tv Bloomberg Daybreak Americas Bloomberg June 7, 2018 7:00am-9:01am EDT
markets, turkey's moment of central banks decision moments away. forget g7, g six now. germany and france isolate the u.s. as they say they will not sign a communicate without concessions from the u.s. president trump stands his ground. let's hike. it is risk on in europe. david: welcome to "bloomberg daybreak" on this thursday. we are waiting for turkey central bank to raise rates am a maybe not? the repo rate is 16.5%. analysts think if they don't hike by 100 basis points, that will be a disappointment. david: the answer is? 17.75, a 125-point rate hike for the turkish central
bank. i want to look at the immediate reaction, a stronger currency. the turkish lira bounces higher. the question going forward for the session is will this be enough and will this last? we have seen central banks hike rates to combat lower currency, but it does not sustain. in argentina it and turkey a couple of weeks ago. it held for a moment, then slipped back. the real question is president erdogan. he does not believe raising rates to support the lira. to ship the central banks to focus on growth instead of inflation, a different conversation. in other areas in the market, and s&p up why four points.
aftersdaq ify hitting that level. up by .5%. that is despite german factory orders are like and exports were down in the eurozone for the first time in five years. thank you ecb. the selloff in the core pond market in europe. point up by four basis and crude up 1%. david: you have to feel sorry given what is going on at the g7. alix: talk about volatility. will president trump be there? that is the next conversation. let's get into it. we are joined by peggy collins and marty schenker. let's kick it off with what turkey did and the jump in the lira.
have central bankers sustained credibility? >> especially true with turkey. and how erdogan acts will be key to the market sustaining this bounds. speech,go in a campaign he sounded like he believes in the independence of the central bank. we will see if this is a true. alix: it's not just turkey. it is certain emerging markets really struggling. , and brazilurkey front and center. look at the real. are these idiosyncratic in terms of markets, or is there a broader story can emerging markets? number ofre a countries and central bankers saying to the fed that we need more communication about where you are going. centralan an indian banker said think of us when you
are moving forward because it is affecting our currencies. we've seen argentina, mexico, brazil take a hit against the dollar. i think it is a broader issue in terms of where emerging markets are going as the fed moves forward. david: is it really up to the central banks? you talk about president erdogan for example. it happens in latin america and other places. that is a real uncertainty, especially in the u.s.. has done apowell good job trying to communicate his plans. there has been transparency there. the way the congress deals with mounting deficits will be a key issue moving into the midterms and beyond. david: the second story is the g7 in québec. we are hearing from various world leaders that they want to take president trump to task.
this is what angela merkel had to say. and this is what she said earlier today. apparent that we have a sears problem with multilateral agreements here, and so there will be contentious discussions. i will try to speak with the current president on problems we have overall. that.e merkel saying macron will not sign a communiqué and less president trump goes along on iran and trade. >> it is such a stark contrast. now they can agree to sign something. it's not just those two issues. there is also climate change. tois a real sharp contrast the first few months of the
trump administration where everybody was trying to make nice with donald trump here it that is not true anymore. they will confront this president on his policies. david: do the markets care? should investors care? >> i think investors care. trade and tariffs are one of the biggest unknowns in the market that investors are trying to anticipate. trump has been bold and a lot of statements when he is behind the social media wall, but it will be interesting to see how this goes when he is on the world stage in person with people. how: my question becomes does this inform president's meeting today with shinzo abe? >> there is the specter of the north korea summit, and japan has an interest in those discussions. is holding a number
of japanese citizens. he will try to get trump to put that on the agenda, but no one knows what trump wants to get out of this initial meeting, whether it gets to that level of granularity is unlikely. the next question becomes what happens with the ecb. if you come inside the bloomberg, that's not quite the right chart. the market is pricing the first hike in july 2019, the euro responding. how much does the market have to reprice on this? >> one of the things the ecb is looking at his sending a message through their chief economist that they will not be held hostage by italy. even though there are some numbers coming out of germany with manufacturing today that were disappointing, and it seems like there have been a slew of numbers this year lower than expected, but the ecb is still
seeing good signs on the economy and on track with its wind down of connotative easing. that is the question over the next several weeks. how does that wind up in forming the rest of the markets as well? you're still dealing with italy. they have to address that in some capacity, but markets seem to not care. >> it is a stark reversal. a week ago, italian bonds were plunging and there were images of the previous debt crisis in europe. things completely turned around and the narrative is that growth is good. there was some thought of a slowdown in economic growth, but it seems like the ecb is trying to signal we are going to start draining the punch bowl. alix: factory orders, what ever? exports, whatever? it was domestic for the factory orders that were the worst so go figure.
last year, the eu find google $2.8 billion. bank of america tapping the brakes when it comes to risk. it has become more selective when asked to advise on deals and is easing off and certain overseas markets. 2017, advising on deals fell 27% in the first quarter. warns u.s. isolationism could undermine the dollar as the world's reserve currency. policyed a go it alone on foreign affairs and trade. >> we are attempting the world to find an alternative to clear and use something other than the u.s. dollar. it's not going to happen in all likelihood with euros. the chinese currency is not ready, but there is enough technology in the world today with cryptocurrency that you can mindne if you let your
wander that something becomes an alternative in the future. we should not be tempting fate like that. >> that is your bloomberg's has flash. alix: the turkish central bank hiked rates. they raised the one-week repo lira125 basis points, the jumping almost 2%. is the us from boston ubs head of global markets equity strategy. he has been underway turkish equities, but has upgraded other emerging markets where he is still a bull. let's start on turkey. hike in may,oints now 125 basis points, is it enough to stem the slide of the lira? >> a lot of this depends on the dollar. we think in the short-term it will help stem the tide on the falling lira. it looks like the central bank
is trying to regain control of monetary policy or reassure the markets it is in control of monetary policy, but it continues to be a weak story fundamentally. they have a large current account deficit. you have the election coming up. i think it is a temporary respite, but a lot depends on where the dollar goes. alix: if you look at some of the other asset class, bond yields are at record highs. at what point is there an attractive enough yield to be compensated for the risk? >> it is a fair point. probably not yet. there is enough uncertainty out there. the election is one. you would like to see inflation rolling over and turkey coming down, which means monetary policy is doing that job. although you get the bounce today in the lira because it was
not clear whether the central bank would raise rates are not, we are skeptical about whether this is a long-term buying opportunity. there is too much uncertainty in that market. alix: is this contained? or is this a broader contagion issue? we spoke about that potential contagion in an exclusive interview. emerging markets for the moment appears to be contained a to argentina, perhaps turkey. this is happening during strong economic growth globally. it toa good time for happen when the institutions can best respond. there will be real challenges going for does the dollar strengthens and the u.s. interest rates going up in the macro environment in the u.s. so strong. that in then see political risk score of turkey
and brazil versus emerging markets. they are much higher than the sector. talk through the contagion aspect. the fundamentals have to in persaud recently. poor theyscussed how are in turkey generally. emerging markets are up 4% off their low at the end of may. india, indonesia, their currencies are rallying. the dollar is down because the ecb sounds more aggressive in terms of removing qe. peoplee dollar lower, will push money towards emerging markets. a crisishis talk about in emerging markets is nonsense. there are some stories which are k and should be avoided. isid: how much of your call
dependent on what you think is going on with the dollar? if you think the dollar would strengthen, how much would that change? >> it would change it significantly. the dollar is important to the court. we have a weaker dollar in our forecast. how positive view on the asset class for the rest of the year. one thing you have to address his have the fundamentals in emerging markets been damaged by the softness recently? we have seen some economic downgrades in brazil, in indonesia modestly. you see horizon debt spreads, but nothing dramatic. the asset class as a whole, earnings are holding up well, so it is hard to make a call that emerging market fundamentals are deteriorating. if the dollar continues to go
down, the asset class will rally. if we get a stronger dollar, this would create a challenging the weaker here it emerging market stories would be under pressure once again. david: you mentioned the fundamentals, whether turkey or indonesia. to what extent are they correlated and to what extent are they idiosyncratic? you have the order one situation , different situations and argentina and brazil. are they correlated or different country by country? >> when you get hostile global condition such as a strong dollar and rising bond yields, the whole asset class comes under pressure. the reason why those countries have done poorly is they have had idiosyncratic problems. turkey has poor monetary policy. real interest rates may be better, but generally low. bad current account deficit.
brazil has to two rated dramatically with the truckers strike and the uncertainty about the election. if we were to see the dollar going lower to the extent we were expecting the rest of this year, emerging markets will look good and they will come back and we will forget this. alix: if you are a global equity earnings are the revisions for the s&p holding up while emerging markets are coming down. my chart shows that. opportunity see the ? i'm thinking the s&p in the u.s. will hold better opportunities. >> of course that might be true. our u.s. strategy is bullish. the valuation gap between emerging markets, which is not particularly overvalued, and the u.s. is wide, so the u.s. will run hotter with respect to those earnings revisions. he if we were to see a significant slowdown in the
economy's in emerging markets because the global economy slows or the effects of this mini selloff, earnings numbers start to come down significantly, then we would have a bigger challenge. we think the fundamentals have not been battle he damaged. meanwhile, the big driver of the selloff, a rising dollar, is going the other way. direction,es in that people continue to put money to work in emerging markets. david: always great to have you. , deutsche bank says expect another quarter of declining revenue as european banks underperform. we will discuss the outlook for the sector. this is bloomberg. ♪ this is bloomberg. ♪
all european banks are underperforming. take a look at this. they can't keep up with any rally in the index. joining us is morgan stanley global head of asset cross strategy. you are overweight european stocks. are you overweight european bank stocks? >> yes, we are. the sector has been a laggard. alix: it looks like we are having some audio issues. you is interesting is as look at banks in the u.s. and europe, we talk about how u.s. banks are in better shape. the difference is valued traits can't get a bid. what does that mean for banks? you continue to have a yield curve that is flatter. does it meanat for european growth? it has broader ramifications.
in europe because corporations are so dependent on banks. alix: because they have more lending. here corporations issue a lot of debt versus europe. david: they are so much more developed here than europe. it is not seem to be changing. corporates turn to banks. you have to have robust banks. they have been lagging. alix: that is a market opportunity, but you have to hire people and grow your business. it is opposite deutsche bank. david: we hear that if you could change the geopolitical structure, because part of the problem is so many different countries and so many different banking authorities. it's not like the united states where you have one federal authority. when you talk about cross-border mergers and consolidations, it is much more cumbersome over there. you have the ecb and individual authorities. alix: i think andrew is good.
let's go there and talk about banks. wondered if you're overweight european stocks is overweight european banks. >> yes. the sector faces challenges, but his trading at one of the largest discounts in history. it has been a large performer. wrong point to reduce exposure to the banking sector. there are certain banks with fundamental issues, but you have a eurozone bed is growing, rates moving higher, and we think that provides good, positive profit growth and additional optionality for the sector. alix: can you make a distinction between what region? is it u.s. versus europe, also regional in europe? >> it is not a large regional call. we are overweight financials in the u.s. as well.
this is a sector that performs later in the economic cycle. it is different drivers between the u.s. and europe. in the u.s. it is related to the changes in law and the markets under appreciation of the profitability in the large-cap banks. in europe it is an organic loan growth story. , the stocks up index gaining along with the euro. in theket is pricing first rate hike in july 2019. what it means for overall equities and yields, particularly in germany. this is bloomberg. ♪ s bloomberg. ♪ retail.
unchanged so far. s&p futures eking out a little bit of again. round -- european level stocks higher. factoryhe fact germany orders disappointed, european stocks higher along with the dax. the ecb story leading the euro yieldsup .4% and leading higher in the core with the bund up three basis points. here in the u.s., a modestly steeper curve, that is a reversing from earlier gains. 46 basis point is where we stand. copper is actually at the highest level since december. if you want to talk global growth and trade, maybe you want to look at copper. david: i have been waiting all week for you to get to copper. alix: so lying. david: it is true. memorable day. what is going out
on outside the business word, we turn to emma chandra. emma: vladimir putin says he is confident of the country's prospects for long-term economic growth. he said on the whole, russia is moving in the right direction. he also said the country will not introduce a sales tax. his first live televised program since he was reelected in march to another 6 term year term.6 china and the u.s. have had "deep talks." in houston, there was an early morning scare at the airport, security personnel found a toy grenade, leading them to clear out hundreds of people. passengers were allowed to go through security when the bomb squad determined there was no
danger. global news 24 hours a day, on air and tictoc at twitter, powered by more 2700 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. june and july may prove to be a critical opportunity for the ecb to show confidence in the euro area economy as the market priced in a deposit rate hike in july of 2019. the estimated months until a rate hike is between 15 and 16. we are getting closer and closer into market repricing because of this. sheets.h us is andrew this goes to your overall call that in general we see tighter monetary conditions across the globe. how does that affect asset allocation? andrew: i think it means investors should be reducing risk into the summer. i think this is a trend in europe, in the u.s., and japan
and china. all of these regions are going to be facing decelerating growth and tightening policy and i think it he difference versus last year is as the central banks consider their next decision, inflation will be rising. i think that will make it harder for central banks to back off the gas pedal and be more dovish , which was the pattern we have seen for prior years. david: i want to bring in marty schenker. you are talking about decelerating growth before g7 tomorrow and the showdown at the ok corral between president trump and 6 other people. what effect could that have on growth? marty: it could have a significant impact. i think there is this thought among our allies that donald trump will back down and they have given some wiggle room over the next month or so before their retaliatory tariffs take effect with the thought they
will reach some sort of agreement. there is always this chance they won't. david: doesn't it feel like for the first period of time they it willwe make nice be just fine and then something happened and they said, that is not working. we have seen a sort of a turn in the approach. marty: there is definitely a much more belligerent pushback mode among the allies, the group of 6 plus one being the united states. donald trump is going to be hearing pretty strong language from our allies about how bad an alix: trade tariff regime is. the question has become for the markets, how do you price that in. jpmorgan did research and came up with models and said $1.25 trillion had been wiped from the s&p over the last few weeks. you can kind of also begin to see that as the bottom panel talks about the story count referencing trade tensions and
what has happened to global equities from emerging markets to china and the s&p. how do you factor in a trade into your sector allocation outlook? andrew: i think it is one more uncertainty building over the summer paraded like everything, it is a question of price. i think a number of markets, they're just doesn't seem to be much in the price. i think the points marty made our important for the market. ofhave been enjoying a level constructive ambiguity. it hasn't been clear what's the administration ultimate -- what the administration's ultimate position will be. we are rapidly approaching key deadlines, kind of this end of the ability of that to continue and i think it is one more thing that can lead to a more challenging market environment over the summer. david: you say markets should
take account of when it goes south, but they aren't thus far it appears. i will put a chart, cyclicals versus defenses. when should they make this turn? people are afraid of losing out, but when it should they make the turn? andrew: i think it is a fair point, you have competing elements of this large amount of trade uncertainty and the fact a lot of global growth data right is still looks strong, which supportive of that cyclical peace driving rates higher, which is harmful to the defensive side. i think this works in stages and the first thing you want is to own volatility, which i think will be the first thing to go up for you see a major cyclical rotation. david: when you look at washington, did you see a possibility of volatility going down? with this not president. one interesting thing i said yesterday, lindsey graham came
out and said i now support the president's position on trade and we should give him time to execute his strategy and lindsey graham has not been shy about being critical. that provides some glimmer of hope there will be a positive resolution to the trade dispute. it may not happen tomorrow or the next day, but in a month's time. donald trump has said, don't worry everything will be fine. it is possible that will happen. alix: i feel like the market has underestimated president trump many times. equitylook at all the asset classes, u.s., japan, emerging markets command europe. can you rank them in your preferable order? andrew: europe is the most preferable market followed by the u.s. we are more cautious on emerging markets and most cautious on jim it -- japan.
we think the yen strengthens over the next 12 months. alix: is that a safety play? and you will rotate the defensives sooner than you thought so walk me through that strategy. andrew: i think that is partially linked to the fact we think u.s. 10 year yields are close to peaking for this year around 285 andy they will respond in a more forward-looking way that growth would be decelerating. when we get more confident those yields are peaking, i think you will see more of that defensive rotation. i think it is a second half for third quarter 2018 event. something called an election coming up in november and typically that affects the government's behavior. what sort of activity would you expect to take in order to make sure he holds the house and how will that affect markets? marty: there is interesting
polling that shows it is not the economy, it is not the russian investigation, the thing that is the issue most compelling to voters is health care, which we andnot talking about at all health care premiums are going up, deductibles are going up and this is affecting people's pocketbooks. they are increasingly moving toward medicare for all platform into the midterms. g six6oning into the g7, this weekend, how does the order of priorities ranked, you have climate change, iran, which will be the most contentious? marty: i think it is the tariffs issue. iran actually has made it clear that it really wants to preserve this a deal. the allies do. it is the issue of sanctions that is keeping -- worrying our european allies. sanctionsn't for the
that the u.s. imposes on iran, they could probably hold that deal together. from a visceral standpoint, tariffs is the number one issue. alix: and that brings us to why small caps have outperformed. this shows the russell 2000 versus the s&p and how it keeps grinding higher. do you need to play catch up here or rotate somewhere else? andrew: i think we see other places that are probably better to play that data. i think health care is incredibly important for the market and inflation outlook. health care inflation has been incredibly low in large part because of the changes. as you see those changes shift, new policy, health care inflation is going up and that is a part of core pec and i think that will push core inflation higher over the next two or three years. david: just pursue that for a
moment. within the health care sector, does that mean you want to stay away from it or does it create opportunities? andrew: i think it does create some opportunities. this is a sector that usually has defensive properties. it is a really big story for the interest rate markets and how people think about fed policy hasuse core inflation allowed the fed to always kind of ease back if they are worried things were getting too volatile. it was in large part because health care is 20% of pce. now health care costs are rising, which means core pce will be higher and reduces visibility. ps this in a nice little bow for us. the trend has been stocks and bonds moving together and correlations breaking apart, diversification being challenging to find.
going forward, are those trends going to continue? andrew: i think we are facing a shift in the policy trend, the inflation trend. i think diversification is harder to come by. that is one of the reasons we like the yen. that is one of the cheap things in the world we think is correlated to risk and why we like owning volatility. the ability to limit to those losses through options is more valuable than it would be otherwise. david: marty schenker and andrew sheets, thank you very much for being with us. thank you for your patience, andrew. knifells out it's swiss as the bank redirects resources. more on that next in wall street to beat. you can turn on your radio and listen to tom keene and jon ferro. bloomberg surveillance can be heard in new york, boston, the bay area, all parts of the united states. this is bloomberg. ♪
emma: this is "bloomberg daybreak." hour, an in the next exclusive interview with christophe i they'll -- christophe. now to your bloomberg business flash. bloomberg has learned carl icahn built a small position in the drugmaker, but his -- the size of his stake is not known. they will spin off the women's health and antibiotic divisions. in germany, there is a sign there is an economic slowdown that again at the start of the year and it's getting worse.
factory output declined. orders from the eurozone plunged almost 10%. americans have cut the cord when it comes to telephones. a majority of u.s. households are wireless only for their telephone needs. 50 4% of american homes have only wireless phones or mobile phones. fewer than 6% have a line line -- landline phone service. to wall streetow beat where we cover three things wall street is buzzing about. first up, ubs' swiss knife. fades.e's the sterling lender warns of more stress ahead. bank of america caps the break, they -- taps the brakes. david: joining us now is peggy collins who leads bloomberg's
investment coverage. welcome and good to have you back with us. ubs, all of these banks are sort of tinkering. i think of it as wealth management. ubs iswe found out shifting away from asset management in terms of job cuts, at least 100 globally and some of them in the u.s. and new york. basically, they are shifting their focus toward investment banking and wealth management. asset management sits in the middle and the focus is really on asia. this is interesting because they see a lot of growth, but we have not heard as many banks say that is our number one priority. -- said we really want to go into china. i wonder, are they too late into the game. at this point, can they build up that business in china? has had ahink ubs
presence for a while and they are one of the strongest banks when it comes to managing the wealth of billionaires. they have been looking at asia as a growth space. alix: if you do passive investing, that will be a lot of volume, but not a lot of margin. i wonder how that factors into the story. david: if you want to serve billionaires, go where billionaires are being created and they are being created in china. alix: everybody wants to cater to those billionaires. our second story is deutsche bank. i want to see a wall street beat where we don't talk about deutsche bank. deutsche bank's warning of another quarter of declining worsee and say a little -- i wonder what is deutsche's and what is the market. peggy: i think they are under a tremendous amount of pressure after the chaos this year to
prove to the market that things are getting better. in reality, it takes a little bit of time for changes to be made like cutting down the number up staff, refocusing on the home base, those things take time. david: they don't have much time. one of the challenges is if you are getting rid of staff, you want to make sure you get rid of the right staff. one of the leaders went to softbank. i don't know the situation, but you want to make sure you don't lose your senior people. peggy: right. i think they are in a race against time, although we have jamie by -- jamie dimon and warren buffett saying there is too much focus on the quarterly earnings, but it feels like deutsche bank is trying to get out in front of the next earnings release and saying we could be down on revenue again. --id: i have never said heard a ceo say there is too
much focus on quarterly earnings. i understand the idea, but they need to be transparent. you need the benchmark. david: they are right on the merit, but it is not going to happen. alix: could you imagine if deutsche bank came out and said we will not report quarters anymore? i think it is interesting because of the overall risk. david: as we are talking about that, bank of america, beautifully done and they seem to be saying we will scale back on risk. -- e because of the i talked to people inside the bank who said what is going on here? peggy: they lost about $300 million toward the end of last year. this is tricky because bank of inrica took a lot of losses the financial crisis. the question is, are they going to end up being right if they are the risking and we are at that end of the credit cycle>?
? or are they going to fall behind as it looks like they did on the first quarter for things like fees behind on deals. it is a question of do you go conservative and be one of the first ones and great at the end or fall too far behind? david: if you talk to brian choice., he has no in his mind, he says you do not go after too much risk. he was there in the bad days and heinherited a mess and cleaned it up a lot and he has said repeatedly on camera with me, we do not need to take that much risk. we will take the mortgage server route. alix: as an investor, 12 months ago you were looking at banks as a whole, the yield curve, rates, and earnings. now i feel like as banks are able to take on more risk, it will be more idiosyncratic because you know goldman is
taking more risk and some talk about how harvey shorts was less of a risk taker and it did not and whichve him well one will come out on top. we can actually grow the bottom line, we can grow profitability without really growing risk. different you have quality banks, banks doing different things and investors create different opportunities. peggy: it will differentiate the leadership and some banks in europe are having to retrench, aka deutsche bank, will they not be able to do some of these maneuvers other banks are choosing to do? alix: this is our first all bank wall street beat them i think. david: many thanks to peggy collins. the democratic primary's parties -- democratic party's efforts to take the race. alix: check out tv and
david: this is what i am watching, the results of the primaries from tuesday. it took us a while to figure out the results because there were so many people running. i think the upshot is democrats dodged a bullet because they thought a lot of democrats would cancel each other out in this bizarre primary system they have and they did not. the democrats have a lot of strong candidates. they have a lot of money in the market. there was some thought it would be two democrats running against each other. this map indicates with red dots where there are gop races for
house, races all over the country, but where there is danger for republicans. they only need 24 seats to switch and they think they would be in better shape. the generic number is going more toward the republican way. it was heavily democrat. at the same time, democrats have a unique field of candidates. a lot of women, a lot of moderates, and a lot of vets. alix: does it matter if the economy is doing well and job rate is low? to a russianl talk direct investment fund ceo next. this is bloomberg. ♪
alix: cracked in emerging markets, turkey's central-bank hikes rates for the -- time in several months. .orget g7, it's all about g6 germany and france isolate the u.s. as they say they will not sign a communique without major concessions from the u.s. president trump stands his ground. markets rise in an ecb deposit rate hike in july 2019. euro and stocks moving higher. david: welcome to "bloomberg daybreak." i am david westin here with alix steel. you have to feel a little sorry for the turkish central bank. more than did hike estimated, they were looking for 100 basis points. again, you get a spike in the lira, but will that last? especially when you have the election at the end of june. david: you have president erdogan breathing down your neck. alix: the nasdaq closed at a
record high yesterday and s&p futures now up by two points. 3400 on the s&p this year. the euro grinding higher, the dollar losing steam overall, 1.18 is how we print. that is causing gains in the equity market to pair as euro and equities cannot seem to move higher. in germany, yields moving higher in the bond market by three basis points and crude up by one full percentage point. david: the turkish central bank raised rates today, apparently impressing investors. the lira gaining on the lose. we are joined by is simple with the reaction. markets and do overall and how long is this likely to last because we have an election this month? thisme will see how long will last. today, investors are definitely
impressed with the latest move by the central bank. much more than expectations by 125 basis points. the most expected was 100 basis points and others did not expect a hike at all. the central bank delivering a clear message to investors asserting its independence despite political pressure and saying it is serious about reining in turkey's double-digit inflation. ins is the third rate hike two months. they have hiked by 500 basis points and investors are loving it. thelira up 1.5% against dollar. overall, it is among the worst performers in emerging-market currencies, down about 16%. istanbul is up 1.5% as well. yesterday it entered a bear market. banking stocks climbing 2% after decision.
the yield a massive 30 basis points, so investors loving it. alix: thank you very much. in the strength of the u.s. dollar taking a toll on emerging markets. warns the current u.s. trade and foreign policy could undermine the dollar's status as the world's reserve currency and gave his outlook for emerging markets. >> when you look at the second killer of u.s. strength over the last period of time, it comes down to soft power, the ability to have influence without having to exercise power and that comes through diplomacy. probably the greatest demonstration of soft power is the fact the u.s. has the reserve currency in the world and that is not going away overnight. to the extent that we have a andateral foreign policy trade policy, we are attempting the world to find an alternative and clear and use something other than the u.s. dollar.
that is not practical today. the chinese currency is not quite ready for that. and it will likely not happen with euros. there is enough technology with cryptocurrency and changes, that you can imagine if you let your mind wander, that something becomes an alternative in the future and we should not be tempting fate like that. this is the best macroeconomic period we have probably seen in 20 years. strong growth in the u.s., including -- improving climate in europe, decent growth in china, good transition for manufacturing economy or service .conomy, good growth overall you look at some of the emerging markets, a little bit more of a mixed picture. this is a good climate. reallyuld derail it is the cycle will age at some point, there is a natural cycle
of growth and recession and at some point, interest rates will go up and it will start to slow down the economy a little bit. we should expect that and that is probably a few years off. the bigger risks shorter-term are geopolitical and those are risks that are not, today, not well priced in the market. they usually are not. he geopolitical risk is usually priced inthat gets after-the-fact. there is trade wars, north korea, the iran accord, sanctions, and the latest upsets in europe around italy that i just think we have to keep an eye on. >> do you believe that there is a risk of contagion in emerging markets? two arem not sure the linked. emerging markets appears to be contained to argentina and perhaps turkey. this is happening at a period of strong economic growth globally.
if it is going to happen, it is a good time for it to happen. be real challenge is going forward as the dollar strengthens with interest rates going up and the macro environmental -- macroeconomic environment being so strong. relatively speaking, those are small contributors to world growth. overall, i think they are not likely to have that big an impact. alix: that was part of our interview with ken jacobs. we have more of that exclusive interview throughout the day on bloomberg tv. sticking with emerging markets, if you take a look at the earnings- equities revisions, rising holding, the blue line is emerging markets continuing to decline. how do you make a case for where to find the upside? joining us is yana barton. do you like emerging-market equities? we focus on domestic
equities and i think it is a perfect example of compare and contrast, the backdrop of where equities can do well. you mentioned what is happening in turkey. if you look at our on a terry policy and the level where the 25ective funds rate is and a basis point moves, it pales in comparison of what we are talking about on the other emerging market area. i think it is an incredible time to be an investor and focus on the micro and stock-specific opportunities brewing all over the place, particularly in the u.s.. david: we have something breaking across the bloomberg right now. wilbur ross has said now that zte and the united states reached an agreement. the president talked about it and it is expected it will involve something with over $1 billion of funds. this is the chinese telephone manufacturer that essentially the united states shut down because of sanctions with north
korea and iran. the united states after reviewing said you cannot do business here at all. we are backing off that as part of arrangements with china over trade and a have announced they have a deal. sorry to interrupt. alix: if you take a look at nxp stocks arem, those jumping higher as that seems to have all been part of the deal. may now well approved the qualcomm deal, which they put on hold. alix: i wonder what that means for trade down the road. when you are things like this, if you were trying to protect yourself, if investors are trying to head the risk with trade, how are you handling that? yana: that is a great question and i go back to company specific fundamentals. project goingan forward is headline risk will not abate. we are talking about trade wars
and geopolitical unrest, that is not going away. way you can protect yourself is understand the fundamentals of the companies you are investing in and tilting your portfolio toward companies that are writing the tailwinds of long-term secular growth stories. that is what we are doing in our focus growth opportunity fund, focusing on stories in tech and other areas in the market benefiting from long tend -- long trend secular tailwinds. david: coming up, we will talk about president trump, visiting with japanese prime minister shinzo abe. they are meeting at the white house today. we will discuss what to expect with george freeman. -- george friedman. this is bloomberg. ♪
david: we come back on this news that broke a few minutes ago. wilbur ross said we do have -- the united states has a deal telephonethe chinese company. originally, we had a sanctioned them to the effect that they could not do business with u.s. companies. there is a new deal earlier and it had been reported it would involve a substantial fine. there have been management changes, but apparently there is a deal so zte will be able to sell their wares in the united states and that is part of a larger trade negotiation with china. nxp, semi-, and qualcomm moving on the announcement. enforcement action is
separate from other issues. he said the chinese are well aware and there is a new marshall in town. david: you have to feel for wilbur ross. he says there are separate and the president himself tweeted this is part of a larger trade deal. the president said they are tied, but wilbur ross saying it is segment. alix: you have the initial move and then there is negotiation and consistently we talk about the alarmist words of the white house, but at some point they come back to have a real conversation where things can get done. david: when you try to price it, it is not just different directions on trade, but how it is connected to north korea because the president linked them. we want to turn to someone who understands these issues better than anyone. we have george friedman. thank you so much for being with us. we want to talk about shinzo abe and a summit.
before that, let's talk about development.te this was thought to be a matter of national security and we seem to have backed off. george: i am not sure we backed off, we delivered a strong message to china that when we have interest, we will be aggressive. the fact that we are aggressive and turnaround and make a deal is dealmaking. what i find odd is people who whenn favor of diplomacy trump does it, get upset because he is being -- treating diplomacy as what it is, dealmaking. we lean on him and then we do not lean on him and then we confuse as to how he approaches things. me sort me sort out three possible bases for this decision. one is trade sanctions with north korea and iran that they
violated and subsequently, reportedly, they lied about it. another issue is trade with china. by china issue is 2025, which has to do much more with the larger question to the extent that chinese technology will take over for the next generation. george: i think all of these are part of the equation. when you are dealing with a nation as complex as china and the united states, there are a lot of issues. certainly the korea issue and what china has not done has not been helpful on the issue. there is the particular question of this particular company and what is the long-term ratio between the united states. it is a comprehensive approach to the negotiation between two nations with very different interests and the united states
showing it is willing to do things to hurt them and also willing to back off and lighten -- when they sometimes changing their thetion, as you do in negotiation. the idea the president said something three weeks ago that doesn't jive with something now. the u.s. the plum as he has tried to be consistent and that has tried toomacy be consistent. alix: this is an interview with wilbur ross saying the u.s. and zte have reached an agreement and they retain the power to shut down zte. he says it is separate from other issues and goes on to say zte will pay a $1 billion fine and keep $4 million in escrow. david: and a change in management, presumably. i want to come back to you, george, for a moment and come to the -- turn to the summit. we have the g7 tomorrow and the
summit between kim jong-un and north korea and president trump. abe visits president trump, what does he want to get out of that? herge: in the long-term, wants to make certain the korean peninsula does not become a threat to japan. it is the buffer japan has is worriedna and he in any negotiation with north korea, north korea is going to deal,r an extreme withdrawal of u.s. forces in south korea and the defense treaty and he does not want that to happen. abe is depending on the united states remaining a strong presence on the korean peninsula. we are -- what we are all waiting on his if the north koreans agree to abandon nuclear weapons, what is the price they are going to pay and abe is a trying to shape the american positions of the price cannot be
so high it threatens japan. david: talk about specific denuclearization. one thing that is speculated is korea -- north korea says if we denuclearize, south korea has to as well. would that be threatening to south korea and japan? george: u.s. strategy undoubtedly includes that if their north -- there is a north korean invasion, we might use tactical nuclear weapons. that isn't really the issue. the north koreans have met -- have not made their demands nuclearr getting rid of weapons. i suspect it will have to do a lot more than nuclear weapons in the south. the big threat to north korea is the american presence of over 35,000 troops in the country, aircraft, and a defense treaty where we are guaranteed to defend south korea.
they want, i suspect, that treaty to go away. they are regarded as a threat to national security. they will want a high price to get rid of nuclear weapons and there will be more than nukes. david: that is george friedman, geopolitical futures founder and chairman. alix: wilbur ross in an interview with cnbc talked about deal,e has reached a paying a $1 billion fine with $4 million in escrow. much more coming up. this is bloomberg. ♪
iran. now they are saying they can still do business with the united states, but they will pay a $1 billion fine with or hundred million dollars into escrow. they have the right to come back and shut down zte again. this was discussed with andident xi of china president trump and now apparently the united states has come to terms although wilbur ross says it was totally on sanctions. alix: who to believe? some stocks are moving on the move. nxpall -- there you go, taking a leg lower. this deals with semiconductors that have been on a tear recently. still with us is yana barton. do you like semis? yana: we like semis and a lot of other industries in the tech space.
irrespective of the geopolitical chatter we have been talking about, it is outperforming the market. what is more important is one of the few sectors doing well on a ed basis and an equal weighted basis. there are a lot of industries participating in this rally. the: overall, it feels like sayings have led the nasdaq to these records. -- ou feel there will be will they stick with ones that have been working? yana: that is a great question. i always wonder how to best answer that question. if something is going up, is it doing so because expectations are getting higher and more so than what investors are expecting or is it doing that because of sentiment and multiple expansion.
they all do an act and their business models are different. the only similarity between those names is topline growth. a is in excess of s&p 500 by multiple. most of these countries have topline growth index -- they can continue to do well because they have pricing power and increasing market share and they are in the sweet spot of all these disruptions. they can continue to do well and so can others within the segment. david: as you said, tech has been leading the market for some time. i want to talk about a different distinction, how many industries are still in the process of being disrupted. we think about autonomous vehicles and banks. that are so many sectors apparently are going to have to move farther and farther technology. is that more some of the people behind the scenes like the semis? yana: great question. technology is driving disruption
and innovation in sectors outside of cap, in areas of the market -- outside of tech, in areas that are not perceived as sexy or growth-y. a long-term secular trend is just starting. there was a statistic that there was only 1.1 million electric vehicles and that is expected to be over 125 million by 2030. that is an incredible opportunity for companies enabling this growth. there are other growth opportunities within the biotech, pharma space, and others. it is really proliferating across the market. alix: yana barton, really great to get your perspective. aside from the zte deal that has potentially been worked -- reached, we want to talk about
the interest rate market as well. the headline for you, the u.k. says the irish backstop should come to end in december 2021. does that mean 3.5 years they have an irish border decision? david: i think this is basically they have to keep the border nonexistent, no border, but mainly only until 2021. the e.u. said it has to be per minute. i think the reason you may be see a sterling move is because there was a revolution between the may cabinet and may put it back together. alix: interesting. david: coming up, we talk with kirill dmitriev about the effect of the u.s. sanctions on russia and the plans to participate in the saudi aramco ipo. this is bloomberg. ♪
what will happen as some of the names get a pop like qualcomm after wilbur ross said the zte deal will move forward. exports fell in the first quarter and factory orders also came in light over in germany. in other asset classes here we are taking a look at euro-dollar up by half a percent again because of the data very the ecb conversation potentially the first hike in july of 2019 and the german bund yield up by about four basis points. , check that out. 1000 right bank in line. wishing is creeping up slowly every week but the trend however is still going to be lower.
we saw on the last law jobs number, all across the board anywhere you look it was strong, particularly african-american unemployment at a record low. all the different factors. just a read there. david: you always want to monitor it. let's get an update on what's making headlines. emma chandra is here with first word news. emma: theresa may's government is, with a brexit proposal aimed at heading up a rebellion by some in her cabinet. she wants to tie the you kde you customs rules. she will see this as a way to avoid a hard border in ireland after the split. endplan should come to an december 2021. that's when the you can expect a trade deal with the eu to be in place. vladimir putin says he is confident of the country's top
banks for long economic growth. he said on the whole russia is moving in the right direction and also said the country will not introduce a sales tax. it was his first live televised interview since he was reelected. china is willing to increase imports to the u.s. if the trump administration meets it halfway in trade talks. the chinese minister of commerce said the two sides have had detailed talks on farm and energy products. an official said it is an established ratted you. global news 24 hours a day on air and twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra, this is bloomberg. david: a story we have been covering year that may or may not be related to the chinese trade talk. the secretary of commerce announcing the zte has come to
terms with the united states and will pay a fine, 4 million of it in escrow. they will have a u.s. and for steam to make sure that comes to pass. he thinks it will be a deterrent to other bad actors and insist it separate from other issues and i'm sure it's a pure coincidence that he was over there negotiating. alix: i wonder if there's a lesson here because the stronger president trump comes out against nafta, they push back equally as hard. yet you have china when it came out strong they are negotiations taking part. i wonder if there's a lesson to be learned for the g7 as we head into that. for president trump is clearly to deal and it's clear president xi if you take care of zte, i will take care of imports. alix: u.s. suppliers are really jumping in free market.
others like nokia ericsson, they are all down as a potential -- as qualcomm could get back in business. the semi's in the market very much so getting a spike on that. how have to wonder though members of the public and congress will think about it because they were not a fan of this. david: there are quite a few republicans proposing legislation said they want to have legislation to really curtail his ability to cut back on the fines and talk about revising because they say on the one hand you're letting cte do this, you will deal with them after you said it was a problem and on the other hand are going after canada on national security issues. what senses that make with our allies. but we should curtail presidential power in deciding what national security and what isn't. alix: also how would winds up
affecting negotiations. you can basically make anything national security now. if you look at what president trump is talking about with nuclear and coal plants, that's a security issue. david: that's what justin trudeau and angela merkel and emmanuel macron a going to be saying to him is wait a second, this is opened an entire can of worms. you really are opening up -- there are no trade deals -- anymore. a part of myill be show today as we talk about what china could buy from the u.s. to help basically by $25 million or more of goods. we will talk about that as well as what it will be. will it be oil, soybeans or week. we will take a look at oil into that meeting in two weeks. and she ministers next week talking about some of the differentials in the market that don't make sense.
prices that -- lower in houston. how more imports in canada could change the conversation. i -- i spoke to john christmas. >> this won't be a one-time thing as you expand the base over the next several years. there will need to be more come of differentials will come back in. alix: the interesting thing to canada is as you get more oil coming in from canada, it goes to the gulf coast. that actually displaces permanent oil from the gulf coast the lab to wind its way up to cushing and that's having a very dear -- interesting displacement effect in the u.s.. david: what does it mean for long-term distribution? it's not getting out of the ground, it's getting it where he needs to go.
do we have the distribution capabilities of getting it to them? walk it forward five years and we get the export capacity. huge tankers over the area. filling out the ability for huge tankers to come into the gulf coast and move the oil. walking out five or 10 years and we could see a big dynamic and trade flows. companiess that mean building that distribution are a buy? play that's already been a and it's usually capital-intensive. that as we head to the g7. don't forget to tune into my program for commodities edge. coming up when comes to commodities, one man has seen it all. we will have an inclusive interview with the tiberias group ceo.
let me begin this way. kristof: in the fiscal space its difficulties days. risks of increased and with the absence of a lot of banks and liquidity in principle, there are opportunities. i would say going first just forward is a lot of opportunities. why have so many commodities funds gone out of business? nine thatat least have shuttered in the past five years christoph: a lot of them have been performed. and it was difficult in the last couple of years. we struggled at times because the whole cost of easing over the last couple of years is distorted markets and liquidity and volatility. fundamental analysis is not work as well as it has in previous years for many ways i think what we've learned over the last couple of years is what we need to take on in order to
make things better. in many ways you need to understand the market has much less liquidity than before. with less liquidity you basically of more distortion. more distortion leads to opportunities. whether that's in the metal or energy agricultural space. we deal most in the metal space out is practically no fund there or bank actively growing and building our metals business and that's why we are in the game. some people make the case quantitative easing destroyed commodities. what will the withdrawal mean to commodities trading and investing? christoph: in many ways taking liquidity out will most likely have a strong impact on interest rates and as such it will affect commodity markets. howquestion is withdrawals,
much will affect the business cycle. react tocentral banks interest rate policy and that might have an effect. investors return to commodities when inflation returns to the economy? or is that link broken? christoph: i wouldn't say broken but what we saw in 2005 and 2010 will not be repeated. thesehen you see consulting companies promoting commodities as part of an investment allocation and i don't think that's coming back. if it is it's coming back at the peak of the next potential cycle. int will most likely see commodity space is selective investment from certain institutional players but not as a whole and you'll see a lot more dedicated investments in particular sectors within the commodities space. erik: are you and your partners trading the trade tensions and
the russian sanctions? how? physical: with the space and derivative we're exposing the physical basis with certain countries and product as much as we are in the derivative so wherever there are tensions coming from either sanctions policy, it affects the global flow goods and as such you need a metal merchant to react accordingly and as a derivatives trader you need to act in the same boat how will that in -- impact your liquidity. erik: have you made money on the transactions? christoph: we do like these kind of markets because they'll loved volatility and with volatility you can make money. pointed out or not just in futures, you are also in physical commodities. with -- youeting
are competing. how do you can view with players like that? christoph: we are much smaller than them but there are product niche is you can operate in and lastly as a physical metal merchant you operate in the space of taking credit risk, off taking liquidity risks and there are clearly openings in the market that allow for smaller players to participate successfully. markets,at emerging you look at products going away from the standard commodity of refining into value-added products. lastly the big players seem to control market sometimes, you might be surprised to see smaller players to actually get a piece. erik: are they too powerful? christoph: i think what we are seeing now, the metal merchants
have created a structure again. erik: not all the banks are gone. goldman made as much money first five months of the year as it did all of last year. how is that possible? is goldman getting back in the market in a big way? isistoph: my understanding it comes from their j aaron days so they hold over when it comes to trading commodities. they are getting it right by focusing on commodities. what do you see them doing -- erik: what you see them doing? christoph: we see them taking more risks, providing liquidity. that is something we feel is helpful to the market. erik: thanks so much for coming in. that is christoph eibl. the russian direct investment fund is their sovereign wealth fund which is charged with making investments
in russian companies together with top global investors all with the goal of promoting foreign direct investment in russia. kirill dmitriev. very good to have you with us. let me start with the obvious question, why beijing, what you doing there? a meeting with and it's all in light of president clinton's visit to china which will start tomorrow and that's a visit to continue promoting ties between russia and china will continue to enjoy -- to do investment projects together. david: the prospects for those investment projects -- are they greater because of the difficulties the united states is having with russia and vice versa? we have lots of investments
from asia and middle east and we do see local chinese companies are now much more active working with russia. we continue to be open to european businesses and american businesses. we believe the tensions will settle at some point and business will prevail and partners from all of the world continue to make money even in these challenges time just challenging times. -- in these challenging times. nothing precludes them from how investing with us and we actually see the number of russian ipos and european investors are participating. there's definitely less banking activity in europe, but also that activity is replaced by chinese banks. we have seen russia has
benefited from oil prices and a weaker ruble. that could bethat could be chane opec increasing output as well as russia, what's your expectation for russian output in the back half and first half of 20 -- backup of this year and first half of 2019? kirill: definitely our cooperation with saudi arabia and opec has been successful. oil prices are stable and we are able to bring back investment to the industries lacking. i think as part of this order -- corporation it possible to change targets, to have bigger outputs or smaller output. it's a very important factor for stability over the market. bewe expect oil prices to reasonably stable. it definitely benefit saudi and russian economies. shift, but this
important stays in place and is an important stability act drop. alix: what's the deal price for russia? in predictingot ideal prices. it's very important prices remain stable and allow for investments. the current oil prices a good price and we need to avoid oil shortage that may happen if iran has additional issues so coordination mechanism with russia is incredibly powerful positive mechanism for the economy. alix: will the russian energy minister me with the saudi minister there? i think more importantly we have a russian meeting coming up which will result -- we may have some discussions there.
there are ongoing discussions between us and saudi arabia and we are looking in many fields. president putin will meet with the crown prince of saudi arabia, will oil be on the agenda? let's wait until the football match to find out. what a to predict the score what you are here, who's going to win? [laughter] kirill: i think it's very important the saudi investor was sectorsfferent other and we expect russian companies with saudi's as well. it allows to solve issues together. thanks so much.
the question i have is what does the u.s. get for this? of,d: this is what i'm sure they think they're going to get something. in approach of president xi china is so different from europe and canada. said i have a company and need to get taken care of, take care of it. i suspect that kind of language donald trump understands. up,: is that going to go will this change now on the improvement side? david: if you're a u.s. company your the white house saying go to bat for us because it's company by company. this is not broad policy issues. let's make a deal here. alix: some of the semi's here like qualcomm are helping as the sent -- semi natixis at a record high.
nothing futures unchanged, the clock -- nasdaq closed yesterday. risk kind ofof a grinding its way higher. the fading somewhat is european stocks are edging in negative territory. in other asset classes it's a story of a mixed dollar stronger -- markete ecb pricing in ecb rate hikes sooner than thought. and the selloff over the core market continues. the saying index hitting record high. indexing record highs. this is bloomberg. ♪ s bloomberg. ♪
u.s. tech lighting up the stock market. the nasdaq at an all-time high. more cracks appearing in emerging markets. central bank is going to ask the fed for help. the ecb determined not to flinch, policymakers showing will they have -- held hostage by italian politics. four straight days of gains of the s&p 500. euro-dollart, 1.1837 and treasury yields, to 98 on the u.s. 10 year. the u.s. 10 year. investors weighing in on the issues of the hour. >> we see strong earnings