tv Bloomberg Markets Americas Bloomberg July 19, 2017 10:00am-11:00am EDT
♪ vonnie: here in the top stories we are covering. is there a new king of bonds? morgan stanley pulls more revenue than goldman sachs for the second straight quarter. what morgan is getting right. president trump's agenda looks evermore in peril. getaunches a bid to senators moving. more questions after the president held a second previously unreported meeting with vladimir putin. our commercial real estate valuations running too hot? we will speak with ralph rosenberg. two's coming up in the next hours. we are 30 minutes into the trading day. abigail doolittle is here.
everything in the green. tradingsums up the action for the major averages this morning. both the s&p 500 and the nasdaq are on pace for record highs. of a divergence between the dow and the nasdaq. we will be taking a look at the nasdaq in a moment. we have had this tech pullback for the nasdaq but it has now been erased. but put in its first record highs yesterday since early june. the nasdaq 100 is following suit. on june 8 back when the nasdaq 100 last put in a record close. andave the s&p 500 for june july. heading slightly higher. the nasdaq 100 really took a bit
of a debt down 4% on that mysterious tech pullback. the month of july has been pretty kind and we have the nasdaq 100 on pace for record highs since june 9. pretty impressive recovery. a look at the stocks helping the nasdaq along with the s&p 500. vertex pharmaceuticals of 25% after combination treatments for cystic fibrosis beat bank estimates. those shares on pace for their best today since june 2014. morgan stanley up 3%. beating estimates and trade revenue as well. apple not a huge gain. up for a ninth session in a row. the longest such winning streak since 2014. reports investors
seem to be bullish ahead of that. a stock on paper it's best day since 2008. scripps networks interactive 17%. attentional takeover talk. it has met separately with viacom along with discovery. they did meet with discovery in 2015. rejected a potential bid. paul sweeney told our team this that shares could be pretty attractive. very big gains for scripts of and discovery. let's have a look at where equities are right now. we are not seeing record highs in europe. we are seeing a rebound for the stoxx 600 after it dropped more than 1% in yesterday's session. up about .5%. tech stocks leading where they were lagging yesterday for a bit of a turnaround. you can see green across the screen in equities.
ftse 100 higher as well. seeingfx space we were some broad-based dollar gains earlier in the session tracking the 10 year treasury yield higher. the yen actually strengthened against the dollar. still seeing weakness in sterling and the euro. the pound is weaker. the euro down by .2%. a 14 monthit hit high yesterday. in the fixed income space we are seeing yields in the core and periphery. above 49 dollars a barrel. we are seeing a little bit of weakness today. investors getting cold feet ahead of the ecb decision tomorrow. euro strength has really been the trend this year. mario draghi may determine whether the euro test the 200 weekly moving average.
mandates be the ecb's is not to maintain currency levels but will this be something that causes him concern. euro-dollar weakening after it had been strengthening yesterday. very important to keep an eye on the treasury and spread. we saw this coming out yesterday. since back in november. 1.7 percent yesterday. coming up ever so slightly today. this is the key spread to watch. morgan stanley higher today. up almost 3% after the bank outpaced one of its biggest peers. morgan stanley's one point two $4 billion in fixed income trading beat goldman sachs for the second quarter in a row and morgan's equity trading also outperformed goldman. joining us now is devin ryan of jmp securities. of $49.rget
it shouldn't be about comparison of peers but it is. were commodities the problem? >> i think commodities was probably one of the areas for goldman that was more challenge. they're disproportionately levered and so that was probably one of the points. sachsher point, goldman tends to be more levered to institutional money managers. in the backdrop we are in where volatility is low and asked prices are at highs. institutional money managers are sitting on their hands. in that environment trading can be really tough especially when that's the majority of your clientele. why were net interest margins so disappointing for the most part? >> there's a couple things.
came down aields little bit in the quarter. the long end of the curve came under some pressure. on the front end we saw a rates move up and that was a positive. depositeing really good betas which are essentially a percentage companies are passing through to their client. we are seeing a nice uplift in interest income for a number of companies. some of it will come in on a lag. going forward you will continue to see the net interest income moving up for the banks. the 230 curvet here. the trend has been flattening. who is this good for and who is it bad for out of the financials that you cover? banks have really positions their interest rate sensitivity where they are shorter in duration. they will benefit more from the move in the front end of the curve.
i don't think banks like to see a flattening yield curve because it's more difficult to make money. all in a fine spot for now. if the yield curve continues to flatten that will become a more difficult environment. something we are keeping a close eye on. the net interest story for a number of banks is still positive. we will continue to support. clearly we are going to keep an eye on where the yield curve is moving. you're going to start taking more of a tactical position in the financial sector. can you talk us through how you are going to do that. >> if you go back to june i would argue that financials had come off quite a bit from the postelection highs. the financials became pretty attractive from that point. from june to today you have seen pretty big appreciation. some of that was the fed hike.
some of it was positive results from a number of the big banks. of ae looking were outside big macro call something that comes from regulation or the backdrop or you are still going to see earnings growth morgan stanley has been a name that we have favored in that environment. names that wether like. e*trade has had some sensitivities. other elements of the story. bit moreto be a little tactical because valuations have appreciated over the past few months. one of the things morgan stanley's cfo said on the conference call. investor psyches are still fragile. that -- corporate ceos at all since the financial crisis. 31% of americans. lloyd who havef
started to have a voice in public policy influence that? >> it's a slow progression here. that's probably to the investor psyche. you have the election and this euphoric feeling. institutional investors and refill investors felt we were moving back to an environment where regulation was going to slow. more of a reflationary backdrop. here we are well over six months later. not that much has been accomplished where people can point to and say this is really going to significantly help the earnings power of a number of firms that are going to be affected. that's playing through to this element of low volatility. direction around what the policy is going to be in d.c. and what's going to heaven with tax reform. their is to be a health care bill.
those are the things we are focusing a lot of time on as much as on the actual corporation and their earnings because those are such important drivers. vonnie: what's your forecast for the major banks for the next year or so? >> you have to be tactical. you have had this big recovery in shares. expectations are quite a bit higher today than they were even a few months ago. we really like morgan stanley still. great storyy have a around earnings as they benefit from higher acid levels. i think that's a name we would focus on. more broadly you'd have to be picking your spots after some nice moves. ryan, i want to show our viewers something particularly exciting.
it's a new function we have on the bloomberg. typeu look at equity and gp tv you will see a list of stories related to that particular company. check in on the first word news. here's emma chandra. >> president trump had a second meeting with vladimir putin at last week's g20 summit. said they hade previously undisclosed conversation during a dinner for global leaders. said theia group's meeting lasted over an hour and the only other person present was prudence translator -- putin's translator. >> never have i seen two major countries with a constellation of national interests that are as dissident while the leaders seem to be doing everything
possible to make nice and be close to each other. that's what people don't understand. >> president trump lashed out at media reports saying he was once again the victim of fake news. iran is warning that it will retaliate any u.s. sanctions that violate the terms of the nuclear deal. after theent spoke u.s. imposed sanctions for what it called iran's persistent efforts to destabilize the middle east. the trump administration is poised to impose sanctions on venezuelan officials for human rights violations. surpriseop advisers nicolas majuro are involved. ahead with his plan to rewrite country's constitution. in friends asked the first major test of president emmanuel macron's governing style. the head of the french military has quite in a dispute over
oil gaining a little ahead of key u.s. inventory data. joining us from the cea is phil streible. if high could we see oil go we see the drop in inventory? 3.5 million like a barrel drop as well as gasoline we could see the push through about $47.5. wouldllar trend significantly weaken and we could see a blowout to the $50 range. the trench traders will most likely flip on their short position they have had weighed in by the large inventory we have seen. the massive glut of about 25% above the five-year average. back upres could push to $50. the brakes will be put on around there. in the session probably one dollar or $1.5 will be the range. a bowl party
started back to the upside if we start to see positive data come back out. nejra: we are seeing oil show these games. still not hitting 95. >> the dollar index has been in this week trend. it has been 10.5 months. the fed starting to pump the brakes a little bit on their hawkish tone. the ecb looking at potentially starting to get a little bit tighter in europe. will see investors start to shift back into the euro currency out of the dollar index. the republicans failing to pass that health care bill has really dampened the u.s. term structure. we are starting to see dollar index fell off a bit. euro currency pushed to the outside. nejra: we are seeing a bit of the dollar strength today.
how much will you way u.s. politics versus the 10 year treasury yield and what's happening with u.s. yields and prospects for the fed rate rise at the end of this year? how are you waiting that up? are probably still going to see that one interest rate hike towards the latter end of the year. andbig focus for traders how it's going to impact a lot of markets like gold and silver really is the $4.5 trillion balance sheet. we need to see how they are going to restructure that if they're going to go back to some traditional allocations and that will weigh in on all of those other markets. for a lot ofg game different parts of the economy. nejra: thank you, phil streible. time for our latest bloomberg business flash. agreed to buy food
business for $4.2 billion. that will give the giants price company products such as french's mustard and frank's red hot sauce. frank's has surpassed tabasco as the best-selling hot sauce in america. talks to acquire the owner of hdtv in the food network. scripps networks interactive. this is according to a person familiar with the matter. traditional media companies are losingressure after viewers to online video services. more on this in the next hour. that is your latest bloomberg is this flash. steps up donald trump the pressure on senate republicans. we've got more on trump's effort to revise his agenda. this is bloomberg. ♪
nejra: this is bloomberg markets. i'm nejra cehic in london. in new york i'm vonnie quinn. donald trump has called a meeting with lawmakers to find a way to revise his agenda. earlier he tweeted i will be having lunch at the white house with republican senators concerning health care. they must keep their promise to america. the president has also been defending a previously undisclosed meeting with vladimir putin at the g20 summit earlier this month. let's bring in kevin cirilli. let's talk about this luncheon in the tweak the senators must keep their promise to america. does he mean they must keep my promise to america? many of them would feel they are keeping their promises and holding on to things like insurance for pre-existing conditions. >> great point. this health care proposal put forth by mitch mcconnell is very much on popular with americans. even more unpopular than obamacare was when the obama
administration had touted that. this yesterday from your interview with dr. gruber in wherethere are areas democrats and republicans want to fix the insurance exchanges and that seems to be where all of this is headed. into a fix it type of bill for health care. not one that would be a dramatic overhaul. that of course will upset some of ultraconservatives especially the ones i'm talking to behind the scenes. there's a push to lure in democrats to negotiate. there's no timetable and they are already trying to turn the page to other issues like tax reform. i want to ask you what we know about what they are planning for tax reform. this mode next week, what's it going to look like? >> right now they don't have the votes. the math isn't there for them. as a result of several senators coming out against this. hardliners like rand paul and susan collins.
notrdless of whether or this fails there's a budget markup today in the house of representatives. there are setting up a reconciliation process. it is the rules they're going to have to follow for tax reform and even repealing parts of dodd-frank. this white house is now feeling the pressure. this is a very real chance white house could get to the end of the year and not have a major legislative accomplishment and that is worrying not just the white house but also the republican congress heading into midterms. nejra: health care was meant to be the easy part. let's turn to russia. what do we know about this undisclosed nearly hour-long meeting with president putin? week towards the end of the g20 conference all of the global leaders had a dinner. president trump showed up with a translator from japan to sit next to japanese prime minister shinzo abe.
this is quite common in these type of global forums. where some of the leaders will break aside. we saw this in the obama administration with vladimir putin. when they did this in 2013. what is interesting is the obama administration immediately disclosed. the trump white house didn't and now they find themselves in the situation where they look like they were trying to not disclose and with the whole russia narrative it's just another iteration of this. the present pushing back thing there was something center dot -- sinister to it. vonnie: democratic senator ben cardin of maryland joins us next. this is bloomberg. ♪
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this is bloomberg markets. we are awaiting weekly oil inventories in the united states. surveys are calling for a drawdown of 3.5 million barrels. they haven't exact leak called it right. let's get to abigail doolittle for the headlines. >> the drawdown is bigger than expected. coming in at 4.7 million barrels. relative to gasoline inventories also closely watched well below the expectation. told me weedlander better see a draw and we are seeing a bigger draw than expected. this is not having much of an impact on the price of oil yet. this is an intraday chart. this is not oil. here we actually see the spike higher much bigger draw down in oil than expected.
a very bullish read. more than 1%. oil well above the $45 marker. we have another great chart in -- weoomberg that shows have seen these big drawdowns week after week and another one this week and it is helping the price of oil more than 1%. about $47 a barrel now. every day kkr goes toe to tell with blackstone and private equity. it's a bit difficult in real estate. blackstone is the 800 pound gorilla in that room. kkr didn't raise its first real estate fund until 2013. a distinct approach and its own perspective. ralph rosenberg is our special guest of erik schatzker. erik: thanks for coming. >> great to be here. a sketch's give people
of what kkr real estate is. how many people you have. your style of investing. the kind of deals you do. >> we have a team of 55 people. we are global. we are in europe asia and the u.s.. we commit about $1 billion a barrel capital to strategies in the real estate complex. our primary strategies are opportunistic investing in europe, asia and the u.s.. we also control a couple of debt platforms. those who aren't familiar with the way real estate is carved up by style explain what value had an opportunistic mean to the uninitiated. value add real estate is buying transitional assets that are not completely stabilized
prefinished and effectively taking the asset from a transitional phase and what we would call core asset class which is digestible to a more conservative longer-term owner of real estate. erik: opportunistic? >> kid has a couple of different interpretations in the real estate space. really focused on being nimble to move across asset classes and geographies and be able to be thematic and pivot from time to time. the more traditional way people interpret that implies a lot of development risk which we don't take and excessive leverage in certain instances 75% or 80%. we don't do that either. we are 65% leverage. erik: you are targeting a higher return. >> yes. focusing on the core plus market. looking for a higher rate of return than you are. >> they are across the real
estate risk spectrum. they control core and core plus capital. business really is an opportunistic business focused on creating mid to high teens return on equity. erik: let's talk about the state of the commercial real estate market. what would you say? >> generally speaking the u.s. is in equilibrium. that's a general statement where supply and demand is basically an balance across most asset classes. when you peel back the onion it's like playing whack-a-mole. things pop up that look unusual and there might be opportunities to make investments. at prices that are below the replacement costs at the asset level. if you look at the new york hospitality market there has been a lot of new supply that
has come online and more is anticipated over the next couple of years. the strength of the u.s. dollar has diminished the appetite for foreigners to visit new york. that has caused pressure on the operating success of the hospitality sector in new york. that capital structures that were put in place at a different moment in time at some moment may have to reprice and that might be an opportunity for players like us. erik: anything else? >> the high-end condominium market people have to have their eyes on in new york. erik: also oversupplied. up with was a big run the millennial appetite for the urban core to build class a apartments in most every major city in the united states. a lot of those investors thought that was a defensive anstruction project and defensive cash flow profile. we are starting to see a lot of oversupply in some markets. to thet all comes down
right price. would you look at each of those opportunities -- new york hospitality, high-end condominium primarily in manhattan but also class a presumably rental units across those were and say high-quality assets you would want to own at the right price. if you like nobody is ever going to fill those spaces. yes and no. at the right price we are buyers of anything. the examples we just talked about are examples of what i would call dislocations in markets. there is an otherworldly traffic in that is more thematically focused where there is more equilibrium in the marketplace were we believe the economic or macro trends of demographics are behind the investing strategies such as the housing strategy. lower middle income multifamily apartment complexes. there are lots of good tailwinds behind the investing strategy. tough to get a first home mortgage.
being able to be transitional in terms of moving for employment. of student debt is weighing on the consumer to be the buyer of a new home. there are lots of reasons the rental apartment sector might continue to have tailwinds. same as student housing. 4.5 million people turned 18 in the united states every year. most people are interested in going to college. colleges are undersupplied with housing. there's a theme we might tackle as well. erik: there are a number of different ways of looking at valuations in real estate. you can talk about it in terms of fundamentals. of space andmand course capital flows. what would you say about those? >> i would say capital flows are still quite robust.
we have to step back and say real estate is a risk asset. you have to think about real .state valuations it might be slightly cheap. capital flows make a big difference in terms of driving up prices in a very liquid capital flow environment at suppressing prices when capital is retreating. is out thereity for all risk assets. real estate is just another opportunity for that capital flow. erik: the chinese have clamped down on a lot of the outbound capital. >> that's totally a fair observation. i would say the retreat of the chinese bid a sickly has taken the outlier bid off the table. a lot of the chinese bid was more strategic in nature where you might have a cluster of bids for an asset or company that was real estate related. there might have been a chinese
better that was 10% or 50% above the pack. now that outlier bid is gone. the packet is still robust. ofre is still a lot liquidity assets coming from the u.s. insurance system, the europeans, etc. erik: to the degree that the reduction in availability of chinese capital affects prices, on what kinds of prices are we going to see that? intypically trophy assets major gateway cities globally. london, new york, san francisco, paris. erik: are using it here already? >> 100%. no question. that's typically in the core assets thatin the have seeming stability and cash flows that are literally replaceable in the center of these major markets. erik: how would you describe the
commercial real estate in europe? andretty good from a supply demand perspective meaning european cities have been typically very difficult to build in. small urban cores, oftentimes height restrictions. still lookingl for opportunities to park it in the defensive asset classes. lots of opportunities for transitional assets which we focus on largely coming out of the uncertainty around brexit and some of the other political issues affecting continental europe. those momentse us of instability create opportunity with respect to transitional assets. erik: has brexit been fully priced into the london market? >> we don't believe so. we saw a very deep bid reaction to the brexit vote largely because when the pound devalued lots of global capital felt that buying london would be cheap.
because the pound was cheap. theously there's a reason pound was cheap. it was cheap because the anticipation of brexit and what that meant to the u.k. economy. we as a firm not only in real estate feel like the u.k. economy and the u.k. bid for risk assets should adjust to a more normalized level. erik: that they repricing of what percent? .> it's tough to tell in the real estate space i wouldn't be surprised if you saw london reprice 5% to 10% for courtside assets and in transitional assets which you are buying to create a core asset the expected rate of return for transitional assets should reflect that risk. i would expect transitional assets to reprice as well. erik: retail appears to be in collapse. in america. clearly e-commerce is an incredibly important trend. how are you looking at that and
what other trends are going to shape the way this market evolves and how you take advantage of it? we would not characterize the retail industry as in collapse. there's no question that e-commerce is here to stay. still about 90 2% or 93% of all of the retail dollars spent in the note states are spent in bricks and mortar retail. you have tothat, respect the fact from a retail ownership perspective that because there is an alternative channel to distribute goods through e-commerce the pricing power of a landlord has definitely diminished and will continue to diminish over time. that doesn't mean brexit and mortar retail is going away. erik: a huge day for kkr yesterday. -- firm appointed two copresidents.
the likely successors to henry and george. what would you tell me about them and how it's going to change the way the firm does business? >> i would say it's not going to change the way the firm does business at all. henry and george are still completely committed to the business and the firm. it does freedom of for working this leaders is like myself and keeping the culture of the firm. i think that's quite positive in terms of how henry and george continued to spend their time and overseeing all of the investment activity at a leadership level. with respect to the day-to-day operations i think this is awesome for the firm because it gives both joe and scott an opportunity to get the rhythm of the global footprint in the firm in the rhythm of running a very large and dynamic organization. i am reporting directly to scott and joe and i think that's a reaffirmation of the franchise. erik: thank you for spending time with me.
that's ralph rosenberg, global head of real estate at kkr. vonnie: thank you for bringing us that interview. fascinating conversation. coming up we will look at the sectors primed for the biggest growth as european earnings get underway. plus a look at oil. we got that inventories data. we saw oil spike. below $47 a barrel while brent holds above 49. energy stocks outperforming on the s&p 500. also gaining on the stoxx 600. this is bloomberg. ♪
vonnie: time for our bloomberg quick take. today we are focusing on one of the top emerging markets that can never seem to escape controversy. can brazil get its magic back? corruption scandals and an economy that has suffered its worst recession on record and the ongoing commodities slumped are impacting south america's largest economy just a few years removed from hosting the olympics. mayilian assets tumbled in after the president allegedly approved hush money for a jailed ally who had been the mastermind behind the ouster of the former president. he earlier had one passage of a constitutional amendment to limit public spending and help put public financing in order and set his sight on labor reform. those are all in jeopardy.
some have warned the economy slipped back into recession. andil has suffered boom bust cycles and political instability since 1822. it prosperity is sensitive to the commodities markets. good times provided cash to beef up the social welfare programs. now with commodity prices at lower levels that model appears to have run its course. in early 2017 the economy recorded its first quarter on quarter growth in two years led mainly by agriculture. investment fell for three straight quarters. this plan began changing the constitution to limit public expenses for up to 20 years. now he wants to repair the social security system and introducing more business friendly environment. the latest allegations against the president have significantly diminished his odds at accomplishing reform.
beislators will increasingly hesitant to pass unpopular measures as brazil draws closer to 2018 elections. her cellead more about and all of our quick takes on the bloomberg. earnings on tap in europe. the first600 rally in half of the year setting high expectations for second-quarter earnings. we will talk to potential winners and losers ahead here this is bloomberg. ♪
vonnie: live from london and new york, i'm vonnie quinn. i'm nejra cehic. this is bloomberg markets. earnings season getting underway europe. volvo in a speed bump in north america in the second quarter as the profitability of the truck division shrank. electrolux got a boost from u.s. sales sending its shares higher. europe. volvo in a speed bumptim craighe
on what to expect this earnings season. great to see you. second quarter just getting started. what are the expectations for earnings growth looking like? this point on at median basis sector by sector using the stoxx 600 as a benchmark it's definitely a cyclical story as we look into second-quarter earnings. materials, consumer discretionary. industrials are all at the top of the hit parade with expectations of 12, 13, 15% growth. autos come of, even luxury goods or more of a broad-based cyclical recovery. part of that is europe. part of that is china. nejra: part of that is down to higher borrowing costs as well. a little bit of the selloff we have seen and bond markets. i want to take you to this
chart. looking at the second quarter here and this is forward eps. we are seeing a little bit of a divergence between the eurozone and the u.k. is this a currency story or something else? >> if you think about europe overall which is the white line in this case it looks like it's growing and it's reasonably stable. under the surface there are a couple of dynamics. the continental companies which are half of the stoxx 600 are seeing forward estimate revision positive. is u.k. contribution which on a percent of the index has started to roll over and part of that certainly is a reflection of translating british earnings into a stronger euro. that's an issue going forward.
as we think about the second half i think it's going to be a tension between underlying economic growth which for the region are quite robust versus this currency issue in the u.k. and switzerland as well. nejra: what i find interesting about this is we have been talking about the fact that the stronger euro we have had recently could pose a bit of a risk and we are starting to see that inverse relationship come back already. it's an interesting confluence. the issue with the euro which is being supported in part by ecb expectations of snogging which would raise rates can be good for banks for example. if it's modestly higher rates that helps for revenue which is really the only driver left for the banking sector which is close to 20% of the index.
that is core. the flipside is this issue of the tailwind that has been part of the u.k. positive revision story is now over. the weak pound is bad looking forward. strong euro going forward is a challenge for different important segments of the overall index. analysts have been seeing something crop up in the second half every year since 2012. is that likely to happen again this year? >> it very well could. ande underlying dynamics tensions are certainly part and of that question as we look into the second half of the year. if we think about how stocks have performed going into the end of the first half and earnings financials have been
the big winner. they performed well in the second quarter. they sustained so far early in july and that's all part of the interest rate story. on the flipside clearly you've got energy which comes and goes subject to what's going on with oil patch on any given day. those are dynamics that are going to be important to play out. nejra: thank you, tim craighead. so great to have you on the program. coming up, what will the ecb decide and what will it say about unwinding? of dartmouth college joins us in the next hour. this is bloomberg. ♪
this is the european close. ♪ nejra: here are the talk stories we are covering from the bloomberg and around the world. the ecb meeting is underway and there is caution among traders with the euro slipping. all the central bank given clues about the wind down of its stimulus measures? high-ranking u.s. and chinese officials are holding talks in washington today aimed at increasing cooperation between the superpowers. which industries make it a boost. news, u.s. cable company scripts has two major suitors. discovery and viacom both targeting the owner of hdtv. willie deal get done -- will a deal get do