tv Bloomberg Markets European Open Bloomberg May 16, 2018 2:30am-4:00am EDT
guy: good morning, you are watching "bloomberg markets: the european open." we are live from our european headquarters in london. i am guy johnson, alongside matt miller today, back in berlin. morning, guy. equities in japan, hong kong, and china all declining as growth in geopolitics bring back risk aversion across asset classes. the cash trade is less than 30 minutes away. guy: risk off, stocks suffer as
the u.s. 10 year continues to rise. is the fed forced to hike three more times this year? james bullard speaks to bloomberg later today. sharing thelists role with their respective iraders, alternating the media. btp's are selling off, pushing the yield north of 2% this morning. that is the story of the last 20 minutes. tencent numbers dropped after the market close. matt: less than half an hour away, european futures. ,e are looking at a mixed trade a drop on futures for the ftse but a gain onc, the futures in germany. very slight. -- a move inmove btp's, we will show you that through the morning because the talks there are absolutely fascinating. it could bring together a
government that a lot of pundits said was not a possibility. the 10 year treasury yield, i have a three-day chart here, the highest level since 2011 yesterday. 3.065.hovering around the interesting thing will be whether or not the positive data out of the u.s. brings the fed to three more rate hikes this year and if investors keep an appetite for treasuries amid the massive delusion of supply -- deluge of supply from the u.s.. guy: btp's, certainly a story. the market is pricing in the possibility the populist government gets formed. they may have found a temporary solution to deal with the situation regarding prime minister. of 2% on the north 10 year yields basis, the spreads are widening out over bunds.
we will watch what happens here. a lot of people like it, but maybe that starts to turn the other way as we start to look to the formation of the government and its spending plans. i want to show you what is happening with the gmm this morning, give you a heads up on the currency market. we will talk to mark cudmore in a moment. are we going to see the story out of argentina, stir -- turkey, go into other markets. the brazilian real is under pressure. let's get a first word update with juliette saly. north korea has threatened to walk away from its meeting with president donald trump next month if the u.s. made a one-sided demand for the regime to surrender its nuclear weapons. john gang canceled talks with south korea and warned america to think twice about trump's summit with kim in singapore. this undercut the optimism after
he agreed to discuss his nuclear weapons program in a first of its kind meeting. japan's economy shrank for the first time in two years during the first quarter of 2018. annualized gdp shrank 0.6% from the previous three months. the contraction was more than expected on a surprise fall in business spending and flat private consumption. china's holdings of u.s. treasuries have read -- risen to a five-month high. notes held by beijing increased by to $1.19 trillion. $11 billionthe figures underscored the allure of american government debt, even amid trade tensions between the world's two largest economies. however, japan, the second largest foreign creditor, saw its holding dropped to the lowest levels since october 2011. in italy, the leader of the anti-migrant league has said talks with the five-star movement on a populist government have ended their -- entered their final stretch. he also said the parties are still trying to find the right
balance between their two policy platforms. papers are reporting the two could take turns as prime minister. isthe malaysian politician speaking as a free man after more than three years in jail in the wake of his coalition shop election win last week. he left a hospital where he had received treatment and was pardon shortly after by the king. still, it is unlikely he will take over as premier anytime soon, as the prime minister said he will need to request a parliamentary seat and potentially take a cabinet role. global news 24 hours a day, on-air and "tic toc" on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. thanks very much, juliette. most stocks in asia followed their american counterparts lower as rising benchmark u.s. yields and geopolitical risk
spurred a return of risk aversion, risk off sentiment through the market. joining us from singapore is marquette more, bloomberg mliv strategist. i have to ask about the strong dollar and treasuries. what is that doing to international markets? mark: i think that is one of the big drivers at the moment. the real things causing the concern are the strength in the dollar and higher yields. at the same time, stronger oil and in dollar terms -- and we are getting the emerging-market blowup. the north korea political risk hasn't played on markets. no one is caring about the maneuvering coming from kim jong-un. it is about the dollar and yield and that is what we are watching in markets today. guy: we have seen argentina and turkey, what is next? unfortunately, i don't think turkey has finished its pain. i think it is still in the
limelight. partially, judging from analyst commentary, based on your interview with erdogan yesterday, i think he had important comments about rick policy. that is worrying for investors going forward, but there is another country that needs to come more into the limelight, brazil. thereal has weakened in past few weeks. at the last rate meeting, they committed to cutting today, which is a surprising forward guidance. if they cut, it will send a worrying signal given the real has fallen 7% against the dollar. it is a risk of another country added to the mix of being out of control on the currency side. matt: there was no revision to the final april cpi number out of germany, but we had this foring gdp growth figure not only germany, but across the eurozone. mario draghi is going to talk today to honor the retirement.
what you think the ecb is feeling right now, especially draghi on as it looks harder and harder for them to get out of this easing policy? mark: i think what they are feeling is very nervous. there doesn't seem to be any strong economic data that backs the idea they should withdraw any stimulus in a major way anytime soon, and that is worrying carried they want to exit some of this policy and yet, it is hard to justify it from fundamentals. they have to go to other reasons. this will provide a level of nervousness. the theme of european growth is disappointing while u.s. growth is not doing bad, it has been an ongoing theme. have calledlysts for dollar weakness to resume. i don't think it will yet. you talked about it a few weeks ago, agricultural prices have been rising, oil prices
have been rising. lumber is going crazy. there are a number of drivers in inflation in the u.s., it is a relatively closed economy and the prices that are affected are rising at the moment. is the u.s. different at the moment? i guess it is a little different. i had thought of it that way, but the reason for lumber price driving is the strong housing market in the u.s., strong growth and trump's tariffs on lumber in canada. that proves these tariffs can be inflationary in ways. the dollar is unique in the way it is generating a little inflation and commodities are feeding that through everywhere because commodities are strengthening with the context of the strengthening dollar. in that environment, commodities are going up for everyone and inflation can spread beyond the u.s. to other countries. her has been little sign of it yet. -- there has been little sign of it yet. matt: mark cudmore, mliv
matt: welcome back to "bloomberg markets: the european open." i'm matt miller in berlin alongside guy johnson. let's get a business flash with juliette saly. u.s. is: the threatening to impose sanctions on the european union at the ruledtrade organization that airbus received illegal government funding to develop planes. the decision adds to tensions between washington and brussels, already at odds over president trump's steel and aluminum tariffs. tesla's energy unit has lost two leaders, adding to the departure of elon musk. according to people familiar with the matter, the product director for tesla's stationary -- have bothand left the company.
tesla didn't immediately comment on the departures. last month, he left declining to comment further. holdings is about reese -- release quarterly numbers into the most negative marketing years. shares are lower in hong kong, struggling to rebound after yesterday's $17 billion wipeout. the first two day decline before and earnings release before the china's -- before and earnings release before the third-quarter profit report in 2015. apple's ceo says he spoke out against tariffs on chinese imports in a recent white house meeting with donald trump. tim cook told bloomberg television, his message focused on how cooperation between the countries can boost the economy more than nations act and alone. -- acting alone. -- >> i talked about trade and the importance of trade and how i felt that two countries trading together make the pie
larger and it's true that not everyone has been advantaged from that in either country and we have to work on that, but i felt that tariffs were not the right approach there. juliette: you can watch the full version of that interview with apple's ceo tim cook in the new season of the david rubenstein show, "peer to peer" on bloomberg television. that is your bloomberg business flash. guy: the market is not paying that much attention, but north korea has threatened to walk with from next month's meeting with president donald trump if the u.s. made a "one-sided demand" for the regime to surrender nuclear weapons. let's get more on this story with our asian government
reporter. david, is this a set up? is this the language you would expect, expectation management in advance of such a big meeting? you don't want to walk in with expectations so high that you will fully denuclearize the peninsula? part of the whole thing is that the north koreans are worried donald trump going to walk into that summit in singapore and his expectations are going to be disappointed, this national got security adviser, john bolton, who is continually talking about -- "libya model" the model and as we saw with libya, more or less packed up its entire --lear program and shifted shift it to the united states after it got concessions. the kim regime is worried this will be the model that donald
trump expected them to adhere to. if he were to going to the summit expecting north korea was going to say sure, we will pack up our nukes and send them to the united states, and it would be great if you could give us some concessions, trump would be bitterly disappointed and the summit would be a failure. matt: david, i've got a gauge from bankamerica merrill lynch market risk strength levels, falling to the lowest over the last year we have seen it since the beginning of 2018. everyone seemed calm down by kim jong-un's behavior prior to these cancellations. him and asiaof also changed? i think people look at
kim jong-un and don't see a crazy man any longer. they see a guy has done a good job at position north korea to where he wants to be, when you consider what has happened since the beginning of the year when he first talked about sending a delegation to the winter olympics in south korea and really opened up a negotiation and now we are facing a summit with the president of the united states in singapore. what is happening now is that kim jong-un is laying down his cards and saying what north korea is prepared to do and is indicating it is not prepared to give up its nukes, not in a short timeframe, the timeframe we see in the so-called "libyan model," it would have to be a longer time period. during which time, you would have concessions from both sides. this might go for decades. jong-un talks about
denuclearization, it is a bit like when obama talked about his ultimate goal to denuclearize the entire world. and thatin prague might be a dream for north korea. it is something that will take place in a long-distance future when we see the regime getting the assurances they want, the guarantees and the trust they need. he is making sure that when they go into that summit, they aren't going to be able to have a leavesinted trump who and starts talking about other options like military options. , our asiantweed government reporter joining us on the latest as we work our way toward the summit between north korea and the united states. we are minutes from the start of trading in europe. minutes from the open. next, stocks we are watching. of merging, all of these big companies.
anne-marie looking at burberry. matt, you will check out -- what is happening in the betting space right now. know this morning, we there was a brief statement saying they are in talks to acquire a cup any -- company. it is a u.s. daily fantasy sports site and a pretty big one over there. this would be a pretty big deal for betfair. according to legal sports report, the valuation of the company may be less than the $1 billion it was once worth, but as you can tell from the number, it would be a pretty significant amount. why is it happening now? prize this announcement comes only two days after the u.s. supreme court struck down the ban on u.s. sports betting in the country. a momentous decision, and you
can expect a lot of m&a activity as a result. be interestingl to see how the story develops. these companies are ready for this potentially to happen. let's move on to anne-marie. what is happening with burberry? let's deal with the numbers. anne-marie: at the top line, they are planning 150 million bond stock buyback. in liner sales at 3%, with estimates but below the rate in other luxury rivals that are benefiting from a boom of chinese spending. this chart on the bloomberg, you have burberry in the white, underperforming european luxury goods makers and the global index. surging chinese demand has been boosting the fortunes of lvmh, lori l's luxury division, all growing double digits. but burberry is failing to catch momentum we are
seeing in the rivals. guy: briefly, what is the design story here? anne-marie: they have a new creative director, known for flinging open the french fashion house to celebrities like beyonce and madonna. some light hues, beige, people are looking to see how he takes the brand forward. believe burberry's is going beige. that is shocking, and madonna is wearing. deal when it got out of its joint venture with general electric for $3.1 billion of renewable energy deals. that gives it a chance to move closer to its tie up with siemens.
guy: the start of cash trading. btp will be a big story this morning. historically, it's amazing how little it has been affected by the euro. it's below 10% this morning. the cable rate is trading at 135.1. take a look at the lumber charts. g tv on your bloomberg. rising the other commodities are rising as well. , continues to push north of 3%.
but show you what the futures tell us this morning. a little bit of negativity coming through. elsewhere, things are been to the day. plenty of stock stories to focus on. burberry is apparently back to page. let's give you some numbers. this is how the morning is turning out. it's exactly what we are getting. it's not budging. there's nothing going on a headline level. the cac is expected to dip a little bit. similar numbers going through there. we will see what happens with the dax opens up. of eye line. when webring you that get it for you. i can see her in the distance. the dax is trading up by 3/10 --
.75%. let's take a look at the heat map. -- by .3%. let's take a look at the heat map. the big quarter at the top looks a little on the negative side. there's a clear sense of direction. health care looked a little better but there's no real takeaways of the sector level. what about the stock level? matt: let's take a look. there are a couple of stocks going dividends today. they should really affect the trade that negatively. the big ones icr statoil and links that. .orsche automobile holding that's not going to move the market at all. take a look at those losers. otherwise, we don't see any of the biggest percentage movers on the stoxx 50 actually moving down more than 1%.
as far as the losers here go. even though the index is down. see bmw gaining. also here, we don't see anyone percent moves at all. 1% moves at all. i think that is telling an interesting story. the market isn't moving much as far as the individual stocks go. a quick look at a time banks. on.went to 2% earlier we see some affect coming into the italian banks. we will be aware of that. we are getting closer maybe tuna italian government being formed. italian to an
government being formed. as you can see, we are getting a little bit of reaction. amember the btp is significant part of that. you can draw a line between one or the other. that link between sovereigns and thanks. banks. asia had a pretty negative session. yearlimb in the u.s. 10 where you continue to push north of 3%, the market increasingly looking like it's pricing a few more hikes this year from the fed. how many rate hikes the you think? and how high? we think there are going to be for hikes this year in the key point is just one next year. in 2019.the fed stops the call is 3.25.
>> do we worry about violation or stocks at this point? we actually think that risky assets that we would include in that emerging market are fairly construct of. we have broken through 3% already said 3.25 is not hugely higher as far as the yield downturn. our view is relatively constructive. matt: you expect three more hikes this year. for total hikes. total hikes. we see the dollar rising to the highest level that we've seen at least this year. it has really searched. how does is infect your international investment outlook? this is where we have a
controversial view. our view is the strength is likely to be relatively short-lived and temporary. -- we maye may keep be getting to a peak. the reason for that is you are aware of currencies having a highly quantitative approach. andan look into our models they are very good at telling us what is driving our factors. what is totally -- what it is telling us is the relative steepness of the yield curve. if this would be euro-dollar, that would be between europe and the u.s.. our view is that there will be more steepness in europe rather than in the u.s. and we think that's going to drive euro-dollar higher and by definition, the dollars going to weaken. very clear, we would be chasing the dollar higher from here. we think we will become close to a level to fade some of the strength.
this is in a soft patch, it's a slowdown. steven: that's the $64,000 question. we believe what we saw in q1. the softness in eurozone data is not the start of a trend. we think it may be a bit of a one-off. we actually think gdp in the eurozone is going to be fairly robust of this year. our call is 2.6%. way above trend. we think inflation is going higher as well. you're absolutely right to believe on the data coming out. q2 is going to be make or break. that's great news for mario draghi and this group of ecb governors because they can exit stimulus and draghi could possibly even raise rates before he leaves the central
bank. is that your base case? accommodation strong growth, above trend growth, and inflation continuing to pick up, yes. our view is they will be cautious because they have been caught before. qe atnk they will in the the end of this year. december is a likely scenario. the first rate hike will come within six months. our view is that by summer 2019, cd will be able to start to hike rates. the fed will hike run more time next year? potentially the market will be looking for the next cut just of the point with the ecb is start to hike? how many hikes do you
think they will get away if the fed is potentially looking at cuts? i would back away from the fed looking at cuts. it won't be a raise, will it? steven: the way we look at the u.s., we think maximum growth is going to come this year and we think the fiscal stimulus is the biggest driver of that. 3.1% we think is where we get the strongest growth. next year we do see a slowdown. from that perspective, we think, as we go into next year, the fed will hike but then it will pause for quite a long. -- for quite a long time. we wouldn't be going that route. we think there will be up all his as policy is concerned. guy: -- matt: you will stick
with us. up next, we are going to talk with jim bullard. 3% and beyond. the 10 year yield at its highest level since 2011. we will ask him about that. many of the other things we will be able to talk about in this hour. don't miss the exclusive interview. that's at 6:30 p.m. not next per se but later on this afternoon. ♪
12 minutes into the market session. when we focusing on? let's find out. burberry announcing a big buyback. in line with estimates but below the rate of other luxury rivals. benefiting from the boom in chinese spending. it's very much different new management. trying to kickstart this classic plant -- brand. his first show will be in september and that's what many people are looking forward to for the rest of the year. up nearly 5% this morning. increasing the payout by 40%. this is anticipation to tie up
with rivals. saying thislysts also represents a unique global play on the rail market. investors like the idea of that buyback. we watching italian ranks broadly. they are down across the board if you're looking at was happening on the ftse. struggling to nail down the final details on the government. they're saying they could take turns possibly as italian premiers. also crossing at 8:00 in the syria paper saying still discussing a 250 billion euros debt write-off and these polls are being asked to freeze and cancel government bonds. obviously were asked -- we watching all italian assets. keep an eye out as italian banks. pushing north of 2% this morning.
catching a little bit of a bid but not by much. what we watching for the rest of the day? the u.s. leaving the iran nuclear deal. we have exclusive interview coming up for you with president james bullard. p.m. u.k. time. the central bank has indicated that it is preparing to cut. this is time we are seeing the reality dropping fairly sharply. with a deliver upon that cuts? from merkel is on her feet. we are going to paying attention to what is going on. the chancellor is speaking at the moment, laying out her policies around so the issues i just discussed. what is happening domestically in germany, was happening with the iran story. it's going to be one she is focusing on. there are domestic issues to
talk about as well. let's talk a little bit about with happening with germany. talk a little bit about the trade story. the chinese delegation in the u.s. is talking about what is happening the trade between the u.s. and china. we have a slowdown in japanese growth and a slowdown in german growth. the trade story really hasn't in hard policylf yet. you look at germany and japan, industrial countries that produce --
steven: this bet that is potentially arising between the u.s. and china could potentially embroil germany. one statistic i read earlier , germany is one of the biggest automobile exporters from the united states. the big germans manufacturers are making cars in the u.s. and a lot of them are being exported. if there are tariffs imposed on cars coming out of the u.s. and china, that will get germany because they are very exposed to this as well. the bottom line here is germany's model is based on free trade, free access to go markets, and anything that impairs that could have a potential impact.
particularly on german companies. matt: doesn't look like angela merkel is trying to sway trump on the issues? he -- he is courting vladimir putin to buy his gas. she is not taking part in coalition punishment of syria for using chemical weapons. and she doesn't seem to even offer a knowledge ranch -- offer an olive branch. though she seemed to be really be trying or does she seem to be focused on other things? steven: you make a lot of very important points. it highlights the pressure that she is under in a country like germany given that they are some ways under pressure from all sides and having to deal with many issues. quiteyle tends to be
relaxed and easy going. the point is she tends to be not super aggressive. be hoping that these issues can out in a fairly relaxed manner. is,point we would make here to get back to the original point, germany will always want free trade. this is what suits germany and the model. anything beyond that, she will not like. big point here, given how complicated these issues are, involves the u.s., china, russia, there's not a lot she can do here when you see the strength of these countries that are driving things. guy: talking about the fact, but we just get back to the headline , that german public debt will sink to below 60% of gdp. they're not quite symmetrical but there is an upper limit at a lower limits.
welcomet: -- matt: back. german chancellor angela merkel is delivering remarks under foreign and domestic policy agenda in the parliament, where it is kind of budget week here in germany. chad thomas is our german bureau chief and he is here in berlin with me. let's start with chad on the headlines we are seeing coming across year and one that guy mentions is the debt to gdp ratio is going to be 60%. this is the lower end of what is allowed or preferred as far as the european union is concerned. this is key for german voters. they don't want to take on a lot of debt. they want to break even as far as deficits are concerned. is there any way to get beyond that?
chad: merkel knows that she can deliver these surpluses year after year, that wins votes. even though the social democrats control the finance ministry, they are saying the same thing. they do not want to run a budget , having theseey surpluses, wins them votes. everyone around europe and elsewhere can say go off and spend money but they know that's not what they really want their voters to do. germany, i have put down here in yellow. ratio about 60%. andica is at breakeven china set to 65. at 265. would you want to see?
this has been a theme for a long time and particularly aimed at germany. on both its current account deficit and fiscal surplus. it's all very well for the world to buy german goods but there should be a bit of tit-for-tat here are some rebalancing. donald trump has alluded to this as well. this was a key theme. i hear what you're saying. they said it was a religion in germany so will probably continue. there could be some pressure on germany coming from this with the u.s. in particular. on both the current account surplus in the fiscal surplus. there's an italian angle to this as well. if berlin is breaking the rules for one ends, why shouldn't it silly break the rules at the other end?
-- why shouldn't italy break the rules at the other end? if you are going to break the rules, break it at the lower end,? -- lower end, right? to be innot going favor of allowing the italians to break it on the other side. there is one separate issue we haven't breached yet one of my fascinations here. that is the defense spending level which is more away from the investment side of things. it's more in line with the transatlantic relations that she says are so important to her. but she's not willing to get up to the 2% level that they promised they would. don't germans keep their word? chad: it's worth underlying that
the german defense minister said a few days ago that they will only get to 1.5% by 2025 if they are lucky. it is clear that they are not that interested in getting to that 2% at any time in the foreseeable future. i would bring it back to german voters. it's not that popular in germany. if you look at german history, they don't want to be engaged in the world from a hard policy point of view. goods to to sell everybody so that's what are such a big focus on trade and maybe one way to make that argument in germany is to say to get the trade, we have to do the 2% on defense but so far that discussion hasn't taken place. the berlin bureau just wrote a good piece on how unpopular americans and american policy are in germany. i would argue that when we anotheriraq, that was
matt: 30 minutes into your trading day and let's get the top headlines. risk off in stocks suffer as the u.s. 10 year yield continues to rise. is the fed on course to hike three more times this year? james bullard space to bloomberg later on this afternoon. two for the price of one. italy's populist are looking at sharing the prime minister's role with their respective leaders alternating according to local media. btp's push north of 2%. holds its breath. a drop after the market close and the stock has gotten crushed. and welcome to the
european open. i'm alongside guy johnson. guy? what are we looking at? asked her out of paris trading higher. trading higher. some of the german stocks rising. let's take you to the downside ensure you it's going on at the bottom end of the market. deutsche bank trading lower. the market continues to watch what is happening at a staffing level at deutsche bank. watching that quite carefully. there are also a bunch of italian banks in the mix this morning. b.n.p. paribas is showing signs of weakness. some of the european banks are under a little bit of pressure this morning.
btp's pushing north of 2% earlier on in the day. let's get update. >> north korea has threatened to walk away from its meeting with donald trump if the u.s. makes one-sided demands. earlier, pyongyang abruptly canceled talks with south korea and warned the americans. undercut the discussion to agree the nuclear weapons program and a first it's kind meeting. japan's economy shrank for the first time in two years. an gdp shrank 0.6% in the previous three months. the contraction was more than expected on a surprise fall in business spending. israel is coming under increasing diplomatic pressure following a confrontation with the palestinians. turkey has expelled the country's ambassador. --gium and ireland have some
the would you have of others on monday. france called the israeli military response, quote, unacceptable. the european union says it is stepped out to identify practical solutions for salvaging the iran nuclear court. fallouto contain the from u.s. president donald trump's decision to pull out from the landmark deal. ensure the task and we are determined to do that. we have started to work to put in place measures that will help to ensure that it happens. this is true on the european side. we have seen the same willingness and hesitation. >> theresa may will try to force her cabinet to agree on a common approach.
it should give the clearest vision yet of what the u.k. wants after brexit. it comes more than two years after the surprise results in the eu referendum. global news 24 hours a day on aaron a tick tock -- and at tictoc on twitter. this is bloomberg. matt: thanks. in italy, the leader of the entrant -- anti-migrant lead has said talks with the five-star movement on a populist government have entered the final stretch. but solving he says the parties are still trying to find the right balance between their two policy platforms. papers are reporting that the two leaders could take turns in serving as premier. joining us is our italy government reporter, john. let me ask you about these two parties. how close are they are platforms anyway? election, everyone
thought there was no way they could get together because they were on opposite sides of the spectrum. that was a whole election campaign ago and with two months andthe two leaders, so any demaio have been negotiating, especially in the last two days. they are on talks to draw up a common program. each party is anxious to get its key measures and and so far, according to what we are learning about the talks, five star has got its citizens income for the poor in their at the full rate of 780 euros a month. in the anti-immigrant leak is of course pushing for strong measures against immigration. we had a leak of a report of the draft document dated from monday. the parties are saying that many things have been changed since. we heard from a league official
saying that actually, the key concern for markets, namely a demand for a write-off but ecb of a debt of 200 and 50 billion euros -- two at 50 billion euros is still being discussed. of 250 billion euros is still being discussed. guy: did they worry about what the rest of europe thinks. how does that play into this reaction a negative from the rest of europe seen as a positive? those guys don't like it, we must be doing the right thing. how does it play into the narrative? it's work that is hard to reconcile. the five-star is the party in the past that wanted a referendum on ditching the euro. since the election, he's taken a more establishment stand and is much less aggressive against brussels.
the opposite of what solving he is doing. he is fuming various times a week against brussels and saying he wants to ease the fiscal constraints and go to government only if he can do what he promised his voters. that is a source of tension and there is a gap to be filled. thanks for a much. joining us out of rome. it's continuing to be a story. we are waiting to figure out exactly what is ultimately going to be happening here. stephen is still with us to talk little about -- a little bit about this. about how the backstop must be developed. is europe capable of dealing with italy if it's the turns around and goes, you know what, we are to start spending? we are going to deliver on some
of our promises and we are actually going to blow the pension reform story out of the window? we're going to make italian debt a little less sustainable than the market is comfortable with? is europe ready, capable of dealing with that as an issue? steven: two points to that. of littlehere's a lot jockeying going on. guy: they are getting pretty close. steven: what they say in what actually comes through are two different things area secondly, i would argue that europe has the credibility because the history i would lean on here is greece and spain. spain is more relevant for what is going on. we had the situation with the spanish deficit widening dramatically several years ago with the ecb was going to come in and by the debt. as part of the qe program. the europeans put a lot of pressure on spain to's -- to
store the deficit out. they get their fiscal deficit in order, we're not going to be buying on. if you look at what is happened the the spanish situation, deficit since has come down quite significantly. the point i would make is, europe has a habit of looking through and making it work even though the market gets very upset and nervous as you are speculating now as to what could go wrong. ultimately, the decision tends to be the right one. i would argue europe has credibility on its side. matt: you don't see much of a move in spreads and you don't see much of a move in the euro. the euro has dropped from 120 42 118.
even today it is up a little bit. that pretty fascinating the market seems to be not reacting very much. stephen stays with us. he's going to be join us on bloomberg radio as well. daybreak europe is life. -- is live t. we're going to bring you some mid-cap stock movers including all a wall bank which has surged on hsbc and rbs. this initial merger deal and it looks like we are going to be talking to benedikt kammel. this is bloomberg. ♪
the company's underlying revenue is towards better range of guidance. that stock moving off that earnings report. another interesting one, the biggest gainer on the ftse. the construction company for the oil industry installed some oneline and manages complete store -- onshore construction products. they are calling them the lost sheep. they recommend buying the company saying they have missed the rally but will catch up. morgan stanley also putting out a note saying the oil service -- oil services are now attractive. alawwal bank up nearly 10% this morning after degrees on a possible merger. that values their shares at a premium of almost 30%. we should note that rbs holds 30%. these are there some banks. that stock is the biggest gainer
on the stock exchange this morning. matt: let's get some more on that merger story. matthew, break it down for us. what does this all mean? it's going to be a very important transaction for the banking sector for a lot of reasons. which hastant for rbs wanted to exit saudi arabia for a long time. is getting a 30% premium on the market value so that is going to be a good accounting boost for them as a result of this transaction. it's also going to create a much bigger bank and saudi arabia. it sets the stage perhaps for some further consolidation.
guy: there are accidents of history that make this happen what is a tell us the banking story and the gcc? -- the lower oil prices and reduced economic growth in the region are putting some pressure on the banks to get efficiencies and it's prompted a wave of mergers around the region and this is part of trying to create stronger, bigger institutions. just last week, saudi arabia published a new document about how it wants to push the financial sector to become a greater driver of the economy. part of that will be encouraging consolidation and more up thetion and opened doors for foreign banks to come in and play a greater role. they are traditionally limited in what they can do. this merger is part of setting the stage to go further.
thanks so much. in dubai covering the story for us. the u.s. threatened to impose sanctions against the eu and the wto ruled that airbus received illegal government funding, costing boeing sales. benedikt kammel is here with us. our managing editor for company news out of europe. this is something that took 14 years to actually deciding court. yes. these move at a glacial pace. it feels like it has been going on forever. this is only half of the revelation now. what we heard yesterday was the boeing side. the jury is out on what will happen. they have said these were illegal launches. the a3 80 which is their big double-decker and the 350 which
is a big wide-body plane. those launch aides, as they're called, damaged going because they could make the same kind of sales. want to nowically impose sanctions. guy: airbus makes planes in alabama. how does the u.s. react? >> the planes in question are not the ones they make in alabama. the planes here are the 380 in the 350. .here's a certain irony it's a millstone around airbus's neck. boeing says they could've solved more 747's if the 380 hadn't received this kind of launch aid. it's still a bit of an academic
debate at this point. airbus says yes, it wasn't all perfect, we were not really a great fold and they will come back at the end of the year and say look at boeing, they did something similar. by the time this winds its way to the courts and into actual sanctions, it's probably going to take a lot more. you would always understand why some of us to go with -- matt: you would almost understand why someone wants to go with unilateral tariffs. was change your now's we have a different a minister asian the u.s. that is a lot more aggressive when it comes to imposing tariffs and protecting their own companies. boeing is certainly one of these companies. they've done very well out of trouble demonstration. we've had the ironic case and that's damaging airbus. the steel tariffs. this is one extra thing they could do without. sanctions are
something that might come roaring down the pipe. that's something that we want to avoid. they say look at the market, it still 50-50. what is the fight really about. one thing to mention is that while these guys are bickering, china is quietly building up an aviation industry so you can argue, are we really fighting about the same thing? guy: this has been running for quite some time. for significant chunk. even covering the story. the managing editor for global businesses join us in berlin. users can interact with all the charting functionality that we produce. there is a person called hillary, and it's also a random computer program. hillary generates these charts as does the team. this is what looks like.
last seventh -- it's the longest streak since 2012. the market has got pretty bearish on what is happening here. goingw our expectations into year? what has been driving the selloff? one is they are concerned that the mobile gaming growth is not making up for whatever decliner slowdown that we are going to see in pc gaming. the users are migrating to mobile platforms even though mobile have introduced blockbusters like fortnight. not catching up fast enough to compensate for the slowdown that we are seeing from the pc side. the other thing is margin compression. this the same thing we're seeing throughout chinese internet sectors. they've investing so much into cloud computing and new retail
and online entertainment offer the hope of driving revenue growth. that is severely compressing their margins so investors are taking that into account and that is accounting for the 97 billion selloff that we have seen in recent months. that's amazing figure. market cap are -- market cap dropping by almost $100 billion. $70 billion just two days ago in wednesday's trade. this is happening throughout the sector or is this tencent specific? it's a sector wide phenomenon but tencent seems especially hard-hit. alibaba, on the other hand, is seeing a massive selloff in recent months and has come back a lot since they reported earnings. the earnings and during the conference call, management has been it to showcase that they are driving revenue growth and they have instilled some confidence in two investors.
that's what we are seeing this bounceback in shares. have seen chinese tech stocks just thinking horribly throughout the past months. two thirds of chinese tech andks are down more than this is a sector wide phenomenon. much,.ank you so the numbers we dropping shortly. but still with the hour, burberry. the media call is currently underway. listening to the cfo. good six key growth driver. this is a market that is in need of convincing. the stock is at a tough time. the management team is out there trying to convince the market and convince investors that the turnaround plan is going to deliver this morning. getting those results they are looking for the stock is trading up in trading up on ok volume.