tv Bloomberg Markets European Open Bloomberg June 29, 2017 2:30am-4:01am EDT
i: good morning, welcome. you're watching lumber markets. -- bloomberg markets. we will bring you the first trade of the day. a number of important pieces of news. i guy johnson in london. matt miller is akin berlin after his odyssey across the atlantic. is preparing to unwind stimulus. mark carney signaled the time is nearing possibly for a hike.
bloomberg speaks to the oven of the bank of england at 11:30 a.m. u.k. time. the u.s. stops short of -- man.g a laptop dan what does it mean for the european airline sector? what is it mean or your next trip to the airport? a break for murdoch. he u.k. governor is expected to give his decision on a bid to sky later today. we will discuss the options. are less than half an hour away from the european open. a pleasure to be back in berlin to watch these markets. such an amazing trade yesterday especially overnight in the u.s. s that we have not seen in months. gaining .5 of 1% apiece. you can see what has been going on while i was delayed overseas
bond trade. you can see over the last three days how much these yields have come up from less than a quarter of a percent almost up 2.4 of 1%. real big gain in yields and we will see of that continues. guy: see what happens when you go away? let's talk about what is happening around the gmm. the u.s. bank story driving u.s. equity markets on to the front. you can see that with the s&p 500 area they are paying out big. that is one factor. does that change the broader trajectory of u.s. markets giving extra impetus? markets will been today. i will show you the commodity. the aussie dollar rallying on the back of my id currencies doing well. the pound is well bid, up by .3 of 1%. the euro continues to be well
bid to matt was talking about the bund. let's walk you through what is happening in the commodities space. let's show you what is going on. cap are up 1.6 percent. inr another 3.3%. that momentum continues in this commodity story. rippling back to other asset classes. oft is -- there are plenty big stories. let's get the bloomberg first word news update. here is juliette saly. juliette: and the u.s., the country's big bank have announced larger than expected payouts in the wake of the stress test. and bank oftigroup, america led the way. it is the first time that every lender has cleared the key regulatory hurdle since it began in the wake of the 2008 financial crisis. shares across the industry
rallied in late trading. u.s., the trump travel ban will come into effect at 8:00 p.m. eastern time according to a person familiar with the matter. the us -- the restrictions will apply to migrants from six countries. the department of homeland security is imposing broad new demands on flights from america to other countries in an attempt ofcombat the threat terrorists hiding bombs and laptops. chinese president has arrived in hong kong to mark the 20,000 anniversary of the british handover. he said china will continue to support hong kong's development and livelihood improvement. he reiterated that he will ensure the smooth the flotation of "one country, two systems." the european union is willing to give ground on its demand that its judges protect the future rights of eu citizens in the u.k. according to three eu officials, brussels could settle for an alternative to its original position and the european court
of justice must be the ultimate arbiter, putting the onus on the u.k. to increase the level of protection it is offering. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. much.thanks for a let's talk about the carney confusion. a week after signaling near zero interest rates were appropriate the bank of england governor mark carney suggested yesterday the time is nearing for hike sending the pound higher. the euro hit a post u.s. election high this week as comments from mario draghi bolstered the ecb is preparing to unwind stimulus. maybe a rate rise. take a listen of what we heard from central bankers this week. >> monetary policy should not be overburdened i other tasks -- by other tasks. you cannot that, underestimate the importance of
innovation, of productivity. important in informing our monetary policy. >> some removal of stimulus is likely to become necessary if that trade-off continues to listen. you can see the chart and plot your view on where it is headed. as it lessens the policy decision becomes less conventional. >> we can be confident that our policies is working and it's core effects on inflation will gradually materialized. but for that, our policy needs to be persistent, and we need to be prudent and how we adjust its parameters to improve economic conditions. matt: let's get to mark team ind from our mliv
singapore. an incredible day in portugal for central banks. for the markets. have we made a big turn here as far as what the global markets expect from central bankers around the world? mark: i think some people will be looking back on this week and saying it was a watershed moment in money market policy. to have so many central banks when the space of a few days to ,e saying almost the same thing moving toward a slightly tighter monetary policy is quite unusual. if you think back to when quantitative easing started, it became a train that everybody jumped onto. the fed seems to has set the path for people to move away from that create we have had the ecb, bank of canada am a bank of england, they are saying similar things and mario draghi as well. this could be look back on as being an important week in terms of the change toward a more normal monetary policy.
guy: moore fed speakers coming up over the next few days, i will be fascinated to hear what they say. the fed has been left out of this process. what i think is interesting and you guys have highlighted this this morning is that the yield gap is starting to look a little bit stretched and you have this chart, the bloomberg dollar onex versus the yield story the peer group and the yield spread. that is the white line there. that is the real yield and the dollar index. this trade is lockstep but it is broadening out. is the move against the dollar over done? mark: not necessarily. joining this party where they are going to move away from highly negative rates, that is a significant change and it will take quite a bit of adjusting by investors in the market to get used to that. you're talking about the second more -- most important central
bank going from a super easy policy possibly back to more normal policy. that is like watching a supertanker trying to change direction. it will take a long time in the market will go too far the other way before it realizes it needs to compensate itself so in the short term, i do nothing you will be help for the dollar it all. -- i do not think it will be help for the dollar at all. matt: the top central bankers are into medication often. the factink this was that we have all these hawkish statements from the big central bank leaders? mark: it is probably not a coincidence that they'll met together this week and they are saying a similar kind of thing. what they are doing is they are supporting each other in the sense that the u.s. had theirize they do not need easy policy. the others are coming to the same conclusion. probably not all to the same extent that they are all going
together and saying it is about time that we shifted in a similar direction. matt: thank you. mliv blog.rd for you can follow on mliv . ,ecommended in these volatile volatility coming back and risk on times. definitely check out mliv. guy: let's talk about what we will have later. this man, we have been talking about him and we will talk to him. we have an exclusive interview with mark carney 11:30 a.m. u.k. time. francine lacqua. you can watch the show, all of our shows, what we are putting out on tv . you can use the video stream and it is amazing. you also get is the functionality that goes with it.
you can break out the charts come a you can see the data that we are talking about, you can talk about the programming, what is coming up, what is the breaking headlines, what's functionality we are using, what charts we're talking about, and you can use these on your bloomberg screens and you can it involved, the little button hidden down here. you can get in touch with the team. interactive television. the i.b. function available by that button down there. fully and confidence. what will be -- we be talking about next? considering cuts to the $34 billion enter -- infrastructure plan. we will cross to paris next to get an update to talk about what it means for the french economy and the euro. that is next. this is bloomberg. ♪
matt: welcome back to the european open. 15 minutes until we see the start of cash trade across the you -- u.k. and the continent. let's get the bloomberg business flash. beingte: staples is bought by sigma partners for $6.9 billion. sycamore is paying $10.25 a share for what it called an iconic brand. it is one of the largest retail deals of choice 17 and cap's more of a year of turmoil which was thwarted in an attempt to make its own acquisition in may
2016. delivery hero. completing the biggest tech crossing the public offering. for 25.5 euros apiece. a market value of 4.4 billion euros with trading due to start in frankfurt tomorrow. murdoch is expected to find out whether he is 11.7 -- gother his bid is likely to ahead. he come six years after a previous attempt was sunk by a phone hacking scandal. karen bradley is expected to tell parliament what she intends to do about the takeover by between for century fox which already owns 39% of sky. that is your bloomberg business flash. guy: thank you. president emmanuel macron is freeing up france's labor
market. theirconsidering trimming infrastructure plan. now, our guest. we have seen what has happened with the euro this week, part of that probably is what is going on with mr. macron. our expectations in financial markets too high for mr. macron to deliver? that is the first big test for emmanuel macron. difficult but we are confident that they can test this reform. he has a strong ability to listen and has had many meetings with unions. there is a feeling that the unions, the majority of the
unions is [inaudible] to negotiate. guy: when will we know whether or not he will be successful? he said he wants to move fast. how quickly can he do this and when will it be able to score his success? that at the end of july we will have already the flavor of whether he will consider are not. he wants to speed up the process by limiting the amendment that [inaudible] can make. we will have the flavor by july. we have athe u.s. saying, it is the economy, stupid, which means to voters, the public, the only really care
about the economy when it comes down to it. the european economy and the french economy have been in a real recovery. i have a bloomberg shot here of eurozone pmi's, number 9230 on the bloomberg. the bottom line is if you look at the blue line, euros and deposit pmi's putting up a real recovery. is emmanuel macron really thisng a big boost from economic recovery as far as the voting public is concerned? guest: it seems that he has been lucky. if you look at consumer confidence indicators, there is a 10 year high in the eurozone and france. and france it is falling a little bit. indicators real data we see, if anything, it is an
improvement. we see some acceleration a private investment. that was not the case the last two years. trade [indiscernible] and that is remarkable. emmanuel macron is lucky and the momentum will help him. help -- willat that help get his reforms through and will those reforms be business friendly enough to continue this recovery that we have seen? if background gets his wish, is that good for investors as well? it will be good for investors, yes. the first half of the question, can you repeat? matt: is it good for investors as well, are there reforms that
macron wants to push through, if he has the ability to do that, are they going to continue this recovery that we have seen in the european economy? guest: yes, definitely. one thing we should underline. government has passed a lot of structural reform in 2015 and 2016 and that the reforms even though they were not popular have an effect in terms of macro [inaudible] an positive impact in 2018. macron will benefit from the reform. trading --ease are oat's are trading [inaudible] is that the right price?
in a very sharp tightening of spreads. been, we observed very stable sovereign growth. there has been some tightening. the ecb has been downgrading its forecast. they delete the postponement of tapering. vote is -- [indiscernible] [indiscernible] and voters will pay -- claymore in the market. we have to consider that jet to gdp ratio in france is around 100%. while it is 70% in germany. we have a gap in terms of the --
between france and germany and spain and germany. this has to be applied by the market. the spread is too low for france. guy: has the market overreacted to with the ecb has been saying over the last 48 hours, has the market misread mario draghi or do you think the market has got it right? guest: i do not think so. exit.b is looking for an they have to diminish to reduce their accommodation. they have to prepare the market. this has to be done gradually. ecb willtely think the be able to reduce its policy measures in 2018. -- thing we monitor is [indiscernible] this is still very low in the eurozone. but we think and we are showing
we areging signals and the acceleration of coefficient in europe. this will allow the ecb to exit gradually. inexpect a sharp reduction 2018. i do not think that was an overreaction by the market. guy: that is really interesting. thank you for student -- spending time with us. joining us from paris. matt: murdoch's fox, we will find out whether his 11.7 billion pound bid to buy the rest of sky will go ahead. karen bradley is expected to tell parliament at 10:30 a.m. london time what she intends to do about fox's takeover prospects. analystg intelligence
joins us. what should we expect and how likely is it the deal will go through? approval with remedies or a markets to the authority or a rejection of the deal. after somewhat weakened government following the election, they have an issues, there is a higher chance that the culture secretary will refer the case to cma. it will take another six months for the deal to be revealed. guy: is the phone hacking scandal still an issue? >> i do not think so. even at that time it was not an issue. they conducted a test for sky some criticismth of james murdoch. politics was making it
difficult. >> absolutely. there is the political background but the whole process needs to be away from projects and unbiased. there is the chance that there is an approval eventually. how important is this for fox that he goes through, putting the murdoch interests aside, how much does it matter to the company? >> it is an interesting sale. if the deal is referred to cma and they find it to be revealed, fox needs to pay 100 72 million pounds to sky shareholders. there is that cost. if the deal is approved what fox will get is a distribution platform in europe which allows the company to be a global entertainment and distributing business. guy: we will look forward to that decision later on and bring you that to you. with plenty of analysis.
guy: morning. welcome back. market open, one minute to do. it is going to be a positive session. we will continue the momentum into your. that's what the fair value circulation looks like. we have seen iron ore prices well bid. that could ripple. u.s. banks strongly bit yesterday. how much has that changed the story? lots to think about. especially currencies as well. i'm taking a look at the pound over the last three days of trading. you can see declines we have had up to the high point so far the session, 129.79. ant obviously tends to be
indicator of which way the ftse will go. the pound is up, the ftse comes down. the pound is down, the ftse goes up. it looks like it will be a ftse, andpen for the gains for the pound. something fairly unusual. guy: let us show you that open. ftse come through, already positive. climbing up .3%. we are expecting more than that. the 74 handle could be a run the corner. a similar performance elsewhere in europe. it will be interesting to see what the market does on the back of the stronger pound. the market makers have a lot to think about. the minors will be interesting. keep an eye on sky. there is the aex, opening up .4%. the stoxx 600, .5%. bunds selling off already. you have seen a ripple in the treasury market. gilts opening up. manus cranny. manus: look at these financials.
we are storming it up p or, up .7%. to get toven years where you can buy back $64 billion worth of u.s. equity. how long will it take for european banks to be in the same kind of thing glorious position -- vainglorious position? under 7%stocks are up on the year. technology up 15%. financial services up 15%. we are going to the halfway mark . that is the kind of momentum. global stocks that had the best start of the year since 1998. how much money has float into europe? is there more velocity to come? those financials are strong despite two of the italian banks getting knocked together. i love this. is dancing.
it is doing the draghi to step. there isa belief that a shift in gear, tone, sentiment, from four out of the five major central bankers. is that the case or are they saying that you have had it so good for so long that we need to begin that substantial conversation about normalization? despite that, you see the euro rise again. is that a dollars off the story? -- softness story? it is driving the euro higher as we see the discussion on the ecb's choreography coming into place. orders at 114.10. when it comes to sterling, matt mentioned it. what you have got is a real velocity coming back to sterling , and i suppose, to a certain extent, you can debate this. you know, is carney unreliable
or saying i want to see more data? if i am wrong, i will join the fray? i will join the side of potentially raising rates? is that this is your u.s. government bond spread. i guess the gilt spread is just off the high, record high. what next for the spread for the differential between the two? that is the question. can the fed stay the pace with what they are doing versus what the market expects from the u.k. ?the other 2017 has gone from 7% , 7% before the june meeting. guy. guy: manus, thank you. manus mentioning what is happening with the financials. you can see what is going on here on bloomberg. he is also hours numbers this morning. the market finds these favorable. up 4%. strongly.g
glencore, rio, anglo-american, all trading strongly this morning on the back of this pickup in commodities. intoe seeing it reporting the european space. european markets on the front foot. the aware of that. why is that significant? a bunch of the stocks are london-based. stocks tend to go ex-dividend on the third day. s rolen to the downside. next group, ex-dividend. a bunch of these names all the way down here are going ex-dividend. ignore those. the real story is on the upside. the dividend story out of london is something to pay attention to. matt: absolutely. i want to pay attention to central banks after a little bit of chronic confusion. i week after signaling near zero interest rates, the bank of england governor suggested yesterday that the time is
nearing for a rate hike, sending the pound higher as we have seen in a few charts. comments from mario draghi bolstered bets that the ecb is preparing to unwind stimulus, he unwound those comments little bit later. joining us now is cameron wants, senior advisor at rock rock. thank you for joining us. let me ask you what you think to say- i don't want coordinated. we had central bankers from the top three central banks in the last week signaling even more hawkish footing. is this a watershed moment for money markets? ewen: let us be clear. less dovish, not more hawkish. i think that is an important point to put on the table. what interests me about the tone from the central banks is that it is all slightly different. interests are starting
to be more important in the dialogue and there is a subtle sort of switch from the inflation to growth in terms of the comments. really what the central bankers are saying is if we do not reduce accommodation as economies continue to expand, we will be loosening. we do not want to do that because financial conditions are loose. we are concerned about some of the implications. have got a look at financial conditions with the bloomberg screen. our users can access this at home. 9221 is the command to access this chart. eurozone financial conditions in white. obviously, they have clearly underperformed the u.s.. financial conditions in blue. they are coming back a bit. what do you think about the ecb
and draghi's comments. they seemed initially much less dovish than the market had expected from the ecb president, but he then had the ecb walk's comments back shortly thereafter, confusing the markets even more. ewen: i think we need to unpack it between the market positioning, which has driven a lot of the fluctuation in the short term. that what mario draghi was saying, it is evolving a little bit and the important sentiment was about if we keep policy as it is an asnomy continues to recover, our saying a moment ago, we would be loosening financial conditions. i do not think that is inconsistent. , that is the question the reporters on a focus on. what he is saying is that we are going to reduce the pace of accommodation. we have told you that already,
and in preparing you for the timing of this and the degree of this. supremeaghi is a manager of medication. he has had previous forms as it were. and whatever it takes. prepare beginning to markets for the change. year-end forecast on my bloomberg is .6 according to the average of the economists. are we going to overshoot that .6 on the upside? ewen: we have to have a significant further continuation of the decent trend in european growth. for that to become the case. there is an enormous demand for high-quality assets.
first talk about the italian bank merger, this week. ultimately, that is not very good news for italian government of this everynse a senior bondholder was building. there will be considerable weight upon the italian state. guy: i want to go back to the bund story. d think that what draghi has done is to convince the germans that the italian bank bailout was a one-off? ewen: i think that is a good point you make. who was he talking to? where was he talking as well is the other point? is he now addressing the german fiscal -- saying we have to do this because we don't have much choice? but do not despair. we have not abandoned sensible policy. matt: where do you think we are going to see tapering next year? do you think we will be
completely out as far as the ecb is concerned, and raising rates already in 2018? ewen: i think that depends on the persistence of the european growth dynamic more than anything else. we think that we are in a slowly recovering and fairly long flat economic cycle, and it will take quite a long time to get to the point where you really need to rates in europe. obviously, the fed is into that pattern. here is the question. is the phillips curve dead or simply hibernating? he is focusing more on growth now. if the inflation numbers start to pick up, then the pathway you describe will come through. but tomorrow the old phrase, it is data dependent. att: you and cameron wants, --
ann will stay with us for incredible week of movement and volatility. we will bring you an exclusive interview with mark carney. that is 11:30 u.k. time. says, mario draghi suggests the phillips curve is hibernating. we will find out what mark carney things from the bank of england. you can watch the show using tv . guy, this is one of your favorites. guy: it is one of my favorites. it has been updated fairly recently, and a cannot help but want to promote it because it allows you to have access to some of the fantastic charts that the whole of the bloomberg team put together. you can ask us a question and get involved. we will talk political risks as theresa may faces a further test of her minority government.
isolationismt, and is a huge error. clearly a swipe at the u.s. and u.k.. ,nteresting that her colleague emmanuel macron, started to bring in a few slightly protectionist measures to the 27 to discuss as far as stopping takeovers of very important industries for europe and stopping losses of jobs. says europeanhe employment is at the highest level in a decade. curve isips hibernating. if that is the case, it would be great for them to see -- to wake up right now. angela merkel is saying she fors the right framework deepening the euro area. a number of these politicians, notably not angela merkel, have talked about the possibility of shared that and euro -- shareddebt and eurobonds.
you do not have the framework or structure in the treaty and constitution and you do not have the backing, politically, from countries like germany. guy: fascinating. you would have said anglo-saxon politics is on the front foot. turns out, that was not correct. the exact opposite seems to be true. to be represented today in london. theresa may facing a further test of her minority administration. we have the final votes coming up on the queen's speech. the opposition party is pushing for the richest to pay more tax and britain to keep the benefits of being in the european single market. plenty going on here. stateside, the health care bill is stalled until after july 4. down toss counting whether president trump will be able to pass any major legislation.
wrong.get it without this year would be dominated by european political risk. turns out, it is anglo-saxon political risk proving to be the problem. how big a mess is the anglo-saxon political environment in at the moment, and how much breathing space does that give europe to get its act together? ewen: if you take the united kingdom, confidence in government has been seriously questioned at this stage. that is quite a difficult position to be in with the brexit negotiations. if you take the european on july 13, we are going to have the extraordinary cabinet meeting in paris. i think from angela merkel's point of view, she sees this with the macron labor reforms. there is more to come. then a do carry through,
closer german/french access as possible. what my esteemed colleague described as potentially golden for europe starts to come more into focus. there is a lot to do before we get there, not least that the italian bank bailout makes a mockery of the concept of fiscal union. we need to be clear. you can cobble together for certain issues, but fiscal union is a long way away. that ultimately is the potential weakness of the euro. guy: that is the potential weakness in the euro, but nevertheless, we could be heading for a golden decade. how do i price that? how long do i want to be -- are we going to see the euro rising twos period? how do i put this into real sense? ewen: let me put it in the sense of what we have seen through exchange traded fund flows. .hrough the ishares
from about march onward, march, april, onwards, we saw them on european start to get interested in europe again. but there is still a way to go before they retrace on the outflow of the last two previous years. it is only halfway back. if you look at the valuation of european equities, it is a lot lower. it is lower for good reason because pound for pound, european companies are inferior on returns to equity to their american counterparts. the banking sector is a classic example. they pointed it out. incomes,companies, net the net tangible assets, 1.36%. the same number for france, 0.42. for germany, 0.03. italy, -0.67.
are stillanks struggling, even the best ones, to get back their cost of capital. are distributing capital back. completely different ballgames. by the am looking at -- way, we have a great tool on the bloomberg if you want to look at etf flows. lo. command is ff flows and afund number of different ways. i'm looking at a country breakdown. number two is in europe. do you think there is a place you want to invest in europe more than the other? is it smarter to get into france them to germany. is there a place that is cheaper, with a better trajectory? ewen: i think it depends on the
anatomy of the underlying stock market. if you think of europe as one big currency zone, it depends on the anatomy of the specific market. that explains why one is cheap relative to another. the focus is on domestically orientated businesses right now, although recently, there has been a bit of a pick up in interest to emerging markets. also, there is a big focus on shareholders value for some of the european listing global consumer syphilis companies. matt: you're going to -- consumer companies. matt: up next, check in on your market movers. we are going to show you what is going on in this gaining equity market right now. we're seeing another day of gains in europe. if we continue on this rise, we will get positive for the month. we are .7% of that on the stoxx 600.
across the board. deeper into the stoxx 600 and see what is holding us back from stronger gains. you can see a trend if you look at the mov screen. i haven't broken down to index points as to gain is. the reason behind the gain -- ec deutsche bank, ing group, bbva, stockgen. the banks are boosting is higher as you can buy not with the minors. you have the entire top 10 index point gainers on the stoxx 600 with rio, with glencore, with blt. take a look at the losers side. drugmakers bringing up the rear. roche is down. novartis is down. astrazeneca is down. piagio weighing on the indexes. really, the banks and minors are
a big reason behind the gains today. i will be that there. matt miller, thank you very much a handing that over to me in that form. 1.7. they are not as high as they have been. a looks like they are contributing factor. it is an upside to price. talking of surprises, up next, the surprisingly large payout from u.s. banks after the fed tells them they have more than enough capital following the second round of stress tests. we will talk about the banks next. this is bloomberg. ♪
matt: taper tantrum 2.0. unwind is preparing to stimulus. mark carney signals the time is nearing for a rate hike. bloomberg speak to the governor of the bank of england. an interview you do not want to miss. the u.s. stops short of willding a laptop ban, but increase the vetting of electronic devices. what does this mean for the european airline sector? what does this mean for airport security? make or break for murdoch. the u.k. government is expected to give it decision on the bed
for sky tv. will discuss the options. welcome to bloomberg markets, european open. i am matt miller in berlin, finally back in berlin alongside guy johnson and bloomberg's cushy european headquarters in london. guy: cushy, yeah. let us check out matt's tweet. cushy is probably unrepresentative of the difference -- let us talk about what is happening with bonds. let us talk about what is happening with a bunch of it -- the bund trade. you see it in treasuries as well. yields continue to move higher. prices continue to move lower. it was not long ago we had a .25 yield on bunds. you have got to remember that a one basis point move is a more significant story than treasuries at this point.
this is not to be ignored. on the have an impact european banking space as well. they attention to that. banks are certainly a story we will be focusing on over the next few days as we continue to digest the news out of the state yesterday as a plan to boost dividends after the fed said they have more than enough capital following the stress test. capital one was the only bank. it was told to fix material weaknesses in its planning. is still with us as -- ewencameron w cameron watt. >> i do not think it is a huge surprise. this is the top end of the range. what is good as the resilience.
the only pocket of concern is credit cards and auto lending in the u.s. is an issue. if you look at the fact that we , you have ratios above 9%. using 2, 3 years ago, that is unheard of. it is not a surprise. it is a positive. it is not quite as straightforward. in europe, we have debate about capital output, using internal methodology to make the ratio look great. there is no agreement on that. there is not a direct read across. they already said they will pay 75%. there is a very nice relative position. matt: do you see any pockets of one?rn other than capital was capital and the only issue? >> it is because of the consumer credit and the critical exposure that capital one has.
absolutely. on the consumer bases in the u.s., it is auto lending and credit cards we are beginning to think about. you look at the fsr from the bank of england the other day and consumer credit is there issue as well. for the continent, that is less of an issue. is an issue for banks. rising rates are good for interest income, but we must not forget the squeeze on the consumer because at some point, you have a trade-off. was making a point about income earlier on. the difference between the numbers posted in the u.s. and in europe is huge. and one factor behind that is what is happening in a fixed income space. ewen: you have only got to look at this test. it is 2.6%. you are nowhere near that. the pre-provision operating profit, the cushion have to pay out these things go
south is considerably bigger. >> europe is in a rebuild phase at the moment. we are beginning to get more capital. very different stages of where we are, and the u.s. banks are more profitable and can do share buybacks. there are few banks in europe. there are few you would think about for a buybacks. guy: great analysis as ever, jonathan tyce, joining us from bloomberg intelligence. ewen, let us come back to you. european banks on average are approaching a book value of around one. would you buy in aggregate the european banking space if that book value were to get north of one? ewen: no. i think jonathan made the point very sensibly that there are many different sorts of banks in europe. if you're going to pay more than one times the price for a bank, you want to be clear that it is
earning significantly above the cost of capital now, and on a consistent basis going forward. that is a sensible rule of thumb for investment banks were ever they are around the world. if return exceeds the cost of capital consistently, you can pay multiple. if not, you are essentially destroying the equity underneath yourself. there are other banks in europe. hsbc, without going into too much, hsbc happens to be a global bank in europe. it has a lot of parts to it that are going to be particularly attractive in the current environment. socgen -- to the italian -- do they mean that kind of criteria? guy: the banks that are a high beat of trade on europe comes back to the bigger europe trade.
you would have thought that if europe was getting into the golden era mr. hildebrandt talked about, it should be a significant part of that. we have already seen that, or is there more to come? ewen: but assisting was between a trade and investment. there is a catch up because financials generally worldwide are rising in price and there is a relative value point. ultimately, profitability has to direct what is happening, and the inferior profitability remains an issue. the net interest margin -- american banks are three to four times on tangible assets on fees what europeans banks earn. that is relative to europe. i think it is -- i think they are very much apples and pears. matt: speaking of apples and oranges -- ewen: apples and pears. matt: i see.
that is a british thing i guess. in any case, not in the apple family are the tech stocks. i guess i am wrong about that if you think about the pond. the strongest performer. this is the stoxx 600 broken down by groups here over this year today. tech stocks, even with the horrible month they have had, have been the best performer. do you think they have run their -- do you think they have reached their limit? is this as far as they can go from here on out? ewen: there is some rotation and market leadership and one should respect the relationship between the relative performance of financials and the shape of the yield curve. the first few months this year, the yield curves were flattening. they were financially underperforming. we are seeing a reverse of that. short inness is very the financials.
, that is ampanies big blanket description. i think one can see for example challenges in the social media space. if people are more inclined to take on the ballot she is an profitability and ask them to behave to editorial standards that take place in the printed media at bloomberg. is the cost ofre business. it will comes, into focus overtime. of twocourse, in one cases, government, as we have seen, in the unlisted sector. it is a winner take all market in need tech space. matt: do tech stocks in europe deserve to do as well as tech stocks in the u.s.? if i break down the stoxx 600 tech sector, the biggest weights infinia. nokia,
are these the same valuation is tech stocks? ewen: the valuations are the difference. the leaders in the united states are balance sheet-light. during off enormous amounts of excess capital. historically, that has been the dinosaur trade. termsre very different in of most of the european businesses, the x11 me-run businesses, they are not necessarily operating with liability-like balance sheets. matt: it has been a pleasure having you with us this morning. , senioreron watt advisor at blackrock joining us on the european open for the hour. up next, we get the latest from berlin from right here in the german capital on brexit as the chancellor is giving a speech to
the restrictions will apply to refugees and migrants from six muslim countries. it is imposing broad new demands for increased airport security on place to america from other countries in an attempt to terrorists with bombs and laptops. xi jinping has arrived in hong 20thto mark the anniversary of the british handover. he said china will continue to support hong kong's development. he ensures a that smooth implementation of "one country." mark carney has won the backing of more than 100 ceo's, pledging to increase financial reporting standards. companies with the combined market value of the $.3 trillion after on their weight behind that. if all disclosure that michael bloomberg, founder and jordi honor of bloomberg, chairs the task force. we will bring you an exclusive
interview with mark carney at 11:30 a.m. u.k. time. global news, 24 hours a day come apart by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. guy. guy: thank you indeed. we will continue the conversation around what is happening with the travel ban and also the increased security we are expecting to see at airports. the trump travel ban comes into force later today, but we will be seeing very shortly, more scrutiny of laptops and passengers as they transit to the united states. that story is coming up, next. we will have analysis on it. markets continue to remain buoyant. this is bloomberg. ♪
matt: welcome back to "bloomberg markets: european open." looking at gains across the board as far as the equity indexes are concerned. thats focus in on a topic has driven a lot of the volatility. the european union is willing to give ground. this according to three you officials, essentially eliminating a major obstruction to the process of brexit negotiations. it would be significant concession.
-- iss now is herbert her heribert hirte. how important is it that this is allowed and u.k. courts be allowed to rule over the e.u. citizens living there post-brexit? let me first make clear that i'm working in the judiciary committee because i focused on the law issues of the brexit. one of the questions we address very early is the authority of the ecj after the brexit. one point is clear that the implementation of questions regarding the brexit, including potential post-brexit exit ecj.if thisp to the
is a question regulated in a post-brexit treaty, it is according to our view necessarily, up to the ecj to decide upon. even more, -- matt: up to the ecj and not up to the e.u. and the u.k.?in negotiations heribert: that is not up to negotiations according to our view. we think we initially agreed to a new treaty and this treaty includes the competent authority of the ecj. and if we go forward and establish a sort of arbitration institution offer, and so on, this would probably not be covered, but what our constitution permits us to do. and so, i see a potential problem as a conflicts which arises, the conflict between them and the german constitution. there would be a possible
solution around the e.u. and u.k. guy: professor, one very quickly an ecjfore i ask you related question. is it your understanding that once triggered, from a legal point of view, article 50 cannot be reversed? heribert: this is not absolutely true that article 50 cannot be reversed. there was a discussion yesterday in a meeting on this, and a couple of days ago in luxembourg, that there is a possibility to just withdraw the thearation to withdraw from u.k., and there is one point that is open. that is the question whether the declaration of the u.k. also includes withdrawal from the european economic area. so there is space for interpretation of what the u.k. could send to the european union, but also what the consequence is. guy: just to remain on that for
a moment, you were in a meeting yesterday. how a life is this discussion in germany at the moment about how this will progress? u.k. politics is in a mess at the moment and these kind of legal avenues become quite important. i'm wondering if that is a debate that has got alive where you are right now? arebert: in germany, we facing the elections in september and brexit is part of the discussion, and i think the more important issue in germany is not the question whether u.k. is going to leave the european union, but what is the effect on the rest of the european union. i think there is at least one positive effect of the brexit e.u.ion that the remaining 27 get included to each other and we have a discussion, very open discussion, on whether the issues on migration should result within the you 27 --, even if that you 27 come -- the
e.u. 27, even if the u.k. is leaving. matt: they have that set out in article 50 as well, but if they do not negotiate a trade deal in that time, which seems unlikely that they would be able to come are they legally allowed to have some sort of transition period, and is there a time limit legally on that transition period? heribert: that is a question which i think legally is one of the most interesting parts of the discussion. there is no time limit that by the treaty, and the interpretation and commentary is talking about this. they did not set out a, it. what we may see -- set out a time limit. implicitly, there may be a limit, the same limit a state needs to join the european union, which is between two years and four years, because otherwise, we would introduce a sort of new type of membership, thember of which enjoys
advantages of the union but does not pay anymore. this would not be acceptable under constitutional law. matt: it is possible they could negotiate a brexit and then spend the next four years, may be the next 20 years, in a transitional period as far as trade is concerned and constantly renegotiate their trade. heribert: the question is whether there is a maximum length. from the german perspective and the all over european perspective, what we do not want is cherry picking. this is exactly what would be against the spirit of the european treaty. that you get some advantages and do not have to take the disadvantages or burdens as well. matt: professor, thanks for your time. bundestag asmany's well. heribert hirte. is: the u.s. government demanding increased airport security as it tries to combat the threat of terrorists having
bombs in laptops. it is one of sweeping decades in the past -- sweeping decisions in decades. what does this mean in reality? what am i going to be seeing? >> more and has security, for one. the reaction has been positive because it does create a measure of certainty. it will affect up to 2500 travelers a day according to the department of homeland security, but it does not prevent travelers from bringing laptops, which it proposed before. travelers will be subject to more enhanced measures. the department did not specify that. expect longer lines, but the reaction has been positive because of the certainty creature the industry. been the latest in the developments here, the latest on the trump administration's proposed travel
ban. how does it relate to the u.s. supreme court's ruling on monday? >> separate measure, the state department released some enhanced visa requirements for individuals from six separate predominantly muslim nations, that they must show a bona fide connection to persons living in the u.s., whether it is an immediate family member, or if they have existing visas. existing visas will be honored students andns for journalists. the state department element is going to be a little more specific and creating some enhanced requirements for individuals to get visas. guy: we will leave you there. thank you for the update. something germane to many people watching this program to plenty of travelers out there. matt, stay with us. we have a lot to think about. you and i are going to radio, so we will be carrying on the conversation. we will be joining manus cranny on london dab digital radio.