tv Bloomberg Markets European Open Bloomberg September 21, 2017 2:30am-4:00am EDT
delivers consistent network performance and speed across all your locations. fast connections everywhere. that's how you outmaneuver. guy: good morning and welcome. this is the european open. cash equity opening and 30 minutes. i am guy johnson in london. here is what we're watching. delivering december. the dollar rises as the fomc signals it is not done raising rates this year. underpricing more hikes in 2018? andrts swirl about bnp unicredit could be merging with
commerce bank. we have interviews with turkey's france's macron and canada's trudeau. matt: we're less than half an hour away from the start of trading for european stocks. we did not get the fed announcement and discussion until after the close yesterday so yesterday we had equity indexes very little changed. today you see the stoxx 50 futures and gains in futures as well. the u.k. futures are right now unchanged. take a look at the bund trade here. i have the three-day chart up and you can see the huge spike up in yields that we had after the fed announcement yesterday or keeping the fed announcement in mind. we have come down a little since
the open of trade this morning. there is a three-day trade so if we look at what happened this morning we came way up and have dropped back down a little bit. investors are buying bunds but have sold them up pushing the europe -- pushing them up. we are stuck in that tight range area -- tight range. guy: australia markets softening up at 1% but the biggest move is eight months for the u.s. dollar. the kiwi is down .501% and the yen and frank is soft. the question is what happens now. seen a fairly significant reaction overnight in the metals. there is iron and the singapore 5.5 percentn by overnight continuing what has been a fairly dramatic tumble in
that contract. let's talk about what is happening around the world. let's get a bloomberg first word news update. the bank of japan has kept its monetary stimulus unchanged but a dovish new road -- board member opposed the decision in his first meeting. he argued there was little chance of reaching the banks inflation target within the projected timeframe and said the effects of the yield curve program was strong enough. that was an unexpected dissension on a board chosen entirely by prime minister shinzo abe. u.s. special counsel robert mueller has asked that white house for documents about some of president trump's most scrutinized actions since taking office. according to the new york times, that includes the firing of his national security adviser michael flynn and fbi director james comey. the paper said mueller is interested in an oval office meeting trump had with russian officials in which he said comey's dismissal had relieved great pressure on him. the uk's prime minister is said
to be weighing whether to accept for the first time the need to discuss the european union's demand for brexit bill of tens of billions of pounds. withsa may will hold talks her cabinet before deciding how far she can go in promising money to the eu in a landmark speech in florence tomorrow. the premier has signaled she has -- will try to bypass michel otherr and the heads of eu governments. and france needs to change to offer more opportunities to the middle classes. emmanuel macron said the continent needs more vision and less bureaucracy. >> this new europe has to provide a place, has to be fair and efficient, and provide a place for our middle classes and for that to be, there is no place for middle classes in europe and there is no way to progress when you're middle classes do not have any perspective and something to get
in this environment. juliette: global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. guy and matt. guy: we have the first question put to koroda, the boj governor. he is looking pretty relaxed. looking pretty calm, it has to be said. votes,sent on the boj the dissenting new member coming through which is interesting but he is taking questions. are shut forstocks the day. that is an interesting factor. considering the timing of what is happening. he looks pretty relaxed. this highlights what is happening on your bloomberg with reference to this. if we show you a quick shot area t liv. to live --
that event is taking place with governor kuroda. look.i like that no tie i do not know if that is a typical thing. let me get to some other big news out of bloomberg. erdogan saiddent his country will not back away from its bid to join the eu. last week jean-claude junker sai europes moving away from for you to he was asked for his reaction. >> now i want to address those who are watching us. turkey made its unofficial application to the eu and the year 1959. in 1963, turkey formally applied
. for 54 years they made turkey wait at the gate of the eu. wonder if junker can tell me this. can he say if there are those who came later or earlier and got in? what is being done to turkey is a political embargo and it is disrespectful to its character and personality. it is contrary to the eu's equity. no other country has been shown this approach. they are lying to us. they did not speak the truth with us. they told us a line. here is that was talking about a little earlier on the subject of refugees. in 2016, they told us they would give us 3 billion euros. to are they going to give it question mark to the refugees. they're going to give it to refugees that they decide on themselves.
they said at the end of the year, we are going to give another 3 billion euros and the figure that has come as of now is 820 million euros. where is the honesty? there is none. and turkey right now is that the itotiating table and look, is interesting. sarkozy became in charge of france. markel -- merkel became in charge of germany. before they took the reins at used to join the leaders a summit and at the time, there -- shot sure again france chirac in france. they were basically preparing us and sarkozy came and merkel came
and the band leaders from negotiations in these meetings. they stopped of them. -- stopped them. chapters were being opened and closed at that time. ok, so what happened with all this? they stopped opening and closing. there is just opening, no closing. so how many chapters? there were 15 but then they made it 35. so who was this done against question mark these were measures only taken against turkey. let junker express that to me. i know junker well. up?not give it strikes me if there are many business people in this audience, when someone talks about you pulling up the
drawbridge and you being in the castle that does not normally imply a great deal of partnership. white is in turkey seek a future outside the eu, why persist given all this perfidy and betrayal which you have described? >> this question is of course a very good question. i say that those who are in the position to make decisions are them. let them close the door to us and we will make our decision easily. we are not the -- all that interested, let me say that. what they want is for turkey to run away from here. no. we never ran away. let it be them to run away from the man. let them make that decision. erdogankish president speaking at the lumber global is this forum in new york. plenty of central-bank action, the yen selling off and we have some comments coming through
guy: just another spike higher in dollar-yen this morning. that wethis man says are some way away from the 2% inflation target. he had indicated previously that .e were halfway there it seems as if the inflation mystery is something that is a little bit of an issue for the japanese as well. you can see this, that is the spike there and the reaction to uroda comments. we are trading back to where we topped outpost fed yesterday which is interesting in terms of the levels. he looks pretty relaxed.
been told in japan they have an annual cool biz campaign. not cool as in you look like fonzie or james dean but cool as an cool down to save money and energy on air-conditioning bills. i am reading here that bureaucrats are a large -- andwed to wear polo shirts hawaiian shirts. he could much cooler than he already does. it is a good look for kuroda. janet yellen has a knowledge that this year's fall in inflation was a bit of a mystery but suggested the central bank was on course for another rate hike this year anyway and three next year. the fed said in october they will start shrinking their stockpile of assets moving to online -- unwind the crisis
pillars. here's what some of -- she had to say last night. >> to maintain the target for the federal funds rate we continue to expect the ongoing strength of the economy will warrant gradual increases in that rate to sustain a healthy liver market and stabilize inflation around our 2% longer run objective. we also decided that in october, we will begin the balance sheet normalization program that we outlined in june. this program will reduce our securities holdings in gradual and predictable manner. overall, we expect the economy will continue to expand at a moderate pace over the next few years. in the third quarter, however, economic growth will be held down i the severe disruption -- by the severe disruptions caused
by hurricanes harvey, irma, and maria. matt: for more let's go to mark cudmore. what moves have we been seeing in assets as a result of the fed's q&a session yesterday? was: the most important one the move and the dollar. we saw a short move higher, 1% in most of the major pairs. we might start seeing it late today. i expect the move will continue in the next couple of days. the reaction so far has been [inaudible] given the fact that fed made clear they do not care about the [inaudible] but they want to normalize policy. the market is starting to come around and realized that but they have not got the area. while the initial part of the move is in the dollar that will feed through into rates that will feed through into emerging markets. equities might do ok, though.
guy: is that how it works, the dollar into the rates market? you wonder how far that one could go and if it goes further, how much that feeds back into the dollar? that do is the rates drive the dollar. the dollar will drive the move. the dollar is the first place you will see the impact but the dollar is moving because of the change in rate expectations but there will be a higher beat on the dollar side. matt: we're looking at the 112.68.en going past the doj decided to keep the stimulus policy unchanged. how could we see this diversion -- diversion's play out? what do you get set up for? mark: while the move is prompting a little more yen weakness this is more about the dollar side. we are waiting to
see if the boj would trigger anything significant. we have the fresh newcomer who dissented devilishly and that will we the story of the yen bearishness. the yen is vulnerable and risk positive mode because it has long-term fundamentals and negative yield. normally it does well in the flight to safety but that is being eroded given north korean aggression. the boj is out of the way and they will be out of that story. the boj might be even more dovish in the future. relativelye come quickly to where we are now and we have a couple of examples, the fed turning around to the market and saying we are on for the next rate hike come a get with the program. the market is still very much not with the program when it comes to the 2018 story. yellen tried to explain this at term premium but there is
probably something else going on here. what is it going to take for the market to catch up with the fed when it comes to next year? be one of thel themes we see play out in the next couple of weeks. the markets have a long time to adjust to data dependence. the fed kept emphasizing data dependence but the market would be wrong cited by ron comments by certain officials when all they care about is the data. they are saying we do not care about the data am a that there is no inflation. there is no risk of runaway inflation. we are not likely to hit the target but they are saying ignore the data, we want to normalize policy but the market took so long to catch up with data dependence they will take a while to adjust that -- to the fact that the data does not matter. that is hawkish guidance. guy: always a pleasure, thank you. some great coverage going on on tliv withlog and the
the press conference up and running. we are tracking high, dollar-yen 112.70. headlinek at the crossing, corroded saying current easing is enough to reach the 2% inflation target. hiscally disagreeing with lone dissenter on the boj. guy: the question is did the market believe and the rate story will be fascinating. we are minutes away from the market open, eight minutes to go. anglo american is called up sharply. in the companyke by $2 billion. is this money starting to bet on the inflation trade? the market open is next. this is bloomberg. ♪
company over. what is interesting is there are some who believe we are going to the point where inflation will become something we need to factor in. this made the -- do well. rollingeeing iron ore over aggressively. the banking sector in europe is also fascinating. matt: let's talk about the german banking sector. also involving the italian and french banking sectors. commerzbank, according to reuters, unicredit is interested in buying commerzbank very at the recent reuters gets this scoop is they are talking to people familiar with the german government that holds a 15% stake in commerzbank, a 2 billion euro stake. although a german magazine says that government said -- would prefer a merger with bnp paribas -- there ise is no
guy: one minute to go until cash opens in europe. ex-dividend markets stateside. this morning, you're not going to see much of a move in europe. few ex-dividend in the london market as well. keep an eye on the minors. both good and bad reasons. aggregate,seeing in we will probably open fairly flat in europe, to be honest. matt. matt: after a flat close yesterday. i want to keep an eye on currencies. we have been talking about the , theoing up through 112 dollar going up to 112 yen.
i have a chart here about inflation targets across central banks. 6077. you can see the fed paschi inflation target in white. the ecb's in blue. they are trying to get to the purple line. the japanese in yellow are very far away, which is one reason they are finding it hard to believe kuroda. guy: absolutely. markets are opening in europe. i do not think we will see much. this is where the ftse 100 is trading right now. the pound, probably the biggest conjuring factor with what is happening with the british inexperience topic six 600 in positive territory. happening with the british. the stoxx 600 in positive territory. manus: normalization is a beautiful thing. you have asia just a little bit lower, but these european stocks, you know, they are taking everything in their stride, and that is essentially reserve, theral
european central bank, and less so for the bank of england. we are waiting for the consumer confidence number. a 16 year high. quid pro quo, people would say kiwi is working. european equity markets just a little softer in financials and industrials down by .8%. come with me on a journey. what does it potentially mean for the equity story in germany? here you go. this is what four terms of angela merkel has delivered. doubling of the venture dax. outperforming your european peers, euro stoxx 50, paris market, and london market. correction. with the dax set for the best month of 2017 as we go to the polls. who will our coalition partners be?and would you want to belong the dax be long the dax?
coming for the gilt market quicker than we thought. you are seeing future prices rise. nds a little bit lower. will be bank of england really do more than one rate hike? that is the question. we have the global head of fed j.p. morgan asset management saying, "look, all of this kiwi, all of this stimulus, is to a certain extent pass or sell by date." we need to get out of extreme measures we are in. i am off to digital radio with carolyn after. you may be want to switch over to radio. they are focused on you, guy. i will see you very shortly. guy: thank you very much indeed. take a look at the movers in this morning's market. crh. this is a doubly listed company. it gets a lot of money out of
the united states and will be bulking up even further. billion.ing around 3.5 the market seems to like what it is seeing. it is interesting given what is happening in the united states. a, from a clearer point of view. b, from an economy point of view. c, from infrastructure. crh, the market likes what it is paying. the stock i want to highlight as well is fourth down, anglo-american. we are seeing a state bill. i wonder whether this is smart money, betting on a reflation trade. seefed things we will reflation pop back up at some point. it was interesting. he things inflation is definitely coming. on the downside, more bad news than good news in the mining sector. flip over to the other side. the dollar story as much as anything else. the minors generally are softer
as well because you had a big move in iron ore, down 5% on the singapore contract overnight. bhp is softer. rio is softer this morning. the metals come to price in what is happening with the dollar, is one event yesterday. the fed yesterday, the boj this morning. matt. matt: first, the federal chair, janet yellen, it knowledge this year's fall in inflation was a mystery. she suggested the central bank was on course for another rate hike this year anyway. the fed also said it october -- an october start for the balance sheet -- decided that in october, we would begin the balance sheet normalization program we outlined in june. this program will reduce our securities holdings in a gradual and predictable manner. is the head ofow
across asset strategy at ubs. thank you for spending some time with us today. let me ask your opinion on the lack of inflation or the reason the fed cannot get it to its 2% target and neither can the ecb and neither can the boj. is the central bank fighting back against the narrative that there are structural changes limiting the ability of the phillips curve to work? >> the beginning of the end of qe. can be a little bit boring like that, focusing on profit and loss, but yesterday was an historic day. central banks are fighting back that narrative. they admit -- they say there is no evidence. it might be slightly lower, but they are saying that the risks of not moving right now are much higher given that financial conditions are --
they have really done nothing to slow the economy down. financial conditions remained very easy. this is a time they would like to normalize. they are separating the balance sheet discussion. you notice how yellen said the bar for changing the balance sheet is extremely high. they have been saying for a while they expect inflation to go up from here. she mentioned the transitory factors. we have faith that lower unemployment will mean higher inflation in the coming days. i think the market is still mispricing 2018 and 2019. the market for the first time is now moving closer to the dots as opposed to the dots moving towards the market. i think there is more to come on that front. the long and is a different story. the longer end, terminal rate, came down, and that is where the real rate is being price, so the curve can flatten a little bit more. matt: that is why we are seeing
spreads tighten. those spreads tighten because the market obviously believes that yellen and the fed will raise rates in the short-term, as she said, but the terminalng rate. the fed lowered its terminal rate to 2.75 from 3%. and they are not sure about three increases next year. do you buy three increases next year? next: we buy two increases year. the market is under one at this point, but we think the economy will hold up reasonably well. mostly, the indicators are telling us consumption should do quite well. parts of investment have been quite weak. it has been a typical. investment flowing or growing less than consumption through recessions, but that is exactly what happened last year, so we think there is a little bit of a normalization coming to
economy we expect the to remain robust. we think the fed will go at least twice next year, and that is not being price right now. guy: is the fed too far ahead of everybody else? i asked this question because the fed normally causes a recession in the united aids, pushing rates up until it breaks. when it is broken, you figure out what to do. i wonder whether the gap between the fed and ecb is too big? the fed does what it is going to do. the u.s. economy rolls over to the point where the ecb is getting to the point where it is having to do with the fed is doing now. i wonder whether the gap year is too big. that is going to have a big effect further down the road. bhanu: i would not say all central banks because for instance, canada -- guy: and the bank of england -- and the bank of england is moving quite quickly. that's right. inre is no sign of inflation europe either. there has been a stellar economic recovery.
exactly right. therefore, there is much more to go. i think if you look at the unemployment rate, there has been much greater movement within the ecb -- within the eurozone recently, but the levels are different. that matters in terms of inflation generation. what is completely wrong as the backend of europe. that is where the ecb's actions, including taper, are going to have a substantial impact, because the ecb is a larger part market and the eurozone treasury market. you can have a much larger impact if the ecb begins to taper. guy: do you understand the fed's reaction function now? bhanu: they have been very clear about it. they want to normalize policy. they care about inflation, but they also -- guy: does the market understand? the market is up the thing about
no inflation. the fed cannot raise rates. does the market -- has the market got his head around yet this idea that the fed does not care anymore? bhanu: when the fed said they are going to move, they have not been able to move because inflation is surprising the downside. in the last nine months, we have seen a very different fed. there has been a subtle shift in them carrying a little bit less about inflation and caring a little bit more about financial conditions and the unemployment rate, both of which are telling you you should be moving right now. there has been a shift. last year, when the fed changed -- remember, brainard and yellen completely changed -- that was the time when china was completely stressed. growth was plummeting in the rest of the world and the fed said "we are international." this is not that fed. now therechanged, and is stability. the question is whether the renminbi will strengthen or stabilize.
markets.loves emerging there is no international problem. that can come back to haunt us. the fed is really focusing on domestic issues as opposed to international. you story and emerging-market overnight. we will come back and talk about em later on with bhanu. trudeau talking trade as his with europecked takes effect. what he has to say about his progress of trade agenda and possibly his ♪ we will do that next. this is bloomberg. ♪
matt: welcome back to "bloomberg markets: european open." we are 14 minutes into the session. we have gains across the board and we are seeing much more movement on the continent than we are in the u k. see the ftse up 1%. gains of 25% on the dax and almost .5% on the cac. kicksnada/e.u. trade pact in today after a series of delays. president jean-claude juncker says the deal in calculate how policy tots its trade be. speaking to the bloomberg business for them, justin trudeau also praised the agreement. need to makewe that next step of promoting a trade agenda by talking about the progressive side of the
trade agenda. that does not mean just making a progressive case for trade but putting forward progressive trade deals. guy: justin trudeau. to be able to get a shot of his socks. i am a star wars fan, but hey. let us talk about someone else. the ukip prime minister is said to except the need to discuss the european union's demands for a rights it nolo tens of billions of pounds. theresa may will hold talks with her cabinet today before deciding how far she can go in promising money to the e.u. in a landmark speech that will be delivered in florence tomorrow. emll with us, the head of cross strategy. in order to get things moving, it is clear that some sort of monetary compensation is going to have to be offered by the brits. the problem is the politics of that will be difficult to allow. if the u.k. and theresa may says
we will make an offer, what looks like a fairly reasonable offer, kind of other people's perceptions, not hers or mine, how do you trade u.k. assets on the back of that for the pound? bhanu: the first immediate ambition should be to show that the cabinet is completely behind her, that there are no dissenters within the cabinet. that would be a start. let us put this in perspective. we are negotiating the beginning of the negotiation. 25% of the period has passed and thus far we have got started with the brexit talks in earnest at all. that won't only happen in mid-october if we get this right. of themakes an offer end offer does go through and the eurozone heads of state to start negotiating, that is the beginning of a long process, and i do not think that -- within from the means pricing
boe's with the sterling, but clearly, there are clouds on the horizon for the economy. you are seeing that in yesterday's retail sales data notwithstanding, the broader trend is softening in retail sales and also in real wages. that is the key point. that means, next year, growth will be weaker and the sterling will struggle to rally much further, especially. i think eurosterling can find a bottom and move higher before long. guy: to flip that around a little bit, that is a pair. we have had a lot of good news priced into one side of that pair and a lot of bad news priced into the other side of that. . that strikes me -- of that pair. that charge me as something that is to be reverted a little bit. bhanu: and it has. guy: you think that is unacceptable? 87, that range.
this could head to 95 or higher. the u.k. will lead a slightly weaker sterling. it is an open economy. economy and iten needs a weaker sterling in order to rebalance not just the external balances, but also to push ministry higher. manufacturing was one part doing quite well until we only, and i think it is difficult to see how you could get more than two rate hikes. the debate is whether we get more than one. it is difficult just for them to do only one rate hike. if you get another one for instance after november, i think long and yields remain a b uy. ishink the rally in sterling likely to be limited. the momentum is with the market. it has been short. there could be some diversion, but we have completed at least half of our journey, and they think against the euro, before long, you will start thinking of eyeing eurosterling. you expectar do
inflation to go, and will one or two rate hikes be enough to keep it in check? inflation is likely to people within the next two to three months. we are likely to see it come down towards 2.5% to 2.8% by the third of fourth quarter of next year. i think inflation will come down also because real wages themselves -- nominal wages themselves are coming down. weakening. unemployment rates remain low right now, and you have got to worry about the medium-term, but i do think that, with the trade with eurozone flowing, with global trade also coming off a cyclical beat, it is likely you see the economy growing 1% or sub 1% next year. very clearly, we do think inflation rise is temporary. it rate hikes will bring towards two point it percent to 2.5% around the end of next
year, which means what is being priced into the markets -- if you look at r.b.i. breakevens, that is a long part of the curve, the nominal curve, and also the breakevens, that is where we would be received. matt: you are going to stay with us. we have a lot more to talk about. bhanu baweja, head of em cross asset strategy at ubs. we have got into the u.s., to the u.k.. coming up, days away from the german election. we talked the state of the race, next. and what it means for markets. this is bloomberg. ♪
guy: welcome back to bid let us figure -- welcome back. sebastian: an indian mining billionaire spending money on -- is a family investment and he does not intend to launch a takeover. he has built a 12% stake in the minor. anglo american declined to comment. -- may miss its profit target due to national disasters. hurricane maria "will give rise to further substantial strains that will exceed the loss budget of 825 million euros."
it is still on track for a dividend payment. groupbuilding materials -- the transaction has been unanimously approved. it is expected to close by early next year. the companies said joe stockholders will be entitled to receive a cash merger consideration. end the deferred action for childhood arrivals program. leader were a country right now, my goal would be to monopolize the world talent. i would want every smart person come into my country because smart people create jobs. sebastian: that is your bloomberg business flash. thanks very much, sebastian. down to thecks
election in germany. angela merkel is looking to shore up support. to smallere ground parties, although she remains well ahead of the pack. head is us, bhanu baweja, of em cross asset strategy at ubs. before we get fully into germany, i want to ask a question that ties together the u.k. and theresa may's speech in italy. a viewer writes in "why would theresa may layout her possibly insufficient offer to the e.u. before the german election? doesn't this give merkel and schulz a chance to bat it down on sunday?" bhanu: she does it because she has to. there is a timeline on which the u.k. is operating and they are way behind in that timeline. they need to move quick in order to ensure that businesses do not complain more than they already are.
on your channel, there have been several businesses from the u.k. alreadyhey are suffering uncertainty. she needs to get this process started. i do not think she has the luxury of waiting for a german government to form, even after the election. it is possible the government only forms by november or december. i do not think theresa may have that luxury, so i think she needs to move now. matt: how closely are you watching this german election? how important to you is what we see on sunday? bhanu: not as important as the french or italian elections, because i think the lead that has over the others, there is a slight possibility it becomes interesting for the markets if the free democrats get a very large representation, and they tend to be less pro-european than the cdu and the csu, but on the whole, this would not be a major market moving event. we should get on the merkel
we will bring you more throughout the day. welcome to bloomberg markets. miller in berlin alongside guy johnson at our european headquarters in london. guy: let us talk about where these markets are this morning. this thursday morning. the minors are softer. the dollar goes up, the minors come down. to be honest, we are untangling what we learned last night and pricing it into assets and that is what we're seeing today. movey markets continue to on in the state yesterday. you wonder whether or not this is the slow burn story for equities and how exactly the higher rates will be priced in over that period. let us talk about what is happening over on the other side
of the atlantic. rescue and recovery crews continuing to come through the rubble in mexico city in the wake of tuesday's devastating earthquake in the quake killed at least 225 people. an unknown number still missing. 40 buildings in mexico city have collapsed with another 45 in danger of falling. many offices remain shut wednesday, but banks and markets resumed normal operations. asican peso rebounded services were restored. still with us, bhanu baweja, head of em cross asset strategy at ubs. this is clearly an act of god, something that is hard to price in. what impact does it have in terms of your thinking surrounding what is happening in mexico? bhanu: the economy was slowing down going into this from a strong first quarter. this is likely to mean the get the pause a little bit longer. usually with these events, you get the get back.
in the next period, you see stronger growth and that is exactly what is likely to happen. it is interesting that inflation is not coming off as hard as one had initially thought it might, and that might get a little bit of a lift. the supply chain gets disrupted. this is bignk enough for policymakers to completely change the way they are thinking. mexico is likely to be on track to cut rates again. this would mean the economy slows down for a little bit longer than we had initially thought. 50 basis points into the fact that the fed will be hiking rates. guy: what is that mean for the politics? bhanu: quite interesting of course because november, we will see the political season heating up in a big way, but you will see that the current government is under a lot of pressure because of reform, and if they do not manage this recovery
process well, they could come under more pressure going into the polls, and there is a possibility of a left leading government that does not work well with the u.s. on trade negotiations, and they do not think that is being priced into the mexican peso. pricingreally not in protectionism from the u.s. or mexico going slight left. there is a decent risk of this. is lower inflation, central bank cutting rates nonetheless, and rate coming down. both in the front end and also the back end. the mexican peso having had a fantastic writing this year, is completing that journey. from here, it might actually weaken modestly. matt: i want to point out that first off, users of the m tomberg can type in bde get the bank of mexico portal in the bloomberg. you can do this with boj go, .go, boe
why don't you think they will have to loosen policy a little bit here? they did not really take that hadoach when the u.s. natural disasters, but this is capital city, and the devastation is serious. there is still 4 million people without power. isn't that bound to take a big bite out of the economy? bhanu: it is possible. mexico has the other problem of inflation. mexico and turkey are probably the only two economies right now that are suffering high an otherwise disinflationary trend and other parts of developed markets. what it is, i do not think it will be easy for the central bank to cut. i think as the fed did yesterday, chair yellen said clearly that as much as this is a disaster for the people living there, we are looking through this in terms of the economy. i think the central bank in
mexico is likely to do the same, also because they have tremendous inflation right now and if they were to loosen policy too much, the risk is they are playing catch-up for several quarters. ready tothink they are cut rates aggressively right now. the peso is stumbling towards a record low versus ile's currency. i wonder which pairs are most interesting to you. is one that before talking about yesterday. what are you looking at as head of assets and strategy? bhanu: the fact that metal prices have done as well as they have over the last six months, you probably would say that they are likely to go in the other direction right now, so i think chile canada from her modestly. they have a reasonably strong economy, so i think you are not looking for a big fallout in the chilean peso, but a modest underperformance of both chile
and the mexican peso against the dollar. in the near term, chile probably more than the mexican peso. they are underpinned by what is a very strong tech up cycle, which is reflected in the etf rate in em still doing quite well. some stability. where it things will -- where i think things will change is the south african rand. is hurting the economy. the positioning in the bond market especially is reasonably heavy. that is where i think the risks are pure dudley, the risks sit in the commodities space. places where the risks are quite higher because commodity prices have done quite well already, and i think oil prices likely flatten out, but metal prices, lower, and that pressure on the currency again. guy: let us talk about reaction to the fed. this is the msci e.m. index.
this is the fed. there we go. why the dip? this comes back to the tech theme, the senate? bhanu: same thing happened in the s&p, by the way. you did not see the same down reaction. the main drivers remain the same. the tech rally that is supporting equities in both directions, particularly in em. tech has been nearly 50% of total returns this year. at this minute, if you look at some of these companies, their numbers are so strong, i think people who struggle to sort of get off that bandwagon, unless the long and rate rises aggressively. a long end is what drives tech. at this point, we would not be overrating this. next year, e.m. ratings would be probably one third of what we are likely to see this year. to 22% pure the market consensus is 12% to 15%. there was some special
situations this year like china. having done market so. a very aggressive tech cycle, which we think slows down modestly next year. they outperform significantly. it cools down a little bit next year. perhaps does not go to the same problems. guy: it speaks so much to the correlation between asset classes. the s&p has been driven by the tech story, right now. e.m. is being driven by the tech story right now. when we get -- i am just wondering where the places to hide our when we get any kind of -- you get a 10% correction -- kind of how it operates. bhanu: europe is not being driven by that story. i think europe in dollar terms is still out performing. it is likely to do well as china moves up the value-added chain is japan. japan's numbers have been phenomenal. the boj is likely to remain loose for a very long time.
inflation is slowly picking up. evaluations are low. the market is the rated as ed as earningsat are surprised on the upside. the mania from tech dissipates modestly, but china continues to investing going up the value-added space, thereby helping companies do well. correlations to go up when momentum rules. etf flows through. this has been a fascinating y have beenhe going up globally. the risk is from growth itself. i would suggest the rink i greater in china than the the -- the risk is greater in china than the u.s.. i would suggest that on the 12 month rising, that is where the risks lie. guy: always a pleasure to see you. thank you for sharing your interesting thoughts this morning. bhanu baweja, head of emr is that -- head of the process at
continent, down slightly in london as the pound gains against the dollar. opec and its allies are gathering this week in vienna, and they may have the best evidence yet for their efforts to clear a global oil glut. crude prices have rebounded to a three-month high, and fuel inventories are shrinking, but could this prove short-lived? joining us for more is yousef gamal el-din. what is on the agenda first off for opec? yousef: this meeting is especially interesting. they are also meeting against a more favorable backdrop. you have a decline in global inventories of 28%. rude prices rebounded from the year-to-date lows in june. they both boosted that forecast. where does that leave them?
the compliance levels are encouraging. they have been improving. let me run you through two numbers. opec coming through with 94% in august. 119%. that leaves the door open to possible downside. that is the key issue. with thes this deal go same hundred of momentum they have seen over the last eight weeks or so? there are two options on the table. one is deeper cuts, which is something the iraqi oil minister -- we are not sure if this is something that is being formally discussed on a committee level. the other thing is to extend the deal beyond its current expiration date and go deeper into next year. this is something the monetary committee is what you think about. they are in a position and have the power to make the recommendation on a wider opec /non-opec level. the bigger decision is made as to whether or not to pursue that. ultimately, they will main
tain agility. plenty can happen. guy: thank you very much indeed, yousef gamal el-din. interesting, you have the russians on this very subject as well. they feel an extension of the deal in q1 is a good idea. emmanuel macron indicated he is open to trading e.u. treaties as he prepares to send out his -- changesaid the economic he is pushing through and france are intended to give him the credibility he needs. i am a strong believer in europe. during my election campaign, a lot of people told me "you're crazy. you are pro-european and you think you can win in france defending europe?" i did believe it was feasible, and it is feasible, because people understand we need europe in this current environment, because we have european values, and now, the challenge is how with the united
states and china. that is not the case today. the weakness of europe is the lack of ambition. of -- during the past decade, trying to fix crisis at the very last minute without any perspective. is the relevant scale in order to deal with energy, and european single emerging markets. it is critical. we have french leaders and european leaders and europe has to be stronger in the sector. ,t is the same for digital security, defense, and investment and economy. what does it mean? fix the objectives
for europe, and we have to decisionse investment in order to reach this objective. change have to treatment, but we need these new ambitions because for my eight generation, there is just one out of 10. do we want the dismantling of europe -- and it is an ongoing process. we discussed years and years over brexit, and now, it is all over brexit. we have a lot of tensions regarding overflowing europe, but in a few months or years, you will have all of the countries suddenly raising and saying -- this europe without any vision but just a lot of constraints. so we need more vision, less bureaucracy, 10-year objectives, and a national process.
launch initiatives to resume this. we need new ambitions. that is the best way to address the brexit issue. why? because brexit is all about refusal of middle classes against a dysfunction in europe. so this new europe has to fairde a place, has to be and efficient, and provide a place for our middle classes. hat is our main weakness. there is no way to progress when you're middle classes do not and any perspective something to get in this environment. in order to do so and to push with germany, this new european perspective, i need a strong france. and for me, in this context, i want to promote this newest
agenda of france. without that, i will not be in a situation to push european reforms. in france, i am passing labor reform with the government in toer to promote security and fix the past situation. why? our model today destroyed too many jobs. it had a short cycle economy and an economy of innovation where jobs to to destroy some create new jobs very rapidly. second, we will launch a big reform of vocational training and launch reform of education. why? it is all about education in this environment. you need qualified and skilled people. we be investing education. very rapidly and aggressively. in order to train our young
people. second, we will invest 15 billion euros in order to train during thepeople life because one of the main challenges of my country is the people without the qualification for this change. we will destroy a lot of classical sectors, but we will create more jobs in digital, energy, and your sector. inhave to retrain people this new environment. big thing we are passing and will push in the coming months. the reform extending. if you want to do so, you have to reduce your current expenditure in order first to reduce extending in france, which is too high, and at the same time, to reinvest in your top priority to prepare the future. priority as climate
change, artificial intelligence, as i told you, and education and training. ok.: emmanuel macron speaking at the bloomberg global business forum. from france to germany, as the down, angela merkel is working to shore up support as polls show her christian --ocratic block cedi us, francois heisbourg. he wears a german had an french had at times. thanks for your time. let me ask you about him and you'll macron. it sounds like he could have been speaking to the germans. we need to destroy these , youical institutions and know, factories, jobs, and create new ones in digital and
in a another of other forms. do the germans understand they need to do the same thing? francois: i am not sure the german leadership has fully therstood how disruptive next wave of technological innovation is going to be. the -- ineople at berlin, still talking about the need to invest in digital. as onehe same language bid 10 or 15 years ago, whereas we know the really big challenge looming within the next five years is going to be artificial intelligence, stuff like that. has a conceptual hopefully will filter into the political system here in germany.
matt: i hear angela merkel and her transport minister talk about the need to invest in diesel. even the spd and greens are talking about this. the best possible outcome for emmanuel macron on sunday? what will help france and europe when it comes to the german elections? assuming we are all that angela merkel will remain the chancellor, so that is neither best nor worse. that is baseline. the type of coalition, i think the preference in paris would be what is called the jamaica coalition. that is one where you have both the greens and the liberals, and with angela merkel, with a strong pivot, if i can put it that way. matt: would the greens and sdp cancel each other out? francois: they would to some extent cancel each other out, and in particular, on issues like those which are particularly sensitive, where the liberals have tended to be,
if i can use that word, extraordinarily conservative, whereas the greens have been actually more forward thinking. they understand some of these thanmic changes better their rivals, but i suspect that the greens are not going to do well. good morning from london. wants europe to spend more on defense. do you think the french and the germans are going to deliver that? germans, in their very organized and planned manner have taken the steps to do that, and i am pretty sure that they will. the case of germany, the problem is not going to be more money. there will be more money. it will continue to be issues thet strategic culture and ability to operate in the military operations.
in the case of france, we have less money to go around. macron and others understand that we have to increase defense spending, but i suspect that it is not going to happen as easily that it will do in germany, which is a bit of a paradox. matt: you wrote an article in france comparing donald trump to wilhelm the second. what do you think of trump's speech to the u.n., particularly his attitude towards the iranian nuclear deal? his attitude towards the iranian deal is extraordinarily disturbing because of course, you're on is a great power, a dangerous power. there are all sorts of reasons we have to hold the iranians nose to the grind stone. the notion of actually undoing what is a pretty good deal in exchange of a situation in which iran would be free to do what north korea is doing is just sort of slightly bonkers.
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