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tv   Bloomberg Markets European Open  Bloomberg  September 5, 2017 2:30am-4:00am EDT

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guy: good morning. you are watching "bloomberg markets: european open." cash is about to open in europe. we'll bring you the first part of the day. i'm guy johnson. matt miller on assignment today. let's talk about what we're talking about. president trump agrees to back billions of dollars in new weapon sales to south korea. investors really see a military option is more likely after the north korean nuclear test? act to work. u.s. congress -- back to work. u.s. congress returns from
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recess with plenty of things on the agenda. how volatile will september be? a key question for investors. -- what does this mean for the european aerospace industry? it is a big deal. we are going to take a look at the supply chain and check out what it means for not only airbus but boeing as well. let's look a gmm. what is interesting is that equities have sold up a little bit. the yen as well bid. you can see the relationship there. the rba was interesting. the aussie dollar up .2%. the swiss franc is continuing to climb as well. what is interesting, remember the yen and swiss franc -- there's something missing? gold. gold looks like it is running out of steam a little bit
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relative to the other safe havens. while the yen and swiss franc have bid, gold doesn't seem to be catching the same level of attention. .8%.ore is up by let's took about what is happening with the equity markets. let's take a look at the fair value on your bloomberg. where the u.s. is going to open a little later on. 50, is the picture of stoxx fair value, 1.2% to the good. that is what we are seeing, sort of i point -- sort of .1 .3 may be -- .1, .3 may be. u.s. fair values -2/10 of 1%. we will see how long that lasts once the u.s. traders get in. let's get a catch on every thing else you need to know. here's a juliette saly. juliette: theresa may is planning a speech to jump start
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sluggish brexit talks and move the discussion towards britain's future relationship with the eu. yesterday the parliament appear to tilt lawmakers the adjustable, symptom 21st although the date was refuted by u.k. official. may's plans for trade deals will begin with switzerland and south korea because how much they contribute to the u.k. economy. the u.s. house of representatives will vote wednesday on a hurricane harvey relief bill that will not contain link which and it staving off a default on government debt. good luck and's are bowing to the most conservative -- republicans are bowing to the most conservative members. the harvey bill would provide a most $8 billion in aid. the australian central-bank has held interest rates. the rba has left rates unchanged since last august refraining
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from joining global peers and signaling plans to withdraw stimulus amid concerns about weak wages and tepid inflation. indians will vote in a fresh deskion on october 17 kenyans will vote in a fresh election on october 17. the date has been set by the electoral commission after the supreme court decision last week to annul the previous vote. engage in china's economy sans uptick in august with pmi heading a six-month high. a reading above 50 shows an expansion. growth in the services sector also accelerated to a three-month high. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. you can find more stories on the bloomberg at top . indeed.nk you very much u.s. president donald trump threatened to halt trade with
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any country that does business with kim jong owns regime. supplies to the country called that acceptable. mark, that was yesterday story. i'm acting -- i am watching markets react. what i'm wondering is does that reflect the fact that the financial markets believe that a military option is no more likely today than it was before the sixth nuclear test over the weekend? mark: in the short-term, investors are more concerned about a trade war than a military war. they are taking fairly seriously the threat that there could be some sanctions on trade, although the market is not moving a lot. you can see there is white a bit of cautiousness, volumes are down. they're waiting to see what wall street is going to guess what is
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going to happen on wall street -- what is going to happen on wall street. equities have been subdued. some of the currency havens demands. there's a feeling we are not sure what to take this, but when -- thatthere's a chance is a pretty big deal for financial markets. they need to be cautious. guy: i'm looking at volatility that isn't running away with itself. you look at what is on the agenda for september and you have gotten not only the north korea issue and what is good happen with the u.s. security council midmonth but you have the political stuff to factor in, particularly stateside. the market doesn't seem to work it out yet. that is partly because there's been a lot of disappointment this year. people have jumped into volatility early have not gotten paid for it.
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yet have to be very quick to make money -- you have to be very quick to make money. doesif a major event occur, i still have time to jump on it and by my options and i could still do something about it. why is gold not trading with the swiss franc and yen? mark: i don't think you can read too much into one day's performance. gold is had a very good year considering a lot of people wretched off as it not be -- writes it off as not being very important. if that willering continue or whether or not it is -- chatting a few days back, treasury yields on the floor, copper is on a tear. is there something in that? is it the fact that china is
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back in gear? look at the chinese currency, it is doing relatively well. there's so much liquidity floating around the system. yes. all of the above, [laughter] issue.t is a confounding a lot of people are having trouble understanding. if you look across the commodity complex, they're all trading very strong and yet you see no sign of treasuries being worried about inflation. it is a peculiar set up. even the federal reserve admitted the old inflation models are not working but i don't know what the new models should be. i guess people are saying, i am a bit confused but i will hang onto the treasures that i have because the fed is going to move rates very slowly. guy: thank you very much. smart analysis throughout the day and it is going to be required during the month of september.
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i open it up on your launchpad that you have sitting there on your screen. thanks mark. if you headlines coming through -- a few headlines coming through from the russian khmer. -- russian premier. the motivation for the acceleration in the nuclear program and testing the muscles that we have seen. --lomacy is the only part north korea needs security guarantees. this is what effectively with the regime in pyongyang is looking for. it is what other dictatorships failed because of the lack of nuclear capabilities and it is basically letting that muscle. it is looking for attention and recognition but vladimir putin pointing toward the former of those two options. we are going to talk the latest with u.k. homebuilder.
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this is bloomberg. ♪
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guy: 17 minutes until the cash open here in europe. let's get to bloomberg business flash with juliette saly. juliette: united technologies is to buy aviation equipment maker for about $23 billion. shareholders will get $120 per share in cash and stock. it is funding the cash portion
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through debt issuance is an cash on hand. the deal is one of the biggest in aviation history and will create a better positioned to withstand the squeeze from boeing and airbus. effectively beld a reverse takeover of aveva which will issue shares to schneider. the agreement brings together two units. smartphone game angry birds is released on helsinki. it will target a dividend payout ratio of about 3% net profit -- about 30% net profit. indeed.nk you very much i want to take your attention to the screen, the anr. you see this incredible price
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run that the stock has had. that is the white line. that is where the price is that is in the same place right now. -- 626.target, 6:26 has reported a profit on revenues of 1.60 6 billion pounds. that has meant the company has been at the top and at the bottom in terms of the numbers that it has posted. the middle of the p&l is an interesting place to focus. joining us now is the ceo of redrow, john tutte. congratulations on the numbers. the company has come back really strongly, or at least the shares of quebec really strongly over the last year. you haven't seen any real impact from the political turbulence
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that the markets priced in post-brexit. has that surprised you? john: not really. i'm a great believer in what we have seen. i think that has now been recognized that a great strategy . we have grown the business dramatically and now we are adapting to moderating the growth and combining that with a bit more increasing the dividend and we have set some targets for 2020. to get -- we expect to get up to 2.2 billion and expect profits to come in at around $430 million. manus: -- guy: 2020 is a you interesting day just 2020 is an interesting date. i am pretty confused about what the dates look like and how it is going to work. how would you phase that out?
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what would you replace it with? do you give us any visibility on what you are hearing? i am sure you have your is on the ground on how this process is going to evolve. john: i think everybody realizes that it has been a huge success. think we have had some discussions. the government is keen to talk to the industry and discuss what happens post 2021 which everybody agrees that you just don't cut this off. the sensible thing is to go back and look at why it was introduced in the first place, what created that. very difficult to get a mortgage of 70% loan to value. that has eased. for me, the simple way to deal with it -- we have a formula that works. -- instead of sit
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20% to buy, gets taken down to 15%. that could come a little bit lower which would be a sensible transition. guy: how long would that take? john: i suppose that is up for discussion. you would expect a clearly to come in when the current system finishes in 2021 p q might run for three years -- 2021. you might run for the years. depending on the market conditions are, what is happening with mortgages, you might bring that down to 10% three years later. guy: what else is affecting the business right now? we talked a little bit about labor costs could what is happening in the middle of the p&l in terms of the margin? documented.well there is a skills shortage in the u.k. there are some concerns with the
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brexit. we might find ourselves losing some very confident eu workers. there are concerns in that area. we are seeing an underlying trust around 4%. that has been the case for a while. i'm expecting that to continue. the industry is trying to adjust the skills shortage peers certainly redrow is trying to address the skills shortage. -- the industry is trying to shortage.e skills it certainly redrow is trying to address the skills shortage. guy: i am sure you are paying a close deal of attention. longer do, how much you think the current scenario is good to be there? do you think you think you'll be up to sell properties leasehold? john: i think there are two
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parts. there's not really an alternative that has been tried and tested. i expect the leaseholds on apartments will continue could leaseholds on houses, redrow we have been selling leaseholds in the northwest for years it our terms and conditions have been fine. we have to accept there has been some practices that have concerned consumers which we for have seen sentiment leasehold houses have been dented. where in the transition of changing from leasehold to freehold. we've got a suitable transition. guy: your business is going to be affected by sterling. what is the sterling affect? john: there really isn't any. i think there are two parts of
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our business if you look at exchange rates. an element of our business in london which is buyers. we have not seen any advance in that demand at all. you've got to look at our material suppliers and which ones are affected. most of what we put into the house is manufactured in the u.k. there are some materials that have been affected by exchange rates, but it is not a huge impact. guy: thank you very much indeed, john. the redrow ceo, congratulations. up next, schneider electric has recent agreement with aveva. the stocks to watch. the market open moments away. ♪
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guy: minutes away from the market open here in europe. let's talk about some of the stocks we are going to be watching. another cambridge technology .arling is being taken over interesting to see how the political reaction works but ave buts taking over schnieeider, company that has done
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very well and snyder has been -- eide has been doing very wellr. the big story overnight comes in the aerospace sector. companies just the two big companies, airbus and boeing are wrapping up to aircraft programs -- two aircraft programs. it is the 77, the dreamliner and the a350. they both need these ramps to go well. they both need the supply chain to be able to deliver. they have had problems. airbus had problems with zodiac. that is a big chunk of the supply chain in one company. that is good to make for boeing in bigger difference but it is wanted be a chip to see how this works and how the supply chain story is good to fit together.
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you can map this on your bloomberg. here and ifbus up you take a look on the left-hand side, you go. and there's united technologies on the top left and corner. this is a very big deal. it is a very big deal for boeing over in the united states because it could end up changing the relationship with their supply chain in a meaningful way. it is going to be interesting to see other markets react. the other company and want to a storyis, there is that could be looking at a confectionery business. china's new strategy of taking this company of market and taken it more into the health sector. 1e valuation could be between billion and 3 billion. the stock over one year earning
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up to 1.45%. european stocks look better this morning. we'll keep an eye on what effect north korea is having as well. this is bloomberg. ♪
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♪ guy: minutes until the cash open in europe. guilt trading, what are we anticipating? aachers have softened up little bit. we won't see a riproaring start of the day. dax,tse 100, the cac, the called up .2%. ways, that is a fairly quiet market against a backdrop that should be providing a little more volatility. the other thing to mention is where the volatility is. you are seeing the yen bid this morning. franc, you the swiss can see are both bid. we have a rate decision coming
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up, the aussie's have had a rate decision. it is coming. little more into the currency market than what we are seeing. you can't part you would equities be higher? let's look at the monitor and figure out where the markets are going. ftse 100, maybe will direct a 74.13 atwn, trading at the get-go. markets a little higher, a were 1/10, what we were expect. there's the cac up .1%. the fair value the bloomberg was putting out, we are expect and markets to drift a little bit, wait for a sense of direction when wall street returns later this morning. gilts are opening. here is manus cranny. manus: i'm pretty sure the
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futures are indicated lower on futures pricing. many gainers in yen and the swiss franc were volatility is higher in the swiss franc. given the yen is geographically to rising risk premium. european stocks with a mixed opening. schneider collect rick, aviva story playing out in terms of cash .1%. north koreans rigging for war versus the data. august, doing everything to make sure the chinese deliver a resplendent version of growth to the world before the 19th congress. that is the important thing. but the data is perhaps the underbelly of what is going on in the equities market. spoke this morning about the risks to the global economy and opposing protectionism. zero-sum mindset doesn't benefit the global growth.
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has donean investor fine this year. money is coming in, the economy is getting better. if you are a dollar investor, this is the dollar return versus the normalized version on the stoxx 600. the more important story is about the flow of money. , basically $8.7 billion has come back into the thelargest funds, recouping money that exited and bled in 2016. why are you looking at the dollar investors? because it is the flow of money. does that gap begin to grow -- close. i say we look at the gilts. pips, 120 6.93, equities open a little higher, gilts, a
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little lower. is preparingark for the partial sale of its consumer health operation. they have three divisions, interesting to see how they restructure the business. something to pay attention to when it comes to seeing how some of these truck -- stocks will trade. congress returns for its august recess, america's politicians have a few weeks to fund the government. meanwhile, donald trump will meet with congressional leaders at the white house today. talking tax and other things. joining us, the deputy fixed income at blackrock and kathleen hunter, bloomberg news reporter. the debt ceiling is one of the big events coming up in september. ryan and mcconnell look like they want to pass a clean bill
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with no spending cuts attached to it. from figuring out whether he is on board with that as a concept. is a critical factor the president and his thinking on this? when will they get an understanding of where he stands? the president is certainly important, he will need to go along with whatever congress decides. thrill thing to watch in the coming days as congress returns is where the conservative lawmakers are. there have been some calling for spending cuts to be prepared with the debt limit increase and i think while their position is clear the key question will be how far they will take those demands and whether they will be appeased by having what they a voted in the past where they -- a protest vote, whether that will appease them or they will push this? in both theis that house and senate, while this
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contingent of conservative republicans is influential, they don't constitute enough votes to get something through, so if you do pair the spending cuts to the debt increase, you are losing support of democrats across the board. the math just doesn't work. harvey into the mix, does that make it even more complicated? i'm judging by the look on your face it is a yes. wei: i think the conventional thinking is that hurricane relief -- from a political sense, should make things easier because that is something that traditionally has had bipartisan support. congressoss the board, are saying they want to provide aid, we have this group of conservatives saying they want to have spending for harvey relief offset, meaning they want to have spending cuts to correspond with that. the sameat is not equation, something democrats
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would support and even a lot of republicans. math starts to look a little complicated. action forferred chartered arrivals, what you are saying republicans will need the democrats. you put daca into the mix, do democrats go, you do that, we don't help you over here with the budget stuff? kathleen: it will be interesting to watch what the republican proposals are when it comes to replacing daca, that will be something to watch in the coming days. the second ranking democrat in the senate, this has been a hobbyhorse for his going on a decade now. ofething in terms legislation, the democrats to shield young people from deportation is something democrats have pushed for. the whole reason obama acted in the first place is even when democrats controlled the senate, democrats couldn't pass anything because of republican opposition.
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the idea of the notion coming out of the white house that in six months, republicans could come up with an alternative to this and something democrats could stomach and get support from their members, i think trump said it himself on health care, it is more complicated than some people might realize at this point. of: there are a whole bunch europeans watching at this point thinking, this sounds complicated, real inside the beltway baseball. the reason i am having this conversation right now is, the markets in. -- appear incredibly calm in fact -- in advance of the september that looks incredibly busy and volatile. you can throw the fed income of ecb into the mix, you can't on all of your fingers deal with all of the things in september. yet treasury volatility incredibly low, equity volatility ticked up a little bit, but still, people aren't buying protection. factorshe confluence of
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coming up in the u.s., the debt ceiling, the continuing resolution, you have issues around north korea, and the list goes on. the time they have to do this was very short. and our best case scenarios is they push this until december because you include hurricane spending, it becomes a difficult thing. very complex. that said, the market reaction, there has been a market reaction, maybe not in the vix index or the stock arctic, but treasuries now down 15 basis points. the low end of where they have been. fed expectation, 29 basis points priced through the next two years in rate hikes. the euro up 14% or so against the dollar and the dollar week against the pound and yen -- >> but the market is priced september? scott: the issue around the
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spending and the continued resolution, i think market consensus has pushed to december. does the fed announced the caps on the reinvestment of principal and interest in september, allowing them to rate hike in december? because they want to separate those. we need to see what happens in september. but the probability of a september rate hike is very low. below 50%. the fed will either reinforced that are not, and the fact they haven't said anything would suggest they are reinforcing it. important to note the market is pricing uncertainty, but not the cataclysmic event. all that is saying it is slowing the agendas down. the fed agenda, it slows the tax discussion way down. there is no way that is going to happen in this period of time when they have these other two issues to manage.
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what we are seeing is in monetary policy and interest december ispush to being reflected in current pricing. sayome respects, you can that is positive for equity markets because you don't have monetary policy shifting, so for the stock market to move higher end rates to go higher, you have to get some resolution on these big issues, it has been very hard with this legislative agenda in september. guy: kathleen, how distracted will the president be by -- it works both ways. which is going to be his priority? what happens in washington or what happens in north korea, because you wonder how the two will mix. onblems at home, you focus etc. etc., how do these work in the president's mind? ishleen: a lot of it
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circumstantial. we don't know what happens in north korea, so it is an unknown in that we know there is a potential for north korea to hijack everything we are talking about here with some kind of an that -- the think other thing to remember is that is a real potential, north korea could come in and steal the show for september. we saw that a couple of years ago with syria, the syria issue came up over the august recess and congress came back, we thought it would be about spending and the september 30 deadline ended up being a lot about syria. definitely the potential. the other thing is the russia probes will be gearing up again. that is another wildcard that could be stealing some attention, congress's attention depending on what comes out on that front. those are things to keep in mind when it comes to looking at what congress is going to be focused on, the president this month. guy: in terms of those
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investigations, being asked to testify. one question, scott. we will come to the united states. holeed chair at jackson focused on financial regulation and how much a mistake it would be to rollback financial regulation. coming in, this was seen at -- as one of the white house's areas of focus, drawing back financial regulation. that hasn't happened thus far. can i assume from janet yellen's focus on that, that if financial regulation is rolled back, the monetary policy is tighter? -- is thata line when she was trying to telesat jackson hole? if you do this, we will have to lean against it to protect the financial system? scott: as a central banker having to live through the financial crisis and in europe, living through the european
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peripheral crisis, it doesn't surprise me the direction of travel has been more about regulation and about financial oversight. what she is saying is the fed has to take into account the administration's view not only on financial regulation but the tax situation and what impact that has on the fundamentals of the economy. the conference at jackson hole was focused on that topic, so it doesn't surprise me she would lean into it as such. i think the likelihood of getting any monumental change in for my -- financial regulation is being pushed back as well as the tax cut. it doesn't surprise me she would say that, but the market is correctly realizing a delay in any of the administration's role whether infrastructure spending, tax regulation or tax reform regulation, those things are interest rate -- make interest rates lower, and that is what the market is pricing in.
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guy: kathleen hunter, bloomberg news, covering washington. the cio of blackrock will stick around. up next, a look at the mid-cap movers, including aveva, out of cambridge. that story next. this is bloomberg. ♪
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♪ 8:15, a.m. in london.
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this is the market open. let's show you where we are right now. we are waiting for the u.s. return a little later on today. out for labor day, returning today. here are the and markets drifting a little, but the dax up .3%. interesting stock stories this morning in terms of the mid-caps and big caps. let's find out what is happening in the mid-caps space. nejra: in the m&a space, third time lucky for schnider elect , this is the british engineering software maker of 25% right now, rising the most since 2015, hitting the highest since 2014, after schneider electric reached an agreement to take control of aveva, this coming a year after the last round of talks failed and the transaction would be a reverse takeover of aveva. i'll show you how schneider electric has reacted later, i am also looking at milla come --
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millicom, giving a stake of about 4%. urging the company's board to accelerate its exit from africa and reduce cost to set its up up takeover up as a target. also, with the activist investor is pushing for is for millicom to seek prime rate trading in the u.s. in latin america, it will be an attractive asset for bidders. this is gaining 2% and on the downtown -- downside, looking at down 1.6%. it did drop as much as 4% earlier, which was the move since 2016, mainly on a re-rating, cut to underweight from equal weight at morgan stanley. guy: thank you, nejra cehic.
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goldman sachs saying copper will come down a little bit. copper to drop over the six -- next to 12 months. certainlyf late, other metals, as well. this at a time when treasury yields have been going south. the fate of the currency in bond markets will hinge on a slew of central bank policy meetings. that is pretty clear. you get a lot of fed speak today. of otherhole lot speakers. the euro is likely to get jostled. the ecb trying to figure out the timeline for ending its policy program, mario draghi said officials will discuss tweaks in the autumn. define autumn. is this september autumn? we will find out, i am thinking more october. there is a meeting this thursday. draghi talkoes
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about changing the policy mix without the euro going through the roof? scott: the market is trying to the euro appreciation 14% this year, how will the ecb deal with that in its policy mix. the stronger euro would suggest the stronger need for a withdrawing monetary policy. it is important to know the expectations are he won't do anything explicit about the qe program at this meeting, there will be a veiled reference to the fall and a push back early winter. some veiled reference to something in december for 2018. he may discuss in the language about the ecb, purchasing more bonds will get dropped but still give him flexibility on the duration. i think the easy thing to do would be to say the euro is up, therefore the ecb will be more patient. it you have to look more deeper into that analysis and of the first is yes, the euro is up
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this year, but the last couple of years, it is not up as dramatically. the second is that, look at the eu's major trading partners. take the countries that are pegged to the euro. it is the u.s. and china, and the marin be is appreciating. i think that analysis is superficial, but the important point is the ecb wants to use the euro as an excuse, they can. how confident is draghi about an inflation -- and inflation profile hasn't been gangbusters at all, and it gets harder. put in qe program was place because of deflationary fears, not because inflation was low. we have moved away from that even at a core level. given their patients, given the relative dovishness and the euro's appreciation as an excuse, it doesn't matter if that is right or wrong, they can
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say that. for them to announce something definitive about the qe program in september is unlikely. guy: if it goes down that road, -- they the periphery euro being a concern and therefore we get a slower rolloff of the programs currently in place, we get a different trajectory, presumably the biggest beneficiary of that would be the periphery of europe. scott: the ecb announced its purchase data yesterday in terms of what would it would be buying in the community program. it is being hemmed in by the constraints it set up. what has happened is they continued to buy more french government bonds and italian bonds, where they ignored portugal because of supply and demand dynamics. bunds are still higher in yield -- italy significantly more and
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spain around the same amount. citei would say is if they the euro, and he has gone out of his way to suggest they don't comment on the level of the currency. but if the market perceives him to be concerned about the level isthe euro, i'm not sure it peripheral bond trades so much as it is -- you have to look at the dynamics of the bond market, it could be bunds, as well. they will beat very cautious about the euro, because the fundamental reason -- the euro is stronger for fundamental reasons. it is an investment we have had for long time that on a relative basis, the european economy has outperformed the u.s. and the u.k. the german unemployment rate -- that country is at full employment, the u.s. is, but the monetary policy in euro land is more accommodative. it is great fundamentally the euro has appreciated. as the you -- eu puts that into
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their calculations, it is for fundamental reasons and it will have less of an impact on policy. the ecb have said the 1% euro appreciation is worth 5/10 of their view on inflation. it has a relatively small amount in terms of the trade weighted -- it is anis it important issue and if draghi and the ecb council want to use it as an excuse, they will. guy: tom: -- scott thiel, at blackrock. these are 21 suppliers to the big oem's in the aerospace sector, airbus and boeing. let's bring in benedict from berlin on this, managing editor for global business. what does this mean for the oem's? airbus and boeing? get a mucht means we
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bigger company in the u.s., much bigger on the supply side. the supply industry is still fragmented. a lot of small players. what it means is it gives them a lot more half, they get a lot more bargaining power. airbus and boeing are two companies that have been doing a lot in terms of their programs, particularly on the single aisle side. size in this industry is key. is gaining that with rockwell. they get components they didn't have. what rockwell had bought in aerospace, -- uts will still -- now be in the seats business. guy: could this favor boeing more than airbus? trying to run the 350, they are trying to take single aisle production rates a lot higher.
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airbus has struggled with zodiac, it would like to see colin -- consolidation in europe. is it a benefit more to boeing and airbus? -- then to airbus? benedikt: that might be one of the scenarios that will play out. zodiac has been taken over by so there is some consolidation in that space. one of the issues here is uts is struggling with its engine that it supplies to airbus, the turbo fan, and airbus may be concerned for this distraction large acquisition. boeing might be looking at this and thinking they are going to be busy with this, we can watch from the sidelines. airbus might be -- >> quick change -- we have run out of time. we will have to save the deal
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for another time of the morning. thank you, joining us out of berlin. up next, ramping up the rhetoric ,n brexit, theresa may lancaster house 2.0.
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♪ guy: show of force, president trump agrees to back billions of dollars of u.s. sales into south korea. but is a military option more likely after the nuclear test story? back to work, the congress returns from its august research -- recess with raising the debt ceiling, harvey relief, tax reform, plus other things on the agenda. how volatile will september be? what doeshnology, this mean for the european aerospace industry? we continue to monitor the supply chain. you are watching "bloomberg markets: the european open." i'm guy johnson in london.
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matt miller is normally in berlin, he is not here today. but the trade -- trading data has been shaping up. markets are probably waiting for wall street later on. we are drifting, if you are long markets, the dax is .utperforming about .5% indications are we see a fairly flat story on wall street at the get go up trade later on. been well bid overnight carried the safe and story has been the swiss franc and the japanese theresa may is planning a speech to jumpstart brexit talks. yesterday, european parliaments agreed to tell lawmakers the address would come september 24, though that date has been refuted by u.k. officials. the british government gets back to work today after its summer break.
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'sining -- still with us, tom: -- scott thiel, cio at blackrock. we are expecting a lancaster house 2.0 speech. >> over the summer, the government has announced position papers on specific issues around brexit and the official line on this speech is that the speech will cap those, throw them together and explain what written's exit vision looks like in detail. the other thing that has happened since the lancaster house speech in january is theresa may has gone from being theresa the conqueror, to theresa may, she could be gone any minute. she has to recast her brexit vision in the fact that the doesn't seemly that a number her previous brexit vision. -- enamored by her previous
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brexit vision. lot of already seen a small movements in position that the government keeps saying that talkeda move, we always about some kind of transition, but once you add them up, you were here but now you are here. something has changed. it will be interesting to see how much she confirms that, whether she moves that further and to what extent her tone has changed. pit --e has a pretty busy period coming up. she's got that, global geopolitics to deal with, and the leadership issue. all of that is kind of coming up. how different could british politics look in a few weeks time? at the beginning of september, we sit here, the government is coming back, the repeal bill to think about, there is so much on the agenda. how volatile the you think this period will be? scott: we have gotten so used to
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the volatility that in westminster, we all joke about the fact there might be an election next year, i think morgan stanley said yesterday were jokingbe -- we that. but if you told me i was covering an election next year, i wouldn't be surprised. if you told me we had a new prime minister in six months -- you can see paths to all of these things in a way that five years ago, the british government was fantastically stable, now the british government is in a permanent state of -- the european union with drawl -- withdrawal bill on thursday, that is going to be interesting. this is the real test of may governing without a majority, trying to win -- mp's on her own side, who she has treated pretty badly over the past year.
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it is going to be her first test of how she can do that, how she can get this really crucial bill through. it is also a test of the labor party, which having spent a year and a half essentially in a huge internal fight, the labour party has realized it can quite enjoy opposing other people as well as itself. meeting thisabinet morning will be interesting to see what comes out of that in terms of probably, they are going to set up something to vote against the withdrawal bill, probably won't be able to knock it down at this stage, but the next stage is the committee stage and it is possible to get some amendment on transition that looks quite tempting to a lot of tory mps. labor could table without jeremy to make itme on it, easier for tories to vote on it.
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it is an interesting time. in: good time to be westminster. does it make you want to run out and investing u.k. assets? scott: the british pound is up 1% -- 5%. gilt yields are 20 basis points lower, no big change there. the description we are getting to my left is what the market is digesting, which is similar to the u.s.. it is a very complicated thing to do in a short amount of time. in true political fashion, it is going to push it. they have to push it. that means in terms of brexit, there has to be some transition. bank we go through, where the government can negotiate all the individual parts of the agreement they need and the government needs to figure out its own position, tie up together and get down to the business to negotiation. that is not going to happen in a year, in my view. the market has digested that and
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looked at monetary policy into u.k., no change in two years. i think the market is saying, we are going to go to tour a transition period. the upside could be that it is faster than market anticipates. you get some kind of strong leadership move, you get some definitive move forward. i am long the british pound because i feel this transition period is 100 percent priced into the market. to me, we are not going down the hard brexit road. there is upside, while it may not be the next two or three months, but overall. does she need to have a cabinet reshuffle to make the transition to this new theresa may 2.0? does she need to shuffle the chairs a little bit? rob: the thing about reshuffles,
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especially if you are weak, it is the one weapon you have in your armory, i can still fire you. she tried to have a reshuffle immediately after the election and what she discovered is she couldn't fire anybody, really. you could just move people about. there were so terrified someone would stomp out and declare she had to go, they kept everyone in place. -- toels strongly that me, she is stronger than on june 9. on june 9, i wasn't sure she would last week. that is a quite low bar. there was always reshuffle speculation and it is such a standard start of september story. if it happens, it would probably be after party conference because you want everyone on their best behavior through party conference. there is certainly the idea they ought to move boris johnson from foreign secretary, where is
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britain on north korea? out of range, i'm told. ideas of various people who could be shuffled off. it would be interesting to see whether she thought she had the strength within the party to do that. the results of the idea there are people they want to bring up. it promotes new talent. anything could happen. guy: thank you so much. the u.k. government reporter for bloomberg. tom: -- scott thiel, deputy of fixed income, cio at blackrock. stay tuned, we will be speaking to a u.k. member of parliament am a former aide to david cameron.
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that coming up carried up next, three weeks before germany decides. the leading candidates of the country's smaller party last night. story, -- more on that story. this is bloomberg. ♪
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♪ guy: 8:42 in london. this is the market open. let's get a first word news of check -- update. sebastian: donald trump has agreed to support the of dollars
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in new weapon sales to south korea after the nuclear tests over the weekend. the yuan meeting yesterday, nikki haley said the u.s. would seek the strongest sanctions against north korea. >> nuclear powers understand the responsibility. kim jong-un shows no such understanding. his abusive use of missiles and his nuclear threats show that he is begging for war. sebastian: the house of representatives will vote wednesday on a hurricane harvey relief bill that won't contain language aimed at defaults on government debt. republican leaders are bowing to the demands of most conservative members. the harvey bill would provide for almost $8 billion in aid. the swiss economy expanded less than expected in the second quarter as net trade dropped -- drag on growth. gdp grew 0.3%, below the 0.5% forecast. the value of the frank hitting
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its quarter. global news 24 hours a day, powered by more than 2600 journalists and analysts in more this is countries bloomberg. guy: let me take you to berlin. the chancellor angela merkel is there. , weking at the bundestag will update you as the conversation continues. we aren't going to stay on this, but if you do want to listen to what the chancellor is saying, there is a fantastic function on your bloomberg called live go. landing page you end up with and you will end up being able to click on this redline, which is angela merkel speaking in the bundestag during the general debate. you can do that on your bloomberg. in the meantime, let's go down the political treat a little bit in germany. these are the -- leaders of the five smaller parties took to the
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stage last night. effectively a second debate, not with the two main cabinets, but three weeks ahead of germany's election. last night, the immigration, euro spec it for the germany party came out taking a hard-line and targeting the frankfurt-based european central bank. this comes days after angela merkel and martin schulz faced off in the campaign, in which the eurozone and the future of the eu and ecb simply didn't feature, which is amazing that juxtaposition between those debates and the focus is put on them. let's go to zurich, we are --ned by the cio of germany max, good morning. you surprised the eurozone is not a bigger feature in the german election, just as a starting point? germany is an incredibly good
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place, but doesn't seem to be looking at the story surrounding the single currency or the eurozone at the moment. should investors be surprised by the? max: not at the moment because of the underlying fundamentals in the eurozone are improving in a way we haven't seen in years. is focus on the environment more on local matters than the underlying economic backdrop, which had been previously a bigger topic. guy: i only say this because angela merkel is saying germany can't rest on its laurels in global change. the debate didn't focus on the future. we will leave that to one side for the moment. but's talk about the focus of last night's debate, that is mario draghi. you think mario draghi is at a point where he is happy to talk down the euro? we're trading around 1.20. would he be correct to do so? week we arethis
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expecting a more dovish state than two talked on the euro, but on the 26th of october, at the conference, he is more likely to come up with a clear plan for the tapering and quantitive easing -- and quantity of eating -- quantitive easing. don't forget we are likely not going to see any move in interest rates before 2019. the regionta out of at the moment are incredibly good. the survey data, you look at the pmi's, they remain strong. do you think the market is underestimating the political tensions that could arise? looks likeelection angela is going to win, but if , maybe we get a harder line when it comes to germany's eurozone partners. we have a big meeting today relating to a referendum in catalonia.
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are plenty of political problems that could start to reinsert themselves this september. if you've got to political risk, you might say that it is overstated at the moment. don't forget the euro exit is only going to happen if the population thinks it is a bad thing and what we are seeing due backdrop is the net support for the euro in every single zero -- euro zone member state, that has not always been the case. guy: the market is very long the euro, though. if you look at the positioning, do you think it is stretched, to starte any issues to reassert themselves and you've got to remember, this is a pair we are talking about euro-dollar, if any of those political issues reassert themselves, how quickly could that positioning change? of all, we first shouldn't forget the euro is still undervalued against purchasing power parity terms,
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we would calculate that to be 1.25 at the moment. estimate that in the short-term, there will be more of a consolidation affect of euro against the u.s. dollar, in the 115 to 120 range. you maye got a chart up not be apple to see, european stocks have started to fade a little bit. it is a time when the euro is strengthening. do we see in the next reporting season this becoming an issue? will most likely become an issue, but particularly when looking at reporting season, the important thing here is not to look so but on auro to euro, year-to-year difference with regard to the trade weighted euro. what we are seeing here is in the second quarter of this year, in comparison to the last year, we have only seen an uptick of 2.5%. if the year on year basis is going to stay, which is what we
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anticipate, by the fourth quarter, we should see an uptick of up to 4.7 percent. the drag on this should be roughly two to 3% on euro earnings. clearly not that dramatic given we are still expecting higher than 10% earnings growth. don't forget one thing in addition to that. the euro got stronger due to better economic growth and higher yields. financials,orting above all, which we continue to be most exposed to. eurozone,ay long basically? maximilian: absolutely. guy: you talked about financials, how do i play that exactly? in some ways, that is a domestic play on the eurozone economy. morefavor domestically localized businesses over companies that have an export bias? is that were a make shift, more on the sectoral level? i focus more on the domestic
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euro zone economy? maximilian: absolutely. this is a different recovery we are seeing at the moment vis-a-vis some of the recoveries we have seen before, which were led by export growth. because not only in europe, but on the global basis, most recovery we are seeing is domestically driven, not driven by greater trade flows. we are also seeing in europe the team fee is domestic demand. quiteials here to look nice at these particular levels, and at the same time, if you want to be more defensive, we think due to better earnings dynamics on the relative basis, telecoms look appealing versus utilities. guy: what about the eurozone or the german auto sector? how do i position myself there? maximilian: very selectively. what we see short-term is there is a certain momentum with regards to earnings, and at the same time, we also know there are fundamental issues and long-term challenges in the
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sector. -- wes reflect did wouldn't expect a re-rating anytime soon, due to the verily strong headlands -- headwinds. guy: max, thank you. ubs wealth management cio for germany. auto industryhe is a signal of the challenges that lie ahead. foreed combustion engines decades yet. she says targets need to be hit. if you talk to the auto sector, they are saying they can do that, potentially without the soul, but they will not do away without -- with petrol makes, but a mix to allow you to get them to co2 limits. technology will be a big factor in this. the chancellor now in the bundestag addressing those issues. up next, the mid-cap space, including schneider electric.
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this is bloomberg. ♪
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♪ guy: welcome back. 8:50 five, markets have been open for 55 minutes. the best stock stories this morning. nejra: a lot to do with m&a. schneider electric, up .7%. aveva, rising as much as 25% after schneider agreed to take control of the uk's's aveva
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group. a software company, to create a producer of industrial software that comes a year after the last round of talks failed. third time lucky for schneider electric and aveva on this reverse takeover of aveva. moving on to nestle, the confectionery unit said to attract carlyle and pain. gains on nestle on the back of that news. gaining, some headlines crossing about various reactors including a u.k. reactor to return to the grid september 10. guy: german data putting the 53.5, aen, pmi data little better than expected. the number coming in at 55.8. the french number a little softer. but remember, these numbers are still pretty punchy. manufacturing is the biggest number for germany. in the mid 55's around europe,
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and that is strong data relative to where we have been over the past few years. there is the euro, coming under a little pressure after the french data, down .2%. surveillance is next, mark barton. this is bloomberg. ♪
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>> donald trump agrees to support billions of dollars in u.s. sales. u.n..s. ambassador to the steps up rhetoric against kim jong un. will the eu play ball? reaching for the skies. agreeing to purchase rockwell, in one of the biggest deals in aviation history. this is "bloomberg surveillance" and i'm mark barton

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