tv Bloomberg Markets European Open Bloomberg August 21, 2019 2:30am-4:00am EDT
passes the italy's president to decide whether new elections need to be called. donald trump says he has been looking for a possible tax cut for a long time as he kicks back against the threat of a u.s. recession. think the word "recession" is a word that is an appropriate, because it is just a word that certain people -- i'm going to be kind -- certain people and the media are trying to build up, because they would love to see a recession. we are far from a recession. matt: boris johnson comes to berlin to meet angela merkel. germany prepares a 30 year bond sale with a 30% coupon. i will speak later with the german economy minister this afternoon. i will ride my motorcycle to leipzig and try to get a question in. we are less than a half-hour away from the european open.
u.s. treasury yields bouncing back up. this is a three-day chart into yesterday's trade. hit a low of 1.54%, and are now backup at 1.58%. the worry seems to slip away to some extent. you also see futures rallying across the board in europe. we see gains in german futures. we see gains in -- i set across the board, so german futures are up to tens of 1%. -- two tens of 1%. -- 2/10 of 1%. let's get with our strategist in singapore. let me ask you why it seems we are shifting to a risk-on feeling today. is it just that we were oversold? mark: yes, you are probably right. this is what traders would
describe as an inside day. we are seeing modest position adjustments going on in treasuries, in the yen, in equity markets. what we are seeing is not really a message of great conviction in any direction today. volumes are relatively light and people are just playing around with a few things before we get big events like jackson hole and g7 later in the week. it does not give us a clear signal as to what to expect in the weeks ahead. people are just making adjustments. of course, we have the excitement of a 30 year 30-year bund -- auction. maybe people are looking for that as well. matt: what do you think about jackson hole? i have heard some investors say they will not make moves until they hear what jay powell has to say. mark: that is a fair thing to say.
every time powell speaks, it is significant. a bit of a double whammy because we have fomc minutes coming before he speaks. it is a combination of the two. when we look at what recent fed speakers have been saying, they have all been saying the same thing, that they don't see any grave crisis on the horizon, except that the fed made the right decision to do an insurance cut. but they do not see a panicky need to do deep cuts in the near future. powell will probably give a similar message and the fomc minutes will say something along those lines as well. we are not going to get a dramatic event when powell just speak at jackson hole. for some people, that could be disappointing. you look at the rates curve in the united states, they are looking for a lot of rate cuts over the next year, and he may dampen the enthusiasm a bit for that. it is possible that by the time
people have had the chance to digest this, things won't look so exciting. but there is a lot to play out between now and then. in the meantime, we are bound to have a few tweaks from donald trump as well. there is a lot to digest in the next few days. matt: in the next few hours, there is a lot for bond buyers to digest. there are many is going to be the world's first to sell 30 year debt at 0%, the first sovereign to do that since the iron bank. what do you expect? and a lot of times when we have seen negative yields in the cash trade, these auctions don't go swimmingly. we are hearing from the gray market is that we expect the yield to come out negative, maybe as much as 15 basis points below zero. there are some obvious people who would probably have done much choice by this thing, people like the ecb and probably the swiss national bank.
they are the kind of people who almost forced the buyer bond like this. naturalerms of buyers, there are probably not many. the sale might go off, and it could be reasonably successful. i suspect it will have trouble holding negative yields for too long. people might think it is a step too far, the world gone crazy, being able to issue 30 year yields in a negative environment . initially it may look ok, but i couple days later, people may say it is too much. people going to be spreading this 30 year bond against the swat curve and possibly even spreading it against other markets as well. there will be a lot of interaction between other rate instruments happening as well. for it to end up in negative territory for an extended
period, the world would have to look ready bad. is risk of the environment probably not that serious at the moment to justify 30 year yields in negative territory. matt: let me ask you about the loan prime rate in china. we may not have talked enough about what the pboc and the party are doing there. your question of the day is what assets will benefit the most. what are you hearing? mark: matt: it is a fixed income world in china. the bond market is unrepresented, so it is probably a good idea to get more people in chinese bonds. matt: mark, thank you for joining us. a bloombergld is strategist out of singapore. let's go to the first world news with annabelle drillers in hong kong. volcker to point out is here, and it is looking more like 8 --
0 is here, and it looks more like a tweak than an overhaul. the eu poured cold water on prime minister boris johnson's attempts to renegotiate the brexit deal. it says the so-called backstop to prevent a hard border on the island of island is a vital part of the agreement. it would mean we would just have two months until britain crashes out of the bloc with or without a deal. the two sides are deadlocked. china has named a employee of the u.k. concert in hong kong during its trip to the mainland, according to his girlfriend who says he has been missing since august 8. hong kong police have launched a missing persons investigation and are keeping close contact with chinese authorities. the u.k. may delay naming the next bank of england governor until after brexit.
we have learned the chancellor may also postpone the budget until 2020, even if the government forces it to a general election next month. governor mark carney steps down at the end of january. he has twice extended his tenure. and president trump is canceling his meeting with denmark's leader because she does not want to talk about selling greenland. he said that copenhagen has saved a lot of effort by "being so direct." trump described it as a large real estate deal. denmark's prime minister has ruled out the sale, saying she hopes he is not serious. global news 24 hours a day, powered by journalists and analysts in more than 120 countries. this is bloomberg. matt: annabelle, thanks. coming up on bloomberg, i will be speaking to the german economy minister peter all meyer
, or at least i am going to try to. he is talking at an aircraft conference in leipzig. i will ride down there and lobby and a couple of questions as germany prepares for the possibility of a stimulus package in a slowing economy. don't miss that, around 3:00 p.m. london time. remember, when you are driving into the work at -- into work in the morning, bloomberg is available on your radio device if you are in the london area. this is bloomberg. ♪
matt: welcome back to bloomberg markets. we are 17 minutes away from the cash trade, looking at gains across european equity index futures. of 1%.e, but about 2/10 let's get to the story of italy, a dramatic saga. the government is in the midst of another political crisis after the resignation of the prime minister. he blames his deputy for the government's fall, saying matteo sell feeney's demand for an election was irresponsible. consultations will begin with party leaders later to find a way forward. maybe they can put together a coalition, maybe a new vote.
for more, let's go to ferdinando. he joins us out of milan. you have a great piece on opi opin. our europeanshape politics in right now? because a bit confused, this was going to be a straightforward government crisis in the leader of -- in the mind of sell feeney, a leader who is very popular at the moment in the country. had fantastic success in the european elections and decided to pull the plug on the government. but things are not going according to his plans. and the opposition democratic party, the centerleft, are now thinking of forming another alliance. that is totally fine, according
to italy's constitution which says parliament is sovereign. if these two parties defy the movement, the democrats will form a new government and matteo would beey -- salvini regulated to opposition. matt: what are the implications for the economy. we are focused on the budget. that is what brussels is focused on. what happens in terms of the huge debt? budget is the real issue here. salvini waited for a bit too long. vat could increase automatically because of past decisions by a previous government. politicians are trying to avoid that, which means that there needs to be a government in place quite quickly. this means that italy would have
theind other ways to fund consolation of this vat closes. juncture ford italy, in a way, because we know the european central bank has promised more stimulus in september. yields are higher in italy than in spain or portugal, but they are very low by recent standards. i think there is an immediate issue of debt sustainability at the moment, but there is clearly an issue with the economy. the economy is stagnating. it is linked to the german economy, which is in trouble, and italy does not really have the space to stimulate the economy that germany might be doing in the coming months. but we are looking at is yet another period of stagnation. this stagnation has been going on for over a decade. i do not think there is an immediate issue for debt
sustainability, but the economy will not get growing anytime soon. matt: thanks for joining us. ferdinando juliano, bloomberg opinion editor in milan. you can check out his work by pin on the terminal. let go to annabelle droulers in hong kong. annabelle: thanks, matt. the eu is already probing facebook's libra cryptocurrency project, according to a document seen by bloomberg. the antitrust probe is looking at concerns that the payment system could shut out rivals. facebook and the european commission both declined to comment. a breakdown in communications. that's what a review of boeings is expected to cite, alleging designers did not
understand key elements of the plane. it is said the approval with a key safety board highlights the need for improvement. -man's place in the marvel universe looks to be facing a bigger threat than thanos. the dispute between sony and disney is threatening to end coproduction of the superheroe'' films. sony wants to keep the current arrangement where disney gets 5% in box office revenue. that's your bloomberg business flash. matt: annabelle droulers there in hong kong with your business flash. putting money into assets guaranteed to return less than their face value seems counterproductive at the very least, but there are ways that they can be traded for a profit. annmarie hordern is here with the trades that pay for negative rates. annmarie: we have $17 trillion of negative yielding debt.
the question becomes, how do you make money from it? you have to get creative. two trends i am looking at, first is fx hedging. rising demand means those with a greenback can generate positive returns in japan. it earns an annual yield of almost 2.6%. investors then plug that money into safe havens such as the japanese 10 year, which would be , that ofbasis points the u.s. treasury 10-year. if you do this in euros, you could earn 4% with italian debt. the second thing you can do is chase a steeper yield curve. steeper means you can buy the shorter term and invest in long-term maturities. is minus the price five basis, where is the 20 year yen swap rate is positive, 11 basis points, a pickup of 16 basis points. similar scenario would
matt: just about seven minutes until they start of cash trading. is looking atrn roth's nest. dani burger is focusing in on the european miners for us. annmarie: it is russia's biggest oil company, out with second-quarter results. everyone will be wanting to see what they come out with in terms of these numbers. it was a tough quarter in the sense that they might get hit with opec production cuts. on top of that, they face a contamination crisis. that certainly curtails european exports from the company. matt: the bond markets do not seem to really care much about what's going on in italy. what about equities? >> italy will remain on the
spotlight today after prime minister can't take handed his regular nation. -- handed his resignation. the stocks were among the worst performances in europe with some of the largest names leading the drops. we have been speaking with investors, and they are saying the italian situation is a mess. today, there will be consultations with the largest parties tomorrow. the italian turmoil will continue to be part of the investor product. matt: we will be paying close attention to that. we are looking at green on the screen everywhere else. what about european miners, though? what is the story? dani: they are likely to be under pressure, and this is the
continuing saga of iron ore. we see iron ore futures dropped to nearly $90 a ton. at one point, it looked like they might touch $80 a ton. are concerns that chinese demand is starting to wane. we have china's anniversary on october 1. already, and australian trading we have seen bhp, tinto, fortescue all dropped, and these stocks are all on the london exchange, so look out for some weakness on the ftse, matt. matt: we will definitely watch the miners. , thanks for clarifying the italian situation for us as well. obviously you can never clarify the situation completely, as they go through one government a year. annmarie as well, talking to us about russian oil. you can get all the latest
matt: just a minute to go until the open of cash equities trading. let's take a look at markets with annmarie hordern. annmarie: good morning. in asia, a bit of a mixed session. regionally down. it of a dull session, some light volume. yield,lian 10-year rallying in that market. we still have a coalition possibility on the table or maybe another election. oil trading above $60 a barrel. we have a drawdown in the u.s. inventories. on top of that overnight, alberta, canada, extending production cuts, saying there is a glut.
it is opec next? the japanese yen exhibit softer today. stronger dollar. maybe a bit of changes in position. here is how we are doing on the futures market. ahead of the open, risk on. what a change of direction we saw from asia, which was under pressure this morning. and ftse 100 futures higher. we do have the market open now in the city of london. let's take a look at how we are shaping up. ftse 100, relatively flat. not much going on at the moment in the ftse 100. it is a huge week in terms of key events. we have the fed minutes today. that is really retrospective. looking at the past. the big event is going to be what jay powell says on friday in jackson hole, wyoming. ibex opening up 0.3%. euro stoxx 50 is higher. day, going to make history with the 30-year bond sale a 0% for the first
time ever. we have a weaker british pound. a stronger u.s. dollar. no surprise there. a bit of a weaker franc and euro. a bit of a risk on. what are you seeing across individual movers? da was talking aboutn miners. and how italian banks look following the political drama in rome. matt: it is exciting, and murray! -- annmarie! [laughter] matt: we do see the balance to the upside. you don't see huge moves in terms of the index, but what -- you do see a lot of movers. big, heavy movers to the upside. you have the oil producers right up there at the top. shell, bp, total. you also have louis vuitton rising up. you have the luxury companies gaining. you have some of the tech stocks up as well. if you look at the losing side, astrazeneca and roche are
losers. pharmaceuticals down, as well as rio tinto and bhp, those are your miners also falling. in general, european markets are up higher this morning as president trump reiterates his call for a big fed cut. investors set their sights on german jay powell's speech at the jackson hole symposium. joining us now out of london, the chief investment strategist at lombard oda investment managers. what do you expect from jackson hole and do you think that optimism for what jay powell is going to say, what the fed is going to do is the reason behind the lift we see in the markets? >> good morning. definitely. i think the markets, especially the bond market, the moves have been very aggressive, especially after the re-escalation of the trade war. one of the major reasons for that is that the market knows that the fed is developing this
reputation for making u-turns. we saw a big u-turn at the start of the year. it in their change in stance. i think the market is basically forcing the fed to come up and show cuts. we are expecting a cut at the september meeting so that it gives some room to the central bank to get ahead of the market pricing. matt: you have or you have had a positive stance on equities. --do you moderate that if you only get 50 basis points? do you expect that it is possible that you could even get more? salman: i think 50 basis points in one go would make a big statement that this is not just
a midcycle adjustment, which the last one from chairman powell was. if there is another 25 basis points by the end of the year, that should keep and validate the low cost of capital that is in place right now. that can help equities regain some of the lost confidence, which has happened because of this re-escalation of the trade war. we have moderated their stance on equities. we are in a week and see mode. if our view is right that chairman powell will talk dovish compared to what he did last time around and potentially open the door for them or longer and deeper easing cycle, i think equities can benefit because of the low cost of capital. matt: by the way, when you look at the inverted yield curve in the u.s., does that tell you that we are heading into a recession? does the data tell you we are heading into a recession? salman: i think there is a
clear-cut dichotomy in data. then i can go back to the markets, as well. the first economy is there is a huge pressure on the manufacturing sector and it is an recessionary territory. in some indicators, when it comes from manufacturing and business investment, we are worse than we were in 2015, 2016. however, if you look at consumption and services, they are resilient, they are robust across the board, whether it is in the u.s. or eurozone, or even in china. there is this clear-cut dichotomy which is in place. that does not really happen to that extent, if you look at historical data. then if you look at the markets, the bond market -- it seems look the bond market is listening to the manufacturing sector. if you look at the equity market, it is more consistent with more benign outcomes and it seems it is looking at services and consumption. that dichotomy has to get resolved at some stage and chairman powell may help a
little bit in that direction. matt: so, the inversion of the yield curve, the negative rates situation around the world, what is that telling us? salman: i think the negative rates situation is a combination of the fact that in this post -2008 crisis era, central banks have been very aggressive when it comes to protecting the downside when it comes to growth. i think that is what is reflecting that central banks will come in in terms of signaling and in terms of the fed, they will keep monetary policy very easy and that is a reflection. when it comes to the yield curve, it is a bit more tricky. because of central bank policies focused on qe, the term payment is depressed. some of that effect we have seen on the yield curve is because of central-bank policy rather than anything with the economic signals.
it is a cat and mouse game because the central banks look at yield curves and then go dovish and you could have this vicious cycle, which i think we are seeing in the markets currently. matt: we are going to see the germans auction 30-your bonds at a 0% coupon today. how do you expect that to go? salman: i think there is going to be natural demand for that paper coming from liability constrained investors. they have to come into the market to pick that up because they have the liabilities to match, which are very much fixed income linked. i think we will be looking at demand coming from or speculative sides and those who are -- will prefer a more naked the exposure to see how appetite is evolving, given that now negative rates are so high and embedded. and it still has a role to play, especially the bond markets, when it comes to its role as a
risk-free instrument. and we will have to see now whether that demand or appetite is winning or not. thereability constraint, is no doubt that demand will come through. matt: salman ahmed is the chief investment strategist at lombard odier investment. he is going to stick with us for the hour this morning. let's quickly take a look at the sectors on the move. the stoxx 600, we are looking at gains for industrial goods, construction and materials, auto-parts, so we are seeing decent gains in the markets today. if you look at the losers, they are very defensive sectors. health care real estate, food and beverage stocks. then the price of iron ore weighing on basic resources. up next, we are going to bring you the individual movers that we see so far this morning, including total oil rising after being upgraded to a buy. we will tell you why. this is bloomberg.
among the political turmoil italians may have grown used to. after describing his deputy as a responsible, giuseppe condé has quit as prime minister. obligations began trying to form a new government. bond investors have welcomed the option of a new coalition in order to prevent an election. salman: from lombard odier -- salman ahmed from lombard odier is still with us. this is the 10-year btp bond yield spread that goes back to the beginning of 2018, when this coalition came together. it was at 300 basis points. we are now down at 200. we have just seen that the equity index futures are up. why does the markets seem not to care at all about the political turmoil that we see in rome? it is a verynk
important question i think you are asking because if there was crisis,o do a political this is the time to do it because we have a potential qe program coming in in september and i think the interpretation would be in favor of italy, so there is a backstop buying, which they will potentially be doing. at the same time, this crisis has been in the pipeline for some time now and i think the market is still expecting a grand coalition government or maybe a caretaker government to come through. to my mind, i think the probability of a snap election is as high. the backstop expectations are important and that is why i think it is helping the bond market quite a bit. probably the best time to
have that political crisis. matt: it seems to me that the deeper the bonds go into negative territory, the more willing investors are to go out there and by italian debt. you always sort of know that the ecb stands behind italy, but the full face of the market is in that. is that the case? salman: i think so. given the issuance limits that the ecb faces, especially in germany, that extra buying the spill over into other companies -- countries,, italy being a beneficiary of that. perspective,ner's you can get a yield boost by buying italian bonds and hedging the currency, especially as a u.s.-based investor. earna 10-year, you could 3.5% in italian debt if you are a u.s.-based investor.
that is a precious and very bondy valued even when the is negative. so, i think there is this yield magnet, which is important and helping italy at the moment. matt: let me bring it back up here to germany. we were talking about the 30-year bond sale. more important question is will this country finally open the fiscal taps? as the ecb exhausts the power of its monetary stimulus, is that what you expect? december the market expects? -- is that what the market expects? salman: the discussion has started to be very candid. i'm a bit disappointed that this discussion is still happening in a conditional manner. the idea is that if things deviate further, than these cap's will open around 50 billion euros. i think the need for fiscal stimulus is right now.
given that we know that the ecb's policy space is limited and once they fire another bullet, it will become much more limited, if an actual recession hits the entire region, so i think i would hope that this discussion on fiscal stimulus proceeds faster and more credibly eke is that is what will be needed to support growth, especially in germany. matt: so, what is a number you would like to see? headline flashes across the bloomberg terminal, the you wanted to say 50 billion, 60 billion? what is the number investors want to see from germany? salman: i think from germany's perspective, i would think that 50 is probably the lower bound. i think given the slowdown, which is happening, and the fact that germany is probably already in a recession, and the fact that there is enough evidence to show that growth has been in a
very low trajectory for some time now, i would expect 150 to 200 billion package, so there is a proper, credible commitment on the table, which shows that policymakers are getting behind the idea that they want to boost growth in the eurozone economy. matt: all right. you are going to stick with us. salman ahmed is the chief investment strategist at lombard .dier investment managers our guest cohost on the european market open. let's get the top stocks with ie.e-marie -- annmar annmarie: a lot of upgrades and downgrades. a service company in the u.k., upgraded by goldman sachs. tullow oil, upgraded by concorde. these new discoveries in assets from guiana is going to bring tullow to the next level. hostile group is plunging --
hostel group is plunging. the 2019 outlook is set to be low. that is due to this competitive market. matt: all right. thanks very much for that. comes up, forest johnson here to berlin to meet with angela merkel today, but will his plan to renegotiate brexit get a better response from germany than it did from brussels? we will discuss that next. this is bloomberg. ♪
matt: welcome back to the "european open," we are 20 minutes into the session and we are looking at decent gains. the eu rebuffed boris johnson's attempt to renegotiate the brexit deal and scrap the average backstop. donald tusk we did that it is a vital part of the divorce agreement. johnson is going to try his luck again, this time on a visit to berlin. but will the threat of a no deal brexit convinced chancellor merkel and president emmanuel macron to change the deal? salman ahmed, chief investment strategist at lombard odier, is still with us. boris is now -- everybody said, why doesn't he reach out? he's got to go to the leaders of europe, so now he is doing this. are they going to give him any ground at all? salman: right now, it seems like
europe is not budging at all. as you shared the tweet by donald tusk, as well. i think when we saw theresa may was in charge that the eu kept a very unified and confident line when it came to dealing with the u.k. the question for me is that whether, from the eu perspective, they are playing for the scenario that there will probably be another election. in that case, if that is their expectation and bet, giving any senate concession may not concession may not help and may reduce the probability of another election in the u.k. i don't expect much flexibility to be shown by angela merkel and i think the situation will progress toward another election in the coming months. matt: so, how does another election play out in the u.k.?
we saw in the european elections, the brexit party did surprisingly well. salman: yes, the brexit party, surprisingly well. recent polls have been showing there has been a boost to its support after the appointment or election of boris johnson. from an electoral perspective, that will give a message to the eu, if there is a lot of support for brexit. if the tory party under boris johnson manages to get another higher majority than was the case under theresa may, that is a strong signal to the eu. after that, you may see some signs of concessions or at least some more flexibility when it comes to negotiations. i think that is where i think the eu will focus on, rather than opening the door for concessions or renegotiation this early on with boris
johnson. matt: we saw a fascinating deal yesterday. in almost a vote of confidence for domestic facing businesses. certainly, a vote of confidence for the real estate business. what do you think about you can vestments? salman: right now, we are in beingimbo of uncertainty caused by this whole situation on brexit. business investments have been the major casualty. i think some certainty or clarification would definitely help, but there is the valuation argument for u.k. assets, both for sterling when it comes to the currency, and domestic facing stocks. for that valuation argument to reassert itself, we do need this uncertainty to come down considerably from where we are at the moment. i think it will be a very brave call to go beyond a few days or
a month depending on the situation, but because of this strong uncertainty which we are facing at this moment in time. matt: just about six weeks to go, where do you see the cable rate going? where do you see the euro pound rate going? salman: we have been negative on sterling for a few months now. we have been reaching our targets. our target was 1.20. we think that would price in a significant probability of a no deal brexit. aom here on, we are expecting wide range of volatility because i think there can be a lot of shifts going forward as we reach that deadline. however, i think the negative pressure still remains and the downside still remains, especially if the no deal probabilities go up. having said that, from a longer-term or medium-term perspective, there is value now
in the u k assets and you kfx and we do need some kind of answer to come through for that value to reassert itself. matt: all right. thanks a much for joining us. it has been a pleasure having you on this morning. there is so much going on for an investor to take it you want in these markets. salman ahmed's chief investment strategist at lombard odier investment managers. atant to take a quick look what is going on in markets in terms of the world map on the bloomberg terminal. here you can see that we have pretty much green across the screen in europe. italy in fact gaining 1.25% as the prime minister steps down, throwing the country and political turmoil, that it is pretty used to. gains in spain, gains in france, as well as germany and the u.k. so, we are looking at strong session in the european equity market. i will ben bloomberg, speaking to the german economy minister. he will be speaking, along with
matt: let's get your top headlines off the bloomberg terminal. bye bye conte, btp rallies as the buck passes and italy decides with a new elections will need to be called. taxing times, donald trump says he has been looking at tax cuts for a long time as he kicks back against the threat of a recession. >> i think the word recession is a word that is inappropriate certain a word that people in the media are trying to build up as they would love to see a recession.
boris johnson is coming here to berlin today to meet angela merkel as germany prepares a 30 year bond sale. we will talk, hopefully, with the economy minister at a conference in leipsic. welcome to "bloomberg markets." i am matt miller in berlin. we are 30 minutes into the trading day, let's take a look at how things are shaping up in terms of individual movers on the stoxx 600. it is up almost two points of this morning. the gains are led by nestle, lvmh, and british american tobacco. so now we see some defensive luxury stocks on the rise, leading the way. on the downside, you have still got drugmakers weighing on the
stoxx 600, as well as minor -- miners. let's go to bloomberg first word news. >> thanks, matt. volcker 2.0 is here, looking more like a tweak. regulators have rolled out the changes to the rules and limits banks must follow. wall street lenders have been pushing for some updates for the better part of a decade. there hardly be transformational changes needed to spark a revival. the u.s. economy does not appear to be headed towards a recession according to san francisco fed president mary daly. she wrote that domestic momentum is pointing to continued expansion. her comments echo those from the white house looking to downplay fears of a recession.
president trump is canceling his meeting with denmark's leader because she does not want to talk about selling greenland. he tweeted copenhagen has saved a lot of effort by being so direct. she described it as a large real estate deal. denmark's prime minister has ruled out the deal. spider-man's place in the marvel universe is facing a bigger threat of them -- threat than thanos. according to the deadline website, disney wants a 50% share of profits going for the -- forward. sony wants to keep the current arrangement. disney gets 5% of box office revenue. day onnews, 24 hours a air and on twitter. powered by more than 2700 journalists and analysts. this is bloomberg. matt: thanks very much.
we are looking at a red headline. breaking news out of china. a u.k.ntry is confirming consulate staff member has been detained on the mainland under local law. we brought you a little bit of the story are. -- earlier. expect a response of the u.k., we will continue to keep you appraised of the situation as we get more on what is going on. european banks of the worst-performing sector this year. negative rates underpin a lot of the pain they have suffered. banks have forced to pivot from dependable income the volatile sources like commissions and trade. worse, they're compensating for lost revenue by increasing the volume of low yielding loan. -- loans. of someat the leaders
of europe's biggest banks had to say about this earnings season. >> they don't make life easy for us. negative interest rates are a challenge. >> it is revenue pressure for us if rates go down further. >> it is clear that negative rates have a negative impact on revenues. the inverse we had is not helpful for our business. we have to assume that rates will stay lower for a longer period than expected. >> if it lasts long, it will impact profitability. that is the ability to invest. >> in a market like europe where we have overcapacity, consolidation would be natural. >> what you see this kind of activity, particularly with low interest rates, you would assume
there would be a pickup in equities. >> it is something that is a significant risk and something we are managing. >> clearly, the environment is not helpful. >> it is something positive. at the end, if you reduce interest rates, you reduce spreads and people can move into wealth management. is our opinions columnist and the senior analyst for eu banks. jonathan, let me start with you. which banks are under the most pressure from the negative rates situation? jonathan: it is pretty broad brush. if you look at consensus for 5-6%.ear, it has fallen at the top of that list you got some smaller carriers. socgen, but also ubs. so it is very broad brush.
rates means the low people move into savings. therefore, every bank move into savings products. huge competition. it is not just net interest income, it is the whole topline that goes the wrong way. matt: so how much room to maneuver it is banks have if, and this is a small if, rates stay low for much longer? elisa: this is the trouble. the starting point is not a particularly good one. if you look at profitability measured by return on equity, you are looking at an industry that is not generating andainable profits profitability is significantly lower than in the u.s.. starting point any further pressure will be difficult.
you have also gust of take into account that the benefit banks have drawn from lower impairments is nearing an end. impairments are at historically low levels. fact that youe can cut costs by cutting the number of branches, that has to be accompanied with investment. limited in howt much you can actually reduce your expenditures. jonathan, you point out eu banks are trading at a big discount to their price targets. what does this say not about the sector, but your colleagues that are analyzing these banks? why are analysts so far off? jonathan: the work has changed them of 40 start -- changed, for a start.
if you look at the sector now and next year's revenue, as rates fell, the consensus or provision charges fell. that offset most of the lost revenue. but here, provisions are not going to fall. i think they have to take another 20-20 $5 billion of cost saved. revenues falling now means r.o.e.'s are following -- falling. they cannot do that now. is, it isquestion clear what some can do about it. mario draghi could change the situation drastically. what are you hearing from markets about possible action? elisa: people are expecting some sort of tiering which would ease some pressure. more broadly, you have to tackle
the overcapacity in the industry. that requires consolidation. for that to happen on a cross-border level, you need a deeper banking union that enables banks to move capital around freely. that has to be at the top of the agenda for policymakers going forward. capacity really needs to be tackled and quickly. matt: thank you for joining us. elisa, our opinion columnist and jonathan tice -- t yce. get bloomberg intelligence on the terminal or our opinion columns. up next, welcome to trump lent. -- trumpland. donald trump promises not to turn greenland into his own real estate venture, but he does seem to want to buy it. we look at what else is trending. this is bloomberg.
--ut, reportedly buying reportedly, buying greenland from denmark and is now canceling a meeting because denmark's leader doesn't want to talk about it. what's the story? annmarie: it is one of the most read stories on bloomberg. trump is trying to buy greenland. it is just of the location of this island. one, strategic and geographically. tension between denmark, norway, canada, and russia. it would also give them a strategic hold to fend off russia if they are trying to take hold of the north sea route. , it is sitting on a vast raw materials. with the arctic melting, they will be much easier to reach. and matt, you studied american history.
this actually has been done before, just not in recent times. matt: we bought florida from louisiana --ght annmarie: from france. matt: exactly. the virgin islands we bought from denmark. at the time, we wanted to buy it and greenland but recognize that as sovereign territory. we tried again in 1946. i wonder how much it would cost this time. annmarie: and in 1917, they also tried to buy greenland but it fell on deaf ears. kind of like how it is now. the costs, we don't know exactly, because is not for sale. -- it is not for sale. matt: everything has got a price. and donald trump's world, that's probably what he is thinking. let's talk about the possibility of changing the capital gains
tax. that's a highly red story as well. annmarie: that would be linking indexing to inflation. this is obviously going to be a huge fight in d.c.. president trump would have to likely use an executive order. it would not get passed through congress. we already know how the democrats reacted to the gop tax cuts. this is going to become a hot button issue in washington dc, i'm sure. matt: absolutely. nnmarie, thank you very much. i'm not sure it's a coincidence these stories about related to donald trump. he is often related to our trending stories. let's talk about italy. intensive talks begin today with the new president as he tries to work out if a new coalition can be formed. if not, they are looking at yet another general election.
joining us from milan is the head of research at algebra's policy forum. what outcome do you rank as the highest probability? >> good morning. in my personal view, the highest probability would be on a reshuffle. a new government supported at the democratic party and the five-star movement which was one of two parties within this government. i don't anticipate this to be a political government in a strict sense. these are two parties that ideologically would not be able to provide a consistent and internally coherent platform for a government, but they would be united in the objective of avoiding the very sizable vat hike we would otherwise experience. your biggest probability
is that a new government is formed. how would they deal with the budget and the crushing debt? so, if you look at 42020, wes right now, are looking at 1.5% of gdp. gdp needed 1.2% of to stave off this otherwise automatic vat hike. assuming you want to stick around 2% of gdp for the , a numbereficit consistent with what we have seen in the past, something of the european commission recently has taken as the headline when evaluating the need for an excessive deficit or seizure --
procedure. withans that you are left 12-15,000,000,000 needed to finance the offset. it is a much more manageable number than the 23 billion needed to cover the entire amount. you can probably find some of that by scrapping some of the measures we are expecting to , likento effect in 2020 the flat tax. possibly, a government with this objective as their platform is likely to get leniency from brussels. matt: why would you suspect's that we don't see -- suspect that we don't see bond spreads blowing out. when the coalition came to power , it was 300 basis points and the markets were freaking out. now, equity markets are taking
it well in stride. how come? why aren't we all worried? have we all just gotten used to the volatility of italian politics? silvia: italian politics has a history of volatility, that's for sure. the government that fell yesterday was the 63rd government in 73 years. on the other hand, this development is positive because of the alternative. the alternative, based on the crisis triggered by matteo selby -- salvini might have meant elections in october. the likely winner would have in a far right coalition with this brothers of italy party. salvini's speech in the senate that the budget this government would have put forward would have been in the
taxesof 50 billion lower that would have basically taken the budget above 3% of gdp. for a country that has no growth to be seen and debt to gdp hovering at 130%, that would have been a certain cause for a fight with the european commission. it would have increased andrtainty considerably possibly triggered a crisis of confidence, i think. matt: thanks so much for your time. thank you so much. siliva merler, head of economic policy for algebris them and explain me why markets aren't freaking out. she says the likely outcome is a positive.
more in london. equity indexes are doing well across the board. bloomberg has learned that regulators are looking into facebook's libra project. the antitrust probe seeks uncover whether the system will unfairly shut out rivals. let's get more on this with our crypto reporter. obviously, the eu will look at this. what are they worried about? most fearedurope's regulator, the one that has already find google billions -- fined google billions. libra, does the association unfairly shut out rivals and does it give them an unfair competitive advantage? really, this is another layer of scrutiny on top of what we have.
really, this is a regulator that has proved willing to take big tech to task. i think facebook will take this very seriously. matt: bitcoin, it seems like people are going into that as a hiding place. but it is still not a currency you can actually use to buy and sell stuff, is it? >> it is not. the interesting thing is that libra has become something of a whipping boy. so crypto people are pleased to have it in existence because it is taking all the flack from regulators while bitcoin is proving it cannot be shut down. there is no central oration behind bitcoin the same way there is with libra. it is showing that it is a great alternative to libra or two gold. -- to gold.
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conte calls it quits. btp rallies. investors hope jay powell will signal deep cuts when he speaks at jackson hole. but will he suffer a misstep? heads to meet angela merkel, but can he make any progress on the new brexit deal? good morning, everyone. this is "bloomberg surveillance." this is what your markets are doing.