tv Bloomberg Markets European Close Bloomberg August 13, 2018 11:00am-12:00pm EDT
julie hyman. close. the european mark: here are the top stories where covering. turkey takes action. policymakers try to support the system. stocks and bonds extend their decline. intagion concern, the crisis turkey hits emerging markets. european banks and more. crude prices are falling. let's have a look at what is happening. markets in europe, , spain downportugal
by .7%. we are seeing spill over turkey, these countries have tanks that are it -- have banks that are exposed to turkish lenders. the swedish krona barely changed, sterling is up by .20 today. are seeing a flight safety in core bond yields. that is gmm. i want to talk about the correlation between the lira-dollar and the euro-dollar. the euro falling for a third day. months.st level in 13 there is concern about exposure to the turkish banks. if there is more evidence of a spillover, credit agricole strategist sees a break of 1.14
potentially opening the way to a test of 130.70. shares have been hammered, down double digits. 12% lower, the biggest decline since 2008. a --nto was socked with damages with the first trial which claimed its weed killer causes cancer. test of the evidence against monsanto. it will serve as a template for litigating thousands of claims. buyr completed that deal to monsanto in june. if the litigation generates large verdicts against monsanto, a could have an impact on bayer's bottom line, getting hammered today.
coming back to the turkey story. we're seeing evidence of a spillover in emerging markets. the rand is falling, down 8% against the dollar. it is having an effect on peripheral bond yields. this is the spread differential between the italian and german ten-year. where at the highest levels we've seen since the populist coalition led government was formed, postelection. we are not at those multiyear highs we saw while the government was being formed. we are approaching those multiyear high levels. ministere deputy prime responded today to talk that there could be a speculative attack against italy like there whereen in the past
berlusconi was prime minister. he did answer that. we will talk about that. we are 90 minutes into the trading day in the u.s. what is the breaking news? julie: we are talking about the world's largest group of credit card, citibank doing some juggling. citigroup is merging that credit card business with its wealth and retail units in the united states. this is according to a memo bloomberg obtained from stephen byrd who leads the global consumer bank. a model the company started in asia and is enacting in the united states. this is a big business for citigroup. two thirds of future revenue growth is expected to come from consumer operations in asia.
important for the internal running of the company, not so important for the shares, little changed on this news. let's take a look at stocks overall. we saw on friday sparked by turkey and continuing they, not happening in united states because of the strength of technology we are seeing bounce back after the nasdaq saw weakness last week. nine of the past 10 sessions, up .5% today. semiconductors are leading those, gaining. we are seeing a bounce back in some of the big cap tech stocks. applemiconductors and which deserves a mention. apple shaking off negative news from its big supplier in asia. we are seeing other strength in semis.
of the highia, one flyers year, earnings on thursday. their analyst coming out with positive commentary going into folks that including morgan stanley saying the new products are key to a strong outlook. if you look at the bloomberg and the latest check on apple market caps, we are watching amazon game. that is in the blue.
billion. a quick check on the u.s. dollar , the bloomberg dollar index is weakening from its highs of the session, at its highest in a year. the uptick in stocks coincided with the come down of the dollar from its highs of the day. mark: the meltdown of the turkish lira is finding its way into other markets. -- tom is here. which markets are the most vulnerable? >> that is the key question. we look to metrics. to who is riskiest in terms of macro fundamentals. we look at where investors are not getting a reward they need. at macrok fundamentals, you've got a turkey,set with argentina, mexico, and columbia looking week in terms of current account balance, debt, their quality of governance. are investors not being compensated with an adequately high return?
it looks like south africa and columbia score week on that. those are the countries we think have an unfortunate combination risk and low reward. mark: i'm going to get the guys to bring up that chart again, the risk fragile five versus the formidable three. on the flipside, there are countries which are robust with current account surpluses, low external debt. who are they? >> it is your asian exporters. may be a surprise given the concern about trade war and tariffs. is the impact of those tariffs is going to be too small to show up in the macro numbers. it has not shown up yet. that leaves countries like south korea, taiwan looking robust.
position,ernal current account surplus, low external debt. these are the countries we think are going to be resilient if there is contagion. julie: compare this turkish crisis with other periods of a people in emerging markets. in emergingal markets. >> the obvious one is the taper tantrum. it was a short, sharp shock. we saw a big increase in u.s. yields for a short time and it was over. this time, u.s. rates are stable , coming down a bit. we are midway through a u.s. tightening cycle. that burn and pressure from writing u.s. rates is going to continue into 2019.
if you combine that with protectionism from the u.s. with a white house that does not appear adverse to adding to the withto emerging markets that presidential tweet about turkey tariffs, it could be that that was a short, sharp shock. the turkey trauma could be prolonged. idea of a to that the turkey does not seem to be taking the steps market participants want, raise rates in response to this. what affect does that have on the turkish economy and the spillover from it being prolonged at home? >> i think that is right. isther secular trend we see deterioration in governance standards across emerging markets. that is something we see in turkey, in asian countries like the philippines.
see in someing we latin american countries, concerns about brazil. that deterioration makes it harder for those markets to take the tough decisions they need to take when faced with a crisis. exacerbating the problem in turkey with the central bank ratess unwilling to raise to stem the decline in the lira. if we see contagion to other emerging markets, the question is will they be able to put the brakes on? julie: thank you so much. joining us from our washington bureau. mark: let's get perspective on this on the contagion. alain bokobza is here. good to see you. at what juncture do we buy on the dip? there is value there. >> i think turkey is different.
turkey is politics and a classical current account problem. you had a current account deficit. you had inflation 15%. inflation is 20% today. that the trigger being what happened last week. happened and it is rational. is on the u.s. dollar. the u.s. dollar has been rising in the last few months. commodities and a emerging assets do not like when the u.s. dollar is rising and it is rising. it is not too far from 110 now. >> nothing could stop the u.s.
dollar rising. saying theesident economic forces, the overall message is not quieting down. we should not expect any quick quieting down from that end. waiting,ntrary, we are a few minutes ago we heard from , the italian fiscal issue and negotiation. could there be a speculative attack against italian bonds? talking about berlusconi when the market pushed yields higher and seemingly looted him out of power. could the same happen? >> the statements we have are leading to that.
if they do not decide it is in their hands if they want to change the economic policy gradually, they will trigger that attack. it is the biggest bond market in europe. it is their decision. it is avoidable. that reasonable word is at stake in the next weeks or so and the markets are going to test the will of the new italian policymakers. that is their decision. we are waiting for that to be reasonable. italy is huge. it is the biggest bond market in europe. the sovereign debt in italy is huge. would you be stepping
into the situation? looking at italian debt and taking the upside of that? be stepping in on emerging markets or currencies at this point? are you willing to nibble at some of these more risky areas? we need to put on one side the turkish which is politics andcome back to messages allowing for freedom from the central bank to lower the interest rate and a country where the inflation rate is above 15% and rising. that is a political decision. and to we have that message, we should be careful. , a few months ago, you had a huge rise of
emerging assets from equities to bonds and currencies. taking with a rising dollar environment. when well be a time need the u.s. dollar to stop rising before we make that call. it is coherent, the two of them. the third part of your question, italy, the political debate and fiscal issue is going to come at the forefront of the news flow in september. i see no reason to be in a hurry and less we have some political message -- unless we have some political message. the political level from the new leaders of italy that they want to stay into markets reasonable in their spending and not to go beyond a reasonable threshold.
i would stay shy on the periphery of the bond markets. as you look around the globe at various asset classes, what is your highest conviction long at this point? >> u.s. treasuries, we highlighted that asset as a wonderful asset. growth we have seen in the u.s., inflation has been tame. you have real yields, negative real yields. and the type of a more volatile environment we are seeing, it is u.s.likely that the central bank will do more than what markets are expecting. treasuries are a safe haven in more disturbed markets.
there is a second asset we highlighted in the last quarter -- the japanese yen. on top of the idea that every time in the last two years that markets were disturbed, the japanese yen was going up. on top of that, you have a debate about the re-accelerating taking place and it may lead to further debate about the strategy for the bank of japan. to the end.ad mark: you say prepare for brexit pain. are you just being cautious? i would not be in any hurry to go back on the sterling. sterling has continued to fall recently. hurryd not be in any until the strategy from the prime minister and her more, has a chance
to go through and make a deal. i would stay shy of buying sterling. that is the most interesting asset when we deal with u.k. politics. we need stronger momentum behind the prime minister. mark: great to see you. the head of global asset allocation at societe generale. from london, this is "bloomberg." ♪
the announcement comes as experts see slow progress in u.s. efforts to get north korea to give up its nuclear weapons. in iran, the ayatollah said the u.s. is talking both war and negotiation. he rolled out either outcome. he says when americans want to negotiate, they define the main goal and will not take a step back. president trump is willing to negotiate a more comprehensive agreement than the nuclear agreements he pulled out of. former white house aide omarosa has rig leased another secretly taped conversation with president trump. the president told the former villain that he did not know she had been fired. had blasteduse omarosa for taping her firing in a secure area. she is publicizing her new book. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm courtney donohoe. this is "bloomberg." julie: thank you.
i wanted to flag we are seeing stocks in the u.s. take a leg down. it is not large in terms of size but it is dramatic in terms of the movement. all three major averages were in .5%,reen, the nasdaq up by the dow in the red and the s&p hanging onto a game. -- onto a gain. from new york, this is bloomberg.
julie: live from new york, i'm julie hyman. mark: live from london, i'm mark barton, counting down to the european close in four minutes time. julie: i want to check on the u.s. major averages. we are seeing this leg downward that has taken the s&p into the red. you can see the drop more clearly. it is not a large one in size.
the magnitude, it is dramatic. where not sure what is going on. material stocks did move into the red, industrial stocks moved into the red, leading the losses as technology is holding up well. at wheree a look european markets are trading as we head to the close. against up marginally the dollar as is the euro. european stocks are down but off their lows of the day. we are three minutes away from the end of the monday session, dominated by turkey. this is "bloomberg." ♪ two, down and back up.
about some of the big lenders in italy and spain and their concern to exposure. it is falling for a third day. ,et's get to the turkey dollar-lira, it reversed some of those losses. it slumped 14% on friday. president erdogan showing few signs of backing down in that stand up with the u.s. we did have measures announced about boosting liquidity, making it harder for offshore investors to short the currency. it was not enough because the decline continued. we saw a decline of 21%, this year them by 45%. analysts are calling for the central bank to hike rates by 1000 basis points. nothing on that side of things today. it is important to look beyond
turkey to see what sort of effect we are seeing in markets. the rand is a good example. at one juncture, we saw the rand all as much as a .4% which was 8.4%, the fear is there is a ripple effect which could effect the likes of south africa and other currencies. they said the rand should continue to be influenced by the crisis through the sentiment channel until the lira stabilizes. the prospect for the south african currency are not promising. is just a great chart highlighting volatility in the fx andetween em and developed fx. we are seeing a slight divergence between the volatility performance within these matrices.
the emerginge, market index is down for a fourth day. 8%.gauge has dropped by any level below 30 tells us the gauges oversold. the rsi 22 is at the lowest since january, 2016. that is a look a european markets. julie: we do not see evidence of contagion in the united states although stocks have swung in the past half-hour or so. at the top of the hour, we were seeing the nasdaq rise .5%. it has he raced all of that game. turned and dow have negative. asdoes not seem as their --
though there has been a catalyst. we are here in august, volume on the s&p 500 running 18% below the average. what is going on? take a look at the internals, the groups in the s&p 500. tech stocks were up by as much as .9%. now they're up by .25%. in terms of the biggest weights, materials down. industrials, financials, energy. painyclicals are feeling as tech remains above water for the moment. we will keep digging into figure out what could be going on as more of our wheel turns red. some of turkey's spreading on market, biggest italy, as investors punish the populace government. there is concern italy could be
next. rome is theow from western european editor. kevin, italy has been exposed to speculator attacks. what prominent it -- what prompted him to comment on this? the government is concerned about contagion from turkey. they are concerned about domestic issues. weekend, a jr. minister in the italian government said he is expecting a speculative attack on italy. the conversation is in motion now. mark: is it a realistic worry? is italy at risk of attack by speculators? i know something of a similar nature occurred under berlusconi. could we have part two? >> i guess we could have in this
kind of thing. right now, there seems to be feeling within the government that the sharks may be circling. go on andssion will they have been talking to the european central bank as well. julie: we understand there have a keytrong words from economic adviser to the government partner, head of the budget committee in the lower house. what did he have to say? >> he was surprised that the turkey issue could affect italy. the easing,ned that the phasing out of the ecb's quantitative easing could leave italy and other countries exposed. he had strong words. he said either the ecb guarantee will come or everything will be dismantled. julie: that does seem pretty
dramatic. politically, what does this do to the populist edition in italy? -- position in italy? >> right now, the position remains of the same. they will go forward with their program. they are going to outline their budget next month and they will take it to the european union by the middle of october. the question is whether the crisis and concerns about domestic matters in italy will affect things. of the move in yields is down to concerns about the budget process? say it isow, i would some of both of them. the domestic issues of the budget process and this matter in turkey as everybody concern, especially the possibility of
contagion spilling over into italy and other countries. mark: where are we when it comes to the budget process? the big, heavy lifting happens in september. talk us through the calendar from now through the end of the year. how many hurdles does this government have to overcome? >> first, they have to things out among themselves. everybody went on vacation. they will regroup in september. all of the targets and matters to be addressed have to be done by the end of september. the budget has to be presented to the european union and by the end of the year, it has to be approved by the italian parliament. mark: real bad credit ratings from moody and the likes of looney credit -- unicredit. on the bank side, is the analyst with the comfortable
exposure of the likes of unicredit to turkish lenders? >> there is concern regarding the banks, particularly those that have exposure in turkey. for now, some of those are waiting to see what will happen. as far as the credit rating agencies, the agencies are scheduled to make reviews by september 7. that is causing concern within the italian government. you, thanksto see for filling us in all about italy. julie: let's check in on first word news. courtney donohoe has more. who led thegent investigation into russian interference in the election has been fired. the fbi director order peter struck fired over sending anti-trump text. has decided he
should face only suspension and emotion. the president of turkey says the economy is under siege. he expects the contacts to continue. present erdogan spoke after the took steps to stop the record slide. they free up cash for banks but there was no mention of raising interest rates and the lira falling to another low. ofresa is running the risk angering skeptics in her conservative party. may is drawing up a plan to keep european rules for longer after brexit. it is an attempt to break the deadlock in negotiations. may's team is working on options to resolve how to avoid a hard border with ireland. the european commission is looking for a country willing to take more than 140 migrants kicked up by a rescue ship. doctors without borders says
most of those refugees are in stable health but many are malnourished. most of them are from africa. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm courtney donohoe. this is "bloomberg." coming up on the battle of the charts, gold's slide is accelerating. do traders think it is going to continue. we will have a chart that will give you clues. this is "bloomberg." ♪
julie: it is time for our global battle of the charts. you can see these on the bloomberg are running gtv . york,g things off in new as we talk about, we've got a plunge in gold prices. >> gold not having such a great year. it used to be the darling when interest rates were low. interest rates are going up. the united states stock market continues to grow and the dollar gets stronger and fund managers are the biggest net short. that is telling the story right there. nobody is in love with gold. julie: not only are they the most bearish, it is unusual for them to be net short at all on gold. >> i was talking about that. i remember the first time they went net short on gold in 2015 and here they are, lower than that.
julie: gtv is where you can see that chart. what do you have for us? turkey, one of the mower interesting interviews, the isban and heve of said the nation needs to act quickly to stem the lira's plunge. this is a simple chart. i dug deep into turkey. this is the tanker index, i have gone back from january and since the beginning of the year, this is down by ward he 2%. today -- by 42%. today, down by 10%, the biggest decline since 2003. the blue, the large-cap turkish lenders have fallen since then. as you know, there are issues, they of got $50 billion worth of
foreign-exchange liquidity. in foreignpanies currencies, they sit on this debt pile equivalent to about 40% of yearly output. this is the fear centered on the turkish banking industry. what i thought i would do is compared to the european banking industry. the yellow line shows that, the stoxx 600 index, down by 13%. the white line is down by a mere 19%. measure, iteresting brought up the shanghai composite, the second worst-performing engine mark this year. the worst benchmark of this year in the whole world is the turkish benchmark stock index.
becauseon turkish banks they are under the cost right now. tough one. is a mark, yours is timely and i like the idea that we have not seen bets on gold ever the short. i have got to give it to mark. i like those comparison to other markets. i am going to give it to mark. a strong second showing from joe. thanks to you both. this is "bloomberg." ♪
let's bring in june wallace here in london. output in libya, and saudi arabia. what happened to the opec deal? >> it is modeled. -- muddled. what happened was that saudi arabia was under the impression demand was outpacing supply. it was worried about prices going to hide. it went to the market with the barrels in did not find a lot of buyers. it reversed course temporarily. the thinking is we need to keep hight a price pardon -- enough to balance our budget and low enough to keep the u.s. happy. it is trying to do that. mark: is it dead or not? >> they are talking to each other.
if you look at that story about the opec report, there is a divergence. if you are a country like nigeria or libya, you have problems to deal with. it is natural your supply will go up and down. contrast of the emirates and saudi arabia going in opposite directions, that is telling you about a muddle in policymaking. julie: is there anything they could reverse course in terms of the deal is there anything to watch? >> turkey is a concern and we wrote a nice article today looking at history, what happens when contagion spreads. of oil istic in terms that 20 years ago, developed economies accounted for half of the growth in oil demand. 1/6. days, it is less than if they have currency issues,
which they appear to be having ,oday, interest rate issues that gives you a little bit of concern about what is going to happen to demand going into next year. julie: this supply-demand balance which seems to be reasserting itself, it seems as though the opec nations were happy with it, how quickly could something like that tip as a result of what is going on in turkey? >> quickly, in a matter of months. saudi arabia has shown it is capable of being a swing producer. that was a position it had given up for a number of years. it is back in the game and you have seen that in june, july, and august and over the next months and they are willing to swing production to keep prices level. look at brent, nudging closer to $70 a barrel.
that might be a warning sign we need to cut back more. it is something to watch but it is not going to be pain saving. trade friction unlikely to have an impact on global demand growth? is that widely held? >> know, like the steel market, the copper market, i cannot sell to the u.s., i will sell to x and it works itself out. still tend toies be used. it creates uncertainties in the market and it makes people nervous investing money, taking big positions. argumenthere is an that from week to week you do not know what is the status of trade talks, who have we got to deal with and what is the response going to be. in that environment, can you think three months down the
line? mark: thanks for joining us. julie: we are turning now to dycon industries, our stock of -- fallingauling 20% 20% today. emma chandra is here with more. not exactly a household name. it is a telecom infrastructure company, right? provides infrastructure telecom companies need to operate. telephone poles, cell phone towers, technology that goes with those. it does not report provides infrastructure telecom companies need to operate. second-quarter until the end of the month. the preview was not good, below analyst estimates. they warned about the third the 2019 earnings range $1.50 below what had been forecast. we had a chart here which shows
how it fares after earnings. six of their last eight quarters shares have fallen and on three of those occasions, by more than 15%. julie: what is the problem here? >> a number of projects have been delayed. fromw a drop in revenue customers who have pulled back wereending while they waiting for the time warner merger to be approved. the mergeruggested might not be going as quickly as expected. that is supported when you look at other telecom infrastructure stocks. they are also not doing well, all lower on the year. this is something we have seen analysts point to saying until they can adjust cost structure ittake in low activity and picks up, there is not an upside for the stock. julie: interesting movement
there. a look at what european -- where european markets ended the day, a day of declines on the back of concerns about turkey. the lyric continuing to fall, a record low against the dollar. dax down by .5%. cac 40 down marginally lower. will leave you with the currency board. the day where sterling and euro fared better against the dollar, sterling unchanged, the euro unchanged, this is "bloomberg." ♪ this isn't just any moving day.
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politics and the economy. david: playing hardball. toe to toerump going over the fate of an american pastor. the turkish economy pays the price. with or without him. with november elections looming, the president trump hurt or help republican candidates in blue states? and, scared stiff. that is how president trump describes his attorney general, who he says is missing in action. why jeff sessions is still in charge at the justice department. ♪ david: turkey pushed to the brink. it lost about a quarter of its value against the u.s. dollar since the u.s. sanctions two turkish ministers over an american pastor. on friday, president trump