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tv   Bloomberg Markets European Open  Bloomberg  May 24, 2017 2:30am-4:01am EDT

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t netwkor performance and speed across all your locations. hello, mr. deets. every branch running like headquarters. that's how you outmaneuver. you are watching bloomberg markets. this is the european open. the first trade of the cash session coming up shortly. matt miller is in frankfurt. what are we watching question mark the china crunch. cuts beijing's rating for the first time since 1989. the markets have ignored the move. is chinese debt the elephant in the room or is the rating agency overreacting question mark threat level critical. theresa may warns of -- that
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further attacks could be imminent following the suicide bomber in register. what will this mean for u.s. shale question mark we will speak to former bush energy .nergy -- official the ecbam here for review. we will not expect much about monetary policy. that is on everyone's mind as lieutenanti's to top seem to disagree on how the ecb or when the ecb should start to normalize its policy. we will hear about the ecb's outlook for the eurozone growth and inflation and maybe get an update on the target and how the ecb thinks it's monetary policy is holding up. guy: mario draghi speaking in
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spain later. that could be a key discussion point. let's talk about where we sit with the markets. no clear sense of direction at the moment. the markets are looking for the next leg. that is what we are seeing at the moment just either side of the plus or minus line. let's talk about what is happening with the gmm. you do get a little bit of interest. the aussie dollar is down a little bit this morning as is the cad and eight norway krone. it is hard to see exactly what linesng on and trying between the downgrade and what is going on. the other story we're watching is the meeting that is taking place in vatican city. >> donald trump just arriving at the vatican, the pope, we have live shots of hope francis coming out.
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it will be interesting to see the meeting between these two incredibly powerful figures who -- andto think complete completely opposite terms on global warming and climate change to equality and wealth inequality. they come from different backgrounds, they have different ideas on refugees, the pope picking up a number of refugees and his private plane in less post. donald trump's first act as president was to block refugees from entering from seven predominantly muslim countries. there was obviously a little bit of back and forth between the president during his campaign and the pope as well. interesting to see how these two get along, whether they are prepared to listen to each other and what kind of optics this meeting provides for both. especially people are watching
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donald trump or a closely. meetingot make this until a little bit late. the vatican was telling us that normally people schedule meetings with the pope a lot earlier than donald trump had. he also appears to be slightly late to the meeting. the flatware putin was late pope was not pleased. we will watch this closely and continue to bring you headlines about the meeting between president donald trump and hope francis. let's get our latest bloomberg news. we go to juliette saly. in the u.k. the military will guard sports events. after meeting with her top security official, the u.k. prime minister theresa may announced that intelligence analyst had raised the terrorism threat to its highest level for the first time in a decade. >> the threat level should be increased for the time being
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from severe to critical. the assessment is not only that an attack remains highly likely but that a further attack may be imminent. president trump's first budget has been dismissed by critics as a fantasy. it would reduce the government's role so -- cutting social safety nets and negatively impacting several poor who repelled them to the white house. proposes spending cuts of $3 trillion including cuts to food stamps, medicaid, and low income housing assistance. philadelphia fed president patrick harker has said june is a distinct possibility for the central banks interest rate increase. what investorst are thinking. win the fomc
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concludes its meeting. the fed lifted rates in marks -- in march. policymakers expect to more increases this year. >> aced on strong economic outlook, i continue to see three rate hikes for 2017 as appropriate. we have one under a belt and give her my forecast right now we will talk about that in the qa i am sure. i have -- i see two more over the course of the year. juliette: global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. guy: thank you very much indeed. woody's has cut the rating on china's debt for the first time since 1989 challenging that view that it will be able to rein in debt while maintaining the pace of growth.. authorities have recognized the risk that come with high leverage and how the
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broad agenda of structural reforms. we think leverage will increase more slowly. these measures would not be enough to reverse the increasing leverage. guy: moody's view. mark cudmore joins us out of singapore. china has been downgraded, the market has gone so what, why? about woody'smore catching up with the market. we have been trading this china story, this deleveraging story, reform story for a long while and the pressure is putting on the bond market. this is moody's reacting. it is hard to see what the market reaction has been. the yuan is strictly -- slightly stronger and bond futures are trading slightly better bid. iron ore has slumped harshly but it is hard to know if that is related to the downgrade. the move did start to hours after the downgrade.
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werer metals traders asleep or this is a separate issue. not enoughote that foreign investors hold chinese debt, that is one of the issues they had. that prompted me to wonder why this matters in that case. it is mostly domestic, isn't it as far as the holders. crack sexily. that is one of the things why there has not been much of a reaction. they're not -- there are not a lot of foreign investors that this will affect their investment. china is in the process of trying to increase foreign involvement and this is not a good time to have a downgrade. i do not -- it is a eager story. we will move on from this quite quickly. one of the other issues is when s&p will follow. many state have china on outlook negative and this move was
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expected, it was the tiny best timing that was a surprise. follow that, will they sit there for another year or so? that is what we are watching. i do not think this will be a sustained move in the markets. fed head attention to this kind of stuff, they have been blown off course about concerns about china. it has moved aggressively on its rate hiking cycle. is there anyway this will affect the safety net? >> the fed cares what is happening to the rest of the world's economy. about what is happening in china. they do care. however, i think this is incremental. this is not a big shift. actuals of this downgrade, i do not think it will shift the fed meeting unless it has a big market impact and then the fed might
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go, wait, maybe we are behind the curve here, maybe there is more here than we sought -- and we thought. covered bitcoin for a long time back at its last high in 2012. i am really stunned watching it continue to hit new highs now far clip saying that, breaking through $2300. what you make of bitcoin, what is going on here? it is on another search again, it has a bit more approval in terms of using it for transactions in japan. there was an airline that agreed to take payment and bitcoin which was a small airline. it helps the promotion that bitcoin has been accepted. it coin is in a surge and many people have called it a bubble. it was easy to call it a bubble $1000 a gear -- ago.
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ory could stop at $3000 $4000. the main thing about bitcoin is it does not have any fundamental value. the value is what people can associate with it. it can fall to zero. it can mean there no reason it should stop at the top side. there is no reason to start selling it now. bitcoin is hard to call and the trend is your friend, i guess. guy: absolutely, momentum. thank you very much indeed. more analysis throughout the day from mark and the rest of the mliv team. kindo>, look on the right side -- right hand side of the tv. you can also see the number that you can use. the andtake you back to a, we have been there all morning. the opec meeting getting underway. a former george
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bush administration official. the conversation coming up next. athe open 18 minutes away. this is bloomberg. ♪
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matt: we are 15 minutes away willthe cash trade and it
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be interesting to see what happens today considering ladies downgrade of china and president trump's visit to the vatican. -- moody's downgrade of china and president trump's visit to the vatican. guy: here's a bloomberg business flash. grain trader. sword. glencore said there is a potential friendly merger and there is uncertainty at deal will happen. $11.5ave market value at billion. morgan stanley has said it will cut back on using recruitment bonuses to [inaudible] after bank of america and ubs signaled similar moves. they will honor a criminal -- agreement deals that include start dates. aey are planning to roll out
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support talks to advisers. [inaudible] were equipped with the so-called fake devices. the company is reviewing the complaints but is disappointed that the suit has been filed. that is your bloomberg business flash. allies, opec and its close to an agreement to extend their oil production cuts for another nine months ahead of a meeting in vienna tomorrow. crude, held gains, u.s. stock declined last week. let's talk to manus cranny. he is at the opec meeting, he is in vienna. over to you. manus: very good morning to you. -- non-opec, pick
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that is what they have to agree on in terms of expanding the deal they did in november. house bush atte pfizer to president bush. -- advisor to president bush. the joint secretary, they are opec andbrief non-opec. give me the backdrop, what are the numbers? guest: as an underappreciated aspect we have a boxing match. a, the one hand there is ie telling folks if you stick with the current catch you will rebalance by the end of the year but they will hear something different from the opec secretary. they will say it is not enough, we are not going to draw stocks at the current restraint level. that is clear from opec's numbers so the ministers will
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hear a very different message that we heard from others and it will make the decision a little tougher for everybody. manus: they will decide who to believe, their own barrel counters or the iaea. -- iea. do you think we will get any isck and awe from opec or it -- or is it extend and content? guest: complaint is getting tougher. they will extend nine or 12 months. they created expectations, they do not want to further spoke those traders and investors who have been buying into these meetings. they want the speculate as to come back and by the crude futures. the key is compliance. it was easy work this summer -- this winter complying. seasonally, cold weather, you bring down your fields, you can ring forward field maintenance and run down internal stock. the low hanging fruit has been plucked. going forward, the saudi burn, they will double its production.
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kuwait would like to produce more oil. harderoing to get a lot and we think compliance is going to slip going forward. manus: the uae hardly covered themselves in glory. rack, i am at your not being disingenuous but it is a problem child. it is the number two producer. the only complied by 60% in the first quarter. this is contentious. guest: it certainly is. iraq had to be dragged kicking and screaming into the agreement last november. the oil minister did not want to sign, the premier had to call in and say do it. the saudi oil minister had to get -- make a special visit. they are at war now, they are claiming they need to get production and revenues back up, they have a somewhat legitimate case. they are the most unenthusiastic member of this coalition. bigs: when it comes to the
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story of washington, i want to pull the sin to what we talked about. president trump's suggestion the they would sell 50% of rights, this has always been an ethereal issue. does that rattle you at all can should that rattled the market? guest: i do not think it should rattled the market too much. not a big factor. the optics are not good. if oil prices weaken next year and more people are becoming concerned about a surplus and we begin those big sales, saudi arabia and other opec countries will not be-- amused. it does not look good. we did this in 1996. the congress in its wisdom sold spr crude to raise money to pay the visa bill. i was in the white house, i oversaw the refilling of the spr after an emergency at higher prices. any barrels the u.s. cells, we
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have been selling this year, we later after the next middle east crisis. from a national security aandpoint it is unwise, from market standpoint it is a blip but it will not good -- not look good if oil prices weaken. manus: there are a couple of tablets. what does it take to break sub-45? guest: if the other groupware to shatter and go to all up production, we would be in the 30's in a heartbeat. manus: that is your base case. guest: we will get to the end of the year and find out opec has been right, our balances are eia'sr to opec's, the balances are not [inaudible] if we are looking at another year of having a deeper cuts, that could shatter group unity. that would do it.
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were slow tossians deliver compliance. novak arrived here, the biggest driver of the non-opec, 600,000 barrels is non-opec. do you get the sense that the russians are -- they were making telephone calls saying get ready for a price cut. guest: they are in a commitment for the optics and it is remarkable they did that. they would not sign up to a statement or agreement. a curious thing happened with russian supply. they have reported lower production but their exports have risen, their exports are quite strong and he gets back to this easy and hard compliance. the russian fields, they are not going to want to keep production low. ands difficult to dial up down there field. you will see some slippage from russia but they will sign up because the russians fear a return to $26 a barrel that we saw last year with the financial
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markets teetering. no one wants to see that. it is in their interest go along with what are effectively saudi cuts. even: the russians break at 40 bucks, the rest of opec is considerably higher. when i look at the market position, hedge funds, it does not seem convinced about the grand feed here. do you sell the front, do you do, what, what do you is the positioning of the producers question mark guest: speculators are skittish, they piled into long futures rating on rebalancing and they have been burned. they may want to see real stock draws. we are telling our client if we get another bump in the next few weeks, sell. hence the was to out of 2018 if you are an emp producer or shall producer, this is a gift from opec and investors. has what you have not hedged in 2018 and lock in your production because it will be rocky after that. manus: that is new one for me.
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thank you, bob mcnally. he has a great new book out. you can grab a copy of that. sell the wazoo out of the strip. let's see what the russians deliver. as for the a la cart menu, six, 9, 12, it seems there is a cola sing of the minds around nine months. guy: a busy morning for manus cranny indiana. thosere will be one of issuing a statement immediate speculation it is interested in the grain trader. n 200-year-oldear and institution. we will see how far this story
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goes. and fiat having trouble with diesel. u.s. department of justice saying that fiat chrysler used illegal software to pass emission tests. this makes fiat the first carmaker that the government has accused of cheating emissions test since volkswagen at the end of 2015. fiat for its part denies that it used any illegal software to if a those tests so trying to separate itself from volkswagen. barclays out with a note earlier downgrading its price on fiat saying this is going to take a long time, it will blur fiat's message on strategic goals and it will cost about $800 million in cash. guy: we will see how the stock opens this morning. called softer. is called spencer softer.
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this floor does well, food. elsewhere, not so good at the moment and that is what the market is focusing on. we leave you with a shot of the vatican. ♪
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guy: minutes ago until the cash it is accepted to be a nonevent. i expect he will see interesting stock stores today. watch out for fears, glencore. those could be on the move today. adjusting stuff coming out of frankfurt, matt. matt: for sure. the ecb is in full effect to day. as you mentioned, mario draghi is speaking in spain. i will go to the european central bank in frankfurt because they are giving a financial stability review, so we get an outlook on their growth and expectations. and inflation equitation.
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i will try to get out of him a little bit about monetary policy and when the fed is going to go back to some sort of normalization or at least announced the beginning of thinking about going to normalization and a taper. guy. guy: cash is opening. the headline level, market makers are not going to give us a guide today. ftse barely budging. level,just shy of the 74 just shy of the 75 level, but no real clear sense of direction pure you'll see that from a number of the other markets as well. bias to the downside, i would argue. we will watch some of the individual stock stories. we will come back and talk about that in just a moment. let us get to nejra cehic for more detail in the markets. nejra: we have the gilt market open here as well. the european bond markets and the 10 year treasury the yield -- treasury yield fairly steady.
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really, fairly steady. we are at 1.08%, unchanged pretty much on the 10-year gilts yield. we have seen sterling we can over the past few days, but studying off a little bit as well. market open in equities and what we are seeing in various sectors. you are seeing energy muchrforming up .1%, not of a surprise. wti and brent are both higher today as opec ministers are gathering in the end of. materials underperforming on the other side. commodities lower. we saw this in the asian session as well. some of this is down to those metals moving lower after movies downgrade of chinese debt. we have seen various moves across the market on that. i want to show you this chart on european stocks. we saw the stoxx 600 close higher on optimism over economic data. so far this month, european stocks have outperformed their
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u.s. peers, although overall are fairly muted purity of anthony stoxx 600 has been much broader with a percentage of stocks above their 50 day moving average, climbing toward ties, while the s&p 500 brett has been narrowing. dth has been narrowing. take a look at that chart on the mliv. i want to show you the shanghai composite because we saw this drop as much as one point 3% earlier. it has paired some of those losses now. it might stop short of that seven-month low. it was earlier heading for the lowest close since october 2016 on that movies downgrade. we have seen the one retreat -- yuan retreat. guy, matt. very much. that is deal with the details of the individual stocks stories. i take it to the mov screen and we have the index points.
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stocks and the oil stop -- pharma and oil stocks both better bid. downside, kingfisher, the market does not like that. rash dad is off. that is michelin's ex dividend today. as is euro tunnel and nokia. glencore is down 1.9% on the m&a story is running. there is a bit in the market as well. mine stocks have gone ex-dividend. matt. have the big story today about moody's cutting debt for the first time since 1989. chinese stocks headed for their lowest level in eight months. the yuan traded down onshore and offshore. and default risks increase after the rating was reduced to a1
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from aaa3. the move challenges the view that the nation's leadership will be able to rain and that while maintaining the -- rein in debt. >> the authority has recognized the risks that come with it. theake that into account to point that we think that leverage will increase more slowly than it has in the past. would not beasures enough to reverse the increasing leverage. us bring in the chief investment officer at latitude investment. freddie, what do you think about this chinese move? it is an interesting headline and great superlatives. ieat cuts since 1989, but cannot see how it is related to the drop in chinese equities, which has been ongoing and really a trend. freddie: i agree with you entirely. china is clearly in one sense, a ticking time bomb. there is all going on under the surface that we do not really know or have clarity towards
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that. most of it is state-owned, not international, and while they would like to internationalize their financial system at some point, it is possible to put that back a little. it is a monthly to have a knock on effect around the world, and i do not see it as being a particularly market moving effect at this stage. matt: what about when you look at the moves and currencies around the world? does the yuan drop the price you? that is a little bit of a reversal. freddie: the yuan drop is small still in the sort of move that we have seen since 2015, since their main devaluation. that was the one if you remember, a couple of years ago, caused a huge amount of panic over the summer when we were all worried about chinese deflation washing across the world and the excess supply hitting the world market. that is slightly less of a worry now, and people are understanding that the yuan will be valued slightly and needs to against the stronger dollar for all the reasons the dollar is
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stronger as many of the reasons why the yuan is weaker. people are much more sanguine about the fact that it will continue on weakening from here. guy: we are showing pictures of the meeting between donald trump and the pope. the president of the united states and the pontiff meeting for little more than 30 minutes according to -- we will bring you these pictures. freddie, let us go back to china. were we overdoing it when we were panicking? are we under doing the concern now? freddie: it is really hard, because of what could happen in china happened then we get sort of social unrest, capital flight, to such a large degree that they need to try and raise rates in china in order to maintain capital within the country, that would cause a huge amount of social unrest, huge amount of inflation, and a huge that cannot be dealt with in a traditional way. the risk is an honest. so any fraction of worry towards it is justified. however, what really happened a couple of years ago was a very small devaluation which i
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believe was sanctioned by the u.s. and imf in advance of them getting there. i do think we overreacted in 2015. i do not think we are under reacting if we are doing nothing today. smalle to move through pieces of negative news in china while we see how reform programs play out. they are running the programs are very long-term basis and the people inside china do not see the threats like we do with western eyes, so it is difficult to comprehend. guy: with china ticking along, is asia the place to invest? some asian economies -- you have seen the flows into indonesia that have been epic. they continue to see numbers being posted like that all around the region. freddie: you do not necessarily need and a norm is a it is an incredible growth engine for such an and or myth economy, and i think that is probably right. these peripheral countries suffered in 2015 and 2016 because there were other things going on, this huge slowdown in
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mining, in demand for mining equipment, and other component parts that come from the smaller asian companies and pile into china. that has caught up with its altar that was an inventory issue. reduction in oil and gas and mining has gone back up, so the commodity markets are fixed. there are knock on effects which have mostly subsided. matt: but it is all predicated, that growth, in some ways, global growth really, on china's continued growth as well. do you have faith in the government there, in the plan, in the continued growth of that economy? freddie: having faith in the plan without, i believe, sufficient details is very hard. however, people have tried to bet against it many times over the last 20 years, and they have managed to come through and demonstrated a certain level of growth. now, we have a much more articulate way of measuring the growth ourselves as western economists.the numbers match more in the past and they have as
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well. i do not believe -- as fictitious as they were 15 years ago -- it seems to be working. i think betting against china is just a very dangerous trade in the short term. guy: freddie, stick around. the data coming out of the eurozone at the moment -- we have a focus on the ecb. freddie lait will stick around with us. coming up, this policy -- diplomacy is key as president trump has an audience with the pope. we now understand the differences have been aired in public. will they see eye-to-eye in public? we are live in rome and the vatican. this is bloomberg. ♪
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guy: morning. minutes.s been open 12 let us get to mid cap movers. here is nejra cehic. nejra: up some 3.5%, after salesear like for like rose. growth margins are broadly stable across the year. i'm looking at sunrise communications. the swiss phone carrier hitting its highest since june 2015. this is largely on the news that it has agreed to sell a telecommunications tower to a group of investors. this is for $512 million and it is in order to raise its as aend and paydown debt
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try to reach an investment-grade credit rating. those are two of the gainers i'm looking at a minute cap phase. kingfisher drop in the most in two months after first quarter like for like sales declining. guy: president trump is at the vatican. he has had an audience with pope francis. they are airing their differences in private after clashing publicly in the past. for more, let us join the team on the ground. our political correspondent is in rome with our bureau chief. over to you. thank you. yes, of course, the president meeting the pope. we are in the basilica, looking over vatican city. a president who likes pageantry, so walk through what we just saw with the president
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meeting pope francis. what does it represent? pedantry atlot of the vatican. it is the right place for it, and melania and the pope, and trump, they met the pope in an audience and it was very traditional. she was wearing black, as is their custom and she covered her head slightly, as is the custom. it is interesting because she did not in saudi, and this is a religious authority, so there is a little bit of interest in that. this is a traditional audience. we saw trump smile. the pope, a little bit less. the pope was happy to see him. it is a symbolic gesture. they are being civil with each other. >> and concluding the religious portion of the president's trip, going to the heart of the arab world, it is real, and to vatican city. now, they are going to meet. what are they going to talk about? publicly, they have seen differently, very publicly. >> i think the pope has hinted he is going to tell trump what he thinks, so there are a lot of
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issues they do not agree on. they do not agree about immigration. the pope is open to immigration. he publicly said that building walls was not christian and trump was upset about that. i think this is also an opportunity for them to sort of show that they are talking, that there is a channel open, and maybe that is the signal they want to give. >> what about capitalism? do you think that will come up? >> the pope is from south america. he is not against capitalism, but he has a lot of issues with capitalism, and trump is the representation of the gaudy capitalism that the pope might not really like. >> that is what is interesting, because president trump did really secure the evangelical christian vote in order to become president come up he is -- to become president, but he embodies capitalism for many americans. the pope does not. so, they are political. vatican city is very political. they are going to shift.
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meet withtrump will the italian prime minister after this. what will they discuss? >> the vatican is very political. italy has its own issues. we should remember that trump is also meeting with the secretary of state in the vatican, and discuss, they will political issues. the vatican does policy. they help broker with cuba. he will meet with italian authorities. the primus or will want to talk about the g7 which is coming up. -- the prime minister will want to talk about the g7, which is coming up. , that iske immigration important to italy. issues like saudi arabia and iran. >> and of course, the italians are having more of a receptive relationship with iran as opposed to the u.s., which of course opposes right now the iran deal. such a busy day for you. we are so grateful for you to be joining us here in rome overlooking the vatican city. back to you in london. matt: all right, kevin, great
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job. thank you so much. very fascinating story, and a lot of great coverage out there. highly recommend you go to and check that out if you are not sitting in front of a terminal right now. let us get to the fed because the federal reserve bank of philadelphia president patrick parker says june is "a distinct possibility for the u.s. central-bank's second interest-rate increase of 2017," and i think there was a line about watching grass grow, which means, i would interpret that as being more of a certainty. let us get back to freddie lait and ask him what he thinks. is the june hike a foregone conclusion? freddie: it feels like it to me. the market is pricing it in. at theobbling around moment. it feels very lightly. i think personally, that the rate rises this year, whether there is one or two, is a little bit of a strawman compared to
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the balance sheet adjustment we need to hear from. the fed has successfully moved us toward a world where we look at rate rises as a positive for the economy, and we are not that your buy them yet as long as they are coming more gradually than initially feared. and i think the big comment that will come through on the quantitative easing program and how it will be adjusted in the future, which people are expecting in july, september, that will be the bigger story for the next six month. matt: and i will be the part that is like watching grass grow, right? i mean, you will not see it move very much, will you, the balance sheet? freddie: it is unlikely. if i was writing the federal reserve, i would not do so. i think it would cause and a norm is taper tantrum to know that that buyer of u.s. treasuries was more suddenly disappearing. i think the market is going to take a little bit longer to get used to that than the short end of the curve, which is set by interest-rate and the fed dot. we have agreed to let that i'm
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honest now. the long end needs to be honest it to be manageable, so i think you are right. it would be very steady if at all. guy: why are we talking about whether janet yellen gets a place were not? we were, but we are not anymore. freddie: i do not really have any insight into her relationship with trump. i do not think she is the kind of fed chair who would change a policy to try and solve for her own elections. so i think she will get reelected. that would be my hunch, but that may have changed perhaps due to the economy. guy: when do u.s. wages rise properly? freddie: they are rising a little bit, but it is more anecdotal. there is no upturn in wages, but that is coming off weaker numbers, like headline inflation is moving up, but core inflation is staying still. if you listen to earnings calls, which we do every quarter, you hear a lot more talk about it from cfo's, ceo's, saying we are seeing the wage pressure coming in certain states.
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there are two big things wage pressures. one is push, when his poll. people are waiting -- one is pull. people are waiting for high employment across the state to drive labor to demand higher wages. instead of that, you are actually seeing a far higher propensity for states to raise the minimum wage, large employers like walmart, mcdonald's, mandated across the country. that is more of a social effect. people are pushing that down rather than it being pulled by a brutal. that is the interesting question, whether the labor market truly deserves and feel the deserves to earn greater wages in the short-term, or whether they feel that robotics and automation and ai is such a threat that they are just happy to have a job still and the echoes of the financial crisis still weigh very heavily on them. matt: speaking of robotics and automation, investors so -- are investors so sure about raising interest rates, that is
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increases are priced into the dollar? freddie: that would be my view. do you remember, at the beginning of the year, the debate was whether we do three or four hikes this year, and probably a little bit of catering on the balance sheet. that is moving down to two or three. out.ollar is probably cap the huge rally we saw over the last 18 months, two years, that was due to anticipation of rate rises going through. it is selling the fact after buying the rumor. i think most of the 1, 2 him ors of three rate rises are priced into the dollar pretty fully now. freddie lait going to stay with us from latitude investment. a lot to parse through today from the fed to donald trump and the pope. remember, he is trying to brussels from nato.
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to the ecb. mario draghi is speaking in spain. the rest of the guys are here in frankfurt. i am going to talk to the vice president, the torque and itor, and ask him about the future of normalization. this is bloomberg. ♪
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matt: welcome back to "bloomberg
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markets: european open." i am matt miller in frankfurt. i am here for the ecb in about 35 minutes. the european is going to start its financial stability review press conference. i'm going to go in and listen to what they think about growth and inflation for the eurozone, and then interview vitor constancio, the vice president, about monetary policy, and see if we can get any hint into a normalization is going to begin. freddie lait is with us on set in london alongside guy johnson, the chief investment officer and founder of latitude investment management. freddie, when you expect to be getting ecb normalization, and has it happened with the tapering from $80 billion to $60 billion in bond purchases? freddie: that is the million euro question, when they are going to start the more formal process, but it has already happened. does tighten financial conditions in terms of the impulse.
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as we discussed, with the fed, i believe the balance sheets adjustment in the quantitative easing buying program will be more important than the interest rate rises in the fullness of time. we have to get over the right aight first, and we need stronger economy, stronger rhetoric, summer politics. you have got those things -- stronger politics. you have got through those things. we are going to get merkel back and begin more stability in the political framework in europe. the economic data that has been coming through is very positive. the stock market have been responding very well. i think they were moving in a catch up to the u.s., but it has by thestified tha underlying economic get a. it seems the stage being set for a slightly more hawkish ecb, but in terms of timing, it is no particular insight. guy: the italian elections will start being talked about. freddie is going to stick around. he is the cio of latitude investment management and he will say with us. up next, general election campaigns suspended in the u.k.
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thehe british mourn manchester terror attack victims. the u.k. has raised its threat level to critical. that is up next. this is bloomberg. ♪
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matt: china crunch. moody's cuts beijing's rating for the first time since 1989. a market have largely ignored the move. what is chinese debt the elephant in the room? threat level critical. the u.k., as theresa may warned a further attack could be imminent following the suicide bombing in manchester. opec extension period what will my more months of supply curve from the cartel mean for u.s. shale? the president tells us oil cut compliance is set to get tougher this summer. good morning and welcome to "bloomberg markets: european open." i am matt miller here in frankfurt today for the ecb
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financial stability review, alongside guy johnson, who is in our london headquarters. guy. how things are shaping up when it comes to european equity markets. at a headline level, no clear sense of direction. destocked exit hundred rarely budging this morning. nine stocks have gone ex dividend this morning. stoxx six budging this morning. nine stocks have gone ex dividend this morning. you are seeing pressure on u.k. retailers. you are seeing that when it comes to keep it for this morning as well, which is under pressure. it did not come through exactly as expected. glencore being watched very carefully as it looks to make acquisitions in the united states in the grain sector. in the u.k., the military will and musicts events events as they continue to hunt for a complicates his -- for compasses. the u.k. terror threat level has
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been raised to critical. >> the threat level should be increased for the time being from severe or to critical. means that their assessment is not only that an attack remains highly likely, but that a further attack may be imminent. guy: for more, editor john fryer is here. freddie lait is still with us. soldiers on the streets, a significant wrapping up of the security threat. the critical level is important. it means that we are actually facing a clear and present danger in the near term. how does this affect reduced politics? this is a big -- this affect british politics? this is a big step up. >> this is something that, you are, european countries going to become more and more used to. obviously, it is a time of national mourning, so all
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parties are resolutely sticking to the campaign. it will be a while yet before we see the election coming back from this. this does highlight the leadership. people do look for this to, this is the sittinger president, and theresa may is the british politician who is most adept, shall we say, and dealing with -- [crosstalk] >> exactly. this comes on the back of tory .riticism of jeremy corbyn he has always been suspect on terrorism. the whole question of his theort for the ira in 1970's and 1980's has just sort of come up again before this happened, so in terms of where british politics -- it will be a while before we go back to campaigning, but as for theresa may, you feel like you are on solid ground here. she seemed last
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week to be a little bit defensive in her comments on the campaign trail. today, although she is not campaigning, she looks very -- because i am american, the word i think of his presidential, but prime ministerial is the word you would use in new england. john: she has been going through a sticky phase. she was forced into what many people called a u-turn on some of her social care policies in the manifesto last week, but she was looking a little bit rattled. again, this gets her onto much more sort of solid territory. it is important to point out that if you talked to pollsters about this, it is not necessarily a given that she would automatically benefit from this. you could just as easily see going back to
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their roots and deciding in this time of uncertainty, i am always going to vote for the labour party, for example, the party i have always voted for. that is how people might sort of look at it as well. these sorts of national tragedies can play out sometimes in unexpected ways. guy: john, thank you very much indeed. john fire joining us on the security issue. let us join the conversation with freddie lait. let us bring it back a little bit. the u.k. is an interesting place right now. get it outn, once we of the way, we have a bigger issue to focus on, and that is what is happening with brexit. we are starting to see, after a resurgence in the pound, people getting more nervous. we believe a hard brexit is going to happen and be tough. eyes shouldt all point lower when it comes to sterling. where do you sit? freddie: it is a real balance at the moment.
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once we are through the election, normally, you feel you have more certainty. we are just back into another period deep uncertainty. the brexit negotiations will do better than the market expects and quicker, in terms of big headlines coming out. that said, sterling has had a nice run up and in particular against the dollar, cable, which we were talking about with blue bay. it feels like the dollar has had weakness on the other side, so over the summer, you could see more weakness in sterling. i just need to play in this chart in a little bit more detail to make people aware what is going on. this is down here. consensus around the 126 level. are you somewhere between? slightly more optimistic view, are you in the more medium-term, more than 130?
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where do you think things will go? freddie: i would be north of the blue line, ahead of the consensus, stronger pound than the consensus, but probably softening toward the end of the year, and over the medium term, 18 months, two years, you could see a stronger pound. 130, 135. matt: where do you see the pound euro, and how important is that as we get into brexit talks? freddie: if things were likely that the euro will strengthen against sterling and the broader basket of currencies as well. the political unrest we are all anticipating this year actually have outplayed through -- has not really played through this year. there will be much more confident as negotiations from we will end up with an amicable deal with it and people are anticipating. i am looking forward to that, so i think the euro would continue to appreciate. the economic data is coming through very strongly.
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the ecb is starting to talk a good game about thinking about talking about raising rates. they have tapered their quantitative easing program already. there are many reasons why the euro should catch a tailwind for the next six months. matt: why do you expect a more amicable deal? in her opening salvo, theresa may -- i don't want to say threatened -- but talked about security cooperation in exchange for a good deal, and yesterday, we saw macron and merkel book coming out, referencing security cooperation, and pointing out how important it is at a time at this. freddie: yeah. you know, security cooperation is incredibly poor to enjoy the role that the u.k. plays on these are mortar of europe and across europe as a whole with intelligence as well as troops is huge. i do not believe it is ever going to be a "we will withdraw this if you do not do that," but it is a great thing as a partner of europe to offer them and provide and continue to
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great support and networking of intelligent across europe. that is highlighted at moments like the terror talk we saw your -- terratec we saw yesterday. visions on a hard brexit, soft exit, i have no particular insight into the negotiating process. i do not believe the speculation that it would benefit europe to make a harder deal with the u.k. i do not believe that. it does not seem to me how sensible people negotiate. they have been posturing ahead of the deal, and that makes total sense to me. the sorties of junker and may's dinner. i don't think it will be like that behind closed doors. guy: freddie will join the radio team and carry on the conversation. matt is not with me on radio today, which is a huge disappointment, but he has bigger fish to fry. he will be talking with vitor constancio.
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i will talk about what is happening in the u.k., europe, and italy following that meeting with the pontiff and the president of the united states. if you are a customer, you get this fantastic function, tv . not only do you get to look at john fraher, but you get this great sidebar here. you get data check on here, you get information regarding what the headlines are at the moment, you get flashes, breaking news, access to the charts, the functionality we are using, dots , you did he is a function, so basically, it is a real kind of aggregator of information. the other thing you can use here is the blue box down here. asked the guest a question. it makes us look smart. i hope it makes us look smart. let us get some good questions and. matt, ecb, big day. matt: yeah, it is also
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interactive radio. i will be joining you on london dab digital radio to talk about the fsr, what we expect from the ecb's financial stability review. when i talk to vitor constancio or year ago after the sfr, he told me he sees inflation close we willoal in 2018, so see if you still think that is the case. about five months ago, after the fsr, he told me the ecb would continue monetary support for europe in case of a u.s. contagion if asset prices fell. they did not. i will ask him about monetary policy and inflation after the fsr at the ecb this morning. guy. guy: absolutely. looking for to the conversation. we will have more when we come back. this is bloomberg. ♪
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guy: 44 minutes past the hour. this is the open. let us check out the stock stories with nejra cehic. nejra: i am starting with telenor. these shares gaining. they outbid rival bidders. this has ended months of speculation as to how they would -- telenor, one of the biggest gainers on the stoxx 600 in this session. if i look at what is losing, fiat chrysler down after the u.s. had sued it for violations. the epa alleging that nearly 104,000 vehicles contained those so-called defeat devices.
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fiat chrysler has issued a statement saying it is currently reviewing the complaint, but is disappointed the suit has been filed. it does intend to defend itself vigorously. this could have an intense showdown between u.s. officials at fiat chrysler, down some 1.6% at the moment. i am looking at glencore as well. we are seeing broadbase losses among commodity producers as industrial metals are heading lower on the news of the china downgrade. hard to say how much of that is priced into this and how much of the individual news of glencore saying it made an informal approach to the u.s. grain trader. it made this statement saying it has approached it about a consensual business deal. we saw shares soar. glencore as you can see, down 1% today. down for a second day. just a disclaimer, chairman of bloomberg lp, is a senior independent nonexecutive director at glencore. guy: thank you very much indeed,
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nejra. juliette: china's debt rating has been cut by moody's for the first time since 1989. chinese stocks headed for their lowest level in a most a month before recovering. the yuan retreated in the overseas market and default risks increased after the rating was reduced to a one from -- to a1 from aaa3. >> the authorities have recognized the risks that come with high leverage, and have a very broad agenda of structural reforms, and we take that into account to the point that we think leverage will increase more slowly than it has in the past. these measures would not be enough to reverse the increasing leverage. juliette: in the u.s., donald thep has met the pope for first time since becoming president. in the past, the world leaders
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have publicly disagree on many subjects including climate change, refugees, and wealth inequality. the reading comes against the backdrop of the manchester suicide bombing that killed 22 people, which has been claimed by islamic state. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. juliette, thanks very much. the ecb will hold its financial stability review today. mario draghi is going to be talking in spain, so a lot of ecb news. i am going to interview the vice president, vitor constancio, later on this morning. here to help me put my questions tenether is carson joining us from berlin. what do you think is a most important question to ask of the ecb right now? act -- will you be willing to change or lingwood at the june meeting? that would be the first
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question. matt: and do you think that they will -- that they will be ready, think it seems soon from this dovish president and counsel? >> i think they will be ready. i think the economy obviously is doing extremely well. i think it is time to call the balanced for the euro zone economy, but it is not the time to really go for tapering, because if you look at inflation or pressure, they're hardly is any inflationary pressure. to the contrary, we will either see due to the shopper exchange rate, that the inflation forecast might be revised downward at the staff in june.ns there is really no inflationary pressure, which means, prepare the markets for tapering, but do not announce it yet. guy: the ecb made a mistake in the pass by focusing too much on inflation. we have pmi's running at pretty
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spectacular levels at the moment. is there a danger that the ecb is behind the curve? not yet. if you look at the structural problems of the eurozone, they are still there. look at the on appointment rates, which is close to 10%, the so-called output gap, it is extremely high, and i think, you sooner to what the fed had in the u.s.. ecb wants to enjoy the economic recovery and see that unemployment rates are dropping further, and they want to see wages pick up again, and there that wages are picking up in the eurozone. a must wages pickup, i do not think the ecb is behind the curve. german be the next president of the ecb, carsten? >> that is a good question. mr. merkel and mr. schaeuble are pushing for another to be the next president. it is too early. i do not know whether the eurozone is already up for
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having a german ecb president. freddie: carsten: you might see a compromise as we headed in an early episode that namely you get a copper mise candidate coming from a smaller country, which actually follows the same line of monetary policies as the , but which is maybe less of a controversial figure for other countries. matt: there is a great story today, carsten, on bloomberg intelligence about the possibility that the ecb will not have enough debt to buy in its parameters, especially german debt. how do you expect the council to deal with this issue? they have you one thing or another. carsten: they do not need to fudge. aghi, heisten to dro always denied that this was a big issue. if the ecb starts tapering in 2018, i think the scarcity problem will be tackled. ishink the scarcity issue
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the reason why the ecb would never, like we hear from others, they would never start taking rates first before unwinding qe. to qe, whichn end is easier, and then we will see first rate hikes. around.sten, stick we need to talk about what is happening in the u k as well. weston bresky, joining us out of -- carsten brzeski, joining us out of berlin. we will cap about that, next. this is bloomberg. ♪
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guy: 53 minutes past the hour. welcome back. you are watching the open through the you k's supporter from the european union is unlikely to go smoothly,. >> it does not look like a soft brexit. it looks like a very hard brexit. now is the time for the bank's and the market participants to prepare for that. i believe the brexit is manageable for banks. i truly believe so, but i think we need a very thorough and we have to do this in a very efficient manner. whatever thee, outcome of the june 8 election, -- a quick look at the chart to
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show you what is going on. 8833. this is the consensus. the blue line is on your bloomberg. this is where bluebay have it down around the 120 level. still with us, carsten brzeski. there is a lot of noise and posturing around brexit. the talks have not started. we have election campaigns underway. i shouldow much look to the noise surrounding this issue to what the reality is likely to look like. is the noise important? is all this posturing important? do we end up with a more manageable situation? carsten: i think the noise is important. obviously, it is posturing. we need to look through it, but if you look through it, what do we see? we see that it took more than nine month after the referendum before the british government actually sent the letter. we are now two months further down the line, and the two parties have not even talked about the timetable for the
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brexit negotiations, so i do think it will be an amicable divorce, but i think it will be rather a hard than a soft brexit. the europeans have no interest to create a president for other regions, for other countries, and i think the line -- merkel set out a couple of weeks ago -- that economic life outside of the e.u. cannot be more attractive than being a member of the european union, and this is the red line and the threat the europeans will follow through with during the negotiations. matt: pleasure to have you on. shame that we missed each other. carsten brzeski from ing. in frankfurt for the ecb financial stability review. the last couple times i talked to him, he told me that inflation would be close to ecb's forecast in 2018. well, that was one year ago.
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we are getting closer and closer to 2018. i wonder if he still thinks that? wouldd monetary policy continue to support asset prices. we will see if that is the case as well. this is bloomberg. ♪
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>> president trump meets the pope. the budget plan back home runs into strong resistance on both sides of the i/o. we are live in realm with the latest from the u.s. leaders. as the ecb publishes its financial stability review, draghi braces for more debate about the stimulus strategy. we will speak with vitor constancio this morning. china's credits rating for the first time since 1989. can beijing rein in


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