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tv   Bloomberg Daybreak Europe  Bloomberg  January 11, 2019 1:00am-2:30am EST

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anna: good morning. i'm nejra cehic. this is daybreak europe and these are today's top stories. a flexible fed. top officials reiterate patients. is it data dependent or market dependent? chinese vice president premier will make the trip to washington. asian stocks head for their best week since november. xiaomi exclusive. the cofounder is brushing aside a selloff, $6 billion in market value. a smartphone revival is coming. ♪
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nejra: good morning. 6:00 a.m. here in london. welcome to daybreak europe, a couple hours away from the start of cash equity trading in europe. we've got these numbers coming in. taking a look through some of the top lines. third-quarter sales coming in at 3.9 2 billion euros, a slight miss on the estimate 3.9 3 billion euros, pretty much in line on third-quarter sales. fx, includingnt the estimate 24.8%. a few lines coming through here into the bigger picture we are getting from some industries. what we've been seeing across the board, industries under pressure from global growth. we've seen that in tech space. in terms of equities, retailers
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coming under pressure in yesterday's session. we did see gains in other industry groups like industrials and real estate's. fifth day of gains for u.s. equities. futures could come in softer, s&p and nasdaq futures. but if you're listening to jerome powell and richard claro, you're hearing about a fed that is patient and flexible. that's given a lift to risk assets. we could see a fourth day in gains judging by the euro stoxx 50 futures. we are seeing dollar weakness to end the week. the bloomberg dollar down, every g10 currency getting against the dollar, and so is the yuan around optimism in trade talks. you're seeing bids for the safe havens. gold is higher in today's session. wti's steady in today's session, but still in the bull market and holding above $52 a barrel.
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let's check in on markets in asia. juliette saly in singapore has more. it's been a good week for asian equities. juliette: it's been a great week. $685 billion added to the market value for the msci asia-pacific index, up about 4% over the course of this week. if you look at the last 13 sessions, we've only been lower for two of those. yesterday's loss very shallow, down .1%. nikkei closing higher, good gains from chinese developers and airlines, lifting hong kong and china markets. also, the tech sector market rallying their. in india's market on track for its best week since the end of november. we are in earning seasons. let's look at the stocks we are watching. we had fast retailing coming in with numbers after the close in
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japan. they want as good as expected, but analysts confident about retailing going forward. they are seeing growth in overseas operations. that has offset an unexpected winter in japan, fast retailing up to 6% in tokyo. leading the airlines after lifting the target price on three major carriers. tata a little bit of a mess with numbers, down about 2%. pretty good session in the india market. nejra: juliette saly in singapore, thank you. some lines from credit suisse. credit suisse is to start its share buybacks program january 14, an update to buy back shares of at least one billion swiss francs by the end of 2019. this is information with an update, credit suisse group
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reporting the start of share buybacks. interesting conversation to be had around financials, looking ahead to earnings from the biggest u.s. banks next week. quite a lot of news flow coming through about job cuts in the finance sector. we talk more about that this hour. let's get back to the theme we're asking on mliv. when will the u.s. shut down matter for markets? you can join the debate. reach out to us. let's get the bloomberg first word news with debra mao in hong kong. hi. debra: morning, nejra. president trump says he will most likely declare a national emergency in regards to the u.s. southern border if congress doesn't agree to funding for his wall. with the shutdown ending -- entering its 20 day, the president flew to texas to rally support for his plan. the white house is considering whether emergency funding can be diverted to pay for the wall.
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>> if we don't make a deal with congress, most likely i will do that. i can't imagine any reason why not. i'm allowed to do it. the law is 100% on my side. if we can't make a deal with congress, we should be able to make a deal with congress. is set to visit washington to further trade talks. they will likely meet with robert lighthizer and treasury mnuchin. steven they expressed optimism earlier this week after trade talks wrapped up in beijing. >> the current intent is that the vice premier will most likely come to visit us later in the month, and i would expect that the government shutdown would have no impact. we would continue with those meetings just as we sent a delegation to china.
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debra: carlos ghosn has been indicted for a second time as prosecutors build their case against the former nissan chairman. this is for kimberly transferring personal investment losses to nissan, as well as understating his compensation. been in jail for two months, denied wrongdoing. president trump's former lawyer fixer agreed to testify in public on capitol hill next month. cohen's views could offer a dramatic view of the innerworkings. hush money payments to two women who claimed past affairs with the president. global news, 24 hours a day on air and at tictoc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. nejra? nejra: debra mao in hong kong,
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thank you so much. fed chair jay powell has hammered home that a rate hike is coming, as the central bank waits to see how will the risks are affecting the economy. >> financial markets, beginning in the fourth quarter, got more volatile, and seem to be pricing in a more pessimistic ousted -- outlook, which seems to be rooted in concerns about slowing growing concern of the ongoing trade negotiations. if you look at the incoming data, you don't really see evidence of a slowdown. nejra: powell is just one of a host of fed speakers who pledged patients this week. richard claro echoed his remarks, saying monetary policies should be adjusted if risks persist. >> [indiscernible] askeep the economy as close possible to our dual mandate
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objectives. is hsbcoining us now private banking. great to have you with us this morning. if you're listening to richard clarida, you are hearing patients and flexibly. -- one ofhe things the things we saw cause tiny concern was the comments around the balance sheet. the word he used at this time, substantially. it seems like we are always trying to read into the details of jerome powell. what more does the market need to hear? guest: i think the market probably is exaggerating a little bit on the idea that we will not get any rate hikes anymore this year. we still think we will get one. and then a pause after the september rate hike that we foresee. the economy is slowing, but nowhere near where powell is
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saying. the labor market is strong. the trade element is there to leave concern about growth, and that is really the key. the fed can try to communicate but we need to look at the data because the fed is looking at the data. that will give us an indication. nejra: with market expectations, fed hike so low, what is going to drive dollar appreciation you expect? willem: we still see mild dollar appreciation. the market is expecting zero, whereas we expect one. then simply, there is the the level inin europe versus japan. that continues to attract some flows there. ultimately, the u.s. dollar in this environment, is a safe haven. when risk appetite is high, the u.s. dollar, as we been seeing,
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the u.s. dollar has downward pressure. when there is uncertainty, and there will continue to be uncertainty around the global economy, the u.s. dollar is supported. we expect the dollar to appreciate between 3% and 5%, not that much. nejra: i know you been open about admitting some of the mistakes you have made. one of the calls that turned out right was your overweight in u.s. equities. are you making the same call in 2019? willem: we are. certainly in the last few months of the year, we had a significant correction and price-earnings ratios. what we are currently concerned about in the short-term is this concern about growth and whether earnings have come down enough. we7%, 8% earnings growth, have concern we need to go a few points lower. we are going to get
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about 10% earnings growth. the longer term outlook for u.s. equities for the year is quite positive. the valuations are the area we feel most comfortable with, given that we feel earnings downward trend still, we are in quality stocks to whether it's volatility. nejra: one thing you pointed out is you had the ifn manufacturing against the s&p 500, and you pointed out that there's in this decoupling that's happened and use of the gap needs to be closed. i'm wondering what you think the cap would close with equities moving up to meet the ifn, rather than the ifn moving down. why is it equity markets should be repricing? willem: that's the whole question. what we do is decompose the earnings into earnings, right? price-earnings have moved a lot. the earnings have not yet moved
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down very much. obviously, we have had a fall in the ifn, but it would need to go lower still before we match what we have been practicing in the equity markets. nejra: in your previous quarter year, you basically attributed the correction in global stock and bond markets to higher u.s. interest rates, and of qe in the u.s.. you now are saying markets are starting to price in this other risk, the fear of the economic slowdown. has the repricing than definitively run its course? willem: we think so. within the repricing is done because we are only looking for one more interest rate hike. we are looking for treasuries to go sideways below the 3% level. the tightening of financial conditions around the world is really done. that's why we are overweight equities. we need to do it and a smart way, and not in a cyclical way,
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in a relatively defensive way in europe and around the world and quality stocks. it's that balance between being attracted by valuations, but still caring about, are looking at the risk of a slowdown, a mild slowdown. nejra: interesting what you said about financial conditions, you think tightening is widely done. we have a chart that shows the tightening in the u.s., particularly, much more than elsewhere, but has come off from where it was in december. i'm interested in your treasury yield call. goldman sachs revise their 10 year yield calls, for they are seeing 3% year end, jpmorgan 3.2%. you see 3% as the upper bound, as you said. is market pessimism going to play out more in the bond market rather than the equity market in 2019? willem: in terms of cyclical element, what we've seen so far
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in terms of the fall in yields break even expectations of inflation expectations. the market has come around to realize there isn't much wage pressure in the u.s. obviously, we've had a downturn in oil prices. we still have a relatively high year level of real yield. we are not yet pricing in a downturn in the global economy because real yields are relatively high. we think we can raise rates maybe, if oil goes up, but real yields can come down. that's why that trade-off is there. treasuries, now after many months of not working as a hedge against equities, they are working again. there is a demand. nejra: willem sels stays with us. more to talk about.
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xiaomi founder and chairman brushing aside a selloff that wiped $6 billion from market value in just three days. our exclusive interview next. when you're traveling to work, tune in to bloomberg radio on dab digital radio in the london area. this is bloomberg. ♪
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nejra: this is bloomberg daybreak: europe. let's check in on the markets. asian equities heading for their best week since early november. index,dest gains on the a lot has to do with optimism. the yuan has benefited. five days of gains for u.s. equities. we saw those gains yesterday following comments from jay powell. patient and flexible is what the fed is going to be if you're listening to them. could we break those gains in today's session?
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the 10 year yield moves lower, gold moves higher, and crude steady, but still in the bull market march. we are asking the question on mliv, one will the u.s. shutdown matter for markets? you can join the debate. ivy plus tv on your bloomberg. let's go to bloomberg business flash with debra mao in hong kong. debra: blackrock is cutting its workforce. an internal memo says 500 employees face dismissal, although the note doesn't say which units will be affected most. asset managers are under rising pressure and the industry is rolling out new technology to reduce costs. a second agency has cut credit ratings to junk, citing the wildfire liabilities.
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they post cash collateral and move out of the biggest investment grade bond index. they lowered pg&e's rating five notches. it follows as it moves to junk earlier this week. they are planning to halt work in the u kproject and take a charge of $2.8 billion. according to the nikkei newspaper, the conglomerate will book the loss after negotiations stalled with the british government over funding. the hitachi executive said the project is in abandoned -- isn't abandoned entirely. that's your bloomberg business flash. nejra: china's second-largest smartphone maker lost $6 billion in value in three days. renewed fears over china's slowing economy. he told bloomberg he expects
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next generation's wireless will meet demands. coming very at this point, the demand for smartphones is declining. but i believe 15 g finally comes, we should expect to see a peak in smartphones. chinese companies are getting more competitive. it's understandable foreign brands are facing pressure in china as local brands are more competitive. >> just wanted to push you on what your priorities were specifically for overseas expansion. you talked about the growth xiaomi has seen in india. what are your priorities, and have your priorities changed at all given the current tensions and the current environment? >> the new priority for our overseas expansion will be the european market. we hope to choose two or three
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countries. we are capable of putting a footprint in global countries. that's our global business strategy. >> there's skepticism about the claim xiaomi is an internet services company more than a hardware company. what specifically are you doing to address those concerns, and when do you think the steps your putting in place will start to have an impact? >> xiaomi is an innovative company that includes the hardware business, e-commerce, and internet. xiaomi is a new creature. of 9.9had revenues billion yuan in that business in the third quarter of 2018. that increased more than 18% year on year. it's growing very fast. active internet users number 220 million people, which is a large number. speakingat was lei jun
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to tom mackenzie in beijing. along with economic concerns, u.s. china trade relations continue to be a concern. sels is still with us. what conviction have you got around asian equities in 2019, particularly with this background of trade tensions? willem: we are prudent, and in terms of the negotiations to an the u.s. and china, it's good to take a prudent view and not jump to conclusions. if the tariffs remain in play, there will be volatility in terms of growth. however, we do think the stimulus will kick in and the second half of the year. so to bridge that gap where you may see volatility in the data, we are invested. companiesking at which basically have earnings resilience that ione mentioned
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in the rest of the world, as well, or to look at the companies that benefit from the stimulus that china is introducing. also, obviously, infrastructure spending, which benefits the construction utilities. and then the 13 is looking at the internal growth. and that is really to do with the growing wealth in china. and actually, in the region, as well. so the empty-nesters, the households where the child has left the house, the consumer has disposable income, spending on health, and upgrading the products they invest in. nejra: interesting. now, you admit you underestimated investors' bad reaction to the trade talks in 2019. it was hard to predict what would happen. what does that mean for the way
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your approaching 2019? do you feel you need to be more cautious, or do you think the bad sentiment is going to turn? willem: that's with a prudent stance comes from. it's all about finding the right balance. in december, when we had a violent selloff, and now in january, where we had a quick recovery, as well, we are basically warning that probably neither of the two is right. one needs to stay in the valuations that look to sticking to the right stocks. nejra: that's great. willem sels stays with us. profit outlook being cut like 2009, but the market isn't bothered. partyalysts late to the or investors playing catch-up? when you're on your way to work,
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join us on bloomberg radio. this is bloomberg. ♪
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nejra: let's get a look at the world map. asian equities heading for the best week since november. we are seeing optimism around the progress in trade talks and comments from fed officials. you can see quite a bit of green on the screen, australia the outlier. markets around the world, joining us in mumbai is i can the heel and here is annmarie hordern. equities pending in grain -- ending in green. how is india looking? really as wellt
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as the global industries. they are both trending in the red at this point in time. we are seeing weakness in the banking index, as well. the broader market index, the method 500, that is -- the method 500, that is sticking. i do want to mention the technology sector. we have the largest technology company. we've seen disappointment when it comes to operating margins, which is why it's down as much as 2.3%. we are expecting earnings from another heavyweight emphasis, where we likely see disappointment coming. infosys among the top five, and that's what we are looking at weakness in the benchmark industries. nejra: thank you so much. oil looking flat today, but i
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know you can't help but look at it. it's still in the bull market. ofmarie: it's the first week 2019 and we arty have oil on its best weekly gain in two years. where was i in two years? i was at the historic deal were opec brought russia in, they were able to make this huge cut, the biggest global cut its 2001, and that's when we are back for the price of oil. this week, signaling strong optimism, confident to rebalance the market. rbc capital says they are an urgent imperative to get pricing on the right footing. something i think you would enjoy. looking at the treasury markets, they started to a bit of a wobble. the first one out of the gate was the three year note. it through the lowest bid since 2009. a bit of demand from treasuries. many say it's mere mathematics. others are saying this could be
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a red flag. deutsche bank's chief economist says fiscal crisis is begin with declining bid to cover ratios. nejra: you know how to float my boat. thank you so much, annmarie hordern and agad. today we' asking the questionre, when will the u.s. shutdown matter for markets? reach out to us. let's get to bloomberg first word news with debra mao in hong debra, hi. debra: hi, nejra. president trump says he will most likely declare a national emergency in regards to the u.s. southern border if congress doesn't agree to funding for his wall. with the shutdown entering its 20th day, the u.s. president flew to texas to rally support for his plan. the white house is considering
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whether emergency funding can be diverted to pay for the wall. jay powell says the federal reserve can be patient. the fed chairman said he is watching and waiting to see how global risk impacts the domestic economy. they also confirmed the central bank is sticking to its plan to shrugging the balance sheet to a more normal level. submitsindividual level his or her projections four times a year. we did that in december. two rate increases was the median, conditional on a strong outlook for 2019, and outlook that may still happen. we are in a place where we could be patient and flexible, and wait to see what does involve. we are waiting and watching. ministerpan's prime says the whole world wants to avoid a no deal brexit. following meetings between shinzo abe and theresa may, he publicly backed the brexit
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agreement. lawmakers are debating the deal in the house of commons ahead of a final vote on tuesday. >> a no deal brexit will be avoided, and in fact, that is the whole wish of the whole world. support of theal agreement between the eu and prime minister may. debra: global news, 24 hours a day on air and at tictoc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. nejra? nejra: debra mao and hong kong, thank you so much. now with just 77 days left until the u.k. leaves the eu, the political stalemate holds westminster, the vote planned for next tuesday. but the momentum seems to be moving further against her. what can we expect amid the uncertainty? joining us is david. good to see you as always.
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what can we expect? david: a third day of the five days of debate happens today. we're not expecting new arguments. by this point, we've heard all the government's points. there's not anymore reassurances, any changes to what's on the table. we've seen the prime minister rolling out support for different quarters. you just saw shinzo abe in japan, the whole world -- [no audio] the answer to that is probably know. it looks like mps are set in their opinions on this, and she's still headed for a major defeat on tuesday. nejra: do we know what plan b looks like? david: that is the big question. yes, this vote may be lost in the prime minister may have to come back with some new proposal. what is it? it might emerge over the
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weekend. she must have something to bring to the table next week. she might have to come back to quickly. -- pretty quickly. perhaps that is going back to europe for more concessions. maybe it's something more genetic. maybe it is pivoting, we might have to go back to the public with a referendum. the key tuesday night is the margin of defeat. does she was by 20 votes, in which case may be the deal is in dead? dead?instead? -- isn't any idea at all if and when more votes could happen? david: after the donald green amendment this week, she's going to have to do something quickly. the idea of running down the clock to sharpen mps mines doesn't seem -- minds doesn't seem appropriate anymore. we expect them to be more
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accelerated now. nejra: thank you so much. great to have you with us. let's turn to banks. financial market turbulence is supposed to be a good thing. that may not be the case this quarter. earnings kickoff monday morning with citigroup. fixeding to the cfo, income and equity revenue are likely to be lower than last year because volatility has an boosted activity. jpmorgan reports amid three recent downgrades a doubt over the growth prospects. the same morning, we get wells fargo results and looking to see if the decline in average loans continues. bank of america told bloomberg he expects trading revenue to decline somewhat in the fourth quarter. that lender reports wednesday alongside goldman sachs. on thursday, morgan stanley, a rare upgrade in a season of pessimism. willem sels is still with us.
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what kind of tone can we see set or confirmed by the banks next week? willem: the banking sector should see weaker earnings, but expectations are relatively low. obviously banking stocks are trading with of the outlook of the economic cycle, which has been pessimistic. maybe there is improvement basically on the back foot. if you look at what businesses are telling us in the form of the isn or the beige book, that should be reflected in the earnings season. we are nervous about earnings expectation. they may come down further in the short-term even though later, especially with chinese stimulus, we will find the global economy is not falling out of bed and earnings expectation goes up. nejra: i'm glad you brought up earnings expectation because the year has started with a
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troubling start. they have cut the most globally since 2009, according to citigroup. there's a measure which shows that. we've been talking about various analyses, given how much the market d rated at the end of 2018, the markets are looking at a drop in earnings. in a way, markets got ahead of the analysts. but does that mean the market has found that bottom in terms of earnings and we could move higher? willem: depends on how you decompose it. we would argue we start with analyst consensus earnings and derive the price-earnings ratio. we think it's a valuations that corrected very significantly, and that's what we were talking before about the bottoming of valuations. on the earnings aside, finishing's -- an interesting point is that they've been
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negative for much longer and the emerging markets than develop markets. from an earnings perspective, adding potentially there's more upside than emerging markets. if you look at valuations, it's in the developed markets that they are in a five-year market. the balance between where do you go in terms of quality, in terms of cyclicality, is different from country to country. nejra: when it comes to expectations, you are saying you expect 10% earnings growth in 2019. is that something to get excited about? you're ahead of consensus, which was 7.7%. willem: if you believe earnings growth is 10%, you get a dividend. in the u.s., it's not very high. then everything turns around. do you believe valuations are constant or will go up? it goes back to interest rates, treasury outlooks, back to also
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credit spreads, which we haven't talked about. those valuations, in our view, if they found a bottom, you are expecting year as a whole if you have 10% earnings growth. nejra: you made the point it's different when you look around the world and you look at the u.s. versus other parts of the world. europe seems to be the epicenter for these, but europe's biggest companies have started to outperform on a forward earnings basis, the cost of insuring against corporate defaults. -- is there a reason to be buying europe based on earnings? willem: clearly, the overweight for the u.s. has not worked for the last month or so. nejra: its early, don't worry.
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willem: the u.s. is further removed and the market is worried about that, the u.s. is for the removed from a recession than europe. call asng to be close to whether we get a second negative quarter. of thet think so because oil prices that are going to boost consumption a little bit. it's going to be a close call. in that environment, i don't think earnings expectations can be sustained at the current level. probably have ups and downs. obviously, you have political risk, the elections, italy and the european commission, which seems to have calm's a little bit -- calmed a little bit. the tension may go up again. for the moment, your had -- europe has been out of the limelight. nejra: in any case, when it
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comes to equity markets, you're being selected. tell me what approach your taking as --you're taking as far as the u.s. willem: around the world, we're looking for quality sustainability. we also like the health care sector, in particular the health technology sector. that's where we think innovation is happening. obviously even though it's technology, there are elements. utilities should do relatively well. in technology, from a longer-term perspective, we think it's not because of volatility. every company in the u.s. index should be a technology company. those are the ones that are going to outperform. nejra: willem stays with us. coming up, the good, the bad, the ugly as hedge funds report their performance.
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we look at the winners and losers. traveling to work, to into bloomberg radio on dab digital radio in the london area. this is bloomberg. ♪
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nejra: asian equities ending the week on a high. there's the picture on the embassy -- avocet pacific index. -- msci asia-pacific index. u.s. futures looking soft. we could see gains at the european equity market open. let's talk about hedge funds. between thosed
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that performed and those that saw staggering losses. one bright spot was bridgewater. many of its peers didn't fare as well. but ackman outperformed, ended the year in the red. one of the worst performance was green light capital, which saw the worst performance in its 22 year history. correspondent.ur great to have you with us. you put out a great story. why have they had the worst year since 2011? what happened? guest: the story of 2018 is that you can say anything about hedge funds and that would be true. the main culprit is rising volatility. hedge funds waited for years for volatility to search. it made matters worse for them.
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it started in february, when short volatility trades imploded. that smashed hedge funds. october was another bad month. december, that was terrible. it was an extraordinary month. if you were flat in december, that would be considered a good -- what troubled hedge funds were a combination of factors. volatility is one. rising political risk, trade wars, and the combative stance of donald trump did not help hedge funds. nejra: is there a common theme for those who did well? guest: anyone who had less exposure to markets, anyone behaving like a hedge fund really did well last year. christie norrie, for example, helped him.
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there were several other hedge funds that made a lot of money. nejra: should we expect more outflows this year? how will be differentiate within the industry in 2019? what themes are you able to pick out? do, wehistory shows they should expect much higher outflows this year. already through november, we've seen $15 billion leave hedge funds. trillion, of $3 that's a tiny amount. but that base is accelerating. some of the very well-known hedge funds have not done well last year. that's a big dent for the industry. i would it to be surprised if -- i wouldn't be surprised if outflows -- nejra: will it work this year? guest: it was next. maybe it should, if a volatility
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is coming back. if they do what they promise, then it should be a good year for hedge funds. nejra: thank you so much. great story out on the bloomberg by nishant and his team. willem sels is still with us. let's talk about volatility. a great jumping off point. you've got various strategies. you been overweight gold since november. you've done well from that. is it time to reassess it if you think equity markets are going to recover, and the dollar is going to strengthen? willem: yeah, again, try to find the right balance. if you're significantly overweight on equities, if you have exposure to credit, where we see spread widening, you need to manage volatility. you mentioned the first one. clearly, diversification is
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working. now areoned treasuries negatively correlated to equity markets again. they had a good december month. that seems to work. the second one is gold. we do think gold did not work in 2018 because during the repricing when everything repriced because of higher interest rates, goal had a headwind. that is less the case because we are only for seeing one interest rate hike. we have moved from almost a pure u.s. dollar high-yield last year in november, as well, into investment grade, as well, and into hard currency debt. diversification, and the basket of those three asset classes only widened by 18 basis points as opposed to 80 basis points. if you have a buy and hold
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approach, one that we are taking, a buy and hold approach of two, three-year paper, you are less sensitive to the volatility. we do still think we will have widening. obviously, we talked about sector allocation. all of that needs to come together. it's not just one of them. interestingactually your approach. you keep talking about diversification. how does tepper's vacation work in 2019 one in 2018 you saw -- how does diverse vacation work in 2019 when you tell -- willem: it was also across asset classes. it comes back to what period we're in. because it didn't work the higher interest rates. now, the market is concerned
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about the cycle. when it is concerned about the cycle, during those periods, you will have equities going down and treasuries going up. when we find we are not in recession, equities may recover. nejra: makes sense. is volatility an opportunity only if you have higher than normal cash positions? what should everybody be finding a way to take opportunities? willem: the volatility depending on what you do with it. in our business, people use volatility to enter equity markets with maybe a call option. obviously, that adds to the equity exposure. saying do it're only when you have higher cash positions. being fullyk at invested but not taking a directional view, but just a volatility strategy, that's another opportunity. nejra: we talk a lot.
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we talked a lot about volatility, everything fed. what is your key thing for 2019 in terms of what you learned for 2018? saying we're basically it's dangerous to be too bullish or bearish. we're trying to whether the volatility. the data is very confusing. we had i.s. and, which was negative. then we had different speakers saying different things. and we still have the uncertainty on the trade side. valuations, it needs to be balanced. nejra: finding the right balance. willem sels. a costs of caution. fed chair jay powell hammerson the message a rate hike could be coming. we discuss that next. this is bloomberg. ♪ amazon prime video is now on xfinity x1.
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so when you say words like... show me best of prime video into this... you'll see awesome stuff like this. discover prime originals like the emmy-winning the marvelous mrs. maisel... tom clancy's jack ryan... and the man in the high castle. all in the same place as your live tv. its all included with your amazon prime membership. that's how xfinity makes tv... simple. easy. awesome. nejra: good morning from
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bloomberg's european headquarters in london. i'm nejra cehic. these are today's top stories. a flexible fare, the top officials from jay powell to richard claret out reiterate patience. is it still data dependent or market dependent? trade optimism. the yield curve president will make the trip to washington this month. european futures are in the green. and an exclusive, the billionaire cofounder shrugging off a sellout that sheds $6 billion in market value. he tells bloomberg that a revival is coming. ♪
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nejra: good morning, welcome to daybreak europe. we are an hour away from the start of cash equity trading in europe. we could see the fourth day of gains for european equities. green.mly in the this is a different picture to what you are seeing in u.s. equity futures. we were seeing them lower, looking at the s&p, dow, and nasdaq futures. they are coming off their lows after five days of gains in u.s. equities. asian equities heading for their best week since early november. risk assets lifted, partly around optimism over how trade talks progress, but also crucially from what we heard from jerome powell and richard claret. if you are listening to those officials, you are looking at patience and flexibility. we did see a move lower at one point in the u.s. session
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yesterday on the comments from jerome powell about the balance sheet. people are going to be analyzing what he meant by substantially in the next few weeks. that is something to bear in mind. retails down in the u.s. session , but we saw other industry groups move higher. earnings season getting in focus. let's talk about the bond markets because we are seeing some of these safe haven bids. gold is seeing the 10 year treasury yields move a little lower. that does not seem to be collecting huge in the -- reflected hugely in the futures. futures notunds, getting a lot of directionality. we saw yields in the core, apart from gilts, move lower. you did see the 10-year building the -- beating them. it looked like the bdp spread was wide and could continue today. let's check in on the markets in asia. juliette saly has more. what a stellar week for asian equities.
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been, despiteas all the possible headwinds. that we have seen that optimism about the fact that the fed could be a little bit slower in its tightening, and the fact potential visit from a chinese premier visiting the u.s., boosting sentiment in asia. chinese market closing higher by 0.1% area japan had a good session, the nikkei up by 0.1%. earnings season in india starting to weigh on it. overall, a very good week for asian equities, up by about 4%. that is about 600 and $85 billion -- $685 billion added. let's take a look at some of the currency moves, because it has been a lot about the dollar this week. we heard from reuters that china told set its target lower 6.5% this year. they are higher for a third session. the kiwi and aussie leading the
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that, that is on optimism they could meet with the u.s., fx, theerms of the worst performing currency due to what we have seen in the crude market. nejra: juliette saly and you.pore, thank let's get the bloomberg first word news. debra mao has that for us. deborah ban -- debra: president trump says he will likely declare a national me -- emergency in regards to the southern border if congress does not agree to funding the wall. with the shutdown and during its 20th day, the president went to texas to rally support for his order plan. house is considering whether emergency funding for disaster relief can be diverted to pay for the wall. >> when i say mexico is going to pay for the wall, that is what i said. mexico is going to pay. i did not say they were going to
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write me a check. no one is going to write a check. i said they are going to pay for the wall. if congress approves this incredible trade bill we have made with mexico and canada, by the way, but with mexico in this case, they are paying for the wall and he times over. debra: the chinese vice premier is set to visit washington on january 30 and 31st for further trade talks, according to people familiar with the plans. he will likely meet with u.s. trade representative robert lighthizer and steven mnuchin. u.s. and chinese negotiators expressed optimism this week after mid-level trade talks wrapped up in beijing. >> the current intent is that the vice premier liu will likely come and visit us later in the month. that thexpect government shutdown would have no impact. we will continue with the meetings, just as we sent a delegation to china.
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carlos ghosn has been indicted for a second time as japanese prosecutors build their case. the additional indictment is for acts, including temporary transporting investment losses to nissan, as well as understating his compensation. in jail foras been almost two months, denies wrongdoing. his lawyers say they plan to apply for bail. global news 24 hours a day on air and tictoc on twitter, and powered by 2700 journalists and analysts in more than 120 countries. nejra: debra mao in hong kong, thank you. fed chair jay powell has set the stage that a rate hike positive becoming. that is the central bank waits to see how global risks are affecting the global economy. >> the financial markets, really beginning in the fourth quarter, got more volatile, and seemed to be pricing in a more pessimistic outlook, which seems to be
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rooted in concerns about slowing growth and a related concern of the ongoing trade negotiations. if you look at the end -- the incoming data to the beginning of this year, you don't see any evidence of a slowdown. we wanted to have the balance sheet return to more normal levels, a level no larger than and needs to be for us to conduct monetary policy. >> what level would that be? $1 trillion? >> we don't know the exact level. public's depend on the appetite for our liabilities, particularly currency. for us, that is a liability, and the public has a large appetite for currency. also reserves in other liability. it will be substantially smaller than it is now. the worry i have is global growth. if you look at asia in europe, you see slowing in growth. the question is, how much will that affect us? it is a tightly integrated global economy and financial markets, and we will feel that. nejra: that was jay powell
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speaking at the economic club of washington dc yesterday. joining us is a cheap adjustment -- investment strategist from northern trust assets management. great to talk to you today, thanks for joining us. the fed is supposed to be data dependent. but is it actually market dependent? it is forced to be. we think there is a big change in the fed outlook, in that they used to be data dependent and focus on what is happening in the economy, and the market has forced them to look at what the market is saying is the outlook. the market is saying inflation is not coming through as strongly as you might expect it. we are pricing out every risk, and we want you to listen to us. i think mr. powell is not acknowledging that he is forced to. it has switched from data dependent. until the five-year rate traits material above the futures rate, it will still stay market dependent. ofra: what are the prospects
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the markets at any point in 2019 actually pricing in more hikes than 0%, or getting closer to the dot plot? how could that actually happen? wouter: i think we need a feedback loop from the fed being on pause and having an impact on markets, and also having a positive impact in the economy raising confidence. that they will not make a mistake, that sectors like housing will get a per pre--- will get a reprieve. if that changes, i think the fed could create the breathing room it needs to start hiking again at the end of 2019. but that is as far ad we think it will go. think it will be the second half of the year that the fed will change its policy. it might be able to start hiking again, but we would need a six pause at least in a reprieve from market pressures and on the
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economy to get there. nejra: if you listen to jerome powell and also richard claret, the message you takeaway is that you have a flexible fed. i am hearing from you that you are saying the fed will be pretty benign for the first half of 2019. youhat is the case, why are neutral risk rather than wanting to take on more risk? wouter: we are starting to feel that this environment is where we want to take on more risk. we are switching our position around, and looking at putting more risk into our portfolios exactly for this reason. into this selloff, we decided to take the risk in high-yield, because we got the downside in risk protection was better and the upside potential was a bit better than equities. we are starting to feel, although we are hiding -- holding on to the high-yield positioning, we feel there is room to maneuver in equities as well.
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we will start adding risk back into our portfolios moving forward. nejra: that is crucial and really interesting that you are starting to look at equities a little bit more now. is that mainly in the u.s. that you are referring to? we actually do like the u.s. a little bit, but we also like emerging markets. they had a big selloff, valuation is attractive, and with the fed on hold, that pressure from the dollar will dissipate a little bit. that should be helpful as well for emerging markets. we are mixing -- we are allocating for both of those reasons, the u.s. and emerging markets. myter: my guest -- nejra: guest last hour had this great chart where he pointed out the repricing we have seen in u.s. equities to the downside are says the ifn manufacturing. and whereas these two have moved in tandem, there has been a decoupling. his argument is that equities, it is time for them to move back to the upside. my question to him was, why do
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you expect equities to stay where they are and for business expectations to reprice to the downside? i will put that same question to you. why is it that equities should be moving higher from here, rather than economic fundamentals shifting to moving in line to what the market is saying? wouter: for a, it is all about margins. as long as profit margins are with they are, which is record highs, and we do not see enough wage growth to start eating into those margins, we think it should stay very healthy. it is really a margins story. as long as we feel that inflationary prices are subdued and those margins can stay healthy, we think it is the pricing element that should change and move higher as opposed to the economy. to talkt is interesting about profits, because when you talk about earnings, analysts have been cutting their profit forecast for companies globally -- sinceost since 20
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2009. are the analysts behind on this? wouter: they are certainly responding to market volatility, and they certainly went into the year with elevated earnings expectations. they are still slightly above where we are in terms of the outlook for the year, but they have come down to levels we think are more appropriate, given where the underlying growth rate is. we are moving that into the channeled growth rate in the eurozone. i think that moved down from what was a really good needed to be reflected in certifications, and they have been. they needed the market correction to really see that. or now, we think they are pretty close to where they should be. maybe a tad lower. nejra: one click final question on the fed. we heard jerome powell before we started speaking, saying the balance sheet will be substantially smaller than it is now. what more detail to you need to
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hear other than substantially from the fed chairman? onter: i think the fed is, the balance sheet front, still slightly on autopilot mode. they still want the balance sheet to keep on shrinking, as if it is on autopilot. we think that might be a small mistake for them. we think they might need to consider that they need to be more flexible around this, but clearly that is not yet the case. clearly that part of the monetary framework is not in focus. the interest rate outlook is, and they are clearly on par there. but the balance sheet changes. they are on autopilot. we think that is a mistake, but we will see how they move forward here in their guidance, march -- guidance come march. nejra: coming up, from cooling data to brexit, europe is
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turning into a lightning rod. we will look ahead to where smart money is among the turmoil. tune into bloomberg radio live on your mobile device, or on ca be digital radio. this is bloomberg. ♪
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nejra: 7:18 in london. we are 41 minutes from the start of cash equity trading fear in europe, and it looks like we could see gains in european equities. looking at the bigger picture, asian equities had a good week, the best since early november. the yuan has benefited from optimism around trade talks. we heard from fed officials yesterday, powell and claritin. flexibility was the key word. the dollar on the back foot. five-day gainshe we saw in u.s. equities may not continue in today's session.
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europe painting a different story. we have seen safe havens spared, the 10 year treasury yields down. gold is higher. with get a bloomberg business flash. here is debra mao. 's billionaire cofounder expects next-generation 5g technologies to energize demand for its smartphones. in the exclusive interview, the ceo showed a plan that wiped off market value. phone maker is looking at expanding into europe while forgoing the u.s. market. priority for our overseas expansion will be european markets. we hope to choose two or three countries to break into to prove xiaomi is capable of putting a footprint in developed countries. that is our global business strategy. debra: the board of google parent alphabet is being sued for a payment for the so-called founder of android and
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protecting other executives accused of sexual misconduct. a shareholder claims the directors failed in their duty by allowing the harassment to occur, and for covering up the alleged behavior. representatives of globe -- of google declined to comment. he has denied any potential misconduct. surpassed air france and klm to be the biggest airliner in europe. lufthansa group passenger -- -- klm is into danger of being talked by british airways. lufthansa has been lifted by the acquisition of small carriers. that is your bloomberg business flash. nejra: debra mao, thank you so much. let's check in on what is trending across the bloomberg universe.the continued u.s. government shutdown is forcing the fda to put on hold routine
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safety inspections on food and medical products. shinzo, told theresa may the whole world wants to avoid a no deal brexit as u.k. parliament is expected to vote down her plan next week. and most read stories on the terminal, from american airlines to jaguar and macy's, the outlook is looking grim for an increasing number of companies across the globe. in a second blaze, jpmorgan is bonuses.oost in the top story, financial jobs have announced reductions as a result of the market turmoil. speaking of partial -- potential market turmoil, we are days away from when the u.k. leaves eu. this as the house of commons prepares to vote on theresa may flex a deal -- on theresa may brexit deal. wouter sturkenboom is still with us. when you look at trading on
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sterling, i am looking at pound-dollar nine-month, this isnth risk spread, showing that investors are getting more negative on the currency in nine months rather than on three-month contracts that capture the march 29 exit date. that they are positioning for the possibility that the u.k. is going to delight its exit -- to delay its exit from the eu. is that your take? wouter: it is. rethink looking at the scenarios that are in front of us, a delay is by far the most likely outcome. we could have a surprise yes vote on the deal, we could have a small delay when theresa may realizes the vote is not going to go ahead.she could delay the vote again. but we think absent those options, the vote will go ahead. the vote is going to be no. and the scenarios after that, new elections, a new referendum, a new prime minister, all of
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them into in a delay of the deadline simply because more time is needed for whatever comes next, a renegotiation of the deal, whatever the u.k. government decides it wants, it needs more time and the time is not available. a delay of the deadline by three to six months, maybe longer, is our best case scenario now. nejra: how are you action in this in your portfolio -- how are you actioning this in your portfolio? wouter: we are taking a very simple approach, which is try to depress the amount of volatility exposure we have in the u.k., because we think volatility will be high and we do not want to suffer from that. we also continue to be very cautious with u.k. assets as well. we think as long as this uncertainty hangs over the market, they will have a hard time doing well. we are positioned hold against volatility and with -- we are positioned both against
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volatility and with a blanket wait to assets. nejra: we talked about the fed earlier. we have the ecb announcing in the past 24 hours as well.was your take that the doves are getting louder ? wouter: yes, very clearly so. i was positively surprised by the extent to which the ecb was debating how the downside risk to the eurozone economy was starting to dominate their balanced view, which is a really good thing because i think that is right. i think downside risks are dominating, and i think the ecb should position their policy accordingly, which is pushed out there forward guidance, push out the expectations of a rate hike in the second part of 2019 into 2020 to show markets we are seriously. we understand where risks are heading, and we are going to provide the monetary stimulus in accordance with that slowdown. i was happy to see that. they did not do it yet, but hopefully they will do it. wouter: if you look at --nejra:
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if you look at european equity markets, you could say they are showing the beginnings of a pivot toward optimism. but the bond markets tell a different story, particularly where the 10 year bund yield is at. would you be shorting 10-year bunds the way the banks are recommending? wouter: no, we are not in that camp. we think on the fixed income side of things, we think what the market is pricing is a correct delay in monetary policy, both from the fed and the european central bank. we think that rates are low reflects that interest rate hikes are going to be pushed out into the future, both in the u.s. and the eurozone. we think looking at those rates, we think they are low, but we don't see a material upside, so we are not shorting them. we have a neutral position. nejra: a quick final question. it is our question of the day.
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when will the u.s. shutdown matter for markets? we need a couple more weeks for that to happen. right now, the economic impact is too small. a couple more weeks. and it depends on what trump does next. for now, we think it is ok, but it is very political and dependent on what happens next. nejra: thank you so much for joining us. chief sturkenboom, investment strategist at northern trust asset management. great to catch up this morning and get your thoughts around a wide array of topics. that is it for "daybreak: europe." the market is open next. if you look at futures, we could see a fourth day of gains for equities, after five days of gains for the u.s. markets and the best week for asian equities since early november. tune in to bloomberg radio on your mobile device and dab digital in the london area. i will join you there in 30
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minutes. this is bloomberg. ♪
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anna: good morning, welcome to bloomberg. i'm anna edwards alongside matt miller in berlin. today, the market's sake don't cut my job at the fed turns dovish. the equity market continues to rally around the world. the cash rate is less than 30 minutes away. ♪ anna: a flexible fed, stocks gain.


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