tv Bloomberg Markets Americas Bloomberg July 5, 2017 10:00am-11:01am EDT
♪ fomc minutes, north korea and more coming up but breaking economic data in the united states. two piecess, we have of economic data. durable goods orders for the month of may, the final reading coming in as the serving called for, a decline of .8. factory orders now, they had called a decline of .5, but down .8. bloomberg intelligence strategists have been writing that the manufacturing segment is on hold in weight, basically in line, slightly weaker readings for both factories in durable goods. this is what we were looking at moments ago. next trading action, the s&p 500
and dow down. the nasdaq up slightly. the nasdaq is up about .4. it is going to be interesting to see if whether or not we see something today as monday. the dow had been up. the nasdaq cap ties up .6. -- had highs up .6. now, we are looking at something different. we take a look at the imap, a great way to see what is happening sector wise, and we see mainly red. very small declines, lack of big conviction and technology up .4. it is off of its highs. it will be interesting to see whether these gains hold. one segment outperforming within technology on the chip base, we have the semiconductor index up
about 1%. it does not appear to be anything fundamentally driven but stocks were down 5% last week, the worst week since the beginning of january. perhaps a relief rally. micron is notid another double ahead. could the stock double to $60? in that imap, energy the worst sector. oil down, session those down nearly 3%. perhaps investors are worried about that supply glut we have been talking about. plus, a breather after relatively big gains. there are near-term indicators to worry about. this does seem to be driving conical celebs and exxon mobil. and exxon mobil. 20% today.e up by
it will change after earlier, and we have been up as much as .25. third and down about we have data out of the u.k. today. evidence the economy is weakening as brexit negotiations started. the survey follows factory and construction reports that showed both industries. chris williams, an economist, says while surveys point to .2%, doublewth of that the previous three months momentum, it was 10 years ago today that the bank of england raised interest rates in 2007. 21 bank rate went up by basis points. five months later, it was cut to 5.5% and so began to drift down
to that record percent in march 2000. little did we know we would have to wait another seven or so years before the next move, which was another cut of 2.5%, where we remain today. in mid-june, 6% something the bank of england domesticlosely was generated inflation. bloomberg has replicated the boe's model. they have a compensate measure for the u.k.. it is now available on the bloomberg terminal. the white line is that. the red line is the bank of england's 2% target. line is the instrument of the precrisis inflation target, which is probably around 2.7% year on year. gi measure, it is
amazing what you can find on the terminal. vonnie: we will be speaking about that later in the program. here is first word news. emma: mosque -- north korea's said the missile was a fourth of july gift to america. the trump administration called it a new escalation of the threat to the u.s. the u.n. council meets on the issue today. meanwhile, there were defense drills held. president trump has expressed frustration with china the four heading on a trip to europe. he tweeted, trade between china and north korea grew almost 40% in the first quarter. so much with china working with us, that we have to give it a try and quick. the european union and japan of reach an agreement on a new trade deal. it is set to cover commerce
between the two sides. japan's prime minister and european council president will shake hands on the agreement tomorrow. russia wants to speak to the current opec deal and would oppose proposals to four russian government officials. one says more cutbacks so soon after the existing deal was extended would send the wrong message to the oil markets. opec ministers meet later this month. s&global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. vonnie: thank you. p.m. eastern time today, the june meeting will be published. investors will keep an eye on signs regarding balance sheet reductions and looking for clues on whether more fed officials were concerned about low inflation. joining us from newport beach, is pimco's chief
investment officer of global credit and manager of the pimco investment grade corporate bond fund, the number one u.s. bond fund over the past 12 months. how did you do it? how did you statement number one bond fund at a time when everyone is waiting for some major capitulation? >> i think it is the benefit of pimco's investment process. we are looking out three years to five years. we have a the picture and enormous team of 240 portfolio managers and 55 analysts. talking specifics. what were the winning trades? we have been positive on housing for the last five years, and the fund has been overweight. investments -- weighted investments and we are favoring consumer sectors.
also, we bought energy at the lows in the first quarter of 2016, a contrarian trade investment that pimco made. energyably bought more bonds than anyone back then and had taken profits on about 90% of that position, but that was our research edge. the final think is we have been opportunistic around the world, tapping into selected emerging markets where we see opportunities. vonnie: i know you are buying argentina, brazil, and illinois. at what point do you need to get out of those kinds of trades? i am talking from casino trades to illinois. they are all investment grade but rarely some of them. -- barely some of them. >> good point. this is why we look out three years to five years. we think over the next three years, the returns
on financial assets will be lower. we are concerned about monetary policy reversing. we think the fiscal expectations are too high in the u.s. and we are worried about geopolitical tension. risk.e been reducing i mentioned we had taken a lot of energy positioning down across the firm. in general, we have been reducing risk across the board. the biggest positions we are holding on to are those where we have the highest conviction near-term and that remains to be housing the consumer in some select emerging markets. mark: going to ask you about the fed, when we get minutes from that june meeting, when the fed raised interest rates. one of the unanswered questions is when does the fed start unwinding the balance sheet? we know the start date. what clues will we get from the minutes? when it starts, what is the impact on the treasury market? >> we think they probably will
pause on rates for this meeting and maybe the next. the market is only pricing less than half a hike for the balance of this year and less than two for next year. in terms of tapering the balance sheet, it will start in the fourth quarter. will watchthe market inflation. inflation has surprised over the last months on the low side. there are tensions with north korea. nevertheless, the fed is set on normalizing rates. rates have been low for so long and because the private sector is healing, specifically the unemployment rate has been coming down about .5 annually, that is giving the fed confidence they can continue to normalize this comments cheap, albeit at a gradual pace. mark: among the interesting ,omments in sintra last week was janet yellen in london and her and a couple of her colleagues at the fed noting
high asset prices. she called them somewhat rich. are we had a stage in the fed could justify its rate decisions with financial stability arguments? that is a secondary argument. the primary objective of the fed is unemployment and inflation. there one factor is kicking in strongly and that is the unemployment rate and payroll growth. sector managed private jobs over the past years and inflation has not gotten to that 2% target. i think the fed is looking at financial stability. markets have done well. we would argue equities look most of these financial assets look highly valued. i do think there is a case to be made for the fed to gradually take away some of this extraordinarily accommodative policy, which has been in place for years, given the global
economy is improving and the private sector is pretty healthy now. pocketsthere has been of talk of something that one of ofr economists made -- sort made modern again, if you like, is there a minsky moment brewing in the united states? >> i think one of the issues is the market really romanced 3% real growth. if you look at the u.s. economy, we have been growing at 2% real to sevenast five years years on average. it is unlikely we will get to three. the stock market in november and december romanced the trump tax cuts, which pimco did not buy into. that is one of the reasons we have outperformed our competitors. we bought bonds and interest rate duration in the fourth quarter as rates backed up and
we have been more conservative about what gets done in washington. we are looking for more subdued 2% growth, with inflation eventually getting to two, but i think the markets have been romancing and aggressive fiscal package, which pimco has been much more conservative on. vonnie: i went to get your thoughts on the balance sheet. if you dip into the bloomberg and see the chart we have, 829 is federale line reserve, and the blue line is bank of japan. what is the worry about such a large $4.5 trillion balance sheet, when gdp were way below japan and well below the european central bank? >> the u.s. had a deep financial crisis in 2009, which affected the banking system, consumer confidence. the fed did a good job under
bernanke and they had to expand the balance sheet but we are a years into the expansion, and the private sector is doing well. u.s. canly, why the start to taper that balance sheet is we have been in a global synchronized earning situation. u.s. earnings have been well. the private sector, meaning consumers and businesses, are doing well in the u.s. we do not need that level of support monetarily in the u.s., so that they can gradually normalize rates, but they will have to do it slowly. this is in the context of a global economy we think is relatively fragile in terms of growth perspective. vonnie: i want to ask about the ecb and german to year yield at -60 basis points. this is proving a problem for the ecb buying bonds and moving to the periphery, consequences? >> the consequences are that they are hitting her limits. we do think the ecb will taper.
we do not think they will do anything on rates for some time for the reason inflation in that 2%s further below level, which central banks are trying to get to. i do think the private sector is doing better in europe. we can gradually taper but this is going to have to happen in a gradual pace because the global economy is not that strong. this tapering of balance sheets is going to be a gradual, slow process. vonnie: marquis so, of the -- mark kiesel of pimco, thank you. check out that wonderful profile. mark: yes. coming up, geopolitical concerns over financial markets. the june fed minutes will be published later. futures in focus is next. this is bloomberg. ♪
york andive from new london, i am vonnie quinn. mark: i am mark barton. this is bloomberg markets. gold rising, geopolitical concerns mounting. mr.ing us to discuss is evans. we are up today on geopolitical concerns. has gold found a bottom for no? -- for now? >> i think the price action is reflected of the market psychology we have seen in gold. when the development of broke regarding north korea firing off the icbm, gold reacted as you would expect. we were up about nine dollars
overnight, but those games that evaporated as we opened in the united states. this reflects the pessimism of the overall economic environment that is not conducive for gold to find any dynamic upside move in. remain inhe bears control, technically, today? tim: yes, the technical action -- it will require a lot of buying to turn the corner and get back above the high print on monday last week. the bears put a hurting on the market and it would require some kind of fundamental shift in the market to give the bulls wherewithal to overcome that level that we broke down from last week. mark: or you falling -- oil falling, what do we make of this russian news, set to oppose any
proposal to deepen this opec led reduction cut? this that mean that is dead in the water, any notion opec could cut production deeper if needed in the future? : a lot of the rhetoric surrounding the extension of the production cuts, the term often used was basically i will do anything that is required to get crude oil prices higher. traders analyzed that to mean that if this extension was not working, opec would go back to the drawing board and extended further, deep in the cuts. officials,ssian first reported by bloomberg this morning, indicated they are not interested in that. any traders that were hoping to see that, it will not happen, according to russian officials now. mark: tim evans of the longleaf trading group. vonnie: thank you. still ahead, the move from asset
this is bloomberg markets. i am mark barton in london. vonnie: in new york, i am vonnie quinn. it is time for our smart data segment. abigail: thank you. the move from active to pass it is picking up speed as a nearly half a trillion swing in the first half have doubled any sharks of the year. joining me is a senior atf analyst -- atf analyst. side, we dig into this can you take us through that $500 billion selling? it is massive. >> what is different about this year compared to last, last year, active lost $400 billion
in that was a chunk of the swing. active is not doing that but million,, only 80 which is not great, but what is compelling is the money into passive. , so 150 roughly buying index funds going largely to vanguard but then you have to and a 50 billion that bought etf's. that number is staggering. a record year, so break down where that money is coming from. a lot is from advisers. some tipping point has been reached and most of that money is going to products charged 20 basis points or less. when we look at these flows to passive, i think it is easy to see it is an extreme situation but i would say it is extreme relative to the world that existed 25 years ago, were 99% of assets or managed actively.
you could argue that was extreme in moving towards a more active-passive equilibrium, but that has yet to be determined. abigail: you are reminded me of a conversation -- reminding me of a conversation i had, talking about this record low volatility could have to do with the fact so much money is going into passive. you are talking about new money going into passive. what does this have to do wither the vick? ic -- with the vic. eric: here is a couple things i would counter to people or active managers thinking there thieeir hat.g the 2.0 it make is i looked at two thousand eight. that was when vol was high and it was like any other year. they tend not to do better in
bad years. the variable people are not talking about a lot is the internet. it has come along and spread information. i think that is what people are going with cheaper products. morenk that is what it is secular than cyclical. abigail: if you could break down the smart data side superfast. growth took and monday, but lost money, even though it did well. people are scared from what happened last year. abigail: thank you. vonnie: thanks to abigail doolittle. still ahead, geopolitics. this is bloomberg. ♪
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let's check in on first word news. emma chandra has more. emma the united nations security council: holds an emergency meeting today. secretary of state rex tillerson called the launch a new escalation of a threat to the u.s. u.s. and south korean forces testfired antimissile weapons off south korea's east coast. president trump is on his way to poland. later this week, he has the g-20 in germany, where he will meet the russian president. analysts are concerned about the meeting. they are worried it could create a mismatch, a former soviet spymaster against a leader in new to global affairs. that decision was made by five countries investigating the disaster. malaysia flight was on its way from amsterdam when it was shot
down in 2014. there are no suspects so far. the state of illinois is one step closer to ending its record budget impact. the state senate overwrote the governors be tell of its budget vetoill -- the governors b of the budget tax bill. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. vonnie: thank you. swirlingcal issues are as the leaders of major world economies touted this week in germany. president trump has divided the u.s. and down his way -- and on his way to poland. chinese president, meanwhile, is in germany meeting with angela merkel. markets will be fascinating to
see what emerges, which common it's in the g-20, and the communique will be bland. all of these leaders are meeting behind closed doors. the big elephant in the room is the u.s. president and how exactly the geopolitical landscape changes after these meetings. and: if you want to read ask along the bloomberg, we have time for one, it is on the trump-putin meeting on friday in germany, the headline is trump-putin talks raise anxiety the x by master will get the masterand -- the ex-spy will get the upper hand. saysources -- sources have whenever he meets the president, he tries to get the other hand. he has training in deception.
trump is new to these meetings, so it will be fascinating to do the trump-putin dynamic when it takes place on friday. vonnie: looking forward to the poland speech from president trump. has europe turned a leaf with its troubled banking system? they approved a $6 billion plan not toue a bank that was the brink of bad loans and bad management. deutsche bank's to economist -- chief economist joined bloomberg with his thoughts. >> i have always viewed that the nonperforming loan problem tohin europe is impairment growth. nonperforming loans tend to make theyank conservative and keep recycling the same loans, not enough credit for the innovative sectors in small and
medium-sized enterprises, so it retards growth. bank resolution and recovery directive came at the wrong time because it made restructuring of these banks and ejection of state money for capital difficult to do. it had to be done organically and combine interest rates, which was difficult for these banks to do that. i think now with the 20 plus billion that has gone to nato banks now, which is 2% of increase in the gdp ratio to 136% is big. but no, i do not believe it is the end of it. i think more has to be done if we are capitalizing the system. hopefully, now, the italians have found a new poll to get around. that model can be used again in dealing with future bank dealings also. >> you believe this gets rid of the systemic chris pattaya --
risk for italian banks? does it mean the banking in is no longer there? >> that is the key point in terms of europe has improved. processn' -- macron impact ons a positive systemic risk. systemic risk is gone out of the system. that was a concern. i think it is basically gone now. on the other hand, an important architectural feature of the european banking union is now typical, and it is a european where it eu was doing it, you create exceptions. who still abides by the percent of gdp for deficit limitations? gdp fors by 3% of
deficit limitations? it does undermine credibility. tom: if it is a european way of can they clear markets in europe to allow for a sustained economic growth and a lower unemployment rate? the jury is still out, isn't it? >> i believe so that the recent french election -- i think france, germany, it is an outlet to lead to a forms, labor market reforms in friends and that would be beneficial. and then, that might spill over into europe. in terms of institution building within the eu, i think there's more momentum now. we have to see how well macron can influence what he wants to do but followed give him the benefit of the doubt.
i think europe looks different. unemployment remains the problem but i think we now have seen the beginning of dealing with that. time has come to raise rates. vonnie: deutsche bank chief economist earlier on bloomberg surveillance. mark: coming up on bloomberg markets, the rand plunging against the dollar. johannesburg with the details. this is bloomberg. ♪
economies are gathering this weekend in hamburg, germany, for the g-20. president trump is on his way to warsaw, poland. chinese president xi jingping is in germany meeting with angela merkel. joining us from berlin is our bloomberg reporters. the narrative this week has been are china and germany going to pick up the leadership asset, which has been dropped by the u.s. in the wake of the election of donald trump? are there limits to how far you germany-tandem -- a germany -china attendant can go? >> that is a fair point. they are bound together by economically in a big way, the world's number one exporter, and number three exporter, germany's car and machinery industry is the big german stalwarts.
they have been doing an increasing amount of business in china, so the economic relationship based on what both sides describe this free trade is important. and a joint news conference today with xi jingping, it was talked about in which other fields may be cooperating if you like civil society fields, but they are coming at it from different traditions and different geographic locations. vonnie: if i can bring in kevin cirilli in washington, d.c., it is an interesting choice for president trump to start off in poland. it is causing concern he may try to divide europe with his speech. what are you hearing about what he might say? kevin: there is no question the north korea intercontinental the stick missile test is at the forefront of all of the
president's second international fromto a different feel his first trip. from u.n.ready seen ambassador nikki from u.n. ambassador nikki haley that she has called for there to be a special security council later this afternoon to address the north korea right. -- north korea threat. south korea and the united states responding with a missile test of their own, despite vladimir putin suggesting that not be the way to go. this is going to be at the forefront of this. in terms of economic sanctions, president trump already signaling in a tweet before going to warsaw, that this is ant toing they wen pressure the chinese on. tweeteded that -- he that. last week, steven mnuchin announced there would be sanctions against the china bank
, a chinese financial institution, and you will note that if you look at the ties between china and north korea, exporting and importing or north korea and china exceeds more than 80%. will this come up between angela merkel and xi jingping? how often what they talk about trump and the tweet he sent out this morning needling china? tony: that was in the public sphere. both of them are concerned and say as much about north korea and the implications of that, but the focus in berlin -- you have to remember this is two days before everyone meets in hamburg for the g-20 -- the focus was on what mark was saying at the start, there is a gap to be filled here and there
is a mutually beneficial relationship between germany and china at least up to a certain point. and this is what they were talking of today. in fact, later today, we will have south korea's president in berlin, phyllis also going to be at the g-20, so that will most likely be a topic at that meeting. berlin, and kevin cirilli in washington. well, let's move to the middle east. the saudi led lock base meeting in egypt today. the deadline for compliance with a list of tough demands expires. this takes us to issues of interest. there's only a handful of old-fashioned kings, the kind were subjects have to
follow the combined. -- their command. there is a focus on succession plans, which could pose a risk to the country's alliances. modernize, gulf monarchies remain bound by century-old traditions. saudi arabia's king elevated his 31-year-old son to crowned prince last week. it ensured his own mind would succeed to the throne. incession is also in focus the united arab emirates. both of them have battled health problems. there is no clear successor in either country. in the united arab emirates. succession in arab monarchies is complicated and sometimes are good but sections of an extended ruling families behind closed doors, with pledges of allegiance from tribes and religious leaders. toy have tried
institutionalize the process by appointing a counselor family members to advise the sessions. other monarchies include brunei. royal family's can be a source of stability. the middle east holds about half of the world's oil reserve. eae joineda and the in the collation -- in a coalition with the united states. protests were triggered and to a lesser extent in oman. the leaders recognize the need to modernize. even so, concerns about the region security have helped the traditional monarch stay in place. you can read more about the middle east in our quick takes on ni quick on the bloomberg.
mark: let's get to africa, the rand is plunging against the dollar. the african party propose the central bank should be fully stayed. where are we in this process? how close are we to the central bank being state-owned? ruling ancmember the is the ruling party it's up and it can in state this in the short time until the leadership comes in effect in november. this could sprint ahead a lot. we are something that are said to have been brought up by unions within the anc in itself, so a discussion that has not begun. suggests the mandate of the stock reserve bank should be halted to make growth the most important priority for the central bank.
to change the constitution in order to do so would mean harsh words by the anc and finance minister with the central bank governor even saying that they will fight this tooth and nail. early in the process -- we are early in the process but it could sprint along quickly. mark: does this present a threat to the central bank independence and what about other institutions? >> it would seem some are mixed with regards to what could happen. economists are fearful this could roll the ball to what happens in the future. the private shareholders currently elect seven members of the south african reserve bank board. if that changes to government changing that, this may lead to alter your motives but that is all fixed relation -- alter your motives. if the constitution remains as is, even if there is different
shareholding, the policies and how the reserve bank functions would remain the same. it is not look like an immediate as to but it is worrisome what could happen in the future. vonnie: right now, the land is to put -- rand's 2% weaker than the u.s. dollar, so what does the market suspect to? been onhole year has hold, if you want to call it that. including the removal of then finance minister, it did begin it seems this is another factor that has brought it lower. it had gained around 4% as of yesterday this year, but that is set to go down about 13 and continuing. a lot of pessimism with regards to read this might leave south africa and the central bank.
vonnie: if this happens, and it would be unprecedented in the world of central banking for a central bank to become a political institution attached to the politics of the country, what would it mean for zuma and the anc? >> it would mean they are strengthening their power grabbing at this point and one would also say whatever happens from here on with me it would only help the zuma faction. they have tried to drive issues restitution in the country, so that becomes a key focus. how much funding goes through to own needs, what they feel are important will become a key factor. how did begin to take a hold of this economy is the real issue and that is own what might happf the reserve bank is taken away, so to speak, from private shareholders. divisionswhile, the within the anc continue to be
laid there in front of everybody, how is this going to involve the head of as we approach the end of zuma's tenure as president? >> speaking on the end of his tenure, his closing remarks with regards to the anc conference that ended not too long ago today, we heard the most from the president, saying that sections within the party need to dissipate, they need to end in order for the party to move ahead. unity needs to be the call, but we can see the factions are getting real. at this point in time, it is about to heat up. we are bound to see more political instability out of the political party ruling african national congress. abile, thank you for joining us from johannesburg. much more bloomberg markets,
mark: live from london and new york, i am mark barton. vonnie: i am vonnie quinn. this is bloomberg markets. mark: time for a look at some of the biggest business stories in the news now. amazon will create 1800 full-time jobs in their new fulfillment center. the 855,000 square foot space will allow workers to package custom items, like electronics and toys. this is amazon's first facility in utah. airlinesth chinese espied by debt $22 billion, including a single aisle playing
and a widebodied plane. the chief executive says the company is in talks to sell more of their 380 superjumbo planes. a look at how the trump justice department will deal with global banks. according to people familiar with the matter, they are in talks to resolve the u.s. investigation into toxic mortgage bonds a decade ago. the two sides are said to be far apart and the trump administration appointees so far have not weighed in. that is the latest bloomberg business flash. we are 35 minutes away from the end of the wednesday session in europe. have a look at what is happening to equities. we have been low, higher, up again after falling earlier. the best is shrugging off geopolitical tensions emanating from the korean peninsula.
the ftse, the dax and cac 40 rising. highlights today include out of the u.k., expanding in four months, eurozone pmi signaling expansion in the second quarter. look at the currency today. the pound lower against the dollar, the euro lower against the pound and euro down against the dollar. finishing up with the bond toward as we approach -- board as we approach the end of the european session. yields declining in u.k., italy and spain. the close is next. this is bloomberg. ♪ .
close on bloomberg markets. ♪ mark: top stories we're covering from the bloomberg. investors in waiting with the fed minutes today and the ecb minutes tomorrow, what will they say about rate hikes and the long-awaited unwinding of the balance sheet. and politics, the united nations will hold an emergency meeting of the security council to discuss north korea's missile test. president trump on his way to europe to kickoff meetings on north korea, trade, and more. in banking, monte paschi chief executive speaks to bloomberg about their $6 billion rescue. he will tell us how he plans to make the bank profitable by the year 202