tv Bloomberg Markets Americas Bloomberg December 14, 2018 10:00am-11:00am EST
vonnie: here are the top stories we are covering. brexitity persisting as concerns and worry over a global slowdown sending stocks lower. trump's troubles pilon. trade,loses in on are bringing worries to the white house. a rocky week. pimlico'sar from economic advisor. selloff thisg a friday morning with the dow down .8%, and the s&p down .7%.
it is a down day for most stocks. we had the nasdaq down .9%. come into my terminal. halfway through the year, every analyst was raising their forecast for the s&p 500 as much as 3000 and that fell apart in august, september, and october. thoseear in targets -- year in targets seem far off. some of the individual stocks, tcots go, they have -- cost did. ventures are not
enough for the declining growth they are saying. progress admitting the in china is more difficult. weeks and a tough few year for the banking sector. citigroup, bank of america and goldman sachs on pace for the biggest loss since 2011. he thinks the banking sector will continue to see record earnings in 2018 and 2019. i want to look at the negative sentiment playing out the broader indices, leading to a stronger dollar, lower yield,
and an elevated fix. guy: let's talk about some of the macro stories from a different perspective. we are down, but not as much as the u.s. markets, which is interesting. .4% inxx 600 is down by europe. this.tinue the french pmi data really bad. the german data not exactly great. the real standout story on the upside continues to come from the united states. the euro is on offer. thechinese data overnight, industrial production data and the retail data incredibly weak, adding to the sentiment story around global growth, which is feeding through into the mining stocks out of europe today. you can see it in commodities.
you can find it in your bloomberg. metals are under pressure. the stoxx 600 is only down by .4%. the global growth narrative feeding through into europe. vonnie: for insights on the markets, we are joined by the co-head of equities from denver. is it time to take a pause on the rally this year? >> you have to be thoughtful about where we are. there is some deceleration and economic growth. i think the markets have anticipated a lot of it. you have seen that in weakness around the world. but also in the u.s. horizon andany time waited out, there are fantastic opportunity setting up because
we are pricing in really drastic scenarios. vonnie: there are sectors where it would appear a little odd that they are not trading better. to someone with a team from wells fargo. are there opportunities here? george: there are several you pointed one out. they are trading at extraordinarily inexpensive valuations. they are being used to a macro proxy. they are a vehicle that many people express negative sentiment but the markets. the underlying business is a much better than the stock prices would indicate. i would also talk about companies yielding on a free cash flow basis. and is a tremendous return
they are much stronger companies and they were 3, 4, 5 years ago. they are really attractive companies going forward. they had been hit over economic worry. but they're interesting opportunities in secular growth names. you have to me that google trading cheaper than procter & gamble. but this year, it has created this defensiveness. it has left really attractive opportunities throughout the equity spectrum. george, we are on track for the second-biggest weekly outflow from you is equities we have ever seen, i think. most of that is being led by retail. wrong?il get thisf we do not trade war issue cleaned up, we are going to have economic headwinds going into 2019, and thereafter. there is no doubt a trade war is
very, very damaging to economic growth. if the u.s. they can be isolated from that, they are wrong. if the world thinks they can be isolated from that, it is wrong. it will hurt earnings and hurt aggregate economies. to the extent people feel nervous -- since 2018 -- since 2008, people have had a necessity to down great loss. -- downgrade loss. does that tell us that this goes beyond the trade war narrative? this is a more domestically-focused index? george: it is a more domestically-focused index, but if you look at it underlying, it is not as domestically-focused as indicated. but that is the general view. the russell 2000 started at a much higher multiple and has more to come down.
you have a higher multiple, so if there is going to be volatility, the russell 2000 will get hit harder than the s&p 500 well. vonnie: what will have to happen for the u.s. to experience a recession? we're already talking about the fed taking -- in 2019. when you see the next recession? badge: if we get to a outcome with respect to the trade wars, that will not be helpful. if we have the fed to continue to raise rates -- looks like the market is not pricing and one full increase, i agree at this point. but if the fed has to raise rates because we have inflationary pressures, you got to very powerful forces -- two very powerful forces to create negative pressures. if we are looking at a weaker economic environment, with the fed raising rates due to a trade war, those are two powerful
elements. guy: put this in order for me for my portfolio next year. u.s. equities, emerging-market equities, european equities. sound: guy, this will like a copout, but i like all of them right now. it depends where you go. you have a capital market place where it is morgan stanley, that look very, very attractive. citigroup looks rae -- citigroup was very, very cheap on an evaluation basis. if you go around the world, you can see that scenario play out. with theng markets leading chinese companies, they look extremely attractive on a long-term growth basis. andcan go around to europe, those banks with a huge capital position have been hammered, whether it is on i totally -- whether it is not italy risk or what have you.
the entire playground look at very intriguing. i don't think the u.s. will have the outstanding performance rs ins international pee the past. guy: the kind of pmi's that has -- you must,do you to question the idea that we will to the european banking sector bouncing back next year. continue, it is hard to see how those banks will pick up without help, and maybe this is a store you are talking about from the ecb? george: i think there is a little bit of nuance. down by how's are much do to the protests? your guess is as good as mine. thanks as macro proxies will do better, the european banking index is down between 20% of 30% year to date, so a lot of the
pain has been felt. risktake much less credit in most markets than people anticipate, so as businesses, they are pretty sound. but for them to work, you need some stabilization and the economy of europe, hopefully, you get that with political stability in the european union. hopefully, you get that with a resolution to brexit. in if you get trade wars global gdp working, europe as a proxy starts working, these institutions, which are discounted on an underlying earnings basis, and they need to put of slow earnings. there is tremendous opportunity because the pessimism in certain sectors is very extreme. themes part of the macro that may dominate the first part of next year, what are the macro themes, george? if you look at the stocks that
have performed well year today, it is a really mixed back from ,1st century fox, chipotle under armour, i mean, it is a whole mixed bag. stories,e any micro m&a, or otherwise? george: i think there will be plenty of consolidation. the big themes that have worked for the past two years will continue to prevail. the move into cloud will continue to have power. not being proactive, you are going to be extinct relatively quickly. you want to be at the forefront of investing in those companies with those things. ,he aging demographics including housing, are powerful things that take president's and
ratchet down tray tension with the u.s. removing a retaliatory duty. the next move make him from the white house. the trump administration is expected to announce they are delaying tariffs do on new year's day. the chinese will resume buying u.s. corn. on capitol hill, house republican leaders are sending officials on a break without revealing anything about a shutdown. the senate has not announced plans to fund the government. british prime minister theresa may had two messages. -- thest was at the e.u. northern ireland backdrop will not be forever.
wants serious talks with e.u. officials to start soon. global news 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm kailey leinz. this is bloomberg. vonnie: thank you. president trump cannot out run his past. former attorney and advisor michael: taking responsibility -- michael cohen taking responsibility for crimes, but saying the president knows the truth. our investigative reporter. this is going on in the background and michael cohen is talking negatively about the president. how concerned should presidential be about this? : he is concerned with his statements about cohen degrading
him and his family, so that is usually an indication that the president is reacting that it matters to him. it is getting under his skin and much further. there was an interesting piece in "the washington post," talking about the witnesses having being this isd already, and not how you would normally proceed in these kinds of cases. about whens saying this investigation will come to a conclusion? greg: i read that piece. the point is clear, yes, what the sentencing of people related to russia, it appears robert mueller has a substantial portion of what he is looking for. but in the michael flynn case as we reported, there is a separate investigation by a different u.s. attorney's office into flynn's entanglements with turkey. i think robert mueller is a part of this, involving the middle east. has madeert mueller
great strides in getting his arms around what happened in terms of russia, there are other components that extend beyond russia that will play out. this will go on well into, if not entirely into 2019. vonnie: noah feldman has a great can use this as president clinton with monica lewinsky or as the president involving watergate. congress -- what about congress's actions? greg: trump will face a divided house with democrats lining up against him. we are ready saw that play out in a televised press conference with nancy pelosi and chuck schumer. he will not be able to demand his people in the house do something, sell there is a political component he will have to deal with. but with the investigation, it is not just robert mueller.
the investigations in new york in two campaign financing has the national enquirer executive and the chairman cooperating. also, raising more than $100 million into an another girl fund-- into an inaugural that is coming into question. he would be in a good place if it was just robert mueller, but it has gone beyond that. vonnie: thank you for joining us this morning. still ahead, pimco's prediction. hear the assessment of the global market and what is to come in 2019. this is bloomberg. ♪
tos etf friday, it is time talk about the magic etf's. about theime to talk etf's. why are they interested in this part of the market? >> when you say $19 billion, when you compare it to other they are bigger than other staples. this has been the busiest year thematic launches. data.cheap market withthe maddox -- thematics, you end up seeing
demand in that market. how has resend market volatility -- how has recent market volatility impacted investors? >> when i first saw the volatility, i expected flows to come out of these products. when you look at the other sectors, like tech, a lot of money comes out of tech. no money really left that area, sign the margin, that is a for the staying power of the products and investors are hanging tight with these asthmatic -- the magic products. demand?t about ongoing will there be too many of these things hitting the markets and
will there be investors? >> there are always copycat products. you cannot underestimate the power of being first. when you look at these big thematic tell areas, there was demand -- big thematic areas, there was demand. there is a big appetite for the .agic -- thematic vonnie: thank you. it is time for our latest business flash. they have agreed to buy high tells -- hotels in the 21 club. they will pay $2.6 billion in
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interest rate increase in the slow the pace in 2019 as the u.s. risk economy mounts. fels, joined by joachim bloomberg's economic advisor live from newport beach, california. joachim, how has your 10 base and when sitting the old case? joachim: vonnie, what is happened over the last few months confirms the view we have had. we are in a growing, but slowing environment and the global economy and we are seeing signs that the u.s. is starting to resynchronize on the downside with other economies, so this year was the year of economic divergence. u.s. growth accelerated due to the fiscal boost. pan, china -- china and the
-- china and japan started to slow. that will be the big story for next year. you may recall at the independent u.s. exceptionalism. vonnie: that is a statement, joachim. onehe market is pricing in less hike next year -- at the private -- if the market is pricing in only one hike next year, what is that telling them? joachim: they are probably close to neutral. that is a message from the equity market and i think the fed is starting to listen to that message. we have had a very significant tightening and financial conditions in recent months. what the fed will deliver next week is a dovish hike, and they may probably take out one of the hikes they were planning for next year, so maybe moving to two rather than three rate hikes next year. i think the fed is also
converging down to market expectations. having said that, i think markets are probably a little withoo dovish, basically pricing out any rate hikes next year. but i think the fed will deliver one more hike the first part of next or, maybe even two hikes. but i think they will pause at some stage. guy: let's talk a little bit about how this works, joachim. think, as you say, the fed may bring down the -- do you think the fed will bring it down to 2%? 41%? -- or 1%? if so, how quickly can they do that? joachim: guy, the real problem is taking a pause is very difficult for the fed to do.
bernanke try doing that in the spring of 2006, so he was mentioning the possibility of a pause in that rate hike cycle, and markets immediately jumped to the conclusion that the fed would be done in the next move would be down. that is the challenge the fed, under the new leadership, is facing for next year. i think they will want to signal a positron but keep their options open. the have not decided what to do after the pause. the reason why they are causing is there is uncertainty in the economic data. this will all lead to volatility if the fed is starting to signal a pause. the markets will jump to the conclusion that the markets are down and the fed will not like that. all of that will make for volatility the first half of next year and investors need to prepare for that. guy: it does make you wonder about the usefulness of the dot
plots. draghi tried his best to to where the ecb is going next, and you get the same sense from powell. they are walking across the dark end room and they don't know where -- across the darkened room, and they don't know where the obstacles lie. should be throw the dot plot out the window at this stage? joachim: markets have started to throw it out of the window for some time. the markets have not believed in the dot plot. but central bankers will still want to use the dot plot or forward guidance to give some rough indication. the issue is in the u.s., where we are getting close to the rates,- range of neutral there is more uncertainty, even on central banker's minds with
where they would want to go. this is why i think they will deemphasize the dot plot. j. powell has already started to do that. i think we are in a situation cost ofe future monetary policy just becomes more uncertain, not only in the might of markets, but in the mind of central bankers. vonnie: joachim, why such conviction on cuba's growth going so dramatically -- by such conviction on u.s.'s growth going so dramatically? vonnie, if you are looking at recent data, there are some signs of slowing. we have seen peak growth in the second quarter, still strong, but lower growth in the third and fourth quarters. it is probably running at 2.5% versus more than 4% in the second quarter. but the main reason why we think
we will see growth slowing further is, first of all, the tightening of financial conditions that we have had in recent months, stronger dollar, wider credit spreads, more volatile equity market, meaning tightening financial conditions that will play out in growth over the two to four quarters. secondly, the fiscal boost that we had this year will start to fade comes so fiscal stimulus is fading in the course of next year, and thirdly, the global economy has started to slow quite strongly. we're seeing slower growth in china, europe, japan, and emerging markets have had a rough time, so all of this will start to show up in the u.s. data as well in the course of next year. joachim, you may want to take at the new york's said model but the spread cash new york's fed model with the
spread. seehim: you would need to an inversion of the yield curve. the curve has flattened, but not inverted. the spread is widening and credit markets, signaling we are getting closer to a recession. then, you will need to see some signs that some of the leading indicators for economic growth, like the pmi, below the 50 line. we are not there yet, but this morning's pmi line in the u.s. has declined. but i think, we women get closer to that in the next few months. i think that is what it takes to move from orange to red. but again, that is not our baseline, so we are not seeing a recession next year. what is more important for
market is the probability of a recession is likely to increase in the mind of market participants. i think that is why we are facing much more -- we are facing a much more volatile, much more difficult market for investors. --: watching, stick around joachim, stick around. we need to talk about europe, the is he be -- about europe and the ecb. joachim fels will be sticking around with us. this is bloomberg. ♪
find back on issues of interest. for the past few weeks, paris has been angry and violent. tomorrow is expected to be no different. a supporters of yellow vests hit the streets. this started over plans to increase feel taxes -- to increase fuel taxes. french president win oh macron scrapped it. scrapped it.acron the unrest is beginning to dent france's economy. on top of all that, macron's reforms will likely call france
reach the european union's ceiling. about this onore bloomberg. pointet's pick up on the and talk about what we have been seeing in france. the unrest is showing up in the data. we have pmi data for france. falling below 50. joachim fels is still with us. joachim, we are seeing the spread widening out. is this just a temporary move as france go through this convulsion, or is something broader here? joachim: there is something broader here, guy. europe is in for a rough ride. theave the conflict between italian government and the european commission. now, france, as you said, they
are embarking on more fiscal easing in response to the riots, and the economy slowed sharply in the eurozone, in italy in particular, and now and france. again, we are in for a rough ride in europe. at the same time, the ecb is program.its difficultl face very macro environments over the next few years. i think investors should be very cautious on peripheral risks. guy: in terms -- just breaking , is thepheral risks reinvestment process -- as the reinvestment process starts, and this, should id
expect if he keeps with the , thent spread of duration german curve steepen's up a little bit? joachim: draghi made it fairly neutral.t they aim for they will not try to fiddle around with influence in the -- influencing the yield curve. we will see continued pressure on peripheral spreads, so they are continuing to rise. at the same time. -- at the same time, yields will get the searing that rates -- will get the signaling that rates will stay low for some time. the ecb will probably push out
the timing, the expected timing of the first rate hike into next year, and i think that will keep anchored.in bunds i think, you will not likely see a significant rise in core european bond yields. again, cautious on the periphery. i think the core bond yields will stay relatively anchored by ecb forward guidance. vonnie: we are looking at a couple of countries potentially breaching deficit rules. it is difficult for them to promise they will not, and it is not like they have leeway. there are protests in their country and people very much suffering. can the e.u. decide to change the rules somehow, particularly given that brexit is becoming such a headache for leaders? rules areonnie, the
quite flexible as we have learned in the past. by the way, there will several -- there were several episodes in the past where france and germany were breaking the rules, making the more flexible. you know, i think this will create a lot of noise and headlines, but the reality is, we are in an environment where fiscal policy in europe is becoming more expansionary for the reasons you have mentioned. there are protests in the streets. the typical response by government is to cut taxes, raise spending, or do both, and that is the new reality in the eurozone, as in the u.s., we will see more fiscal easing. vonnie: joachim, you mentioned the end of american exceptionalism. who takes over? joachim: nobody. nobody takes over. the u.s. was kind of to gravity this year because of the fiscal
boost. the rest of the world was not defining gravity and growth slowed. there is really nobody to take over. in theory, it could be china. could massively stimulate their economy and pulled the rest out of this slowdown. dated this -- they did this back in 2009, but they are not willing to do that because they have accumulated debt. so, the focus is on deleveraging the chinese way, so you only see mild stimulus in china. they could do it, but i don't think they have the will to do it. those thatm, for have mandates, will they join them? joachim: that is a very good question, guy. you want me to talk about brexit? well, our view is that we will get some sort of, relatively
soft brexit, the chaotic, no deal brexit is unlikely to us. that means the longer end of the u.k. curve is not attractive, so we are underweight yields because we think that the worst case that people are dreading is not going to happen. vonnie: what does happen, joachim? going on inething parliament and how flexible european leaders be, given they are absolutely unattractive right now? joachim: i think you will get some concessions. i don't think you can get a new deal. i think the deal will be renegotiated. but i do think you will get some sort of compromise that will allow for a transition period. maybe an even longer transition period.
we will see what happens, but i think the main point here is the hard brexit, the chaotic brexit, where the u.k. leaves and goes wto environment with higher tariffs, we think that is unlikely to happen. guy: it was a pleasure, joachim. joachim fels, bloomberg's global economic advisor. have a merry christmas. from london and new york, this is bloomberg. ♪
joe, why is crude not pushing higher? joe: two things, one of the equity markets. when you look at the s&p's at the cma, they had been under , they had- at the cme been under pressure. guy: talk to me about levels. 51.65 right now. what about the 50 line? joe: 50 is the line in the sand right now. we had great numbers out of china with the tariffs being released. the autos, you have the saudis saying they cut supply to the u.s.. -- to the u.s. 50 is that mark.
now that we have broken that 51.65, even though we have all of these -- to the upside, they that levelging to and you have to watch that area. guy: joe, thank you for your time. vonnie? vonnie: it is time for our stock of the hour. shares of -- are rising -- shares of highest are rising -- years of hyatt are rising -- shares of hyatt are rising. taylor: you can see the shares are rising, so certainly from evaluation perspective, investors are happy, and it is their biggest purchase. this purchase is about $2.6
billion and it is their way to diversifying into the luxury goods space, giving them restaurants, especially as customers seek more trips and experiences, just versus a handbag. this will help them diversify into the luxury space, like in hotels. the luxury space has struggled a lot this year. index ande luxury belmont is the biggest gainer. we are looking at some of the items, taylor. italy.f them are in taylor: they are going to get some great, geographical exposure. about 34% from their
revenue from a global audience, and there are other revenue drivers in brazil and europe, but this does give them luxury hotels globally that will help them. riggs, thank you. guy? guy: you have to experience a luxury. that is what the deal is about. what are the markets experiencing right now? the dollar on the front foot. this is the price of crude and betsy what the 10 year is doing. gold is down by .6%. this is bloomberg. ♪
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vonnie: here are the top stories we are covering from around the world. chinese and european data is parking a global slowdown, but retail sales of stateside are beating expectation. winner,nback is the big and may not. prime minister theresa may coming back from russell's. let show you the market. this is always fine with european equities, -- from brussels. leche the market. the european market is fine with equities -- let us check on the market. you can see what the single currency right now, we are having poor