tv Bloomberg Markets European Open Bloomberg September 7, 2017 2:30am-4:00am EDT
across all your locations. hello, mr. deets. every branch running like headquarters. that's how you outmaneuver. manus: you are welcome to bloomberg markets, the european open. we bring you the first trade of the day across asset classes. matt miller is in new york and here is what we are watching. to a close area the ecb may finally start to taper talk. euro prolongnger the program? deal with democrats. president trump reaches a short-term debt ceiling agreement with the opposition that provides help for the harvey victims.
the december deadline looms large and hurricane irma sweeps over the caribbean and batters puerto rico on its way toward florida. how much will the category five storm cost miami? miamiin to evaluate as evacuates. matt: we are less than half an hour from the european open. it is 2:30 a.m. in the morning in new york, 8:30 a.m. in frankfurt. take a look at where the futures are trading. you have the stoxx 50 futures up one third of 1% and the continental futures are doing better. the cac up .4% and the ftse futures doing basically unchanged. it looks like a risk on day. it can see that as well if you look at the bunds, yields rising as investors sell off the debt. maybe getting prepared to raise funds to buy stocks. here you see the german yield at 0.26%.rea --
that looks like a two day trade 0.015e today it is up basis points. a little bit of gain in the german yield. manus: there is a forum in vladivostok but we had -- where we had putin and mr. moon. putinkorea's moon and condemned north korea's test. the dollar is lower so the dollar is not as if yousef about the debt ceiling extension. china's down i .4 of 1%. the cosby -- kospi, there is that sense of relief that politics will deliver rather than war. you are seeing that relief rally
for the south korean stock market. the kospi this morning. the currency had a really frilly in it as well. gmm, let'sarkets on get across to the bond market. sovereign yields as well around the year it -- european market. yields go higher. we'll get into that on ecb day. juliette saly has your first word news. juliette: president trump has sided with democrats on adding a three-month extension to the u.s. debt limit to the hurricane relief bill. the agreement goes against the argument for fellow republicans who pressed for a longer debt extension. calledn which paul ryan unworkable provides funds to keep the government running until mid-december. has resigneder citing personal reasons and will step down in october. the 73-year-old was appointed
five president obama enjoy 13 to a term that would have ended in june. the wall street journal says the president is now unlikely to nominate gary cohn as the new fed chair. flagship pace of -- piece of legislation will be debated giving opponents and -- an opportunity to lay out objections. allplan aims to ensure british law is copied and pasted before the separation takes place. hurricane irma has caused the station on a chain of islands in the caribbean with wins at 185 miles our as it passes puerto rico. the latest forecast suggests it could reach the coast live thursday. and potentially the most hurricane -- expensive hurricane in history.
and jose has developed into a hurricane. pursuing legal proceedings against leaders and catalonia. they were asked the constitutional court to invalidate the record and consider criminal charges against those who called for it. if the government does not halt it, the referendum is said to be held at the beginning of october. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. bloomberg. matt: thank you. mario draghi opens debate about the future path of stimulus yesterday after the ecb governing council was presented with various scenarios for winding down asset purchases at least according to people familiar. discussion, the ecb president follow through on a july pledge to start talks in the fall. a formal announcement on the next step may not come at the
press conference, maybe not till october. joining us from frankfurt is our bloomberg reporter. why is the ecb taking its time? is this all because of the strength of the euro? jenna: partially i would say. but do not forget that after years and years of unconventional stimulus, it is quite difficult for them to find the way to more normal monetary policy without disrupting the markets. investors have gotten used to with the ecb is doing. you mentioned the euro and that surely plays a role. the euro does not move in isolation. whatever the ecb does, whatever the fed reserve does on the other side of the atlantic will matter for the currency. what are we expecting today from draghi question like we have growth, inflation, there is a lot of discussion about the propensity to rise in the euro
and that may force the ecb to adjust its inflation outlook. am not sure what to expect from him in terms of the fact that he will volunteer, but surely, those are questions he will face. quitero has appreciated extensively this year which is weighing down on inflation which is also threatening to hurt with thend clearly, ecb trying to get inflation back to its goal of below 2%, that is not helping. there has been a lot of volatility over the summer as well as investors were gauging with the ecb will not do. that is something the ecb will clearly try to avoid. volatility further. as far as the economy is concerned, growth looks very solid at the moment. economists expect the ecb to revise up their forecast for this year on inflation -- and as
i said on inflation, it is a slightly different story. the taper options the ecb is considering? a lot of people would say they started the taper when they moved from 80 down to 60. are they looking at a move from 6240, are they looking at giving us calendar items as far as when we can expect to more intervention? good question. they have not said. , they're i know looking at all scenarios. they are looking at how much the stock contributes to stimulus, how much the flow matters, they are open to all options. they have received technical documents from the ecb's committees. they do not represent policy options or proposals that surely lay out which moving parts they
have to consider when they set their course for next year. matt: today we will hear draghi at 2:30 p.m. central european time. are there phrases we should be on the lookout for when he speaks? jana: yes, definitely. the ecb forward guidance is very much tied to asset purchases, to any change of wording there to say that progress on inflation will depend on all monetary policy tools that the ecb has in important --e very a very important signal going forward. also at the moment, the ecb commits to keep interest rates low, will pass the horizon of asset purchases. any tweak of language there will give you some clues as to how monetary policy will ship up over the coming years. manus: it will be one of those interesting ecb days. randowrundell -- jana
joining us. is 12:45 p.m. and followed by draghi's press conference, 1:30 p.m. next, kicking the can down the road. president trump signs -- sides with the democrats, adding a three-month extension to the debt limit. we will have exclusive interviews with the russian central bank governor and the russian finance minister. this is bloomberg. ♪
matt: welcome back to bloomberg markets, the european open. i am at miller in new york city. manus cranny alongside me at our headquarters in london. it is starting to be a risk on day in markets as futures rise and bunds selloff. let's go to juliette saly for your bloomberg business flash. juliette: nordea's banks decision has been seized on by opposition politicians who say it is the latest example of jobs leaving the scandinavian country. puts the to finland bank inside the eurozone with savea estimating it will one point $3 billion in costs.
stirringfound adverts political controversy and were connected to 470 fake accounts and pages on the social network area the company says it is sharing its findings with u.s. investigators. united airlines is expanding and earlier order for the jetliner handing the playmaker a critical when in its battle with boeing for the wide-body jet market. planesl is for 459 replacing an order for 35 for the bigger model. apple will have to wait to move beyond samsung. apple has been aiming to a. earlier technology because of its fiber and colors and lower energy consumption but it has
been hampered by limited availability. eamsung is the dominat manufacturer. that is your bloomberg business flash. manus: thank you. president donald trump has sided with the democrats and agreed to pass and eight for hurricane harvey. and extend the debt limit to mid december. the agreement moved markets and 10 year government bond yields rose. the rates in the t-bill market went a little bit kinky according to the chart that we read this morning. the federal reserve's chair stanley fischer moved -- resigned. overve the mliv team all the markets. this is essentially squashing a heck of a lot of risk into christmas area the turkeys are nervous for christmas but so too are the bond traders, 15th of december, who is going to want
to wait until that date to go to the crunch? mark: it is close to a fed meeting as well, there is a meeting in a couple of days. december could be an uncomfortable time. i'm sure investors would like to get their risk off the table we ahead of that. it will be quite tricky. as you see yesterday initially it was not taken to badly. but we kicked the can down the road and we will have to go through this all over again. markets are not out of the woods yet in that respect. they also have to worry about who is going to be in next year, who will take over from fischer, and will the outlook of the fed be dovish or hawkish? people are enjoying today, markets not doing too badly but there are still risks ahead. matt: there is a playbook ready for this debt ceiling debate. but not really for what is going on in the fed right now or at least not this exact scenario is resigningr
does not lookohen like he will get the nod. how has the market reaction been to this? mark: the market is a little bit concerned that there are too many spaces available. i saw one report today suggesting that by early next year, they could -- there could be as many as four fed appointments due to be made and there are not that many names being pushed around. donald trump has said publicly he prefers a soft fed policy. he likes doves. they are going to go out and find a lot of doves to fit his be sond there might not many around so that market has a lot to worry about and it is hard to see what the fed will look like in a years time. matt: you think is there a mock of alien aspect to this, does trump not want to put cohn in that position, or maybe is it a
better idea to have a phd in that seat? mark: trump is more concerned about what is good for the business world, what is good for wall street, that sort of thing. i do not think he is concerned with of they have a phd or not so he is looking for people friendly toward business and he has to find those and i am sure he will take advice from a lot of people. i do not think academics is a big issue in that regard. manus: we have got mario draghi coming to the ecb meeting. meeting, thet bloomberg euro index is up 5%. financial conditions have tightened. apparently he has been presented with an all a cart series of options. just how punchy do you think today will be? mark: i suspect they will differ. they do not sound ready. it sounds as though it there is
a big split between the ecb, we have had a lot of leaks from different people and there does not seem to be any unity so it will be hard to come to consensus decision. i expect he will see as little as possible and tell us to come back in october by which time they have had more chance to assess what is going on and to have a more concrete plan. volatility, certainly. he may address the strength of the euro. i do not think you will give us too much away on asset purchases today. not too much on asset purchases. he usesuage to use -- is about patience and persistence. he wants to avoid a center spike. i wonder from a market point of view him a we have read the load -- read the road. you have a fed meeting in december. if the ecb holds back in terms of a full delivery until december, vol, i presume, could be one of the aggressive ways to
look at this market. we are stacking everything up for a christmas slammer. mark: yes, people will be looking at vol curves right away and assessing what the best way is to play be seat -- between january and december. matt: thank you for your time, bloomberg mliv strategist. you can follow him, live market insights come a just -- market insights, just type mliv. you can also watch the show using tv as well as the video stream if you are a customer and get radio and events. you can see our charts and functions scrolling by. you can message us directly function.iv we are quick to check it and include your questions or comments in the broadcast create we are minutes away from the open. we take a look at today's movers including nordia.
to move its headquarters from stockholm to helsinki could have a positive impact on earnings. the ceo is basically saying the same thing at a press conference right now. he wants to get out of the swedish regulatory regime and into the eu of which finland is a member and that can save the bank one and 2 billion euros a year. -- 1.2 billion euros a year. manus: what is he going to do with the overall offers of capital, when they make this move? it could be anything up to a saving of six percentage points in terms of tier one capital. inidends are hot and heavy the oil sector but today is an important day in the u.k. we have the team on bloomberg on listed stocks go ex dividend including [inaudible] and you have all the lists
coming up. bhp billiton and glencore, ex-dividends will trim 5.6 points off the ftse 100 and 8.74 points after -- off the ftse 200. it looks as if we have got two different stories, to roads in the snow he would and equity traders. equities are bid, london, paris, and frankfurt are bid. they are indicated higher and the dollar is lower. that is different -- they like the debt ceiling extension but abe, and mr. moon are in flood of loss got -- vladivl ostok. .47 off life is taking
manus: just under one minute to go until the start of the european trading day. equities are indicated higher. just one line on air berlin. it is a small value stock, up 25% on a number of different exchanges. one as air berlin sells more than 2 million shares yesterday. let us keep an eye on air berlin when it opens. matt. matt: mayor berlin -- air .erlin, only $.27 also fascinating for me this
week, because i am in new york, the euro-dollar rate during the is one theuro index ecb will watch more closely. the euro-dollar has been a real point of consternation for mario draghi. year to date, -- a 14% gain. manus: if we had a bell, we would ring it loud. asia extended gains. you have the debt ceiling extended to christmas. asian stocks higher. autos, electronics, altered the market higher. the market is taking a breather from geopolitics. stanley fischer stepped down. does that mean you get a more dovish fed? he was a centrist. certainly not on the list. nominatel probably not him. this is the european opening. it is draghi day, dd. it is draghi's day. paris is up 5.3%. .3%. by
i love this. the cost of one week call options on the euro are more expensive than the puts, and they are the most six pence of a in nearly one month. there is nobody that want to be caught on the wrong side of the draghi trade. nejra cehic is going to take us through the market opening. stocks are bid. relief abounds. donald reached across the aisle. nejra: absolutely. let me start with the gilt market open. 10-year gilt yields follow the yield in the u.s. lower today, we could have dropped below 1%. we are at 1.0 2% on the 10 year gilt yields, tracking european yields higher. those bond markets -- keep a close eye on the markets. we will hear from mario draghi later. up stoxx 600 overall, pointed percent. every industry group heading
higher. i.t. stocks outperforming along with consumer discretionary, materials. risk on in european equities as we saw in asia and the u.s. session yesterday. you talked about draghi day. you talked about the euro. i love what you said about the calls. these are one week risk reversals. yet, look. pricing in euro upside. something to bear in mind when you look at equities as well because of that correlation between the euro and eurozone equities in particular. finally, another chart on equities. i was talking about peripheral bonds with mario draghi. i have done a chart on italian bank valuations. they have risen above the stoxx 600 valuation for banks, generally, when we are looking at estimated pe. you can see, interesting, that is holding above since about the end of june. manus, matt. manus: thank you very much.
let us take a look at some of your movers this morning. to the left-hand side, micro focus. they are confirming no new financial disclosure today. that is helping the stock move a little bit higher. this is the outsourcing company in the u.k. they are little bit lower. admiral is one of the stocks that has gone ex-dividend. you are seeing that come through. and imperial brand, up by 2.6%. matt? matt: mario draghi opened the debate about the future path of stimulus yesterday after the ecb governing council was presented with various scenarios for winding down the purchase program, according to people familiar with the matter. in starting the discussion with his fellow council members, draghi followed through on a july pledge to begin talks in the fall. expectations are that a formal
announcement on the next step may not come before october. we may not hear about it at today's meeting, but we might. something to pay attention to. they'l let me ask first what you are most focused on for the ecb. do you expect news on the possible taper? bilal: there is really two things we are looking for. first of all, some kind of indication that they will make an announcement at the next meeting in october, so they could hint either in the statement or the q&a that october will be the meeting in which they will make a more formal announcement. the other one of course will be some kind of recognition or acknowledgment or concern around the currency that would be what we are looking forward to. matt: how much do you think the gain in the currency -- whether
you are looking at euro-yen, the euro index, the euro-dollar, euro pound -- how much do you think that strength you're seeing and the effects on the european economy -- which we are starting to see businesses now take hits from this -- has that delayed the taper? how much will it influence draghi and possibly not announcing an end? hasl: at this stage, there been genuine underlying strength in the european economy, and we did pass all these political risk events. that has been the main reason why the euro has gone up. in that sense, it is probably not a concern, moving the euro. if the euro would continue to appreciate, naturally it will have an impact on inflation. at the moment, the decisions go from september to october. that probably did not get affected as much by the level.
general driven more by decline that we have seen in inflation around the world in the u.s., europe, and so on. manus: you mentioned the possibility that he might go after the currency. i think steve engle and are wrote a couple of weeks ago that while mentioning the currency -- auld he or should he go after moment where he really does ratchet up the language on the currency? because i get the sense -- we just talked about the call to put ratios -- the fx traders want to be long the euro. they don't want to be short this meeting. what real impact might he have in terms of ratcheting up? he didin the past, when comment about the currency, it did have a rapid increase. over the past three or four weeks, it euro-dollar has stabilized somewhat.
we entered some range. the other thing i would they about the euro is if you look at the current account surpluses in your area, they are record highs. germany has the largest current account surplus in the world. it is not clear that the euro is impacting the trade center overall. hims probably too early for to be too aggressive on the currency. i think, if inflation in the euro area stays low, whereas were it to pick up in other countries come i think there would be a stronger case for him to talk about currencies. manus: let us talk about what has changed since june tonight. a slightly more substantiated position. up bloomberg euro index is 5% since june. have a look. this is european financial conditions. this is your ticker if you need it. it is beginning to tighten. there is a definite trajectory on financial positions.
that is not what he wants to see. you're looking at the fastest growth and a decade. the euro area's fastest economic expansion in a most a decade. 55.7 pmi. this is the challenge, isn't it? bilal: at the same time, what we are talking about is the ecb's tightening policy. is it tightening because the economy is doing much, much better than before so you should expect tightening and overall conditions? -- in overall conditions? the ecb is buying bonds. they have negative interest rates. is that the appropriate policy-setting? we haveohn cryan said to get off this train. bilal: these are the kind of emergency measures. they, at the very least, should be reversed. then we should talk about whether there should be further tightening after that. matt: not a fan. what the ecb is trying to do is bring about growth.
you can say that they are seeing that now. inflation -- or at least avoid deflation. we have done that. can they hit their inflation target? do you expect to see 2% in the core over the course of the next few years? is thei think that question not just for the euro area, but for the whole world, whether we will see inflation or not. andou look at trends underlying relationships between output growth and inflation, you know, we will head in that direction. it is less clear-cut whether we will actually reach the 2% mark or not. there is not the global structural factors that are just weighing down on inflation, globalization, overcapacity in various countries around the world. there is a broader question about whether 2% inflation targets are really appropriate as well. matt: good point. us, atill stay with
nomura. here on bloomberg, we are going to bring you the ecb's interest rate decision when it is announced, 12:45 p.m. u.k. time, followed by mario draghi's press conference at 1:30 p.m. in the u.k., two: 30 in frankfurt. you can watch that on live are you can also follow it on your bloomberg with the tliv function as well. president trump sides with the democrats to extend the debt limit to december. he also helps harvey victims with that. we are going to discuss what this means for the u.s. economy, and what it means for washington. this is bloomberg. ♪
matt: welcome back to the european open on bloomberg markets. i am matt miller in new york alongside manus cranny at our european headquarters in london. we see stocks gaining slightly across europe, the broader index up just .002%. .1%.itain, only manus? manus: thank you very much. let us get to one of our top stories this morning. president donald trump has agreed to pass aid for hurricane harvey and extend the government that limit to mid-
december. on the market for later this month. hafeez.th us is bilal so, have a look at this. we preparedchart earlier. 6987. of course, i am talking about the ratcheting up of christmas bills and the ratcheting down. bills for christmas up by 7%. basisr, down by 17 points. we just kicked the can down the road, heavenly, in terms of the debt extension? it is all in. bilal: exactly. that is the main issue with what they did last night. it just delayed things by two to three months. if anything, what the republicans wanted to do was to
come to an agreement where this would be an extension of 18 months. but by trump siding with the democrats and pushing out three months, you are going to have this uncertainty hanging over the market now for two or three months. there is one chart -- manus: there's one chart. index.he we re-create these and it takes a complex level in the white -- in capitol hill. it is produced by the philly fed. i like the philly fed. "fragmented fears," is what they are saying. , it ise got to say rather punchy. i just wonder -- this moment of trump reaching across to the democrats -- does it empower the democrats? it may be gives democrats -- m aybe gives democrats the ability to after a great deal. bilal: it does give the
democrats a lot more leverage, betweenreates a divide the republicans and president trump himself. i think that is problematic theuse many of the items on agenda, particularly tax reform, which is one of the things the on,et is really focused could become much more difficult if you have a fragmented republican party, where the toublican on the hill starts challenge trump for fighting with the democrats. i think that is really the bigger problem here. matt: bilal, u.s. stocks have had a great run. for a long time, they were undervalued compared to the rest of the world. we have seen that relationship flip over to where the price ratio on the s&p 500 is a fair amount higher than that of the msci world. we have a chart here, 3776 on the bloomberg that shows you this. it also gives you the spread on the bottom half, so you can see how much more investors are
expecting from u.s. earnings than they are from the rest of the world. is that valuation -- does that make sense to you? bilal: you know, what i think is that valuation reflects expectations of tax changes we could see in the u.s. and also the cyclical picture in the u.s., reflationary picture which should increase u.s. earnings power. however, i think the picture for the rest of the world is looking much more attractive than the u.s.. the u.s. is in a sweet spot over the last few years, where it was growing quite nicely. the fed was tightening, but in an environment where the cycle was not so mature. is at thef the world sweet spot itself now. i think this valuation gap is probably unlikely to last for very long. if you look at the chart you just showed, that differential does not tend to last very long.
we are close to the highs over the last five years to six years. matt: i know you are an fx strategist looking at currencies more than stocks, obviously. one of the most interesting asset class developments, i think, this year, has been the weakness of the dollar. we are off almost 10% on the bloomberg dollar index year to date. shortly, that has got to be a boost to the u.s. economy in that those exporting multinationals can really get a boost in their market share over their international competition. yeah, and i think part of the reason you are seeing this outperformance is to do with the dollar weakness. to 40% ofound 30% earnings of u.s. companies come from abroad, so any dollar weakness goes straight to their bottom line. now, whether the weaker currency helps the u.s. economy itself is less clear-cut, because on balance, the u.s. still behaves
more like a closed economy. it does help at the margin, but there is the more domestic know,ated sectors, you are the larger engine for the economy. manus: so change comes fast and furious in the united states of america. stanley fischer step down. janet yellen at risk. would be my-- initial thoughts. how do you, ladies and gentlemen at nomura, take the news that a centrist is gone and yellen is at risk? bilal: i think this suggests that the old guard -- the establishment what the fed -- are on the way out, and we are likely to see the new guard coming through, whoever that may be. people were talking about gary cohn, but that seems less like likely now. whoever comes into the fed will likely lean on the dovish side. given the tweets we see from
president trump on the stock market, it is unlikely he will install a hawk into the fed. manus: when doves cry. bilal, thank you very much, head of ethics strategy at nomura. talk u.k. bosses are reportedly furious with theresa may for being asked to sign a letter supporting her brexit plan. more on that story. this is bloomberg. ♪
matt: welcome back to "bloomberg markets: european open." big news on a big bank in europe this morning. let us get to bloomberg's sebastian salek for the business flash and more on that story. sebastian: the decision to relocate it has been seized on by politicians saying it is the latest example of jobs leaving. they have moved to finland. estimating the decision will say that as much as $1.3 billion in regulatory costs. aboutok says it found $100,000 in outspending connected to figur fake accounts. it stirred controversy in the u.s. ahead of last year's residential election, connected
to 470 fake accounts. company says it is sharing its findings with u.s. investigators. that is your bloomberg business flash. manus: sebastian, thank you very much. now, here in the united kingdom, theresa may's offices circulated a letter to talk u.k. companies for senior executives to sign, phrasing her brexit strategy. the letter, intended to be published in a british newspaper, said the government's we peel bill would kickstart legislation. 100 people were furious about being asked to sign such a letter. legislation later today. hafeez's head of fixed income research at numeral. it is one of those -- at nomura.
it is one of those surreal moments that the prime minister is asking for support. i could redo some of the headlines. thataily mail has it nobody wants to play with theresa. tsiene wants to play foo with theresa. i had a guest that said the u.s. was in chaos with trump. is the u.k. entails with theresa? bilal: i think the u.k. -- manus: the u.k. brexit negotiations in chaos with teresa? think the brexit strategy overall is in chaos in the sense that there is not a clear roadmap of what will happen to the u.k. over the next few years, nor is there an apparent consensus within the government around what will happen. that is the bigger issue here, so from a market perspective, there is less of a need for the prime minister to reach out to companies, and more of a need
for a to reach out to members of her own party to come up with a roadmap of how the transition will look. matt: we have been heading towards euro pound parity in the middle of last month. we have come off of that with highs a little bit. do you expect us to go there eventually? is it a foregone conclusion? bilal: there is a real possibility we eventually go towards parity. in the short-term, i think we could consolidate for a period time. view is thew, our euro in general should do quite well. the u.k. fundamentals just are not attractive at the moment. the big thing that could help the pound is if there was some kind of transitional arrangement where the u.k. maintained access in the singles market. all the leaks we have had so far seem to suggest that is not going to be the case, and those sorts of -- would drive eurosterling toward parity. matt: a good point. obviously two sides to the market. g10 fxafeez, head of
matt: the ecb may finally start the taper talk today as it compares to curtail its asset purchase is pure it will the stronger euro pearl on the program? president trump reaches a short-term debt ceiling with the opposition that provides help from our be victims. now, a december deadline looms large. and hurricane irma sweeps over the caribbean and batters puerto rico on its way towards florida. how much will the category five storm cost as miami begins to evacuate? morning, and welcome to bloomberg markets, european open. i am matt miller in new york alongside manus cranny at our european recorders in london. manus: we have another central
bank, the canadians raising their rates. leaves their rates unchanged at -.5%. thethat said, this is swedish krona this morning. this is against the dollar. the dollar has been down and we had the strengthening of the krone. it has been one of those go to haven currencies. so, just seeing a couple of lines come through. they still see the first rate increase not until the middle of 2018. being anthe rate average of .8% in the third quarter, 2019, versus 20% before. the first rate increase. this is coming through on your bloomberg first word. no change. -.5%. matt,aid, from sweden,
you have a little bit of breaking news. we get that very shortly. my apologies if you are a bloomberg customer. tv , isn't it, matt? matt: you can type this up and you can see the house prices yourself. fors beating the estimate 2.1%. go ahead and check that out. coming up, mario draghi is finally having the talk he long sought to avoid. it is decision date for the ecb. we will discuss the future of quantitative easing as he has already done with his counsel. this is bloomberg. ♪
matt: welcome back to "bloomberg markets: european open." mario draghi opened a debate with his counsel about the future path of stimulus yesterday. it was presented with the werening council -- they presented with various scenarios for winding down asset purchases according to people familiar with that meeting. inserting the discussion, the ecb president followed through on a july pledge to start talks in the fall. a formal announcement on the next debt may not, in today's press conference implements next october. joining us down the line from amsterdam is the senior eurozone economist for ing. let me first ask you what you are looking forward to hearing.
what you are especially on the lookout for from the ecb today. obviously, it is going to be about what he is going to announce. more so, what he is not going to say. he has to bank meetings left. that would be a huge cliffhanger. we are not expecting any full details of tapering yet. we are expecting the dovish tone and not a huge jump in the euro. more looking at what he is not going to be discussing than what he is actually. matt: as far as the tapering, he is going to be a q&a, even if he does not say anything. everyone is going to ask if you talked about this in the meeting and he will have to say yes. do you expect that? guest: yes. no, absolutely. we are expecting that he will give a subtle hint towards the fact that they have been at least discussing it, and perhaps also, some of the options that
have been on the table, but that would already be somewhat hawkish given the fact that his tone has been so cautious over the past speeches he has given. manus: good morning to you. you are going for quite a punchy cut in terms of the taper when it comes. it is going to be very aggressive, according to ing. we go from 60 to 30. you join the black rock stable. give me the implications on that in terms of yield. would you see a spike? wet: let me explain why expect that. it is mostly because of the flexibility that the ecb seems to be looking for. this came out of the last minutes of the previous meeting that they helped. they indicated they are looking to have flexibility to move backup in case the situation would want that. expectations continue to disappoint and the euro continues to go through the roof , and if we are looking at more political risks from a country like italy.
they would be interested in being able to give a further push. we are thinking they could go down to 30 billion at once. they would also raise the limit so they would have that flexibility to do more and even scale back up at some point. the implication for markets would be half and half. it would be somewhat hawkish, but the other side would show they would be able to continue for longer than some of the expecting. from youlike the line that you can talk about pizza toppings and still -- we are looking at the call to put ratio this morning, and it is quite expensive. fx, don't want to be caught on the wrong side of the euro trade. the tone and intimation of the anduage -- patience persistence here you think you will go for an unwarranted tightening in financial conditions. what would that do? they have tightened slightly, but not language -- what would
that do to the market? bert: i mean, it really is sort of up for grabs. that is one of the things we are going to be looking at. will he be talking about be unwarranted tightening of financial conditions or will he sticks of those patience, prudence talks he has given the four? it will be important to see what kind of message he gives to fx markets about the euro, because he has sort of lost his magic about being able to give somewhat more hawkish messages and not do anything to the euro. the genie has been out of the bottle. matt: do you think central bankers still expect to be able to hit a 2% core inflation target? or is that a thing of the past due to structural changes in the economy? bert: well, if you look at what draghi has been saying about that himself, he is expecting the phillips curve of the
relationship between unemployment and inflation has just been sort of temporarily on the fritz, and we are going to see that the relationship will strengthen again once the recovery improves. i think the ecb is expecting that in the coming years, we will be able to get back to those levels, closer to 2%. obviously, it is an uncertain time to be saying that as wage growth continues to be very weak in the eurozone at the moment. it has been across advanced economies. matt: how do you expect that to change? how long until that went growth scenario changes? it is not just in europe, right? we have the same problem in the u.s.. around the world, that kind of slack seems to be everlasting. ont: yeah, we have done work that for the eurozone, and we think there still is sizable slack in the eurozone labor market that does not show up in the unemployment numbers, but if you look at the water unemployment rate, you see that is very much elevated.
you seef that, structural reforms have been happening across europe. they have been called for so much. they have resulted in more flexibility in the labor market. in first instance, causing wage growth to be subdued. ironically, the ecb has been calling for these, standing in the way of getting closer to the inflation target. manus: if you go from 60 billion 230 billion, it suggests you get a widening of spreads and italy and portugal in spain. anthat just too baselevel assumption? what would happen in that event? that could not come at a worse time. , theee a 10 year growth strongest in 10 years around europe. or is that the best time to do it and take that risk? bert: obviously, now is a much
better thing than we have seen. that is an uncertainty factor for the ecb, and definitely one of the things they will continue to look at. as oft of looks for now the situation is rather benign, but you never know how quickly financial markets will pick up on that. manus: we are getting some minds coming through from the chairman over at ubs. he is at a conference in frankfurt, talking about succession planning. this is interesting. stanley fischer, we understand, is stepping down from the federal reserve. should not bee discussing draghi's succession just yet, but in the same breath, you have got to hand it to him. understands the market complexities very well. is it too soon to talk about
draghi's succession, and do you think that he is the anointed one? it is always difficult to say with these big european positions. the ones that are named early on -- it is always a question if they can hold out until the end. years left for draghi in which he has to start sort of the exit plan from qe openrom the extreme, very monetary economy we are seeing now. clearly, for now, it is important to focus on what draghi is going to do for the coming years and only focus on his successor after. matt: i'm going to interview a bit of a curveball because we have such a great story out of nordea. ofbrings up the problem regulatory arbitrage. what do you think about this bank leaving stockholm for helsinki? does it cause a problem?
is it good for the ecb to get more under their purview? what is your general take on this big story? bert: i would say that, you know, obviously, free choice for any bank to do that type of thing, and i think the ecb should probably be prepared to handle more banks coming into the eurozone. i think that is the message they portraying with regards to brexit. i think that should not be a problem from an ecb perspective. matt: i appreciate your take this morning and your time as well. bert out of amsterdam. we will bring you the ecb parse interest rate decision when it is an out that 12:45 p.m. u.k. time, 1:45 on the continent. mario draghi's press conference follows later and we will broadcast that in its entirety. you can stream that on tv .
wordt to get the first news from bloomberg. for that, we go to sebastian salek. sebastian: president trump sided with democrats on adding a three-month extension. the agreement goes against the arguments of fellow republicans. the plan, which paul ryan earlier called unworkable, provides funds to keep the government running until mid-december. stanley fischer has resigned, citing personal reasons, and will step down in mid-october. presidentointed by obama in 2014, to a term that would have ended next june. trump may reshape leadership of the central banks in her than expected. the president is now unlikely to nominate gary cohn at the new fed chair. theresa may's flagship brexit legislation will be debated for the first time today, giving opponents of the opportunity the
first time to lay out objections. copied and pasted into legislation. hurricane irma has caused devastation on a chain of islands in the caribbean with puerto rico.asses it could be toward a category five storm. by anothere followed storm, which has developed into a hurricane. the spanish prime minister is promising legal proceedings after a bill for independence referendum passed. she will ask the court to invalidate the referendum law and consider criminal charges against those who called for it. if the government does not, the referendum is set to be held in the beginning of october. global news, 24 hours a day, powered by more than 27 at a journalist and analyst in more than 120 countries.
now, matt has -- it is on its way towards florida. parts of miami have been evacuated. this is the national forecasts, category five hurricane. it is set to hit the u.s. by sunday afternoon. that could turn into the most expensive storm in american history. as world markets from everything from orange juice to insurance and natural gas. let us discuss the impact on commodities. we have been tracking orange juice and lender. trafficy alley -- tracy alloway, good to see you this morning. you are in abu dhabi. anyone in the bloomberg terminal, they contract this if they want to do this. jose is on the way, and katia. where are we in the commodity markets, tracy? good morning, by the way. tracy: good morning.
i have to say, we had a big impact on things like orange juice futures and cotton prices earlier in the week, but that seems to be fading. today, we have orange juice down about 3%. ont is after jumping 6% back tuesday. meanwhile, caught futures falling. they had risen by 1% earlier in the week. now, some of that is down to fresh projections we are getting 's stormrricane irma path. some people are predicting it will lessen and strength as it heads north into georgia and the carolinas, which would spare some of the cotton crops. ien it comes to art shoes, have not been able to find a good reason why futures are down coveringer than shorts in the market. we are taking a direct hit on florida, which would impact many of its such a -- citrus groves. when it comes to the weather, we threen unprecedented
hurricanes now in the atlantic to worry about. you have hurricane irma, which is a record in terms of strength , currently sitting over the caribbean but barreling towards florida. you have hurricane jose coming up behind it. you have the tropical depression in the gulf that has now been .pgraded to hurricane katia let me mention one more commodity for you, manus. we have gas prices. guess prices have been falling quite significantly earlier in the week. they are recovering today back over three dollars for the october delivery. that movie is coming off the back of verizon oil prices. most of the analyst commentary i have seen, they are expected a big hit when it comes to actual gas demand because we are expecting power outages in florida due to the strength of the storm. matt: i would have thought -- matt miller in new york -- i would have thought you would see gas prices get crushed because usagea's air-conditioning
is a huge part of natural gas months.n the summer september is a full month, but still hot down there. i would have thought frozen, concentrated orange juice futures would have looked like they are cornering the market. investors just do not expect the hit to be that big, and that is the speculation that is dropping orange juice futures and raising gas prices? tracy: i knew you were going to get a trading places reference in there somewhere, matt. the key in the market is uncertainty. again, this is an unprecedented storm in itself, hurricane irma, and unprecedented to have these three hurricanes all happening at once. even though we have seen gas prices recover a bit today, that is off the back of really low trading volumes. ofething like less than 50% the longer-term average today. there is clearly a reluctance in the market to make any big bets either way. when it comes to gas, you have
to think about what is happening with oil. we have seen a lot of the refining capacity that was shut down off the back of hurricane marty again to come on stream. something like 1/5 of u.s. total refining capacity was shut down at the height of that storm. now, we are seeing it restart. we saw the largest plant in the u.s. down in port arthur saying it is trying to get up to a working rate of 40% by this weekend. that short-term boost in oil to feeds really helping into prices at the moment. what it is also doing is boosting some sentiment and oil -- in oil. the faster refinance can come on stream, the less likelihood you get that we see a really big andd in the inventories u.s. oil and gas stockpiles, and know that u.n. manus that is one of the things the market is worried about. the faster the refiners get on stream, the better people feel
about oil prices. that feeds a little bit into the gas price, but i have to say, the story most people are talking about when it comes to gas is still one about the man, not supplied. manus: it is interesting. landl get you back to the of the living. we will talk about catastrophes. we have a chart showing for our viewers in terms of the small but moderate ratcheting higher catastrophe bonds. barclays have run the numbers. the story late yesterday was $130 billion, potentially if it makes landfall as a category five in terms of the propensity to do damage. and this is where the real cost for the insurers -- the equity side of the business comes into play. you have the equity side of the story. yeah. manus, it has been a long time since i looked at cat bonds.
we are seeing stark moves in the insurance market. spx ongest loser on the either monday or tuesday was a company called everest, down something like 11%, i think it was. clearly quite a lot of concern. when it comes to the barclays, they are saying this could be on most expensive storm record, essentially, and of course that means the market has to start thinking about second order effects, particularly when it comes to impacts on the economy. there is actually a lot of discussion about whether or not these hurricanes are good or bad in the long run for the economy. you could argue you take a short , sharp hit to the economy, but you have the potential to have a boost to infrastructure spending over the coming years. again, that is probably not what a lot of people in florida or texas are going to want to hear that is a debate
happening amongst some economists and analysts. i knew you can reach into the depths of your mind be on catastrophe bonds. no better woman to do this than yourself. tracy, thank you very much for joining matt and i today. have a great weekend in abu dhabi. there is one seminal event for the market, the euro, in germany. it is the european central bank. matt, did you just run away from germany because you knew it would be a big day? [laughter] matt: no, in fact, i will be paying very close attention with david wes and alix steel. the interesting thing is we have seen a real spike in the euro-dollar and we have seen real strength in the euro pound. we see real strength across the board in the euro, and that may be because investors are not are expecting to
hear something in the q&a session from mario draghi. we are not expecting to hear something in the statement. he may leave that until october. in the q&a potion which starts at 2:30 on the continent, 1:30 in the u k, investors are going to start pounding mario draghi with questions about how the discussion went during the council meeting over the last two days. and what the possible schedule will look like for tapering. i mean, you can argue it has already been done. i argue with guy almost every day that we have already seen the start of tapering from 80 million euros in bond purchases a month down to 60 million euros. what the market is expecting is another leg down -- 40 billion euros in bond purchases in a month. that.ll not get an end to draghi has always argued a real taper means it comes down to zero at the end, and he may not
be ready to give that up today. manus: yeah, let us see what he does actually say, whether he will embolden that language about the strength of the euro. if you look at the euro's percent, the one thing we have seen between the last meeting and now, the bloomberg euro has risen by 5%. financial conditions have tightened. this is one of the charts we have out there for you in terms we ares that we have it up 5%. what is that going to do to inflation? you read the blackrock maryland, the nomura -- blackrock's notes. withd that conversation ing, talking about the possibility in 2018 that you will see a reduction in quantitative easing by around 50% slashing in terms of the numbers. forer -- excuse me -- choline -- bert thing they will
go to 30 billion. that, in their opinion would be a decent move. blackrock, they also for me it comes down to matt, the tone of this linkage, just his language or whether he goes or something -- we have done our amber green and red lighting system. eyes on whatour happens. another story where covering at 9:00 a.m. in central europe, it is european banking giant. deciding to move its headquarters from sweden to finland. it will put the nordic region's only important bank within the eurozone. joining us now is