tv Bloomberg Markets European Open Bloomberg June 1, 2018 2:30am-4:00am EDT
matt: good morning. welcome to "bloomberg markets: the european open." we are live from london. i am that miller. -- matt miller, guy johnson is off. what a week. there is some much going on. the cash trade kicks off in less than 30 minutes. deutsche's downgrade. after closing at a record low yesterday, we will bring you the latest on europe's largest investment ain't and standard cuts its rating in yet another blow to the ceo christian
sewing. populists take control. the five-star movement and the league sweep to power in italy. looksin, mariano rajoy set to lose a no-confidence vote today. we will speak to a key player. nemies.e allies hit back after trump imposes tariffs on eu, canadian, and mexican metals. we speak to the head of the european steel association. less than half an hour from the start of european cash trading. look at where futures are trading. gains across the board. interestingly enough, with all this news coming out, we still see a positive futures trade with ftse futures up .25%. cac futures up .5%. it will be interesting to watch
the rates today. especially in italy, as a populist government after a week of bickering finally takes over and forms a government. they will get the blessing from the italian president later today. we see italy's 10 year yield coming down at 2.53%. investors are buying into italian debt right now. they are buying spanish debt, as well, even though it looks like mariano rajoy is set to be ousted by socialists, they have cobbled together a group that will help them do that and take power in madrid and you see the 10 year yield in the u.s. rising as investors selloff the debt -- the perceived safety of u.s. treasuries, and that could mean we see a risk on day. see if the gmm screen to that comes through in assets traded around the world. gainingquity indexes
for the most part in asia. it was kind of a mixed trade. we saw a drop in china, but there was a gain on the csi 300 yesterday. look at what is going on in rates. that will be key to watch, commodities and rates today as the steel tariffs go into effect. you will see higher prices on steel. in just a moment we will show you that. let's pull over and show the commodities column. you see -- you don't see it here, but nickel big on supply concerns and as far as rates are concerned, rates rising in finland and japan as well. interesting move from the boj, reducing its bond buying as rates came down over the week. our top corporate story of the day, deutsche bank's prep -- credit rating has been cut by one notch to bbb+. the downgrade is a blow to the new ceo as he tries to reinvigorate europe's largest
investment bank. he is having an uphill battle. this is a day after reports that regulators have put its operations in america on list -- a list of problem banks. we will be watching the shares at the open. they are indicated to open higher. let's get the first word news with juliette saly in singapore. juliette: italy's populist five-star movement and league party are set for power with a goal for fiscal expansion that poses a challenge to european rules. just that they -- conte is due to be sworn in as prime minister along with his cabinet today. the cabinet was put together after almost three months of negotiations, which saw five-star and the anti-immigrant league threaten early elections. spain's mariano rajoy is heading for defeating a vote of no-confidence. the parliament will vote today
and opposition parties have joined forces against him. the socialists have the backing of two antiestablishment groups and one catalan party. group is alson expected to vote against him. the prime minister says he won't resign. house u.s., the white says it expects the north korean delegation to visit washington today to deliver a letter from kim jong-un. donald trump will meet a north korean delegation led by the former spy chief. after several weeks of to mull to us diplomacy, any decision on whether the summit will go ahead in singapore may be announced then. the president of the st. louis fed has said the central bank should stop normalizing rates until there is evidence inflation is picking up. james bullard made the comments in an exclusive interview with bloomberg in tokyo. that faster gdp
growth by itself is going to indicate that inflation is going to move up. any faster than it has in the past. juliette: global news 24 hours a day, on-air and tictoc on twitter, powered by more than 2700 journalists and analysts in .ore than 120 countries this is bloomberg. matt? america's closest allies will impose tit-for-tat penalties after the u.s. confirmed tariffs against them. we even her just now from peter altmaier out of germany they could work together, mexico, canada, and the eu in order to retaliate against the u.s.. commerce secretary wilbur ross announced duties on steel and aluminum from the european union, from canada, and mexico on grounds of national security. >> different scenarios, but obviously today, unfortunately, the worst case an area --
was enacted. mexico had considered the scenario so we announced today we will take action. that canada could be considered a national security threat to the united states is inconceivable. says it will retaliate immediately. mexico promised to slap tariffs on a range of american goods including chief -- cheese, while canada called the decision baffling. joining us from brussels is the director of euro for the european steel association. what yourst ask you take is on this, that the u.s., ,ot only slapped the tariffs on but that they did it on grounds of national security. how does that make any sense? good morning.
it doesn't make any sense to us. the european union is an important ally to the u.s.. we are partners within nato, and also been the -- a partner the -- historically. we regret this decision taken by president trump. do you see the eu working at all to appease the trump administration? a number ofere were things the european union and germany especially could have done. for example, buying more lng from the u.s. instead of supporting a pipeline from vladimir putin out of russia or slashing tariffs on u.s. car imports from the 10% level where they are now? did you see any of that happening in the background? axel: yes, i believe so.
in order to come into the discussion with the u.s., but the discussion needs to take place on grounds of partnership and not putting a pistol on the other ones breast. matt: i can understand that, but the only other way we currently have to deal with disputes is going to wto, and you can splendor -- plan on spending a decade there to get something changed. isn't this the way these negotiations have to work now if you want to do anything efficiently or expediently? of course, the european union has to go to the wto. at the same time, negotiations or discussions need to continue to find solutions, because we are still talking about the root cause of the situation. capacityeel excess driven by chinese overproduction. that is the root cause and we
need to continue to discuss this with the u.s. to come to a solution as soon as possible, and then hopefully, the measure can be addressed. matt: what are the solutions you see to the global overcapacity? how do you deal with this without dragging it out over 10 years? how do you get something done sooner than later? axel: that is a difficult one. of course, that is actually one of the criticisms of the u.s., the steel industry shares. the process is to react. take too much too long and companies -- countries like subsidizingo remove its domestic industry, supporting exports of its be much and that has to quicker than in the past on steel excess capacity.
but the global forum has good basis. a number of principles have been adopted and these need to be implemented now. they need to be monitored, but countries like china need to agree to monitor these principles and then, we would take steps forward. also, for the wto. to improveis scope the rules of the wto in the reaction is much quicker than today. you expect the effect of these tariffs to be on the companies that you represent? europeanu see the steel industry affected by this? axel: the u.s. is a very important export market for the european steel industry. the export is around 500 million tons of steel per year, so we are talking a value of almost 6
billion euros, and that is a very difficult situation. 50% of theseleast volumes, 5 million tons, will have to find new markets or we have to reduce the production in the european union in order to match now the constraints we high 25% tariffs are quite so we will not be able to fully absorb these tariffs. we are, of course, hoping the to exempt steel products from the tariffs will be taken very soon. we need to the u.s. consuming industry for that. there are thousands of companies in the u.s. which are dependent on european steel. high-quality steel, and those
consumers can now hopefully ask for exemptions for the steel products they need. really appreciate your time this morning. thanks for joining us. axel eggert is the director of europe for the european steel association. we will bring you our exclusive interview later on today with the u.k. chancellor philip u.k.nd at four clock p.m. time. we will get his take on the tariff situation, the eu situation, and on brexit. it is an interview you don't want to miss. this is bloomberg. ♪
matt: welcome back to "bloomberg markets: the european open." day. an incredibly busy 14 minutes to go till the open of stock trading. heading for ais defeat in a vote of no-confidence. the parliament will vote and opposition parties are joining forces against him. the prime minister has said he won't resign. the economic to , joining us from barcelona. thank you for your time, antonio. the first question i have for you as a spokesperson is why isn't albert rivera taking power here? how did this workout that the
socialists will end up forcing out rough boy when the popularity -- rajoy when you're party's popularity has grown. >> the question is easy to answer. there was a choice by the socialist party to get the coalition, the frankenstein coalition with a number of catalonia andding the populists and they decided to do a no-confidence vote instead of allowing the country to go to elections, which was our choice and basically what we have been saying for a while. after the corruption scandal of mariano rajoy and the corrupt government, we couldn't continue after that.
it was to go to elections and let the people choose the government. if that was the case, he would be in government now. matt: how long do you expect the frankenstein monster to live? how long can this government actually stay in power? antonia: not for very long. to pass anyult reforms. it will be very diverse. whohave strong populists undo all the reforms the government has done and at the same time, the catalan party that wants to break up with andn and the nationalists we have seen that those coalitions used to have more parties that have different interests. it will be complicated the pass any reform.
i don't think it will last long. i am worried because it is not an easy time for the eurozone now and we are giving the signal to the world that we have such a weak government is not good news for spain. matt: i mistakenly said you were in barcelona in the intro. you are actually in madrid. i just have catalonia on my mind because the separatist are involved in this coalition. how do you expect the separatist movement to be affected by this new government, to be affected by this new coalition? definitely, the parties will have more influence now in spanish politics than they would have in an election scenario. if we would have gotten to elections, the polls say we would've had majority and important to face the movement
opposed to spain. in that sense, everything that thesent such -- sanchez, new prime minister does, will depend on the acceptance of the independents. this will have a cost for the catalans and the rest of spain. that is not the scenario you want to find yourself in. wonder about the budget, which is another contentious issue here. socialists have promised to uphold it. going to tryanos and influence the shaping of the budget? what does ciudadanos want to see out of this? antonio: we pass the budget law in congress last week with a majority that has changed because the nationalists have gone to the other side of the majority, breaking. we still don't know what will happen in the senate.
it needs to get past. the conservatives still have an actual majority there, but can bring it back to congress and bring it down. .e don't know what will happen it will probably go ahead. another piece of bad news for the prospect of spain as a result of the decision of mr. sanchez yesterday and this week to do the no-confidence vote and put this country into an unstable position. , i want to ask about the corruption in spain. it seems so widespread. everyone in government seems to have a fake masters degree. everyone is getting overpaid and has his family on the payroll. ultraleftrs of the are buying incredibly expensive homes after criticizing others for doing that. is this move going to finally stamp out, in some sense, the old corruption and bring a new
regime into effect that is cleaner in spain? antonio: i mean, during the years of the real estate boom and the flow of credit we had, there was a boom of corruption as well from the popular party, basically what we are seeing these days on party financing, getting illegal financing from the constructions they were providing but we also had this and other parties. the south of spain, also corruption scandals in other naturalist parties. the pro-independence party had the biggest corruption scandal. we need to change the dynamics of corruption and probably going isn'to these parties going to change much. it is an improvement in terms of corruption relation to the government. we wanted to change the mariano
rajoy government because it was unacceptable after the last sentence of the court. still, this is probably not going to be the solution. politicizeon is to even more and that is happily not the way forward. independentave institutions and fight corruption that way. more work to be done. i am sure you'll make that argument at the next election. you forroldan, thank joining us out of spain's capital in madrid. we are minutes from the open. the stock to watch today is going to be deutsche bank. joining us on the phone, the vice president of equity research in frankfurt. let me ask your response -- your reaction to the incredible slump we saw in the stock yesterday. the concerns that the fed have
with thisandard --s&p ratings cut. daniel: these are two separate things which were a little bit unfortunate in the timing. at the moment, the list that toame public yesterday due u.s. subsidiaries have been put on that list. new that really happened yesterday or became public yesterday. list ise around this potentially not liquidity will deutsche bank,f is rather control and that
an issue. therefore, i think a lot of people are now making the lehman brothers case with regards to not really -- matt: christian sewing saying the financing is secure and at good rates for the year but the concern with the downgrade is that funding costs rise. you worried about that? downgrade course, a can have an impact on the funding. however, the downgrade was from and this shouldn't increase the funding cost are medically. what would increase is the funding cost if there is concern in the market that deutsche bank has not sufficient liquidity. this is not the case. matt: got it. daniel, we appreciate you
matt: here we go. less than a minute to go to the open. an incredibly busy morning. business and political and economic news around the world. take a look at futures. inre looking at a gain european futures. investors are selling the yen against the dollar. they are purchasing spanish and italian debt right now. 0.75% on thep continent. it looks like we could have a
positive open even for shares of deutsche bank. trade gate has indicated that that bank will rise after falling to an all-time low in yesterday's trade. just as the market opens up, let us look at some of the indexes out of the gauge. we are looking at the ftse. climb thisch it morning. the ftse is always the first out of the gate. take a and the dax little longer to open up. especially on a volatile morning. in ibex is up almost 1% spain. about to getjoy is voted out of office and the socialist are about to take over with what one guest called a frankenstein coalition in madrid. the cac having a strong open as
well. it will be interesting to see the ftse may have opened in rome here at the bottom. we expect a positive opening for the ftse as well. even though the investors may be the ftse- even though -- investors purchasing not only bonds but also the stocks as well in italy. positive moves across the board. we will wait for the germanic indexes to open the way expect though we expect them to be positive as well. losers with the exception of a small red wedge in consumers. the staples -- investors may be selling off defensive stocks.
a little bit of red out of i.t. as well. it will be interesting to see which stocks the losers will be. take a look at the moving screen. to show the breath of what is going up -- breadth of what is going on. out of positive breadth the stoxx 600. 5-1 as far as winners to losers are concerned. conway fromis jimmy citigroup. mark joins us.e, let us begin with a trade angle.
we could start with everything. so much going on. jimmy, you expect a lot of that to be negative news, right? will like the tariffs start a trade war. populist taking over in -- rome.sts taking over in and yet, we see such a positive day in equities. why? degreei think we have a more certainty with a chance for improvement. if you look at the situation in italy, a degree of compromise has been reached. it seems we will not have the snap elections that some were concerned about. and the global growth backdrop is still pretty good. even if you look at the issues around the trade tariffs, the net impact on gdp is small.
relatively large selloffs. and the volatility of liquidity in the markets. we see -- we expect to see a bit of relief this morning. interesting point. we are seeing a relief rally across the indexes, but even with individual names. i have the live trade of deutsche bank right now. after the shares fell to a record low of nine euros yesterday, bouncing up and trading at about 9.25. t function.ip you can watch the live action there. mark, let me get your take on jimmy's statement. this is a little bit of a dead
cat bounce. this bounce is rather high. is this bad news? are we looking at a trade war in the face? is there the possibility of another european crisis because of what is going on in italy? : there is a lot of bad news. the trade war is concerning and will hamper growth going forward if we continue to have these trade tensions. tariffsrrorists -- caused uncertainty in the world. but as jimmy mentioned, global growth is good. the risk that concerns me the most ironically is italy. the fact that we have the populist government in charge now. that is what triggered all of this stress.
not that italy did not have a government. it was whether the government plan would be announced. and it is fiscally unsustainable. that they will pursue the full player. the biggest risk at the moment is italy. not spain and not trade. matt: i am looking at the wei screen here at the bloomberg and everyone is up in europe. if you look at the last column, you can see the year today gains. italian stocks are up 2% year today where as spanish stocks are down 5%. and german stocks are down 2%. like italianors stocks this year? have had a lot of positive news out of the italian banks. it is interesting. return on tangible
equity was at about 4%. been good reasons to look at italy. including the economic expansion in italy had been quite positive until recently. i am not sure i quite totally agree with the other commentator's views. i think we will have to pay close attention to the fiscal policies going forward in order to make a decision on that. matt: that is what we have heard. it is all about the cost of capital right now. jimmy will remain with us. mark, thank you for joining us.
get off and enjoy your friday. live onollow mark at insights. he has a team of competent people to handle this as he goes off to his we can. top corporate story today is deutsche bank. the credit rating has been slashed to bbb+. it is on a list in america of problem banks. berlin, we just saw your ceo put a memo out to your staff. the main reassurance he is trying to make is the funding picture is good, the balance sheet is good. have you gotten your finance costs locked in? and equity downgrade
might increase your funding costs. >> good morning. our ceo said in his message to the employees that we have done a considerable part of our funding costs. this is nothing that keeps us awake at night. this is not a worry at all to us. matt: how have clients been reacting to this wave of bad news? storieshe big, negative just broke this morning and yesterday. what are the clients saying? erg: it is a lot if you see the headlines. few weeks, itt has been a lot and i can promise you that we are trying to get more boring and make it so there
is less news coming from deutsche bank. having said that, we feel a lot of support from clients. we have been in communication with them. this has not come as they surprise. -- as a surprise. we have signs of trust in the management. it is not that we have not done anything. we have done a lot in the last 2-3 years. please remember the litigation issues we have solved. strategy has been adapted with the capital increase. we are moving forward very decisively. really need to do and that is what we are working on. this sign of trust is a good one. we know we have to execute.
and i can promise you that that is at the core and our focus. we do not have a lack of analysis. we will now execute. i have been with this company almost three years and i can tell you that we have a shift andrds a very focused determined execution on our strategy. convinced andte certain that this will pay out very soon. matt: when will the ceo, christians sewing -- christian sewing be ready to step up and put that on display? it is great to have you, the spokesperson on here, but why is christian sewing not with us today? joerg: because your headline
that would be that the ceo is in panic and we are not. if you look at the federal reserve website, you can see that there are certain things we are working on diligently. since march of last year, it has been documented on the website. effectively -- while i cannot comment on anything at all regarding the regulators, i can pointed to the public things -- i can point to the public things. the outlook for today is stable. internally, if you had not been that market reaction, you would not even see me on the channel. you will see enough of christian. he started out and communicated a lot. and then he had a lot of investor dialogue. ofre is not a lack
communication from christian sewing. he says -- let us do our job. we are not paid to communicate tomanently, we are paid deliver on our targets to our investors and our shareholders. that is our priority. hopefully, next week we can go back to work and it can be more quiet. are in theeadlines equity price. the debt prices has been retreating as well. should the rating downgrade matter to investors? joerg: they should not worry. outlooknvestment grade stable. we have done a lot already.
us, wene wants to see are in a good situation to answer to that. i don't see any reason why, especially our bond investors, should be worried at all. the share price is one thing. but let us they say, we do not have that many act if -- actively trading shareholders. that is not really what we are looking at. in the moment, it is very important. it, while it is important, it is nothing we can change on a day to day basis. we have to get the share price up again. the bond market is very important to us. refinancing is very important to us. on a day to day basis.
bounces share price like yesterday, we see these reactions. we are quite confident that things will quiet down again. this is a proxy for a lot of development. there is no reason for us to worry about these movements. in talks with any of the bigger shareholders? hna comes to mind. they have continued to let options expire. will they end up reducing it further? try, match. i cannot comment on our shareholders. i can to you that we are definitely in a dialogue with several shareholders. dialogue,he definitely, and i can reaffirm
that christian sewing is definitely in a dialogue. much like our cfo, james. this is extremely important to us and we want to know what their feelings and thoughts are about our bank. but having said that, i will not comment on any other shareholders because there are sometimes certain factors that are not deutsche bank specific. matt: one thing that is deutsche bank specific is the retreat from the equities business at a magnitude the likes of which we have not seen. how our clients dealing with the trading day to day form of deutsche bank? siding ourre right equities business. that is true. we are refocusing. we are rebalancing.
it is a question of execution and doing it swiftly and that is what we are doing right now. a lot has already been done in this area. the determination of the management is big. we are absolutely determined to execute quickly on the things we have communicated. this process has already been going on in the last eight weeks and it continues and it will be done quickly. and then, we will have our new positioning in the market. we are certain this will be a more profitable business then and we will still be in the equity business. we are not retreating. we are there and we will stay. you share with us, becomes bloomberg. -- becomes public. you can tell us how the business has been this quarter. everyone knows at the same time. how is this quarter pending out
-- panning out? said: christian sewing that this is a challenging quarter. i cannot add anything to that. this is a difficult environment. things that have been happening are not helping that on the other hand, we have a good team. he determined team. -- a determined team. it is a difficult situation. when you are reshaping part of your business, it is always noisy. having said that, we are processed to bring this to a close very soon. we are very convinced that we have a team in place determined to make the business grow again, to strengthen our strong parts and we have many in our investment bank. a lot has -- many have been
writing us off. at the cash management, this is the dna of the company. we should not forget that. we wrote in germany, that we are focused. discussions right now we are focused- on value and profitability. we are focused on doing the steps quickly and having credible targets. but come up we are here to stay in this business. projections, this is half of deutsche bank. we should not say that we are retreating. because we are not. matt: thank you so much for
joining us, joerg. joining us one day after deutsche bank shares have fallen. they are coming back today. let us get more on the european bank sector more broadly with jimmy connolly. of thee speaking positive news out of the italian banks. how do you see the european banking sector more broadly? it has not yet recovered from the financial crisis. european banks are still trading below look value compared to u.s. values -- compared to u.s. banks. right that the turnaround was not quite as clinical as it was in the u.s. but, it must be said that the capital rating process is now
behind us. in the the tail risks european banking sector are lower than what they were previously. risk time we have premium coming back into the market, the banks are particularly hard hit. look at the dividend yields in some of these banks, they are looking very unattractive especially when you compare it to the credit spreads. a favorable sector. as soon as those credit spreads move, you see the confidence shifting. it is hugely important for these european banks to get out of the interest rate. matt: i am looking on the bloomberg at the group breakdown
on the stoxx 600. pulling up my chart, you can see the stoxx 600 broken down by sectors. oil and gas has been the best performing sector this year. the banks are down 11%. see spreadsen we blowout, and they can only come in from tuesday. at a time when we are getting ready to hear the european central bank probably tell us that it is going to end its quantitative easing program in september, is this an opportunity? should investors take advantage of the loss this year? team hasr strategy recently put the oil and gas sector back to neutral. and it is interesting. they point out that it is very hard for oil and gas and banks
to rally at the same time. twocannot get those cyclical sectors running simultaneously. tactically, think there is a good trading opportunity there. , wehe trading strategy desk are recommending that the nimble.remain very we are in an environment when you see those kinds of dislocations, they have to be exploited or explored but until you get lyrical resolution in europe or a clearer picture -- you get political resolution in europe or a clearer picture of the fiscal situation, you will have to because just. cautious. matt: how would you react if the
ecb does get more dovish? say, listen, we have to extend the quantitative easing? team: the economics believe it is unlikely that we will see that. we believe they will be quite neutral. clearly, it is difficult to say. the program -- the prolongation of the qe program suits the means abut likely further delay to the first rate hike. , you probablytor will see a lot of movement in certain countries versus others. again, it is the reaction to the situation that creates the overhang in the sector. it will be interesting to see what happens in the currency. the dac is very sensitive to
that. mean?oes a weaker euro say, we believe the 14th meeting will be pretty neutral. aside, there is a chart i love to look at on the bloomberg that just shows very basic global stock valuations. 100 --te line is the s&p the s&p 500. the blue line is the stoxx 600. and the red line is the topix. many explain away the lower valuations of europe with the lack of tech stocks but what do you think? where would you buy if you had to pick one? overweightre still as a house in europe. -- obviously, you
also have the volatility and risk to adjust with those multiples. growth has been more evident in the u.s. an easier market to reach. there has been a frustration with the european market. just when you think you are out of the political risk, we seem to dive back in there. tactically, europe is interesting. but in all three markets, as we are getting late cycle, we are seeing more of a tactical been a strategic market. longer-term, it is hard to deny that the u.s. has the right blend of earnings growth and also forward-looking growth companies like tech stocks. matt: it is almost ironic that the political concerns remain in europe. we have donald trump in the us and yet thanks remain fairly
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which could save you $400 or more a year. it's a new kind of network designed to save you money. click, call, or visit a store today. matt: deutsche bank downgrade. a cut up -- from s&p for its credit rating. recorded looks -- rajoy looks to lose a no-confidence vote today. tariffs onp imposes european mexican, and metals. let us see how things are shaping up. stoxx 600.
a lot of banks are doing well today. especially on the periphery. that even unicredit in germany. it is almost all periphery banks. austrianof german and banks getting thrown in there as well. let us take a look at some of the big losers today. there are not many. we have about 500 stocks on the stoxx 600. up and about 30 are unchanged. here are some of the losers. society bic is falling 2.1%. h&m is falling. for the most part though, in today's market, you will see
gainers across the board. let us get the bloomberg first word news. juliette: america's closest allies will impose hit for tact penalties. tat penalties. the eu says it will retaliate immediately. mexico has said that donald trump has shot himself in the foot. while canada says these are an affront. unfortunately, this is the worst case scenario. tariffs on allies. mexico had already considered this scenario and we have announced today that we will take action.
could beanada considered a national security threat to the united states is inconceivable. : deutsche bank's credit rating has been cut by one notch. the downgrade is a below to christian sewing as he tries to reinvigorate europe's largest investment bank. it comes one day after a report that u.s. investors had put it on a list of problem banks. house u.s., the white says it expects a north korean delegation to visit washington today to deliver a letter from the north korean leader. meet withtrump will the delegation after several weeks of tumultuous diplomacy. any decision regarding the summit may be unannounced. >> this is a difficult
challenge. make no mistake about it. there remains a great deal of work to do. we made progress here as well as at the same time making progress in the -- where the other venues of conversation are taking place. : global news 24 hours a day on air and on tictoc on twitter. this is bloomberg. matt? matt: thank you. of thingse you a list you may want to keep an eye on today and tomorrow. the spanish parliament is due to vote on a motion of no-confidence in the government. that is likely to happen. mari on over holy will probably joy will likely lose his job. we will keep you up-to-date on that.
it is jobs day in the u.s. atfarm payrolls coming out 1:30 p.m. u.k. time. on yourype in whis bloomberg, you can place your own bets on that number which is a pretty cool game to play. wilbur ross is heading to china tomorrow. he what -- we will continue to cover that over the weekend as well. definitely stick with bloomberg for more on what looks like a possibility of a global trade war. that is get back to the european story. the five-star movement and the league party in italy are set to move slowly to power. it has taken about three months. they will finally get there with a fiscal expansion program posing a challenge to the
european role. inte is set to be sworn later today. meanwhile, spain's premier, rajoy is heading to a defeat. this comes as opposition parties join forces against them. we are joined by anne-marie. first off, what can you tell us? what do we know? anne-marie that: they question is how will they all get along? they campaigned on different agendas. flat tax.ned on a while the -- while his opponent wanted to give more income support to the poor. to gdpready have a debt
higher than france. funding will be hard. in spain, they are calling it a frankenstein coalition. the newspapers here are calling it a clown show. lucker is saying -- good to the government. matt: maria, let me get to you and mariano rajoy. you have the opposite thing happening. is havingolitician his papers handed to him and he is heading out the door. how likely is it he will lose today? maria: he is heading for defeat. we spoke to lawmakers and they say there is no question.
at one point, there was an idea that was floated that perhaps anoy would resign to force election. that will not happen. he will be forced out. no prime minister has ever been unseated by parliament. debate has just started. rajoy is a no-show. we understand that he will not take part in the debate. he will arrive just minutes before being voted out. have the reactions been from investors to what is going on there? it does not seem like the markets are terribly concerned. everyone we have had on the program and asked about spain, they have responded that spain deals well without a government and that recovery there has been fairly stable. maria: not just stable but
strong. spain has been growing above 3% for several years. we will get a socialist party. there is no question about the european union and the euro. however, the concern is that sanchez said that the goal was to create a short-term situation. technically, he could stay on until 2020. we will want to watch for the specifics. at one point, the socialist said we will have to create -- we will have to raise taxes. to pay for pensions. the big question is how long to stay in office and what kind of politics will we get from sanchez? matt: thank you for joining us,
maria, out of madrid. anne-marie,- joining us from rome. jimmy, even if some of the stories continue to develop, it is bound to quiet down a little bit. has it been that way in equities as well this week? tuesday, people came back from the bank holiday. big themesne of our is we believe investors need to isine with liquidity as it being withdrawn from the markets by the central banks. if you look at the price action on tuesday, the positioning team had analysis that showed the cost blew up 10 times the long-term average.
matt: that is incredible, by the way. we think aligning with liquidity as we have increasing levels of uncertainty coming into the market is a sensible strategy. of bare hear the stories rock and the vix --is this a climate change? as you are removing this fire blanket of qe which has helped to suppress risk globally, our credit strategy that we will see more of these secondary impacts
hitting home. the question is, should the stilllity market -- it is quite low, volatility, in europe. i definitely see what appears to be too much complacency. when i look at the way markets were reacting to italy before the weekend, they were not paying too much attention. do you think there is too much complacency in the equity market right now? , perhaps.ittle if you look at the genesis or the evolution of the italian days ago,ut 14 or 15 we were looking at the realistic formation of the coalition. when the reaction does happen, it happens during a time when there is less market liquidity
because of the holiday. we are seeing a less exaggerated move. procyclical as a house. i am not sure that any of these immediate news stories will impact that. as the ratios calmed down, perhaps not saying that equities are solid, but more manageable. matt: you have got to be nimble as you said. following the politics stories very closely and the global trade stories, it is the pulling of the punch bowl from the central banks that will be the longer term story to keep our eye on. jimmy conway, thank you for joining us with us from citigroup. we want to show you deutsche bank catching a bid. yesterday, it fell to an
all-time low add 9.16. onause of the fed putting it a most wanted list. 2.5% bouncee have a -- this is a two day trade. 9.41, 9.42 now. later today, completely unrelated, but actually not in a way if you look at the european political story, and exclusive interview with u.k. chancellor, philip hammond. this is bloomberg. ♪
the: welcome back to european open on a very busy friday. 40 seven minutes into the trading day and equities are up across the board including deutsche bank even after standard & poor's cut the banks long-term credit rating from a minus. after yesterday, the fed and the fdic had deutsche bank on a list of troubled companies in the u.s. right now, the shares are trading at 9.48. jump from- a $.30
yesterday. a bit like one of my favorite cliched -- cliches in the market, it is a bit like trying to catch falling knives. what is the impact from this week's political uncertainty on the market? looking -- first of all, thank you for coming in. we have been looking at rates all week and focused on the government debt out of italy for the most part. what is the corporate situation like? debtme of the corporate has been more volatile than the equity markets which is strange. even, for example, the phoenix group.
equity fellnd the 3%. volatility is due to the corporate bond market. it is leading the equities which is unusual. more recently, equity volatility has been leading the bond. -- volatility but right now, it is reversed. matt: jimmy said we saw a lot of volatility earlier in the year. is there more to come? paola: the rise in the populist movement is not good. it will be a tricky year, i think. matt: the trade situation -- you had that and the populist government in italy which is part of a trend around the continent. the trade situation is even a populist kind of events.
how much of a concern is it though what you see happening between donald trump and the eu? paola: i think it is a concern for economic growth. that will continue an accommodative stance. thing -- interest rates lower for longer giving the -- given the backdrop that we are seeing. -- i don't want to ask you specifically about deutsche bank so feel free to tell me your thoughts but what do you do in a situation like this when you have the equity getting smashed and a rating agency comes out and cuts something down to the b's from the a's? paola: the best way to mitigate against something wrong is
diversification. we never have excessive exposure to a single thing. it is a simple way of mitigating but run diversified portfolios. so that you are not dependent on one sector. that we have seen recently is that there is a concentration of positions because interest rates have been so low for so long. we have seen volatility in the italian bond market is because of the concentration of positions. you go into the periphery if you need to get excessive yields. the excess yields in the financial sectors -- when things get tough, that is where you feel the pain the most as you have a concentration of positions. people need to manage the risk. matt: everyone has been chasing the yield.
we are going to talk to dani burger who had a great story just the other day. goldman sachs had a warning out last week saying that even if there is not a recession, this is going to be a problem. do you look at it the same way? chasing the yield in financials? : you have to be caught in we were overweight in financials but in a managed way. and now we have diversified. we are looking to get our excess return for our clients from multiple areas so that if one thing goes wrong, you have other areas in your portfolio. these things can come out of the blue. like italy ares fairly binary. how do you price for that risk? it is difficult. i don't think anyone really
believe that they would crash out the euro. during the 2011 crisis, there was a big price move on things like the european investment bank and we just did not see it this week. what surprised me, the complacency. thank you for joining us. now, after a roller coaster of a week for everything from emerging assets to european stocks, what corner of the market should the equity bulls look to? bringinged dani burger us some data. what do you have? have a report from bank of america who joined citigroup saying -- look at all of the political turmoil in europe. to theis time to rotate u.s. where growth is strong. at the should be the safety place. which is interesting, because
u.s. stocks are not a haven. earlier in the year, we were saying that europe is a place you want to be. valuations are low and economic growth is picking up. this is the morgan stanley cycle indicator showing us the economies. u.s. and europe are neck and neck. the fact that these analysts are coming out saying it is time to go to the u.s. -- that is notable because the data is not showing that. there is some spotty data out isre on europe but the u.s. not bulletproof either. even before this week, 17.5 billion was pulled from european equity funds and that was before the turmoil. investors were already moving out. onlyean markets was the
venue that saw a pullout. really bleeding funds. and again, this was before the turmoil. we will have to update this once we get the week to date numbers. you can only imagine that this has gotten worse. matt: can we expect it to continue? : i love looking at this through the statistical point of view. that follow traders trends specifically told me that you should not take this week as something to scare you off. statistically, we are seeing more of these events but they are short-lived. if you are using this week to say that you are scared -- look at what is happening in italy and spain, these things, the shocks do tend to be short lived. maybe investors will come to that conclusion as well. matt: dani burger, our bloomberg
quantsand fonts -- reporter. yesterday, deutsche bank fell to an all-time low based on it concern that the fed had on a concerning list. is that a red arrow? hang on. are up at least $.30. take a look at my dashboard. the gd works on your bloomberg. type in deutsche bank and you can see that the shares are up percent. at 2.7 a one-day change. volume is way up there as well. above the average volume even after standard & poor's came out and cut the long-term debt rating to eight triple b bbb+.-- to a