tv Bloomberg Markets European Close Bloomberg May 18, 2018 11:00am-12:00pm EDT
european close. vonnie: i am vonnie quinn and we welcome you to continuing coverage of -- ♪ nejra: here are the top stories we are covering from the bloomberg and around the world. italians markets rocked. plans that could royal public finances. glencore is set to face a u.k. bribery probe over dealings with shares plunging on the news. china cast doubt on reports it offered to reduce its annual trade surplus with the u.s. by $200 billion. the latest on where the trade talks stand. let's take you through european market action. 30 minutes from the close of equity trading. equity space, stoxx 600 into negative territory.
it has pushed for a modest weekly gain, despite the fact that over the past few days, treading water. in the red now. spain and portugal are lower. italy is lower. theftse myth is one of best-performing western european equity markets so far this year. coming under pressure today and i will talk more in a second. the pound under pressure, down 3/10 of 1%. the euro on the back foot, down 2/10 of 1%. space, thed income 10 year treasury yield pullback from the 3.1% level in the session and i will talk more about the bond markets and a second. and about brent crude. it has fluctuated near $80 a barrel. let's have a look at the next chart.
i talked about the euro, a 2018 low this week. we see declines today, trading below the 118 handle. this chart is showing that with the technicals, drop below the 200 day moving average. index,elative strength oversold territory. interesting to find out from our guests where he sees this direction. italy is the big focus in europe. yieldnure of italian hitting 2.22%, just below that now, the highest in almost one year. the spread widening with the 10 year yields in italy up 10 basis points. back saying wece will go to 190 and citigroup says between 165 and 175. lot of questions around this of whether a italian bonds are
an opportunity right now. weekly basis, 10 year yields at the largest weekly gain since 2015, moving more than 30 basis points higher this week. about the final chart, looking small, but i want to show you brent crude. we lost the chart let's go to julie, 90 minutes into the trading day in u.s. and julie hyman has the latest. julie: watching the yields in the u.s., they had a big move today, upward. points,bout four basis the 10-year, above 3%. an important threshold we have talked about. stocks are somewhat mixed today. we watched the developments out of washington to see if there will be some sort of successful negotiation between the u.s. and the chinese. and does feels are stronger as evidenced by the strength of the doubt. -- dow. energy and consumer staples, we
talk about campbell soup and getting rid of the ceo. u.s. and china, at issue is the trade deficit, or at least for president trump. we have a look at the trade deficit with china. u.s. exports to china, u.s. imports from china, and the overall trade balance. $350 billion last year. it has been steadily widening. there is talk back and forth about whether $200 billion being cut from that will be a negotiating item or not. it seems like it will not. this is the backdrop for that discussion. the dow jones reporting in the past 20 minutes, an unnamed qualcommfficial, the deal is looking more likely. potentiallything also part of the negotiations. something brought up after the
president soften his stance on zte. and then more likely this deal would get done, waiting for approval for some time. nxp share spiking. qualcomm got movement. nxp at the target has been more reactive to headlines. qualcomm taking a leg up, up a half of 1%. nejra: thank you so much julie hyman in new york. italy's populist party and five-star movement have agreed to a coalition, it could be a week before the new government is in rome but the alliance has sent ripples across europe and the markets. the former italian prime minister discussed the challenges facing the coalition. >> it is crucial for the new italian government to be able to build up alliances internationally, particularly -- and i would suggest to them that in theould be moderate
presentation of their disruptive objectives now. in our rome bring bureau chief. great to see you. markets are spooked and the bun spread widening. what is it in this government plan that is spooking investors? >> unfortunately, that everything. there is so much of their. cuts, infor huge tax theory which could stimulate the economy but they are expensive. we have to understand that -- what that will involved to -- involved. pension reform, it is important because the pension age was raised to make the finances sustainable during the crisis.
all of this is warning the markets. stuff on the banks. perhaps reimbursing shareholders. not even bondholders of banks that have gone under. a lot that is disturbing for markets in the plan. nejra: a lot these details have been kicking around over the past few days that we see quite a strong reaction today. is that the market perhaps adjusting to the fact that some of the plans could become reality? how realistic is it they will go ahead? >> that is right. i think the markets -- yes, they have priced in some of it but it took so long to agree that when they got the final agreement, they said this is it and some things were taken out the market did not like. it is a very risky plan, if they implemented. they may not be able to the to really implement the plan, so
many things that are incoherent that do not work together. so much you need to do. the eu will never approve this. they do not want to leave the eu. a lot that may not get done ultimately. maybe the markets are betting on that, which is why they are upset that things are not out of control just yet. the debt toy with gdp ratio of 131% right now. if the plan went ahead, that would expand. a one-time transition, after which the economy would do a lot better, are invested -- investors being shortsighted? >> there are a few things. cuts, they may help the economy. some things that may work. the concern is that so much of it involves hard negotiations with the eu. so much of it involves things that are not really covered.
that means the recovery -- the president -- this means constant uncertainty. votes in government and chances the government may fall. this is making markets nervous. vonnie: what are analysts saying will be the final outcome? >> they do not know. they think probably we will have a government that they think will not be able to do everything they planned. the ideal outcome would be to realize they are lucky, the best time for these people to come economicsment to make improvement -- with economic improvement in europe. not in the is situation it was a few years ago in italy and they have a little bit of leeway. the president of france saying there is leeway. a difference between being realistic and saying we can
spend a bit more, and completely unrealistic and wanting to spend tons with that kind of debt. nejra: our rome bureau chief, thank you. if you are a bloomberg customer, catch up on what she says on tv and follow the developments on top. vonnie: let's get to the first word news with courtney donohoe. >> news media reported that there are fatalities at the school shooting near houston. one report says at least eight people killed and a suspect was arrested following the attack at santa fe high school. three helicopters landed at the school and the school district is saying only that there have been an unspecified number of injuries. police informant called in an ambush and a golf course owned by president trump, police shot and we did a man firing his gun at yelling about the president. it took place in the lobby of the club near miami and one officer was injured. police do not know the gunman's motive.
south korea persuaded the u.s. to scrap a military exercise that it feared would cause problems between the summit -- before the summit with kim jong-un. u.s.rills involve the bombers and south korean planes. it trump administration says will keep going until north korea gives up its nuclear weapons. global news 24 hours a day, on air and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am courtney donohoe. this is bloomberg. vonnie: thank you. trade troubles, china pushes -- this is bloomberg. ♪
♪ i am: live from london, counting you down -- nejra cehic counting you down to the european close. vonnie: i am vonnie quinn robert lighthizer says the u.s. and mexico are nowhere near a deal to renegotiate nafta. china is pushing back on reports that there was an offer to reduce the annual trade surplus with the u.s. by $200 billion. mckee.by michael let's talk nafta. is there a deal? michael: they are not near a deal. both of these trade issues are more political deals been trade deals at the moment. with nafta, hope they could get a win, they could get something that would appear to improve u.s. prospects and hurt canada and mexico prospects.
and get that through congress this year because it would look good for the american people. and make donald trump look better. -- mexico arey not rolling over and the u.s. put up five difficult areas, led by the idea of local content in automobiles. they have not solved any of them. the canadians and the u.s. are close on automobiles but as we heard from mexico, they do not like the proposals. it does not look like they will get anything done weird paul ryan has put an deadline on it based on the calendar and the legal steps you have to take to get it approved. they have always had more wiggle room. another two weeks, three weeks, probably not getting there. vonnie: justin trudeau is saying everything is great and we will get there. the mexicans are throwing up their hands. michael: what you see depends on where you sit. canadian and u.s. auto workers paid about the same and they can reach a deal. par witht content on
the amount the auto workers are paid to produce it, mexico is so far behind that they cannot afford to get up. vonnie: china is perhaps more pressing at the moment because relations can break down a lot faster than they can between our closest neighbors. what is china offering, if anything? michael: we do not know for sure. they probably came to the u.s. saying we are willing to buy more stuff, a leak from the administration said they put up a $200 million figure which matched what the u.s. the meadow when the trade delegation went to beijing a week ago. the chinese say that is not true which may be poor political consumption as they do not want to be seen as giving into the united states. it doesn't matter because when you talk about how much you would have to do to try to get to that $200 billion, it is almost impossible for an economy running as tight as this one in the united states -- i brought a chart that shows what you would have to do, you go from the $375 billion trade deficit last year,
the redline is how much you would have to cut to get $200 billion. 747s.eing we sell 10 to the chinese or ramping up soybeans by 13 times, not enough acreage. you would have to sell 2.5 billion barrels of shale oil. vonnie: you have to go to gtv. michael: it is a tough not to crack. -- nut to crack. >> i will take your chart and match it. the trade deficit between u.s. and china, we know it is way less than zero. the purple line marks the $200 billion. how difficult it would be from the u.s. side to achieve this. from the chinese side, difficult too? michael: but it -- it would be difficult but they would not expand the amount they spend. they have a fixed amount of demand.
they would take it from other countries. the world would not be better off, the u.s. may be better off but it will not help world trade and not make a difference to the chinese. it may be more of an offer without a lot of substance. in the past, the chinese have made promises to improve trade deals and have not followed through. that is part of the question. nejra: someone said this morning that it donald trump can cut a deal with china, he'd have won the trade deal. nafta, so many people say this is the easy part and if we hit stumbling block here, what does it say for other negotiations, and particularly the u.s.-china negotiation? michael: it shows the u.s. administration is stretched and they do not have a full complement of people. difficult for them to do so many things at once. with the president's inability to set out a position and stick to it, it is hard to negotiate all of these things.
june 1, the steel and aluminum tariffs. they have to deal with that. vonnie: currencies are getting flipped around with the mexican peso and canadian dollar having a special 24 hours. thank you to michael mckee. coming up, glencore c-shares getting hit, sources say's the u.k. authority preparing to open an investigation into the company. this is bloomberg. ♪
they say the ceo is retiring today. they have been struggling to death through a three years sales slump -- they have been struggling through a three years sales slump. that is your business flash. set to launch. is a bribery investigation into glencore, the giant under scrutiny for its dealings with israeli billionaire and the leader of the democratic republic of the congo. they have consistently denied any wrongdoing. no charges have been brought. joining us is will kennedy of bloomberg news. we are in the luminary stages and what do we know? >> no investigation has formally been launched but there is an office in london looking at investigating the relationship between glencore and the russian billionaire. -- the is really billionaire.
an important man in the congolese mining industry. glencore and the man had relationships that went back to 2007 in certain mining opportunities in the congo. we think they will look at that. nejra: shares are down short -- sharply and investors are not pricing this in. it was as right, surprising announcement which comes on top of several difficulties glencore pass in the congo. the businessman was sectioned by the u.s. treasury in december and glencore had bought his shares in one of the biggest mining operations. they have a difficult relationship in royalties. they are under pressure from the congo government who alleges they have made put too much debt
on one of the local subsidiaries. trying to put pressure on them. a difficult situation at glencore. investors are nervous. vonnie: how much does glencore have a stake in congo? >> this is an increasingly important operation at glencore. the mine was closed for a while for work but we opened late last year. mininghey expect to be 300,000 tons of copper every year from the big mind in congo. that is 1/5 of their total globally and copper is a hot commodity to glencore. important for cobalt production and cobalt is a hot commodity because the central ingredient in batteries for mobile phones. the shift to electric vehicles will up demand for cobalt. it is important and getting more important because when gore talked a lot about how they well off they are in the energy
transition switch to electric vehicles. that will be harder to convince investors if they do not have this mine. vonnie: what is the worst-case payout,, is it just a or the need to exit congo completely? >> i do not think anyone is talking about that at the moment. it is very preliminary. we do not know what they will be investigating. it is too early to say anything like that. glencore is committed to being in the congo. the congo, which should be a good news story for glencore, looking more complicated. nejra: complicated and so far all parties have denied wrongdoing. are we expecting a response beyond that from glencore? >> i do not know, difficult to say. they have not given one so far and it is difficult for them to comment at a preliminary nature. they do not know what the allegations are.
glencore shares are listed in london and so they can do this investigation. as we go to the close of equity trading in europe, let's look at what equities are doing. andness on the stoxx 600 that is reflected across the benchmark ftse 100 andcac 40. and dax. europe --face, the the 10 year italian yields are surging. this is bloomberg. ♪
equities finishing up, weakness coming through on the stoxx 600, it has been treading water and struggling for direction this week. across the regional benchmark from the function, ftse 100 down 2/10 of 1% and the dax up 4/10 of 1% and the cac 40 unchanged earlier and now in the red, down 2/10 of 1%. leaving the losses is the ftse mid, down 1.5%, below is in a month. plan fromgovernment the lead at five star but outstanding questions. suspending plans causing jitters through the markets. but the mid, -- that is how we are shaping up regionally. stoxx 600 in industry groups, you get a sense of what is going on. down 4/10 of 1% on the stoxx 600, on a weekly basis, probably unchanged. a little bit in positive territory.
and dust real sleeping on the upside and utilities. .ore industry groups on the red telecom and i.t. leading the losses for a lot of the day. that has been on a slump for a lot of the session and below 118. we hit a 2018 low with this week. a lot of analysts bullish on this based on the fundamentals and the economy. the yellow line is ing. the purple line is balancing aaron off, targeting 126 by year-end. we will talk more about this with mike bell in a second. and italy, what is happening in fixed income space. the bund spread blowing out again. over 150 basis points in the session. where our opportunities, the 10 year yield has hit its highest,
2.22%, the highest in almost one year. up 11 basis points. on a weekly basis, we have risen 30 basis points on the 10 year yield this week, the most since 2015. that is a look at the european markets. vonnie: let's get the david check in on the dollar -- daily check in on the dollar, 93.69, quarter percent stronger. emerging-market currencies in a moment. let me point you to the yen, approaching 1.11. seems like there is a big move almost every day with the 10 year yield back down to 3.07%. let's have a quick look at emerging-market currencies. the rand is down 1.2%. is weaker by real
1.5% today. the mexican peso weakening substantially. sovereign cds rising. all of these countries, brazil and south africa among them, saying with sovereign bonds. we will watch commodities. -- earlier on -- equities in europe in the red. italian assets leading the way. michael bell at jpmorgan asset management. the broader context. the ten-year treasury yields this week above 3.1%. brent crude above $80 per barrel. with big landmark moves, does that change anything? michael: not particularly.
bonds, happy with bond yields moving higher in equities holding their ground. 10 year bond yields in the u.s. can go a little bit higher. 325 by something like the end of year for the u.s. 10 year here equities have further to go. nejra: are we in a scenario where the nervousness in markets could start to impact the global economy? michael: i think that is not likely. sawuld be concerned if you oil prices going up to something like $100 per barrel, that would be concerning for the impact. at the moment, u.s. consumer confidence has held up very well. the biases that oil prices will go south by the end of the year. nejra: i have a chart showing brent crude touching $80 per barrel since the first time since 2014, above the 200 day moving average. where this is right now, you are suggesting is not a concern.
and analysts yesterday said analysts were getting bullish on this, at what point does the stock concern you? michael: vonnie: -- michael: if you hit $100 per barrel on oil. not be too concerned, you will get supply response come through, mainly from u.s. shale. on, by thely comes end of the year, the price will come down. vonnie: what is -- what are you advising to do, have you changed your strategy? michael: the fact that you have seen bond yields moving higher at the margin makes them slightly less unattractive. lessve been becoming negative on treasury yields. also, slightly less positive on axes. overweight equities in the u.s. and emerging markets and underweight duration. we are slightly increasing or
decreasing the amount to which we are negative bond treasuries, even bond yields have moved higher. vonnie: may be more positive on something or negative on something? youael: our view is that will get four rate hikes this year from the fed and another three next year. two-year yields will get higher by 10 year yields just a little bit higher but less than the two-year. nejra: italian yields, various calls to where it will come an entry point and an opportunity. are we there yet on the btp's fred? michael: a little bit cautious. the base case is nothing goes wrong. i am not sure of the political risk. in italian bonds. inclined to sit on the sidelines. nejra: what about four euro? swept up in this political drama.
does it have further weakening before we get a rebound, if we get it? michael: maybe a little bit by we think by the end of the of the euro goes higher against the dollar. expectations -- data coming in since march, a lot weaker than expected and that puts pressure on the euro. from these levels, you tend to see the data stops disappointing by as much. if that happens, our assumption, .he euro can build higher from the economics of price indexes, over the next 12 months, unless you go into a recession, always have positive returns on equities. vonnie: emerging markets, would you narrow that down? do you consider china and emerging-market? you are positive on? michael: our key overweight in emerging markets are india and china. we think both have very good
long-term structural growth stories. the indian economy we think and grow at about 7% over the next decade. and the chinese economy less quick than that but it can still deliver about 5% real growth over the next decade. we like both of those as long-term investments. valuations in china do not look -- vonnie: what do you do, do you buy indexes or individual companies? michael: we think it is incredibly important to be selective. quite a lot of good opportunities opening up in the china market. partly on theused technologists have been focused on technology stories and equities, also on the key consumer growth story as the middle class rises. some of the key names, spirit companies, but also looking in the asia, other tech companies.
ai companies and insurance. rate: you are in the four hike with the feds. or moreability of four fed rate hikes in 2018 is on the rise, speaking of emerging markets, if you bear this in mind and what we talked about with oil earlier, how does that mean you are advising people to position in emerging-market debt? you see the risk is if the dollar go materially higher. put rates up without the dollar going material higher. within the emerging markets, that space needs to be selective. we like south africa. more cautious on other economies. nejra: you like local currency? michael: we do. in some of the emerging markets. at the moment, more of a country
by country story rather than long em local or denominated debt. nejra: mike bell at jpmorgan management, thank you for being with us in london. vonnie: let's check in on the first word news with courtney donohoe. >> a deadly school shooting outside of houston, the tv station quotes law-enforcement saying eight people were killed at santa fe high school. no caps on make of that. authorities say a man information -- no confirmations on that. nobody has been detained. on tradeand china talks today, according to eight donald trump administration official, china is proposing to cut $200 billion from its trade surplus with the u.s., more than 50%. if chinese -- a chinese foreign ministry official says no offer was made.
chilean official has offered to resign in the biggest shakeup in the catholic church sex abuse and cover-up scandal. at the end of the summit, 31 active bishops said their fate is in the hand of pope francis. lawyers -- in italy, populist leaders have reached agreement on a coalition government. the leader of the antiestablishment five-star movement said that he settled the final issues with the league as the two parties increased -- said they would cut taxes and boost spending but have not decided on a prime minister. global news 24 hours a day, on air and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am courtney donohoe. this is bloomberg. vonnie: thank you. the president is about to speak and let's listen in. he is speaking at the white
house. at santa feump: high school in texas, it just took place moments ago. we are monitoring the situation and federal authorities are coordinating with local officials. this has been going on too long and our country. too many years and decades for the terrible loss of life. we send our support and love to everyone affected by this absolutely horrific attack. teachersnts, families, , and personnel at santa fe high school, we are with you in this tragic our and we will be with you forever. is determinedion to do everything in our power to protect our students and secure our schools, and to keep weapons out of the hands of those who possess -- pose a threat to
themselves and to others. everyone must work together. at every level of government to keep our children safe. may god heal the injured and may god comfort the wounded. and may god be with the victims. and with the families of the victims. -- a very day here in sad day. very sad. noteother note, a positive , i am honored to be here today with so many leaders from across the nation who are committed to the crucial issue of prison reform. joining us today are several members of my cabinet. they are working diligently on this issue. sessions,eneral secretary zinke he, secretary
acosta, secretary kerry -- perry, secretary duvoss. wilke, whosecretary has done an incredible job at the v.a. and i will be informing him in a little while, he does not notice, we will put his name up for nomination to be secretary -- vonnie: remarks from president trump about the school shooting at santa fe high school before he made a hard turn to speak about what he was originally going to speak on, prison reform. multiple people killed and others injured in a shooting this morning at santa fe high school in texas according to law enforcement officials. the suspect was in custody according to what they said and we will keep you updated. president trump saying it is a tough day. this is bloomberg. ♪ ♪
♪ nejra: time for the bloomberg business/, a look at the biggest stories in the news. postedse largest maker --deere said it would raise prices because of higher raw material and freight costs, they boost forecasts for the second time this year. major changes at fiat chrysler in italy. their ceo will unveil a plan next month to has them scrap to budget models in favor of more upscale cars. suv willerati and jeep be produced. our quays will buy irish residential mortgages from lloyds banking group for $5.4
billion in cash. a leaneregy to become retail bank focused on the u.k., lloyds was reducing its presence in ireland after it had bad loans during the financial crisis. businesshe latest flash. vonnie: we will turn to the stock of the hour, shares of nordstrom suffering the worst today decline in a year with slow sales. they wanted to take it private. a this a seasonal slump or story about department store? here is abigail doolittle. >> great question from a macro and micro standpoint. we talked about macy's who put up a second quarter of growing sales and nordstrom is not doing that. same-store sales up 6/10 of 1% in the first quarter. we can look at this using the bloomberg.
severalver the last quarters, it has been lumpy for nordstrom relative to same-store sales. they wanted to take the number -- company private and hurting them in the first quarter was colder weather. customers also going online. much of their business is women's apparel and shoes. they need to see a resurgence for sales to hopefully renew. vonnie: abigail doolittle, thank you. coming up, more of my conversation with the general. we get thoughts on iran and north korea next. this is north -- this is bloomberg. ♪
korea -- full support from all nato allies. they wanted peaceful negotiated solution. the goal is to denuclearize north korea. to stop the development of nuclear weapons of north korea and stop the ballistic missile program. that is important for all of us. missiles from north korea can reach the united states here in on iran -- united states. iran, there are differences states has united withdrawn from the iran deal. we all agree that it is important to prevent iran from developing the weapons. about thecerned ballistic missile program in iran. destabilizing activity that iran is responsible for in the wider middle east region.
we have to address the differences. natoe same time, make sure stands united around the core policy to protect innocents. if geopolitical tensions do heat up in one of those parts of the world that you just mentioned, how would nato come to an agreement on how to approach something, whether it on the ground or elsewhere in order to protect? >> nato protects and defends all allies against any potential threat an adversary. we have proven for almost 70 thes that what we call message, if one ally is attacked, the whole alliance will respond. that is the best way to prevent war. any potential adversary knows that if they attack one ally,
the alliance will respond and we are the strongest military alliance in the world. half of the world's military might is within nato. we have to provide continued credible defense and that is what we do. our strength is in our collective defense. vonnie: are you confident -- that should something happen with the united states, if talks go wrong, other nato members would advocate for defending the united states? >> yes, i am confident all allies will defend each other. clause that says we defend each other in military operations after the 9/11 attack. hundreds of thousands of european soldiers have been in afghanistan fighting in the operation triggered by the united states. we have proven that this is real. when it comes to north korea and
iran, the main focus is to prevent a military conflict and find a peaceful solution. stop then agreement to development of nuclear weapons of north korea, and to prevent iran from developing nuclear weapons. the focus is on a peaceful negotiation -- negotiated solution. vonnie: jens stoltenberg speaking to me, the nato secretary general. we want to bring you up-to-date on the santa fe high school shooting. harris county sheriff saying that 8-10 fatalities and most were students. two people believed to be detained who are students in relation to the shooting. 8-10 fatalities in a high school countyg which the harris sheriff says took place between 7:30 and 7:45 local time. we will keep you updated.
the president made remarks about it at a prison day reform summit at the white house and he called the shooting attack horrific and said we are with you in this tragic our -- hour. they then made a hard turn to talk about prison reform, he said the u.s. is a nation that believes in the power of redemption. he is urging the house and senate to pass prison reform legislation. the other news out of his remarks, he will nominate robert wilke to be veterans affairs secretary. he said, sorry, i ruined the surprise. 8-10 fatalities at santa fe high school. this is bloomberg. ♪ ♪ mom, dad, can we talk?
that's a good one. seems a bit long, but okay... set a memorable wifi password with xfinity my account. one more way comcast is working to fit into your life, not the other way around. >> noon in washington at 5:00 in london and midnight in hong kong. from new york, i'm david westin. >> welcome to bloomberg markets: balance of powers with a focus on the intersection of politics and the economy. , the cupon and off
administration and the chinese cannot agree on what has been offered in their trade negotiations. there arehthizer says big gaps keeping the nafta partners from getting a new agreement. , things theations donald trump sec has talked about the most as radiating for cryptocurrencies. we will talk about the new -- with the new fcc commissioner. boating in caracas, even as wayland -- even is women's people hit the polls -- venezuela's people will hit the polls, what it means for the future of the troubled state. ♪ david: we get a check of the markets which are somewhat mixed. there is julie hyman.