tv Bloomberg Markets European Close Bloomberg January 3, 2019 11:00am-12:00pm EST
trading in europe. this is the european close on bloomberg markets. europeans are down. the stories are interesting. we saw the flash crash overnight. that was a story worth paying attention to. there is fear in the markets right now. the apple story ripping into ams. don't have much tech here in europe but it is getting slammed today. what we do have is luxury stocks. they are being knocked as well. apple is effectively a luxury good and the chinese aren't buying and that makes people nervous.
that is the ripple effect we are seeing around the world. there is so much going on. >> the manufacturing data did not help in the u.s.. still in expansion mode, but quite a disappointed. the s&p is down and so is the dow. the nasdaq is lower on more than two and a half percent. apple is a major story. the airlines are lower also. the 10 year yield is interesting. lots of buying and treasuries. the yen, 107.55. hit 105 overnight. if flash crash being blamed. there was also a switchover at the asia session which impacted
demand for safe havens there. more than 9%. bristol-myers squibb is down. investors are saying this is a good deal between bristol-myers and celgene. >> and think it is interesting that it is not trading even close to the offer price which is 102. it is only trading up 55%. is this an apple problem or a china problem?
it is a little bit of both. remember that the smartphone market has been challenged. out, apple is a luxury good in china. we also have to consider there are geopolitical issues at play. apple is a large american brand. the chinese consumers are starting to feel the concerns around the trade war. perhaps reacting against apple to some degree. i think that is part of the issue. .e will hearwe more i think that is definitely a factor. is this good news for google? are people switching to android phones?
>> i'm not sure it's a win for google because it is a broader smartphone market issue, not just apple. there is the potential that google and android could grab some share back from apple. the vast, android owns majority of smartphone market share. at most, it is a modest uptick for them. it is a smaller factor long-term. the bigger question is what is apple going to do in reaction to this? what are suppliers going to do? clearly i think there is going to be a challenge for apple in 2019. smartphone market challenges are
on top of that. the interesting thing is 5g and apple will not have that. it puts them farther behind the eight ball. those are the questions they will have to face because the next big thing for apple, they will have a video service but that will compete with netflix. headsets andrvr that is not going to happen until 2020. >> why did apple wait until now to say anything? >> it adds to the surprise and concern that is being raised because two months ago, everything was great. how is it that things went south so quickly? of anld be a reflection overall softness in the chinese economy that is just becoming available. it could be a nationalistic
issue. it could be the smart phones have become boring and people don't feel the need to upgrade. apple had very high price points that they thought would work. they clearly reached a limit where people said too much, not going to upgrade. trying toas been switch into more of a services company. innovation wise can it grab the attention anymore unless it moves faster? other companies already have multiple cameras on phones things that apple has not caught up with yet. >> something else we will see is foldable phones. a number of companies have previewed those. apple is likely not going to have that in 2019. apple's story needs to move away
from the iphone and toward other areas. services have been a key focus for them. they are going to launch a video service. >> how does tim cook stabilize the situation in the short term? can we expect a massive buy from apple? >> it is obviously a possibility. it is the massive cash pile that has led to the speculation earlier of other companies. the point is, there are a few companies that have the possibility to make those kinds of dramatic purposes -- purchases other than apple. will be interesting to watch. >> thank you for joining us. >> when apple drops 3.5%, it is
usually a very bad signal for the s&p 500. be theple continue to impact. that it once was? stockthe second-largest in the s&p 500. it naturally has a large impact. it also has an impact on the tech sector specifically on market sentiment toward global markets because that is one of the most diversified in the index. there are multiple angles by which apple impacts the s&p. you can point to all three of those angles as problematic right now. consistently throughout time, what you find is when these stocks are following, it is impossible for the index to rise because they are so big. apple has such a large supply chain. there is a ripple effect.
time is as see over long as the stock a stable, it doesn't have to leave the index. now, you see value leaderships emerging. >> how do you think tim cook is going to stabilize the share price? see a massive buyback announcement. some sort of announcement regarding new product launches or development of growth going forward would be a surprise. horde ist of the cash a key factor for markets to watch in general. i don't know if it is entirely up to tim cook. if you have resolution of trade policy issues outstanding between the u.s. and china, that could help stabilize the entire tech sector.
>> not the only story today. today, we have airlines lower. there are a lot of stories going on. at what point do we see stabilization? >> it is difficult to say. say -- see isou bottoms are made on sentiment. the downdraft day on december 24, that was our worst trough sentiment for the index and it is reflected through momentum. betweenw, we are caught major retracement levels. we have stopped out at the next major retracement level and going into recovery and we seem
to be caught in between those two levels. you need to have some sort of catalyst to get stuff to move between those retracement's. i would suggest it will be policy related. we are watching the speeches from the fed and signals from the fed. we likely need to see some sort of shift on one of those two policy leaders before we see stocks start to recover. the managers we talked to talked about the earnings season is going to be critical in defining sentiment. we heard from someone in washington talking about how china is going to be a big feature of the earnings season. how problematic would that be if we got a repetition of apple and other reports? >> it would be very problematic. of the biggest stocks. the most problematic.
the story started with fedex a couple of weeks ago. first quarter expectations are for 16% year-over-year growth. that is already a deceleration from the growth we had in the third quarter. i will be interested to see the companies in the index, how they rate the chinese growth prospects going forward because we had fedex and now apple telling us there is a material slowdown. you for joining us. up, the major airlines are also taking a big dive today. they are all lower.
well. the philadelphia semiconductor index is down. a bearish day from the sentiment standpoint. looking at apple you can see the source of the pain of the day. the freefall for the shares of 13.8% over thewn last two days. the worst single day for apple since january of 2014. lots of bare sentiment around apple. the technicals are breaking down and it is causing the stock and apple suppliers to be under tremendous pressure.
amd, not an apple supplier is still getting hit by all of this. at rally in an big way but also. this is a ten-day chart of the 10 year yield. earlier today, the 10 year yield had been higher. haven bonds selling off. yield have the 10 year reversing down by nine basis points. investors are running away from the riskier stocks and going toward the haven assets. >> thank you. we are going to breaking news from airbus. they are sent to fall just short of the 800 plane delivery target for 2018.
it seems that they came in in 2018.0 they had to deliver hundred 27 jets in the last month. series.ludes the new c downdid revise the goal from 820. you are seeing volatility in airbus stock over the last few minutes. it now seems to be coming back up. bump for their stock. down more than 8% and we have american down more than 7%. flat to are expecting lower margins. for an overview of the industry,
we are joined by our guest. are the stocks taking such a plunged today? delta has lowered unit revenue guidance for the second time in two months. they thought it would be up for is down lessow it than expected. nothy were they anticipating this? >> there are two things. there was one extra day -- shopping day for retailers this year. looking at the calendar, people worked until december 21 instead of december 16 last year. alta thought they would see more business traffic then what materialized. the yields they were seeing the last week afflicted a shift from corporate to leisure.
yields did not materialize as well. the other thing is the difference between delta and the rest of the industry is that delta guides aggressively. the rest of the industry tends to tell you what they are seeing. delta puts out big numbers and hopes that their team can live up to it and that is not what happened this year. >> what is the average hedge price? >> it has come down quite a bit. jet fuel costs have come down the $2.40 per gallon into high one dollar range. the curve shows jet fuel in the .ne dollar 60 sent range if you think about pricing for the rest of the year, even though oil has come down, you can't just change your model and raise your earnings estimate.
you have to lower your revenue forecast as well. that is what investors are doing. there is clearly a lot of concern and nerve respect to the group. nobody wants to step up. was thought the u.s. market supposed to be consolidated. >> it doesn't does not. the unit revenue numbers have been fairly good. yields are strong. when you look at december in general and the fourth quarter overall, what you see is halloween which causes people to stay home. election day, the same thing. then, things pick up but it is all leisure traffic at the end of december. most people try to find a good deal for the holiday vacation. when you think about the difference between leisure and corporate, that shift and miss is what causes the concern. >> how does the likes of delta combat slowing global growth,
more capacity, even with the tailwind from energy? >> that is the thing we always essay. oil goes up, the stocks go down. the airlines don't seem to be able to catch a break. most of the airlines are trying very hard to do something depend onthat doesn't passenger revenue. they are growing ancillary revenues and looking for other ways to increase revenue without worrying about will another airline to match their fair increases. frictionsgeopolitical impact the airlines? more will see consolidation. i don't know if it will be from brexit specifically. the u.s. and u.k. have reached an agreement for traffic after
march 29. that is not a concern. now, we suspect that they u.k. in eu will reach an agreement. with respect to demand, one thing we saw especially for the european airlines, we did not see enough demand in the summer to offset the higher energy prices. as a result, they are experiencing some weakness. we will see consolidation in europe first. in the u.s., we don't think consolidation is over. >> in terms of the airlines that ,e can see in trouble in europe there are big ones out there. norwegian is one. do you expect that the low-cost long-haul model will be tested
over the next few months? >> yes. point, the model is being tested because it did not over thegh money summer months to get through the hard winter. between a combination of a strong dollar where they have to shift point-of-sale to the u.s. markets at a point in time where there's not a lot of leisure we suspect we will see more mna. >> what is the problem in europe? is it multiple governments? yes.rope's problem
in europe you had a inhalation -- consolidation. leptons is a big aggregator of airlines. you still have hubs in every country. london,barcelona, paris, frankfurt. you had consolidation but it was just financial not capacity. that is the difference between the u.s. and europe. ofthe u.s., you had consolidation. if you think about the difference between our market and their market, you still have excess capacity in their market and they are not doing a lot to eliminate the capacity. , untillines that do fail
it reconciles you will not see significant change in europe. >> you have 18 byes and eight holes. -- holds. >> a quick look at the markets. we are approaching the european close. we have a negative, but not as negative as we see stateside. the difference is, europe does not have as much tech. this is bloomberg. ♪ have as much tech. this is bloomberg. ♪
dax look like they are going to close down. not doing thatre badly on a day when global markets are under pressure. let's break it down from different angles. the defectors have done well. a very much bond-like appeal in these stock sectors. they have been doing relatively well. europe does not have a lot of tech stocks. those that we do have have been under pressure. technology sector is down by 4.1%. extrapolating out, apple has a china problem therefore i look at the commodities markets as well. industrials are down, chemicals are down.
let's look at individual names. amf was battered today. they are not big companies relative to the heavyweights in europe. lvmh is. it is a china problem and that will affect the luxury stocks in many ways. apple is a luxury stock. lvmh is down by 4%. a quick look at volume. over the last few sessions, you have not seen high-volume in europe. today, that has changed. we are trading above or around where we have been which is a significant development from where we were a few days ago.
that is a look at the european markets. >> in the u.s., we are seeing a selloff today. the ism manufacturing index is a major disappointment. also, warnings from apple and the airlines pointing to slower global growth. that is feeding the demand for treasuries. it is taking away demand for equities. apple is down 10%. bristol-myers squibb is merging with celgene. that is a big deal on the second day of trading in the u.s.. being baked into this
market. some other indices we have already mentioned, it is worth looking at the commodity sector today as well. we are more focused on treasuries and woody's in this session. of the price make action, let's find out. are having a fun start to 2019. to a lot of fun for people cruelly trading currencies overnight. we see u.s. treasuries piling on the pressure.
yields moving lower and the first serious signed with the ism number that the market is right and the fed needs to think long and hard about what the u.s. economy will be doing in 2019. that's what makes tomorrow's commentary from powell important. we saw the yen it dropped to 105. we are recovering a little bit at 107. is this a trade that is connected with the other safe haven trades today or a separate >> therejamar clark's this was a classic thin market whereby a lot of people got stomped out because of the apple numbers or perhaps a trigger.
behind that i think there is something much more important. what can the bank of japan do to stop the yen from continuing to climb? it is the only central bank in the world where the currency refuses to weaken. they cannot do more and still its currency refuses to weaken. the fed is probably not going to hike rates in the same way. in china, everyone is taking a look at apple and louis vuitton. chinese economy is not doing
well. these are not good news. the yuan weakens, the dollar might weaken because it doesn't have the support. that isn't good for the japanese yen in the context is it is going to continue to strengthen. >> what about bpp's blowout today? >> i don't know. sign thatnally the risk office spreading out to where it should be risk off? been doing so well for so long? we know they have sorted out problems with the eu. down, theyields are italian yield should be suffering. big move in german
yields as well yesterday. if germanogical yields drop as much as they have, you expect that tonya was rise. the fact that the italian -- get -- it was a fine auction not great. there's a lot of money to be raised for italy. italy is going to have real problems. it's going to have a real problem raising the money it needs to raise this year. >> a lot of managers are trying to figure out what they need to sling the back. going to trade in
the first. if we get more of what apple has just said about china, how bad will that signal be? apple has been running on fumes for quite a while now. the things they have been trying to do have not been working out. buybacks have been masking a bigger problem. equally, china is not great. yes, there are some real problems. if there is a trade deal and the s&p can recover, if treasury yields do not continue falling, maybe we will have a better quarter than it looks. there is not some very good news out there. >> do u.s. and european equities trade more in sync this year
than they did last year? that seems to be the case so far. >> i think they are moving on different beats. the u.s. is driving everything at the moment. i hope that europe does not stay down quite as much. the 15.6 10 year theory thatevel, in would go perhaps negative again for 10 year yields in germany. that would not be good for the european economy. -- i reallyd by don't think that what goes on in europe is connected in the fullest sense. >> when people talk about equity markets they are basically
talking about the s&p. are going to be bringing you chairman jay powell speaking tomorrow. he will be with his predecessors. i am looking forward to that. bristol-myers is set to acquire celgene. let's bring in our deals reporter. i am looking forward to next week's jp morgan conference because this will be the talk of the conference. what will also be up for grabs? this deal is $88 billion with debt. it makes it the biggest health care deal ever. everyone is going into the conference excited. what a great start to the year
for j.p. morgan. set to read about a hundred million in fees along with citigroup. morgan stanley is leading the deal. they will be sharing in $85 million in fees with the other advisors as well. everyone is quite excited. we saw bristol-myers shares getting hit hard today. >> what happens if the deal does not go through? theyif shareholders said don't want it to happen? celgene is not trading at the offer price either. there is a signal coming from the market that this is not a done deal. >> both companies have been talking for a couple of years but have also been exploring other options.
forbristol ceo said investors to hang in there and there is long-term value in this deal. to wait and see. what if it doesn't go through? celgene has been hit pretty hard over the past few months. >> at the same time, it looks it only was hit and miss deals this year. this works for both companies. bristol cash generation. there will be any regulatory problems. is the case they are
making today. investors say what about the fact that celgene's biggest drug is under threat from generics? saying don't worry about it. look at what this gives us. pipelinesfies both and gives us access to markets we have not had before. are rallyingbonds on this news today. >> the european markets have closed and settled. this is where we found ourselves. the ftse 100 did not suffer as much today as the other continental markets. tech stocks were under pressure. europe does not have a lot of them.
draggingcks are higher the s&p up a little bit. dow is still down 1.5% and the nasdaq is down 1.3%. all but five stocks are lower. the primary driver? >> it is a double whammy. how the one stock doing worse than apple is bristol-myers. the only thing worse than tanking financially is buying another company. that is one thing that struck me is not being rewarded. that is a big one. obviously, apple is having ripple effects through the ecosystem and tech.
apple is known for having a high degree of exposure among the bigger companies. it will be a sorting out process in terms of how much is this an apple thing and how much is it a china story broadly. is bad news bad news until the fed tells us it is not bad news? >> there are two ways in which we can talk about bad news still being bad news. that being bad economic data in good news for the markets. that was the case from 2013 onwards. when we got stress in the markets, the fed came off the brakes. or, we have china step in with reflationary measures. shot.f those appear we are already pricing in a fed hike -- a fed cut over the next two years. there is not much room to go
down on that front. we are not yet pricing in the conditions of stocks in terms of an earnings deterioration that would warrant the cut. we are still pricing in 8.3 percent earnings growth this year. china, an adviser just told me there is a perception right now because when you look at china pmi, apple cutting guidance and saving china, there is a perception that china's stimulus so far has either been insufficient or it is just not showing up. the idea that the lever for the proppedl markets to be up that we have relied on the past five years, that doesn't seem to be there at this juncture. >> what about bristol-myers being down? >> i don't think it is a surprise.
the magnitude of the surprise. looking back to when ibm said it was going to reinstate the buyback program after its repurchase, that was something the people looked to as a catalyst. companies are willing to buy other companies and still buyback their support. >> isn't a bigger surprise that celgene is trading lower than the offer price? >> i can't offer much insight on that. . >> thank you. we will have some more throughout the day. also, more on the selloffs next. this is bloomberg. ♪
live from london, i'm guy johnson. >> i'm vonnie quinn. >> european banks are stuck in a bear market. we spoke to the ubs chairman about the future of banking in europe. -- whatill still have europe needs to catch up with american firms is european champions. banks that are larger in size. cross-border banks. that is a bit against the sentiment of what regulators have been engineering. we are seeing in the u.s. that that trend gets slightly reversed. there is still a lot of regulation for the top banks but some of the midsized banks find it easier to get regulatory
breaks. that will enable them to start merging and in europe you will see this. >> that was the chairman of ubs. you can hear the full interview later this evening. now for stock of the hour. isles disappointing guidance causing ripples. >> investors are pouring out of equities. apple is cutting their guidance because of the economic slowdown in china and the waning self on demand. huawei and samsung together make
up 20% of corvo's revenue. if you look at the appetite for smart phones, there could be more downside to come. i want to show you a chart. it shows you what is happening to some of the other shares. an analyst is cutting his forecast for corvo also skyworks and broadcom. they are all deeply in the red today. ofsays that a cascade downward revision is coming for these companies as this news is digested. the big question around all of this is why was this a surprise? >> that is a good question. including corvo, these suppliers for apple have already cut their own forecasts over the last several months. they never named apple, they just said one of their biggest customers is the reason for the forecast.
apple is blaming this on economic downturn in china and waning smartphone demand. thank you very much. let's look at the markets. we will be checking them throughout the day. it is another volatile day. major indices are lower. the s&p is well off its low. companies like insight are also getting a little from this celgene, bristol-myers deal. balance of power is next. this is bloomberg. ♪
headquarters in new york, i am david westin. welcome to balance of power, where the world of politics leads the world of business. today, given serenely on the swearing in of a new congress, and like a wiki on the continued market selloff in new york and his interview with the dallas fed president robert kaplan on why the fed should pay attention. we have a new congress about to be sworn in and i think they started receiving's now. what should we expect? kevin: proceedings are underway as nancy pelosi will take control of a new democrat majority in the house of representatives, but all of this comes as the government remains partially shut down, with no end in sight. the president meeting yesterday with a bipartisan group of lawmakers in order to continue discussions on negotiating some type of truce agreement, but lawmakers were unable to get to an agreement and they say they will schedule back tomorrow.