tv Bloomberg Surveillance Bloomberg March 12, 2018 4:00am-7:00am EDT
to talk about how well the dax is scheduled to do this morning, up by 1%. watch the energy sector. that will be the utility sector and that will be fascinating. .6% to 0.8%d up this morning. performeduld under this morning. london is only expected to be up 0.3% to 0.4%. to 0.7%. up by 0.6% the dax, i believe for. nothing much is happening. it takes a while for the dax to open while things are happening in the german market. the cac is up by 0.4%. let's take a look at what is happening with the stock 350. the energy bid, firm this
morning and materials from this morning. financial certainly trading a little stronger the morning. that is the story at the moment, though you do see weakness in the health care sector, which is worth paying attention to. matt, what do you have on the movers? matt: right now i see 433 gainers for 61 losers. so the breadth is overwhelmingly to the upside on the move scr een. this is the stoxx 600. i'm looking at stocks, in percentage terms we are not seeing very big gains here. there are a bunch of smaller stocks rising. there.see infineon there is dixons farphone -- is it the warehouse? i feel like they need a more strategic name. you see the bigger companies actually moving the stocks of. hundred. -- moving the stock is hundred.
-- moving the stoxx 600. otherwise, you do not see big moves here. it looks like the tech chipmakers rising. as far as the laggards are concerned, the company's waiting weighingdex, just eat, on the index. tp icap, down 2.3%. the maker of chainsaws down more than 1% as well. not a lot of losers here and those that are down are not waiting on the index very much. the dax tog for open, still not open. little start to get a bit of clarity at the headline level as to what is going on, we will bring that to you. we are watching very carefully what is happening with these german utilities. asian stocks, rallying. we have got the trade war story.
that's taking a backseat. the payrolls number on friday, pretty good. positive stuff so far. we are still waiting on the dax. the reason for that -- there you go, up by 0.9%. germany moving on the back of the utility sector. we are expecting some decent performances to come through from some of those businesses this morning. the senior manager at aberdeen investment management is with us. the big deal in the germany sector, what does it mean for credit? >> these are a bunch of companies, three companies with a lot of debt in the market. sorting out where the debt goes and sorting out who it rests with is going to be very important. it looks like it will end up with rwe, with networks.
i cannot pronounce that. guy: the v and w, yeah. luke: that changes the mix of the investment they have got. if they are in energy at the moment, for the green energy they produce, and that is going a very rwe, that is different makeup and something you have got to look at very carefully. matt: do you think that this -- is it a good thing for the climate, the sort of utilities industry? i mean, we are starting to see them sort out on the one hand, services and the network grid with eon, looking at solely producing power. does that give you luke, in your job, a better way to pick winners and losers? luke: from a pure credit perspective, it is easier to understand. when you get rid of the retail side, that is something to
analyze on its own. it is cleaner to do that. from the environmental perspective, clearly german energy production has been changing a lot for many years now, ever since merkel decided they did not want to get into nuclear. rwe needed this deal to move forward. so, i think from that perspective it is good. and if it helps, cleaning up the factors over the next few years, i think that would be great. matt: we are looking now at some big gains here. up 13.2urrently 5%. big gains for rwe, and big gains for energy. eon, i'll just go ahead and figure out what the ticker is for eon as well. it looks like it should be gaining big, too.
though i have that trading at 5% in belgium. luke, this story aside, i wonder what you think of the risk on-risk off sentiment today. donald trump was out over the weekend, speaking about tariffs. investors are selling bonds and buying stcocks. why this risk on start to the week? is the think that logical thing to do. when we look at the environment we are in, we have a couple years a reasonable growth to come and we start to see reasonable pressures not from the payrolls. but we are starting to see those inflationary pressures coming through. that is not a great environment to be purchasing bonds and equities here are the asset of choice for a couple years. guy: the participation rate seems to be going up. that is maybe what is keeping the lid on the inflationary story. cpi is out tomorrow from the united states. we see a big shift in the market
stto the front end of the curve. people are buying the short and duration. are you comfortable with that move? is that a move you are buying into, or are we setting up for a squeeze for the long and of the market? what does the market set up look like? luke: it is a safety move. carry probably works. luke: to a degree. you have got to be careful with yield. i think you have got to be very careful with high-yield at the moment. you might be getting to the point where that is not the thing to do, chase carry, but chase preservation of capital. bringing a duration short of, up in your quality, be very aware of every single company you are buying and what they are involved with. guy: we will come back to that
eon story we started with and luke will stay with us. luke hickmore will stay with us. stocks on the move, we know what they are and the german utilities are roaring at the moment. the market likes what is happening at the moment. it is interesting, rwe is getting the bigger blast, up by nearly 14%. eon, only up by about 6%. that's the story we are talking about next. we are eight minutes into the market session. this is bloomberg. ♪
guy: 10 minutes into the trading session, 11 minutes into the trading session. let's find it would've going on. we already know what is going on, but let's get more detail with nejra cehic. let's find out what is going on. i am following energy and rwe. energy getting the most since the 2016 ipo and rwe gaining the most since 2015. you also see gains in eon, the three top performers in the stoxx 600. this after a complex deal where eon made this $22 billion bid for innogy.\a complex bid, but everything remains in german hands. the move in the dax is quite a lot. another company i am watching
from germany is deutsche bank, raising 1.8 billion euros in the asset manager ipo. we heard over the weekend of 6000 job cuts at the retail unit. both pushing deutsche bank up by 1% right now. matt? matt: all right, thanks, nejra. let's get more with german banks reporter steven arons on which a bank.che are threert, there issues our viewers care about. what is up with bonuses? what is the pay structure going to look like? who was getting fired. 6000 people are going out, but a think that is retail operation only. ipo, 1.8r three, the million dollars, they need the money, i get it. what will happen with pagan deutsche bank? it is really interesting. bonuses are really back to normal at deutsche bank.
as you might remember, they were 2016 and byor 2017, they are back to the normal level. not everybody is getting a good bonus, obviously. the trading unit did not do very well last year and i have heard from a few people that a few people are not as happy as other bankers, but the important move is bonuses are back to normal. john cryan made good on his promise to return to the normal bonds policy and that is what we are seeing now. matt: but he's not going to get one, right? it was reported over the weekend and then cryan management board will take a bagel for their bonus the cut is it is their bonus because the third year in a row of losses. reporter: that is right. it is better for john cryan and at the annual press briefing in
february, he was asked if the management board would stop paying bonuses again for themselves, and he actually suggested that he would like to see it, but the political backlash when the bonus discussion came up was so strong, i guess he had to waive bonuses for a third year running. so, ever since john cryan has been ceo of the bank, he has not received any bonuses, nor has anybody else on the management board. guy: steve, just a quick one on dws, just two actually. is the market comfortable with the pricing, and how significant is it that nippon is been brought in as an investor? steve: right, what we heard before, last year, there were some voices who said the deutsche bank would aim for 8 billion euros for the unit. we see 6.2 billion euros.
i just spoke with one investor before this interview now and he said he would go with the ipo up to a valuation of 7 billion euros. so, people think you think it is a fair price range. investment is a significant development within the asian market. s has not been traditionally very strong in that region. so, some distribution with nippon life would certainly help, i think in the 4% to 5% stake is a good thing. guy: great stuff. thanks, steve arons, joining us from frankfurt on what is happening in the building just behind him, good to bank. ckmore, if you do not like bank credit, where do you go looking for it? luke: yes, we like bank credit
and have since the crisis ended in 2009. we've reduced that long position as we went through last year. actual valuations get quite stretched. we've reduced significantly our 81 positions. actually, they just expressed that risk on/risk off trade. e like is the u.k.. we never like to germany. coming into this, we have been liking spain increasingly as an area to get involved with four capital and that is one area we could see ourselves push forward a little bit more. matt: what about the places that that are worrying everybody. i have a great chartier, 9118, showing -- i have a great
thertier, showin 9118, showing european area. does this have any bearing on where you like bank credit, or does the pricing change everything. but: pricing is very key, in some ways you want to be getting on board when the ratios are their worst and riding their way back in. small a way, it is very and the overall picture. you can kind of avoided. without really having much of an impact. italy is a big one. they still have got a lot to you look hard to get in line with italy. the broader economy is so much better and spain is getting
somewhat better than that. they sorted out normav obanco, what all the bad credit went. we think santander are good assets and bank capital is a good way to play that. matt: luke, we will keep you here for a little bit longer. luke hickmore for aberdeen standard investments as a little bit more to talk about this morning. it is a very interesting monday morning for markets no matter where you look. if you are a bloomberg customer, watch the show using tv . i have it pulled up here and you get the video stream, obviously, but at the bottom, there is a blue link, "ask the guest a question." luke? have a question for just write it to us and we will put it to him, or message guy and myself directly. this is bloomberg. ♪
strongly. they seem to be getting the best of the transaction this morning, energy and rwa. we see a massive swap in germany. luke hickmore from aberdeen standard investment is the with us. let me tell you a question, after reading the weekend papers, i am trying to figure out the u.k. politic story and just the maps references -- this is not a brexit conversation because that sends them into orbit. kend,was thinking this wee how i prepare for the potential of a corbyn government, what would that mean for the gilt market? luke: so, i think this is an inflationary low growth point. we get to the point where the crowdingrnment starts over the public-private sector quite a lot we nationalized a bunch of private industries, or at least attempt to. they pay for that some way, and i think they will be issuance of more gilts.
that puts pressure on the public finances, to the point where we could be facing we can downgrade. we had the shadow chancellor last week pointing in that direction. i think from this distance, the answer is guilt. guy: collectively? luke: you could be looking at a 2.5% or 3% number in gilts. guy: what number with that come with, do you think? luke: they could come down to the triple digit, which could be a shock to the currency. guy: i am surprised that the polls aren't -- the pulled are very tight. luke: they are. guy: if the election were called tomorrow, it would be difficult would end up woode with. we would not be particularly accurate with pulls right close to this election. however, just from the reaction
in the news over the stories over the last week or so, i would be nervous about the u.k. nominal assets like gilts, who owns it, and how crowded you get from the u.k. government's involvement. possibly real assets will be better. the equity market area, that could be ok. there is so much nondomestic involved in the u.k. market. you have a little bit of safety. and you could see some inflationary driven growth at the beginning of the process, before you run into the problems later on. you cannot do these things without paying for them and if you pay for them with guilds, that is where the problems will start arising. problem withy brexit is every day we get some news story that supposedly moves the vol forward and yet if i vol, i am not the sure where i would take it. how often do you see brexit news that pushes you to pull the
trigger on a real investment decision at your office? that is a fair point, matt and you brought up brexit, i would just like to point out. it's starting to come up more and more, as it gets closer and closer we are thinking about the implications across industries more and more. if you have an aircraft manufacturer, like you have airbus with the wings in whales, and the impact that has, how do the wto rules were, will the wto survive paris and trump? these are the questions, but at the moment it is a macro discussion. it is starting to come into those discussions a little bit and increasingly, we are trying to sort through the sectorial impact. we have a year before that happens, maybe two years of transition and that is not a lot of time in credit markets. matt: you are basically saying, we have not got any news that
moves the needle yet. we are getting closer to moves that make you buy or sell something? luke: it is a little bit like politics at the moment. you do not trade politics until this happens and see the impact. as well.els like that do not trade brexit until you have a clear idea of what it will hit. is real forto make the moment and get some, what you like and what you do not like. very much like nonfinancial, none utility dvd credit here. and we are talking about bbox. luke: big distribution centers. sheds, exactly, but big regional sheds. resultsupancy, great the week before last and yet, the bonds have been underperforming for the last three or four months. it has this u.k. tag on it and this is the brexit impact for you. the u.k. tag has led to the underperformance. it has a retail tag,
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trading day. let's get the top headlines for you up the bloomberg terminal. cleaning up, german utilities in and rwe swap assets complex deal that will see green energy producer innogy reabsorbed by rwe. shares in all three companies surge. the yen rallying as the finance minister taro aso is under pressure to quit. prime minister shinzo abe wants him to take responsibility for the investigation an d asset management prices the ipo of dws and announces nippon life will become a cornerstone
investor. how key will this be in john cryan's plan to turn this around? i am matt miller in berlin, alongside guy johnson and bloomberg's european headquarters in london. guy? guy: matt miller over in germany, he has been misnamed by some people this morning on a few chats. it's the story of the morning, isn't it, what is happening in terms of the german utility story. what we likely will see is a shareholders on this bid of energy. the stock is rising quite nicely. rwe is up by 11%. eon is taking the wrong end of the stick of this interaction, but still trading up by 5%. an energy press conference is taking place in 20 minutes time. we need to get more detailed on what is happening here. so tradingyou have da
a little bit stronger. eat and asside, just -- auzita, trading down. reporter: a long-held goal of pyongyang, according to a south korean newspaper. an unidentified senior official from south korea. mikehile, the cia head pompeo has ruled out any relaxation of sanctions and said kim must stand by his office. japanese finance minister taro aso is coming under pressure to resign amid a scandal with links to a school and shinzo abe.
yen strengthened and stocks pared some gains. chief saideu trade she had "no immediate clarity on whether the block will be off the hook for u.s. tariffs." donald laid down his conditions and repeated the threat if they are not met. the european union has treated the u.s. very badly on trade and are complaining of the tariffs on steel and aluminum. if they dropped the horrific barriers on tariffs on u.s. products going in, we will likewise drop hours. was rescuedomebody by a passing tebow. the helicopter was been chartered for a photo shoot when it went down near gracie mansion. and landyn howze prices are falling at the fastest pace
since the recession almost one decade ago. the capital's most extensive the biggestng decline. figures for january see the annual decline of 2.6%, the biggest since august 2009. 12.2%.lump and a drop of global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. this is bloomberg. guy: thank you very much indeed. the market has another breed of funds we should be worried about. the central bank cites the bond funds at putting the risk. whity is the market funded doing this? let's find a. luke hickmore from aberdeen asset management is still with us. >> i not only saw etf, but bond
etf's. that peaked my interests. the indexese bonds, they track and how they are set up. they are a lot like equities. on the bond aside, basically be more outstanding that you have, the bigger waiting the issuers will have in the index. exactly, so what bis is arguing is this sets up this structure that is not very healthy for the market. if you are an issuer, you will get rewarded if you have more outstanding debt, if you take a more leverage. the argument is as passive becomes bigger, issuers the sea they can be reported by taking on more leverage and it is going to encourage more leverage in the system when we already have a massing amounts of corporate leverage in the globe right now. they are pointing this out as something to keep in i am, especially as we definitely do see the flows moving towards passive bond etf funds. guy: is this a qe story:?
dani: partially. it is hard to make the argument it is for any other reason than ultralow interest rates. so, if we see that coming down, maybe we can make an argument of what impact the passive bond funds are having right now, but it is impossible to tell with the ultralow interest rates. guy: you brought a chart, dani, and i am pulling it up right now. it is 6653. talk us through what we are looking at here, fixed income flow -- i mean flow show. dani: exactly. it is quite remarkable, the flip to passive funds. in white you see the flows into passive etf's and mutual funds. this is from bloomberg intelligence -- they have done a great job of tracking these flows. passive has gotten very popular. we had a couple years where
active had outflows, but the one ancy there is traders moving toward etf. we have heard investors trading about -- when he met the structure that bis is turning out. maybe want to take on companies with a larger market cap, then perhaps it does not make much sense that you would want the most indebted companies in a bond index. we have seen issuers talking about tracking different indices that are somewhat more smart beta, but for now the majority of going into these funds, which track bonds, which have the largest issuance. guy: let's get a response from luke hickmore on all of this. luke: i am an active bond manager -- fund manager. the biggest problem investors are facing is not so much that issuers are playing the game, trying to get into the etf's, it is literally, the more you issue, the more you have to
buy. irrespective of the quality of the business and ge is a great example of this. ge got up to 5% in a lot of benchmarks. it has underperformed sense. it is not that difficult to be honest. the business was fracturing into a lot of different parts. why would you want to be exposed to that? etf's might work doing a positive rally. guy: it works when companies are going to outperform, but not on the flipside. luke: when you remember the asymmetric risks in fixed icno e ncome. find a manager which can buy the assets which will avoid the worst of that, rather than being exposed to the entire market and all the problems that come with. guy: active managers. matt: i want to know, luke, wh ' t's the argument for passive
investors for etf. it's clear in equities. are you saying it is only during the time that has an unfettered bull market? luke: i think for your etf's,ased, vanilla exactly. you do not have to they give up the data metric risks. there are semi-passive invest ments that work. beater approaches which prove the efficiency of how you manage the funds and reduce the cost. that makes a lot of sense and one thing the etf's have done, they reduce costs for the investors in the entire industry. everybody has been talking about this and that is a good thing for investors. s leave us with that environment, that is a positive for the saviors of the world. matt: you are looking at this from the perspective of maybe millennials are buying these etf's retail investors are
buying these etf's, or is it the follow orfunds you the big hedge funds you follow buying these etf? dani: one of the interesting threads when you think about traders that are may be more high-frequency, is how amazing it is to buy into etf's. this is another point bbi as report made --another point the bis report made. because they are so easy to buy and trade, we see a really interesting correlation between volume of etf being traded and the vix. it is a must a most imperfect correlation. when you have high-frequency traders, maybe some other quants, but still can trade with this out asoints another source of potential with stability because you have mutual fund investors staying with the investments and because its so easy to buy and trade etf's, if we have more people trading that way, moving out of mutual funds, that also could
destabilize the market in times of stress. guy: thank you, dani. it is a great read on the bloomberg that dani has put out there. dani burger and luke hickmore, our senior investment manager at aberdeen investment, he is done with bloomberg television, but he is not done yet. we look forward to him carrying on the conversation. that conversation will continue with luke hickmore. i want to show you what is happening with gkn, the stock trading up at 1.412%. gkn is currently reevaluating the melrose offer at $11.2 million, though it is advising the shareholders not to sign any documents tat this point. more on that stock story when we come back. this is bloomberg. ♪
guy: welcome back. we are 44 minutes into the market session. let's take -- i want to get into the mon screen. that's a misstype. quite nicely.ing basically, european markets are doing quite well and at the moment we have most markets doing pretty well. the dax is nonperforming, up by 0.6%. out what is moving
the german dax as a strongly as it is and what is moving the market elsewhere. let's get to the mid-caps with nejra. nejra; let me start with just eat one of the worst, performers on the stocks of hundred. it has been downgraded to sell good you bank. this stop plunged last week over concerns of investment hitting earnings. pharmaceuticals is also moving down. and hikma is to respond to the fda with a new date as early as possible in 2019. meanwhile, gkn on the upside and melrose sweetens the hostile offer to $11.2 billion. pencefer of gkn at 706 130.1are, up from the
pence in the original proposal, trying to woo supporters away from gkn. gkn will have until march 29 two except the offer and it has already circulated a second response to the initial previous offer, which it said was opportunistic and undervalued the company. guy: one of the reasons why the german story is outperforming today is because of m&a. m&a monday. let's focus on what is happening here with respect to the specifics and the broader picture. risk david joins us from our -- ruth davis joins us from our team. and the global head of corporate'thas at linklaters. very yeah, and we have a big deal, or at least a deal that is big and moving markets in a big way. eon has agreed to buy energy --
well, eon and rwe have made a deal in which rwe basically reabsorb's innogy. it is not really eon buying e innogy. it is quite confusing in the way the transaction is set up. let's talk about what this deal is that will re-create two utility giants. ruth, explain this deal because initially everyone said eon would buy energinnogy, but realy innogy has these power production methods that will be absorbed by rwe, so what is it really? ofh: it seems at the base it, these companies are getting together to create this german energy champion, which is now then going to be much stronger against other european drivers, right, whether that is an ml from italy.
so, you are seeing a domestic solution. and if you remember, innogy they lost their ceo this december. they have not had top management. they have been seen as an attractive asset. they were listed in october of 2016 and both of these companies bought eon. eon just sold off the remaining stake in juniper. so, there's a lot of dealmaking going on in the sector, but investors seem to be thinking that this is good because a strong german name in the market will compete further. guy: what about the -- good morning, first of all. ruth: good morning. guy: very nice to see you. my interest in this deal is this a an inter-german deal,
national champion deal, despite the fact that there was a lot of talk about the potential for foreign bidders to make an acquisition in germany. what does this tell us about m&a at the moment? will it become more nationalistic in terms of the terms being applied to these deals? >> the energy sector is very -- guy: strategic. >> very strategic and very active in m&a. it is a sector where scale is important and as we mentioned, hass a secotor where it complicated regulation. and inner granite growth is more difficult in that sector. and i think in terms of national champions, i think that companies will look at what is a strategic for them and it is an interesting deal in the sense that it is the company's coming together, and strategically aligning in particular areas with eon along the grid and free
along thebnd nwg renewables line. and to create value, that will be the strategic pair to behind the companies. in terms of national champions, i think generally, mega-deal doing you need to look at it within the regulatory environment you are operating in. there's generally countries looking at security national interests, but i'm not sure it's the main imperative for deals. in terms of executing deals, it is something people will look carefully at. ruth: and just the thing we have been wondering, it is a busy year for m&a. what do you see about the things that will inform the rest of the year? >> i think the key themes,
there are a number. one is the fact that there is a lot of disruption in the industry generally. i think companies have to consider what they can do to be strategic. you will see a lot of consolidation to deal with that, particularly in terms of the tech disruptors and those aligning themselves with that. i think companies with brexit -- i mean, all of these issues around elections in different countries, which have created some uncertainty within the market, i think companies are very focused on making themselves stronger and more sit able -- and more stable, which could be consolidation on a country to country basis, or cross-border deals. companies are seen as good value. and with the currency exchange, u.s. currencies with the tax reforms are more able to come overseas and look at companies. and china, i find, the people
have commented it is down from 2016, there is still a lot of activity in china i find. that will continue in particular with infrastructure projects down the road. matt: especially if we had -- well, my question is, would that be especially noticeable if we had a stock market correction? we almost on the market get clobbered in the beginning of the year. the global stock market really, u.s. stocks corrected european stocks got affected. if we were to see equity prices come down, would china and other buyers get a lot more active? aedamar: it is a good question, matt. i think that -- when you look at the way deals are being financed, they are being financed through a mixture of shares and cash. is a think that if there correction in the equity markets
, that could mean there are more the deals, but i think consolidation on a share by share exchange business, which should come through regardless of a correction in the market. i think you are right though, in terms of more interest from the u.s. and china. i think that will continue. because there is a lot of activity there already. and there is no indication that will decrease. guy: assuming one of the implications of overcorrection would be the exits become harder for a private equity company -- i am curious, will that destabilize the markets? assets will become cheaper, but exits will become harder. how does that fit together in terms of how it affects the overall deal flow? know, exits you will continue to happen for private equity houses and funds all the time anyway. the interest from overseas will continue and i thinkt he asset
classes in which people are interested, we are seeing a lot of interest in sectors in the energy sector and health care sector and financial services, particularly on fintech and asset management. i think we will continue to see that. are less active, but the activity and defectors, which are highly relevant for disruptors, i cannot see a neea decline there because everything indicates that activity in for wheree, communications, they need t along the distributiono align the conten -- where they need to align the content with distribution -- guy: there is a structural reason for it. i think that structural reason will continue more so rather than less so. ruth: how do you see the u.s. tax reforms playing out with dealmaking? aedamar: i think there will be
two affects. there is a tax incentive for u.s. companies to repatriate cash, but also because the u.s. dollar is strong and others are weak. with the u.s. companies take ee an interest in buying. ruth: any particular sectors? aedamar: i think health care, education, financial services -- prickly around fintech. real estate is actually very active. guy: interesting stuff. thank you very much for coming to see us, aedamar comiskey and ruth david for joining us as ever, on what is turning out to be a regular basis. a reminder, the energy news conference starts in about 10 minutes time. much that on live on your bloomberg. it is certainly the transaction of the morning, making a great
deal of headlines. that has created a lot of jumps in some of the assets, matt. matt: absolutely. i want to give -- and by the way, innogy would be our stock of the hour, if we were going to do another today. let's give you what you should be focused on this week because it is monday. the european union government 'sficials discuss the eu brexit position and future relationship with the u.k. and brussels. well, through thursday, but they have been discussing them for a year and will do it for another year, but this week especially. tomorrow, you could chancellor philip hammond issues his bring economic with a new forecast from the office for budget responsibility. on wednesday, germany's appointment -- angela merkel as the chancellor and chances are she will pass, setting the stage for her fourth term. that multi-her for the most terms as chancellor ever with helmut kohl.
concerns over the chinese banking system and the growing scandal within the japanese finance industry. plan, while the board pushed out 6000 employees in the retail arm and cleaning up german utilities eon and rwe swap assets in a deal that will see green energy producer innogy reabsorbed by rwe, and shares in all three companies surge. this is number surveillance and i am francine lacqua in london. tom keene is in new york. we have got to talk about u.s. politics. we have got to talk about what the deal in germany gives energy champion and we look at treasuries were any kind of micro-movement. tom: a deal in germany, i guess deutsche bank is an ipo or sp n inoff. we will be joined in a few hours. anna: let's get straight to the
bloomberg first word is. president xia, jinping is set to stay in power indefinitely. people'snal conference all but unanimously voted, allowing him to centralize control of the congress party and the approved principles for a more assertive foreign policy. there are reports that kim jong un ones to sign a peace treaty after meeting with president trump. kim also wants to discuss the possibility of nuclear disarmament and establishing diplomatic relations. president trump has agreed to meet with kim. passengers all five were killed when a helicopter crashed in the east river. only the pilot survived and the fire department divers pulled the passengers from the wreckage. the helicopter had been chartered for a photo shoot. in a new report warned that china, canada and hong kong are among the economy's most at risk
crisis. banking candidate was flagged thanks to consumers with maxed out credit cards. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. kayeli. this is bloomberg. tom: equities, bonds, currencies, commodities. a quiet look at futures, putting it on again after that huge friday, futures up to 1.09, taking it to 24,500 on the dow. the euro is stronger. the vix, 15.40. that is a backup and it will be interesting to see where that sets as the goes to the 9:30 wall street time. the dow closed on friday, up number.normous francine?
what i'm, this is looking at. european stocks are on the up, tracking gains across the asian markets. i guess the trade war concerns are taking a backseat to economic optimism following the u.s. jobs report on friday and i am looking at the dollar, slipping lower with a lot of commodities falling, tom. tom: where are we on jobs? i did not have time to do this chart on friday. i will do it now and put it on all of our social for bloomberg. good morning, radio london. the three moving averages i use on the jobs report, the three months, the 12 month, and the 12 month presidential four year moving average. what it really focus on, francine, is the long-term moving average for the jobs report. it's actually above where it was in 2007. it's the first hint of all three moving averages moving to a better space. francine: i like your chart.
this is my chart and it is following the news from china. china, canada and hong kong are amongst the economy's most at risk for a banking crisis. what we charge it thanks to hillary clark is a chart regarding gdp gap. i will push out my chart for our radio listeners. on london digital. the morning is well. the chinese banking stress indicator improved since 2016. global stocks as the trademark concerns take a backseat to economic optimism from friday's u.s. jumped aboard with u.s. futures pointing to a higher open. we are joined by alberto gallo and nick gartside, international chief investment officer of fixed income. thank you for joining us. when you look at trade, the market sentiment seems to be on the positive side because they are focusing on the fact that the u.s. economy is doing pretty well. alberto: markets are generally
not pricing in the risk of a trade war. so, there has been a lot of optimism after last week's contained inflation number, almost feeling like we're back to goldilocks. also, we have got to also discount the reaction from other countries, europe and china, in particular china. if they react to the tariffs, that that could have negative implications for everyone. to be on the cautious side. we do not think we are that to goldilocks. the uncertainty continues to remain very high. when we see record low levels on the vix, that is a warning sign that markets are not pricing in that risk. francine: nick, are you cautious as well? nick: a little bit but the markets are focusing on the underlying economic data and when you look at the data, it looks pretty robust. markets will focus more on the trade side, but the realities,
we have not got a lot of clarity there right now. francine: what does that mean for the future? when will be have more clarity. : the clarity will come when it comes, but at the moment, risk assets to very well. theets are still climbing wall of worry. economies are in good shape and critically, they are improving from here. tom: alberto, i to go to your core confidences. the heat of the matter is the fear of the bond bear market. have the fearallo of a bond bear market? alberto: i think europe is still a very good place to hide for bonds. we heard from the ecb, some concern about the tariffs. they lowered the inflation forecast for next year. this means that if you have a hiccup across european spreads, then the ecb is there to help
you. while in the u.s., you have sheets thatlance are over levered and the fed is hiking. europe and emerging markets you still have central banks that can keep rates low, or even cap them in some emerging markets. we think in fixed income there will be a continued slide away from the dollar assets into .uropean and em assets not because the u.s. economy is doing badly, but this is the place to hide when interest rates are still contain. look at the correlation. people are looking for places to hide and some are in europe and some in emerging markets. tom: in the efficient frontier of asset allocation, are you looking for a place to hide, or could you be more optimistic than what i am hearing? we are much more optimistic and certainly when you look at 10 year treasuries
our view is they get to 3.25%. that will not startle many people, 35 basis points higher than the current levels. and how we differ from alberto, we look at european bonds with trepidation. you have an ecb that is miles behind the curve, a policy-setting set for an emergency and europe is deadly not in an emergency. european growth will outstrip u.s. growth. -40 look absurd in terms of an ecb policy rate. francine: what does that mean, nick, int erms of the violence in which the german bunds could reprice? if they normalize too quickly, europe could have a big problem with euro strength. not: it can, but we are there you. if we have had bond tantrums before, by the end of the year you could see the bond yields doubling from current levels. it relies on the market at least
pricing in the c -- pricing an ecb rate hike. francine: alberto, where do you see german bunds? can you see quite a dramatic shift? alberto: the fair value is closer to 1%. however, we need to think of the headwinds for europe, which are obligated for the brexit negotiation. the tariffs from the u.s. and a retaliation for europe. with all these uncertainties we think the pats of least resistance for the ecb is to delay the expectations of youthe rate hikes, and putting a lid on bond yields. potentially after the summer we could go back to wider yields. but again, europe is
struggling with these geopolitical risks and we have no coalition in italy. francine: thank you so much, gartsideallo and nick both stay with us. coming up, we speak with the chief executive and founder. look for that interview at 6:00 a.m. in new york and 10:00 a.m. london. we will discuss some of his big calls on currency. this is bloomberg. ♪
a new deal will transform germany's energy industry. purchasegreed to innogy from rwe. eon will emerge with the retail and network businesses of both energies. shares of the largest bank of the middle east jumped today. national bank rose the most innate ears after announcing plans to almost double the foreign ownership limit. the bank will seek to increase non-qatari ownership. that's the bloomberg business flash. : deutsche bankt plans to raise 1.8 million euros in a turnaround strategy. joining us now is bloomberg's finance and investing editor. and still with us, alberto gallo and nick gartside from jpmorgan
asset management. thank you for sticking around and alisa, welcome to surveillance. how big a deal is this? this is the most lucrative business, right? reporter: the asset value at the of structurehase and pressure on scale and i think this is what will help it potentially by gaining its own listing. so, it will be a platform from which it can potentially grow coming using the stock as acquisition currency. francine: how big a deal is this for the chief executive? we saw this surgeon volatility, meaning th ipo could do better. is that fair? reporter: they can go both ways. a bubble ofuck in market volatility, that is the least preferable circumstance for an ipo, but having said marketes, there is more ar activity. it is important for john cryan
to complete this part of restructuring, having placed this pressure on the revenue side of things, not being where it should be. this will consolidate. a look at the story and it is simple. they did not get the price they wanted. why not? elisa: it is early days. it has just gone on the road today. they have a price range which is at a discount to the much bigger european mundi. you want the shares to trade up and we see the indication from some investors that it is a good attractive valuation and i think that is probably what you would want right now if you were the ceo. this is the within future of the bank. at the bottom of the story is the idea of 6000 bodies going into retail. looking at to me, the vector of the chart is what are they waiting for? they are not running this thing like an american bank, are they?
elisa: well, you point to the jobs that will go at the consumer banking unit. that is a business that faces a , where thesure margins are extremely fair and it is difficult for anybody to be making money in that sector. remained to be seen whether that cost-cutting will overough to bolster the the longer term. tom: how is european banking doing in general. the focus is on deutsche bank and i get that, but bank after bank, they have to do their own restructuring as well. it is a different story, but the same story, isn't it? elisa: you are right in the valuations tell us that you do not have as many banks now for example, trading at significant discounts. the book value we had a couple years ago -- but yes, those restructuring continue and to name a few that would probably include barclays here in the u k
and some of the italian lenders as well. they are doing well in germany, but not in the u.s.. is that symptomatically of european banks or is that a deutsche bank problem. 2016 was a problematic year for the lender. we were asked about the stability of the lender and that is probably what was behind some of those outflows. tom: since we have got you here. does the italian banking story change the outcome of the italian election, or is it discrete removed? add a cloudes because the banks are a proxy for the economy and the recovery ande is still very nation lags behind some of the other european economy. this is not what the banks need right now. they are tackling the bad loans.
they do need economic growth to help them along the way. francine: is he going or stay ing? it was one of the funniest tweet exchanges. this was a wall street journal story, not a lloyd the story. elisa: there is some distance from the story, per se, though you have named potential the president. and there are some saying, maybe it is not a bad time for them to move on. good to see you. greatly appreciated. nn is scheduled to be with us thursday. we will continue with alberto gallo and nick gartside. it is an interesting day with the economics of the week and onto the fed meeting of march 21. us during thewith 1:00 hour today.
his name and that of the prime minister were removed from the scandal. with us, alberto gallo and nygaard side. -- and nick gartside. nick, this moved the yen, and then it stabilized a little bit. the investigation is ongoing. we thought this had gone away and it is also linked to the wife of the prime and esther. what does this mean for abenomics if he has to step down? nick: more broadly, it it is caught between a rock and a hard place. from qualityght of issues around trade and the other side of it, though, is when you look lovely at central banks, the bank of japan is in the vanguard of keeping policy really easy. the key to abenomics is kuroda, reappointed yet again. that is what the markets focus on.
he is seen as the guardian and vanguard of promoting abenomics. francine: we are looking at the 106.53.en, is this still very cheap? alberto: today there is news of this scandal, but tomorrow, you are seeing that both italy and the boj are going to gradually follow the fed. the question is, probably not in the next three months, but towards the end of the year or next year, these couples central banks account for half of the global central bank balance sheets together. the fed is only a quarter. you should take the fed, ecb, bank of japan to do the. the fulcrum is the boj and ecb. if they lose the dovishness, then you will see the real change in global bond yields. and in their currencies. currently, the reason why the u .s. treasuries are widening and every other bond market is stable is because they are giving policy using.
we are getting close to a big development here. the fiscal policy is accompanying it. the boj is key. tom: as we get closer to a big development, alberto, the reality is a lack of trading. i was thunder struck by a bloomberg article 10 days ago, three weeks ago on the lack of trading and full faith in japanese credit paper. what does that signal to you? generally,think japanese markets are in a low liquidity market. we started the year with a big volatility event in february and we see we are back to low volumes across, i would say a lot of bond markets, not just jg b's. what i read here is with a lot of regulation over the years broker dealers have popular constraints, the inventory
limits are much lower and it is a bottleneck for bond markets. second half of the year, this bottleneck will amplify it. tom: i think this is very important, what mr. gallo said. let me show dollar-yen as we go to break, francine. interesting chart, maybe as much as the u.s. dollar and a weak dollar implies a strong yen, and to get through the 100 level on yen would be remarkable. francine: we also need to remind ourselves that the boj has been reducing qe, tightening, and many out there are expecting to do the same. alberto gallo and nick gartside stay with us. this is bloomberg. ♪
first jerome-powell fed meeting. right now your first world news. the poisoning of a former russian spy is putting pressure on prime minister theresa may to act. according to the times and telegraph, make a publicly blame russia for the attack as early as today. she has also said to be drawing up plans to impose sanctions and cancel visas. russia has released a video showing the launch of the new hypersonic missile. the missile was one of the new generation of high-tech weapons spoke about earlier this month. vladimir putin says it is too fast to be shot down. special counsel robert mueller is at a crossroads. his investigation into whether president trump instructed justice is honest finished. he may set it aside while he vanishes other parts of the program including possible collusion with russia. there's concern that if robert mueller tries to bring charges
in the research and case, the present my shutdown the investigation. -- in the obstruction case, the president might shut down the investigation. the white house is moving ahead with the plan to give firearms to teachers in the wake of the florida school shooting. it is also calling on states to adopt so-called red flag lost to a letter authorities take guns away from people determined by the court to be a threat. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i am kailey leinz. this is bloomberg. francine: thank you. china is among the economist most at risk of a banking crisis according to a study compiled for the bank for international settlements. despite the warning signal, the key indicator known as the credit to gdp gap showed improvement. to suggest the chinese government is making progress in its push to reduce risk. over to gallo and the gartside -- overkill gallo and nick
gartside are our guests. she ist that president president, does it mean he can have a stronger handle on how you deleverage the economy? >> this is not a normal market economy. you have two things that you don't have in other economies. you have a lot of time and you have private savings, which are $23 trillion. if it is true there is a leverage problem cross chinese banks, the chinese government has a lot of time to absorb that to delever. the have a lot of private seven secondly funneled into sectors. the fastest-growing bond markets are now in china. switching banks to capital markets over time will allow the deleveraging. we're not worried about a system of crisis here. francine: net, are you worried? >> not at all.
i think the other key in china, of course, is one of the best ways to deleverage is how growth. china has nominal growth. you have real gdp. the have inflation of a couple percent. when you've such strong growth, that is a great way to deal with the leverage issue. and that is one of the reasons that credit to gdp gap is improving. francine: as long as they take it seriously. to every reason to doubt the chinese of parties are not on top of this? >> zinke is they are very much on top of the deleveraging. they have both sides working for them. they have the economic growth and banks themselves that are very proactively trying to delever. nick: can we average remote having a real rate structure, even in the vicinity of what canada forcan
get back to normal? >> on the one hand, we have a global cyclical recovery. central bank should be able to hike. on the of and, what we see is regulators are basically focusing -- films want to prevent the crisis, striking in the same points as the previous crisis. what we think is markets are very fragile. we have been in a 10 year period a very low volatility that has encouraged risk-taking. whenever inflation goes up or interest rates go up, then markets have a tantrum. like the one in february. can central banks hike without disrupting markets and causing rivers affect on the economy echo the fulcrum is not the fed, it is the balance sheets which today are keeping bond yields at
very low levels. what happens if they hike? you will have a chart -- you could have a turn across equity valuations and bond violations everywhere else. tom: this is a critical point. whether it is bill gross saying financial repression will extend on or it is you, there is this hope of getting real rates adjusted back to a better good. is that possible? given the terminal rate of gdp coming given the potential gdp that so many strategists and economists are looking for? i don't think it is. >> i think we have a time window of a few years during which both in japan and europe you need to see fiscal stimulus and reforms to bring the rate of growth and inflation higher there as well. but i think it is going to be hard for the ecb to build a substantial buffer in terms of policy rates before the next slowdown. ist we're worried about most
this low liquidity, this bottleneck, this fragility and financial markets were you have complex structures and you're starting to see financial engineering where in a volatile period, the structures amplify the volatility, amplify the feedback loop. risk is not an banks anymore. it is not in chinese or european banks, it is in markets. it will make normalization a little bit more difficult. was the selloff in february small potatoes according to deadly, the fed. but you have a lot of small potatoes together, then you have a problem. tom: let's cook some potatoes. given what alberto said and the idea of low rates, is dividend growth the better alternative to yield? tocertainly, that is one way think of it. ultimately, it is the discount rate that matters. if we go back to the u.s., the
reality is, at the end of the cycle, we're likely to have a positive, real rate. it does not seem unreasonable. the fed are doing exactly the right thing in terms of lifting rates. the challenge will be europe. starting from negative interest rates, how honor they get back to a positive real rate is probably a dream at the moment. tom: this is brilliant. thank you. alberto galloand with us. bloomberg radio, coast-to-coast. good morning. new flow across bloomberg daybreak. stay with us. this is "bloomberg." ♪
francine: this is "bloomberg surveillance." tom, angela merkel's group not the only forming in germany. if approved by regulators, the acquisition will transform the country's energy industry as utilities grapple with the accelerated shift to renewables also joining us now from berlin ted thomas. this is a rather complex my very complex dealing. what does this create? this creates a company focused on old-school utilities and then renewables, is that right? chad: breaking this down a little bit, you have eon essentially will end up being the sort of service and network provider here. w e will take over the renewable
assets of these two companies and utility assets. rwe will also own a significant aake in eon so there will be close link between these two companies, which historically have an huge rivals. i was talking to our colleague matt miller. we are old cars guys. we were saying is coming like daimler and bmw getting into bed with one another. one of them being the one who owned all of the dealership networks and sold all of the cars and the other one produced all of the new, exciting electric vehicles. so that is kind of come in a basic way, what we have happening here. francine: what does that mean? it almost seems to suggest they want teach figure out one of the problems, right? doesn't mean it will change the face of how the utility sector is in the rest of europe as well? well, first and foremost, it is when a change the face of the utility sector here in germany because of all of these swaps in their assets.
it is something that regulators are going to have a look at very closely as well. we're working on a piece that looks at, to the degree that brussels is likely to get involved here and also the german regulators as well. it is really still difficult to see how this is actually going to play out and it is a real reversal from what these two companies were just saying a couple of years ago when they both were spinning off assets. of course, we also have unit per, which was spun off from eon and that was sort of their conventional power generation and now they have sold their stake in that company to a finnish utility. how this shakes out is still in the works of this point and exactly how they will divide things up is also under discussion. chad, i've been watching this for a distance. i will be honest, folks, i don't really understand the story. a simple thing to me, ted
thomas, nobody is making money here. does anybody have any likelihood of making a return on invested capital with whatever this has been wrought? tom, is the real issue here in germany after the chancellor merkel decided to shift everything toward renewables and force the utilities, which was a reversal for her to my forcing the utilities out of nuclear power. their business model, as you say, has been basically decimated. they seem to be grasping at straws for how they can sort of get back into a more profitable business model. and the question whether this is one of the solution will still have to be answered in the coming quarters and years. francine: chad, let me shed some light into the fact that tom can't really follow exactly what is going on. tom, it basically gives you two saying --
were solar and wind energy is cheap and what matters are cash generated networks and customers. tom, it basically gives shareholders very clear view of what they want to invest in. is that right, chad? chad: that would basically be the breakdown. you have very defined companies that are in specific segments and an investor can decide which segment do they believe in in terms of where energy is going in the future. francine: chad thomas, thank you so much, our berlin bureau chief. let's get back to our guest. alberto gallo and nick gartside. doesn't a lot of the
bigger companies, be at deutsche bank with the spinoff unit or this tie up in the developments of utilities, do we just a to rethink how the light proposition for shareholders that they have almost a clear path of what they are investing in? >> i think so. there are two forces at work. the first is there is a massive structural changes. deleveraging. is when you look at utilities, it is consolidation. the other side of the story, particularly in the european context, is the financing angle. you look at the average corporate bond in europe has a yield today of 80 basis points. that is i watering late low cost of capital. he of high over the markets, low fog -- the financing, so the currency actually to be able to do and make acquisitions. it is a powerful combination. francine: but it is also powerful given german politics,
alberto, then a little left to be desired with. coalitionhave a grand , that has been our base case. it opens the way to a little more fiscal stimulus and spending. everyone agrees there is a need for spending the defense and in european public is like infrastructure, for example. that is -- that has been left under the table in the past, but potentially we could see some more pro-european spending. as you said, european yields continue to be really low. the ecb is safeguarding this environment. european balance sheets have not levered up like the u.s. we are two years behind the credit cycle compared to the u.s., so there is room to get m&a and consolidation in the chill of the space and telecom space, especially across investment grade companies. which is why the equity market, perhaps, is more interesting in
francine: spotify plans to list shares on the new york stock exchange the week of april 2 according to people familiar with the matter. the online music company will deviate from decades of, practiced by not issuing any new shares in the ipo, instead existing spotify saw -- stock orders will offer their shares to investors. in the u.k., melrose industries has increased a hostile takeover offer for gkn. melrose is tried to persuade shareholders the engineering company to reject its planes to break itself up. have until march
29 to accept the offer. and that is the bloomberg business flash. tom: thank you so much. greatly appreciate that. the most fervent job economy. we saw that in the united states. we also see it with the regan and recovery of optimism within the middle east to whether it is in dubai or qatar, things are a move. we speak with our middle east finance reporter matthew martin this morning on a set of stories. i was really taken, matthew, with a turnaround in emirates in dubai. they want to go after the turkish bank and they lead the way with trying to expand foreign ownership. what is the backstory? why do they want to go take out a turkish bank? keenew: emirates has been to expand. they then inquisitive in the past in acquiring banks around the middle east. try to diversify their income streams.
-- there a key market are lot of links between the middle east and turkey, so it is kind of a obvious place to go shopping and look for extension opportunities. tom: everyone else was to do the same thing. who would buy the new foreign ownership? who are the kind of people that would take a minority interest in emirates mbd or qatar national? who is it? matthew: there are two different stories at work. on the one hand, you have qnb, they tell us they are not doing this as a result of the blockade that is coming from neighboring gulf states. but they need to diversify their investor base, they need to tap international investors in a way they perhaps have not done before. on the flipside with emirates mbd, their part of the opening
of foreign investors trying to get an upgrade, try to attract more foreign cop little -- cap will which will help them find this acquisition at a turkey that will cost them something like $3.7 billion. they're looking to raise a little around $2 billion from equity markets as well. they are expanding the pool to help them get that money. who are the kind of buyers and will there be a fever to take minority interest in these two established banks? you look at what is coming up out of the region, we new initial public offerings coming out. the pool of investors is going to be taking the decision between, do i want to double down on my investments war going to some of these existing listed businesses, management teams with results you know and have more experience with?
or do you want to go into some of these businesses listing for the first time? there's a good case for the ,ikes of emirates mbd and qnb good track record of results and a good way to tap into the opportunities in the economies of this region. tom: maybe this slogan is "make the middle east great again." matthew, thank you. --erto dallas with us and alberto gallo with us and nick gartside. off of a fed meeting we have coming up march 20 one, can you own bonds and can you at the positions? very much so. not all bonds are equal. and maybe when you look at things like treasury, they're under a little bit of pressure. but when you look at the corporate bonds, particularly high yields, they look a steal. he of the average u.s. high-yield bond 6.20 5%.
with an economy growing, default rates going down, that is some to see credit spread. francine: there is a big sale this week for treasury debt and this is tied to the fact that the supply of government bonds hitting the market has been increasing just because of the tax cuts done in the u.s.. willoughby attractive for investors? nick: it will. the key will be tomorrow's inflation print. that will set that short-term direction for treasuries will step ultimately when you think of it, a 10-year note settles roughly where a fed rate gets too. the suggest the pressure is for higher, not lower yields. things like supply should drive those yields a little higher. francine: where do you see the 10 year? alberto: a little higher, maybe 3.25. it does not push markets over as a general role, the speed is gradual, so as a general role, if you see 10 basis points in a month, that is more or less ok. if you see more than that or more than 1% per year, that is when historically it has created
serious bear markets. so far the speed is still contain. but i don't like credit here. credit is very tight stop record low spreads. the u.s. corporate space has been real of her it over the last two years. you have sectors like the car rental space, for example, the retailers which are getting disrupted by amazon and a lot of others. tom: we have to leave it there. thank you so much, alberto gallo and nick gartside. coming up, we drive forward the conversation to begin with conrad dequadros and jens nordvig. this is "bloomberg." ♪
with a dollar less than 5%, below its record high, is the fed behind? in this hour, conrad dequadros of our dq economics. the japanese to the rescue. is deutsche bank -- jettison 6000 and is retail bank stop the presidencies -- the presidencies purple. trump country may boat for the democrat. the morning, this is "bloomberg surveillance." headquarters world in new york, i'm tom keene. in london, francine lacqua. so much to talk about here. the deutsche bank transaction to me really is of interest. there are some real nuances in this very small deal. francine: there is. i think there is an overarching theme, whether you look at deutsche bank where you look at this rather complicated swap between energy to create this passive or two massive companies
in germany, you want to unlock shareholder value. you see that with deutsche bank the mothership decided to spin off its asset management. to some extent, you see with the german utility. that make the difference between renault bulls and every thing else. i'm looking at stocks. they are pretty upbeat about their outlook. tom: they are. we will get to that in a moment. right now your first word news, here's kailey leinz. kailey: special counsel robert mueller is at a crossroads. according to current and former u.s. officials, his investigation into whether president trump obstructed justice is almost finished. he may set it aside while even his other parts of the program. those include possible collusion with russia. there's concern of mueller trust of recharges in the objection case, the president might shut down the investigation. in new york, all five passengers were killed would helicopter niche -- in the east
river. the helicopter had been chartered for a photo shoot. jinping china, president xi said to stay in power indefinitely. the rubberstamp national people's congress all but unanimously voted to lift presidential term limits. that gives him more time to connect lans to centralize control of the communist party. the commerce approved his principles for more assertive foreign policy. in japan, a land scandal threatening to derail prime and administration and his economic strategy. the government says the names of eight, his wife, and finance minister were deleted from documents of the heart of the scandal. the finance minister did admit his staff tepid with the papers. -- did admit they tampered with the papers. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. tom: thank you so much. equities, bonds, currencies, is get through quickly. big lift on friday. futures up 10. dow futures up 96. the euro with a bit of
elevation. the next screen, please. a role reversal of the 14 level of the toy friday afternoon come a 10 year yield 2.90%. that is a higher yield. that should be green. european stocks are advancing and tracking gains across asian markets. the trade were concerns now make way for a little more optimism on the economic optimism that we saw after the u.s. jobs report on friday. a little bit of breaking news, we have confirmation that andrew liveris will step down as chairman. this was an early report in "the wall street journal." he will retire as chairman. tom: it has been an interesting set of years. a lot of criticism of not adding value and then this huge chemical transaction in america of the iconic dow and dupont as well.
america, the focus in well, it is someone district. imagine the southwest corner of pennsylvania. let me go to the morning must-read. post"s in the "washington -- tom: we need to go to an authority on pennsylvania. kevin cirilli joins us right now. kevin, you know this. you're going to be on a jet important 18th district. can money save the republican?
kevin: i don't know. president trump was there over the weekend giving a campaign .peech on saturday night it was classic trump in the sense he went aggressive against a host of democratic opposition. on the flipside, to karen to multi-'s excellent point about unions, i interviewed richard pres. trump:. he is all in for conor lamb, the democratic wonderkin. things like trade are going to drive folks to the polls. of the trade policies put forth by president trump last week, unpopular with wall street, but very popular with union workers. tom: you're going to go up there. what are you going to listen for in the 18th congressional district? kevin: first and foremost, can democrats mobilize? can conor lamb get people to the polls and really capitalize on a
host of outside money that is float into this congressional district? inspiring, uplifting message. the second thing i'm going to look for is, will be president message resonate in a district he carried by more than 20 percentage points? the bottom line, we're going to have to do the same song and dance in about six months because of riddick to string -- redistricting. this district will disappear come november. francine: if the president's message does not resonate with people in that district or that area, will he change it? will we see a different president trump or different administration to make sure their base is happy? kevin: absolutely not. president trump will blame the candidate. this is what we he has done time in the past. when those in alabama for the special election, roy moore lost, that was not perceived by the republican strategist i was speaking with at the time is a
bellwether because of the craziness going on in alabama, francine. and even back then, aids and house speaker paul ryan's office were telling me this -- we talked about it on the show that pa congressional 18 would matter. this is the bellwether for midterms. tom: the secretary of state phone home. what is secretary tillerson come back to in washington? is he going to have any contact with 1600 pennsylvania avenue or are they running the show? they're saying secretary tillerson has been in contact with president trump with the administration, particularly on the regards to north korea. we should note while the announcement came, as you rightly pointed out, tom, secretary tillerson was overseas. on the issue of north korea, on this issue of the potential meeting before may, only around the corner, and a lot of development is going to happen, especially we have to keep a dry on china and economic ties between the u.s.-china and the korean peninsula. tom: kevin cirilli, thank you so
much. joining us, jens nordvig. but right now, conrad dequadros with us from our dequeue economics. you andthe adjustment john writing did the gdp off of it near 400,000 jobs with revision. did you cause? did you keep things stable portage even bring up gdp? conrad: it was well ahead of expectations but extremely volatile number. statistically, it is not a difference that is significant versus expectations. we are expecting a solid report i got a much stronger one. study ond not do the friday. i will get this out on social. three moving averages of nonfarm payrolls. it is a pretty constructive view, particularly if together for your presidential average.
-- for your presidential average. conrad: i think it has been surprising because we of the data that suggest we should be sing something in the pace of job creation because there should start to be some issues with job matching given the reduction in the number of people that are available to employ of the positions that are open. we are not saying that. in some sense that has been surprising. i think what it tells you is over the course of this year, although the unemployment rate has held steady for five straight months, it is unlikely to be the case. francine: what does this mean? is the market right up with this trade war talked to one side board you worry that something ugly could happen? obviously, we will relax a little around the steel and aluminum tariffs because we have the that a lot of people were hoping for. thethat is just one part of
trade tensions. the really big part that is still coming up is the china element to that. it away, a little ironic we have had the administration focus on nafta, focus on europe while the really big fish, china, has not been getting that much attention. i think we will see that change. it is done over yet. tom: jens nordvig with us and conrad dequadros. a lot to talk about this hour on dollar dynamics. we will come back to that. bloomberg markets today, the balance of power. a conversation with a senior fellow bruce klinger. former member of the cia. thelieve that will be in 1:00 hour. from london and new york, futures up. this is "bloomberg." ♪
kailey: this is "bloomberg surveillance." chairman of the world's largest chemical company is calling it quits. andrew liveris will stay on as director until he retires july 1. he will do replaced by jim frederick. intot is planning to split three independent comedies by the middle of next year. a new deal will transform germany's energy industry. jan has agreed to buy --eon has agreed to buy its rival. eon will emerge with the retail and network with businesses of both countries. rwe will have a large stake in eon. deutsche bank plans to raise an
ipo of its asset management unit. that is seen as a key part of the things turnaround strategy. deutsche bank's board wants to cut up to 6000 jobs in the rigell unit by the end of 2020. people briefed on the matters has the bank is counting on voluntary departures and natural attrition. that is your bloomberg business flash. tom: thank you. we are here with conrad dequadros and jens nordvig. one of the common grounds between economists and strategists is the idea of the dollar. let's begin with jens nordvig. in a beautiful chart, the bloomberg dollar index is cool math. it is remarkably elegant chart. anthony, bring up the chart. we are in a weak dollar trend. there's a consensus view that is going to continue. do you buy consensus? we'll have to keep in mind where we came from. we had a very strong dollar.
we are giving back gains. i think, for the dollar, it is difficult to fight those trends in a decentdollar global growth environment has a tendency to weaken, and that is what we are seeing. we're seeing some central banks around starting to normalize policies. in the tightening phase. you often get the currency moves. these other central banks are catching up with the fed and therefore, we're seeing the dollar weakened against those currencies. that is a part of it. tom: you and john, twin deficits. does this play into it? conrad: it does. big part of the story with the dollar is the fact some of these other countries are playing catch-up to the u.s. but the u.s. is still ahead. on top of that, we have the issue of the deficits. tom: huge trade deficit impulse. conrad: the new layer onto this
is the fiscal side. not only the tax cut, but maybe more important, for the weaker dollar, the budget agreement that significantly increases an end. i think that is something that is dollar negative. jens: when you look at trend, yet to think about is the trend the only thing? we have to think very carefully. when we have the fiscal students really kick in in the second half of this year, is the fed going to do something about it? then you have a wiggle. when i say wiggle, is this something that will matter to investors, nevertheless, we will have the dollar reprice. everybody is focusing on the trend, the fiscal deficit, the trade deficit, but if the fed reacts, changes are star so forth in the second half coming will have a dollar bounce -- not going to change the three-year trend, but the bounce can scare investors, nevertheless. francine: jens, do we have any idea -- i guess there were
questions to start with, whether they have a weak dollar policy or not. jens: trump came in and we definitely had a change in rhetoric. i was the, mnuchin has been a little back and forth on this issue. it there is a change in that front. see most clearly the administration with a trade deficit to go down and honestly having a super strong dollar is not helpful to that. that is different from previous of ministrations. francine: conrad, do you agree? conrad: i do. another port aspect of this, the fact how does the fed respond to this? one of the ways this directly affects fed policy is the weaker dollar is going to put some pressure on inflation and it is through import prices. we will get readings on that this week. that is been a factor that going back to that period of a strong dollar that i think was one of the important actors that put some downward rusher on
inflation -- pressure on inflation and now it is swinging in the other direction. i think we're going to be on target sooner than people thought a few months ago, probably at least on the core measures, as soon as the may report, and that is going to add through the dollar, that is how it influences fed policy. it will make it quite difficult for the fed to skip a press conference meeting. tom: let's go back, conrad dequadros with us and jens nordvig as well. , he is goingm.i.t. to be able to find a lot of pearl jam concerts here in the coming months. the anti-texting. he has quietly and directly bought dropbox public. the headline this morning, real simple. the idea will come, 36 million shares at a price of $60 to $18. this is one of the great quiet
rdq economics and jens nordvig. ms. theyen just about what the dollar does or is there a more complex story? jens: in the last couple of months, we do this essentially factor model and where we do all of the standard factors that gravity currency, how does that stack up? that takes into account what the dollar is doing globally. nevertheless, the yen has outperformed dramatically. there's something special about the yen. one of the things that i think is important is if you look at the flows that go into japanese stocks in the people always use that to buy that with an fx hedge. now it is being bought with the yen exposure. that is a really big change. i think that change in hedging has been a big part of the -- tom: is there a generational shift in helping the government with was someone say is a house
of cards fiscal debt? jens: there have been changes in terms of how that savings pool is being allocated. the japanese stock market was essentially dead pretty much for decades, and it has come back. the bigger portion of that pool can go into japanese stocks. big shift. a more recently, the changing hedging behavior amongst its nationals has really made a big difference to the yen. francine: do you think the yen is still cheap? i'm looking at your server ellis saying he believes the yen is the cheapest currency in the world and they believe it is still more than 10% cheap to fair value. jens: we have a battery of models that we use for valuing currencies. and something in the region, 10%, is a number that i would say is about right for valuations. the question is, what do you do with that?
me going signals can in a certain direction for a long period of time, but there is something new that has kicked in recently that is meaning the yen as starting to gravitate toward that fair value. as i said before, there's something on the flow side that is really justify this appreciation. the question is whether it will continue. another story that has been i thinkbout a lot is -- there's some evidence in january . whether that will continue in coming months is going to be key to where the dollar-yen can go down. francine: conrad, will we see material shift in boj policy? conrad: material shift, no. what we assume is gradual shifts in policy. it started with the ecb. we had further slight move from the ecb last week with the language changes. i think that thinking is that is a process that will now migrate to the bank of japan. in terms of the three major
central banks, they are the third leg in this. the ecb hasd first, started to make its move, now i think the expectation is we will see some change from the bank of japan also. tom: much more to talk about. jens nordvig here with us with exante data and conrad dequadros with rdq. staff --vity chief of white house deputy chief of staff, former white house deputy chief of staff. look for that in the 11:00 hour. this is bloomberg. ♪ retail.
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poisoning of a former russian spies putting pressure on prime minister theresa may to act. according to the times and telegraph, may could probably than russia as early as today. she is said to be drawn up plans to impose sanctions and cancel visas of russians link to vladimir putin. russia has released a video said to show the launch of its new hypersonic missile. the missile was one of the new generation of high-tech weapons spoken earlier this month. putin says it is too fast we shot down by current air defense systems. the trump administration is backing way from gun-control laws. instead, the white house is moving ahead with a plan to give firearms to teachers in the wake of the florida school shooting. it is also calling on states to adopt so-called red flag laws to let authorities take guns away from people determined by a court to be threats. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i am kailey leinz. this is bloomberg.
francine: thank you so much. china is among the economy's most at risk of a banking crisis according to the bank for international settlements. despite the warning signal, key indicator known as the credit to to be gap showed improvement. this suggests the chinese government is making progress in its push to reduce risk. joining us. from beijing is our chief asia economic correspondent. thank you. actually, is in hong kong. when you look at what the chinese of the parties have been doing, how seriously do they take deleveraging threat and what concretely -- what concrete steps have they taken? >> good morning, francine. i think they are aware of the risks. the pace of borrowing in recent years, total debt now at 260% of gdp. much of that since the global financial crisis. hasident judy being
elevated financial stability to the level of national security. jinping has xi elevated financial stability to the level of national security. the gap isn as narrowing. making some progress. francine: i guess they're going at it with three-pronged attack. they are curbing the growth of wealth management products and curbing interbank borrowing with the more recent focus on raining and household debt. out of these three, which is more dangerous? is exactly right, francine. it is very sophisticated approach in what they're doing. they're targeting risk in the financial system, including the area of wealth management products and shadow banking. that is probably the area that gives people the most concern lack ofthere's so much, transparency around it. while they're doing that, they're being careful not to go .oo hard
they're not exactly shooting down huge data on factories and putting pressure on data on banks to write off bad debt, for example. it is a very nuanced approach. that is why the economy so far seems to be holding up relatively ok. that is the balancing act. tom: over the weekend, was the linkage of mr. xi to the communist party of china, i believe it is in the vicinity of 86 million or 90 million members , which i'm going to guess is a very small part of the chinese population. how are they different from our perception? what is the distinction of esther xi's communist party and its dominance? >> i think the perception is that it continues to renew itself and reinforce its grip on the economy. theinping has made it clear state is not stepping away, but also blurring the lines between the state and the party.
increasingly, when you speak with analysts and investors and a government directive or a party directive? that is running throughout the economy. i say, the perception is one of doubling down, reinforcing the communist party to the anticorruption campaign, and at the same time, blurring that link with the government. francine: thank you so much ,enda curran joining us from hong kong. still with us, jens nordvig and conrad dequadros. jens, if you look at the china factor, are you confident china's tackling financial risk or should investors be wary of it? jens: china is aware on this issue. investors are, too. i think this is the main question i'm getting from investors, from a long-term perspective, is it possible china can manage this balance? they have had growth and now they're seeing improvement in
these ratios. the key to being successful in this balancing act really is a growth stays strong. that is what we are watching. the leading indicator we are paying the most attention to our from the trade accounts because that is some of the most early in the cycle data. it is still holding up, so there's nothing in the near term as adjust the economy is about to take -- that suggests the economy is about to take a step down. that is key to making this sustainable. francine: tom and i have been talking about the leadership of china, the fact president xi has more powered for longer. this this mean he will tackle with more force the question of deleveraging? conrad: i am not sure about more force because it is something they clearly have been concerned about for some time. and with good reason. it is not just the very good data that the bis put together, but things like off-balance-sheet liabilities
that i think are a concern. if we were to bring this back to the u.s., the potential tell risk event for the u.s. treasury market -- tail risk event for the u.s. treasury market. it is been make their at davos, for example, learn from lehman brothers and they're not going to let a banking crisis develop there. they are sitting on a massive amount of foreign exchange iserves, and i think that potentially where they will go if there is a really bad event on the debt side in china. tom: how do you treat the idea that we have in america with thomas on the edge of eurosclerosis or nudge toward what president trump once, through percent gdp -- 3% gdp. how many years until 6% china gdp really has a relative impact? it is not like five or 10 is away. , 6%? a two or three year 6%? it adds up. conrad: i don't think it is 10
years away. we're seeing growth from 10 to eight or little below seven outcome and i think the concern was we would go from seven to five in a really rapid -- tom: hard landing did not happen. is closer innk 6% 10 years, but i'm not sure if it is two or three. back to henry paulson talking about opening up china pushing dialogue forward. does dialogue work here with the -ascendantrly growth as we another country have struggled? jens: we still have this concept called strategic economic dialogue that was going on between the u.s. and china for many, many years. it has been shut down. i think this is one of the things that when you think about the brewing trade tension, how is that going to be resolved if there is no dialogue now? that is one thing i'm very concerned about. how is the chinese are going to come and bring some proposals to
the table that will avert this trade tension if there really is not the same form to have this dialogue? that is a real problem, i think. you have trade tensions between the u.s. and china, does china actually significantly increase its trade with neighboring countries? into emerging markets in asia have a real potential of winning from this? jens: the u.s. is clearly a big market, so it is hard to find a substitute for that. but what i would say is there is definitely things going on outside the u.s. we had the tpp 11 being signed recently. we have had europe sign trade deals with japan. they signed it traded deals with mexico. there are a lot of things going on. what is needed to bring this to the next level is something between the eu and china. if that takes place, then you can see the sort of u.s. is being circumvented in these deals and that would be a very,
very important sign. tom: fabulous. jens nordvig with us and conrad dequadros as well. on bloomberg they break radio, you will get a morning briefing coast-to-coast. in london on our digital product as well. very important summary of the news of the day and conversation on economics, finance, investment, and politics. stay with us. this is "bloomberg." ♪
the file sharing, and he plans to sell 36 million shares for between $16 to $18 each. they may list as soon as the and of the month. dropbox has been privately valued at $10 billion. shares onans to list the new york stock exchange the week of april 2. that is according to people familiar with the matter. the online music company will deviate from decades of common practice by not issuing any new shares in the ipo. instead, existing stockholders will offer their shares to investors. inres of the largest bank the middle east jumped today. her national bank rose the most -- qatar national bank rose the most. the bank will seek to increase non-qatari ownership from 25% to 49%. and that is the bloomberg business flash. you so much.nk deutsche bank says it plans to raise as much as one point 8 billion euros in an ipo that is asset management unit, successful offering widmark an
important achievement for the chief executive. he proposes the sillier go to help bolster the lenders capital. -- to bolster the lenders capital. elisa a lot rides on the successful ipo. >> we denounced the plan, there was the funds will be raised from the ipo which goes into deutsche bank coffers. the story has moved on now. the people are not so concerned about that but it is important he gets this key part of the plan out of the way, which is to make dws asset-management business more independent and someone as a managers are facing a lot of competitive pressures and being more independent could enable it to potentially gain scale as well. tom: how francine: how will he measure success? >> i think a combination. you have key shareholders coming in with the 5% stake, which is important for potential
distribution in the longer term, as you say, in japan, but also getting it done and getting valuation that is as close as possible to a monday, which people are looking at. tom: let's bring up the chart of deutsche bank. i have shown this many times. all the way down, down, down and the trend is besides ugly. urgency is toall dump 13% of the bank, maybe 12%, maybe 14%. then there is the rest of the bank. when someone says to you, what are they going to do about the rest of the bank, what is the rest of the bank alco what is the big part of deutsche bank the needs to get fixed? >> the one area that has come under a lot of pressure is the investment bank where they have been scaling back, but also losing more market shares then perhaps they would have wanted to and where the revenue is still not where they would like
it to be. at home, that the competitive business in the consumer banking. it is somewhat outside of their control. it is very difficult in a very competitive market to be making -- to be bolstering a bottom line. tom: do you or mackenzie avenue had to what deutsche bank looks like an with a fit in five years? i can't figure out what kind of bank they're going to be in 60 months. >> i think a lot will depend on the turn and interest rate cycle but also you have got a capital market in europe that are deepening. deutsche bank as a key player in germany will play a large role in that as banks see to move more of their business from lending to capital market space. ipo's and bond sales. tom: francine: talk about lloyd
blankfein. there was speculation he was leaving, but that has been pushed back without completely denying it. >> he is been saying, not quite dead yet. i think clearly, somewhat distancing himself from the report. that said, a couple of years ago, he named copresidents of potentially could become -- that are era parents. that is what a good seo would do, prepare the bench for the next. tom: we really appreciate your perspective. let me tell you about tv . the basic idea is getting briefed on the morning. there it is right now. we have the live broadcast with a little bit of a delay. you can come over here and look at any given chart. bring it up, look at the old sector and look at that deutsche bank chart as well. stay with us. this is "bloomberg." ♪
the lincoln tunnel is a tunnel of a certain height and it is stunning, but over height vehicles want to go through the lincoln tunnel and the lincoln tunnel stops them in stops new jersey bound traffic as well. this never happens in london, francine. never happens in london. twole best chart with today. on the confidence maker of the american economy, and that is the dow jones industrial average. withe set this up candlestick charts. it is a pretty nice year. resiliency of the market is extraordinary. what does that say about corporations and their link to the economy? conrad: it is extraordinary, but we see pretty decent profit numbers. we had a glance at that on a whole economy basis with the fed float of funds report. it showed another quarter of good profits data.
the question going forward from a valuations perspective is what happens to yields. we do have downward pressure on corporate bond yields from central-bank policies, both here and europe. the question is, as those start to ease back, how much of a reaction to we have in yields? what does that do to valuations and influence prices? francine: tom: tom: the stock market, the correlation? definitely changing. the correlation between equity market and the bond market, that has sort of allow the risk ready portfolios to gain and gain and gain. that is one of the reasons why investors got really, really worried about this big drop we had an equity market because it is associated with that breaking correlation. that is something evil are watching very, very closely in 2018. francine: last thursday, i do conversation with daniel pinto and he told me he is expecting a
correction in the markets, mainly equities, a correction of 40% in the next three to four years. is that a little too punchy for your estimates or given that we are always a record highs, this could happen, 40% correction? jens: maybe we're going to going up a very large number before that in three years, a lot can happen, for sure. think making very big projections for the equity market like that is a tricky thing when we have been going up, up or such a long period of time. when economic conditions suggest we are still in environment where the fed is not about to go into a panic phase, i think as i mentioned earlier, from the second half of the economy, really takes a shift higher and the fed feels it needs to respond. deck of the tricky phase of brats or the equity market -- that could be the tricky phase and perhaps for the equity market get statue. which isnthetic euro,
you had it and two pieces of twine. it is sort of remarkable how they got the euro call right in 1998. we are sort of their right now. it is not a euro still that germany is comfortable with or italy is comfortable with. does italy need a weaker euro? jens: different countries in the eurozone definitely would like different levels of the currency. nothing german producers are very comfortable here. tom: they are comfortable. jens: the italians might be a little different. i think the key going forward is, are we going to get a breakout in on yields? they're been a lot of special reasons the euro has been strong going from 108 to 123, but if we are going to get the next like substantially higher, i think we need to see breakout in bond yields so to start to see inflows into that. and thes is the yen
euro, conrad, where we talk about implied, implicitly dollar as well. do you detect a weak dollar policy after mnuchin's bombshell in davos? limits to whats the treasury department can do on the dollar. i think far more important for the dollar and the direction of the dollar is what the fed does. i agree, we are not here seeing a significant shift in the pace of a fed rate hike. that seems unlikely. but we are going to see continued fed hikes and i think we're going to see for this year, -- watcher this year and four next year. the question for the dollar, how much is with the speed which other central banks catch up to the fed in central policy? how much doesad, the vice chair play in all of this, depending on who is chairs and as vice -- chosen as vice chair, does your church rectory change? conrad: i don't think so. if somebody and left field gets put into that position,
potentially. policy is going to be made by the committee and there is a number of other members come honestly, so i don't think the vice chair necessarily changes things. for the most part, i would think the vice chair is going to go along with powell. we're not going to see a big break. i think we had a very good performance pipe how in the in theny -- bike how testimony. i think that is consistent with the view we are getting back to normal on the fed policy goals and that is going to cause the fed to continue to normalize policy. tom: are we getting toward a press conference every meeting? conrad: i hope so. it is silly the meetings in which we don't have press confidence considered nonevents. the fed does not say that. it wouldor most of us, be stunning to see meeting on the non-press conference. i would like to see a move. i think there is the potential for that this year. tom: very good. we will continue with conrad .equadros and jens nordvig
we will do that on bloomberg radio. we will continue as well across all of bloomberg on economics, finance, investment. breaking news out of nepal with a very difficult play crash. much more on that happening moments ago. foreign-exchange report right now. has got to be the story. there's a huge consensus view of stronger yen. bound withge everything else over the past number of days as well. from new york, from london, please stay with us through the day across all of our platforms. this is "bloomberg." ♪
markets don't care. cap is at record highs. markets say an important crossroads as investors are said to digest retail sales later this week. ji forever. all xi all the time. david: welcome to lumber daybreak on this monday, march 12. xi forever was my headline last monday, and it is my headline this monday. goldilocks, s&p futures are up. close at a record high friday. in the currency markets, the dollar is a tad mixed. we are getting supply coming on the two and three years today. there is