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tv   Bloomberg Markets European Open  Bloomberg  March 29, 2019 2:30am-4:00am EDT

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♪ ♪ through look at potential hiccups to financial systems from a disorderly brexit. managerse up money based in the e.u. could be blocked from using exchanges in london. the plan was unveiled just this month and has lobbyists pleading with the e.u. to reconsider and for the u.k. to not retaliate. second, while contract between the u.k. and e.u. leaders will remain valid, investors are still scrambling to work out how they will be serviced. banks have also been undergoing the cumbersome process of re-papering, switching contracts
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to you entities. finally, the large volume of business in the payment sector is handled in the u.k.. those forms will lose the ability to do business in the bloc after brexit. could these issues cause europe financial system to unravel, or planned, thatell- it will be more like y2k? the european financial landscape for years to come. his ignorant best ♪ >> of those were some of the few to risks that still remain the financial system two years after the u.k. triggered article 50. now let's check in on the markets. we are joined by two guests. , let's start with you. the sensex is headed for its
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best month in three years. what is moving the gains in india? good morning to you. i look at the glass half-full. fast, butcoming in hey, the color is green and nobody is complaining. all of that is leading to some substantial flows. inindeed flows continue the same vein today and april, this will be the highest flows in the market that india has witnessed since 2001. but what is happening as a result of that is that the valuations have really gone through the roof. i remember talking about this in a peace river yesterday, indian markets are trading at substantially higher levels, the most expensive bric nation
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right now. very expensive valuations. but the money is coming in and people are not complaining. back to you. nejra: danny, speaking of bowls, we seeing a lot of green in asia. but the csi 300 is outperforming. why? dani: yeah, check out these gains. we do have those china pmi numbers coming sunday. the market is trading like will get some positive news. the end of the quarter is also rounding up. . we are getting investors taking on bullish positions. how that plays out on sunday, we have a hint from the korean data, it looks positive. so the optimism is caring through. intricate come, however, the lira continues to fall despite efforts to stem the lessons elections.is weekend volatility for the lira is high, giving us a sense that after the
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election we might get another selloff as liquidity comes back into the markets and investors are able to exit their long positions. crude is also getting some of someosses yesterday after jo bonner from president trump saying that opec should lift outputs. i want to show you a not as optimistic picture happening in japan. even with the csi rally, japan seems to be bearing the brunt of the economic concerns. ,ere i have implied volatility and you can see that it has been kicking up in the past 10 days, now at its highest level since we had the meltdown around christmas. all these economic concerns seem to be hitting japan, currently the worst developed market performance of the year. nejra: thank you to both of you. now, deutsche bank shares dipped to yesterday after the lender said its management board had not discussed raising capital,
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and bloomberg's opinion columnist has taken a look at the story this morning. she says that the merger will not spare asia. in a new article, she says "sometimes being good enough is just not good enough." that is the situation deutsche bank employees might find themselves in if the commerce bank merger goes ahead. joseph now from hong kong. great to have you with us. why are the best the columnist joins us now -- the columnist joins us now. why are jump targets targeted in this merger? >> because they are a tiny part of the merger. there is talk of up to 30,000 job cuts in germany. so the optics of having a business overseas especially in asia, which is largely investment banking but also corporate banking, and thanks consider paying higher than they are back home, that will be hard to keep. there will be pressure to cut
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jobs. . having said that, they have around 20,000 people in asia and about half of them are back office, service jobs come in india, so we are talking 10,000 of the high-paying jobs. nejra: how would a merger affect ambitions for china? : for china, deutsche, israel know, is a good fixed income and currency trading bank. my column was about how they are actually pretty resilient. rankings,len in the one of the six biggest banks in asia for investment banking, down from first, they are now six. that is not bad. but being fixed income means they can take advantage of the flows of money going to china. china has become part of the bond indexes, and this is where they are strong. fixed income trading.
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becauseouldn't matter in the overall scheme of things, the optics don't look good if you keep highly paid bankers in asia while you are cutting at home. nejra: let us stay with banking and optics to a certain extent. the wells fargo president has given in to critics and stopped down. the move lunches the fourth largest u.s. bank into a hasty search for a successor. in a statement, sloan said -- it has become apparent by the focus on may has become an obstruction that impacts our ability to successfully move wells fargo forward. nisha, foreign investors, we have seen shares climbed in extended trading. has this drawn a line under some of the scandals? kind of. let us see who his replaced with -- who he is replaced with. someone who has been
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there 31 years, he had a cultural history. he had been at the banks along that i think the feeling out the us the feeling around investors is that you need to change everything that is being done. of course, there was a fake account scandal that the wells fargo and groups, and even though he didn't work for that section, he was there in the bank. so just changing him will not make a difference. nejra: thank you, nisha:. great to have you with us today. let's focus on turkey's market malfunction. overnight, interest rates 24% anded between 1300% this week, which left investors disoriented. the billion-dollar debt market has the highest yields in emerging markets, but given the unpredictably of government policy, it is hard to get investments.
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i am joined by two new guests. r, thank you so much for joining us this morning. after some of the eye-popping and gutwrenching moves we have seen in markets this week, in equities and bonds, and of course, the lira, is it possible to predict the direction of the lira from here. piotr: it will be very tricky. everyone is waiting for the outcome of the crucial local elections march 31, and more importantly, the response of the turkish officials to the outcome of those elections. my concern is that if it is a relatively weak results for an and his party, it will be even more difficult to predict what they do. they have three options, in my view, that they could implement over the next four years, when the country will not hold any crucial elections. those options include implementing structural reforms,
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they could also try to muddle , implement impose shortened solutions to persistent structural issues. the third option would be to focus on unorthodox policies, as dogandent er repeatedly claimed yesterday that in order to bring inflation lower, turkey needs to cut interest rates. obviously, the vast majority of market participants will be hoping for option number one, economic reforms to be implemented. has adon't think erdogan high conviction that this positive scenario will unfold over the next few years. nejra: and your level of conviction is that there is a 44% probability. to assign a 30% probability the option of muddling through or a full investment of alessi's, but option one, which
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you say would be the one most embraced, the structural reforms, is that the only option that would allow turkey to regain credibility with investors? piotr: i extremely believe so, and it is going to be even more crucial to regain its credibility given what happened over the past few days. all the hard work the central bank has done over the past few months, raising interest rates substantially in september last year, maintaining very tight , those wereicy accompanied by ongoing reassurance from the treasury and finance minister, those have been undermined, this hard work. so it will be even more difficult now to regain investors' trust given what happened in the past two days. said: christoff, you have to me of air about for turkey, it is more a confidence risk
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than a systemic risk. i was talking about the fact that rates are some of the highest in turkey in terms of bonds. would you be attracted to turkey at all for that reason? f: it is probably too soon for the turkish bond market again. it is why i mentioned that it is of confidenceer in the emerging that space rather than a systemic issue. what we expect in the near term regardingral decision how to implement reforms on the turkish economy in order to recover. your the announcement, wish -- we should experience a nomination of the turkish asset classes especially the currency, the long-term and short-term interest, and then it would benefit also the turkish markets.
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the good side of the story, expecting in the weeks to come, good decisions for the turkish economy. nejra: so we have certainly seen some civilization in those swap rates, to have come down from the levels of about 1000%. what are you targeting on the --a in the year term versus the near term versus the medium-term? r: i am bracing myself for a potentially volatile week. i think it will be absolutely critical that we hear from turkish officials providing lots .f reassurance that they will accelerate the pace of economic reforms. we actually have an heard that much in the past two days from treasury and finance minister, perhaps he is busy working right now on a comprehensive package
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of economic reforms that could be revealed. but it has to be revealed within days, not weeks. andey has run out of time confidence has been seriously swiftined, and action is required. cautiously optimistic scenario, if economic reforms materialize, then billy pressure be relatively stable. i don't think there will be a massive rally for the currency because i have a cautious view on risky assets. we don't think the dovish fed will be sufficient to keep capital inflows into emerging markets over the next few months. we are concerned about the risk of a recession in the u.s.. will notnal backdrop be conducive for risky assets and that will limit the potential for the lever to rally even if there is progress on structural reforms. nejra: interesting.
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in terms of hollywood trade, then, would you do it directly through the lira or would you do -- in terms of how you would trade, would you do it or agree for the lira or do it through other options for examples such as the south african rand? piotr: i think that has been a popular trade this week, using it as a proxy for the lira, even that liquidity in the lira should improve gradually. i think those who are pessimistic and don't agree with the view that progress will be againstreforms will bet the lever is set of using proxies. nejra: thank you so much for joining us this morning, piotr rabobank.m kristof stays with us for the rest of the hour. if you are long tech stocks and high-yield bonds for the year, you will be feeling happy as the quarter comes to an end. we will tell you what is up, and
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what is down. that is next. this is bloomberg. ♪
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♪ sarah: this is bloomberg daybreak, i am nejra cehic in london. everything rallied in tandem following a cold december. the fed's a dovish payment extended the debt cycle. if you had a rally in junk bonds, sovereign yields plunged, this was the best quarter for high-yield since 2012. emerging markets adjoined the fed-induced bond rally in february. bank of america clients called e.m. the most clouded trade. now, political tensions from turkey to open his are undo the progress. hunger for growth and drove investors to mecca cap stocks, making tech the best-performing sector of q1, advancing more than 70% and recouping december losses. crude oil did his best since 2009. but opec's commitment to slow
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output threatens weaker growth. uoyedrexit gridlock b sterling. few lackluster trades this year, the dollar, on track unchanged.quarter the dovish fed like nearly everything else, dictated the currency's move. still here to discuss is christophe donay. q2. us look ahead took you t you changed your strategy a little bit from q1. tommy about that. christophe: we decided to release our exposure to risky assets especially em equities, in favor of a carry investment strategy. we want to integrate the
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fundamentals of growth -- we experienced a negative earnings , and we're trying to mitigate the potential for equity markets. that is the reason we decided to reduce. what about q2? regarding q2, we expect a rebound in economic growth thanks to the u-turn of most central banks, as you said, fueling credit growth and the credit cycle, which is absolutely needed. long-lasting economic growth cycle, in which we are seeing now for the full decade, which is very astonishing. we don't expect a recession, as
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i said a few minutes ago, but we do expect a long extension of the credit cycle. in relative terms, despite what i told you regarding about our change in asset allocation, we a better quarter in q2 for risky assets. nejra: let me bring you a chart which shows stocks and bonds rallying. we are familiar with it, but sometimes it is nice to see it visually. let me ask you about the niv question. which assets will outperform next quarter? ? christophe: despite what i said, it is quite a contrarian attitude i have today, but in relative terms, equities should do better than bonds. we don't expect a fantastic performance from equity markets, because of what i said a few minutes ago, all the fundamentals are priced in , and it is difficult to
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see a further valuation expansion for the equity markets. envision strong equity markets, but in relative terms, versus certain assets such as u.s. treasury's, for sure, we expect a better q2 for risky assets versus others. nejra: it is interesting that you expect a rebound in growth but yet you don't expect much more upside potential in equities. how are you allocating between sectors? are you looking for dividend growers, the bond proxies, are you looking for quality? favor pricing power companies, we also favor dividend growers, and on the other hand, we also like to take
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risk in innovative companies, disruptive innovative companies, i mean, tech companies. nejra: mega cap tech? christophe: mega cap tech, absolutely, essentially. . the approach would have, it is a kind of bubble. we like to take risks in the equity market on the one hand and will select to offset the risk with as i said, dividend growers and rising power companies. nejra: you talked earlier about the fact that you have gone from capital appreciation to looking for kerry. i have heard this from people, that it is time to look for carry, with yields at such low levels. where are you looking for that carry? christophe: for high-octane carry, we like to invest in emerging debt. we were discussing turkish debt. nejra: hard currency or local currency? christophe: hard currency.
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by doing so, we put asset allocation in emergent currency risk. emerging currency risk. also there is risk in the , so weg debt space decided to upgrade our view on the euro investment grade from underweight to neutral in order to create a bubble. it is a low octane carry, when you invest in euro investment grade because you get quality by doing so, and this is what we are targeting with this approach, but at the expense of yields, because you get on the 1.5% versus 6% plus when you invest in the emerging carry. nejra: it is interesting that in space, youing market are neutral, but elsewhere, you underweight.
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? christophe:? christophe: where are the high yields? we have seen the spreads compressed between the u.s. and europe that is why we prefer the emerging debt space. the best thing is to try to get the highest carry yield. that is the case for emerging debt. e.m.is why high-yield, , for high-octane carry, we prefer that. for our approach, in order to offset the risk you take my doing so, we prefer investment-grade, especially in europe, because of the quality of the investment grade bonds, corporate bonds, they do better than in the u.s.. nejra: and a very accommodative ecb. i think you are actually expecting a continuation of the balance sheet expansion by the ecb.
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thank you for joining this morning. third time lucky. theresa may makes a desperate push to get her bill approved in parliament. we will be live in westminster. this is bloomberg. ♪
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♪ >> good morning, from bloomberg european headquarters in london, i am nejra cehic. this is bloomberg daybreak: europe both on television and on bloomberg radio this morning. these are today's top stories. theresa may gets a push to get her deal approved in parliament. we are live in westminster. most asset classes rally as we close out the first quarter. a dramatic reversal in. tech and fixed income, they are leading the way. how much further does the rebound have to go? and, wells fargo ceo abruptly stepped down after struggling to scandals, this
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as morgan stanley's president announces he will step down in june. ♪ nejra: good morning. welcome to a daybreak: europe to our tv audience and our radio listeners. we are just an hour from cash equity trading in europe. the stoxx 600 close lower yesterday, but it looks like we could see a rebound. we have seen gains in both stocks and bonds in the first quarter. global equities are headed for their best quarter since 2012. didn't have that strong again, but features were on the front foot in europe. .4%, daxfeatures up futures trading higher by .5%, and cac 40 features trading up almost .6%.
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h&mre looking at what i might do, we just got the numbers from the retailers, first-quarter numbers. the first quarter pre-tax profit beating. that is the key thing to look at. first-quarter pretax coming in krona.4 billion swedish the estimate was 677.8 million swedish krona. the first-quarter pretax is a beat. first-quarter gross margin is also higher than expected, and 50%. 49.2%.imate was h&m group is still planning a net addition of 175 new stores in 2019. the number of stores in europe, though, is expected to reduce by 50 in 2019. it will also launch on india's e-commerce sites. those are updates in terms of the stores. . we also have numbers coming through from travis perkins, let
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me look at this and bring that to you as well. here is the news on travis perkins. next roberts has been named ceo, as john carter will step down as --nickaugust 5, 2019 roberts, so that is the news flow around travis perkins. let us look at bond markets, we are seeing some stabilization. 10 year treasury yields have been hovering around 2.4%. looking at how futures are set up, the indication is that we could see 10 year treasury yields edge up, not really going anywhere, but in europe, perhaps btp yields could edge higher. we are not getting much directionality from the bund features at the moment. futures at the moment.
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the rally details on in the asian session, we have dani berger standing by. the market, we saw rallies yesterday? dani: there is a whole lot of green at the moment especially in china. china is of by nearly 4%. remarkable gains. u.s. saying it might extend trade talks weeks or even months. spreadingn sentiment to other markets, but not as strong as in china. japan up .8%. australia is usually one of the biggest beneficiaries when there is positivity in trade talks. india is a touch stronger, getting strong foreign flows, a lot of etf flows. never give you a view of the other assets. we are seeing some currencies rally pretty strong especially in emerging markets -- the rallying, previous
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being on the real had overdone. we are also seeing the china higher, australian dollar higher as well, these are on trade sentiments. headlines that we haven't had in back.a while coming australian 10 year yields fell to the lowest level on record, now just higher about five basis points, but still, some signs of calming down in terms of the losses. nejra: thank you, dani. we will see if that calm continues. theresa may is still attempting to get her deal through the u.k. parliament. later today, lawmakers will vote on the e.u. was no agreement, for the irish backstop, divorce bill, and citizens rights. discussions on a framework of a future relationship with the au will be put off for another day. anna edwards is standing by for
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us. wait for being with us. take us through what we can expect today. we should watch for 2:30 p.m., and 11:00 p.m.? the time, 2:30 p.m. is the mps will be voting on just the withdrawal agreement, art of theresa may's original brexit package. it includes the backstop, the money going from london to brussels, and citizens rights. important stuff, but not the full package, not the future relationship. theresa may believes this complies with the rules they agreed to with brussels last week, that if they got their withdrawal agreement through parliament by 11 p.m. this time,g, the other crucial it unlocks a relatively free path to brexit on may 22. if that doesn't happen, another crisis looms in early april by which the government will have to decide whether to ask for a longer extension or whether to go out without a deal.
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can she get her deal through? ecb seems to be holding their ground, not coming around to theresa may's thinking. theresa may has won all some member of labour -- some members of the house of parliament, but labor is definitely not voting for that. nejra: this was supposed be brexit day. of course, it is still crucial in terms of the vote. but talk also about the symbolism of today's vote. supposed tohis was be brexit day, two years to the day since theresa may triggered article 50. no doubt there were some celebrations and some emotions in the opposite direction planned today across the country. some newspapers in the u.k. were reflecting on that fact, and also on the fact that we do have this historic vote taking place
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today. a vote on part of the deal. these are a couple of brexit-leaning headlines if you ask. one last chance, daily mail -- today was supposed to be the day britain became a sovereign nation once more. i will show you at the telegraph , also reflecting on this being the day of reckoningsection, sae celebrations have been replaced by the bitter taste of the trail. here in westminster -- bitter taste of betrayal. here in westminster, businesses have been planning for this today as brexit day. then they found out last week it was not going to be brexit day after all. many had contingency plans, perhaps a lot of wasted time and effort may have gone into them, depends on how concerned you are about the implications of a no-deal brexit, or the extension of uncertainty.
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extended conversations with brussels would also impact brussels. it would lead to long-term uncertainty for their investment plan. nejra: it will be a busy day for you, anna, not least with you reading through all those newspapers. we appreciate your time. ,oining us now is alexis gray senior economist at vanguard asset services. . great to have you with me this morning. there is a great story on the bloomberg talking about the fact that the brexit day that wasn't leaves britain counting the costs, outlining the various companies that had my preparations, some of which will go to waste. whether they had to do with stockpiling or if they hired customs officers. are their costs to the u.k. economy that have happened until now that can't be recouped even if we get a soft brexit? alexis: i think that is true, and you have seen several think tanks who have been arguing that there has been 2% shipped off the gdp since the vote simply
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because of uncertainty and the anticipation and preparation for brexit. even if there was a referendum tomorrow and brexit was reversed, something has artie been lost. nejra: in terms of where we go from here, is it your best case that we get an extension and a soft brexit? alexis: yes it is. we expected theresa may together enough support in parliament for her deal and that has not been the case. we have seen staunch opposition laboure dup, the erg, party, so i think it would be difficult to get enough votes deal.eresa may's looking at the indicative of votes from earlier this week, a customs union is probably the most likely version, of a soft brexit free movement of people, yet still having a customs membership. that may be enough to satisfy parliament. nejra: does that make you favor sterling and parts of the u.k. equity market?
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alexis: if there is a softer brexit deal, it is not clear when that would happen, but i think we are likely to see a rally in the equity markets and on theff in u.k. guilt expectation that there will be some boost to growth and net the bank of england will resume its hiking cycle. nejra: interesting that you think they would resume the hiking cycle. do you think that would come in 2019 or 2020? alexis: i could see the bank of england raising rates in the second half of this year. but that would be contingent, as i mentioned, on a soft brexit and on some conclusion to the uncertainty. the longer that drags on, the more challenging it is for the bank of england to have that conviction to hike. nejra: but why hike? i understand we have a tight labor market and wage growth has been solid, but if we have the resolution of a soft brexit, we will not see sterling fall much more. are the inflationary pressures going to be so strong that the bank needs to hike rather than
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stay on course with the rest of the world's central bankers? as you mentioned, the currency might rally, and that would dampen inflation a little, but over all, the labor market is tight, the unemployment rate is the lowest since 1975, wages are accelerating, and there is an argument that the bank of england is behind the curve. that the bank of england should have been following the fed and raised rates further than it it did. nejra: is this affecting your strategy elsewhere or is this a issue?ed alexis: i think the biggest issue around brexit would be a no-deal brexit, it would have the biggest spill over to other regions, most notably the trading partners elsewhere in the eu and of course, financial market volatility. with parliament strongly against a no-deal brexit, we think that is unlikely. there are other issues in the global economy that are more pressing than brexit. nejra: and we will discuss those next. alexis gray from vanguard stays
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with us. now to another important interview. u.k. is the latest country to securityei over concerns. it says well is putting national security at risk by failing to improve its devices and software. we asked the chairman about this interview.s close of >> the u.k. has issued a review of your software. said there are significant security risks, and that those risks now apply to british telecom companies would use your equipment. they say not enough has been done between last year and this year. how damaging is that assessment from huawei and dust for huawei, and what steps can you take to reassure to look at this reassure telecom operators? >> there are some things i would like to point out about the report. the first is that there is no single backdoor installed but any country on huawei's
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products. the uk's security situation has not worsened since 2017. huawei has the best security record in the past 20 years including the recent years when there were malicious cyberattacks none of which had huawei.th we understand many firms pay attention to cyber security and have raised their cyber security standards. there are looking for reliable results and a reliable process. we work with other institutes respect to the uk's oversight board. we have established a project and decided to invest $2 billion to make the process trustworthy code.viding the source >> there is a widely held view that australia and canada are facing retaliation from china for aligning with the u.s. when it comes to the case of huawei. retaliatoryk those actions by beijing are beneficial to your case, or are they undermining case?'s
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>> i am not the chinese government, nor am i part of any government, i cannot comment on that. while we provides the best products and services. we hope we can bring those us.es to those who choose . >>. >> our strategy is to help our clients achieve success in their businesses and to help the u.s..ies we choose us the >>-china trade talks are restarting starting in beijing this week. do you think the case of huawei is coming up in those discussions, and if president trump was to intervene on behalf of huawei, which he has suggested he could do, would you back?e >> i have also read this in various media and other sources but i have no further knowledge or information regarding this. >> it seems like a key and central part of this controversy around huawei comes down to trust. there is a question as to whether founders of the company, if they are members of the communist party and the have signed and taken the euros for the,'s party of china -- the oath for the commonest party
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of china, can they turn around to the comely's party and say, i am prepared to break my oath to the commonest party even if the government leaders are saying that this is not a national security interest, it is in the interest of the country and the party to get access to your systems data, or at least the possibility to spy on other nations? is that a realistic proposal? of the the perspective chinese government and huawei, it is rare and difficult to have a company like us who have the capability to compete in the globally. the chinese government hopes while we can generate more tax income and create more jobs. if you take an appropriate -- if you take inappropriate actions like the u.s. and australia, those actions compromise of the companies plan to boost productivity and create jobs. we have over 90,000 employees shareholders. that would damage our shareholders and go against
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huawei's interest. huawei would never go against its basic principles. >> strong earnings for 2018, around 25%. projections for 2019, and what are the biggest potential headwinds? is it the campaign by the u.s. against the company or is it the slowdown?omic >> when it comes to 2019, we are optimistic that we will have double-digit growth despite a be in the external environment. optimisticiously about growth in our 5g business. the future of the telecom industry lies in the capability that 5g can provide these industries. nejra: defending his company's record. coming up, it has been a quarter of stellar returns. we discuss what is, what is down, and what to expect from q2. that is next on tv and radio. this is bloomberg. ♪ ♪
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♪ nejra: 7:20 a.m. in london. 30 minutes away from the equity market opening in europe. i am nejra cehic in london, on tv, and on the radio this morning. level equities are on track for their best quarter since 2012. the msci world struggling a little bit, but asia is on the front foot, china performing on the upside. u.s. futures are on the front foot, up .8%. stock 60 the us euro stoxx 600 also up. foot,is also on the front 1.34, up .3% as we move for a meaningful vote three in parliament today.
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let's get over to debra mao in hong kong. >> the u.s. is ready to keep negotiating with china for weeks or even months to come according to the white house economic adviser, larry kudlow. beijinga deal to ensure improves market access and intellectual property policies. treasury secretary steven mnuchin says the talks were very productive. boeing is being sued on behalf of the passenger who died in this month 737 max crash in a feel be a. the suit claims the. -- in ethiopia. this follows earlier claims against the company following the crash in indonesia in october. boeing's troubles are growing as the plane maker is under intense probe.y and a criminal president trump says he feels vindicated by special counsel
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robert mueller's report. he says the investigation was an attempt to illegally regain power by those who lost the presidential election. that said, attorney general william barr did not provide vindication, quoting -- the perm does improve the president committed a crime, but also does not exonerate him." global news, 24 hours a day, on air and at tic-toc on twitter, the book eco- this is bloomberg -- global news, 24 hours a day, on air and at tic-toc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. good: it has been a quarter from both stocks and bonds. some rebound has been attributed to improved prospects for an end to the trade war between the world's two largest economies. also, u.s. central bankers have said the u.s. economy is still on track for solid growth this year, despite concerns in financial markets that it was headed for trouble. fed policy makers that we heard from, john bullard.and james still with us, alexis gray, senior economist from vanguard services.
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in. the first quarter, we saw a strong correlation in stocks and bonds arising in tandem. with the continue in the second -- will not continue in the second quarter? alexis: i think the dovish tilt? alexis: by central banks has pushed both equities and bonds higher making it for -- it will eventually get priced in. for the equity market to rally even further after a very strong first quarter, we probably need to see some goldilocks scenario where the economic data starts to go to the upside and the fed does not remove that dovish promise. nejra: you mentioned u.s. equity markets. the s&p 500 is nearing its first golden cross since 2016, so that can be seen as a bullish signal. i get varying opinions on this. . i spoke to a guest yesterday who said the bond market is rising growth incorrectly and actually, the equity market is getting it right. does that mean there is a limit
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to the upside in equity markets if it is priced to perfection? is interesting what you have seen recently, economic data in the u.s. has still been a robust relatively. there is no obvious sign that a recession is coming. yet, the bond market would tell you that there is a recession coming. the spread between the three month and the 10 year are negative, which historically has been a recession predictor. the rest of the curve is not necessarily predic inverted, sot can be an argument against the recession coming. but unless we see some further upside surprises particularly outside the u.s., that is really where the economy has been weak, the eurozone and china, unless we see some upside there, it is difficult to see the equity markets rallying as strongly as they have the rest of the year. from someheard fo fomc policy makers, and we also heard from new york's fed williams, and st. louis's james bullard. james bullard is a notable is,
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but he said it is immature for the fed to cut rates. yet that is what the bond market is pricing. has the fed got the correct? alexis: it is unclear where the fed will move next. he had been assured that there would be one more cut left in the cycle but the does tell us the fed does not agree with that view and it is difficult to disagree. we will have to wait and see how the data plays out. i think the economic data does coming.a recession is the market might be a little premature but i think the fed will be cautious in ignorant that signal. nejra: can i ask you the mliv question of the day, which assets will outperform in the second quarter? alexis: it will be difficult to say at this point. it depends on what happens with the data. if there is an upside surprise, equities may slightly outperform bonds. one of the other key things to watch is brexit. we expect a smooth the deal and
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we could see u.k. equities doing well. nejra: thank you so much for joining us, alexis gray, senior economist for vanguard asset services. that is it for "daybreak." "bloomberg markets" is up next. this is bloomberg. ♪ this isn't just any moving day.
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equities trade is less than 30 minutes away. anna: two years on from the triggering of article 50, theresa may puts brexit to a third vote to avoid a long delay. stocks rally to round out the best quarter of equities in seven years, but indices still lack last year's high.
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this farmer giant pays that $7 billion to form and and ecology joint venture. good morning, we are live in westminster once again. keeping track of the twisted turns in the brexit tsonga. -- tsonga -- saga. ago, i was here as theresa spoke about the triggering of article 50. that set the starting gun on this to your process. we all know now it was extended last year, so this is not brexit is onhe champagne or tea ice, depending on which side of the icy fellow. fellow -- fell on. she is bringing only part of her deal to the house today, it is not the full meaningful vote, this is just a vote on the withdrawal agreement. it hopes that if passed,
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would enable her to secure a smoother brexit. she believes that is in keeping with the deal she did in brussels. if she does not manage to and her northern iraq has are still holding out, then we manage -- move on to april. edge, that a cliff is the next key question. let's pick up the conversation from a markets perspective and go to singapore, our managing editor is with us. good to have you with us, let's get your thoughts. this is a historic day for the u.k., the departure from the eu. much anticipated by markets, much hedged around, perhaps. the pound is at the low end of a fairly recent rate, even mario draghi is warning about complacency on u.k. assets. you mentioned there have been lots of twists
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and turns we have met gone absolutely nowhere. if there is a brexit, we have no idea what kind it will be. we have learned nothing over the last couple of years, unfortunately, which makes it quite hard for sterling traders. a lot has been written about what will happen to sterling, and ultimately, we're getting towards the state where a path will be chosen. not because the u.k. government will get its act together, but because the european parliamentary elections are forcing the decision. there will either be an extensive delay or brexit, theresa may's deal, or a hard brexit. the consensus is that a no deal hard brexit will see starving collapse and there will be a relief rally under maize deal or an extended the lead -- delay. whichever way we get the shift, whichever outcome we follow, i think sterling will sustainably depreciate after that. the fact is that the u.k. economy has a slow growth and
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will not change anytime soon as all outcomes lead to uncertainty. we do not know what the future arrangements look like between the u.k. and its partners. overall, the negative yields remained, account deficits remain. the outlook remains very negative even if we might get a one-off large jump. let me talk about trade deals of a different nature, then. interesting comments coming through from larry kudlow talking about how these conversations around trade could go on for weeks or even months. timeframeportant information for investors who have been looking for something in march. we seem to have forgotten about the deadline that keeps on sliding. mark: it is impressive how the u.s. administration has successfully putback their own self-imposed deadline without completely panicking markets.
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that is because they have talked up optimism and the fact that both sides are willing to reach a deal. as long as we don't get the worst-case scenario, i.e. the top collapses -- talks collapse, markets will do fine. the backdrop is that growth will be subdued, not terrible. central-bank policy around the world is super supportive. there is too much money in the system which means it will chase into risk assets, and yields. markets will do ok as long as they know talks are not collapsing entirely, even if it may be months away from the final deal. anna: the noises of protest and the sirens mixing together on this 29th of march year in westminster. let me ask you our question of the day. which assets will outperform next quarter? this gives us a chance to reflect on this quarter, very strong for equities and bonds. we wonder if that can't
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continue, and of course, we must mention that the strength of the third quarter cannot be seen without looking at the weakness of the fourth quarter last year. absolutely, it is looking likely to the best quarter in seven years for global equities, coming after the worst quarter in more than seven years. so just a bit of a bounceback. overall, global equities do not look too expensive. they are generally below the five-year average for the blended forward one year estimated earnings on the p/e ratio. the same for the price to cash flow ratio. thanightly more expensive the price-to-book ratio, but only marginally. overall, equities do not look expensive. the fact that bonds and equities are rallying together makes complete sense, it is because there's too much money in the system. people have too much cash, overall, it makes sense.
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abroad, i think global equities will continue to do well led by asia and china, in particular. in the short-term, there will be more volatility, but by the end of q2, we will see global equities higher again led by china with a large gain. anna: we'll keep an eye on china, thank you very much mark cudmore, joining us from singapore. if you want to get involved in our question of the day, please get in touch. we are asking which assets outperform next quarter? reach out to us in the market life team -- live the team. let's get a first word news update from hong kong. u.s. is ready to keep negotiating with china for weeks or even months, according to larry kudlow.
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want a deal to ensure beijing improves market access and intellectual property policies. this of the top u.s. trade team met with chinese negotiators. steve mnuchin says talks were very productive. policymakers say the economy is still on track for solid growth this year. this is despite concerns that it is headed for trouble. . the new york fed president john williams is downplaying fears of a recession and says -- and st. louis fed president says he specs growth to rebound, saying that calls for rate quote -- rate cuts are premature. a weapon in bargo has been extended for six months in germany, running until september 30. no weapons deliveries or contracts will be allowed and an exemption will be made for joint european defense projects, but germany plans to hold talks to ensure any weapons are not used
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in yemen. -- suits being served on behalf of a pastor who died in ethiopia. the suit claims the plane is not safely designed and follows earlier claims against the company following the october crash. boeings troubles are growing as the playmaker is under intense scrutiny and a criminal probe. global news, 24 hours a day on air and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. nna.a -- a anna: up next, two years after article 50 was triggered, are there some reasons to be optimistic? about how somebody business can deal with the uncertainty. and this morning, we are also live for you on bloomberg radio. devicet on your mobile
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or dab digital radio in the london area. this is. bloomberg. . -- this is bloomberg. ♪
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>> lobbyists are pleading to reconsider. second, while contracts between u.k. and eu traders will remain valid, lawyers and investors are still scrambling to work out how they will be serviced. banks are also undergoing the cumbersome process of re-papering, switching contracts to new entities. finally, a large volume of business in the european payment sector is handled in the u.k.. will lose the ability to automatically do business in the block after brexit. eu authorities are telling companies to hurry up with their contingency plans. could these issues cause europe's financial system to unravel, or are they so well flagged it will be more like y2k? happens, it will set the tone for the financial landscape for years to come.
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anna: sticking with brexit, potential outcomes are all still viable outcomes. the legal general ceo nigel wilson tells bloomberg there are opportunities to be found. , itotally relaxed about it think technology and democracy are actually bigger issues for the economy. the u.k. economy has grown at the same rate as europe and the .mployment at an all-time low investment opportunities are at the all-time high, and somehow, we have to create an environment allows people to step up and invest more and copy what we have been doing. anna: today, mckinsey releases a new report focusing on the moves companies can make regardless of the political turmoil in the house behind. we are joined by the lead author of the report.
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joining us now from paris, thank you very much for joining us today. we were listening to legal and general's ceo, talking about using rise it as an opportunity to change domestic regulation, invest in infrastructure, and regional development. do you see opportunities for u.k. companies? >> what we are saying in the report is that there is life beyond brexit and it is time to stop for the uncertainties to clear. to actually look at the global megatrends of play. u.k. businesses can absolutely benefit. globally, a particular relevance is the dramatic growth in services, percent faster than good straight. some sectors are growing 2-3 times faster and british businesses are well-positioned to take part in that growth. of course, if we are just all
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waiting for brexit the clear, we might miss out on those opportunities. i would certainly agree that investment, especially in innovation and r and d and various digital applications will be critical for british businesses to maintain and improve their global positioning. can i ask you what the future of services can trade deals is? we hear a lot about the importance of doing trade deals after brexit, and yet services don't usually feature. do you think they will feature in the future? >> i am not an expert on trade deals, and what is really interesting is that the services trade is growing, despite the fact is not included in the services. the way that these days can actually deliver services mean that there is not that much physical movement, not much friction.
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services be delivering , you could be delivering services to maintain aircraft engines in china. delivering services by designing software in the u.k. and then selling it elsewhere. there are, of course, really important issues in the financial services sector, for example trade deals. enabling trade to deal without the same lengthy negotiations we see in good traits -- goods trades. made the point that there might be a role for services in future trade deals. openingmall, targeted up market access, rather than a overarching trade deals. i want to ask you about the strong position of the u.k. asset services.
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suggestsour research that if we have this leading position in services is under threat. , the uk's chair has gone down from 9% to 7%. is still the second largest services exporter in the world, after the united states, so a good place to start from. there are two things, one at a strategic level, british services need to get closer to customers. for example, in china, 100 billion new customers will end any sort of middle-class in the next decade or so that is an enormous opportunity. secondly, and an operational level, there is a dramatic opportunity from digitalization. you can be based in the u.k. and still be delivering those services worldwide. one of those issues that is particularly relevant is your
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supply chain, making the most of your supplynologies chains, optimizing your orders, minimizing logistics costs and that kind of thing. that, there's also does using i.t. and digital to innovate. when you have better information about your customers, even if remote, you can create services that are much better suited to their needs and evolve the services in an agile manner. anna: that you very much for , seniorus, tera allas fellow at mckinsey. talking about a post-brexit environment, if we ever get to brexit. let's get our business flash from debra mao in hong kong. has stepped down as
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the chief executive of wells fargo. he struggled to tame a wave of scandals and will be placed on an interim basis. the board is looking externally for a permanent replacement. democratic presidential hopeful elizabeth warren cheers that departure, saying he should have been fired a long time ago. deutsche bank merger plans can be under threats -- under threat from mounting opposition. just two weeks ago, commerzbank agreed to look at a deal, but shareholders are bulking -- bulking at the plan. labor units want to block it and there is growing skepticism with an banks. they are still talking, but bloomberg understands the chances of a deal are dwindling. disney is tightening theme park strollers,ing large wagons of any kind, and any loose or dry ice will be prohibited. the world's largest themepark wperator plans to open two ne
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star wars areas and faces potentially record crowds. that is your bloomberg business flash. anna: thanks very much, deborah. -- debra. nine minutes ago until we see equities opening up for cash trade. will get a look at your stocks to watch at the open next. this drug maker has struck its biggest deal in more than one decade, about $7 billion on japanese cancer treatment. this is bloomberg. ♪
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anna: six minutes ago until the start of equities trading, let's have a look at your stocks to watch. bloomberg is looking at h&m.zeneca and as well as the boeing maxim group. give us a look at astrazeneca. >> this is part of the restructuring we saw, they are working harder in cancer. they have gotten rid of two of and now they are moving to invest in a cancer drug. company that appears to have had their eye for a
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while now. it was reported they looked at the company a year earlier, and perhaps this was the drug, the breast cancer drug, a new formulation that they have had their eye on. paul,thanks so much, sorry, john. let's go to paul on h&m. >> you can expect a big outpouring of relief in h&m. first-quarter earnings are much better than expected. down about 70%, the market expected much worse. 17% of the market expected much worse. down to the markdown performance, their markdowns have been reduced by about 15 percentage points and say that will continue in the second quarter. so expect that share price, which is rounded about 11%, to
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continue today. anna: thank you very much john and paul. want yourmberg if you stock stories and keep an eye on the 737 news in the market open. this is bloomberg. ♪
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anna: this is the european market open, it's friday morning , a minute to go until the start of trading. basket to the studio, dani burger can lead you through how markets are positioned. dani: asia setting the tone, look at these gains in china. the u.s. is willing to extend trade talks for weeks or months, setting the risk onto. but i want to point out what the pound is doing, we're seeing a steep drop. the pound was gaining but is now unchanged. oil is also higher than yesterday.
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trump a few of losses yesterday, saying that opec should look at lifting output. of course, the narrative we have been paying attention to is 10 year yields, seeing some stabilization. under 2.4, the lowest level since december 2017. a lot of hedging going on. with our just going to get the markets starting to open, and keep in mind, it is the end of the quarter. whether or not we see quarter rebalancing impacting markets tends not to happen on the last day of the quarter. that is because traders will hedge doing windowdressing, and that is why we're seeing them unchanged. the ibex is higher by .5%. retailers will be a big story today, h&m announcing earnings that they will see retailers in the section. cac also higher, the same risk on tone we saw in asia.

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