tv Bloomberg Markets European Open Bloomberg August 6, 2019 2:30am-4:00am EDT
manus: good morning, welcome to bloomberg markets, the european open. we are live in the city of london. i am and -- and edwards alongside matt miller. matt: how high can a dead cat bounce? not that high. futures point to small gains of the open. less than 30 minutes to go. ♪ anna: manipulation or mitigation? the pboc tags its currency at a
stronger level than expected hours after the u.s. tax beijing and fx manipulator. stocks shaken. china's intervention helps asian equities reduce losses and wall street higher after the worst drop in ae -- date year. and cutting the session in the u.s. could the 50 point fed cut come in mid-september? good morning. matt: where less than half an hour away from the start of european trading. -- we are less than half an hour away from the start of european trading. coming down to the -- the lowest election.e the 2016 the bounce back recovering up to 1.75% at the moment. take a look at futures. we saw a earlier bigger gains in futures and then we see -- then we saw now. u.s. futures are rising fairly substantially. dax futures are up .2 of 1%,
byure as ftse futures down .25 of 1%. what else do you see on the gmm? yuan suggesting that fixing and working out with a they want to bounce this morning or in europe. we did see losses in the asian equity session being pared back as a result from china fixing its yuan stronger-than-expected. weaker, thethey are markets in asia but not by as much as they were before we sell the fixing. all of this after we saw president trump labeling the chinese currency manipulators. we can factor in whether that is the case or ask what does this mean for the trade negotiations, perhaps that is where the market is focused on the broader levels lack ofration for expectation between the u.s. and china as a result of this escalation in the tensions. we are seeing as a result of what we saw in the currency a little bit more appetite for em.
we will show you where money has been moving around in terms of yield story. australian 10 year below 1%. the yield their dropping below the boj's target range. how will the boj explain that? all that keeping the focus on the lower lower yield story even if we are seeing a change in risk appetite because of fixing. let's talk about what is going the markets. china's currency policy taking center stage in the ongoing trade. the trump administration has named chinaformally a currency manipulator. in response china has taken steps to slow the yuan by fixing the currency to below seven per dollar. the announcement of the daily reference has helped ease of the turmoil in the markets to some
degree. futures pared losses and the again retreated after climbing on haven demand. asian stocks were still down, deepening this week's selloff but we see a turnaround in that asian equity trade. europeans, our chief correspondent. are we edging closer to a currency war, is that what we're talking about or is, have we been there for a long time already? idea of a the currency war, the two biggest economies are in the middle of a trade this cute. details are more nuanced. we know there is significant downward pressure to push the currency lower. pain in to be a further the coming months. china has been trying to keep a floor under the currency not letting it drop too far south.
the message in terms of fixing was china is willing to let the currency soften a touch, that would help exporters. they don't want it to go so far as to trigger instability or panic among companies trying to get their money out of the country. no doubt it has found tensions by all accounts, the move -- mood between washington and aging over trade and currency does not bode well for any trade agreement near-term. matt: how likely is the capital flight we have seen in the past when the you on weekends? enda: this is the big question, what most people will say is the brake on china letting its currency weaken. they had to burn through around a trillion of their on reserves to defend the currency. forcing strong roles in moving cash in and out of the country. there is a sense that it can we
can to help their own economy. they doubt want to let it go too far that it triggers some kind of panic and everyone is rushing to move their money out. where they're red line is, no one is quite sure. even though it moved past seven, it was a minor move and the greater scheme of things. that is why everyone will be occur,g where it will will they allow it to weaken or will they keep a floor under it likely pledged -- likely pledged? what thisdo wonder means for trade talks. as we were mentioning, there are increasing numbers of investors who will be asking questions about whether currencies that label each other in this way are going to be in a place to find common ground on trade. goldman sachs says they don't see the possibility of a trade deal before the 2020 election. i saw the notice from
goldman and it is reflective of a lot of views this morning. expectations for any kind of a durable or meaningful agreement have been diminished. the mood coming out of both isot -- capitols [indiscernible] probably not meeting much for beijing given that they it additional tariffs. that is a bigger focus midterm. considering one week ago when both sides talked in shanghai and they were said to be constructive, we have this dramatic escalation a week later. it is hard to believe there is much trust left on the table and hard to see any circuit breaker in the near-term. matt: thanks for joining us, our chief asia equity correspondent talking about the u.s.-china trade war. let's get more with wes goodman out of singapore.
how do you see china's yuan fixing affecting markets? good morning. the message was one of moderation. don't forget yesterday the pboc governor said china did not toold to use the yuan is a in trade talks and the selloff in the yuan came to a halt. yesterday, falling yuan sparked this huge flight to quality. there was a bit of a reversal today, that allowed s&p 500 futures to rise, it allowed asia andks to trim gains treasuries fell by the end of my day in asia. ae message of moderation and bit of a turnaround in the markets. if i could point to one thing that has not turned around, it is bets on the fed cutting interest rates. -- has led is
investors to increase bets for the fed to cut interest rates. they are forecasting four rate cuts over the course of the next year. that would be on top of the one we got in july. probably some long-lasting effects being seen there. anna: this is reshaping people thinking -- people's thinking around the fed. the developments at the start of this. chinas happening in starting to sell its treasury holding? another tool that maybe the chinese have. we talked about this many times and many guests have pointed out the reasons china would want to do that. wes: right. since the trade war has flared up, the idea has come that china may trim its holdings of treasuries. it is the biggest overseas holder with more than $1 trillion of treasuries. one of the reasons it would not would be that it's got so many,
it will have trouble moving the money around. here is one thing to think about . here's the way i have been looking at it. a bit counterintuitive. ,f they were to sell that much increased concerns over safety and uncertainty may want to make people cut risk and get into treasuries. that may end up boosting the treasury market. and a similar thing happened in 2011 when standard & poor's cut the u.s. credit rating. you would think that would make people sell treasuries. the opposite happened. it sparked this overall flight to quality and ended up helping the treasury market. thanks very much, wes goodman, mliv strategist joining us with the latest on the market . follow the latest on the markets live blog, mliv is the function to use on your
bloomberg. let's get a first news update. making chiefs are [indiscernible] janet yellen, ben bernanke, alan greenspan, and paul volcker commented on trump's attack on the central bank. they said the chair must be able to act independently and free from the threat of removal or demotion area and -- demotion. opposition labor party leader jeremy corbyn is signaling he will call a vote of no confidence when parliament returns next month. says a growing number of conservatives are turning against a hard china has reiterated its support for carrie lam as the financial hub cleaned up from a general strike before a day of traffic chaos and more violence. china will not tolerate violent protests, the china daily said. their priority is to punish criminals and restore order. the luckiest 500 people on
earth, u.s. stocks plunged amid escalating trade tensions. 21 members of the bloomberg billionaires index each lost $1 billion or more. jeff bezos dropped the most shedding two $.4 billion. he is still worth $110 billion. 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. anna and matt. much, innks very london with your first word news. delivering the goods. deutsche post list the lower end of its profit forecast despite slowing growth. we will talk to the cfo next. bloomberg radio is live on your mobile device or on dab digital radio if you are in the london area. to an end. this is bloomberg. ♪
anna: welcome back to the european open. 7:45 a.m. in london. leave pictures coming in from beijing. we're looking at these live pictures of the hong kong macau affairs office. some of the most recent headlines saying the central government support for carrie lam is firm and steadfast. china says there will be no tolerance for violations of the law. interesting to see the president
taking place once again. with this office that had been until recently pretty tightlipped with the media area china also saying don't underestimate the immense strength of central government. central government support is steadfast as they say and reiterates support for that government there. china warns criminals that they should not miss judge the situation. the situation. let's get a bloomberg business flash. unitedting positions in technologies and agp -- adp. we have learned the investor decided to sell his stake rather than fight its takeover of raytheon. here -- he had vowed to oppose the deal in june. saying it lacked strategic cents. the private equity firm has agreed to provide 1.8 billion of debt financing to support new
media investments. the deal would bring usa today and over 200 other publications under the same roof. we have learned the loan is one of the biggest ever arranged outside of wall street. that is your bloomberg business flash. much, in london with your business flash. deutsche post is lifting the lower end of its profit forecast seeing earnings before interest and taxes between 4.3 billion euros and four billion euros despite slowing growth in tariffs between the u.s. and china. joining us is the cfo, melanie christ. theme ask you how much trade war is affecting your business. certainly did not stop you from tightening your expected profit range to the upside. melanie: good morning. obviously, we are not immune to what is happening around us.
the good thing is we have a very broad and diversified portfolio. the -- they feel the impact more strongly than others. we have seen a volume decline in the second quarter. chainve the supply business and that is relatively resilient. i think overall, the -- we are not immune to what is happening on the macro and trade war side. but we feel comfortable given the resilience of our portfolio and given that we are focused on -- we callll our ourselves health agenda. measures andolled i think those are the key drivers for the encouraging developments on the second ebiter, 6.6% organic increased. anna: the guidance you are
giving today more positive as matt said. is that positivity restricted to letterman market, higher prices, increased volumes of parcels in germany? that is where you are seeing the positive story in this. melanie: that was an area where at the beginning of the year when we gave our guidance, we had a lot of uncertainty. we did not know what to expect with regard to the letter prices and that is why we gave a broad guidance range between 1.0 and 1.3. now that we have a final decision on later pricing and those prices have come into effect july 1, we were able to uplift the lower end of our for post-and parcel germany and upheld our guidance for the divisions between 3.4 and 2.5 billion for 2019. matt: it looks like germans are the european champions in terms of returning unwanted goods that they ordered online. germans are sending back more
deutsche post than any other nationality. is that helpful to your business because of the increased traffic or is it difficult because there is so much volume? i think at the moment, in terms of volumes, we are benefiting from this trend because we do carry lots of the return shipment. that is something we as an industry have to work together on finding more solutions and and involves our customers optimizing the returns process. see in youro you large express business in asia? you talked about the diverse nature of europe was as your business cushioning you from global trade but some fear because of your exposure you could be hurt. was encouraging in terms of volume growth in the second quarter. a very slow start into the year
particularly in january and february. expressleration in volume grows toward the end of march. that has continued in the second quarter. we had a 6.6% increase in shipments per day and our express division. what we see here are the benefits of the structural e-commerce growth trend. we have relatively subdued volume grows, there is still growth but at a relatively low rate. what is driving the growth in the express division at the moment is the structural growth segment.b to c matt: thank you for joining us, ceo of the deutsche post after the company raised the lower end of its earnings forecast. we are minutes away from the trading forecast. we take a look at stocks to watch including vivendi. the company is in early talks with tencent about selling a 10%
what is the story? >> as high as 10%, some calls are saying. they are in preliminary talks to sell 10% stake in europe herself -- in universal music group. that values the world's biggest music business at 30 billion euros. they wanted to sell half. potentially, we could see more of these kind of deals coming up after they secure this 10% to 10% -- this 10% to tencent. brandbmw owns rolls-royce but the engines have been in the news, what is the story with that company? >> the focus has been their trent 1000 engines, some technical faults forced -- forced them to make some repairs. we have the costs associated with that. rolls-royce sees 100 million pounds stacking up over three years for that engine. they were able to confirm their full-year guidance saying that restructuring is on track so shares called higher. anna: thanks for joining us.
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anna: one minute to go until the open of cash equities trading. good morning, everyone. welcome to "bloomberg markets: european open." the asian equity session was under pressure, down by 0.9% in the msci asia pacific. we saw an uptick during the session because of the chinese currency. the chinese yuan a little bit stronger than expected. a little bit of a move in a pro risk direction. that has turned equities around of the, forced some money to -- around, the yen forced some money to come out of the end. the effects of the big selloffs
-- out of the yen. the effects of the big selloffs and the u.s. administration labeling china a currency manipulator. this is the picture for the equity markets. we are expecting to see a fairly mixed picture at the start of trade. we could see underperformance on the london market. we see some movement in the pound. let's get to the open of the markets. the gmm function showing us where we are seeing movement coming through. the ftse 100 is open and down, but not by much, down by about 0.1%. around a quarter of a percent weaker on the ftse 100. we see a little bit of strength 1% ore pound, just up 0. so. that is enough to make the ftse stand aside from the other markets in asia, where we were expecting to see something a little more resilient. the dutch market down, spanish
ibex fairly flat. -- the futures willsted the cac and dax open a little more positive. jgb's money going into and yields going down on jgb's. we will see how the boj response to that. that is the big move as we saw as a result of the yuan fixing, being more sort pro risk then we were expecting. let's have a look from the sector perspective. all of the sectors were negative. today much more nuanced, much more mixed. staples very much an area of red. energy stocks look red. telecoms are on intermixed back. not much evidence coming to the fore on the sector picture. matt: we see a pretty even split. there are more losers than winners. 350 stocks are down, 200 and 24
stocks -- 224 stocks are up. in terms of the companies helping to boost the stoxx 600 or helping to pull it back from further losses, you have adidas lockheed all air adding points, as well as sap. on the losing side of the ledger you have a novartis, royal dutch shell, bp. you have the pharma and oil companies really weighing on the stoxx 600 index. in general, or altogether, we see it down about 0.5 points right now. china's central bank set the yuan fixing stronger-than-expected, calming the nerves of investors after the u.s. label beijing a currency manipulator. joining us now is frederique carrier, head of investment strategy at rbc wealth management. rightuld you see markets
now, considering the activity we have seen over the last week? the u.s.-china talks ending suddenly, then trump putting on more tariffs, then the chinese saying they will not buy as many farm goods, and now the currency issue. frederique: we think the markets will be nervous for a while still. escalation in the trade war, escalation in rhetoric at a time where valuations, particularly in the u.s., are stretched, where positioning is stretched, where the earnings season has been muted. really the best way to quantify it in the u.s. in particular. all of this conspires to make markets a little edgy, at a time in august were traditionally volumes are quite thin. we can continue to see volatility in the short-term. anna: good morning to you. i am torn between asking about the relevance of calling a manipulator,
whether china is one, whether they can find common ground on that. i am torn between focusing on that were focusing on what this labeling means for a global trade you. for many months now -- trade deal. for many months now, markets have been hanging out for any detail of any trade truce between the u.s. and china. the u.s. labeling china this late does not bode well -- this way does not bode well for a trade you, does it -- trade deal, does it? frederique: it does not. we will go through daimler tensions work -- go through a time where tensions will flare up. clearly the president will probably try to do whatever he can to protect the economy. anna: they don't see the possibility of a deal before the election now. that seems to be able to
statement. frederique: escalation intertwined with more relaxed speaking, talking like we have over the summer. matt: i want to break in here and give you some news on vivendi. the company selling a stake in its universal music group. as we have been talking about earlier, and as a result it adds 3 billion euros to its market cap. i will pull up a chart of the stock over the last few weeks. here,ou see the big spike at one pointng 9%, as much as 9% after saying it will sell a stake in its universal music group. will we see more m&a? valuations are height. it seems like -- high. it seems like we have seen a lot more deals in recent days. what is this down to? frederique: valuations are ,eight, however -- high
however, financial costs are low. a time in the cycle where we can see a pickup in m&a activity. anna: is that part of your strategy? are you investing around that scene at this point? do you think the global trade tensions will derail that scene? frederique: we will look more at fundamentals. earnings growth, what are companies producing? we have a list of potential takeover targets, but to put all of your money on that would be a little bit risky in our view. matt: we will keep you with us. there is a lot to talk about in markets. head of investment strategy at rbc wealth management, frederique carrier, is going to stay with us. we will bring you more stocks on the move this morning, including metro. a takeover billionaire bid has hit road bumps.
let's get our top stock stores. >> i want to start with vivendi. as we learn there are preliminary talks to sell 10% of a stake in universal music group to china's tencent. this deal was valued at universal music at 30 billion euros. deutsche post higher this morning after earnings up nearly 2.5%. it lifted the lower end of its earnings target range for 2019. one thing you can think this for is the german operation -- thank this for is the german operation. metro ag to the downside, down more than 6% this morning. czech billionaires takeover bid is on the brink of failing as he is in talks with key shareholders and they are at the moment withholding their backing. anna: 4 former fed chief's have made a joint plea for u.s. central bankers to be able to operate without political pressure or the threat of being
fired. janet yellen, ben bernanke, alan greenspan, and paul volcker wrote in the washington journal that the fed must act independently and in the best interest of the economy. ofderique carrier, head investment strategy at rbc wealth management is still with us. president trump does not really need to attack powell and demand interest rate cuts if he just plows on with the trade tensions. that seems to be resulting in lower interest rates already -- anyway. thatrique: that is pushing putting some pressure directly -- that is putting some pressure directly. .75% of interest decline between now and -- between last week and the end of the year. matt: so do you expect the fed acknowledge that they are worried about global growth
or continue to acknowledge they are worried about global growth and not still just focused on employment and price increases? frederique: so the slowdown in global growth has been acknowledged. we have increases in tensions between china and the u.s.. there is -- the markets see jerome powell as being hawkish. nine press at his conferences he has had, in seven out of nine of them, on the following days the s&p was down. the risk is that he might find himself behind the curve with his escalation in trade tensions and the way he is been perceived. anna: if we look at the fed in conjunction with other central banks, the amount of easing now markets,- priced into one of my colleagues did an analysis of a host of central banks and the extensive using that is now priced into markets. 400 basis points if you add all of those together.
the fact we are still seeing markets selloff, does that mean from an equity market investor's perspective, this is not enough to pause right now? from an equity market perspective, do you want to see more rate cuts from global central banks? frederique: there is a lot of etaryssion whether mon policy is still effective. and whether it should go from monetary policy to fiscal policy. there is a limit to the effectiveness of monetary policy in an environment where business confidence is being attacked because of disruption in trade. matt: we have seen i think total debt globally is almost back at the highest level it has ever been, around $246 trillion, which represents over 300% quote -- debt to global gdp. is that a concern for you as an investor? frederique: debt levels are
probably sustainable at current levels so long as interest rates remain muted. we would like to see an environment where that is lower than it has been in the past for sure. anna: we started our conversation this morning talking about china being labeled a currency manipulator. -- the pboc says china does not manipulate its currency, says it does not manipulate the yuan, denying u.s. accusations. what is your framework for assessing whether china is a currency manipulator? the fact that they said a rate for the currency, the fact that there are reference rates for the yuan, is that all you need to know about whether china manipulates its currency or does it get more complicated? frederique: this is an issue we will not have much -- on. look at the earnings season in the u.s., which is muted, where companies are telling us that 50% of companies -- 50% of companies that have reported are telling us the trade dispute is impacting their businesses.
certain companies are telling us they have to resort to cost-cutting to meet eps growth expectations. this uncertainty in the stage, we are focusing on china, but you also have tensions in iran, the 2020 election, brexit, all of these tensions mean that the environment will be very tricky in the short-term. anna: president trump has said china many plates. he has talked about other central banks -- china manipulates. he has talked about other central banks do so as well. frederique: i think china is just letting market forces go at the moment. anna: at the moment, ok. matt: i just wanted to quickly , the marketr implied policy rates'global view. i have turkey as the only bright red spot. they are all dark red. if you look out two years, you
start to see expected gains in china and brazil, the same is true with three years, including south africa. so in general, it looks like we are expecting, pretty much everybody, except for the brits, to continue to cut rates lower for longer. is that your view as well? frederique: yes. i think there are about 20 central banks which have mentioned between now and the end of 2020 they are looking to have a more dovish positioning. we see this help from monetary --icy as helping to expand extend, underpin the current business cycle. anna: thank you very much. frederique carrier, head of investment strategy wealth manager -- at rbc wealth management, stays with us. jeremy corbyn signals he will bring a vote in the prime minister -- or on the prime minister when parliament returns next month.
currency. the pound strengthening, up by 0.25%. that has an impact on the ftse because the translation of those earnings from dollars into pounds. we see slightly more positive performance coming over on the check carrows. part of the reason behind the bounce in the pound, jeremy corbyn hardening plans to block a no deal brexit. if that happens and johnson loses, he has until september 18 to show he can command a majority in the house of commons. is bloomberg's u.k. political reporter to help us delve into these dates and what they mean. good morning to you. i have one thing to say as we talk about the 18th and 19th of september and the relevance of whether an election is called by than. there is a different view that
number 10 has a different view, that it's already too late. what do we know about what has to happen if or when parliament deal. a no >> if there is a confidence vote, at has to be the first few days when parliament returns. after that, we are slightly in uncharted territory. the 14 day window applies to johnson to try to perform -- form a new government. it also allows tory rebels, labour party to try and form a coalition that would prove they have a majority as well. therefore, it will be a very horsetradingd of and can people coalesce around a single decision? anna: a conservative rebel lawmaker talking about how the alternative would be for various opposition parties and tory
rebels to come together to form on alternative government, a sort of national unity government. whether they can all pull their interests sufficiently to do that is a big ask. >> i think the key question is how many tory rebels would take that step? there is a difference between being against a no deal brexit and voting against their own parties government -- party's government. that is the key question that we are trying to figure out, the number of how many tory rebels there will be. can these disparate groups, they are against no deal brexit, some of them are against brexit completely. how does that coalesce? it will be very tricky. anna: thank you very much. sorry, carry on, matt. matt: i had a quick question, because i heard from roger on bloomberg radio that it is possible there could be a no-confidence vote.
boris could lose that, and yet maintain his position as prime minister. is that all constitutional possibility? a lot of things are a possibility at this stage, in the sense that it is very much untested. what downing street has indicated, not publicly but through briefings, is that boris johnson could at the point of losing a no-confidence vote refused to step down. therefore, that would bring the monarch, queen elizabeth the second into this into how to resolve the impasse. most political parties and politicians operate on the basis that that was the last thing that they would ever want to see. we are in different times, i would say. matt: well, at least you have got someone there by divine right to take care of you if you needed. talking about the
possibility of brexit. frederique carrier still with us. how seriously is this affecting earnings? how do you see this affecting bottom lines at u.k. companies? frederique: results have been very muted in the u.k., but we are seeing the economy start to feel the bite of this brexit uncertainty. if you look at the pmi's, manufacturing pmi's, construction pmi's are very weak. services slightly more resilient, but they are also starting to suffer. i think what is clear from much analysis is that this visibility in terms of how brexit will unfold has not improved at all with this change of government. we see 60% probability of a delay through most likely a general election over the next month. anna: you talk about the percentages and this is interesting. the international investment community, what percentages everybody attaches to no deal.
you think 30% chance of no deal, a higher possibility of delayed? what is the thinking there -- delay? what is the thinking there? frederique: very thin majority in parliament, the difficulty of having so little time to prepare. all of these things are really playing against the government. the most likely scenario for us is some kind of delay. matt: where do you expect the pound to be on at tober 31st -- on october 31? frederique: it depends on what the brexit scenario is then. we could revisit the loss from the post referendum -- lowe's from the post referent -- lows from the post referendum. anna: thank you very much. erdogan -- and like frederique carrier -- frederique carrier stays with us. the ftse 100 really underperforming, partly because
of what we are seeing in the pound. by 0.und up bite 0.2 5 -- 25%. we see some of the drug stocks and oil majors ever bit weaker on the london market -- majors a little bit weaker on the london market. acrosse are seeing gains the continent. , because in on europe that is where we have obviously the open trading, you can see that the dax, the cac, the ftse mib are all getting. the ftse -- gaining. the ftse down about 0.3%, as is the ibex. a mixed trading your. up next -- trade in europe. up next, earnings season in full swing. how are europe's biggest companies being hit by the latest trade developments? we will discuss with frederique carrier. this is bloomberg. ♪
♪ matt: 30 minutes into the trading day. here are your top headlines. manipulation or mitigation? at aboc pegs the yuan stronger level than expected and says it will not use its currency as a weapon in the trade war. stocks shaken. asians intervention helps -- pair losses -- pare losses. yields become new lows as the three year tenure curve flashes recession -- 10 year curve flashes recession once again in the u.s.. good morning and welcome to "bloomberg markets: european open."
i am matt miller in berlin alongside anna edwards at our european headquarters in london. anna: 30 minutes into the trading day. let's have a look at the stoxx 600. we are pretty evenly balanced in terms of the number of stocks going up and down. 330 stocks going down at this stage of the trading day on the overall change in the stoxx 600 not very much, just down a tiny fraction. u.s. futures looking more positive. a flow control equipment company based in the u.k. is up 8%. vivendi at by nearly 6% as they are in talks with tencent for a stake in the music business. deutsche post up by 4%. we spoke to the cfo earlier. it is the domestic german story that allows them to be more positive on revenue guidance this morning. let's have a look at the number of stocks on the downside. metro is the biggest father, down by-- faller,
5.6%. takeover talk around this business. that is part of the conversation. intercontinental hotels down by 1.7%. they have been talking about how little exposure they have to the hong kong market. that is one of the news lines coming out from the earnings call. let's get a bloomberg first word news update. >> china has denied it manipulates its currency and is taking steps to slow the yuan's dissent. the pb -- descent. all is bigger the fl than expected. president trump says it china dropping the value of its currency is a major violation. the notes have since erased some of their gains. recession signals are flashing.
president trump has delivered his most thoughtful condemnation of racism and white supremacy following the mass shootings over the weekend that killed over 30 people. the president did not call for no restrictions on gun ownership. instead, he blames the attacks on mental illness and colorful depictions of violence. president trump: we must recognize that the internet has provided a dangerous avenue to radicalize disturbed mind and perform demented acts. we must shine light on the dark recesses of the internet and stop mass murders before they start. prime minister boris johnson's independence are hardening plans to stop a no deal prides it -- no deal brexit. jeremy corbyn saying he will call a vote of no-confidence next month. a growing number of conservatives are turning against a hard brexit.
the wealthiest 500 people on earth lost more than 2% of their collective network yesterday as u.s. stocks plunged the most this year on splitting trade tensions. 21 members of the bloomberg billionaires index lost a billion more. jeff bezos shed $3.4 billion, but he is still worth around $110 billion. global news 24 hours a day, on-air and on tic-toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. matt: thanks very much. olivia with your first word news out of london. earnings season is in full swing. we will discuss the impacts of the trade war and negative rates on europe's largest companies. let me show you, first off, mike e.a. screen -- my e.a. screen. this is the bloomberg earnings analysis screen. only 318 companies have reported so far on the stoxx 600. we are not looking at any earnings growth, only a drop of
1.7% compared to the same quarter last year. sales up 2%. is this due to pressure on margins, would you say, from the trade war? frederique: so earnings have been subdued in europe for a number of quarters. 1%,ave had this growth of 2%. certainly, the sectors which are cyclicals,ed are defensive are posting relatively good numbers. this headline number of 1.7, or under 2% masks this huge discrepancy between cyclicals and defensive's. certainly in terms of cyclicals, industrials companies, materials companies telling us the trade situation is hurting. anna: let me ask you about he -- about how you work out what it is that is bothering corporate -- during these earnings
seasons. we have the ta function on the bloomberg, the text analysis. similar, may be not the function -- maybe not the function, but you have done it a similar research about what it is that bothers executives. what do you include? frederique: our capital markets team has listened to the conference calls of other companies from the s&p 500 which have reported. there analysis shows that about 70% of companies which have reported report that the underlying backdrop in demand is positive. companies which have not isorted, half of them say it
improving. it is quite positive. it is before the recent escalation in trade sanctions. we heard about 50% of companies point that the trade dispute is impacting their earnings. 30 percent of companies talk about cost-cutting measures in order to offset weight inflation, which is the number one concern. when you think of the earnings that are being delivered in the u.s., less than 2% growth this quarter, keep in mind that one third of companies are achieving that by cutting costs. while we would be encouraged by the positive comments on the demand side, the fact that cost-cutting has to be resorted to in order to produce that growth is a little bit concerning. matt: we are looking at a fed that is cutting rates, the ecb expected to go more negative. how do each of these affect earnings at their respective companies? frederique: can you repeat the question. matt: the fed is cutting rates. the ecb is on the verge of doing so. however, the ecb is just going more negative. does that hurt earnings for european companies while fed
rate cuts help earnings at u.s. companies? frederique: it would make life difficult for the financial sector. this is where we see a big discrepancy between europe and the u.s., where financials in europe are really struggling with this negative environment. . however, financials in the u.s. avenue reported -- have reported a relatively good earnings season, showing growth is vibrant and confirming that for the second quarter the earnings, the economic growth was still relatively supportive. anna: thank you very much for your time this morning. frederique carrier, head of investment strategy at rbc wealth management. she will be continuing her conversation with us on bloomberg radio at 9:00 a.m. u.k. time. we will be heading to radio after this show. we will bring you some of the stock movers this morning, including serious minerals. they have been halted after
up by 0.1% thanks of course to what we see on the cac. london market down by 0.2% as we see a bit of strength in the pound. german factory orders rebounded more than expected in june after on onslaught of bad news coming out of europe. the single markets largest economy is not in the clear yet. factory orders are volatile and unlikely to be a turning point in germany's manufacturing slump. dani: these export led economies like germany feel the heat the most from the trade tensions from the u.s. -- tensions, from the u.s.-iran relations, and brexit. we hear a lot of executives concerned on their various earnings calls this quarter. the first we heard to sound the alarm was bsaf. they slashed the outlook for the year. they said there is a high uncertainty and very low visibility in the markets. there is issues with the demands from everything from crops to cars.
that is for a large reason why we heard siemens guide to the lower end for the profit margins also saying they have a very environment.arket pressuresaid cyclical continue to persist. every time there is a trade headlines, we see the chipmakers lead the way down. weaknessaying i see across the euro zone, even though they upgraded their 2019 guidance. still, those pressures definitely persist. when we look at some of these gauges around the globe, i want to put germany in context. german manufacturing very important for the global economy, as is u.s. consumer sentiment. when we look at the spread it is at thewo, lowest until we travel back to the late 1990's. in the late 1990's, that's when
the fed had one of their first insurance cuts. this certainly a grim picture. will that be what we finally get? will we -- we will get a confirmation of that next week with german figures. matt: dani burger looking at the slowdown. joining us in berlin is marcel fratzscher, head of the diw institute for economic research. very interesting what dani showed us. he is notz saying willing to boost spending to spur economic growth or to fix infrastructure, boost social services, or on the military -- arm the military. what does that mean to you? marcel: the german government still has not understood that we are in a cyclical downturn. the german economy domestically is actually quite sound if we look at the labor markets.
germany is very dependent on exports. more importantly, the german government is not using its fiscal space. it has all the means. 1.2% of gdp fiscal surplus this year. it does not understand now is the right time to have a fiscal impulse to have a soft landing. germany's economy is highly dependent on exports. matt: aren't they at least boosting borrowing? because you have a moment in history the likes of which we have never seen before. the german government can borrow, is paid to borrow all the way out to 30 years they can issue 100 year bonds for basically nothing. should they be doing that? marcel: they should be doing it. there is a need for substantial infrastructure spending. what really comes in the way is the german debt rate.
it is very hard to break. t rate basically says the german government has to have a structural surplus of more than no -- no more than 0.35%. this essentially means the german government has to run this surplus currently. to trigger additional public investment would mean breaking rate.bt that shows the nonsense of these kinds of fiscal rules. in bad times, they don't give the government enough room to counteract. that is the important point to understand. matt: their hands are almost legally tied. anna: good morning to you. very interesting to think about what they can do, what the government can do from a cyclical fiscal standpoint. i wonder if you think we are seeing something more structurally challenging to germany here. are we seeing a paradigm shift away from an era where global growth was very much driven by
the growth of global trade? are we seeing a threat to that model, which germany has done so well out of? if so, do we need to rethink the way the german economy is structured? marcel: you are absolutely right. germany's economic model is an expert led model. if the trade conflicts persist many more years, this will hit germany very hard. it very much depends on whether these trade conflicts, the currency conflicts are a global issue or not. the german economy structurally is very sound. you have record employment, fairly good profit margins for the companies, so they are competitive globally. the government with a lot of room to maneuver. domestically, structurally the german economy is sound. the answer to your question it depends on how the global trade conflict will persist. is it something that can be solved over the next few years? matt: how strong is the german
governing coalition? it was interesting that olaf scholz, a social democrat, was so closely towing the line with angela merkel. those parties don't seem to be getting along so well otherwise. marcel: the coalition is weak. it cannot really act strongly on policy because it is very down and -- down in the polls. at the same time, it is thertant to understand that -- what's really on the mind of the government is to increase social spending. we have seen an increase in spending, but really on social issues. not to cut taxes for companies or increase public investment -- now to cut taxes for companies or increase public investment is not that popular. we need to serve our voters but
increasing -- by increasing social spending. there will be a tax cut for the upper-middle-class starting next year. serveare policies that particular voter groups but are not necessarily helping the economy recover. anna: what should be at the top of the government's economic reform agenda? germany did a lot in the wake of reunification. do we need to see another renewed push around economic reform? marcel: i think we need to see 2 fundamental reforms in germany. one is a long-term public investment program over 50 years. germany has a structural weakness in public investment and has had negative public investments, so higher depreciation the new investment for the past 50 years. having the long-term prospect would trigger more private investment and increase the potential of the german economy. the second is, germany needs a fundamental transformation in its economy. you mentioned some of these issues. germany is very strong in
manufacturing but not very strong in digital services and information communication technology, all of those sectors that really have the future. making that transformation, you f, allned the saf -- bas of those companies will probably not be the growth engine for germany's to come. -- for germany to come. matt: very interesting stuff. great to have you in today. marcel fratzscher is the head of the diw institute for economic research and berlin -- in berlin. renaud,t to start with up more than -- i want to start with renault, up more than 2%. a fiat-chrysler-renault merger is still possible.
rotork one of the biggest gainers on the stoxx 600. these results came in ahead of expectations, meaning they might lift consensus upgrades. sirius minerals absolutely plunging this morning, look at that, down 26%. they had to halt the stock. they were supposed to have a plan to selling a bonds today and suspended that due to market conditions. this is a fertilizer company planning to build a potash mine in northern england. anna: thanks very much. up next, battle of the charts. bloomberg terminal users can see all of the charts we use during the program. gtv go is the function to use on your bloomberg. you can save these charts and put them in your own research reports. this is bloomberg. ♪
manipulator and china is fighting back on that. we see a little bit of a mixed market session right now. it is time for battle of the charts. anna will go head-to-head with the dani burger. anna: i picked a chart that shows gilt yields coming lower, bund yields coming lower. the first thing that strikes you is the lack of difference between the two despite the different challenges the two economies face, though they both face challenges. they are part of a global trend. how far into the future is the gilt market looking? columbia thread needle thanks recession risk is underpriced. they say the two year yields could go to zero. we spoke to david owen. he said gilts should be worrying more about what happens if we get this big fiscal impulse from this government or a jeremy corbyn led government in the future. matt: very interesting stuff indeed. dani, what have you got? dani: i am sticking with the
lower end yield and looking at the mood index, the options based guide on how volatile traders think markets will get. i meant to -- mentioned this in percentage points. you cannot look at volatility indexes in percent because it is a percent. yesterday we saw it jump by 11 percentage points as the turmoil hit markets, the biggest jump for the index since early 2016 when japan first adopted negative rates. global stocks had just entered a bear market. that tells you just how grim the picture was yesterday, met. matt: i have to -- matt. matt: i have to say, i will give it to you because that is more of a global chart. you can really feel the global market angst with that type of volatility. dani burger, you win this battle of the charts. anna? anna: indeed a worthy winner. let's see where we are at the --
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the trade war rages on. higher whilego asian stocks take a breather. don't underestimate beijing. that is china's word to hong kong protesters as it doubles down. welcome to "bloomberg surveillance," i'm francine lacqua in london. these are your markets. a lot has happened in the last 18 hours. the u.s. called