has been dogged by allegations. toshiba -- the preferred bidders for a commemorative business. byclose the transaction march. it will bring much-needed cash into the japanese company to make up for the losses. that is your bloomberg business flash.
matt: thank you very much for that. oil has tumbled into a bear market as rising global supply offsets efforts by opec and its allies to drain the blood. guy: still with us, -- drain the glut. us, peter with chatwell. peter: the forecast were dramatically dovish with headline inflation being reduced to 1.3%. if they took into account where oil is now trading and where the euro is stronger than it was, they have to revise down their forecast again. dovish theready a price of the market. more in my with our expectations. dovish of the market. thatf they were to rerun forecasting exercise, be even more dovish, would be implying they have to do qe for pretty , and we would18 have the market thinking about what is next rather than tapering. matt: is the ecb going to be
putting off normalization for expect?ger than we everyone is thinking they are going to start talking about the continued taper. and then they are going to start to normalize in the beginning of next year. mario draghi seems to be kicking and screaming at the idea. peter: yeah, so his job is to look at the euro area. monetary policy is imperfect for pretty much every country in the euro area. monetarye moment, more are still required for the ecb primary mandate of getting headline inflation close to 2%. so i think all of these dynamics playing out in the market at the while corenergy inflation is very weak in the euro area, the ecb has no option but to find out how they can buy more bonds, what technical changes they have to make. guy: interesting.
matt: travis kalanick resigns as the ceo of uber, capping a series of controversies. where next for the ridesharing company? fourth time lucky? china's stocks win msci inclusion in a landmark step for the country parts embrace of capitalism, but what are the risks for the global economy? what are the risks for china? names mohammad bin crown prince, replacing his cousin as next in line for the throne. what does this mean to reform the region and markets? plus, the queen's speech. u.k. parliament opens today with the monarch presenting theresa
may's agenda. where is the crown, where are the horses, and what is the deal with the dup? good morning, and welcome to "bloomberg markets: european open." i am matt miller alongside guy johnson here in london. guy: oil softening up your the pound has been weaker this morning, so that is something to pay attention to as well with the issues surrounding where the horses are. we are 30 minutes into the trading day. we findthe picture ourselves with. the cac is underperforming. let me read you a list of stocks that have gone ex-dividend on the cac 40. is ex-dividend this morning. the cac 40 is underperforming the european forces today. the dax is down by .7%. the pound is weaker this morning. that tends to mean the ftse outperforms on average. the stoxx 600 down by .8%. there are a bunch of ex-dividends, and most of them
are french. matt: chinese stocks have gained direct entry to the msci indexes. the milestone in beijing for its efforts to draw in international funds to the world's second-largest market. the thinking behind this decision. >> when we do the computations on the number of shares and market cap and all of that, then you look at what could investors put into the market through the shanghai and shenzhen connect program with hong kong, the ceiling was restrictive, so therefore, what we are able to do is spend time with the regulators as well, and they will work with us to see if we can get it done in one step. our announcement is on to steps to make sure we -- on two steps to make sure we have enough for
stability. now, simonng us quijano-evans. how does this change how investors can take offers? simon: it is important from a political point of view, from an inclusion point of view, including china and the global economy. you saw them joining the fdr for the cny. they will have a stepwise approach. which is very small considering that is a $7 trillion market. simon: it is a very small thing. i think msci does not want to shop the global markets either. if you want to invest in chinese stocks, you can do so offshore anyway in hong kong and other areas to a certain extent. it is a significant political move and it is part of this whole move as we move into including china. we are talking maybe about a potential $20 billion of extra money going into be stock exchange.
guy: better to travel than a right? -- then arrive? is this new already priced? simon: for the time being, it is priced in, but as we move over the next 11 to 12 month, when it comes into effect, we will see a gradual inflow of money coming in, yes. [laughter] matt: i am just thinking about the effect on china rather than the effect on the world. to some extent, china may not want to have a large inclusion in the msci. simon: really, this is part of the whole strategy that the authorities have is to gradually open up the economy. we are talking about $20 billion in and $11 trillion economy. i think it is one part of that strategy and it is what they want. matt: i was talking to an investor earlier that said they want to avoid the fate of the tigers who in the 90's had this massive inflow of cash, and then
the drainage of that during the asian crisis kind of took down their economies as well for longer then maybe was necessary. simon: i think at that stage, what you saw was that you had buyinges like thailand abroad pretty cheaply and lending it locally at high interest rates. and you saw huge amounts of construction not being used. now, you could say that applies to china as well, although there is a large amount of population to live in the rural areas and are moving to the city areas. i have not seen this in china compared to thailand in 1996-1997. guy: talk to me about correlations. this includes title more and more into the global system. that is a two-way street. when china catches a cold -- does the rest of the all caps the flu? i think -- catch the flu? what effect will china now have? what kind of gravitational effect will have?
simon: it will be a gradual effect. i think the bigger effect is the trump moves on the -- potentially, more protectionism. that was taken into account when met trump in mar-a-lago, florida. that was don't with. looking ahead, i think what we will definitely be seeing his china being more included in the -- is china be more included the in the global economy. china globally has the lowest external debt to gdp ratio. it is very much a domestically driven economy. on the export led, it is much more than what the u.s. is seeing. essentially, what we are seeing here is that china is gradually coming into the global economy on a financial market side. guy: stick around. matt: can i just quickly, i want to refer to donald trump's tweet from earlier.
"while i had greatly appreciate the efforts of president xi in china to help with north korea, it has not helped. at least i know they tried." it does not look like they have done anything to deal with the north korean situation. simon: for me, north korea is the biggest geopolitical fire potential in the whole world. we have so much geopolitical issues at the moment, but definitely, relations between china and the u.s. have improved. we really have to focus on north korea. media are talking about an extra aircraft carrier in the u.s. this should be the main focal point on the geopolitical side. guy: it undermines chinese authorities. at least they tried. that kind of degrades their influence. matt: considering the massive amount of influence may have, they could do anything. is: simon quijano-evans
going to stick around. use the trump tweets. you can use the tv function. here is the fantastic sidebar which you see the data checks and what is happening. andcan access all of that ask the guest of question. that is the function right there. , saudi surprise. the crown prince replaces his cousin. this is bloomberg.
matt: welcome back to "bloomberg markets: european open." i am matt miller in london alongside guy johnson. it is wonderful. i want to talk about south africa, one of our favorite topics. the plan ministers as the country needs to protect the independence of its central bank. speaking in an exclusive interview with bloomberg's nejra cehic, he said he needs to study recommendations that suggest altering the reserve bank's multi-focus less on inflation and more on societal need. i am still studying the report to understand the full of the remedial action being proposed, the context in which it arises, and therefore, what the intended proposal of the constitutional amendment is.
if used to be a conundrum in these regards. the context in which it arises is not quite clear to me. proposal of the amendment is not quite clear given the issues that were being investigated. thirdly, the procedure of affecting this remedial action leaves some gaps because the bank is the mandate of the national treasurer, yet the proposal is being made to the portfolio committee of justice, and not to the minister of finance, which means that we need to resolve these issues. now, having said that, i need to understand all of this and make a determination on what is the best way for the constitutional court in south africa. unless reviewed by a court of law, which means that if we must review this, we need
to go to court. >> that brings me onto the next question, which regardless of the context, the central bank have called this unlawful. to your understanding, would it be unlawful to change the constitution in this way? >> to change the constitution would be unlawful. to change the constitution would not be unlawful, excuse me. the manner in which it is being made would be unlawful given that these are two independent institutions. the south africa prides itself in its strong institutions, many of which are independent, reserveg the public bank. i think, in that way, we take comfort in the fact that our courts are known to be independent and to make rational decisions. and therefore, they will provide .s with a proper way forward courtswill then have the
arbitrating this issue, and they can make a necessary determination. >> will u.s. finance minister support the reserve bank in opposing the public suggestion? >> at the present moment, i am interacting with the report to understand it in its full extent, and once i have done that, i will make a determination whether i am joining the south african reserve bank. to respect the independence and right -- and the right of the public protector to make a recommendation from a i support fully the independence of the south african reserve bank, and i think we must not take any measures that are going to undermine that independence, so bytever decision we are that, must not undermine the independence of the south african reserve bank. malusi gigaba.
simon quijano-evans still with us. the reserve bank is the only institution functioning properly in south africa. it is doing the heavy lifting. when is that going to stop? are you going to get resolution? when are we going to get resolution? is it going to be by the end of the year? simon: it will stop when we get a change of the leadership. essentially, as you say, the country and the government have been relying on the central bank, pushing reforms forward, doing the right thing, which has not been the case for the rest of the government, and as you know, south africa has the highest income inequality, youth the wholent mix in world. this has not changed. we finally need change to south africa, otherwise you will see further ratings downgrades. matt: let us go from one emerging market to the other. saudi arabia's deputy crown prince has replaced his cousin as the crown prince, next in
line for the throne. the shock announcement obviously puts him next in line to the head of the world's biggest oil exporter in saudi arabia. bloomberg's andrew barton has more from dubai. andrew? andrew: this certainly is a big theuncement here, upending , andssion in saudi arabia to a certain extent, consolidating the power that the deputy crown prince has been accumulating over the last year-and-a-half. he is the guy in charge of the war in yemen. he is the guy who has been involved with the standoff in qatar. he is the one who has been 2030 to this vision reduce saudi arabia's dependence on oil and try to usher in a new era. there is a lot at stake and it is all on his shoulders.
there is no more impediments. he has a free hand to do it. success or fail, will all fall on him. qatar ands talk about figure out what is happening there. does this mean we are likely to see the standoff with doha lasting longer? does it mean we are more likely to get a resolution? where does it take that story? andrew: well, i think most people have -- see -- i mean, he is the power behind the throne. that has been made more evident today. since he has come onto the scene, we have seen a much more , andssive foreign-policy most recently, with qatar, i do not know if i can tell you right now if this means we are going to see an end to it sooner or not, but because he was the guy point, i doo this not think we will see it change until he is completely satisfied
with what qatar does. whether that is a full capitulation or something is his than that, it policy. he has been dreading it. so, the ball is in his court on that one. matt: what happens to mohammed in by f -- what happens to the other man? he is not only losing his crown prince status? does this cause a problem in internal politics? andrew: well, what happens to him is he goes off into the sunset. i am not too worried about him. somesure he will have things to do. he is out of the picture now and we have seen this before in saudi arabia. ego close to the sun and then you are gone. out, nbshe came says i cannot do this without your instruction.
not your servant. the imagery, wanted to tell everybody this is a smooth transition. do not worry about things. everything is fine. he is now gone, so we are wondering what is the real palace intrigue into this and did led to this point, why they do it now, how united is the royal family behind mbs? then, it as this has raises questions about why this went down. guy: great stuff. thank you very much, andrew barden joining -- andrew joining us on the saudi story. has raised questions about long-term stability in saudi. as you look at the investment cases surrounding the gcc, how big a future of the landscape is this decision to shift the power base in saudi? >> i think this really set in stone the policies being followed in the last one to 1.5
years since oil prices started to drop more meaningfully. say, a very hard stance on foreign policy. i think the biggest question mark we have to ask ourselves is what does this new saudi uae stance mean for the whole region? iran is supporting qatar. openly very supporting qatar. they have a lot of troops there. the question is whether some people knew it or not. in any case, there is a difference in foreign policy in the u.s., which is going on at the moment, and which is, i think, affecting the whole of the world, and something we need to follow. since mr. trump's visit to saudi , a lot of things have been going on, not least, the msci, including saudi into the em space. matt: that is what i am thinking
about. salman was the architect of aramco. isn't it great to have him as crown prince? he is the architect of this emergence and hopefully for them at ending their dependence on oil and broadening out their strengths. andrew: absolutely. breakevens are relatively high in saudi compared to the top. qatar has come up compared to the budget deficit, more reserves and saudi does. uae has the most. this thing here is that what we have to look out for is the split between the domestic economy and foreign policy. there seems to be a convergence there that does not seem to fit together at the moment. definitely, the inclusion of saudi aramco, eventually, when they do the ipo, this could lead to saudi being about 4%, five percent of the msci e.m. index,
which is huge, even bigger than china. this is what we have to look out for. guy: should i expect the argentinian market to fall today, equities? it was not included in msci. it was just too early. andrew: it is too early, i think. this is what msci is saying through the reforms started one to 1.5 years ago. we could see a negative reaction in equities, no question about that. there has been hope, very much built up on hope. she will do a new political party, so we will have plenty of shows going on there, so the october midterm elections. i think essentially, the argentinian story is continuing to move in the right direction. he is pushing through reforms just like in ukraine. both countries really part of the index people have been following. matt: in general, emerging markets has been popular, and valuations have gotten higher. is it time to take a breather there?
andrew: i would say it is time to be a little bit cautious. as you showed, the oil price moves we have seen in the last week have been really quite significant. wes is the third drop have seen year to date. if we reach lower levels, lower than 44 on brent, we could move to august levels of last year. i think we are taking a cautious stance. anytime there is a drop, then you can see some buying. guy: oil sharply down again. another move lower. brent trading $45.72 now. simon quijano-evans, emerging markets strategist. great to see you. thank you very much for stopping by to see us. matt: uber's chief executive officer quinn has quit his job, following controversies that have are up world's largest privately back to start a. acceptedays he has investor requests to step aside
in what he called a difficult moment in his personal life. bloomberg news tech editor for asia joins us now out of hong kong. understand that this was an investor-driven decision. just give us the details surrounding that. what have investors said, and why has it led to this? >> while, there has obviously been, as you guys alluded to, so many controversies, even scandals that have affected uber. it all happened under travis kalanick's watch. i think a lot of investors have been blaming him for the bad publicity and the departures of the company. him leaving now, but he is not the only executive left. we had other employees leave. investors are obviously worried about where their investments are going in the uber. it is the world's biggest ride
hailing apps. it is a big opportunity that could go for an ipo. investors are concerned that the longer the controversies went on, the more the company is getting distracted from its core business, getting people from a to b. matt: this does not end the potential for controversy. it does take away two key figures. will the spring the popularity of uber back to the levels it once was? in the u.s., lyft has been winning some market share. robert: absolutely. that has been one of the key issues. travis kalanick's involvement in one of president donald trump uber" led to the "delete campaign that was very popular in social media, a key demographic for people who use uber, and it gave lyft a free kick to pick up market share. one of the expectations is that it was such a polarizing figure .ut of the pram spotlight
they can progress on their business. they have a business growing very much at the top line, even if it remains unprofitable. it is certainly adding revenue. the u.s. market share losses by some of the estimates we have seen, has stabilized. ultimately, the expectation is that they can get some clean air for the company to press ahead. 69e i said, it is still a billion dollar company, and travis kalanick, including to the bloomberg billionaires index, is still worth several billion caps off, so he is ok. guy: i think he is going to rides off into the sunset. he is going to be ok. robert fenner, thank you very much indeed. up next, you and i go to radio. next on bloomberg television is bloomberg "surveillance," with francine lacqua. definitely, i do not want to take away her viewers. if you go to tv or radio go
francine: theresa may laid out her agenda as she tries to piece together support. the program will be heavy on brexit, light on domestic controversy. saudi shakeup. in a surprise move, the king makes his son next in line. oil tumbles into a bear market and the uber ceo quits. travis kalanick resigns as the head of the world's largest art of. good morning. this is "bloomberg surveillance ." i'm francine lacqua in london.