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tv   Bloomberg Markets European Open  Bloomberg  June 27, 2017 2:30am-3:58am EDT

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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. ♪ guy: tuesday morning. ." come to "bloomberg markets the first trade own cash and equities coming up. i'm guy johnson. matt miller returning later this week. draghi on course to -- on the defensive. theecb president says stimulus is critical to job creation. his keno -- keynote speech from portugal. results president is charged with corruption by the country's
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chief prosecutors. how far are we from impeachment? code blue for the republican house bill. three gop senators say they will vote to block the current version. extrapolating, what does this mean for tax reform? tos than half an hour to go we see equities opening. not very exciting, but pay attention to what is going on. this is the fair value calculations. its like we are going nowhere in a hurry. the ftse looks more positive but europe down .2%. nothing to write home. -- write home about. this is the picture we find. yesterday, brazil well bid. interesting in the light of what we are seeing at the moment. the italian market did well yesterday. we are turning our attention to spain in the banking story. the peso down. the brazilian riel up quite strongly.
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something happening in the commodities sector. you can see the dollar bid there. iron ore, as well. up by 5% because we have had the chinese premier talking, sounding very positive on growth. that is something the market has picked up on. that coming through iron ore, strongly bid, up 5%. let's find out what is happening more broadly. here is the first word news with juliette saly. juliette: in the u.s., the trump administration said syrian forces are planning another temple attack on rebel forces. it also issued a warning that bashar al-assad would pay a heavy price if it proceeded. potential preparations for the use of chemical weapons that appeared similar to the april 4 attack that prompted donald trump to order ace -- a missile
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strike two days later. president trump said the partial revising -- revival of his band is a victory for national security. muslim-majority countries will be barred unless they can show a genuine relationship with a person or entity in the u.s. the court will consider muslim-y countries will be in october whether the executive order is constitutional. at least three republican senators will vote to block the latest version of their party's health care bill. threatening majority leader mitch mcconnell's hopes of repealing obamacare. a new report found the bill would leave an initial 22 million people without health care in a decade. a final vote is hoped for this week. a charge of corruption for the country's top prosecutor. the move needs to be approved by to proceed.f brazil'
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if the president is eventually found guilty, he would be stripped of office and jailed. the president has repeatedly denied wrongdoing. demandedean union has that britain go further to guarantee the rights of millions of eu citizens after brexit. -- livingnegotiator in britain, just hours after she set it out in a 20-page report. the comments deal a blow to the prime minister's hope for a swift deal. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. guy: thank you very much. the ecb to begin unwinding its eu program. -- keep the program. speaking to students, draghi argued that young people will benefit from the revival in euro
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area growth. he added that euro zone economies have made great progress on convergence. shouldn't go at the same speed, but at speeds that do not create major imbalances. and that is called convergence. that is called convergence he. greatk to some extent, progress has been achieved on the ground since the treaty. guy: that was mario draghi speaking to students yesterday. we will have mario draghi's keynotes beats, which is taking place in portugal, that will be live on bloomberg tv. it will also be on tv . plenty of ways of covering that, starts at 9:00 a.m. london time. we will also have an on bloomberg radio. let's get analysis. steven major, global head of fixed-income research.
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draghi keeps having to be on the defensive. people are saying the stimulus program needs to be unwound. the data is starting to get better, but it is time to end this. do have some sympathy for that view? are we -- as we should be at this point -- starting to think about the upside? >> it is fair to say that the data has been good for a while and going over the last 12 months, there has been activity surprise. you could say that if the ecb had wanted to start this leveraging or rhetoric that supported an exit, they could have done so already. the problem, as you know is inflation has never been there and at the last press conference, mr. draghi had to defend the ecb's decision. they reduced their inflation forecast from 1.6% to 1.3. all the signs are that we have a bit of a global disinflation
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trend at the moment. it is mainly coming through commodities, actually. it is what it is and he said nominal wages are also not rising. so it is quite clear to me that the market has got itself in a bit of a tizzy over this. there seems to be a consensus over so-called tapering at some point. i'm not sure where that is coming from. the market seems to have decided it will happen. i guess you've got it in the has said whatfed it is going to do without giving us the exact date. for the ecb, it is different. they are overseeing a huge challenge, a huge project, and without the ecb, there are many other problems that you don't even want to think about. i think they lose very long time. we are trying to reach new superlatives here to go beyond gradual, like with the fed.
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talking of germany, you still believe that the bund yield goes higher. steven: by year-end, but that is still six months away. our most recent publication, we have kept the forecast very low for the next six months. it is not going to go up for a few months. guy: but it is going up? steven: well, if the ecb starts to point towards the exit later this year and this means talking 2017, thenlate in the bund yield should be higher. a goodthinks bund is value at 25 basis points 10 years or -50 42. bones atno value in these levels. -- bund at these levels. we are locked in a very tight low range. the forecast would adjust
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according to incoming information. at the moment, bund yield's stock. -- yield is stuck. is stuck.tion survey data seems strong. you can see the composite number is in the 50's, which should be expansion territory. if it starts to roll over towards the tail end of the year, maybe there is signs of that now, what does that mean for policymaking then? steven: then they would need to be easier for even longer. the pmi's are not connected to the bond market, and have been for three years. if you put up the chart for the german pmi and bund yields, they disconnected three years ago and have been that with -- way for ages. on the basis of the qe and the negative rates stay with us for a long time, it is difficult to see why the bund yield would -- >> the ecb -- >> we look at this and thinking
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it is on the high side. they are also thinking inflation is very low. there is a hawkish element out there, no doubt. but there is a very convincing argument to stay loose for a long time. guy: we need to talk about what is happening state side. steven major from hsbc. reminder, if you are a bloomberg customer, you can do what i am about to do. but up the tv function. this is the landing page you end up with. like on the tv page, wait for the tv screen to come to you. you can pull it back, put it at any point in time throughout the morning, and you get this get ar that allows you to data check. pull up some of the charts we are using. if you have a question for stephen, this little blue button
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is what you want to press. it accesses the ib function. you can get a sense of where these markets are going. coming up, public treasury markets. this is bloomberg. ♪
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♪ 43 minutes past the hour, 7:43 in london. let's get a business flash with juliette saly. juliette: google executives will
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wake up this morning to the largest antitrust fine in european history. europe's competition commissioner may also require the search giant to feature listing prices more prominently in shopping searches. a business that has grown quickly to account for 1/5 of the profitable revenue growth rate. the best defense against donald trump's against about with germany -- boost employment in the united states. the german automaker unveiled the sport-utility vehicle at plants in north carolina and announced plans to increase spending and create another 1000 jobs. >> we clearly believe in the u.s. market, we call the united states our second home. manufacturing and assembling are where we -- this is -- that is why we invested in jobs in the
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next four years. that is clear. the united states is still a big market for us. a plan to cut 10% of its staff in the u.k.. that is as the world's oldest insurance market looks to streamline operations and reduce costs. it plans to introduce a new organization structure in the fourth quarter and job cuts will be part of that change. the insurance market currently employs about 800 people in written. that is your bloomberg business flash. guy: at least three republican senators will vote to block the bill, health care threatening mitch mcconnell's hopes of repealing obamacare. a report from the congressional budget office would find an additional 22 million people without health insurance in a decade. another signal the fiscal stimulus in the u.s. is looking more remote this year.
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it is going to be tough to get through congress. the demand for two-year notes is up. the $26 billion auction in two-year treasuries spiked. steven major, global head of fixed income research is still with us. mark cudmore is here as well from the mliv team. he is on the road. and still working agent hours. good morning, guys. you, stephen.th why was the auction so strong yesterday? steven: the peak for rates could be much closer than people are prepared to accept. the fed was only two hikes from having a long pause and maybe at the end of the tightening cycle. markets would start comparing -- preparing for the return towards zero bound. every year that goes by, the probability of a recession in the next two to four years must be rising.
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dealers putprimary zero down at close to 20% next year. if that is useful, i don't know. note,ou buy a two-year you have five cash grows to think about over the next five years. -- two years. peak for rates is near, those could be the right trades. and you've got risk off going on. that is my answer. guy: is that right, mark? the market is increasing -- there is a strong view the fed is making a policy error. is that what they were signaling? mark: that is what you have seen the curve flattening, but you are also seeing, we're not
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getting sustained inflation pressures. not a bad thing. there are factors behind this. the fact is, commodity prices are cheaper. this is driven by technology. commodities continues to get cheaper all the time. we are also seeing because of technology, machines mean the phillips curve has flattened a lot and not getting the inflationary pressures from a tight labor market. all those things need the market is buying into -- it is going to get hard to get long-term sustained inflation. the curve needs to be flatter in developed markets. mistake,s making the both cases are you the curve doesn't need to flatten further. guy: stephen, you and i chatted before we came on the program. you have raised your tenure 19.cast to the reason you did that is you
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don't want to accuse the fed of making a policy error. steven: not quite. guy: i know. steven: we raised the forecast up to 1.9, but we are well below spot. even below the consensus. 1.9 is still the lowest yield forecast on the street. the reason the adjusted is through the passage of time, some of the tail risks have come and gone. you get to the point where you don't want to be forecasting that things all the time. u.s.t gave us 130 on the 10, and low gilts everywhere. we have gone to the french elections, which could have given us a lower treasury yield. it was not the case. looking forward, we don't really see that obvious tail risk justifying having a low yield. that means if we had forecast something lower than 1.90 with the fed determent to get to 1.54 the iowa we are, -- we are a --ally forecasting
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curve. becausehat is dangerous even if in error has been made by tightening so much and announcing an earlier runoff, or -- the fed starts hiking. the flaw for yields has been lifted over the last year by the fed's determination to get the rates up a bit and by the tail risks being less important than they were before. that is why we are at 1.90. i see everyone else still has a number in the high two's. guy: why does everyone have a number in high two's? consistent is not with a hiking position? yesterday, another piece of evidence to come through and tell you this story.
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why do the markets still believe we should be in the high two's? and does the market really believe some of those forecasts out there? mark: maybe the market doesn't fully believe, but analysts are stuck in the framework they had precrisis from 10 years ago. people haven't really adjusted to what fundamentally changed. the biggest thing is the central bank balance sheet explosion? there is so much liquidity in the system. you also have the technology side. central banking has changed markets and so many investors go, markets are fixed, central bank is controlling markets, this isn't right, and yet, they failed to incorporate that into their forecast. they fix markets and not incorporate that into your forecast. steven: a form of cognitive
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dissonance. a disconnect in that, people are aware of the structural changes, there is a technology impact out there, phillips curve isn't working like it used to. there is lots of liquidity pushing down on volatility and yield, everyone knows that. but when you go back to your desk, and they carry on like 10 years ago, looking for cyclical patterns that may or may not need to revert. i see it every week. i think you are spot on. it hasn't been incorporated into the forecasting methods. mark: i'm not as bullish treasuries as stephen is, but the treasuries there's need something new. they keep being wrong and are not changing the model. i don't think it is going to break out. guy: how do central banks explain it? the central bank has narrowed its target. i'm not sure any of the central banks know where it is? caroline: it looks like natural rate of unemployment is probably the actual rate of unemployment and we find out when we get there. guy: when will that be? steven: maybe the causalities are moving in the about -- all
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but sit direction of what the curse people think. maybe labor is pricing itself into a job, taking accounts in the graphics. backwards? steven: i'm just throwing that out there. guy: have people got their heads about what the rolloff from the fed will mean? you ran me through the mathematics -- >> i am a bit struck by the number of people i meet who don't quite get it. many people do. i don't think the runoff will be additive to term premium or yield. guy: curve flattening. steven: the consensus view seems to be that you come to some conclusion based on cyclical patterns and you had term premium on because the balance sheet is going to be run down. that is kind of incorrect. there is a lot of reserves out there to buy the bonds. there was reserves reside in the banking system.
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that is a liquid-free asset -- risk free asset. the contraction of the supply of risk assets in dollars, the answer is probably no. if the fed does pursue this balance sheet reduction, we will find out -- >> if? steven: because we don't know the exact date. the early stages are an experiment, and the confidence that has been expressed with how this goes swimmingly well, i don't totally accept. likeuld be overconfidence with economic forecasts. we will see. the early stages are a test. let's see what happens. the amount could be reversed. the point is, nobody knows because it has not been them before. let's face it. by the way, it is complicated. guy: absolutely. to wrap it up, if that is the case and we have talked about a
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slight yield curve for a very long time, what does that mean for the banking sector? mark: the banking sector has a lot of problems. not only does it have to adjust to a flatter yield curve, but forms of making revenue. also, regulation is changing. on a regulation point, there is the chance of regulation rolled back in the u.s. and that will provide relief to the banking sector. is it all in price, i don't know. trump administration struggled to get its policies through that haven't been point -- fully priced exactly. guy: we will wrap it up there. mark cudmore, thank you very much. mark, normally in singapore. continuing to work singapore hours. mliv macro strategist. mliv on your bloomberg.
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steven major, global head of fixed-income research six around. we talk about what is happening in the gilt market. european equities are going nowhere in a hurry this morning. that is what the open looks like this morning. we think we get a flat story. this is bloomberg. ♪
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guy: one minute to the gilt let us talk about where we are expecting to go. we think the story will be centered around going nowhere in a hurry, but we have draghi coming up shortly. that should provide momentum for other markets, but it looks like equities will be stuck this morning. justtse 100 is called positive, but not by much. it is a pretty consistent picture. we are down by around .2%. draghi will be one of the interesting stories. the other want to watch out for is what is happening in brazil. i'm looking forward to seeing that market open a little bit later. the market yesterday, reasonably well bid.
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that is certainly something we need to be thinking about. let us see these markets open. i'm going to move you onto the next screen. here we go. the ftse 100, 74.46 to close. expecting a mild positive spin. here we go. sony 446. the london market is opening up and positive territory. nowhere in a hurry. be downinking that will by around .2%. similar story for the cac jury there you go. softening up little bit. stoxx stoxx 600. manus cranny, what have you got? manus: consumer confidence is back at levels we have not seen since the low pre-brexit. to a certain extent, it is interesting. yesterday, well talking to my guest on daybreak, we were talking about the spc with the committee at the bank of england beginning to take away some
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liquidity and looking at adjusting that conversation i had this morning. toway, far too early consider that. nn saying we have been so overweight of europe. down .2%.s we have been so overweight and long that we are tampering that position slightly. they are not removing the justeight perso position, tempering it slightly. they will debate the five-year/u.s. and europe and it is a bit like that hollywood star. glory. this is the political risk. global uncertainty. look at that. political uncertainty is dropping quite aggressively. how are really strong doing -- are we responding?
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you have the bandwidth on the like theet flashing 1970's. fashion was never very great or endearing in the 1970's. theing it out in terms of bid to cover ratio. the overall volatility is fairly muted. what does it take to move the level?ity to the next stocks down by .8%. guilt opening. the reason i bring it up -- gilts opening. the reason i bring it up as we will have a conversation about the bond market. paper in u.k.year government bond yields. 1.02%. noise. that is what better than calls that,- what beven calls noise. the kindness of strangers seen this morning from james bevan. he was surprised that foreign owners, a prominent force, are
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still there. will they remain as the brexit train goes along for the next couple of years? gilliard, 1.02%. i am off to digital radio. i will see you in 24 hours. guy: manus cranny, thank you very let us talk about what we are -- we will come back to the gilt market. breakevens versus the 10-year is one of the most interesting stories. group, it looks like they have gone ex-dividend this morning. it is trading down. let us flip it over to the upside because the market is just down, but not by very much. upside, we have a merger that seems to be taking place. think year -- bankia is a nationalized institution.
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this is the spanish government's way of time to get this home thinking nationalization story to work better. is pricing that positively. what is interesting is the mining stocks. anglo is trading higher. glencore is up quite nicely. what you have seen overnight is quite a strong bid being attached to the iron ore market and other various markets as well. the chinese premier has painted a positive picture for growth going forward. that has rippled into the commodities market and is rippling into the operating companies. at the see that clearly get go of trade this morning. manus was mentioning what was happening around the british gilt. theresa may came under fire over her plan to protect nationals in the u.k. michel barnier fed the prime minister must offer the same rights afforded under european
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law. mark carney presents the bank of england financial stability report today, giving an early indication of whether he will take first steps to normalizing policy in the u.k. the bank has different -- we will hear more about the mix between the two effectively. still with us, steven major. are u.k. gilts too low? steven: not really. nothing much will happen for a couple of years. now, the reality for the bank of england as they have to also factor in the data may not be so fantastic. aboute already spoken global disinflation trends, so that is an external analogy about commodity prices really. also locally, there is consumer lending. think about credit cards. the data is rolling over, has
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been going down for a while. so we may have gone past the point when the data was worrying the bank of england. i want to what they were thinking. it could be stability-related. guy: there is another argument that they are trying to push the pound up because that would maybe deal with the inflation. steven: the pound is fine, isn't it? it has been holding in. guy: or trying to put a prop up under the pound. steven: there are many things that would drive the pound be on the bank of england's control. it could fall dramatically depending on what happens. i don't think there is anything wrong with the gilt price as it is. there are people out there yields.for 2% gilt i would love to see 10% because the older i get, the more i need to save. it is the same for all of us. than is more money around ever before, too much money chasing too little yield.
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i do not see how we get out very quickly at least towards 2%. a with the big on hold for long time, and the data perhaps rolling over, i'm struggling to see what the impetus is for higher gilt yield's. one does not seem too far with from a reasonable level. i think we could stay around 1% for the 10-year for the next few months and people will even start extending the curve the on the 10-year if they think there is a chance of bait hikes -- think hikes. guy: that is interesting. you end up creating -- pushing the back and down sharply. steven: to believe that bank yields will go down, you have to believe there will be upsides to prices and the bank will sit back and watch. that is possible, but it seems unlikely. steven: that is interesting
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because the linkerss have priced in a lot of inflation. a year ago, we have brexit. wasone year, one year gilt 3% on inflation. the market was in line 3% inflation, one-year forward. now, a few months later, when the hard brexit talk came, and sterling really fell, two or three months after brexit, we had the bank easing and the talk about hard brexit. andad a new government everything. then, the breakevens spiked, 375. across the curve. the top ones. that is the 10-year break even. the 10-year went up. the thing is, the realized inflation that has been coming in subsequently has not been year,above where the one when you're was saying. to make money, you need to make the realized inflation to come in faster than what you had locked into with the forward.
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what concerns me is that the market got ahead of itself. imagine the sky, the 10-year gilt stays the same, 1%. maybe the breakeven comes down, and the real yield goes up. that is how it works. so it could be that we have got ahead of ourselves with inflation. for us to be wrong on that, for inflation to go up, the only way i can see it working is if sterling takes another big five. that is possible. that is -- big dive. that is possible. if sterling foster medically, we will get more inflation. it is difficult to see a coming from wages. guy: forget brexit. put it to the side. are we pricing a rollover in the economy? it has a bunch of factors contributing to all kinds of things. steven: the market prices all available information. you muchrobably worse. guy: steven major, global head
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researcher at hsbc. you can watch the show using tv and get access to a whole bunch of other things as well. they are available on the sidebar. it back to manus. you get all the breaking news as it comes through and the charting functionality as well. if you want to ask the guess the question, tell us your thoughts, send us some cool charts, press the button down there. it is a multifunction button, but it allows you to get in touch. we have the draghi peach coming up later -- speech coming up later. there is more functionality as well. up next, a secret recording leads to the president of brazil being charged with corruption. michelle temer, and what he is accused of. this is bloomberg. ♪
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guy: 13 minutes into the cash session for equities. let us take a look at where we are for the markets. pretty much as anticipated, softer, but not by much. ftse 100 outperforming only by a tiny bit. jack's, cac down .4%. doing reasonably well. that's used to be a china story. morning,inors this that will be of interest to
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anybody invested in brazil. brazil's president, michel temer, has been charged with corruption in the latest of a scandals. this sounds remarkably familiar. the chief prosecutor charged michel temer with passive saiduption and there are indications of other crimes. the president denies any wrongdoing. marketsg's emerging editor joins us from dubai. wrapss you could probably this all up into the kind of investigation into corruption, but it it is -- but it is different to the previous problems. is that difference significant? >> it is difficult to say if it is different from what occurred in the past three years during which brazil has been going through this process. what we are seeing here is very from theusations attorney general.
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a very serious accusation from the attorney general of temer. this is likely to now go to the lower house which is going to vote on this. interestingly, the attorney general has only put forward in charge of corruption under two other charges. obstruction of justice and involvement in criminality. ifse have been put aside, so you like, the process has been somewhat simplified. this is another stage, more of the same. i suspect the reaction in the shrugs will be a kind of of the shoulders. we have been here before. what we are looking at here crucially is what this means for the brazilian reform process, the labor reforms and the that theeforms investment community so desperately wants to see now from brazil. guy: so what is the likely outcome? investors are waiting to see
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exactly what happens next and our training to understand what understand what it means for policymaking. is there a sense that the policy donald? where do we go from here -- policies are on hold? where do we go from here? >> the longer it goes on, the longer the reform process will be either put on hold or at least watered down when it eventually gets legislated on. temeress would be that will likely survive. he has enough support in congress to get through this, and then of course, there is the elephant in the room of the election next year, and if enough brazilian congressmen and women decide that perhaps it is best to get off the ship if they perceive it to be sinking, you could see a swing against him. he is in a stronger position to
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survive this. in contrast to what we had with rousseff, last year, when, was the obvious next choice some there does not seem to be an immediate choice for people to kind of klingon to if temer were to either resign or get impeached. guy: that sounds familiar. bloomberg's emerging markets maddening editor -- managing editor joining us. let us talk about the global bit. emerging markets. nice compositor story in terms of the carry you pick up. you get a yield advantage. and that feels quite attractive at the moment. is it as attractive as it looks on paper? >> that story could have been a year ago. the difference is the valuations. back then, you at least had a decent real yield and that is probably the issue for investors because whilst they know there
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is a due process taking place, and they have seen it before, they are looking at the valuation and maybe, there is better value elsewhere in em. below volatility global backdrop favors anything with yield. and given that you have got investment grade credit spreads, people look to something else. amongst the emerging markets, one that stands out at the moment is mexico. are looking atho brazil across the board think that they are not far away and that there is value. we are looking at the 10 year segment and thinking the tightening its priced in and maybe it is time to invest in mexico. it is one of our long-term favorite markets, but it has been disrupted in the last year or so. that is one interesting thing. you haveto realize this global disinflation in some countries will be more affected than others because of the
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impact of energy and i guess, that may be a factor that is put into the mix, so looking at the they are, it seems most affected compared to other parts of the world. is similar to earlier in our discussion. we have disinflation forces coming through, pushing down on the main indices, and the central banks that may have been hawkish for other reasons have got to deal with this. and factor it in. it starts to open up some opportunities for investors to look at the front end, where the tightening that has previously been priced in, can be reversed. guy: they are looking at emerging markets at the moment. steven: i think so. i mean, there are a few things that could mess this up. if, for example, the fed's
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policy resulted in a surge in the dollar, not actually our forecast, but i'm pointing out a risk which could happen for a number of reasons, policy error, shrinkage of supply of dollars, that is not going to be good for em. they are on the other side of that. but if our central view holds and we have a weakening dollar and benign environment for rates, that is good for em. everything else being equal. there are going to be parts of the world that have something that happens that the flex the flects the flow of money away from them. the long-term investors will andgnize that both brazil the other have due process. people get indicted and move on. i think, with em, we are in a
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bit of a sweet spot at the moment. lookingthe way we are at it. we are generally bullish and have been for 18 months on em. i think this could carry on. guy: for how long? steven: come on. a time.ake one month at this stuff happens. i think that we can look through the rest of this year in the constructive fashion. guy: up next, we are not quite done with steven major just yet. he is the global head of fixed income research. we will carry on the market coverage as all. we are waiting for mr. draghi to speak. he will be speaking in 40 minutes time. he will be joining us from sentra in portugal, where we ecb the hsbc -- sorry, the conclave underway. this is bloomberg. ♪
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guy: welcome back. 24 minutes past the hour. steven major is still with estimates of pc. draghi speaks -- is still with us from hsbc. rugby speak soon. steven: there are quite a few hawks out there. there seems to be consensus around the idea that the ecb is reaching for the exit. those people will be reaching for any indication to that direction. it. not really see i have actually a bit confused as to why so many people are so certain that the ecb is going to
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reduce the asset purchases. they have not said they are going to do it. the data does not seem to support it. and we will have to -- miller was sitting here, he would say they are already starting to taper. steven: it is fair to say there is something in it for everyone. there is an automatic taper around some sovereigns when there is no bonds to buy. you can say there is a taper on haveovered bonds, but they run out of those. in the recent purchases, they have almost ground to a halt. look, that gives the guy who is arguing for a paper and aren't -- the taper and argument to say they are doing it. a year ago, we would have said that there is no way the t could be adjusted -- key could be adjusted. guy: european monetary policy. time of year the
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when the issuance patterns are a of volatile. during july and august, they have flexibility. we are seeing some of that. so nothing is sacrosanct. they are probably going to need to find ways to keep this going for longer. even if they did reduce the asset purchases later this year, we have to think about the reinvestment close, because there is cash that has to be reinvested. i am not sure whether this doesn't neutralize -- i don't of the numbers. bear in mind, there is a negative rate, -40. steepis being forced up a curve compared to other parts of the world, and there is reinvestment flow to come. look, people are going to be looking for draghi to say something hawkish. that seems to be what everyone wants to hear. maybe it is a bit more about the structural dynamics, about the longer term. this is when they really start to have some deep thinking to do. they plot out for the next few
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years, not the next few weeks. anyone expecting an announcement of an imminent exit is going to be let down. go. there you steven major, global head of fixed income research at hsbc. thank you very much. ♪
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manus: draghi on the defensive. we have his keynote speech from portugal, coming up in half an hour. trying times for temer. his president -- brazil's president. market seems unmoved. code blue for the republican health bill. three gop senators say they will block the version. you are watching "bloomberg ."rkets: european open i am guy johnson and we are in london. matt miller off for a few days
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in the u.s., speaking to bmw. we are into the trading day. let us take a look at where the markets right now are. the fact that the market is going to be down by .2%, we have been softer than not. that is exactly where we are right now. of gestureet kind thing sideways. no real sense of momentum taking us in any real direction. bid.s are we have seen iron ore strongly bit overnight. a slightly more positive economic story. it is in the mining sector clearly. higher iron ore prices overnight as well. the inflation story is interesting to what we are about to talk about. growth for the ecb to begin unwinding its qe program. mario draghi has defended the impact of the stimulus measures delivered the far. speaking to students ahead of the ecb's annual form, he argued young people will benefit from the revival of euro area growth.
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he added that eurozone economies have made great progress on convergence. >> countries should not go at the same speed but at some speed that does not create major imbalances. and that is called convergence. that is called convergence. i think to some extent, great progress has been achieved on that ground, since the treaty. guy: some people get the best jobs. paul, i am curious as to actually how draghi has set as one up. he met with students yesterday. why did he do that? what message will you communicate differently to them? >> it is an important point. it was an interesting dialogue the ecb held yesterday. portugal is an interesting place to have it. it makes sense on the way to the forum outside of lisbon, but on
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the other hand, portugal is an interesting case. unemployment has come down a lot, below 10%. unemployment has come down to 24%. those are high numbers. those are numbers that tell you there is slack in the economy. portugal's gdp will not be back to preview crisis financial -- precrisis financial numbers. draghi addressed these numbers, saying the chief cause of inequality is unemployment and millennials who got jobs because of ecb policy, he thinks, are surely ok with the policy, and for the moment, it continues. guy: stephen engle saying anybody expecting any indication that the ecb is heading any closer -- anywhere close to an exit will be disappointed. is that what we are expecting today? paul: i don't know whether you will get strong policy symbols
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like that, but they have layout their own thinking. the indications have been to relieve into really start seriously talking about tapering qe. in risk getting a rise yields. inflation muddling along. data later this week. that would be a dangerous thing to happen to the euro area right now. i suspect the message will be, last pressp the conference, be patient. the time is not yet here. guy: absolutely. there must be a sense for the first time in a long time, that we can talk about right side tail risk, i.e., the possibility that the euro area delivers upside surprises rather than downside surprises. paul: it is certainly a possibility. remember, what we have been talking about for years is the
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left side, the deflation risk, and policymakers have been saying for the last couple of hisings that that risk has appeared. draghi has set himself. what you have now is largely tail risk. you could see inflation pick up faster than expected. the growth picture is relatively strong at the moment. that is the kind of argument you may hear from the germans, but you will not hear it from draghi for now. stuff.ul, great looking forward to the coverage. paul gordon in portugal. mario draghi is speaking very shortly and we will have fantastic coverage from paul and the rest of the team coming out of that meeting. change gears. bmw has unveiled the revamped sport-utility vehicle at its plant in spartanburg. it announced plans to increase spending and create another 1000 jobs. my colleague, that miller, has been over there, and spoke to bmw's chairman.
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he asked if it was a difficult decision to make this investment at a time of the trump administration seems ambivalent about free trade. not a difficult decision. we clearly believe in the u.s. market. we call the united states our second home. the products we are manufacturing are well received in the world through that is why we invested another 600 billion dollars, another 1000 jobs in the next four years. they have a high demand, we are coming through in the market, and that is clear. harald: the united states is a very important, big market for us. being successful in south carolina in the united states is part of it. matt: you will employ 10,000 people here. you touch 120,000 jobs in the u.s., and you export $10 billion worth of cars, more than any
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other manufacturer, including ford or gm. have you explained that to president trump? harald: i was visiting with the president and his administration. .e are the biggest exporter 70% of our production goes to the world. this by bmw in the u.s., going to the world. that was clearly an investment in people, additional jobs. great people we have here in the plant. the commitment, passion. i also made clear we need free trade. matt: do you think he understood those arguments? even after you met with him at the white house, he went to brussels and told his counterparts that germans are very bad and bmw sells millions of cars here and he wants to put a stop to that. does that were you? -- worry you? harald: no. this is a great achievement, which is acknowledged as well.
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we need free trade for future growth, future business development. we may be have to explain that a little bit further. but i'm sure we will have a good relationship with the u.s. administration. matt: rolls-royce is my very favorite car of all time. which i make the minis, drive around all the time. do you think you can keep all of that manufacturing production in the u.k. in a post-brexit world? harald: we hope so. we hope there is a trade agreement between the u.s. and u.k. there is pragmatism on both sides, otherwise both sides lose. we are committed. to look at what comes and develops, and we will see. i'm hoping we'll see a pragmatic solution. ceo,matt talking to bmw's so some interesting conversations about the politics surrounding carmaking in the united states and in the u.k. as
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well. if you are a bloomberg customer, and that will be back, so we get more information on the interview. if you are bloomberg customer, tv . fantastic function. i would back this up into manus's program, daybreak, earlier on. you can see him talking to a ceo in dublin. you get the sidebar which has the information, charts we future. ask the get the question. the other story i would sort of reference at the moment is the draghi speech shortly. we will have that for you on tv . the janet yellen, fed chair, speaking in london later this day. we will have that on tliv . up next, we will be talking to the director of the british chemicals company. he has a view on brexit. we will get his take on that.
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it does seem to be a slightly dour view coming out of british manufacturing about the latest decision by theresa may to install a complicated process for dealing with e.u. nationals post-brexit. tom crotty will be joining us. that is next. this is bloomberg. ♪
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guy: welcome back. 42 minutes into the equity
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market session this tuesday morning. here is the bloomberg first word sebastiane with salek. threshing: the trump administration says it suspects syrian forces are planning another attack. they expect a heavy price is proceeding. eventual preparations for the use of chemical weapons. donald trump to order a crews missile strike against syrian military targets two days later. the supremeump says court's partial revival of his travel ban is a clear victory for national security. lower courts have gone too far by blocking the 90 day band. six mostly muslim countries will be banned unless they can show a relationship with people in the u.s. they will decide whether that is constitutional in october. at least three republican senators say they will vote to block the latest version of their party's health-care bill,
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threatening mitch mcconnell's hopes of repealing obamacare. an estimate from the congressional budget office said it will be that additional 22 million people without health insurance in a decade. republican leaders hope to hold a final vote this week. the central bank president has put an end to the debate about bonds in the ecb's purchase program. theyis mario draghi saying provide sufficient clarity on debt path.y's future they are counting on quantitative easing. we will bring you mario draghi's keynote speech and the -- at the ecb's conference in portugal. global news, 24 hours a day, 700ered by more than 2 journalists and analysts in 120 countries. cementede.u. has
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bridging goes further to guarantee the rights of citizens. this is a little bit of a blow for theresa may and her hopes for a swift deal. now that negotiations with brussels are underway, how are british companies pairing were thinking about this? director and a president of the u.k.'s chemical industries association. let us start off with that latter half. good morning. tom: good morning. guy: the british industry has a lot to think about at the moment. let us look at what has been happening for the last few days. theresa may has laid out her plans for how e.u. nationals will be treated in the united kingdom after brexit takes place. you are an industry that employs a lot of people from around the world. you bring in smart people and you employ them in the chemicals sector. what do you make of what theresa may is saying? tom: there is still a lot of confusion. i think business has been saying
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from the start that what we need is clarity. if you look at chemicals, our actual e.u. proportion a small overall, five percent. if you look at the key technical roles, it jumps up to 20%. shop floor is pretty much all u.k., but the technical skills area is very high. that is where we have had no borders. we move people around in the scientific and technical areas as if there were no borders. we need to continue to do that to get the best people. i don't think we have the clarity as to how easily we can do that. if it becomes too bureaucratic, it becomes a barrier. guy: are people saying "i don't want to come work for you in the u.k. because i do not know what my position is ultimately going to be?" tom: we have not seen that yet. those conversations have undoubtedly started. people are starting to get nervous. i think they have relaxed a bit since then and they have been waiting for these announcements. whether what we have seen so far
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will reassure them, we do not know. we have not had a situation where people say they are not coming. i could see that around the corner on the three get clarity. guy: what does this mean for the products and what your plans there within the sector more widely? tom: for the chemical sector, we have very complex supply chains, which have ignored the border between the u.k. and the e.u. 27. germany, getsto reprocessed, and shipped back to the u.k. as a common product. if we have tariff borders, that is not one tariff barrier, that is four as it guy: crosses the border constantly. guy:what are your plans? what is the industry doing? tom: they are looking at the supply chains and the contingency plan. if we have to restructure that, we would. that would have a big impact in the u.k. and abroad because we would actually close facilities to avoid those cross-border movements. that would be bad news for both
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economies. guy: are you starting to get ready, those contingency plans in place? tom: our biggest contingency plan has been around getting it right in the u.k., about getting low-cost stocks in. given ourselves a pretty good insurance policy to cover the vagaries of brexit. neos is thinking or broadly. i'm curious to know how broadly you are thinking. are you looking at adjacent sectors and thinking we will have a bit of that? you are in full expansion mode. guy: we have always had a view that says we move up or down our chain. we have been fundamentally a petrochemical company and we have moved upstream into oil and gas. that will continue.
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move -- we very rarely downstream. we did move downstream in the u.s. this year. we got a plastic pipe maker. that is unusual for us. it worked for us. we don't tend to move too far downstream. it is extending our range. project in the automotive sector which is slightly left-field for us. guy: it will be interesting to see what this ultimately looks like. what you have done in the past is adebt issue. are you thinking about how you are structuring from a financial point of view? tom: our big growth phase was in the northeast third -- in the days when you could leverage very highly. we used to have a simple process. we would love her up -- lever up. sawtooth approach.
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we have moved on significantly. is over $4 billion a year. so our debt is falling. we do not really keep our debt high. we can fund a huge amount of expansion from our cash reserves. our representation is good. when we do -- our reputation is good. we have lots of firepower. guy: are you getting ready to invest? tom: we are opportunists. we do good deals and do not pay too much. guy: that sounds like a nice business model. what are the opportunities in the north sea? pipelines are an issue. ali coming down to single pipeline? what is happening with decommissioning? there?e a roll up
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everything gets rolled together and that provides an opportunity? where do you see opportunities in the north sea? samewe see it in the position that the petrochemical industry was. ownership with a lot of companies who did not want to be there. guy: absolutely. our we saw that as opportunity. we are very good asset managers. ultimately, north sea platforms, etc., are chemical plants at sea, ultimately. we can bring a lot to that because we are good asset managers. we can manage the cost, efficiency, and everything which is all about economic returns. there is a lot of oil and gas down there. the u.k. needs that and we can do a good job extracting it. guy: if your company has a problem, it rolls back and therefore companies get nervous about how their assets are sold
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and who they are sold to. does that work in your favor? people know you and understand the business and have seen him do this in the past. the negative here is that it makes valuation of business is extraordinarily difficult because of the decommissioning, hanging out as a cost. it is out there as a credit because you have through the taxation system, quite a lot of credit over the time. how you value that is the biggest challenge we face were looking at businesses in the north sea. guy: great to see you this morning. so much more to talk about. thank you for coming to see us at bloomberg. tom crotty, a man who wears many hats. director of ineos group. coming up next, three republican senators say they will vote down a draft of their party's health care bill. what that means for the trump presidency. that is next. this is bloomberg. ♪
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guy: 55 minutes past the hour, welcome back. draghi speaks in 5-6 minutes time. three republicans say they will block the budget bill. leaveund the bill would an additional 22 million americans without health insurance in a decades time. let us go to kathleen hunter. what happened? give me the rundown of the last way for hours. this number is frightening to a lot of politicians. we are starting to see the
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evidence of that feeding in. kathleen: absolutely. after that happened, susan collins, a moderate from maine, may have been watching that as a bellwether. she came out and said not only does she have concerns about the bill, but she would actually vote against advancing it. that was pivotal because that meant there are actually three republican senators who are saying they will not vote to bring the bill to the floor. mcconnell can afford to lose only two because he has a slim majority. he has got to change one mind or else he is not able to bring it up for a vote. guy: in 10 seconds, do they move on? kathleen: no. it is going to be arm-twisting negotiations. mcconnell trying to make a deal, course rating, that sort of stuff -- horse-trading. that sort of stuff. guy: stay with us. up next, "surveillance."
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mario draghi will be speaking at the forum in centra. we will tape his speech live on bloomberg surveillance and dab digital radio. this is bloomberg. ♪
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francine: easy does it. draghi defends the ecb's lose policy stance. will there be any talk during his keynote speech? we will bring it to you live.

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