tv Bloomberg Markets European Open Bloomberg November 16, 2018 2:30am-4:00am EST
anna: welcome to "bloomberg markets: the european open." i am anna edwards in westminster alongside matt miller in berlin. following a dramatic day in u.k. politics yesterday and looking to what happens to the pound today. matt: absolutely. the castrated, starting in 30 minutes. -- the cashropean trade starting in 30 minutes. on tories are holding gains.
governmentsa may's and her brexit deal are on the brink of collapse after sudden resignations, but she vows to hold on. spikes and rbsy stumbled nearly 10% yesterday. watch banks and home builders at the open. trade war on. the u.s. plans 25% tariffs on chinese goods next year. wilbur ross says it is impossible to get a formal deal by january. matt: less than half an hour from the start of european stock trading. are a look at where we seeing futures trade this morning after a mixed trade in asia. euro stocks futures, up .5%, ftse futures, dax futures and cac futures gaining the same. look at the gmm screen this morning.
we see a couple of dead, black boxes. ck boxes.a three or more standard deviations away from the score. massive volatility in indexes in ireland, the drop of 4%. you can see also in the kenyan shilling, a gain of 2%. some of these smaller assets, moving a lot yesterday and today. at thetake a look around commodities and sovereign bonds, you'll see we have some big moves in chinese 30 year bonds. it is not the pound that is moving today. it is not the gilts showing big moves. the gilt market has yet to open. will the political action pick up again and is it going to be
difficult for the u.k. p.m.? anna: how difficult? theresa may is battling to keep control of her government and brexit. the prime minister has drawn i are from across the political from across the political spectrum. were two resignations and several other members of the government. rbs, falling almost 10%, the most since brexit day in 2016. brussels, from married -- maria tadeo and mark cudmore. what is the market reaction today? the pound looks calm her then -- calmer. mark: there are five event risks
are looking for. the next one, will a leadership challenge be declared? will a no-confidence vote be declared and the next headline, expect another slump in the pound. that may be the last of the down slide now because after that, will she survive? if she does, we go to a parliamentary vote, leaving time for back and forth. if she fails the vote, there is a leadership contest. right now, people are watching for enough votes for a confidence vote in theresa may. that would be negative for the pound in the short-term. matt: maria, what are you hearing from the eu side or even u.k. players there? lilian: good morning. michel barnier, the european negotiator for brexit minutes ago walked behind us and was a
no comment. it is unusual from michel barnier. he said working, got to go. that reflects the mood in brussels. no one wants to say or do anything that could make a weak prime minister theresa may even weaker. the summit for november 25 is still on. if she can saying weather the storm, she -- they can do it and if not, they will talk a no deal brexit. 25 summithe november still on, then? the latest here, they are watching for resignations. sayingre reportings maybe he didn't want the brexit job. he has remained silent all of yesterday. just watching and
waiting and seeing whether theresa may be available to negotiate on the 25th? lilian: that's right. a report suggested that he didn't want to take on the job but thinks he can negotiate a better brexit deal. when you talk to european officials here, we had 600 pages. it took a year to work on this. months, weat in four can get a new deal done, that is not entirely realistic. this is the deal. the pillars of the deal have been agreed, so the idea something can magically come out in weeks, not really the case when it comes to the european perspective. mark, why do you think the market was so easily, so obviously fuld yesterday at this -- fooled at the start of trading yesterday? and dou were so bearish, you think it has learned from its mistake?
mark: good question. the history of the european dealings.ll of its there was hope before the european question got going in asia that there had been cabinet resignations yet. people had learned from chequers that there was optimism and then resignations came later. people are still clinging to optimism a little too much. it does look like we have more negativity to price into sterling in the weeks ahead. even if we get a leadership contest, if theresa may leaves and there is a new leader, there is not much hope they can do anything better. he will not get a better deal. if it looks like theresa may will go and even if she doesn't, it doesn't look like a parliamentary vote will pass and it probably means no deal going into march.
what is worrying for traders is the path. they know there will be really front legs. the first might -- be relief rally. overall, it will be relief rallies in a gradual trend for more sterling weakness in the months ahead. matt: thanks very much. mark cudmore, bloomberg mliv strategist in singapore. maria tadeo, on the ground in brussels. and edwards at westminster. let's get the first word news with debra mao. theresa may is defying demands to quit, facing a revolt over for proposed u.k. -- eu deal, she said she would stay in office and the public expects her to see brexit through in an orderly way. seven members of the government resigned yesterday, including two cabinet ministers. the informal leader of the conservative party's pre-brexit -- pro brexit wing officially
submitted a letter of no-confidence in may. a newspaper reports northern ireland's dup says the deal to prop up the government is over unless may is replaced. >> when it is ended. the jurisdiction of the ecj, over, out of this eap come out of the cfp. that deliversit on the priorities of the british people. debra: commerce secretary wilbur ross says the u.s. still plans to raise tariffs in january on chinese imports, despite the planned talks at the end of this month between presidents trump and xi. he said at the g20 will only look at the big picture items and leave framework for further talks to resolve trade tensions. he said a formal deal by january is impossible. the united states is imposing sanctions on 17 saudi arabian
officials over the murder of jamal khashoggi. this came hours after 11 people were charged with the killing, seeking the death penalty for five of them. turkey says the order to kill jamal khashoggi came from the highest level. riyadh said it was a rogue operation that went wrong. french president emmanuel macron faces what could be the largest protest in his 18-months in office this weekend. onosition parties have egged a grassroots movement that threatens to block traffic across france over a higher petrol price. 700 blockages are planned for all mainland apartments. mexico's central bank has raised its key interest rate. said theers president-elect overruled the decision to cancel a $13 billion airport and broader policy uncertainties that had worsened the inflation outlook by weakening the peso. policymakers lifted borrowing costs at the highest level in a
decade by .25 to 8%. global news 24 hours a day, on-air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. anna: debra mao, thank you. pound plunges and fuels volatility, ireland's richest the u.k. is behaving like an emerging market. when you are traveling to work, there is always bloomberg radio live on your mobile device or dab digital radio in the london area. this is bloomberg.
anna: welcome back to the european open. we are 15 minutes from cash equity trading. i am an edwards in westminster and matt miller is in berlin. the pound plunged on the news of resignations within theresa may's cabinet and talk of a challenge over brexit. said you richest man k's political situation does not match the strength of its economy. . >> the united kingdom looks like an emerging market because of the number of people that have resigned from the cabinet overnight and junior ministers, as well.
if you are a racing person, you would have to say it is going to be difficult for her to win a parliamentary vote. anna: he spoke exclusively with bloomberg at the aipac ceo's summit. joining us now, the ceo of msci. good to have you with us. as you look at the politics in westminster and the drama of yesterday, give us the context of what difference it makes for your business. how are your plans looking for brexit? nofor our business, there is substantive change from brexit at the moment. our clients are the largest investment institutions throughout the world, but also in europe, the u.k., and the continent of europe and therefore, there will be significant effects for our clients. we will have to be watching that and following them, whether they
are investment banks or hedge funds, or clearly asset managers. when you look at the moving markets and see increased volatility, how difficult is it to keep the indexes up to date amid sharp moves? henry: it is not a problem at all. we have been doing this for almost 50 years now. we have real-time indexes, futures and options. futures and options trading and many indices around the world. it has not been a problem at all. we are monitoring those abrupt changes and we want to make sure the prices are properly reflected in our indexes on a real-time basis. our teams are very much glued to that, but we haven't seen any problems at all.
anna: i appreciate this from a business perspective, you are a global business and this has limited impact. we heard one ceo earlier on talking about how the u.k. currency behaves more like an emerging market, and we have heard that from other currency traders. they look increasingly on the pound in that way. is there a history of asset moving from other markets, to emerging markets? we appreciate that is slightly tongue-in-cheek. henry: i hope this is not a comparison, but greece was in our developing markets -- developed markets until we downgraded it. there isor the u.k., clearly significant volatility in the financial markets of the u.k., especially currency.
some level of volatility in the european financial market, but interestingly connote, -- to note, in financial markets around the world, the impact of this brexit chaos has been muted. oft is probably a reflection the importance or impact of the u.k. economy and the u.k. financial markets and the world's financial markets and i think we have to take that into context. it is important, but not as important in the world of financial markets as it used to be. matt: what about the other way? have you got any -- is there any potential to upgrade some of the em markets? you've been doing a lot with the mea, with china. poland got upgraded to a developed market, kuwait upgraded by ftse. do you see any potential there for some growth in smaller or
less developed markets? henry: not yet. we clearly monitor many of the markets, but where we are doing -- what we are doing is we are extremely focused on the continued inclusion of the china-asian markets into our indexes. earlier this year, we implemented the move of 5% of the value of the large caps into the msci emerging markets index. that was a small move but an important one. we are consulting with clients on the next phase of that, which is a 20% value of the large-cap mid-capsnclusion of into the emerging-market indexes. we will be in a position to report on that by the end of february, but we are focused very much on china because we believe the china markets, whether the equity market or bond market, will open up a lot faster than people think. we are hoping to see some positive news next month or the month after with the 40th
anniversary of reforms. i think the world is not yet capturing the size and importance and the rapid move of the opening up of the china financial markets. ask about the products you are working on. which are the biggest? the etf space is growing big-time. is that one of the rappers you work with most? henry: etf's are clearly an area of focus for us, whether market cap indexes were smart beta indexes. onare also very focused licensing, equity indexes or delivery -- derivative products, futures.rly we made an announcement in saudi arabia in september that we are partnering with the local exchange to launch futures on the saudi market next year. we are working to see if we can
launch futures on the msci china asia index, either mainland china or offshore jurisdiction. the chinese authorities are beginning to liberalize the derivatives market. we want to be part of that. anna: henry, thank you for joining us. henry fernandez ceo of msci in our london studio. coveringestminster u.k. politics. soutes from the market open let's focus on the equity market. next, stocks to watch including u.k. banks. it is a misty sky over london. yesterday's political turmoil, rbs down and the pound down 2%. we will talk further about u.k. assets and what watch out for today. this is bloomberg. ♪
earnings results for vivendi slightly beat expectations, but they said they are moving forward with selling down a stake in their universal music group. we may not see any real traction until february with this sale and this is something that has been forever. investors will be pleased to see this moves ahead. a lot of people own vivendi simply because of the upside from universal music and the potential they will do a deal with someone like tencent or softbank. people might be impatient and we may not see movement until february. matt: definitely a stock to watch. what do you have on u.k. banks? they were hit so hard yesterday. >> yes. british lenders fell yesterday on the brexit developments, including royal bank of scotland down 10%. by there being hit
>> in -- less than a minute to the cash open. many are saying the euro hasn't actually priced in over this fall, no brexit deal. in china, ending up the day higher. oil, we are seeing some upside. it has been dealing with weakness. we have prime time or this morning. there could be some corrections after it dropped three standards to be asians. european equities close lower yesterday.
we are seeing futures point to a higher start at the open. -- paris up, 4/10 of a percent. going to be looking at when the market opens this morning? matt: what is going on the eu and exit and italy and what is going on after octoberrs sales fell. everything to look at this morning, especially what is going on with the equity index. will we see gains and holds on the european indexes? ie: we have the u.k. open 5/10 of a percent. theresa may has a big date ahead of her.
we had the turkish benchmark as well, also higher. well is dealing with their own pressures with the european union. matt: let's take a look at the industry breakdown. we will take a look at the imap in the bloomberg european 500 index. energy, materials, and financials are leading the charge. you see consumers and discretionary stocks up. health care is the loser today.
real estate is also down. keep an eye on health care and real estate stocks. financials are up. if you are long in the market, you want financials to be leading the way. are not doing so well, but's not as poorly as they were in asia, overnight. seeing riowe are tinto. and copper as well. she is certainly helping the minor stocks. -- miners.
the population of patients did not go through as they wanted on a cancer drug for astrazeneca -- related to a cancer drug for astrazeneca. it has fallen to the downside. anna: let's get back to u.k. politics. speaking onis radio. pictures of that live now. says she has not appointed a new brexit secretary. dominic rab has been negotiating the brexit deal. to thering in
conversation the ci young and founder of latitude investments. do you expect that nervousness around the banking sector to continue? it is nice to see the bank stocks having a bit of stability today. probably, uncertainty matters the most. the actual impact is so measurable. we're not sure how far into it we are, yet. anna: indeed. to solve the politics a little bit, first.
we have seen a haven in terms of u.k. political crises. if we were looking able to more like a hard brexit, that would put the pound down. call.is a big that is a really key point. we do get through this if we speak about the brexit scenario. deal, i think we could have a bit of a resurgence in economic standing. if you have a stronger pound in rate expectations will fall and rates will probably rise.
i don't think you should think about them as protecting you in this stage a must you are confident about brexit meeting a weaker pound. less you are confident about brexit meeting a weaker pound. matt: don't you expect a weaker pound from here? if she loses a leadership challenge, someone will have to start fresh. >> the pound is already pricing and quite large likelihood of that scenario -- in quite a large likelihood of that scenario. term, you can get protection in that scenario from inflation-like bonds. in the medium-term, there is liess likelihood of them paying
think.much as one would matt: are there any other assets getting hit especially hard? the u.k. market has been uninvestable for months. stocks are hard to call because it depends on what is happening with sterling. the whole u.k. franchise in market is good value in a broad sense. i would continue to look across u.k. stocks as an investor. m&a in the u.k. market is a pr oof point that retail investors institutional investors cannot stomach the near-term
uncertainty. anna: should investors factor in the chance of jeremy corbyn's government a little more? the majority of people will struggle to justify investments in the u.k. assets. that is where opportunity is. i think the form of government will be negative for a what a view case docs. -- a lot of u.k. stocks. matt: how long do you think it will take until we get this resolved? >> i have no idea.
it will take a long time. eighteen on air for minutes -- it feels to me like inll get a meaning ful vote december. two to three weeks is a long time in politics. i have to struggle and think about international assets as a sterling investor, and the underlying impact on stocks. and also the operating perspective in terms of the u.k. economy. it's very hard because it is so uncertain. anna: thank you. heart to call what happens on politics and the next half hour, let alone a week from now.
we are 12 minutes into the trading session right now. we see gains across beer. equity indexes. let's go back to annmarie hordern. at one of let's look the biggest gainers on the stoxx 600 this morning. universal music group is a stronger than ever, which -- stronger than ever, raymond james says. trials did's drug not meet business goals. that stock is down. 17%.urec is down more than it falls the most on record. more than any four-day drop since november of 2002. matt: annemarie, thanks.
lateuries gave back gains in the new york session. eased.ina trade tensions yields fall -- fell across the u.s. there is an important option later on today. -- auction later on today. it's been interesting to watch what is going on with yields is the government sells more and more debt. let's speak with the founder and cio of latitude investment management. wouldn't you have expected yields to be higher through this kind of turmoil? >> i know what you mean. thawing a national
demand for treasuries in the u.s.. this is what you might call ordinary institutional investors. these are quite attractive assets, again. we actually buy bonds for safety rather than thinking the yields would expand during a strike. experiencing a changing regime on how people treat the treasury bonds. don't think that will be true for european or u.k. bonds as such. to me, as the turmoil carries on, there is a chance the rest external factors drive to slightly more dovish places.
expect you will -- huge moves at the moment in the u.s. treasury market. piece this morning talks about the rate of expectations even in the fomc. there are hopeful inclinations toward rate hikes. that is quite a range if you look ahead to 2019. >> i am glad i am not the only one that is confused by the forward rate curve. we have seen a sharp or volatility in the market. -- sharper volatility in the market. we are moving to a point of
greater uncertainty. markets don't like uncertainty. i think the fed doesn't know where the mutaual rates are. they are unconvinced what they should doing. some commentators think we are at the right level for the economy now, at the moment. i think it's really uncertain. reactionreaction -- functions is how the fed it changes during times like this. we are very likely to see an inversion of the yield curve next year. i am hoping for one or two. we'll see.
matt: i thought the optimism had fake was interesting -- head fake was interesting in the brexit situation. there could be some kind of framework deal. have come out of the possibility of a credite ven -- credit event next year if we continue to get bad news on trade. are you concerned? >> i think this could be a big concern. when will the credit event happen? will it be localized emerging-market risk? will it be european risk? it's a much lower risk than people want to price and. -- princce in.
andbanking sector took that it did not have a knock on effect on the economy. in the emerging markets, it's much more of a threat, and something harder to analyze. i think that's where the real risk is. i haven't seen his notes. if that's what he's talking about, it's a real threat. thank you.ie lait, you stay with us. a few more lines coming from theresa may. she's answering questions on radio. they are still working with the whichhere is no row, followed some reporting to the
contrary over the past 24 hours. she's talked about how long it will take to appoint a new brexit secretary.she said that will come within the next day or two. matt: the markets are calmer than what we saw yesterday. as and lloyd's are still down little bit. real estate and property companies got hit so hard in yesterday's session. we'll continue to cover these markets for you as well. this is bloomberg. ♪ matt: welcome back to bloomberg
1%. italy is up half a percent. germany is up 6/10. the equity index is still doing quite well. oil is poised for its sixth weekly loss. there are lingering concerns oversupply. it could continue to press prices. american crude inventories rose the most in 21 months. the u.s. gave more waivers than the market was ready for on iran. lait is still with us on set in london. it's been interesting. trump tweets the saudis need to cut production, does this -- lead to a glut
that will take a while to solve? we have seen oil prices staggering in terms of strength in the last year or so. there is quite a lot of supply coming on. it does seem to me this is a bit of an awakening. there was an oil reserve that was previously unacceptable low $80 a barrel. political situation between saudi arabia and the united states, i don't know how that will work. i think it will carry on, but maybe not quite as sharp as it has been.
anna: do you think the u.s. will keep on increasing production? freddie: shale is incredibly cost-effective in most scenarios. they are improving the productivity of that process every year. still picking up. uneconomical two years ago are now economical. opportunities for the u.s. will continue to grow. i can't imagine the united states putting a limit on production. we will have to see lower prices for a sustained period. freddie, we really appreciate your time.
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my name is mike, i'm in product development at comcast. we're working to make things simple, easy and awesome. matt: plug-in your top headlines for you off the bloomberg let's get your top headliens off the bloomberg terminal. theresa may pledges to hold on the morning after making a brexit deal. the u.s. plans a twenty five percent tariffs on some chinese goods next year. good morning.
welcome to the european open. in reordering is watching the markets. -- and marine corps during annemarie: these are really the takeaway from those results about the universal music group. up moreo higher, than 3%. let's look at what is happening to the downside. trtials dids two not meet business goals. we're seeing forecasts from peers in america putting pressure on chipamekrakers -- chipmakers in europe.
bloomberg first word news. british prime minister theresa may is defined demands to quit as she battles to keep control of her government. she said she would stay in office because the public wanted her to see brexit through in an orderly way. two members of her cabinet resigned yesterday. the dup said the deal to prop up the government is order a must theresa may is replaced. i am going to do my job of getting a deal within the national interest. mp's will be doing their job.
they will need to look at that and consider the vote. ross says the u.s. still plans to raise tariffs on chinese imports in january, despite plans talks between president trump and xi. the meeting at the g20 will only discuss big picture items and told perhaps produce a bigger picture for further talks -- and will perhaps produce a bigger picture for further talks. that officials have been indicted regarding the isling of jamal khashoggi coming from the united states.
turkey says the order to kill the journalist came from the highest levels. opposition parties have egged on movement,ts threatening to block traffic across france over higher petrol prices. blockades are planned in almighty five mainland departments. mexico's central bank has raised key interest rates. there are plans to cancel a $13 billion airport -- policymakers alreadyrowing costs are at the highest levels in over a decade. florida's tying votes in the u.s. senate race are to be tallied by hand. election officials say rick
scott is ahead for th -- by millionotes out of 11.8 ballots cast. rocketn nine successfully blasted off from the kennedy space center that will improve product conductivity in the gulf. run of 18 successful launches this year has lifted its valuation to about 28 ilion dollars -- billion dollars. global news on air, 24 hours a day and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. debra, thanks. we're following closely a conference in frankfurt, the european banking congress.
the ceo of deutsche bank is saying a number of important things. says the european union needs to accelerate banking union. we have heard this from banking ceos for a long time. if you talk to regulators, they say they have gotten along with the banking union already. but there is still be executive point of view. -- the executive point of view. he says the conference should be the counterpart to london, so that banks that want to stay in europe can participate. most have gone with the decision to move their european headquarters to frankfurt. but banks to fashion,
sticking with germany. hugo boss is taking a cue to further its transition from suitmaking to a faster fashion model by speeding up production boosting e-commerce. the company is trying to dispel previous fashion mistakes. joining us is a leader of the turnaround. boss is the place to go when i need to go to a formal xedo, whatto buy a tu do you want to change about that? am i too old to be your key demographic? >> hugo boss is still there to sergio -- serve you.
the industry has changed. capitalization has clearly improved. hugo boss will dress you on all occassions. but we have to improve our business system. that was the plan be presented to the capital markets in london. anna: i'm focused ion the political story. you sell clothing all over teh he world. how important is the u.k. market to you? what concerns do you have about brexit? mark: it's the second largest market, behind germany and europe. we are concerned about potential restriction when it comes to free movement or
goods. strong,e confident the domestic demand for product -- remains one of the top travel destinations for international visitors. what kind of tariffs are you looking at when shipping close in and out of the united states? -- clothing in and out of the united states? mark: raw materials are being shipped across tehe world. this is clearly a globally integrated industry. we are seeing a reduction in
tariffs. discussions as to by much we'll be affected negotiations between the u.s. and china. not seen anye have relevant changes. my colleagues characterized your new plan as wanting to become zara for the banking set. do you appreciate the comparison? mark: i read that as well. what we stress is the importance of speed in our industry, to become more responsive to serve our customers. what we presented was the
collectionsevelop significantly faster than in the past. capabilitiesarly that have -- are now moving into our premium segment. i'm quite excited about the opportunity. this will be one of the competitive features of our business model to achieve our 2022 financial targets. matt: revenue breakdown by region -- asia, america, and europe are trailing. how do you want this picture to change? how much more can you do in asia, with such a growing class of wealthy people that care
about things like suits? mark: we've seen strong momentum the last few quarters in the chinese markets. we are committed to accelerating this growth. -- we are hoping to double our growth of these markets for the next four years. revenue share should be around 20% by 2022 in asia. is a phenomenal opportunity to use e-commerce as an important channel in the asian markets. we have very advanced digital concession business models. conversationated a
between burberry and h&m. we were talking about how to make the fashion industry more , to design and to stop incineration and the like. see sustainability is very important in our industry. it's an important reason to engage with brands. boss is one- hugo of the few companies included in the dow jones sustainability index for the second time.
our partners in hong kong demonstrated how we can use certain materials and turn them into fabrics. we've developed sneakers made from pineapple leaves instead of leather. it's received a strong reception from consumers. matt: what kind of traction do you expect to gain from this comeback? i know you want to raise sales, 15%. margins from 12% - 20% over thedown last five years. traction do you think you can get for shareholders?
ark: i believe we delivered a very solid and ambitious plan yesterday. afternalysts quartered the investor day. execution.own to we bardi established a track over the past few years to deliver on our promise -- we lready established a track over the past few years to deliver on our promise. 2019 willquarter of be our first scorecard to demonstrate tangible progress against this target. it is time to deliver. mark, a good place to leave the ocnversation. -- conversation.
five periods of rising gdp in the euro area. 21h gdp increasing by percent. the current expansion has lasted just 22 quarters. gdp is only ten percent above trough. the expansion in the u.s. has lasted 37 quarters. gdp has risen by 21%. in light of this, it's important to understand sources of the growth slowdown. there are two main sources. haveirst is factors, which played a role in the
underperformance of growth since the start of this year. weather and sickness affected output in a number of countries in the first half of this year. quarter, we saw a significant disruption in car production. avoid buildingo up inventory of models. heavily on economies with large automobile sectors, such as germany. the german economy actually contracted in the third quarter. temporary. should be car production should return to
normal as the testing backlog clears. the effect on output should dissipate. normalizing. the second source of the slowdown has been weaker trade growth, which is broad based. 1.4% --contributed percentage points to euro areera growth. beenercentage points have removed. with trade grwotowth deccelerated in the first half of this year. we're witnessing a long-term slowdown in world trade. some factors include trade
liberalization. we are also witnessing a cyclical correction from the very strong trade growth recorded last year. normalziing -- normalizing is global growth retreats. on growth could be temporary. two other conditions could make it longer-lasting, including trade uncertainty. protections.l agreementinary trade between the u.s., canada, and
mexico reduces uncertainty, but other factors remain. this is affecting trade outlook. contracted for the first time since 2013. about external demands spills over into domestic demands -- that's another factor. there is little evidence the moderation growth has affected his this investment. -- business investment. there is little evidence of the proposed tariffs have reduced the rate of capital spending. affectedlowdown has
capital and intermediate goods, which could affect investment decisions. need to be watching trade very carefully over the coming months. the underlying drivers of domestic demand remain in place. is the circle income,employment, and consumption. the cycle hasgest not been disrupted by the loss of growth momentum this year. employment growth remains relatively strong. the contribution of labor income to household income grwoth -- growth was the strongest in a decade in the first half of this
year. consumer confidence remains above its average in most eco nomies. perceptions about the general economic climate cap declined somewhat this year. consumer assessment of their personal situation, which tend to be more correlated with consumption, have remained a steady. -- steady. there are signs this cycle is resilient. they include longer-term structural changes. employment has increased by 9.5 one million in france, one million in italy. -- closeth is similar
this is at its highest level. have implemented seen are reforms have rise in labor demand compared crisise crisis -- pre period. there is a strong link between the consumption -- consumption and job growth in the european area. the high labor intensity services that represent the bulk of consumer expenditure.
this is one reason why the labor market recovery was not affected by the contraction in world trade. the strength of consumption continued. it may explain why the curves are higher even as growth slows. account for the vast majority of increased employment this year. but this could change if firms start to see a more persistent slowdown. there are still very favorable financing conditions in the european area/ -- in the european area. while the growth of loans to firms stood at its highest rate
since 2012. the growth rate of loans to households is also the strongest since 2012. with consumer credit now acting component, dynamic reflecting the ongoing strength of consumption. household net worth remains at solid levels on the back of rising house prices, and is adding to continued consumption growth. but of course, there also risks to financing conditions. now ist i would mention lack of fiscal consolidation in , it debt countries increases the vulnerability of these countries to shocks. whether the shocks are byonomously produced questioning the roles of the economic and monetary union
architecture, or are imported through financial contagion. so far, the rise in sovereign spreads. has been mostly restricted to contagioncase, and must countries has been limited and we had such a development naturally feed into a tighter bank lending conditions for the real economy. , there are some a reprise in bank lending, is happening when the rising spreads has been more significant. overall, bank lending funding costs remain near historical lows in all large countries, thanks to a study deposit base. to protect best thanks to a based.posit countries should simply