tv Bloomberg Markets Americas Bloomberg June 18, 2018 10:00am-11:00am EDT
mark: and from london, i'm mark barton. elcome to "bloomberg markets." vonnie: who are the stories we're following. stocks are trending globally as concerns grow over trade and political risks build in europe. then, could bit coin break the internet? a key central bank supervisor raises concerns about cryptocurrencies and their ability to cripple our information infrastructure. and immigration taking center stage in both the united states and europe. in germany, angela merkel is under pressure again. while the u.s. pressure mounds on donald trump and the administration. to address children that's at the border. we are 30 minutes into the monday trading session in the united states. bloomberg's abigail doolittle is here on a nice june morning.
abigail: the dow, s&p 500, nasdaq are all lower after a mixed weekly finish last week. last week the dow finished down more than 1%, the worst week since the end of march on trade war fears. the possibility of a trade war between the united states and china. the dow had been down more than 1%. really starting to take the toll on both the s&p 500 and the nasdaq. in fact, let's take a look at the s&p 500 which last week did finish with a modest gain but over the last five days we saw a gap last week, little bit of recovery, another gapdown, a bigger recovery, we have a massive gapdown this morning with the s&p 500 down about .7% over that time period. it will be interesting to see whether the buyers step in or these trade war fears weigh. we have aumber movers here, including intel down 4.4%. this after northwind downgraded shares to underperformed. the equivalent of a sell. a rare downgrade at that firm
on slowing server growth. investors not liking it. 3-m down 1 -- 2%. receiving the revenue from outside the u.s. investors fearful what a trade war could be on input. travelers down 1.7%. the rates picture. and, mark, i know you know i love the charts. we'll talk -- take to a look at the bloomberg. this is a one-year chart. last year's beautiful uptrend in relation to its moving averages. the volatility this year, what i'd like to point outthis le areatwo weeks, we're starting to run back down. if through that 50-day moving average, mark, the dow could slide down adjusting jitters around the possibility of a trade war. mark. mark: abigail, love that chart. the talks, of course, the opec
meeting, discussions seem to be about a 300,000 to 600,000 barrel increase of production. less 1.5 million tabled by russia. is that pal tabblet to the likes of iran, president who of course wants to bring down gasoline prices? but oil and gas stocks rising. all the other 18 declining today. biggest two-day drop since march. it's trade, trade concerns weighing on sentiments today. we have the central bank meeting as they gather in portugal. that kicks off tonight. the big one is on wednesday, big gathering. bloomberg helmed debate number of central bank heads will be part of that. last year, august, around this many took it as a porkish, hawkish speech. and the yueo currency continued rising through the year. will the same happen this year?
some say no because of the monetarynce in the fed and the e.c.b. who said they won't raise rates. that's the euro against the dollar. we have a big events taking place today. the big brexit, theories' may goes to the house of lords, house of commons wednesday. will we see a resolution to the sticking point which seems to be, will parliament have a say when may comes back from brussels in october? if it's something that's not pal at that timeable to parliament, will they have more of a say? a compromise possibly will be in the offering this week. if not there will be more political chaos in the u.k. and shares up by 10% after look times chief executive carston spur said the takeover was in with the discount specialist. we had the b.a.o. show its
interesting in norwegian air shuttle. that's lifting the shares today. up by 10%, vonnie. vonnie: over the weekend, china unveiled the list of american products subject to higher tariffs. focused on the agriculture sector. investors trying to understand the consequences. then, this morning we see plenty of political turmoil potential in germany. we're joined by felix zulauf, c.e.o. of zulauf consulting. how rocky is the merkel coalition two weeks to come together on immigration policy? felix: well, it's a week coalition from the beginning. two losing parties of the recent election that went together in a coalition and they have a very slight l parliament only. and obviously they are struggling with immigration policy because the about a varyian party is clearly -- bavarian party is clearly
moving in a different direction than merkel. merkel is pro-european leader. and the others wants to protect their borders. merkel is in a weak position. she has agreed to a two-week deadline. and it's very difficult to see how the europeans can get ogether for a unified, one-lead immigration policy. i think merkel eventually has to cave in and she's not the very powerful politician at this moment. vonnie: how much should investors be focused on that kind of issue given it's another symptom or expression of the symptoms that are affecting the global markets these days? and how much is it really watching from the sidelines? felix: it's a reflection of the european political landscape where some are falling apart.
where the populist parties are growing up and the people are pushing for some change. and the elite doesn't want to accept it. so that's a process and it's a long-term process in eventually europe -- and eventually european policies have to change. it's not just immigration. it's the fiscal sid the italians are pushing hard to loosen the fiscal stability pack and they run deficits between 4% and 6%. i have no doubts about that. i think that would be a blessing in the short term for italy. and it will have european economy -- help european economy in the short term. that means for the next 12 months or so. but the leading indicators, p.m.i. indicators, they are all slowing down, but the level of activity still very high. so the risk for falling into a recession or anything like that is still further down the road. mark: felix, how do we invest
around the geopolitical noise ether it's germany, italy, whether it's brexit? how do we make money within this environment? felix: well, it really means money is flowing out of the european continent. you have a payment problem in the southern states. and obviously germany has to swallow all that and finance all that. and the world is coming to grips and understanding that eventually the euro zone as a total is falling into a balance of payment crisis where money flows out. they can afford it because they run a large surplus due to germany. but basically the euro will continue to weaken further. and capital will flee the european markets and that's why i think the european equity markets will continue to remain underperformers relativee u.s. mark: yeah. what about the bond market?
e saw the blowup in peripheral yields when we had the italian crisis, whatever you want to call it, ahead of the populist government? can we see a blowup in ripheral yields in the coming months? felix: it's a multiyear process. and the european bond markets a the bond market and therefore they are more vulnerable to that. when you have a balance of payment crisis in one country political situation changing and pushing for change and more debt, then obviously there is a reflection in the interest rate and the level of bond yields. and that's what we had. i think italian bond yields will eventually go much higher. at 4%, the total equity of the banking industry is eaten up
because they owe so much bonds. that's the risk and the fear of the markets see ay whenever bond yields go up in italy they sell off italian stocks. e i limits the capacity of the banking industry to make loans. that's the big problem. vonnie: last week we got the big g-3 central banks talking and it's clear there will be die vergens another year until they start to tighten more. we have some emerging market central banks meeting this week. what do you imagine after these two weeks we'll know about the economy, the global economy more? felix: well, the global economy is separated. you have on one hand the u.s. very strong and a little bit accelerating actually due to the fiscal push by president trump's administration. and on the other hand you have virtually the rest of the
world, depending on china. and china's economy is slowing because china's government is addressing important restructuring points. they are addressing the financial industry. and they are restructuring that. you see that reflected in crediting a regates, the monetary aggregates. they are addressing excess capacity in several industries. and all of that contributes to the slowing of china. and half of the european growth, as an example, was really due to china. as china continues to slow down, and i do believe that china will continue to slow down, the european economy will continue to slow down. vonnie: all right. felix: and the same is also true for the emerging markets because they depend very heavily on china. vonnie: all right.
we will continue to talk with felix zulauf. .e.o. of zulauf investments. meantime, let's talk about news. >> vonnie, there's talk of a compromise in the battle of raising opec oil production. the cartel is talking about the increase of 600,000 barrels a day. iran doesn't want any increase at all. but it's hope they may go f a modest boost. opec meets this week. president trump tweeted that the people of germany are turning against their leadership because of the immigration issue. he called it a big mistake for europe to allow millions of people who, quote, violently change their culture. meanwhile, democrats have ramped up their attacks on president trump's policy of separating immigrant children from parents who cross the mexican border legally. several traveled to texas that toured a wal-mart that turned into a detention center for boys. they called it a deterrent to
illegal immigration. global news, on air and tick to be on twitter powered by more than 2,700 journalists in more than 120 countries. this is bloomberg markets. mark: coming up in emerging markets been under pressure this year. we'll look at what caused the drop, what could turn things around. this is bloomberg. ♪
won the presidency in colombia and argentina switched out its central bank chief. joining us is felix zulauf. it seems like a pivotal moment. is it a good time to get into emerging markets with change? felix: it's too early, i think. i do expect the u.s. dollar to continue rising. probably into late this year, early next year, because monetary policy divergens between the u.s. and the rest of the world will continue. and the market has assumed that europe will eventually normalize and that is going to be pushed out further and further. japan is pushing it out further. and a different story. but i do believe that the dollar will remain strong. and a strong dollar association liquidity in the global credit markets. and interest rates in the u.s. dollar are also rising.
this is a combination that's very bad for emerging marks. they are leveraged to the chinese economy which is slowing down, and they are leveraged to the global quidity and the dollar, which is all moving in the wrong direction. so i think the upside for emerging markets is very minimal and there is more downside to come. vonnie: what does that mean, then? do you stick with the safety of the u.s. which right now doesn't seem all that safe either? felix: yeah, by default, the u.s. is doing much better. it's the best. it has the strongest currency. it has the strongest economy. but it has a very split market. and i think the leaders in the market, the technology stocks, they are very extended. i think later this summer, we will get decline of maybe 10%, which is a correction. and then we rally up again into early next year. so i think this is a trading market. the laggers like those that have been hit by rising interest rates like consumer
staples, utilities, they can bounce a little bit. but i would stay away from the cyclical sectors. they are not performing very well here. mark: felix, just coming back to your earlier comments on china. you say the rest of the world is slowing down and that's driven in part by a slowing china. what sort of slowdown are we talking about here? clearly the economy data showed last week it's losing momentum. how much momentum is it losing and how problematic is that? felix: china usually has 6% to 7% growth. they'll continue to publi low circumstancesish type of numbers but in reality i think china will slow down into early next year to 4% or so. which is a considerable slowdown when you look at the dependency of other economies on the chinese economy. so they are losing -- they are
losing virtually 1/3 of their growth. mark: you sort of wonder. do the authorities allow the chinese economy to slow that much? felix: i have very high respect for the chinese government. actually, i think it's the best government in the world. it's the only government that has a long-term strategic view and a plan. however, 2021 is the 100th anniversary of the communist party, and in 2022 there is the next hal congress for the communist party where they confirm the leadership. those are important points, and they want a strong economy then. that means they are addressing the restructuring, and to the restructuring in the period of 1819 to stimulate again in 2020. that's why it's very normal you have a slowdown in 2018 and 2019 in china.
vonnie: thanks to all of the time for felix zulauf, c.e.o. of zulauf consulting. look forward to having him back. we have a supreme court decision in the jerry mannedering case. the supreme court has rejected he challenge to the republican sloating map. they'll send it back to a lower court case. again, that's the jerry mannedering decision we were waiting for. this is bloomberg. ♪
and could break the internet. when you sifted through the 24-page article, did you expect theociationmunication volumes could bring the internet to a halt, talking there about the software underpinning bitcoin? that's a big statement? >> yes, it really jumped out. one of several statements in this report that jumped out as being particularly poignant. usually, these reports that the b.i.s. puts out are arcane and technical. really, they were trying to make a sense this could influence and shap the debate around cryptocurrency. mark: yeah. bitcoin miners, using the same as switzerland. the sort of images that we can all get our head around. what's the general take on the b.i.s. and what it said?
are many people supporting it? are there many people laughing? >> pro-crypto,ro-bitcoin, those building exchanges, all look at this report and say, what do you expect the traditionalist to say? they would have said this about the internet or the electronification of the stock market. they don't get it. they're just trying to protect their turf. but there's probably going to be many who do look at this report as a source of support and those are people in the regulatory community. so that's the sec, the federal reserve, the bank of england. they will decide whether this becomes a truly mass market me number none. vonnie: and regulatory across borders could be a problem. ere needs to be a global regulatory, right, ed? ed: that's very pie in the sky, there will be a comprehensive
approach. i mean, all of the big, you know, regimes are moving. you see what the to require the secretary of health and human services to provide assistance to states in complying with, and implementing, certain provisions of section 106 of the child abuse prevention and treatment act in order to promote better protections in the u.s. is doing, -- and you see what the s.e.c. is doing in the u.s. the swiss are taking their own separate you see china, japan. it will be fragmented on the regulatory front for some time. vonnie: yeah. the word ponzi is in there and not once but more than a dozen times when it comes to initial coin offerings. a red flag? i mean, what are we supposed to do about that? ed: well, they highlighted the manipulation and fraud that are a rig concern in the i.c.o. space right now. i think that is very important because institutions that want to get into the cryptocurrency space, they're going to balk as long as there's a lot of concern swirling around manipulation and fraud and that's why those cases in the u.s. that the department of justice is per seeing on this
will be very, very closely watched. mark: you did say the block chain did provide some benefits for the global financial system. it's not all doom and gloom. ed: it did. we've seen regulators go out of their way and say, we are not saying throw out the technology. we like what ledger does. especially when it comes to cross-border finance and money transfer. mark: thank you. ed robinson. vonnie: well, mark, i want to remind everybody, if you have a bloomberg terminal go to tv go. you can watch us online. interact with us directly. this is gtv go. and there you go. your tv go. ♪
let's check in on bloomberg christopher news. theresa may faces another crucial battle over brexit parliament today. -- warned they could move to oust her. colombia the next president will be a pro business lawyer who was to modify part of the peace process. andon 40 -- 54% of the vote has called for a cut in corporate taxes. that may be difficult when columbia struggling to hold on to its investment-grade credit rating. the man behind one of the most cases -- he wants -- [inaudible]
he says the bank was going to look the other way as long as he made money. prison. five months in another sign of improving relations between the two koreas. they have agreed to have their athletes march together at the asian games in indonesia. north and south korea have agreed to friendly basketball games in the coming months. powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. mark: the easy money era is dying. the fed an ecb may be growing more hawkish. balance sheets still tower over prerecession levels. policies are becoming easier. tight, is it?tly
x no, definitely not. last week the ecb has said it will stop qb at the he year but at the same time it that ship wi and change for the summer which means probably until september and october of next year. until next year. ecb stopsen the buying bonds it will continue to reinvest into its bond portfolio. it is not what we are going to see a sudden cliff edge. >> definitely not. they hinted last week they will continue policies in the years to come. we will see how it is going to play out.
the same way for the fed, which letting itwly shrink. the bank of japan fine -- buying high bonds. maybe the central banks might be slightly picking up the fruit from the gas pedal, but policy is will remain easy for the global economy for years to come. vonnie: what will investors in your be looking for from the ecb ? is everything on the table? will there be inquiries about anything else? the ecb has made it pretty policy plans for the months to come. a pretty clear guidance rates will be on hold until next
tumn. after that we will see. it is most likely going to be gradual. everything2009 -- will be up in the air. you'll will be up to the new president to decide how gradual -- it will be up to the new president to decide how gradual will be the easing. vonnie: stocks making a small richly in the u.s. as john role at takes the head the fed. already,information what will markets be anticipating? of thes an adherent framework, this theoretical neutral rate of interest. jay powell in his press conference acknowledged the framework but said there is a
great deal of uncertainty around identifying r star. -- whiler humans williams is an economist he is a pragmatist. he will air with the central part of the committee in terms of powell and the vice chair. for 3-4 rate hikes total. another two or three next year. i don't think he is going to rock the boat. the interesting thing will be when we get to a turning point. does his neutral rate framework conflict with jay powell might want to do? we might be a year or two away from that. investors watching the fed do for anything in particular we can pinpoint or are they just focused on the ump administration, the trade
war, china and other factors? >> the fed is important. it is important for the u.s. and the rest of the world. the dollar is the reserve currency. if you look at the flow of funds data,, $4 trillion worth of dollar-denominated debt. the fact the fed is putting rates up, what are we seeing? rate rise.s anyone out there, a non-us government or company last taken on dollar debt has to face the int that they owed money dollars which is appreciating. you have seen the crocs that have appeared in turn key, and indonesia. india, the central bank governor complained.
it is the classic phenomenon where monetary conditions tighten because the dollar is unique, conditions tighten elsewhere in the world. lower making are the dollar debt more attractive. they tighten elsewhere in the world. that is where the fed is thought of as the world's central bank. the question becomes should the fed-- how much of the taking part of the rest of the world given gps is accelerating? we are not yet at the point where the fed needs to look at the rest of the world and how their actions are rebounding. there is an analog where you had
emerging-market crises starting in 97. we may be in the spring of 97. the 30 yearhat yield could end the quarter with a low yield. it happened in the first half of 2015. what does that tell us? havenetary conditions tightened but we can hardly call them tight. economists think in terms of the mediums how much extra risk you need to put on to longer dated bonds to count for the uncertainty and that has been abnormally low in the crisis. possibly because of the qe program. year mind it says the 30 bond are their own price, and the reason i think is because of
this will work guidance from the fed. they also tells what they think interested should be over the longer term. 2.875%. have much more yield does a pension fund require above that rate? >> how likely is that to happen? probability.nzero i think he has expressed some skepticism about the projections. he made a preference to this idea they are not particularly accurate. and reasonably sized grain of salt.
if it leads to a flattening of the yield curve, given the stance in monetary policy, the argume strengthens the signaling impact fro is perverse and markets may be taking them to literally. .hat may be a question to see which way the wind is blowing. here is what is coming up today. isnie: why angela merkel using a standoff over immigration. and the e to speak in a few hours.
major headache for the republican party. several lawmakers are traveling to tour a walmart turned into a detention center for 1500boys. the policy is called a deterrent to illegal immigration. we are joined by kevin cirilli. what is the gop thinking and planning? many members typically back trump, and then we have blaming of democrats from others. will there be a joint coming together on this? >> -- pauly to take up ryan is likely to take up what some are calling a gross problem with regards to children being separated from their parents as president trump has tweeted he is calling for this fix. he said we don't want what is
happening with immigration in europe to happen with us. children are being used by the worst criminals on earth to enter our country. has anyone been looking at the crime taking place south of the border. it is the stork. it is not going to happen in the united states. on friday, president trump saying he is blaming democrats on this. that is not resonating with folks on capitol hill. has emerged that there is a key differentiation. it is spilling into this legislative calendar. >> those tweets don't necessarily indicate any change. --seems like he is speaking and melania trump's tweet. .
what does the administration actually want? >> the first lady remains the most popular person in the administration according to polls. weighing in on this major policy issue is the first time she has spoken out on a specific policy issue incomes as laura bush took out an op-ed in the washington post calling for there to be some legislative fix. this is a divisive policy issue. it is something candidate trump campaigned on. miller approves of this. he was the former senior aide to senator jeff sessions by the attorney general. either way this is not a winning issue for republicans either way you look at it. most notably with the evangelical community. they do not like this any more
than democrats to be candid. they don't like to see families ripped apart. the base of the movement is divided on this particular issue. watch for will comments today. we did get a supreme court decision on the gerrymandering case that left maps intact, sidestepping the gerrymandering issue saying a voting district can be -- it isn't the case. is leaving things as they stand. does this have impact on the midterms? it leaves things as they stand it would not have an impact on midterm elections. it is going to be raising criticism from progressive groups that would like to see this changed, to say the least. court,ow the supreme
day. joining us, great to see you again, what sort of number is going. your head? to 600,000 suitable to the entire group? >> i do not think that it is. i think it is going to go higher than that. opec has thrown these floaters leaks, leaking things to media members directly from oil and energy ministers. this is not close to the middle of what i originally heard small which was 1.8. he reduced it to 1.5. plenty of members don't want to do anything. 800,000.ting the implementation matters
almost as much. they reassess every month. is russia becoming part of opec? >> what do you make of that second bit of news which would be starting -- something we talk t? russia nope funding? that is diplomatic. >> it is the most diplomatic thing that could come out of this. largest oil producers, during this production cut both barrels.an turn on it is extremely significant if they become a permanent member of what they referred to as a joint venture that will monitor oil prices and act if needed.
so, it is significant. that is more important than the actual number. around 800,000. right the floater they sent rallying.00, it is >> if we get 800,000 what is the impact on the price of oil? fort is priced right now 800,000. more than that and you get tightening of the spread. wti will catch up because the cost to transport it becomes cheaper overall. they will catch up to each other but at this point this is the price. we might even get a selloff. vonnie: volkswagen is our stock of the hour today. shares are hitting lows.
not seen since august of 2012. the diesel admitting's scandal strikes again. arrestedtheir ceo was in connection with the scandal. his house has been rated by authorities. it was thought he could tamper with evidence. he has yet to be charged. and our bloomberg print colleagues hearing the supervisory board will suspend salesd name their head of as interim ceo. this comes a few days after volkswagen agreed to pay $1.2 billion fine. we have a chart with that. beenllion cars have affected. $30 billion in market charges.
the,000 per car to fix hardware needed. jail.your ceo is going to >> certainly he is the highest in thismanager ensnared since 2007. investors concerned to see someone this high profile arrested. he oversees the provision. biggestone of their earnings driver. generates the most profit. we are seeing analysts getting in saying this is serious. another low point in the scandal. is he told bloomberg it has been left in place for so
long considering the allegations since the scandal first broke. it does seem like a long time. thank you. mark: coming up, following stocks. a pigot -- the biggest two-day drop since march. investors weighing up the betweenion of the trade the u.s. and china. and ahead of that we have sterling down by a quarter of 1%. that brexit bill goes to the house of lords today. this is bloomberg.
bloomberg markets. mark: the top stories we are covering from the bloomberg. angela merkel's political future on the line in the battle over the refugee policy. inc mulling an increase output. how will this affect prices and audi's chief executive arrested in the latest twist in the diesel cheating scandal. what could it mean for the ?uture of audi and volkswagen you can see stocks are following as investors mull over the idea of the global trade war. minimumown by a