tv Bloomberg Markets Americas Bloomberg February 18, 2019 10:00am-11:00am EST
york. 3:00 p.m. in london. happy presidents' day. let's look at where we are with the european markets. u.s. markets are closed. u.s. futures are trading when it comes to the bond markets and equity markets. up 0.3%. 600 is we are not seeing the great deal of action in european stock trading. 30%, in somen 20%, cases 50%. 1.29 is the cable rate. the euro is up against the dollar. we have this risk on sentiment coming from the trade story. the president of the u.s. tweaking over the weekend, much more positive area about the -- narrative about the trade talks. we are seeing that reflected in
risk assets. the sidebar story is the fact that we are potentially now counting down to tariffs on european auto stocks which would be an impact on the dax. copper is trading higher. story with china and the u.s. is driving prices higher. we are getting the federal reserve in a few minutes, which will be a fascinating you pivot. dovish released wednesday. thank you for joining us. how much are we going to learn from the fed minutes this week? >> i think a great deal. if you look at what happened from december to january, there was a significant shift in the
fed reaction function. there was clearly some downside risk. inse risks were still there february. we had significant that speak. they are concerned about the downside risk. they are concerned about the balance sheet. i am going to be interested in what changed in their mind on the balance sheet. in december, they were talking autopilot on the balance sheet to potentially ending this year. is this a risk management approach or something else? are they seeing something in the data that is making them nervous? guy: you just give me a list of u.s. reasons why there could tensely be a problem -- potentially be a problem for the economy. the fed is the u.s. central bank, it acts as a global
central bank. are there more external concerns they are worried about? >> that is a fair point. one of the biggest downside risks for the u.s. economy is global growth slowdown. to the extent that global growth slowdown starts to affect the u.s., they are congressionally mandated to look at the u.s. picture and inflation. i think the fed will be concerned to the effect that global growth effects the u.s. i think europe is a much bigger concern given that the ecb is trying to normalize. i think all of that as it feeds into the u.s. economic outlook is what the fed will be concerned about. -- do youhink the fed think the fed is going to look at the trade narrative? clearly this is having an impact globally. we have seen it in europe.
how do you think that is playing out in the u.s.? >> i think it is extremely politically charged. for the fed to say the trade issue is a definite negative is hard for them. this is the most politicized environment i have seen. the fed will be careful to say that trade is not necessarily a negative, but there is significant uncertainty. i think they will couch it in that format and talk about uncertainty in the treetops talk .bout a reduction in tariffs it looks highly unlikely. to the extent that they end up in a neutral scenario, the fed does not want to extrapolate too much. need a time when we handle from the fiscal stimulus to the corporate sector. i think they will couch it as
uncertainty. guy: how long do you think the economic cycle is going to be? the fed has hit the pause button. what effect does that have on the cycle? >> that is a fair point. this is a fairly long cycle. i think we can all agree we are near the end of the cycle. our economic team does not see the cycle ending just yet. we still see a few more years of expansion. this has been a pretty subpar recovery. question is with the downside risks, with central banks, we have moved from a fed policy mistake narrative at the end of last year to now the fed acknowledging the downside risk. that is key. other central banks can see financial conditions still easing, and that allows growth to continue longer.
if the fed let's the balance sheet run off and hike beyond neutral, then we have a significant risk of recession. guy: do you think the fed was spooked by what is happening in the credit markets? >> absolutely. i think default rates are still pretty low, yet you had widespread widening in credit notads, and the fact that only were the weaker credits impacted, bbb was impacted. it was not just a slowdown in growth. it was widespread credit widening. exacerbated by liquidity as well. when you are trying to get out the door, if the liquidity is not there on the cell side, which i don't think it is
because of the regulatory environment, that exacerbates the problem. i think it is a growth concern. it means companies cannot refinance debt. then you start creating a credit crunch. more than the equity move, it was the credit over the last couple of months that spooked the fed. i think the interesting dichotomy will come now. growth is slowing down, but we are not looking at recession. when does the fed feel like they need to hike once more? is it a continuation of the cycle? do we get a repetition of what happened late last year? question when it comes to the fact, there doesn't seem to be much u.s. inflation right now. is inflation going higher or lower? what is the best metric to judge that from?
>> that is a tough one. the markets tend to look at pce and cpi. i look at the employment cost index. if you are getting wage inflation, then you start seeing .nflation in the service sector those tend to be well correlated. on that front, we have seen a little pickup in wage inflation. if we see average hourly earnings gets it 3.5%, i think the fed will be more comfortable that we are seeing wage pressure. that should translate into pce. inflation and all of the other metrics have been hanging around below that 2% level. the fed has been telling us they are ok with overshooting a little bit. some wage inflation, inflation pressure, globally that suggests that the global factor for
inflation in the u.s. is very high. unless you see global growth pick up or global inflation pick up, and tariffs are not going to give you that, it needs to be true pricing power for corporate, if that comes back globally, then we see inflation. our view is that is a long way off. inflatione wage before we see inflation. that will allow the fed to hike one more time. guy: we will leave it there for the time being. from tdining us securities. bloomberg first word news. >> in london, seven members of parliament are putting the labour party and will become independent. they are protesting labor leader jeremy corbyn's position on brexit. they are also unhappy with the legend anti-semitism and bullying within the party. one of those quitting said labor has been hijacked by the machine
politics of the hard left. president trump has received reports that could lead him to impose tariffs on imported cars. the commerce department released a report on whether those cars pose a threat to national security. builtan companies have their supply chains to take advantage of low duties. the pressure is growing on automakers in china. car sales there cap falling last month. sales plungedcle almost 18% from a year ago. in india, the central bank is coming to the aid of the prime minister. policymakers have approved an early transfer of $4 billion in tofit to movies government
fund populist pledges ahead of a national election. thes the second time central bank has made an advanced payment to the government of india. 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. guy: thank you very much. coming up, german carmakers could feel the brunt if president trump decides to implement new auto tariffs. more on that story coming up next. this is bloomberg. ♪
guy: live from london, i am guy johnson. this is bloomberg markets. let's get more of those markets. >> some volatility in markets today. maybe that is to be expected. we don't have a lot of volume. euro stoxx 600 down by 20%, off by 50% when it comes to volume in some cases. we had losses earlier in the day. we canific catalyst point to to move stocks higher. stocks higher.n in other narratives that don't 0.2% fit, the euro gaining even after some dovishness from the ecb. ondo get fomc minutes wednesday. should they be dovish, that could support the euro versus the dollar. how much more pessimistic will be ecb b at thise point?
0.8% at $56 a barrel. this is just about a three-month high. i want to stick with the commodity story. interesting breakout we have seen, and that is precious metals today rallying. trading at its highest since april. the white line is palladium. not the common metal you talk about every day. it is trading at a high. it is the metal used in cars to cut emissions. tighter than the gold market. that has helped drive up these gains. i want to talk about bunds today. we have seen yields rising. yields right now trading at about 10 bits.
by the end of the year, they expect yields to fall to a -10 basis points. we have to go back to september to see the last time it was like that. investors might have to start paying again to old german debt. guy: you wonder whether the trade narrative could be the catalyst to send us into that position. thank you. let's get to that very question in a little more detail. eigh the ecbriffs wi into more action? >> i think the first port of call would be the extension in march. >> the risk is a global equity selloff as europeans reciprocate tariffs on u.s. imports. >> it is hard to say which one will be the tipping point. maybe the auto imports could be
the one. growthere we see, we see further deteriorating. markets have priced out the ecb doing anything in the way of tightening for the next couple of years. priya joins us now from td securities. where do you see bunds going? priya: we have them rising slightly by the end of the year. the german economy is showing significant signs of growth slowdown. a lot of that is auto emission related. that feeds through the system over the next couple of months, so we see a pickup in growth. on the auto tariffs, we think globally there is more pressure on policymakers here to engage, to not impose these tariffs as well as contravening tariffs. our baseline assumption is there
will not be these tariffs. hike canthe first happen by the end of this year. it allows some upward pressure on bunds. we are looking for a very slow hiking cycle from the ecb, the next hike only six months after that. it is not a particularly huge increase in rates. we are looking for a pickup in the european economy and german economy by the middle of the year. guy: i am curious how fast the tales are on that scenario. if we were to see auto tariffs imposed on germany, the calculation is that would cut in half the number of cars going from germany to the u.s. i assume that would take the german economy firmly into recession. it is flirting with it now. priya: the question is do we get turningle the cyclical
is happening in the economy at the same time. we have some of the cyclical headwinds in the german economy in the last few quarters. these should be ebbing. if that is offset by the tariffs coming through, it is not clear that you -- remember, the ecb is sounding dovish. for the first time, the ecb lowered their forecast significantly. it is a different central bank regime compared to last year. last year, it was all about let's start the normalization process. now we are hearing from every central bank that they see the downside risk. they don't want to make things worse. what we're hearing from the fed and ecb is they don't want to tighten financial conditions before the economy is ready. that can help buffer sentiment somewhat. guy: i would be interesting to
hear whether or not we will see further refinancing coming through in the banking sector. we will get to that in a minute. priya is going to stay with us. this is where we find ourselves at the moment. we are seeing some dollar weakness today. we are seeing lighter volume than we normally get. we are heading into fed minutes, which are expected to be dovish. ifwill be interesting to see the market looks for that dovishness. euro-dollar currently trading 1.1316. the dollar also trading at a little higher against the yen. we are in a risk on mood today. the euro is up. the pound is up. the yen is down. this is bloomberg. ♪ ♪
this is bloomberg markets. let's catch up on what you need to know. here is a bloomberg business flash. >> a group of senior british lawmakers have recommended tough measures to keep companies like facebook in check. the lawmakers report concluded that facebook was willing to override user privacy settings developers could access their data. shares of norwegian air plunged today. norwegian has been weighted down theosses caused in part by rapid expansion. the airline has been cutting costs and even selling off airplanes. that is your bloomberg business flash. guy: thank you. we are back with priya misra. before the break, we were talking about you think the ecb is going to be able to get rate
hikes away. we are getting close to the ecb announcing another targeted operation designed to pump more equity into euro banks. do you see that happening? priya: right now, we don't see that happening. i think it is absolutely something the ecb keeps in his back pocket to use in case the tariffs hit the economy. if that doesn't happen, i think they use it. the reason they can be a little patient with that is they don't have a lot of tools to ease. i would say there is not really a credit crunch developing in europe right now. banks still have plenty of liquidity. it is something they want to keep ready to be deployed. right now, if it is a growth slowdown, can the ecb manage to help risk sentiment for the full
guidance channel so they can talk about how they are not necessarily hiking in september, how this will not be a normal hiking cycle. i think if they can use the power of speech to some extent, where there is going to be some change at the leadership level at the ecb, trying to reduce some of the market nervousness, they can use all of that if they do find evidence that there is a liquidity crisis growing. we don't get the sense that is the case just yet. is -- if there is hard brexit, and ecb raise rates? priya: if there is a hard brexit, you will see impacts on the u.k. economy. it will have spillover effects into europe. a lot of supply chain issues come into effect. i would go as far to say as the fed hike comes off the table in the case of hard brexit. i don't think the ecb says never
again, but they push out that timeframe from september this year to perhaps next year. guy: it has been great to have you with us this afternoon, or this morning in your case. thank you, priya misra, td securities global head of rates strategy. this is the picture of the markets. we have a positive but lackluster session taking place in europe. the fact that we don't have the u.s. trading today means we are like on volume. -- light on volume. the dollar on the back foot. this is bloomberg. ♪
say there may be enough support in congress to disapprove president trump's emergency declaration, but they admit there will not be enough votes to overturn his expected veto. the president declared an emergency to build a wall on the border with mexico. the white house is sending more signals that the u.s. and china will reach a trade deal or agree to extend talks. president trump said last week's negotiations were very productive. the u.s. has threatened to more than double tariffs on $200 billion of chinese goods if there is no deal by march 1. billionaire bill gates says boosting the capital gains is the best way to increase tax collection on the wealthy. the microsoft cofounder told cnn he is increasingly worried about the high budget deficit run by the u.s. he says increasingly marginal tax rate to 70% is not the answer because there are ways the wealthy could shelter income. in nigeria, the president called
the election commission incompetent for postponing saturday's vote just hours before it was supposed to begin. election has been pushed off until this saturday. election officials cited logistical reasons for the delay. 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. guy: thank you very much indeed. speakingguest has been at events focused on europe and its capital markets. europe doesn't have the same type of capital market structure as the u.s. does. it relies on the bank channel. andglobal head of economy capital market strategy joins us now. --is also the head of the
the former head of the italian capital markets ministry. i want to start off with this issue of europe's capital markets. they are underdeveloped compared to the u.s. europe relies on its bank channel. there is talk that europe's banks are about to be offered more cheap, long-term liquidity. does this simply delay europe's ability to beef up its capital markets? how big a problem could that be? >> thank you, and good afternoon from milan. first of all, let's see what the ecb will actually decide. we don't know yet. say,econd point i would moving progressively away from bank credit towards the capital , and iis a sector trend
don't think a single measure can really delay it. something that has been happening in the last year will continue happening in the future. it takes years, perhaps decades. i think there is space for the banks toarkets and the work together in parallel and to be where the other cannot be. -- do youu think that think that it is the right approach? let me put a different hat on your head, your last career and your understanding of the italian banking sector. is a target refinancing to ensurethe best way there is sufficient capital to back up europe's growth?
the european banks have a do europeanoblem -- banks have a liquidity problem? >> i would not single out italian banks. european banks have a problem of productivity and profitability of the business model. it is not necessarily a question of liquidity. it is a question of perhaps having too many branches or too many banks and employees. also to address the technology challenges, which the industry is facing, so moving ahead from the traditional business model in something new. also i would put in the same realm, cooperating with the capital market and the real economy. i don't think it is a question of competition, more a question of cooperation. guy: that is interesting because
i know some of the bigger banks in europe are keen to make sure they are differentiated in terms of how the world sees them right now. if you don't mind, i would like to ask you another question about what is happening in italy and get your sense of what the economy looks like there. we are now in a technical recession. what you make of the prospects of the italian economy moving forward from here? the commission downgraded growth from 1.2% to 0.2%. what is your assessment? >> i would agree with the commission. we are facing an important slowdown in the economy. as ever and seen, the flow has been quite challenging. the last two quarters of last year have been pretty bad for the real economy, and a lot of tension in the markets, the spread widening. we are early stages here. next monthsk the
will be flat, and perhaps we have to wait for the second half of the year to see some pickup in growth. this has put under strain public finance. at the same time, let me also say that the italian company are still doing pretty good. the balance sheet are strong. earnings are still quite high. guy: do you expect a general election in the near future? do you factor that into your thinking in what you see with the italian economy? >> what is the near future for you? guy: what is the near future for italy? do you expect a general election? >> yes, the near future, what do you mean? is betweenar future
now and the beginning of summer. not before the may european elections, but after. >> i don't think so. i don't think so. italy has seen a lot of governments and a lot of early elections, but we never have early elections before two years from the previous ones. last elections were last year. guy: we can take that off the table. let's talk about the broader picture facing europe at the moment. you mentioned a moment ago that the italian companies are in ok shape. is time engineering sector -- italian engineering sector is pretty closely aligned to what happens in germany. the german manufacturing sector is slowing down now. what is your expectation for the whole of europe at the moment? the rate of change in the data
is quite surprising. companies feed very much into the global value chain. part of the global value chain is the german value chain. a slowdown in germany has an impact on italy. i don't believe the slowdown in germany will be permanent. the same for italy, in the second half of the year, there will be a pickup. marketsan and european are not the only markets for italy. italy has more or less the same exports to european countries as non-european countries, so the exports of the country are quite balanced. i am not particularly worried about export. i think companies have shown resilience in that sense. they have the ability to penetrate new markets and to go deeper into distant markets.
i'm not worried. guy: ok. finally, you are not worried -- you clearly think things are ok but not great. the just wondering if overall story for the banking sector is going to improve, therefore, when it comes to mpl's. we have the time banks having to deal with these mpl's. in the economic story you see unfolding, is that conducive to offe mpl's being rolled more easily? >> first off let me say that mpl's, the stock two years ago was above 84 billion, i'm talking about net mpl's. 24ay they are down around billion. the reduction has been dramatic over two years.
obviously, there is still some work to do for the bank. it is still hefty. what is perhaps even more important is we do not create more mpl's. we indeed have growth picking up because if there is no growth, obviously the number of mpl's will increase again, and we will go back to square one. guy: 28 billion, i have certainly seen significantly higher numbers than that. i have seen 200 billion. >> i'm talking about net. you have probably seen higher numbers for gross. guy: yes, the gross number is still pretty high. that number does still need dealing with. is the environment getting better or worse? >> i think the instruments are
there. they have not been touched by the current government, so i don't think there is a significant change. gax, which is a state guarantee for the a -- crunch,n of and that has allowed banks to shed mpl's. as long as these instruments remain in place, nothing is changed. guy: thank you for taking some time to join us on bloomberg. coming up, barclays and hsbc are some of the major european banks that will be reporting this week. what we can expect next. this is bloomberg. ♪
guy: live from london, i am guy johnson. this is bloomberg markets. let's get a bloomberg business flash. >> shares of budget carrier norwegian air plunged today. the airline is selling shares at a deep discount. norwegian has been weighted down by losses caused in part by rapid expansion. they have been selling off airplanes. in germany, the financial regulator has temporarily banned paymentles of internet company wirecard. shares of wirecard have been on a roller coaster ride in the last month since a report in the financial times alleging fraud. wirecard has denied any wrongdoing. has hedge fund tiger global
apparently -- it's turnaround plan. he fund sold its 2.5 percent stake in barclays. that is your bloomberg business flash. guy: thank you. let's stick with that barclays story and talk about some of the other banking news today and tomorrow when we get hsbc coming out with numbers as well. that barclays story, the fact that tiger has let these options expire. that is quite a blow. >> this is not the best time for barclays to be losing allies given that there battle with his activist investor is looming. investment banking is the way to branson hasays, and
been asking for barclays to jettison part of it. this --s an ally in they were also proponents of investment banks. guy: in terms of numbers, what can we expect from barclays? >> the most important thing for barclays will be how they will weather the hit from brexit. for all the u.k. banks, such as hsbc tomorrow, barclays on thursday, the question is what are the kinds of impairments if any they are going to be taking for expenses with brexit as well as potential consumer loans? guy: the french banks have had a horrible time in trading. i am wondering if there is a read across on bnp in terms of what we can get on barclays. >> they are definitely similar
businesses. the market route of the fourth quarter reverberated around the world. the french banks were hardest hit because they were furthest out on the risk curve. there is no doubt that we will be seeing some of that impact flow through for the u.k. banks. guy: hsbc? >> that is tomorrow. or bracingcting ourselves for some sort of impact. guy: let's talk about hna and deutsche bank. how on earth did hna, which used to be a significant holder in deutsche bank, get off at a reasonable price? they got out at 16? double where the share price is. >> this is a hedge, and it performed like a hedge should perform. hna fromthem shield the kind of deep losses they would have had had they had to
sell at market value. the thing is they have been doing this global worldwide assets,ing from these and one thing to bear in mind is that while this might seem like a smart hedge, they have had other holdings they have had to unload quickly. in the grand scheme of things, i would not say that their investment strategy -- it is not something to call out and point to is extremely great. they have had a lot of holdings they have had to unload suddenly, and not great prices. guy: when you write the report at the end of this earnings season on european banks, what do you think is good to stand out? >> the trading losses will be the big theme as well as the bonuses. bank bonuses are not what they used to be. banksnits across various either holding back on bonuses,
cutting bonuses, or withholding them for some of the units that have not performed very well. guy: i was trying to do a little research well we were on air about commerzbank versus wirecard, whether wirecard is going to get kicked out of the dax again. in terms of that german banking story, the end of the reporting season coming through, has the end of the reporting season encouraged us to the view that deutsche and -- are good to be close together, potentially merging? >> we are at that stage where they are closer to merging. guy: it encourages us to believe that deal is more in the cards. >> commerzbank was better than people expected, a lot of the analysts expected. it does not take away the thesis that together there will be a strong german national banking champion, which the regulators
guy: breaking news over the last couple of minutes. the president of the u.s. will be speaking today in florida. sarah huckabee sanders is giving us a little glimpse into what we can expect him to be talking about. he is likely to focus on venezuela, the crisis taking place there. the president will say that the path to democracy in the country is irreversible and maybe add a little fuel to the fire, he is
also going to indicate that the u.s. knows where the venezuelan military has hidden the money that he feels has been expropriated. we will see how that goes down later on. the president expected to speak in florida, and the focus does seem to be on venezuela. it is president's day in the u.s. the world's biggest retailer reports results. it is the first time we are going to hear from walmart following the crucial holiday quarter. emma chandra reports. : walmart is the world's biggest company by revenue, in billion sales. 20% of walmart's revenue is from overseas in 27 countries. is u.s.metric
same-store sales. walmart has seen 17 consecutive quarters of sales growth. the holiday quarter is crucial. analysts are expecting again of 3.1%, excluding fuel and foreign-exchange. weight on e-commerce sales, investors expect high-growth as this part of the business is not yet profitable. that makes operating margin another number to watch. it has been on a downward slide of late. walmart has been growing its online business and keeping prices competitive while facing higher expenses. this is the first full quarter to include the flip card deal, walmart $16 billion that india's e-commerce market. they are battling amazon for market share. india has just announced new e-commerce regulations that favor homegrown retailers.
expect lots of westerns about this on the analysts call. guy: thanks to emma chandra. let's stay with the fast-moving consumer goods sector. by andreaned now falstaff. the stock is up nicely. the market broadly welcoming what is going on. your sense is it is not that great. >> no. it is certainly better. there has been a terrible couple of years. it returns to growth. soft?hy is it is he leaving the job half done? >> he is. this potential split of the business into health and hygiene , he has not completed it and taken it to the logical conclusion, which is breakup. guy: how much shareholder value
would be produced by a breakup? >> i was looking at some numbers from ubs, and the breakup value at the bottom and is just above where the share price is. you have got to get the profitability going in the right direction and then apply on that. that is the big weston. the concern is the markets are already too high, and a new ceo will come in and kitchen sink it. then you will see margins go down. guy: this is bloomberg. ♪ bloomberg. ♪
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trading day. in the states, markets are closed.over here, they go nowhere in a hurry . stoxx 600, absolutely flat. by .2%. the auto sector is the big b -- lag. we are seeing a little when it comes to the pound -- euro. let's hear from the president of the united states that the positive trade narrative may not extend to the german automotive's. copper trading up. for the day trading higher at -1%