Skip to main content

tv   Bloomberg Daybreak Europe  Bloomberg  March 28, 2019 1:00am-2:30am EDT

1:00 am
>> our top stories this morning. this is "daybreak: middle east." lawmakers vote on brexit options and failed to pass any of them. a key government supporter refuses to back theresa may. >> global bond rattling and now turkey has emerging markets shaking. bound to treat all come these equals and sees a strong economy at home, potential problems abroad. confirms a transition away from oil, a $69 billion deal will be the biggest ever in the middle east.
1:01 am
it's 5:00 a.m. in london. it's "daybreak: middle east." in yousef gamal el-din dubai. on the ecb chief economist, saying a tiered rate would mean a monetary policy cape. we will get into some of the other lines from an exclusive the ecb chiefith economist later on in the program. i want to get back to what's happening in u.s. 10 year yields, hitting a fresh low in the asian session. a five year option overnight did not do much to dent rally whatsoever. you look at the other bonds around the world, australia and fixed income has gone mad. that's out futures worst puts
1:02 am
it. there such a strong drive insert for quality assets out there. u.s. equity futures a little lower at the moment. there's a sense of consciousness, trying to understand the large move into fixed income market, also reflected in the asian equity session. let's take a quick look, stocks declining across asia. , down 1.6%. begin is headed a little higher, we've got that haven demand that's back. it's remit to rely and then you have the turkish lira on the move, down 1.5%. it's ahead of crucial elections. we will get into that as well. let's talk about the ecb chief economist who says there needs to this solid monetary policy case before officials act to mitigate side effects of negative interest rates on
1:03 am
banks. he spoke exclusively to bloomberg in france. >> basically our policy has not changed. we have these foreign guidance which basically says the rates are going to stay at present levels through the end of the year. increase where the rates really fell to zero or even negative rates reflects concerns in the market. it's a flight to safety and it reflects concern about the economy in general. it's an indication of uncertainties in the market. >> are you particularly concerned about germany? particularly concerned about germany. i think balance sheets in general, of households and of the state are in good shape. i think it is a country that can absorb a number of shocks.
1:04 am
of course on the other side, the german economy is very much depending on manufacturing. manufacturing has been really hit by the international uncertainties related to protectionism and the slowdown in china and also the u.k.. one has to say that the u.k. has been a visible slowdown of investments and germany of course is a big exporter of investment and equipment goods. -- iny has been hit by think the country is resilient. it's moreer hand, delicate phase in the business cycle for them. >> talk to me about risk. there's china, there is trade, you mentioned brexit. what is your biggest concern? >> the concerns in general are of a political nature.
1:05 am
the persistent character of these uncertainties, and you listed a number of uncertainties, they are weighing on economic sentiment in general. some point it has real effects. continued, business as usual, but at some point, it worries me indeed. there is political uncertainty. we have a mandate for stability, so we use instruments we think are the best suited to reach our objective. limited, if you get fundamental uncertainties, for example to the trade regime, brexit related problems, the central bank cannot do much about this. it also needs to be supported by other policies in general.
1:06 am
question you have anything specific in mind? >> do you have anything specific in mind? >> it will probably restore confidence quickly if you do it in an orderly way. it could be the other way. signals foregative everybody, to say it is impossible, to have so much uncertainty so long about an issue. that is one example. there are other examples in the trade sphere. it could be very good for confidence if trade negotiations intoen the u.s. and china in a satisfactory way. also we had uncertainties about the trade regime with europe and the u.s.. have ancertainties impact on confidence. that was the ecb chief economist, peter praet, saying
1:07 am
there needs to be an economic case. there is a little bit of lack of clarity in terms of monetary policy from the ecb in a world that's becoming more dovish in tone. >> we've been hearing for a few weeks that there is something changing at the ecb. they were little taken aback by the weakness in the german lastmy, at the end of year, the ecb were not looking for germany to slow down as quickly as it has done. italian recession has caught them out slightly. the tea leaves they are reading are not quite as clear as they were just three or four months ago. you can hear whether it's mario the chiefaking or economist speaking, they are all looking at ways they may need to adjust their outlook slightly. it's interesting that they also talk about brexit here.
1:08 am
germany would normally be a big factor. if there was going to be a hard brexit, that could add to the pain in european economy. it sounds as though they have partially a plan to help at a bit more the quiddity to europe anyway. they may even have a second plan if there is a hard brexit where they need to do even more work. there is a big conversation obviously going on within the ecb. not everybody is on board yet, theit is shifting toward point where they are probably ready to add quite a lot of stimulus should the need arise in the next few weeks. a yield curveve that is inverted and fears of a recession. should credit be doing well in this kind of environment? should credit spreads be tighter? doesn't that make sense for the story? mark: in terms of the recession risk, just because it is a negative yield curve, it can
1:09 am
mean the recession is still a very long way off. he could be 15 or 18 months away but people are starting to get a little worried. you need to be a lot more selective. you have the high grade credits that will probably start to perform a bit better. anyone who is on the weaker into the scale will come under a lot more scrutiny because their effect -- is there a risk of serious slowdown, it could hit be in double be credits more than a and aa. you are likely to see a lot more volatility within the credit space. if you looking just at the high in sector, it's probably not to bed -- not too bad. but the high-yield sector, things will be jumping around a lot more than we have seen in the previous year. yousef: thank you very much for that. let's get some additional perspective from our guest in our studio in melbourne.
1:10 am
if it's a race to the bottom on the bond yields -- is it a race to the bottom? necessity nows a that we've seen the ecb and the fed certainly take the dovish spin that they have. takens have certainly that even further. as the bondnse that rally starts to go on it gets a little long in the two, so to speak. momentum is due to the outside, probably got a little bit too far. now we're just looking at establishing a trend in the medium to long-term rather than just the short term that will continue to climb. as the central bank fall in line with what the fed has suggested and what the ecb has suggested
1:11 am
too. yousef: volatility is higher in the bond markets than the traditional vix. this is the story of the move index outpacing a relatively muted vix. cloud into an option skiing that the market has gone too far pricing in fed cuts this year. has the market gone too far in terms of what the fed may do? >> i think the market has probably gone too quick rather than too far, necessarily. what we've seen in the short term is an element of fear because there is at uncertainty behind the function behind the move. if the bond market telling us that or is it just a rapid repricing of fed rate hikes? i suppose what is coming out of and the wayry
1:12 am
traders are behaving, the fed could potentially cut rates twice conceivably for this time next year. they could do it as soon as september this year. the remarkable thing, and i should say the second for the question is whether the move in bonds reflects that dynamic, i think the trend is fairly well-established for markets. the feds have painted themselves into corner a little bit. it's going to be difficult for them to hike interest rates. growthok at when the story starts to deteriorate enough when they have to cut interest rates. again isn'twill cut so much a surprise, it's when they will do it. we will see a pullback in the short term but in the bigger picture, markets are pretty much on the money with that one. yousef: at the end of the month i get paid, but fun managers will be looking at the end of the quarter -- fund managers
1:13 am
will be looking at the end of the quarter and there will be rebalancing. how do you navigate this volatility and fundamental inflection point of the year? personally, i'm a bit short term in my focus. it's looking at the breakout what opportunities exist. overall there is a bridge of uncertainty going on in markets where we can't actually get a great gauge on where the supposed weakness is coming from. and to what extent is it just repricing of rate expectations. it could be a real slowdown in economic growth. we are prone to shots in this environment. that's why in the last 24 hours the issues have become quite relevant. of twod send us in one directions depending on which
1:14 am
way a story like that false. what we want to look for is to see how positioning as a responsive trader happens to play out to push markets in a particular direction toward the level that would indicate a breakout to either side and try to take advantage of that move when it happened. the best way to try to be because there's a fretting in the market as to what everything means in the current environment. yousef: hold that thought, we has still -- we still have a lot to get to. let's get you the full picture with the first word headlines from around the world with annabel. >> saudi aramco has confirmed its buying a majority state in a chemical giant for $69 billion. thebiggest ever deal for medleys came to light last your after the aramco ipo was postponed with investors balking at a potential $2 trillion
1:15 am
valuation. it moves the pilot money from one side of the saudi state to the other. a second trial over claims that roundup causes cancer. it has spent billions of dollars to settle similar lawsuits. 80 men dollars was awarded to a 70-year-old man became ill after spraying the herbicide on his property for decades. it plans to appeal. malaysia has lowered growth forecast for the year, pledging to keep the poly's accommodative as global risk mount. saint gdp will rise to 4.8% in 2019. with trade tensions and low commodity prices dragon on the economy, the projection is slightly down on what the budget for saw in november. the trump administration has
1:16 am
cast further doubt on the chance of peace in the middle east are refusing to commit to the often discussed two state solution. secretary of state mike pompeo -- defending the decision to he insisted washington could be a fair arbiter in bringing the conflict to a conclusion. a leader aspelled he awaits trawled for corruption. he was elected interim leader in 2016 but it was cut short when he was detained without notice in china in october. a statement says he used his power to satisfy his family's extravagant lifestyle. global news, 24 hours a day, on-air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. yousef: thanks, annabel. still ahead, a scramble for the
1:17 am
surgesost of borrowing in three days. and more on what is happening in a critical election. ,p next, the brexit stalemate rejecting all options on the table comes a what exactly comes next? this is bloomberg. ? -- this is bloomberg. ♪
1:18 am
1:19 am
1:20 am
x saying the expansion is going to be funded through existing cash. we'll see how the stock opens later in the day. story,et back to our top u.k. lawmakers have voted on a string of brexit options that failed to put any of them. theresa may promising to resign if they drop opposition to her deal and ratify it. butral hardliners agreed the hours part of that propped up the government so far refused to back her deal. but who wanted to get a deal that works for all of the united kingdom, deal that works for northern ireland, but now we are in a situation where we cannot sign a withdrawal agreement because the prime minister decided to go for the backstop way back in december of 2017. still with guest is
1:21 am
us. how do you look at this brexit story when you are so far away at the other end of the world? are you just standing by opportunistically? how do you think about the current drama unfolding? >> i suppose it doesn't really affect us here in need currency landscape. there's not a great deal that goes on materially that could change the outlook for the strain economy. , once we significant do have some kind of resolution for brexit, that's the concern, that any sort of resolution came less clear and the timeline became a little less clear as well. just waiting for those moves to see which way the pound goes on the backs of that. to fly,d has potential
1:22 am
and if the inverse happens, then dumped.nd gets perhaps there's some kind of romantic connection there, but otherwise that's what we're looking for. -- are yout are some actively encouraging taking any positions? >> again, it's a breakout position on this one based on the environment i just described. for doing a deal that goes through in any shape or form, the best would be some kind of soft brexit. there became a slightly higher possibility, but if we do get some kind of soft brexit are resolution that's more likely, then we do position the pound just above the 13 mark with a
1:23 am
view of trying to play that3 breakout to the upside. downside,on on the probably close to 129.5. certainly around 124, is something you want to play because there's so much energy at the moment and so much desire to push the pound in either direction. range,e get out of that it's too uncertain to plan so we wait for the breakout. yousef: we will see how it all plays out, thank you very much, kyle. more ahead on the show. this is bloomberg. ♪
1:24 am
1:25 am
yousef: it's time for another quick check of the latest is newest flash headlines with annabel.
1:26 am
>> j.p. morgan chase is set to incutting hundreds of jobs its asset and world management division after periodic review of staffing levels. the bank employed nearly 24,000 people in the unit at the end of last year, 4% more than 2017. jpmorgan also cut jobs in august 100 it dismissed about staff in asset management after business review. the bank said it will continue to invest in talent troubles are mounting as sweden's oldest lender. swedbank is already under domestic scrutiny over allegations it provided misleading information about suspected money-laundering. it's also facing u.s. investigation into whether paul manafort was among those who received suspicious payments through swedbank. t is increasing to $72 per share, boosting the amount it aims to raise to 2.2
1:27 am
billion dollars. it was still offer about 30 million shares in the listing which is due to price thursday and start trading on friday. it said to be there been -- the biggest tech offering since snap two years ago. that is your bloomberg's nest/. -- that'sank you very your bloomberg business flash. relative caution is dominating the asian equity session. we are clearly lower on that front. look at what is happening around the bond yields, still the center of the story. the 10 year treasury today at a 15 month low in asia. fixed income has gone mad. a little that of demand for safe havens as we speak. here's what's coming up on the show. the massive about deal that has been signed. aramco will buy a majority stake in the middle east business deal
1:28 am
ever. we will have all the details on that and what it will mean for some of the sectors and related companies as we get closer to the open. this is bloomberg. ♪ you.
1:29 am
all of you. how you live, what you love. that's what inspired us to create america's most advanced internet. internet that puts you in charge. that protects what's important. it handles everything, and reaches everywhere. this is beyond wifi, this is xfi. simple. easy. awesome. xfinity, the future of awesome.
1:30 am
yousef: is 1:30 in the morning in new york, 9:30 a.m. in dubai. we've had an enormous amount of rain, which is unusual for this article world. brent crude trading a little lower. demand globally is where the real issue is. let's let the board around and look at what is happening to the bloomberg dollar index. interesting that some out there are taking an aggressive bets -- aggressive bets that the market motive gone too far in terms of what the fed may do in terms of cuts this year. $30 million has been plowed into an options spread that the
1:31 am
market is gone too far that result. the first workon headlines for your from around the world with annabel. >> u.k. lawmakers have voted on a string of brexit options and failed to support unit of them. theresa may promised to resign as prime minister if rebels drop their opposition to record deal and ratify. several hardliners agreed, but the small northern irish party that has propped up the government so far refused to back her deal. u.s. china trade talks resume in beijing late this thursday with president trump saying he is anticipating an excellent deal. the two sides say they have a great -- have several broad outlines but the u.s. said there are still important obstacles remaining in china is pushing back at some demands it deals are too one-sided.
1:32 am
negotiations will continue in washington next week. early indicator show the economy in china show signs of recovery all the pressuresain. a bloomberg economics gauge said equities and small business are leading the improvement and a survey of cells -- sales manager signal a pickup. copper prices and factory inflation still point to weakness. boeing saying it was close to an upgrade before the ethiopian airlines crash earlier this month. the playmaker has been refining the software since october's lion air disaster. upgrade proves more complicated than originally thought. >> we will do everything we can do to ensure that accidents like these never happen again. we are working with customers and regulators around the world to restore faith in our industry
1:33 am
and also to reaffirm our commitment to safety and to earning the trust of the flying public. >> the faa must take steps to reduce hazards associated with white deck automation. pilots now -- with flight deck automation. while airlines have long used , the faa isafely responsible for ensuring air carriers meet requirements for these systems. >> global news, 24 hours a day, on-air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. let's get a check on the markets. ivanka: equities -- you bond: lawson's japan leading -- leading losses, china looking a little more resilient across the region here today. large caps down about .10%.
1:34 am
.5% down.bout talking about how the economy is sound domestically but the risks -- indian stocks just ahead of the election. mumbai your in today. most of the action has been in the bond market, as we have been talking about. we saw quite a bit of action here overnight when it came to u.s. treasuries. the 10 year yield going to the lowest we have seen since december of 2017 after we heard from the ecb president, mario draghi, talking how about an accommodative stance is still needed. for the first time since 2016 we saw the 10 year german bund yield dropped below 10 year jgb yield. we bounced back up but we
1:35 am
haven't seen that in three years. let's look at movers as well. to fleshearnings through, especially when it comes to chinese banks. china construction bank the first of the big for to report. it was amiss when it came to full-year net income. the stock down more than 1% despite some banks recommending stocks, saying the mortgage retail franchise could help when it comes to loan growth. and sell washing machines what are heaters. that lois we have seen in nearly eight years after earnings was a letdown. the ceo also relinquishing his role. earnings.y up on ,p close to 10% here today jeffrey saying it was a massive beat when it came to earnings, despite all the concerns about the conservative side.
1:36 am
so the stock is doing quite well today. yousef: that's get back to this part of the world. saudi aramco will buy a majority stake in a chemical giant for over $69 billion. that is the middle east's biggest deal ever. finance the crown prince's economic agenda. our economic reporter has the story. sizesive deal in terms of and scope. run me through the technical details. x aramco will by the state the value of 123.4 we all per share. at $69.1l deal valued billion. that spread it close to the closing price yesterday.
1:37 am
aramco getting this without having to pay a substantial premium over the market value and there is been some suggestions that part of the reason it took a long time to get agreed is because of differences in view on how much they wanted to raise and from aramco, in how much they want to pay for the stake. ultimately it is handing something from one market -- one pocket to another. there's not a huge amount of saudi been created in the deal but it's providing them with the cash to go out and continue the foreign acquisition spree. yousef: what is it going to do with all that cash? for aramco, you could argue that it makes sense because it helps diversify the business ahead of a potential ipo. where does the new firepower go? been unafraid to write big headline grabbing checks.
1:38 am
there was some talk that they would look at putting similar amounts into a vision fund, they've written big checks to invest in tesla and others. throughbility to race large amounts of cash very quickly should not be underestimated. it's not sort of ambition. investment bankers from all over the world are turning up and pitching ideas to it. i think they will race through the cash surprisingly quickly. yousef: let's widen out the conversation, were joined by the chief investment officer at abs investment solutions. you look at what is arguably a very focused deal between two very large companies. what is the likely ripple effect
1:39 am
for the stocks in saudi arabia, for the industry? what is your initial reaction? an unambiguouss positive for saudi arabia. it the next step in the vision 2030 plan the government has laid down to diversify the economy away from its oil dependence. it provides another source of capital to the government to input bit -- implement the 2030 goals. yousef: is there any way to invest around this? is this a chance to take a look at some of the material plays? look at some of the supply chains, or is it all kind of riced in -- priced in? >> it is much broader and economy specific. and amount of this size that will be invested in the general
1:40 am
economy helps the whole economy lift up. it will benefit from the inflow of capital. the best way to take it vantage of this is to buy the saudi market itself and to some extent, we are advocating people move not just from the headline banking plays that are in focus in the moment, to more out of index names and focus more on consumption which is showing an uptick in saudi arabia. yousef: we also had some data out of to buy on the gdp. the data came out very late -- data out of dubai. are you seeing any signs that we might have reached a trough? week, -- waslf was weak, but when is the turnaround?
1:41 am
>> if you look at trade, it has been impacted over the last year for global, regional, and political reasons. i think that is about to change. we have seen the sentiment change happen in emerging markets. we've seen stability in economic indicators out of china and in broader emerging markets. that will impact trade this year . yousef: we're running up to an egyptian central bank decision. it's one of the big talking points in the emerging markets face on this program. we have been highlighting this switch and change toward a more dovish tone from some of the central banks around the world. we put together for a chart to get the additional context. it's the story of egyptian inflation being relatively contained. we've added the deposit rate. are you with the consensus on what egypt is going to do, and
1:42 am
how does it translate into some of your calls? >> i think the trend in inflation is going to stay fairly stable. specifichere are some actors that might impact a bit -- specific factors that might impact a bit. deposit rates are too high, so i think the egyptian central bank has a wonderful opportunity to stimulate the economy and offset the other contractionary measures the government has taken over the last two years to stabilize the economy. yousef: a quick view on oil? positive.y i think high 60's can be achieved this year. yousef: let's stay with the region and talk about some of the main movers in the middle east equity space. our expert joins us on the set.
1:43 am
theme for quite aramco.e, sabic >> it is an intense week for the market. at a veryas closed close level to where the stock is trading right now. it gives a good indication that the market was pretty much in line with the outcome of the deal. what we hear from investors and for those looking at the name, they want some sort of indication of how positive this itself.o sabic some are saying it's a game changer for the company because it will make it much cheaper for them to produce their main products. of course we are talking about a main player in saudi arabia, in the region, and a global player. this could be very positive news, but investors are waiting to have a clear indication of how good this might be going forward.
1:44 am
you have to remember that sabic is the second biggest member of the main index in saudi and is one of the stocks expected to receive the biggest inflows from investors tracking the benchmark. yousef: we also had a big move in qatari stocks. >> qatar has been losing ground a bit in the past few weeks. a lot of people mentioned that the market just jumped too much last year, so it's quite natural to see this retreat happening right now. yes, there is always opportunities for those tracking just make their bets before they happen. we saw the stocks climbing in the last few sessions, boosting the index to its best
1:45 am
performance in three weeks. if you look at individual names and qatar right now, that's the best way to gain in the market. much forhank you very that. here is what is coming up on the program. the measure of risk in emerging markets signaling more downside. it's right around the corner. this is bloomberg. ♪
1:46 am
1:47 am
yousef: the cost of insuring emerging-market debt has surged to its highest level this year. our reporter joins us now from johannesburg. what is stressing em investors out at the moment? there is a lot to take in. >> that is, but there's a lot of things going around. one of the main things is global growth.
1:48 am
investors are tending to get concerned about the outlook for developing markets. in the world economic slowdown, risk stresses continue to emerge for risk nations, especially those with macroeconomic imbalances. last week we had a stock reminder of how tenuous global growth is with the deepest slump in six years. the cost of insuring emerging markets against default in credit default swaps has surged to some of the highest prices this year. some emerging markets were hit harder than others. south africa, for example, which has macroeconomic imbalances and faces a credit rating assessment from movies tomorrow. the biggest -- from moody's tomorrow. yousef: is there any link between the cds and how emerging-market currencies are trading?
1:49 am
link is generally week but in times of stress, as we've seen, the relationship generally tends to get stronger. if you look at the chart, it shows the correlation between the msci and that of the market index is at its highest level in months. the last time the correlation was the strong was between august and october of last year. the state was talking hockey see about future rate hikes. andrates also spiked then emerging-market currencies recorded some of the worst performances on record. the current correlation we are seeing now is only getting stronger. from this we can assume that the painful emerging-market currencies are only going to get worse. yousef: i'm going to take it up a notch. to what extent has there been a
1:50 am
correlation between cds and some of the bonds? colleen: we see the correlation in dollar bonds, it had originally been trading at 5% the year which helped aggregate index to some of its lowest levels in about 11 months. bonds and this cds spreads currently move in tandem . what we are seeing now is the 30 day correlation has declined to its lowest level since december 2017. it means that emerging markets dollar bond yields probably need to rise and catch up with the surge in cds pricing. if the deeper correlation returns, it emerging-market bond investors probably need to invest for the month coming ahead. seeef: colleen, great to you this morning. thanks for running us through all that from johannesburg.
1:51 am
bloomberg users can interact shown.e charts cap some of the key analysis and save those charts for future reference. still ahead, we'll talk about the brexit stalemate that has deepened. what is next? this is bloomberg. ♪
1:52 am
1:53 am
yousef: the house of commons has voted on a series of brexit reposes and they'll to back any of them. prime minister theresa may promise to resign if her deal is passed. a key government supporter is not impressed. deal thated to get a works for all of the united kingdom. a deal that works for northern ireland.
1:54 am
but now we're in a situation where he cannot sign an agreement because the prime minister decided to go for the backstop way back in december of 2017. let's cross over to london and anna edwards joins us from there. i try to stay up for the entirety of the deliberations yesterday, but it just went too deep into the night. from all the voting that took place, what would you say were some of the most important lessons to be learned? anna: it went late. we have twin track processes. mp's in the house of commons, what they that's what options they back. remember theresa may part of brexit running concurrently as she wants her deal to come back. what we learned last night is that in the house, they were signaling there was more support for softer brexit options, but there was no majority for anything. that was partly expected and
1:55 am
that's why it was designed to carry on into monday. doing some analysis with my whatagues on the voting, got closer to the majority was the customs union option. what got the most votes was the second confirming referendum. both got more support than theresa may still last time around. also interesting, if you look into what conservative party mps voted for, no deal was the most popular option among tory mps, which tells us it's still in a very confused place. yousef: it also means the road ahead is bound to be packed with events. what is in focus for brexit today? anna: the purpose today, what we heard from arlene foster in that get, could they be persuaded? theresa may has to decide
1:56 am
whether she will bring her meaningful vote back to the commons tomorrow. tomorrow is the deadline that was set by the european union by which they wanted to know whether her deal was going to fly. positive,ing more boris johnson is among the heavy coulds, suggesting they support the deal. theresa may even promised to resign sometime over the summer, probably, if members of her own party support her deal. added to the uncertainty around where brexit goes, wicked still be in a situation where a long extension is requested by april 12. theresa may has said she will resign. she wants to stay long enough to do what she's says his her historic ute to deliver brexit. it does look as if it is her last attempt to do it. the speaker of the house it'ssted previously that
1:57 am
not good to keep bringing the same deal back and asking the house to vote on it one more time, but she is expected to do that again this week. will be covering that story over the coming few hours live from london. around caution this time after the global bond rally continued unabated, affecting core bonds all across the board from the united states all the way to japan. you're looking at u.s. 10 year yields, pretty much at 50 month lows, as it stands. japanese bonds at levels we have not seen since 2016. in terms of equities, it's clearly lower, about .5% as well. you have dollar-yen holding as we speak.
1:58 am
lower about .2%. that's all we have for this jampacked edition of bloomberg "daybreak: middle east." there is plenty ahead just around the corner. this is bloomberg. ♪
1:59 am
2:00 am
nejra: good from bloomberg's european headquarters. this is "bloomberg daybreak: europe." note -- heroffers brexit deal is past as parliament rejects eight proposals. bond yields continue to fall across the globe. turkey sparks em contagion concerns. the ecb chief economist tells bloomberg policymakers need a solid monetary policy case.
2:01 am
nejra: good morning, everyone. incks and bonds rising tandem for much of the last three months. that is not happening at the moment. the 10-year down. yesterday, the bund yield dropped six basis points. we have seen that fall deeper into negative territory. the broad picture in the bond markets. futures pricing at least one rate cut for the fed by the end of 2019. we saw equity selloff in the u.s. yesterday. futures indicating another day of that. you the picture of risk. let's switch up the board and look at what we are focusing on in the fx market.
2:02 am
emerging currencies down a third day. cable prevaricating. no clarity from parliament about where the options are. turkeys of the lira, orchestrated a currency crunch to prevent the lira from sliding ahead of elections. bonds and stocks tumbling. traders scrambled for lira. the worst performing emerging-market currency. check on the markets in asia. take us through the risk off picture we are seeing in asia. >> we are seeing when it comes to equities catching up with these global growth concerns once again. you mentioned this global bond rally reigniting. we are seeing that heading sentiment. the nikkei down 1.6%.
2:03 am
china markets as well as hong kong looking more resilient. we had the premier speaking about how the economy domestically, risks are abroad. fluctuating gains and losses, but we are lower today with your asx 200 higher. most of the action has been in fixed income. yields in asia heading lower as well. earnings front and center. let's show you some movers. big banks in china in focus. china construction bank down 1% today. a miss for the full year despite the fact city and birdseed are saying it's a goodbye -- a good buy. if you want the pulse of the
2:04 am
chinese consumer, we saw chinese consumer companies reporting. company a miss on the earnings. stop down the most in nearly eight years. the biggest outperformer in hong kong was a beat on earnings. one stalk up close to 9% today despite concerns we are seeing when it comes to conservative capex. also those u.s.-china trade tensions. let's kick it off with the latest on brexit. the house of commons has signaled it is more willing to back a softer eu departure, but none of the eight brexit options that managed to win a majority.
2:05 am
lawmakersy promised she would stand down as prime minister if a pastor deal. the u.k. brexit secretary confirmed the government is still hoping for a third vote on may's deal, perhaps by tomorrow. >> the results of the process this house has gone through today stresses our view that the deal is the best option. nejra: let's go live to westminster. good morning is always. lastdid we learn from night's indicative voting? anna: i'm afraid i don't have the answer for you. i don't know how this ends. land and we brexit are tracking both of them. votes, their indicative theresa may's deal. they are both continuing to run to the end of this week. what we learned yesterday is there is support for something that looks like a softer brexit, but there was no majority for
2:06 am
any of the options on the paper. it was kind of designed that way. it was expected to be a two day affair. monday perhaps a narrower choice. every proposal of being rejected. closer to a majority, the customs union. the one that got the most votes, a second referendum. moreof those options got than the government's deal in its second meaningful vote. both of those did better than they did last time. crucially, if you look at things from a conservative party lends, this was the most popular option for conservative members of parliament. an exit with no deal. that has a real indication for the leadership contest. nejra: it feels like we need to take this day by day. tell us what the brexit focus is likely to be today, but also how
2:07 am
this might evolve. the real focus is, will theresa may bring her deal back? we heard from the brexit secretary that that is their intention. they only want to do it if they have a chance of passing it. the dup has been holding out. they don't want to support this deal. her yesterday -- we heard yesterday they don't see a way to support this deal. johnson -- boris johnson has said they could vote for theresa may's deal. she gets the votes for her deal, she will leave as leader. which adds another layer of uncertainty. , could we be headed for an extension? an eu election? that is a decision that will
2:08 am
have to be made by april 12. could we be heading for a conservative party leadership contest? it seems we will be. expect many contenders to come to the fore. thank you so much. joining us now is the chief investment strategist for indian northern trust asset management. we are seeing this real stalemate. the dup still seeming to hold up to some extent. any prospect of theresa may's deal passing and the u.k. being able to leave the eu by may 29? >> it looks unlikely. we need the dup and they are still holding out. they were clear they are not voting for the deal. the backstop is a hard no.
2:09 am
it looks to us like the deal is likely not going to pass. is your base case a much longer extension? where might the final destination be where we end up? this is moving toward a longer extension. we have seen a battle between constraints and preferences, between the u.k.'s preference to have a clean exit, but the constraint that exit is not really available because of supply chains because of the economy. most of all because of the irish border. that is coming to ahead and it is being won. that means a softer brexit. that means a longer extension. nejra: if your base case is longer extension, what does that mean for how you allocate? you have money waiting to be put to work?
2:10 am
>> we have been sitting on the sidelines. this has been a very fluid situation. we felt that under these circumstances, it would be best to sit on the sidelines, wait to get clarity, but also be willing more into u.k. equities as well as the pound if we get more clarity on the outcome. put moneyyou were to to work, it looks like you would put it into u.k. equities and the pound. what about guilt? >> the gilt market is more difficult. the yields are more attractive than some of the other european patriots. that handle -- pound handle makes it more difficult to foresee the inflationary side of things. scenario you would expect the pound to rally. that would have an inflationary output on the u.k. outlook.
2:11 am
we would be looking for a first order trade first and then be looking for second-order. ajra: would you be having preference for domestic equities if you see the pound raising -- rising? >> definitely. ae u.k. equity market has large exposure to international earnings. pound sensitivities clear. you stay with us for the hour. let's get the bloomberg first word news now. >> china's economy faces new threats from weak global demand, but the domestic economy shows signs of stability. recordernment unveiled a to trillion dollar tax cut, but the u.s.-china trade war remains a very -- a source of uncertainty. negotiations continue in beijing. monetaryds to be a
2:12 am
policy case before officials move to mitigate the impact of negative interest rates according to the european's chief economist. he says they are examining issues. action on the issue is not a done deal. >> you cannot just conclude let's do the tearing. iering. we have to go into this issue but we have to have convincing monetary policy. >> boeing is touting software changes it plans to submit to the federal aviation administration for ruble. this is the -- for approval. investigators are still trying to piece together what caused the crashes. senators in washington are zeroing in on a controversial
2:13 am
new software. global news, 24 hours a day on air and @tictoc on twitter powered by more than 2700 journalists and analysts in more .han 120 countries this is bloomberg. nejra: today we are asking the question on our markets live blog, will emerging-market weakness be the trigger for a deeper selloff in developed markets? you can join the debate. reach out to us, ib+tv on your bloomberg. coming up, germany sends -- cells -- germany sells 10 year buns -- bunds. tune into bloomberg radio. ♪
2:14 am
2:15 am
2:16 am
2:17 am
nejra: this is "bloomberg daybreak: europe. -- europe." u.s. futures on the back foot. the 10 year jgb yield in negative territory along with the bund yield. germany selling 10 year yield -- 10 year notes. the treasury yield on a 235 handle. futures pricing at least one rate cut by the fed for the end of 2019. oil extending losses. cable struggling for direction as we see stalemate following the indicative vote in parliament. let's get the bloomberg business flash. >> saudi aramco is buying a majority stake in a local chemical giant. the world's biggest oil producer is paying the kingdoms sovereign
2:18 am
wealth fund nearly $70 billion. this transfers a big sum of cash from one saudi state to the other. it will finance mohammad bin salman's economic agenda. investneca is looking to in chinese buyback. theants to partner to help company's international position. >> i would certainly be interested to take a look to see whether we can expand their position, thereby going to the international market or potentially making up the investments. it is much too early. dismissingn is hundreds of workers in its asset and wealth management division. bloomberg has learned the bank is reducing the number of employees. fororgan employed nearly 20 thousand people in the unit at
2:19 am
the end of last year. reductions are being made globally. thank you. sentiment is intact after the lease and -- the recent bond rally. assets at one firm are still rising higher. he spoke exclusively to bloomberg. there is see is that actually more activity than the end of last year. it is higher this year. we sawot that the levels at the beginning of 2019, but a little bit more. well, stock markets as management have gone up and part of our fees are asset-based fees. >> what are you observing in terms of appetite for risk?
2:20 am
nobody knows how to make sense of the bond market. >> very very positive. >> where? .> in the equity market our advice in december was stay invested. discussions, i have just come from hong kong and met clients there. should we take some chips off the table carefully? i think that's not a bad idea. the first three months were extremely positive in the stock market. , theu look at the s&p steepest rise in's 1991. -- since 1991. >> do you think people have gone too far predicting the fed will do more than one cut this year?
2:21 am
what is difficult to see the fed plans to do. they change their minds often. what we assume is there is a possibility we see another cut in 2020. nejra: that was julius baer ceo hodler speaking with bloomberg. concerns about slowing global growth are fueling bets central banks will cut. the chief investment strategist for northern trust asset management is still with us. we see futures pricing one cut
2:22 am
by the end of 2019. for those who are questioning the reliability of yield curve inversion on the three month 10 year, we might even question it on the two and 10, i want to draw attention to this chart. it has dropped to the most negative in more than a decade. the fed in a research paper said this could be more robust in predicting a recession because markets are usually right calling fed rate cuts, which tend to anticipate recessions. is the market getting too negative on where the fed goes from here? >> we don't think so. we think markets are getting -- giving a clear signal to the fed, you may mistake. in september, very certainly in december, they made a mistake. if the fed wants to get back in control of policy, if they want to be back in front of the curve , they have to start cutting rates. it looks like it is a prolonged pause.
2:23 am
we think they should. we don't actually think the inversion is a sign of recession. we think it is the market telling the fed, you made a mistake. reverse it and cut rates now. nejra: what does that mean for where yields go? we have seen this global drop. let's talk about the u.s. first. our yields going to stay at this level? >> we think so. we are expecting a lower 10 year yield going into this year. most of the market participants were. we are starting to reach that point where we are getting to the lower end of our range for the year. the question becomes, what is the growth outlook in the second half of the year? only of growth starts to disappoint materially we think we are going to go below that range. we are the lower and -- end of our range, but if the growth outlook deteriorates, of course, we will have to lower that
2:24 am
range. >> putting today aside of course, where we have seen a arele, stocks and bonds rising in tandem in the u.s.. people say something has to give. what is going to give? >> we think bonds are going to give. we are at the lower end of that range and we are staying there for now because we actually think growth will not be as bad as the market is currently counting. the discount is a different growth scenario for the second half of 2019. we think equities got it right. with think growth will bounce back and therefore bonds will be at the current yield level or slightly higher at the midpoint of our range for the year. nejra: you think equities got it right and i assume the equity market might still stay supported if growth prospects improve. interesting, when we were hearing from hodler, he was
2:25 am
saying we might be thinking about taking chips off the table. are you all in buying u.s. equities? >> we have instituted an indirect hedge. instead of buying outright equities, we have bought equities, we have also bought high-yield and on rates. we have looked for the interest rate sensitive part of the market and the high-yield market because of the slower downside risk attentional. we have hedged in a multi-asset space as opposed to an outright equities space. nejra: let me show you another chart as well. this lower rate environment has been spring moves in equities. -- spring moves in equities. moves in equities. bond proxies and what has been losing out, things like financials. he is this how you have been shaping your sector rotation?
2:26 am
>> basically in general for interest rate sensitivity, so yes. in short, yes. in terms of the rally for the u.s., how much more potential upside? wouter: that is a hard call to make. we generally don't think of targets. we are looking at the trade-off between different asset classes and where we think you get a good bang for your buck. that is what you do. we are not close to the highs we reached in october, november. it really depends on growth. fed, to us, under current leadership is not impressing us. as investors, we don't like what we are seeing in terms of messaging and policy. that is the hurdle for us. atra: wouter sturkenboom
2:27 am
northern trust asset management stays with us. coming up, central banks act to mitigate the effects of rates on banks. ♪
2:28 am
2:29 am
2:30 am
nejra: let's get you breaking news. asian equities on the back foot. a lot of the pain being felt in japanese equities. general risk off. breaking news on nomura, planning to cut 100 plus jobs in europe and the americas. planning to cut dozens of jobs across its trading and investment banking businesses in europe and the u.s. the brokerages struggling to make a profit. yield hasyear jgb fallen to -10 basis points.


info Stream Only

Uploaded by TV Archive on