tv Bloomberg Markets European Open Bloomberg October 27, 2017 2:30am-4:00am EDT
♪ guy: good morning, you are watching "bloomberg markets: the european open." cash equity trading about to open 30 minutes time. i'm guy johnson in london. matt is in berlin. what are we watching? a dovish draghi bribes the dollar up. tax reform progress in washington and strong tech earnings throwing fuel on the fire. it is -- is the correction in euro-dollar just getting started? rajoys senate set to give
the ability to seize control of the region. we take you live to barcelona. ubs beats the capital buffer, rebounds in investment banking. trading? not exactly a rose a spot. sergio ermotti tells manus cranny it is too early to buy -- talk about buybacks. matt: i just want to say that we are waiting on a number of earnings. we have had a lot out this morning and we are going to talk to a few ceos this morning, as well. really heavy day for earnings. we continue to get bank earnings, companies like electrolux, we will get earnings from volkswagen, as well. we are less than half an hour from the start of european trading. we had a rally that went around the world, sparked in spain yesterday. indexes rallied more than 1% a piece. the u.s. rallied, asia rallied
and now we see futures pointing to a positive open again today. watch for that risk on sentiment in today's trading. 10-year.he u.s. i have to 10-year yield on my screen. -- chart.two-day scar 6, we have been above that, but this has gone through a couple of levels. big investors like bill gross and jeff good lock have been watching -- jeff gunlach. now we have more on the precarious situation that treasury bulls are in right now. continues to unwind its balance sheet. something to keep an eye on. the next level we look at is probably 2.5. equity come back to the
markets, that interplay absolutely pivotal. a big move in the dollar could change people's equity market portfolios around the world. the currency overlay critical. yesterday, a really strong rally. a strong rally in the nikkei coming through. the flow data into the nikkei is sensational at the moment. let's hope that technology sticks with us. let's get a bloomberg first word news update. edit: ubs's capital buffers rebounded after it surprised investors with a drop of key measure of financial strain -- strengths. the bank's capital ratio rose to 13.7% in the three months through september, --, compared to 13.5% in the second quarter. rose below analyst estimates. sergio ermotti was cautiously optimistic when he spoke to bloomberg's manus cranny.
isgio: gdp growth forecast set to be revised up again, but the geopolitical situation and the macro economic situation is still very complex. we are entering into a very challenging quarter in terms of seasonality. we will stay focused on executing our current strategy. that is important for us. taylor seens., john as the frontrunner to become the next fed chair has argued that faster economic growth is focusle if policymakers on reforms that encourage investment and hiring. his remarks are likely to be approved by the white house. donald trump has promised to stoke the growth rate, which has since 2010.e 2% australia's government has been thrown into crisis after the deputy prime minister barney be choice was declared ineligible joyce when he was newd to be a citizen of
zealand. he has since renounced his new zealand citizenship, but will have to re-contest the seat in a several months special election. >> i don't rely on polling, i put myself forward as the candidate, work hard and stay humble. that is what i will concentrate on. hasthe u.s. president prompted the release on files related to the jfk assassination. tocited irreversible harm's -- harm to national security. he placed those under a six-month review while letting others to come out. in kenya, results of the country's rerun presidential election are due this morning half of half of registered voters cast ballots. uncertainty about the vote has
unnerved investors. benchmark h-share index has fallen 7.6% since the election was declared void on september 1, while the yield on government bonds due in 2024 has climbed 34 basis points to six point -- 6.6%. global news 24 hours a day, powered by more than 2600 journalists and analysts in more .han 120 countries this is bloomberg. guy: thank you very much. kendrys -- can breathe easier. alphabet hitting a record high. the dollar advancing against the hopesollowing tax reform and the dovish hike from mario draghi. 's joining us now from our mliv team out of singapore. is this dollar -- does this dollar rally have legs?
nejra: i think it definitely does at the moment. the market has shifted quite rapidly. the dollar component has been shifting from the fed chair side and the possibility of tax reform, which seems to become palpable by the day. suddenly, we have this euro component as well, which feeds into the dollar index. in europe, there was nothing new from the ecb. triedt his options open, to give the taper as dovish lee as possible, but the markets have gone, this is exciting. at a time when you have this narrative shift, it is not the time to worry about long-term fundamentals that have been driving -- drawing your dol lar higher. years, we haveo a proper correction in euro-dollar on our hands. bundswhere do you see the going? we are stuck in a range were even if we move down to four or
up to 46, we still don't seem to be able to get out of it. what is going on with the incredibly low german bund? i'm going to disappoint you, matt. i'm not sure if we break out of that range soon either way. yields are just not going to go particularly far and , globally webunds have had a run-up and i think that might be coming to an end. whoever we get as fed chair, i think it is hard for 10 year yields to climb much further. yellen or powell, it will be seen as dovish. we have this premium priced in and that will come out. if we get taylor, it will be hawkish on the front-end and the curve might flatten with the fear he may prematurely hike. to 10ight go another five basis points, but i don't think we run away further with more risk to the downside. going to be stuck in this range because it is unlikely the global theme will break out of the longer trading
range this year. be: could this dollar story one that doesn't stick around for long? draghi was a big component yesterday but the tax reform story seemed to be a big component late day in the u.s. and the asian session. the republicans have set themselves some pretty big deadlines for next week. mark: look, it is clearly powerful in the moment. i am structurally bearish the dollar, but there is too much narrative the other way. there are reasons for the dollar to be weaker. not least that both the president and monetary policy in the u.s. favors a weaker dollar. they have a current account deficit, they don't have a attractive real yield and their wouldn't want- i to preempt it, though. at some point, this tax story is either going to fail or pass. people may go this isn't as
exciting as we once believed. don't play that team now. that might be a theme for a month away, but what is important now is there is so many thing going -- things going in the dollar's favor that you need one -- more than one of these pillars to fail. he will also need to see tax reform fail and a more dovish fed or some combination like that, or tax reform fail and more positive impetus for europe. at the moment, there are several pair hours -- pillars supporting euro-dollar correction. people arer-end, starting to close their books. they have made decent money. if you are a you worse -- u.s. investor, you have made good money in europe. vice a versa, if you are a euro investor in to the u.s., you have been knocked out on this one. if people get to your end, coming up to november, you have
three weeks before you close your book out. if this starts moving the maps on equity books, how do people react to that? mark: some people have the theory that is what you might see this persist to year-end. suddenly we have this correction and that triggers a load of people going, i am going -- the people who made money are going to suddenly go, let's lock it in and those who have been struggling all year go the other way and have to chase this move, make the most of it. my time has come. there is a theory in markets trading that going into december, you see a move turn in november that can run all the way to year and even if it seems bizarre, the fundamentals behind it don't warrant such a move. we have to watch what narrative. euro-dollar correction continues to year end, but i don't want to be so confident it does. matt: if you are a u.s. investor , you have made decent money in
the u.s., as well. the s&p 500 up 15% year-to-date, the dow up almost 20%. you had three things you were concerned about, are you still looking at those three issues? is north korea still a possibility of something that would ruin markets? mark: look, if north korea ever flares up into a proper military escalation, yeah i do think it would derail markets. it has gone off the radar at the moment but trump is going to be in asia next week. that might come back into the story in two week's. north korea is a known risk and one that is hard to hedge. it is on the radar, but not something that will suddenly cause markets to selloff unless there is a military escalation. catalonia looks like it is coming to the end of the road today. there is tail risk in catalonia that it this leave wrong, there is a misstep.
resolution soon, which means elections, we have to delay. it has already eroded growth in spain this year, but maybe we have gotten past the tail risk. we need to see how that goes today. the final thing is the government set -- shut down situation. the hard deadline of december 8 is not a hard deadline, that is one that drags out. as we get closer to christmas and low liquidity, if we don't look like we are getting resolution, that could become a scary one for a nasty correction into low liquidity in year-end. that is probably the biggest risk, but a theme we don't have to focus on until december. mark cudmore, mliv strategist. you have to follow these guys through the day. the markets today look interesting. mliv on your bloomberg. up next, spain's parliament set to give mario naranjo power to
catalonia. expectedin madrid are to pass legislation today to seize control of everything from the insurgent region's budget to its police force and state-run media. with options running out, the catalog president -- catalan president is due to address the parliament in barcelona. let's go and speak to bloomberg's maria taddeo. how tough do we think russia -- rajoy will get with the catalan government? it seems they have gone back and forth about the possibility of elections, canceling the need for article 155. no elections. is madrid going to go through with it now? it is no question this article will get approved by the
senate. the government has made it clear there is no backtracking from here. the big question is, how tough will madrid go on the catalan administration? hardlinersw is the madrid would like to see total capitulation from the regional government. it has been a political headache for years and no doubt he wants the cabinet out. if you go to tough, that carries risk for madrid. implement article 155? the big risk is if you go to tough on the administration, you get a pushback back from people in catalonia. the balance is, what balance to we get from the central government? a complete takeover or a more lenient way of implementing this? no question it won't get approved and what we are looking for is the details of the bill.
guy: original elections still an regional elections still an option? maria: the idea wasmaria: floated to give the president a dignified way out. catalonia doesn't have its own electoral law, so they would have to use the mainstream spanish one. de facto, you could argue they could enter into the constitutional framework. madrid is saying regional elections are not an option. the was the message from deputy prime minister yesterday. she said we have to go into catalonia. we saw complete a offset times yesterday, showing the government really needs to get out. no question that regional elections are not on the table. is the story around the parliament in barcelona? if we are to see article 155 our people putting
things in place ready for that to happen? we are trying to get a sense of how people are going to react. i think we need to go back to yesterday to get a sense as to what has gone quiet. it was a tough day for the catalonian president. with -- onthe day the table. he was backtracked and at one point, it seemed he wanted a way out. his idea of calling a regional election was floated, but we saw immediate reaction from the people of barcelona. people were shouting you are a traitor, that made him backtrack on that and he appeared to address parliament and today, we get a vote. thetill don't know what catalonian parliament will vote on. they could still go for the declaration of independence, but
we are seeing a lot of confusion. people who feel frustrated by what we saw yesterday, a lot of hesitation on his part. guy: maria, thank you very much. plenty more coverage coming from maria in barcelona as we watch the clock ticked down. we are minutes from the european equity market open. up next, the movers in today's trading. keep an eye and clarion, ubs, vw, the banks more broadly. we saw banks rallying pretty hard in the united states. all those stories coming up next. the market open is eight minutes away. this is bloomberg. ♪
♪ welcome back to "bloomberg markets: the european open." i'm matt miller, i want to get your stocks to watch. we have watched manus cranny's interview with sergio ermotti at ubs. after capital buffers rebounded, it surprised investors with a drop and added $2.5 billion of net new money to its wealth management unit. a capital ratio of 13.7% compared with 13.5% in the previous quarter. it looks like ubs is firing on all cylinders, especially the
wealth management cylinder with a flood of money coming into the bank. guy: absolutely. let's talk about clarion. the huntsman deal is off, as a result we see clarion coming under significant pressure this morning. iraq in theng in kurdish region, keep an eye on that. that could affect some oil companies. totality out with numbers, pay attention to what is happening that. this euro story, as well, could have legs. european equities are called higher this morning. pay attention to decent moves. -- i think you are looking at outperformance in the cac and dax this morning as the euro goes lower. int could be a factor
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we are anticipating a strong showing. most markets were up 1.5% yesterday. the screen this morning, your value cancellation going. going to add another half percent this morning. the dax like it will outperform. interesting to see if it this is individual names or if it's is a euro story. the german exporter, that could help reedit that is not going to hurt. i have a look at the euro as well. the euro-dollar finally testing
the hundred day moving average for the first time since april. moveinteresting to see the inthe weakness of the euro light of the ecb actions yesterday. also the strength of the dollar in light of the possibility of tax reform and the support that charles has given to john taylor. that is one of the main reasons here you are seeing the dollar strength. >> you're going to want to pay attention to this. volkswagen dropping, slightly beating 2017 operating market target. text 1.1 4 billion. revenue, 55, estimate of 54.46. let's get a share price match. i see again there of $.15.
115 on vw. this is a stock that is not done well this year. compared to the rest of the market. we are looking at a 10% gain in light of shares year-to-date and you have the dax up more like 15% year to date. .t has underperformed but still guy: it is snapping higher right now matt. let me zoom in on this so you can see what is going on. i think we are back up there now. trading up on the session around one third of 1%. not a bad performance. i want to show you what the european market open looks like you this is the picture.
that opens up in an extra moment. guide, market open yields across europe move lower in reaction to the ecb decision. mario draghi's dovish down siding and people are calling gilt yields at 1.38%. right now 1.39% towards 1.4%. we are up one basis point on the tenure gilt built. we saw to rally by more than 1% yesterday. mario draghi gave a lift. they have the best reaction to an ecb meeting of 2017. they rally the most since the beginning of september. the stoxx 600 is up .2%. gains nonetheless. tech stocks outperforming, a bit of a lift from tech earnings out of the u.s. overnight. on the downside you are seeing material stocks underperforming
along with energy. commodity stocks not doing well. i'm looking at the euro stock 50. yesterday, this is looking at the one-month implied correlation. you can see how low the has dropped you the lowest in almost six years in fact. the yellow line is the long-term average. it says perhaps you need to be looking at more stockpicking rather than broad-based moves. is the function you need to know about during the season. we're not even quite halfway through yet with all the different stocks. let's talk about what is going on. these are the upside percentage moves. scotland monday all rising this morning.
multivitamin trading up by 1.41% what isa look at happening on the index points basis. ubs is up one point report percent trading this morning. trading of reasonably strongly. let's talk about what is happening there. overnight,ing off there is a dollar factor in all of this. by half is trading down of 1%. the doug -- the drug sector is trading weaker as well. a quick look here as well. i would just want to see where clarion is. matt: cancel deal. will do that. captured rebound in the third quarter while providence invest banking units sword. manus cranny sat down with sergio ermotti. he asked how concerned he was
about repressed volatility. particularly aen sensitive issue for us around the effects on major currencies. we are one of the leaders in the affects market on the major currencies. in general i would say we talk about volatility, i mentioned in the past there is good and bad volatility. what we are missing is a little bit of a constructive positive volatility. sense, you can see also pushing more and more investors and very different other forms of investments. guy: the you bank on a healthy volatility in 2018? >> we're not thinking, we are
hoping you where prepared to manage any kind of fair market conditions. -- theportant for us not environment is very challenging. of course we see gdp growth forecast set to be revised yet again. the macroeconomic situation is very complex. challenging quarter in terms of seasonality. i think we stay focused on executing work or strategy and that is very important for us. you brought it up in america so i bring it back here. we are almost there. actually we are there. the buffers at 13.7%. that is nice. do we get a buy back? premature to talk about
our capital return policy. past we have reached the capital levels needed to fulfill regulatory requirements, 2020. we are looking to continue to on ournt progress even cash dividend. eventually couple meant it with capital returns through share buyback. it is too early to talk about it manus cranny joins us. what else stuck out to you with your interview there? manus: i think it was the message about investing. they did the investments in asia a number of years ago. when you look at their numbers there was outflow of money in the united states but for the
wealth management business, net money of $2.4 billion. the market is eating the stock up. where the world's most extensive investment bank and we are the cheapest asset gatherer. the question is, the effects business was under pressure. how do you maintain that momentum? i did get more wealthy billionaires to trade more? when -- the scorecard capital investment doing quite well. the health warnings were perhaps the little bit of outflow in the united states of america. i think it was a very measured it take on the situation as well. matt: great interview there with sergio ermotti. joining us in the studio, the head of microstrategy at state
street. aat is interesting is we see division of the kind of banks you have to invest in in europe are you yesterday seeing big trading blocs at berkeley and deutsche bank. today strong earnings for ubs. there are winners and losers to pick from as a whole. >> the chart at the top of the hour matt nailed it. the correlation amongst shares, she knows the type of signal. that is exactly what you are seeing in any number of cross market or intra-market correlation. market fragility, we have a systemic index that hints at the same thing. there are decent earnings stories. there are poor earnings stories. are mixed earnings stories area the trend is not just getting
involved and buying everything, it is about being more selective. in thing see in a great markets, increasingly in effect markets, you probablyets, might start to see it more in fixed income markets if volatility starts to pick up as well. it is absolutely the right way to think about things. sorry, i was wondering if all boastsde lifts in regards to the ecb. finally starting to tighten monetary policy, rising interest rates. surely deutsche bank healthspring much everyone. >> that is if interest rates rise. the ecb tighten policy yesterday .nd you had conditions loosen how that works i am not certain. you will getrtain
rapid rises in short-term interest rates in the eurozone anytime soon. -- maybeou can pay be make the case in the long and more effectively. i think it is wait and see with the ecb policies being interpreted as dovish. you saw the bank index, a 2007 high. people talk about the fact that we have had a great run. they keep making gains. that was the tax reform story is anything else. the stoxx 600 bank index, that is getting bigger not smaller. >> especially over the next couple of years -- the last couple of years. to 2008 in the u.s.
to stabilize the u.s. banking system. to had a federalized effort correct the imbalances in the banking system. you don't have that in europe area it quite natural europe will lag. you are seeing the earnings story which is more mixed this time around. there is no sense that the gap needs to close. guy: the problem is there are not many that look like they are in decent shape. populars were really but you saw earlier this week. deutsche's has a problem, u.k. banks, barclays has its own issues. at what is happening in spain. santander looks solid but there were issues. the french bank of feeling when you come back to an think actually, in reality these are the only ones that are making sense right now.
>> that is where we circle back to the original question. you have to be selective. look at the last year, the performance of european banks has been good to that has been covering this coming with earnings. it is still a very challenging story with pockets of positivity within that. he is going to stick around and 20 more to discuss including what is happening in the united states. leads the pack in terms of the odds. two horse race now. up to closesetting the gap with comments he has been making over the last 24 hours. then you have the story in washington surrounding the budget story. what is it all going to take us? we discuss that next. this is bloomberg.
the fed chair position. an unnamed source with sizes. there is a bunch of factors behind it. we have discussed some of them on the program. what happened yesterday a factor behind this. 116dollar is now trading at .020 that has a big impact in equity market or folios. it is really crystal-clear. you have made 3.48% this year. if you're a dollar investor you have made 14.36%. currency matters. does the dollar move have legs? what does this mean for equity market portfolios? >> it probably does. you have been listening --
positioning that is very anti-dollar, pro-euro. that can unwind because these are momentum markets. the loss for trends to build and you have the tax story in the u.s.. even if it is for now signifying leastg, it is least -- at discountve the markets the fed's ability to hit the dots. ofmay be changing some taylor gets in, the market becomes more confidence. all of these factors structurally in the short term. in the long-term there is a better debate and in the short-term, with funding markets tightening up as they do, a dollar supportive stories is hard to argue against. when you step forward and
you think about the implications of where that will hurt the most. i talk about euro investors. the story has been the biggest. one of the biggest factors in if you want a decent performance this year you have to have a decent components. does that feel sticky? >> prospects for emerging markets generally are pretty good. i think there are local stories that are going to create volatility. aree are places that problematic but then you have places like zeal which looks a lot better this year than previous years. showmexico is starting to signs of stabilization. the economy is showing signs as well. if you're a euro-based investor and you have missed out on the nature of equity performance, japanese equity performance most
recently, u.s. equity performance. as a consequence of the currency it is not going to look good i think. matt: i have a chart here that shows odds for the next fed chair from a website called predict it. i find it puzzling the odds on jay powell are so high compared to those on john taylor especially in light of the fact that you had charles prosser endorsing john taylor. john taylor has been talking up trump policies and we all know flattery gets you everywhere. probably with his administration. i don't know if that is fair to say. let me rescind that comment area -- comment. it seems more likely to help them than hurts him. doesn't he seemed to be the one to put your money on? >> i don't know.
there was this poll that favored him and trump goes the other way when someone tells him to do something. my money is on jared and ivanka. i thought that was my original joke you jay powell is not a strange choice to think you are right. there is this consensus of support building for him with there being a complete absence of what he will do. the main belief -- the main hope is he represents continuity. that is why you have seen the psychological move to make him the favorite. we are talking about a furry small prediction market with low liquidity. it is one source of information and we are going on rumors at states. i don't think i would rule
taylor out by any means. how important is it to get a beacon ofis continuity or conformity? since mayer dissented 2012. is that steady hand something that is more important for investors that maybe somebody who is unpredictable? >> i don't know because you are talking about in administration that has almost exhibited nihilistic tendencies to go against convention and continuity when you look at their approach to the iran nuclear deal. the paris accords. appointments trump has made in various cabinet positions. we're talking about the short list of candidates. it has come within the white house where the shortlist came from. day, we arehe dealing with a president who
does not necessarily feel the need to conform to previous norms particularly when those were implement it by the obama administration. guy: is catalonia going to have a meaningful impact? >> i don't think it is going away so yes you there is an equilibrium that will be found at some stage but the moves that seem likely to come now. yesterday regional elections may be reducing this risk but that is not -- >> -- you are already seeing the earnings downgrades in the wake of this. know,an equities as we people have flooded over the previous year or two. there are openings with positioning in some of these markets. let's send our the last two weeks but you also have government wants. spreads haveime
narrowed back into levels where the risk reward is pretty poor. it is that story. why would you when there were other markets you can invest in? when we talk to people about risks, catalonia often comes up. people rarely mention italy even though you have the election at the beginning of next year and this massive book of nonperforming loans that the ecb does not want to say how it is going to address. isn't that a real problem you need to keep your eye on? >> you keep it in the back of your mind certainly. for q1lian story is one next year. they may be make that less of a story as far as getting larger
parliamentary bloc you we may be reduce that for the time being. it is something to keep in mind. i think the imminent risk is not as cute as it is in spain. guy: thank you very much indeed. reporter: let's talk about them. one the biggest gainers on the stoxx 600 right now, up 11%. 2015g the most since march -- 2016. revenue for the first quarter, the second cap revenue with profit outlook. the stock is moving higher on those numbers. third quarter 751 million euros. meanwhile clarion moving on the downside, five 3% right now. this is a specialty chemicals company. plantlly calling off a
merger after an investor group rallied shareholders to oppose the deal. a crucial vote to create the transatlantic company of course. not happening. clarion lower by 5.3%. , next incusing on ubs line out of the european banking earnings are you a few things in focus here. toital ratio rising 13.7% also ubs rebooting by back expectations coming out to focus on the wealth management unit to the everything we need to talk about here is trading of course. 15% drop, very much in focus with peers like deutsche bank and berkeley. about half the amount of deutsche bank and place. energy companies reporting
>> a dovish draghi drives the dollar up. tax reform for progress. is the correction for the euro just getting started? catalonia on a clip. spain's senate is set to give rajoy control of the region today. capitalays it's rebounds, trading takes a hit. it is too early to talk buybacks. welcome to "bloomberg markets european open."
i'm matt miller alongside guy johnson. guy: good morning. but show you what's happening. auto parts numbers out this morning. what happened overnight with the u.s. tech stocks. european banks are doing well. here is the first word news. rebound aftern a a drop of key measure in financial strength. he's focus on wealth management. the ceo talks to manus cranny.
>> we are looking to implement our dividend policy on our cash dividend. eventually complement it with capital returns. it is too early to talk about it. >> john taylor the stanford possibly be seen to the new next fed chair. likely to find an approving audience in the white house. austria's government has been thrown into surprise after the former deputy prime minister is an eligible to sit in parliament . the high court ruling wipes out the majority in the lower seat house.
a special election could take a month to hold. global news powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. matt: let's focus in on oil as earnings season gets underway. the imbalance between crude supply and demand is finally to theting, as opposed highest earnings from pumping oil and gas in more than two years. says production will rise to a seven-year high later this year. joining us is stuart wallace. morning's results tell us about the health, the global oil market and europe's major oil producers? >> they are pretty much in mind.
marketlook at the equity , there is a much bigger story unfolding. ofy are reaping the rewards several years of conservative balance sheets. that is speeding through to the bottom line. they're not at the point where they can recover their dividends, but the comments we heard from opec and non-opec expectations are the oil price is sustainable. today's numbers are interesting, but there is only one number we are counting is that oil is at a two-year high. ,f you can cover your dividends this is great news. projection is
they will not hit the levels were big oil until the end of the decade. there being quite conservative. we are seeing the according tosipate some players out there. you hear about their record production, and u.s. shale producers are getting it out of the ground easily. this is just opec output. production output, are we going to see the producers get more out of the ground as demand rises? >> i think so. ,he comments we are hearing
they're going for a seven-year high. they're not going crazy. seen what happens with stockpiles and how bad it can get. most of the companies reporting this morning have five to 10 year times on their projects. we are starting to see the rhetoric that they have learned their lesson. whether they keep going for the next two years is another matter. --: >> for oil is it about the global cyclical conditions, and the tensions. the forum in saudi arabia makes it clear they have ambitious plans. that requires keeping oil where
it is. or potentially higher. the dollar will play a part in that. it is going to come down to supply and demand dynamics. matt: how do you feel it is going to play out? >> for the short-term the earnings is pretty good. there is no denying that. it was such a beat up sector in equity markets for a long time, there is still for the recovery. what worries me are cutbacks. where investment spending is not projected to pick up for quite some time, that speaks to a that might, when you read those catch-up games, might start to stagnate a little bit if there is no impetus to invest. elsewhere, what are we
seeing with expectations? are we about to see companies that have held back starting to reinvest? as you look at the capital expenditure story, what are you saying? impetus will the be because the cost of finances, the margins will go up. lowre exiting the era of policy rates and long-term interest rates. that tends to be what typically happens. then you move into the late cycle. when it comes to sector specifically, -- guy: how long are they going to keep the caps turned off for?
list, not aown my lot of the others have done well in terms of returns. there's a lot of nervousness out there. they have been pummeled and pummeled. most are going to be fairly cautious. to get take some time back into the big spending mode, if we ever see that again. thank you very much. up next, don't collect tapering. draghi sets out a plan for the sin -- stimulus story. we will focus on the geopolitics. this is bloomberg. ♪
inflation has come down very sharply in russia. the spanish senate is going to vote on a rule regarding catalonia. we had a big day yesterday with the techs. day with tech earnings out of the u.s.. let's talk about mario draghi. yesterday warning that that european bank will be cautious even as he put the stimulus measure on the road toward an exit. >> the decision today is for an , and i mayprogram add is not going to stop
suddenly. view thater been our things should stop suddenly. matt: partly driven by the ecb announcement, the euro is down against the dollar. the -- with us is the chair the ecbnal studies -- meeting seem to be such a success. it is a massive move. he is taking out of quantitative easing, and yet the market did not react that much. we knew what he was going to , although we do see some euro weakness against the dollar. >> mario draghi is a true central banker. he says things in a way that if ,ou understand what he says
this seems to have been the case. saying one thing and making people believe the opposite, or vice versa. take on thes your strength of the european economy? inflation is a number he cannot get up to his target. on the other hand, the european economy seems to be coming along despite the political issues, the political fires that need to be put out. tailwinds remain good. europe, there is pent-up demand. it would be surprising if there were a positive trend at this stage. you add on the macron factor, the second largest economy in france, you have an overall positive trend which should
continue over the next few anths borrowing -- barring geopolitical catastrophe. guy: is the euro zone economy fixed? >> no. there is no euro zone economy. there are economies within the eurozone. you may have a single currency, but you have different economies. these economies are converging today more than they were over the last few years. give you a single economy anymore than it has in the past. that will have to wait for euro integration, and that will be the big topic of a new french administration with incoming german administration. do you think the momentum is in that direction? who do you think will be the next german finance minister? >> good question.
nobody knows at this stage. there are people who want to be finance minister, presumably the head of the liberal party in germany. this is a horse trade between four different parties. you know how it is with political horsetrading, until the contract is signed, anything can happen, and anything usually does happen. we would have to wait until january. matt: the good news for european integration, the ecb does what it thinks it needs to do before politicians catch-up. do you think they will be able to deal with italy situation fairly well? that was one of the big topics at the ecb meeting.
whether they could put out that fire of italian nonperforming loans. problem,a smoldering rather than a highly active one. it will probably be sufficient in the short-term. thank you. we appreciate your time. he will stay with us because we have more to talk about. obviously the situation in catalonia. will article 55 really go into effect in madrid? is that going to work out? this is bloomberg. ♪
matt: welcome back to "bloomberg markets european open." catalonia's tumultuous push for independence on a knife edge today. senators in madrid are expected to pass legislation allowing y disease rajo everything from the region's budget to its police force, to its state run media. a total takeover. i would say yesterday, at the
ecb meeting, i could not put down my phone looking for headlines out of catalonia. wast we thought puigdemont going to declare independence. then i thought he was going to announce new elections. then he said no new elections, but did not announce independence. he seems indecisive. he is not following the radicals in his party, nor is he looking to smooth things over with madrid. what is he doing? choicessentially has a the between two courses, having a lemonade the course of himself calling a new election. having a limited -- elmin ated the course of himself calling a new election. isng independence with 50%
not usually a winning proposition. or he may decide to play the direct role does not always work. madrid will not be very good at direct rule. that is again which would take several years to play out. puigdemont has his personal political base which would allow him to last that long. that i am not sure to -- let me ask about the possibility of elections. yesterday it seemed as if the socialists had convinced rajoy
to hold back on 55 if puigdemont were to call elections. isn't there a massive risk of callng puigdemont elections? what if they win? standpoint,demont's what if he loses? catalonia is deeply divided. his own camp is deeply divided. madrid has one big thing in its favor, madrid is operating within the constitutional framework, and puigdemont is not. that used to be under a dictatorship, that is tremendously important. favoror those who independence, the rule of law has some importance. may decide that 155
is going to be a problem for torid, and he may be able build up the constituency he requires. guy: there is a paradox in europe at the moment. if i listened to those in brussels, i hear more euro, i hear more integrating, i hear europe is going to work its way and come out stronger. i look at catalonia and what is happening in eastern europe. how do i solve this paradox? >> one way to deal with the is to make sure the center gains more traction, that means getting the french and german couple working again. that is not going to happen until the germans have figured out who is going to govern the
country. it is going to take two months, three months to sort out. out, theresorted will be a government contract, and the germans are very good at this. as long as a contract isn't there, anything can happen. once a contract kicks in, it is like a train on tracks. you can't stop it. centeru have a stronger that is the case today. as for catalonia, the european spanishews this as an problem. politically, that is the wisest thing the european union can do. matt: stay out of it. thank you for your time. chair of the international institute for strategic studies. stay with us. up next, you will see
♪ >> top dollar: a part of a budget resolution, and speculation about a hawkish john taylor pleading the fed. catalonia on edge. the senate is set to give the green light for control of the region, where live in barcelona. lenders capital buffer rebound has been switched. this chief -- the chief executive tells us it's too early to talk my back. this is bloomberg survey -- this is "bloomberg: surveillance".