tv Bloomberg Markets Americas Bloomberg March 27, 2019 10:00am-11:00am EDT
york, 2:00 p.m. in london, and 30 minutes into the trading day in the united states. from new york, i'm vonnie quinn. guy: from westminster, london, i'm guy johnson. welcome to "bloomberg markets." we are outside parliament. the u.k. parliament has finally decided to take control of the brexit process. at least temporarily. it is preparing to vote on rival plans to theresa may's deal. the aim is to find a divorce agreement that could get a majority, something the prime minister hasn't been able to do. how will these indicative votes
how will these indicative votes work? vonnie: there's going to be a series of them mp's can put guy: the chosen ideas will then be put to a ballot, and choose as many as they like. the results are due to a be choose as many as they like. the results are due to a be announced may be a half-hour after that. monday, they will take a look at two or three of the closer ideas -- take a closer look at two or three of the ideas. vonnie: the ftse 100 down about 1/10 of 1%. in the u.s., let's dig into all in the u.s., let's dig into all
of the geopolitical risks weighing on markets. we are joined by the chairman of strategis. plenty of demand for the two-year option yesterday. how low do these yields go? guest: they are mainly moving on the fact that german bunds are negative or close to negative. in my opinion, it is largely a function of where global yields are. it is not indicative in my opinion of deflation. i don't think it is giving you an economic signal. signal. by the same token, it does put a lot of pressure on the said, and probably does suggest the fed did one tightening too many last year. vonnie: interesting. so what happens to equities? guest: we are still bullish on both the economy and the markets, although for the second quarter we are more worried about first-quarter earnings. it looks like a trade deal is
probably not going to happen anytime soon. it might be better, ultimately, than people are expecting, but our hope is that it was going to happen imminently. one of theone of the problems iy growth is not growing fast enough to support both a strong economy and strong financial markets at the same time. all of those things from a technical point of view are a little more nervous in the second quarter. we are still bullish on the economy generally speaking come but you have to get -- speaking, but you have to get some of these broader issues out of the way, whether brexit or the trade deal, to get the market to move meaningfully higher. guy: jason, if we see some of those risks being kicked into i.e. if there is a long brexit delay that comes out of what is happening in parliament today, or that the trade story looks like it is getting on for quite some time, how does the market react to that? these issues won't disappear, but the relation around them would change. guest: for the u.s. in particular, the biggest risk to
me of a delayed trade deal is you don't get the capital spending that was largely designed as part of the tax cut. a supply-sidegely tax cut designed to get companies to spend more on capital. to the extent to which a trade deal is delayed, you don't get get thesit if -- long-term positive impacts of spending and productivity. as far as brexit impacts, i don't know. my own view is that a second referendum, ofas far as brexit i populism that has been gripping the global economy over the last couple of years.
certainly we are seeing plenty of that in other parts of europe as well. protests taking place in france and elsewhere across the continent. auction negative german today for the first time since 2016. we've got mario draghi talking about the ecb has made you made a mistake in terms of the structure of negative rates taking place in europe. now?ar behind is the ecb how many mistakes has the ecb made in terms of policy formulation? could this be an area where we could see some change? guest: you could. in my opinion, the real mistake is the fact that there is no fiscal, regulatory, or trade policies on the other side. there are limits to what monetary policy can do, and i think we are finding that with qe in the united states. i think you are seeing that globally. monetary policy is largely there
to prevent bad outcomes, either too high inflation or deflation. economic use it to get -- it is a very blunt instrument. you can't use it to get very blunt economic goals -- very broad academic goals. the ecb is going to be in the situation indefinitely. europe is starting to look a lot more like japan. i think the ecb can help at the margin, but frankly, you are not going to get strong growth in europe without structural reforms that provide the basis for capital formation, and my opinion. vonnie: you said the fed made a mistake, and it is looking more and more like that now. fedhat is the case in the believes that, they could still reverse, right? guest: they could. there are probably credibility issues or ego issues involved that make it hard for them to do that. i think they probably want to wait and see how the economy looks. but they certainly could reverse. i don't think that is the odds
on favorite for what is going to happen this year, but certainly if the economy remains as weak as it might appear in the first quarter in terms of the data, or if wages come in significantly behind the curve, you could see the fed reverse course. vonnie: you've been saying that capital spending is necessary, and for that to happen a trade deal has to happen. is there anything that could replace investment in order to stave off that recession? guest: certainly the way the u.s. economy is structured, it is mainly driven by consumer spending, and government spending in our opinion will actually be a net positive for gdp this year. it won't be a lot. consumer spending could pick up through real wages, but really what's been missing in the recovery has been any sort of been increase in productivity. most of the benefits, i would
argue, of policy we have had have actually occurred for wealthiest people in the united states, people who own financial assets, stocks and bonds. the average person hasn't done as well. in my opinion, what you really want, if you what there to be a more equitable distribution, if you will come of the wealth and prosperity, it seems to me you have to get productivity, which is driven by capital spending. final quickone question as we dwell on what is happening with the bond markets a little bit. the fed model is flashing a massive buy signal because yields are coming down, and therefore, that translates through the fed model into the equity market. if yields stay where they are at the moment, are equities a buy? guest: it's a good question. we look at 10 year treasury yields versus the earnings yield on the s&p 500.
it is the same idea, and frankly it is virtually the same spread right now, but i would say it is good. the issue is that you have to have, and my opinion, a catalyst at this point because you had this wide spread in terms of the fed model, the earnings, the equity risk premium model for some time. it seems you need another catalyst to get the market to move higher between now and the end of the year. i think you are going to get it. it just doesn't seem like it is too eminent right now. speakingason trennert with us, strategas chairman. let's check in on the first word news. here's kailey leinz. u.s. and.s. --kailey: chinese officials are set to resume trade talks. robert lighthizer and ceva
mnuchin are due to visit beijing on friday -- and stephen mnuchin are due to visit beijing friday. european council president donald tusk says the you tame -- the u.k. must make a final decision on brexit by april 12. he also urged the eu not to ignore the voices of british citizens in favor of staying in the bloc. he spoke at the european parliament in strasbourg. >> you cannot betray the 6 million people who signed the ,osition to revoke article 50 the one million people who marched for a people's vote, or the increasing majority of people who want to remain in the european union. added -- tuske added the eu should remain open to a long extension if the u.k. wants to rethink its brexit strategy. operation sophia has
been working to reduce migrant smuggling. a spokeswoman said a lack of naval support makes it harder to sea.people at the italian government won't let rescued migrants into its port. and brazilian president bolsonaro struggling just three months into his term, plagued by infighting. it is raising the risk of further debt increases in sovereign credit rating downgrades. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm kailey leinz. this is bloomberg. guy? guy: thank you very much indeed. coming up, ecb president mario draghi suggesting ecb is ready to soften the impact of negative
♪ vonnie: let's check markets now. a little mixed in the u.s., at least. abigail doolittle is with us. abigail: let's take a look at the s&p 500, up fractionally. we have a little bit of underperformance for the chip sector, down 9/10 of 1%. the russell 2000 underperforming a little bit, too. relatively small moves, clearly not following be slightly more bullish lead from europe. the day is young. we will see where the markets go, of course. investors focusing a little more
on global growth fears of whether the economy is slowing. another concern for investors on the day tied into global growth slowing fears, bond yields. take a look at the 10 year yield over the last six days after the fed's dovish decision. we see a downward slide down three basis points, the biggest move since june 2016. that is pretty remarkable. it tells you haven bonds are rallying. if all of this is on the fed's dovish pivot, it should not be much of a worry for stock investors, but if this does represent more fears around a global growth slowing picture, perhaps stock investors do have a reason to be a little bit fearful or uncertain. as for the movers on the day, take a well at -- take a look at wellcare and centene. centene putting in a greater than $10 billion bid for wellcare. both of these are government
focused insurers. wellcare trading well above value. -- lennar shares suggesting -- the lira has slumped as well. something to keep an eye on, for sure, guy. guy: some amazing rates being charged when it comes to the turkish lira. president mario draghi speaking earlier on this morning , discussing the state of the euro zone economy, and in particular the issue of negative rates. if necessary, we need to reflect on possible measures that can preserve the favorable implications of negative rates for the economy while mitigating the side
effects, if any. that said, low bank profitability is not an inevitable consequence of negative rates. trinit -- strategas' chairman is still with us. when you look at japan and switzerland ,two countries that also have negative rates, they decided to use a tiered structure. banks around the world are under pressure right now. jason: i think there are things the ecb can do at the margin, but i would go back to what i was saying before. i feel pretty strongly mario draghi might not feel there's any negative consequences to
negative rates for bank profitability, but i would say there's a lot of empirical evidence to suggest that is not true. were europe, i would try capitalism. as opposed to having small groups of unelected people make decisions for the economy -- vonnie: tell us what you really think, jason. jason: i think this is a fools errand. it is not like we haven't seen this it other places. the ecb would be best not to act as god and put maybe a little bit more pressure on elected officials to come up with something affirmative to stimulate their economies, but just relying on monetary policy alone simply does not work. it tends to create other problems, in my opinion, unforeseen problems that are hard to deal with.
jason, couldn't you ironically argue that the reason the u.s. economy, or one of the reasons the u.s. economy is outperforming at the moment, is because we had government spending that has helped out in the form of tax cuts and other things? the real gap between u.s. and andeuropean economy right the european economy right now, one of them is that the donald trump tax cuts may have driven government debt through the roof, but at least delivered a short-term sugar kick. jason: i think that is absolutely right. donald trump is the disruptor on the new normal. i think that is because you had tax cuts and regulatory reform, which i think is very positive, and trade, which thus far has been a little bit of a headwind. yellen know if chairman
or bernanke would admit this, but donald trump is the best thing to happen to the federal reserve and the last 10 years because it has allowed them to back themselves out of this corner that the ecb finds itself in now and japan has found itself in for about 30 years. again, monetary policy is an extremely blunt instrument. it is not there to effect economic growth, per se, or social justice, or any of the other things it is being used for. , think it is much better fiscal policy and regulatory policy are much better suited to do that. vonnie: jason, you are constantly visiting your team. what are the saying about the 2020 u.s. election? jason: outside of the united states, there is still some wonder how donald trump got elected. after two years, it is hard to believe that a lot of people are
still viewing it almost as a clerical error or something that just happened. i think little by little, people are coming to grips with the idea that not only might he have won fair and square, but there might be a decent chance he will win again. i think if you look at some of the alternatives on the other side, without getting too political, that would probably be a pretty good develop and for the market. of course, it depends on what the alternative is, but of all of the alternatives we have seen thus far. i think people are further along in that process, which is to say they are coming to terms with the idea that there have been some very good economic policies , regardless of what you think of the man or the style or all the rest of it. there are some good economic policies that are very positive for markets. vonnie: what groups are looking attractive to you in the u.s.? obviously homebuilders are up for various reasons. what are you looking at?
jason: once you get a trade deal, i would focus on cyclicals. that would be industrials, financials, and capital spending oriented technology. those would be the sectors i would be most interested in. financials might have a hard time right now to the extent that the yield curve is so flat. by the same token, i think they will come back big if the economy comes back later in the year. vonnie: always good to speak with you. chairman ofrt, strategas. this is bloomberg. ♪
ratings side? -.est: no, the rating is bbb the outlook is stable, but i think we spent a lot of time analyzing the budget and the commentary we put out was really focused on some of the risky bets they are placing on a progressive income tax and an asset transfer strategy. , never credit positive. taylor: in their budget they floated pob's. how risky are they from a credit perspective? guest: this would be the third time they've issued pension bonds. they do contain some level of risk. it is fairly small compared to the unfunded liabilities, so it is a really small component of the overall. we are really focused on the full pension strategy, what they are planning for the asset
transfer, and what their cash flows look like. taylor: another side of that is post employment benefits as well. are those just as risky? guest: they all contain some level of risk. it is really just kind of funding discipline is going on with any kind of opeb or pension bond strategy. taylor: thank you very much. as we take a look at where the u.s. markets stand, we are almost an hour into the opening bell. it is a mostly risk on day. this is bloomberg. ♪
the markets today. 1%,s&p 500 is up 1/10 of but the homeowners are up more than 3% as a group. .ennar particularly let's get to oil inventories. , opposite --arrels barrels up, opposite of what was expected, a build. refinery utilization was off by 2.3%. when it comes to distillate inventories, a drawdown of more than 2 million barrels. gasoline inventories came very close to expectations, a drawdown of 2.9 billion barrels. drawdowns for gasoline and distillate inventories, and a build for crude oil inventories. just back above $60 a barrel now. let's check in on the first word news.
here's kailey leinz. kailey: president trump is expected to sign a memo calling for an overhaul of fannie mae and freddie mac as soon as today. the administration has been pushing to free from federal control. the white house will likely spur the process by asking housing and treasury officials to present ideas for changes to the finance giants. china says it has expelled the former interpol president from public office in the communist party. he is currently awaiting trial on corruption charges. he was detained without notice by chinese authorities last october during a visit to china from interpol headquarters in france. his wife has made a public appeal to the french government to step in. u.s. regulators plan to tighten rules that govern how medicines are many factored. the fda wants to ensure the safety of the nation's drug supply with recalls of contaminated exports from abroad -- contaminated imports from abroad on the rise.
vladimir putin once russian athletes and officials to play by anti-doping rules ahead of next year's olympics. theyussian president said must prevent opponents from using it for political ends. lasta was banned from winter games for repeated doping violations. global news 24 hours a day, on air and at 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. declines ase led government measures made it almost impossible for foreign investors to short the lira ahead of key local election for president erdogan. let's bring in the chief emerging markets credit strategist for bloomberg intelligence. what is going on in italy? it turns out it is now something rate.000% turkish swap
reporter: overnight turkish swap freight have gone from 23% last week to over 1000% today. turkeyeign investor in will be unable to hedge their currency exposure at levels like that, so it keeps them exposed. what they have to do is look for alternatives, so other currencies getting hit today because it is a prophecy hedge. guy: what are the long-term and this?ons of some financial institutions already starting to voice their concern and may be talking about the possibility they won't have a representation when it comes to turkey. reporter: i really can't comment on how other countries are going to interact with turkey, especially ahead of these elections. the reality is it is bad.
this is reminiscent of the run on the turkish lira last year. global banks with large turkish , you look at unicredit, there's a lot of european banks, they are all looking to offset a lot of this risk now present in the market. vonnie: why would you engineer a situation like this? turkey is already recession, with soaring inflation and a volatile currency, and now it has got no liquidity. reporter: and 13.5% unemployment, so people can't afford to eat. this is what it is coming down to. these elections are very important to erdogan. it is municipal elections, but they are trying their best to get this out of the way because after this election, there is no major election in turkey for another four years. i think the idea was let's move past this, get through the elections, secure our base, and move on.
top poor decisions at the is really calling the central .ank's credibility into place it is going to be difficult to explain to their committees to invest more in turkey going forward. still believegan the link between inflation and higher interest rates is a little different to everybody else's belief in how that religion should works? reporter: i cannot comment on what erdogan believes in this day and age. the central bank governor in turkey has reacted much more quickly than last year when the lire began to get hit. it took quite a while to tighten rates last year. when moving from the one-week repo facility to the overnight rate, it was akin to 150 basis points tightening last week. that is a good thing. the central bank is reacting and trying to do all it can, but it has got limited ammunition given the fact that it's credibility
is that dour. reserves fell to something like $26 billion. was centralized bank reserves had gone down $6 billion, and that didn't reconcile with external sets coming to $3 billion. people started speculating maybe they are using that to defend the currency. that is what instigated this in the beginning. now if you look at local depositors, they have been moving their funds from lira into dollars at the highest level on record. i think 50% of local investors in turkey have their money sitting in dollars inside of turkish banks, so it is a dour situation. economists are calling for something on the order of 550 basis points in cuts this year. i don't see that materializing, especially with what is going on today. , thank you.an
that is damien sass our -- that is damian sassower of bloomberg intelligence. guy: saudi arabia is said to be nearing a deal for a $70 billion stake in sabic. this is aramco and sabic. we talked about this for quite some time. what are the details, will? reporter: finally it seems that this deal is close to being announced. they've been negotiating the terms since last year, when it noted.st . it will be announced in the next few days, but it is likely that saudi aramco will agree to acquire a 70% stake in sabic, this giant petrochemical plant, to create an oil chemicals behemoth, and pay about $70 billion for that steak, which will transfer a massive amount of money to the sovereign wealth fund, allowing saudi arabia to
pursue its agenda of diversifying investments away from the fossil fuels industry. vonnie: i was going to ask, what going to ask, what can we tell about mama been salamon -- mohammad bin salman 's thinking when it comes to this? reporter: as we know, prince mohammed had originally come up with an idea of a stake of saudi aramco for the pif. it didn't work because the market was very volatile, so this is a fallback plan. reporter:it transfers at $70 bim one arm of the saudi state to the other, from the saudi aramco balance sheet to the pif come the sovereign wealth fund -- to the pif, the sovereign wealth , importantly outside the
oil and gas industry as the kingdom prepared for a future modernized under this vision 2030 plan. why has it taken so long? there was a lot of talk for a long time about a saudi aramco ipo. this was the kind of halfway house, as you described it, to getting some kind of deal done, but it comes a lot later than people anticipated. talk to me about the timing. will: i'm not sure there's an awful lot to say other than saudi arabia is a country where things take a lot of time to get done. we are talking about coordinating between three state owned institutions, sabic, aramco, and the pif, with the royal court in the middle. we know the crown prince likes to control all of these matters in the royal court. there's been a lot about how this deal is going to be structured. we should talk about the things we don't know. we don't know exactly how this
deal will be financed. it has been some talk that it will be paid in stages. we also think saudi aramco is likely to announce an international bond up to $10 billion to help pay for this. there may be bridging loans. once the deal was announced, how are they going to pay for it and when? vonnie: will kennedy, thank you for bringing that to us, the saudi aramco/sec deal for $70 billion -- saudi aramco/sabic deal. coming up, why sell gene -- why celgene is buying wellcare. this is bloomberg. ♪
guy: live from westminster in london, i've gone johnson. vonnie: from new york -- i'm guy johnson. vonnie: from new york, i'm vonnie quinn. this is "bloomberg markets." celgene has agreed to buy wellcare. for more, let's welcome bloomberg columnist max. reporter: this combines two companies intensely focused on government run health care programs at a time when those businesses are kind of influx. you have president trump proposing to get rid of the affordable care act via a lawsuit, and then you have democrats proposing medicare for all. this is sort of a defensive move that combines these two companies, makes it a bit more diversified, and gives them a growth potential if these new initiatives either don't happen or take a while to go into effect, which, based on the history of health care reform in the united states, seems like a decent bet. so, if you are a
shareholder in these companies, you would be quite curious to know what is going to happen. in terms of the timing, is this a risk? reporter: it absolutely is. the potential for near-term dissolution of the aca via lawsuit that got expanded monday is a pretty minimal risk. anyone who's looked at that lawsuit has come to the conclusion that it has a pretty low chance of success, but you can't be dismissed -- but it can't be dismissed entirely. there is further risk the democrats will, instead of shoring up the aca, will go for some big a little more ambitious. in the meantime, this combined company would be set up to benefit from growth in some of these programs, particularly medicare advantage, which wellcare is much stronger in
than celtene. vonnie: is it actually likely to go through?might there problem? reporter: there is a pretty rich history for antitrust and this area, but that was the obama administration that led the opposition to those mergers. there is a decent chance there is some significant overlap in some states, but i don't think it is a foregone conclusion that there will be an antitrust problem. there could just be some small divestitures. we will see what happens in accord with that. the valuation is story here? aporter: i think centene got pretty decent deal. they are paying a price well below wellcare's october 2018
high. isn'tsh price actually that significant, which is a sign that wellcare could see some benefit to being a part of a larger organization in a time of significant turmoil for those government focused businesses. vonnie: all right, max nisen, thank you. guy: still ahead, we are going to be talking about what is going on here at westminster today with brexit. a big day in the brexit battle. all of the details to follow. this is bloomberg. ♪
vonnie quinn. this is "bloomberg markets." guy: let's turn back to what is happening in westminster today. parliament is due to vote on brexit plan b options, effectively taking control of parliamentary business from the government of theresa may. there's a number of sort of different aspects to this. we are joined by bloomberg's jeff shankman. whenever going to find out what they are going to -- just bloomberg's jess. when are we going to find out what they are going to do? bercow isspeaker john going to select a number of the 16 proposals that have been put forward, and those are coming in the form of a madman's -- form
of an immense to the motion. we expect to see a customs union one of some form, jeremy corbyn put forward. others include the option of a second referendum, a proposal for no deal. some of the ones that have been pushed before let the so-called compromise to rework the much hated backstop. vonnie: what are the chances that theresa may's deal actually ?akes this reporter: today there won't be a vote on theresa may's deal. theresa may's government is currently deciding how and when, or even if it should bring that back. she's said she will only bring it back if they have the support. that -- if we do see that, we are hearing it could be on friday. guy: we have seen jacob
brexiteersf the hard changing his stance, boris johnson making similar comments as well. nevertheless, you have to wonder whether the entire erg is going to turn tail and vote for her deal, and we are still lacking the dup. if she brings it back again, will should be able to get across the line? if she decides she is going to announce her departure date this evening, will that help? reporter: you have to wonder if they are truly committed or just being a bit of a bad boyfriend. they keep dangling this opportunity that they might back her deal, and they are not doing so. this time we are hearing a lot of noise saying they could back if she agreesonly on a departure date, and that could happen in the rank-and-file backbench 1922 committee. all the reporters are going to
be desperately trying to find date if shearture announces it. guy: thank you very much indeed. loomberg's jess shankleman joining us. let's go to chicago and the cme. bob, one of the things we've seen over the last few days is a pretty strong bid in oil. bloomberg wrote a piece earlier on suggesting the rally in crude has been fundamentally driven. the big question is what is going to get them in. guest: i guess that is a good way to look at that article. getting them in has to be an extent of the price above $60. part of it is speculators are afraid that the demand weakness story israel, that the -- story is real.
if that is the case, it doesn't matter if production cuts are extended because demand could fall off a cliff to the effect of not being able to boost prices if you are getting 10%, 20%, 30% less demand due to economic weakness. to me it is about some of the trade tensions and talks between the u.s. and china, ratifying the usmca, getting a deal done with europe, and getting the engine of global trade greased so that the global movement of crude oil can continue to push prices higher. guy: we are getting really gov paperand for around the world. we saw the two-year auction in the united states yesterday. we got a five-year auction coming up. demand is incredibly strong at the moment. is this demand a little too strong in your mind? guest: i think in my mind, it
is. however, over my 25 years of doing this, the bond market tends to be more correct than pretty much any medium to long-term indicator. i would like to see yields rise before i'm ready to step away from the idea that global demand can't be spurred quickly. that is one of the problems. trade tensions have now spilled out forward. even if we get a deal now, it is not going to make its way into the economy for a good quarter and a half or two quarters. iaccino joining us out of chicago for pass trading partners. vonnie: it is time for our stock of the hour, fiat chrysler. stocks traded at their highest since -- stocks trading at their highest since february. emma chandra is here. emma: fiat chrysler getting a bump today on the report that
renault was in talks to extend nissan, usingith that as a steppingstone for another merger, should it happen, with fiat chrysler. indexthe european auto the best performer on the stoxx 600. also seeing some increased volume for both stocks. take a look at the bloomberg terminal. you can see how volume is much higher than the 20 day average for fiat chrysler. volume is the white line, and the blue line is the 20 day average. of course, a combination between a competition between them would help them be a little more competitive. guy: what kind of scale would this create? do iswhat you would create a truly global automaker that is able to compete with ford, gm, toyota.
the way the industry is moving towards self driving cars and automated vehicles, those are extremely costly, and being able to share those costs will give you a competitive advantage. we are already seeing alliances where we might not have seen them before. we've seen vw trying to strengthen its relationship with ford. vonnie: emma chandra, thank you. isaking of next hour, it "balance of power." we will speak of the new push for a china trade deal. this is bloomberg. ♪
>> i'm shery ahn. kevin: i'm kevin cirilli. welcome to "balance of power." >> the u.k. parliament took control of the process last week, and today will vote on rival plans to prime minister's deal. bait is ongoing. votes or later. joining us is bloomberg's guy johnson. we are hearing that brings it hardliners could be backing the prime minister's deal, but she only has until this friday to pass it, so is it a little too late? guy: it could potentially be for theresa may. we are expecting her to announce what she will do about whether or not her withdrawal agreement is even going to make it back to the floor of the house of commons over the next couple of days. possibly tomorrow, more likely friday. she is still struggling to make the math work. we really need