tv Bloomberg Markets European Open Bloomberg August 27, 2019 2:30am-4:00am EDT
anna:anna: welcome to "bloomberg markets the european open," live from our european headquarters in london, anna edwards alongside matt miller in berlin. matt: a final reading of german second-quarter gdp, confirming a contraction and futures are mixed as data shows a drop in exports. the cash trade is less than 30 minutes away. ♪ matt: soothing words, stocks gained across asia as president
trump's latest trade rhetoric calms markets, but unease sets in with futures wavering in europe and america. close to a coalition? italy's five-star and democratic parties are near agreement on a new government with giuseppe conte staying on as premier. said he would be open to talks with the u.s. but only if sanctions are lifted on his country. matt: less than a half-hour from the start of european trade. take a look, first off, at gold holding gains. not as high as yesterday, before the start of the g7 and biarritz. hit $1533 per troy ounce, but holding onto what we saw the last couple of sessions. a look at the futures. kind of a mixed trade, looking at futures that are down in terms of the ftse, about .5%. but gaining just as much on the
50. cac futures little changed, but ftse futures down about .5%. what do you see on the gmm? anna: a more hopeful trade narrative, perhaps, from the g7, which we covered around exactly 24 hours ago. that filtered into the asian session, and something more positive. the chinese, indonesian, south korean markets trading higher, but we have seen great volatility as a result of what president trump has been talking about. a roller coaster, the way markets and equities in particular have reacted to a three-day twitter storm from the president, and follow-up commentary from the chinese as well. we don't get such a calm, positive, risk-on picture from fx markets. the japanese gain -- yen gaining, and the australian, new
zealand dollars selling, so more divided on the fx front than the equity narrative. let's show you fixed income. we see some money coming out of fixed income, back into stocks. but a different story in italy. we mentioned our headline, the fact the conversations are continuing. could we be inching towards a new coalition in italian politics, meaning no need for an election in november as a result ? as a result, investors are buying italian debt. we will watch the reaction in italian banks in around 27 minutes. let's go to our bloomberg managing editor joining us with thoughts this morning. good to see you. one of our colleagues talked about how there's a lot of noise and very little signal in the trade commentary we are getting, the comments from president trump and others. where are you looking for the right signals? >> there is a lot of noise, and we are spending too much time ese, breakingse th
the press conference down into one minor headlines -- one-liner headlines. for those who watched the press conferences, there was no sign of positivity. trump has always maintained, i think there will be a deal, a good deal, what he keeps repeating. he basically thinks that the chinese will cave, and there is no evidence yet. far from it. the latest development, china is willing to fight back. they have said clearly, they also want a deal, on fair terms. unfortunately, both sides' view of what our fair terms is very different. for me,.nothing has changed i think the signal -- for me, nothing has changed. i think the signal has been clear for a couple months. neither side is close to a deal, because their goals are far apart. flows withnd headlines, but stop trading the
headlines. just know the trade deal won't worse, manufacturing data will get worse, jobs will be lost, bad for the consumer, and eventually equity markets go lower. there is a clear signal. just ignore the headlines that flow by every minute. matt: first of all, is this the mark cudmore, live and in person? fantastic to have you back. is this a chance for humans to beat algorithms in trading, mark? we hear a lot of complaining that the algorithms just read these soundbites and take trump at his word. do you have an edge over computer trading in a situation like this? mark: that's a great point. definitely valid. the last 24 hours, whereas a human would have listened to the whole press conference, seen the nuances around trump's many answers. he kept being asked, did you receive a direct call, and he
changed his answer a little bit. there was a clear message. he wants a deal, but on his terms, and he thinks china will capitulate. there's no evidence china will capitulate. all that is clear. unfortunately, the soundbite headlines the algos trade on may have given a different impression, which is why we may have been more eight constructive. you are right, this is a chance for humans to go back to form. this is a taste of the overall bear market we will see. unfortunately, bear markets are tough for everyone, maybe extra tougher for algos, but for humans as well. people are slowly deleveraging, meaning less liquidity, meaning wealth destruction, less to play with. --will be difficult for that both humans and algos. anna: all power to the humans, then. let's talk about currency markets, speaking of the euro. over the last 24 hours, i know
you think it is time for the euro to make something of a haven move, the euro's time as a haven has come. so looking at weakness in the german data, the global trade story, the brexit narrative. looking through all that, you believe there is a role for the euro to be how much stronger? mark: i think this is an interesting story. the european growth story is terrible. germany heading towards recession. europe is in a really bad place. it really depends on germany, so if germany is heading towards recession, the whole region is in trouble. but i think the euro will not trade much off of that story. it is pretty well-priced. we know there is expansionary monetary policy from the ecb priced in, so there will not be much more give. i think the euro might become a bit of a haven just by default. one of the other havens, the dollar, the most relevant, most liquid haven, is being massively undermined by developments over the last week.
thermining monetary policy, fact there is uncertainty on the trade front, the fact he's trying to order companies to change the policy. all these things will undermined the dollar as a haven asset. this doesn't happen overnight. but over the last few months, the dollar has been a haven asset, and over the next few months it will be a less good one, so people will turn to the yen, the swiss franc. the yuan is at the center of the trade war, so i think the euro will have a role of more of a haven. i still think the european region is struggling growth-wise, but the european currency, the euro, can do ok in the four months. i think it will outperform, the rest of the year. not sure longer-term after that, but from now to christmas i think you will see the euro outperform. matt: do you think longer-term now, mark? have to congratulate you on baby alexander. becoming a father, has it made you more optimistic,, or more concerned about our future? mark: look, i am always an optimist.
i became ahis year, structural bear on u.s. equities for the first time in eight years, so we're time to become a father as well, but i think we are set for the first bear market in a decade in stocks. we will ci think eight when he 20% decline ina u.s. equities over the next eight months. it will be hard to trade. but ultimately, like all these trade markets, it will pass. the world will move on beyond it. we won't have as bad of a financial crisis in 2008. market,just have a bear a major growth slowdown from policies out of the u.s. and i think we will have a major growth slowdown globally, causing equity valuations to go down. we will see a little deleveraging, a little squeeze of the credit market losing liquidity, and something of a financial problem for credit markets. i think it will be a tough period the next six to eight months, but we will get through it, and a year from now we'll be
-- anna: informed context. mark cudmore, many congratulations. let's get the bloomberg first word news. not considering tariffs on japanese autos at the moment according to president trump at the g7 summit, but he left the door open to putting levies on the nearly $50 billion sector at a later date. washington and tokyo have reached an outline deal on they have to formalize in late september. feud overend the france's plans to tax tech giants. paris in washington reached an agreement, with france's finance minister sanguine tariffs -- saying wine tariffs are off. the united states president did not confirm the deal.
there's no need for chinese troops to tackle the unrest in hong kong according to the city's leader. carrie lam says her government can handle the ongoing amonstration, budespite recent flareup in violence. she says she will not give in chief demands,ir for her to resign. >> a responsible chief executive at this time should hold the fort, and do her utmost to restore law and order in hong kong. i wouldn't say my government has lost control. we are not only supporting the law enforcement bodies, we are also acting responsibly to deal with other issues that have arisen. annabelle: global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. anna, matt?
matt: thanks very much. up next, an olive branch to tehran. donald trump floats a meeting with president rouhani. are we on course for another north korea moment? we will discuss next. remember, bloomberg radio is live on your mobile device, anywhere in the world, or on dab digital if you are in the london area. this is bloomberg.
♪ ♪ to "thelcome back european open." 16 minutes until the start of the european trading, and things look mixed. some catch up to do after yesterday. it is expected to be a little weaker, factoring in some friday losses on wall street, and yesterday's moves we saw at the start of european trading day, which were negative. elsewhere, more positive, cac 40, flat to positive. donald trump could be about to change his position dramatically on iran, making his most expensive offer yet to meet with president rouhani, saying he would do so if circumstances were correct. the comments echo trump's initial outreach to north korea, but face-to-face talks with tehran could be much more complicated. joining us is jody schneider,
bloomberg's senior international editor. what could this apparent policy shift mean? what do we read into it? it sounds like he's giving in somewhat to the pressure at the g7 to do something on iran. he of course famously left the 2015 iran nuclear deal, saying it was a bad deal and he would do things on his own. but all he has really done since then is to try to raise pressure on iran via sanctions and trying to get other countries not to do any kind of deal with iran, including buying oil from them. so at this point now, he's saying he would be willing to talk, but saying if the time is correct, giving himself some wiggle room. he didn't provide any details of what the talks might mean. it does seem very much, as you noted, like what he did with the north korean leader, in saying,
i want to talk. they have had three meetings, but no progress in terms of any kinds of deal. so he's giving himself a lot of room, but a dramatic shift. before this, it had really been all about sanctions, and some really tough talk, almost about a potential military action at one point. so this is a dramatic shift. matt: to what extent, jodi, does the rest of the g7, not just iranident trump, hold responsible for financing zbollah forhe example? and to what extent does the rest of the g7 take iran at its word when it comes to the pursuit of nuclear weapons or weapons grade uranium enrichment? jodi: well, others in the g7, of course including and at this meeting very much led by france's president macron, have
wanted to move forward. they have stayed in the agreement, the u.k., britain, germany and france have stayed in the agreement and tried to move forward, although it has been very difficult as the rhetoric from the u.s. and the sanctions from the u.s. have gotten stronger. they have been in a position of trying to broker a deal, even though they have not been able to make any movement with the u.s. they remain in the camp that dealing with iran, trying to basically keep negotiations with iran and stay within the deal is much better than leaving the deal and having iran perhaps go off on their own and start enriching uranium, which they have said they might do. so that has been their stance, although it has been certainly very much at odds with what the u.s. has been doing, especially in recent months. iran bloomberg's
correspondent joins us, from dubai. to get your perspective. from the arabian? perspective was there a breakthrough? the iranianm perspective was there a breakthrough? golnar: it has been interesting. we have seen pushback from hardliners in iran who have been skeptical of macron's effort. one of the top reformist papers was saying, will rouhani meet trump? so it has been seen as something of a turning point in this deadlock we have seen over the u.s. decision to withdraw from the nuclear deal, but what will be crucial is what happens when trump returns to the u.s. iranians are used to trump making statements on an international stage, but then it's very important what his advisers then tell him. meaning, john bolton and his
secretary of state mike pompeo. they obviously have a much more hawkish position, and always have. but we've had a reaction from iran as well. hassan rouhani in the last hour has said talks, or any change in the relationship or the situation with america is not possible unless the united states removes all sanctions against iran. he said categorically, he is in no way interested in any kind of photo op at unity with -- opportunity with donald trump or the u.s. administration. position,ns iran's that sanctions have to be removed. the messaging coming from the united states has to be consistent for iran want to reconsider any changes in their own position. matt: golnar, thanks very much. bloomberg irani,
correspondent joining us from dubai. jodi schneider, thank you very much for your time on the issue. italian rival parties have until the end of today to form a new coalition. we also have earnings from the biggest state banks in china this week, which control more than $14 trillion of assets. kicking things off is the bank of communication. itssday, the u.s. releases second reading of second-quarter gdp. the expectation is slightly lower economic growth. friday sees the south korean central bank announced a rate decision, expected to be left unchanged. sunday, the next round of u.s. tariffs on 300 billion dollars of chinese goods will kick in. sunday is september 1. we're minutes from the open. up next, stocks to watch, including s.a.s., the takingavian airline
what is the story? sam: more restructuring measures tha-- at sas, the swedish airline. generally taken well by investors, but they have been going on for a long time. they see a significant moderation in capacity growth. interesting to see how shares react. anna: we will watch. dani, italian stocks? we have seen italian bonds reacting to the latest coalition talks. dani: the coalition between the five-star movement and the democratic party. the reason we see the rally, markets don't want another election. when bonds move, look out for italian banks to move as well. so any higher rally in italian debt, that might firm update balance sheet of italian banks. because they hold so much debt in italy, their fortunes are very closely tied to the fortunes of politics and italy. -- in italy.
anna: one minute until the heart of -- start of cash equity trading this tuesday. this is the set up going into tuesday. london markets were closed yesterday so some catching up taking place. msci asia-pacific, a tentative move to the upside, the more positive tone perhaps, some saw it, others didn't, from president trump in regard to china. some dismissing it entirely, but it did move sentiment in stock prices. see the drop before yesterday. prices still tracking since then. s&p futures suggest they could be weaker at the start of the
u.s. trading day, after big losses on friday of more than 2% on the s&p,, and a little bounce back yesterday. now waiting if there's anything material on the ground, any changes in the trade conversation between the u.s. and china, or just more phone calls. these are the futures in europe. fairly flat start, but the london market may be underperforming after being closed yesterday. . let's get the markets open. ftse 100 out the gate, flat to negative. remember, it was closed and has catching up to do. the profile of yesterday's equity trading was interesting. we saw a initial very firm move to the downside, and then a little recovery later on in the morning as futures in the u.s. turned around with that war of words, that warmer narrative coming through from president trump on china. the ftse down .3% right now. the french market fairly flat.
perhaps the german market taking time to open, flat as well. the futures suggesting we won't go anywhere fast. interesting to see in fx markets, slightly more risk off picture coming through. certainlyor the yen, a feature of the asian trading session. . let's have a look at things from a sector perspective. we don't have a great deal of earnings news to trade on, so going with the bigger narrative. the trade story still dominant. investors trying to figure out whether we really saw a pivot from trump yesterday, whether that was material,, or just further soundbites that doesn't actually change the dialogue trade. a lot of noise, as we talked about. financials are in the red, also health care,. doesn't look like a day where we will get any great clues from the sector picture. materials up, despite iron ore prices lower. matt: i see some downside,
although fairly even. down.ocks are up, 325 you see because of the gain in crude oil bp leading the pack in terms of adding points to the stoxx 600. for the most part, oil producers on the rise today. you also see defensive stocks. novartis, unilever, as well as rausch, all adding points today. kering angly, gainer. a very interesting, defensive stock. nd,y one stock is ex-divide so watch that for drops this
morning. european markets, opening fairly after the ftse lower being closed for a u.k. bank holiday yesterday. it follows gains in most of asia after he perceived softening in the tone of the u.s.-china trade rhetoric, but that messaging seems to be reevaluated now. joining us is the chief marketing strategist, hsbc -- chief market strategist, hsbc. how do you sum up the g7 experience, and what does it mean? for you as an investor? r? willem: a mixed message. a lot of yo-yoing going on in politics, so you need to look at the data rather than trying to speculate on politics. the data is still continuing to point to a slowdown in manufacturing and investment with a relatively healthy consumer. anna: good morning.
i have a chart here tapping into what you just said, about a slowdown in investment. nondefense u.s. capital goods orders. according to one indicator released, suggesting some sort of recession could be around the corner. is it this kind of indicator, this appetite for investment by to,, to tellu look you how much of the global slowdown will stick to the u.s.? willem: indeed, there is a slowdown in the u.s. as well. but because the consumer is resilient, and there's relatively little reduction of unemployment going on, in part it is because companies are, they know that if they fire somebody,, it will be difficult to rehire them given that the labor market is tight. with the consumer strong, it is hard to see the u.s. economy going to recession. we have 2.3% u.s. growth this year, 1.7% next year. matt: what do you think about the valuations? we have had reductions on the
price side. we see for example in u.s. a dividend ofgs, 3.8% a return of earnings more than treasuries right now. does that make a difference to you? from a short-term perspective, i don't think it does. i think it has been a better trade to go with the momentum, to stick with those quality strategies, to stick with the sentiment andf positioning that we have in the equity markets. valuations haven't really matter that much. for them to start a matter, you need to trigger where the markets would say, there is a real improvement here in terms of trade, for example. it could be that after four weeks of negative performance, the survey at,
multiyear lows, you have a good week. but for the market to sustainably rally, especially on valuations, you need fundamental improvement. anna: let me ask about your take on defensive versus cyclicals. interesting to look at the markets today. sectors on the rise for european equities, real estate, utilities on top of the list. this is a trend. even on days where we see strength in equities, today isn't one of them, but on days we have seen strength, often it is the defensive sectors to the fore. where do you see the interplay between defensive and cyclicals? willem: especially if you were to invest on the basis of valuations, or on the basis of monetary stimulus, it is not the cyclicals that will outperform. the market rises as a whole. if you have concerns about the
cycle, you stay in the defensives. that's where the market is positioned. that said, with the yo-yoing happening, the more that differencee more the between the different sectors is less and less. things have come back into the , in terms of leaders and laggards. overall, it is still worth sticking to the defense of trade, maybe dividend yield as well, but dividends need to be sustainable so be careful in picking them. matt: all right. willem, we will keep you with us. willem sels, our guest host. chief market strategist at hsbc. up next, stocks on the move,, including daily mail rising on the sale. thi s is bloomberg. ♪
dani: a lot of corporate stories for you. the first, one of the biggest 600,ers on the stoxx gaining because they are one of the largest oil services providers, up 2%, spinning off construction services. segments. largest a lot of the oil services companies, struggling with the trend lower.daily mail , this is in the paper itself, but the holding company, spinning off an energy industry information provider to a u.s. firm. it is in their strategy to narrow what businesses they are holding onto. another corporate strategy story, a wework rival and the founder will plan to spin off their u.s. assets on
the new york stock exchange. it is trading at its highest since the ipo in 2003. matt: dani burger with a look at individual movers. now, and btp yields lower on optimism elections can be avoided. we understand the five-star movement and democrats are close to a deal on a new coalition that would see giuseppe conte stay on as prime minister. joining us is bloomberg's senior european economist, david powell, in rome. coalitiont of the negotiations will financial markets be able to focus on? david: two things. one, will we avoid a general election? markets generally like stability, and will want to avoid that. if a general election is avoided by the democrats and a five-star movement joining the coalition, they are likely to see yields go down. the other thing to focus on, the
2020 budget. we really haven't heard anything yet about how the five-star movement and the democrats, if they were to go into coalition, would deal with some of these thorny issues related to that budget for next year. they will eventually need answers. risks shouldt italian bondholders be watching out for, david? we have seen bonds move as a result of this, and more appetite for italian debt as a result. coalition talks are progressing, and we could see, avoid another election? i think the more particular issues we will be focusing on for the 2020 budget, are, how are they going to come up with 20 billion euros in savings? if italy is going to repeal the v.a.t. increase, basically all
political parties want that, they need to come up with 20 billion euros in savings, and they have no answers yet as to how they may do that. they probably also will want to parties, these five-star movement and the democrats, avoid the big had?ing promises salvini promised an additional 50 billion euros in spending and tax cuts, a big number for italy, more than 2% of gdp. in the past, the five-star movement has focused quite a bit on huge spending projects, and more recently they have been quiet on them. so they will want to see the details in the 2020 budget. beyond that, there will be considerations, how stable will this be? the 2020 budget only provides funding for one year, and not long down the road we will be back to the negotiations once again. and they will be worried about
salvini as well. he remains the most popular politician in italy, according to opinion polls. will he come to power in say another six to nine months if the coalition doesn't prove durable? matt: david: david, thank you so much for joining us. david powell, live in rome on the developing situation. chief market strategist at hsbc, is still with us. how do you see the italian situation and the 200 basis point spread to bunds? david: at the private bank, our clients look for some opportunity in the european market to earn something in terms of yield, and i think especially those looking to buy something and hold it see the opportunities to lock something in. clearly, you are going to see further volatility, political uncertainty. this is the story as well, where
we will see more ups and downs over the next few weeks. but if you can login, and if you are looking -- lock in, looking for a buy and hold approach, maybe this provides opportunity. anna: where do you see a fiscal boost coming for them? we talked about how the five star talked about big spending pledges in the past but has been more quiet. where do you see room from fiscal spending? we have heard from jackson hole that monetary policy may have run its course? david: monetary policy is like pushing on a string. looking at the chinese economy, u.s. economy, european economy, there have been no increases in borrowing. that basically says that even though there is so much liquidity, economies don't want to borrow. so to change that, you need fiscal spending. the question is,, especially in europe, where is that consensus going to come from?
to a large extent, it will depend on the tone from germany. people got excited about that a few months ago, but since then calmer, and indications are it would be smaller, but that would really change the outlook on europe. anna: so germany is the focus for you for the fiscal? david: yes, because they need to be the consensus. germany is the one where, it is now 60% of gdp and has the ability to spend, and if it can do it, the others will. matt: do you expect germany to spend? what size of a stimulus package would you like to see, before getting back into an overweight on europe? david: it is more likely to be a small package, at this point in time. even if they were to try to spend more on construction, there are bottlenecks in terms of how quickly they are able to do that. exciting, be a really
if there was more spending on green energy, or on 5g, fiberoptics, the real new technology. all those things, again, they would need to be european agreement for that. for now, it is clear that the european economy is weakening. we mentioned how monetary policy has maybe run its course, and yet the market is still factoring in that the fed has further to cut than other central banks. from the fed perspective, what kind of stimulus are you expecting? you said until recently one cut this year, but thinking has changed? david: the jackson hole tone, looking back at midcycle cuts, they did three cats. that is the number one -- three cuts. that is the number one factor. we also see weakness in investment, spending, and powell
will look at uncertainty around the world, pointing to more cuts. the reason why we don't have more cuts in 2020, to some extent because we don't expect the u.s. to go into recession, and secondarily,, monetary policy can't do everything. especially in a economy with two sides of the coin, where the consumer is doing well and the rest of the economy poorly. . monetary policy can't address that with one single measure. matt: you will stick with us. more to talk about with you. sels, of hsbc. up next, boris johnson says he's marginally more optimistic about a brexit agreement after bonding with world leaders at g7, but are investors convinced a no deal departure can be avoided? hole in they see a rock when he slam out to the
boris johnson is marginally more optimistic about a brexit deal after meeting with g7 leaders, but he refused to rule out suspending parliament to force a no deal departure. french president emmanuel macron warned about britain crashing out of the e.u., saying that outcome is close. s of hsbc is still with us. it seems to have been a long summer in the u.k. in the sense parliament is not sitting,, so note of elements on that front,, and yet a lot of preparation behind the scenes for a potential no deal, what the government tells us. the labour party saying they would campaign for remain in a second referendum. among all that noise, how to navigate u.k. assets? willem: apart from day traders who will use the yo-yo movement thinkk opportunity, i most people by now are positioned the way they would like to be. what we have done with clients
in our private bank is to look at, can you live with a scenario 1.45, 1.5ling goes to five if there is a negotiated deal, or no deal at all, and 1.10 indicates of a hard brexit? but putting probabilities on it is not very helpful. that is speculation. and if one puts probabilities, one gets the sense there is some certainty behind it. so every client's situation is different. therefore, when you consider both scenarios, they will hedge in either way. matt: i wonder what you think of euro-pound. does that go to parity in the event of a no deal or a bad deal ? or does the euro suffer as much as sterling? willem: so, we have a 1.10 .10ecast for euro, and 1
against the dollar in the case of a hard brexit, so parity. could have potentially short-term shocks there, where you have adjustments of positioning, sentiment in europe gets negative as well. but we would get to parity between euro and sterling in that scenario, in our view. anna:anna: we talked before about defensive versus cyclicals. have dividends in the ftse 100. the weakness in the pound sometimes place to that. how to navigate the ftse 100 at this point, given what you said about the different outcomes we could see on the pound? willem: usually you have a negative correlation between the s&p and sterling. we would think that would hold, but you could have a hit to sentiment where the negative correlation becomes less. that's for the global companies,
which are by the way at this point in time, compared to other global companies elsewhere, are quite cheap. there is a risk premium in the market, but you need to take the view that it won't turn out so bad. the local players, the smaller companies, the ones that export less, are less helped by the weakness you would see in sterling,, and therefore it would be more of an issue around what the local economy would do in that sector. there might not be immediate deals, sector by sector. matt: we didn't get to the rock, but did boris actually swim through the rock? what you were saying? anna: i read it, for what it is worth. there does not seem to be photographic evidence available, in i read he saw the hole the rock and came back with the metaphor, you couldn't see it from the beach, his brexit metaphor. matt: i am surprised we haven't
♪ >> 30 minutes into the trading day, let's get the top headlines of the bloomberg terminal. fading hope. stocks waiver as traders reassess the latest trade war .hetoric, and i italy's five-star and democratic parties are nearing an agreement . rise.elds and rouhani says he would be open to talks with the u.s., but only if sanctions are lifted first. he says the key to fixing the relationship is in washington's hands. good morning and welcome to "bloomberg markets. i am matt miller in berlin
alongside anna edwards in london. let's update everybody 30 minutes into the trading day with where we are. we expected some catch-up from london markets but it happened very quickly and now london is moving in step. the momentum does seem to be on the downside today, waiting for the u.s. to open. futures look fairly gloomy. or --is the biggest gain fmc is zurich airport, heard after hours yesterday the today,f trading obviously lifted in paris, and they will split out part of their business. that has been well received by investors.
they are lifting the share this time to intraday sessions. we also see bounces after yesterday in connection with rent controls. where the dominant theme is for european equity markets, but it is really ongoing concern about trade, not a great deal of news flow, the domestic group in scandinavia, generally the moves are to the downside. let's get the first word news update in hong kong. ♪ >> thanks. talking but only if the u.s. lifts sanctions first, according to the iranian president. president trump signals he would be open to a meeting with the leader and echoes his initial outrage in north korea.
has been no breakthrough deal. chineseno need for troops to tackle the unrest in hong kong according to the city leader. carrie lam says the government can handle the ongoing demonstrations but she still wants to hold talks with protesters despite a recent flareup in violence -- she won't give into one of their key demands, that she resigns. >> i think a responsible chief executive should continue to hold the fort and do her utmost to risks for law and order in a hong kong. that my't say government has lost control. we are not only supporting law are alsont bodies, we acting responsibly to deal with other issues that have arisen. >> a deal to end the feud over france's plan to tax tech giants. president macron announced
yesterday that paris and washington had reached the agreement with the finance ministers saying tariffs are definitely off. president trump joked that the first lady loved french wine. not considering tariffs on japanese orders. that's according to president trump at the g7 summit. he left it open to slapping levees on the nearly $50 billion sector at a later date. washington in tokyo have reached an outline deal, but were formalized in late september. in the german economy is on the brink of recession after a slump in exports. it's a sign that trade wars are at least partially to blame for german leas economic malaise. trades attracted .5% from total output and three months. the bundesbank thinks the gdp could decline again in the third quarter, piling pressure on berlin to provide stimulus. global news, 24 hours a day, on air and at @tictoc on twitter,
powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. >> thank you. trade tit-for-tat recession fears and growing market uncertainty, there's good news for equity bulls. the fed model shows u.s. valuations are at their most attractive in three years, with the s&p 500 earnings yield now sitting at 3.8% above the 10 year yield. this gap has largely been driven by falling bond yields but historically whenever the model is above 3% stocks deliver positive returns in the following 12 months. let's bring in our next guest on the relative merits and valuations, number of the investment community at carmen yang joining us in hong kong. good to see you. model is suggesting stocks are cheap but you need to
have confidence in the profitability that the model relies on, and the profitability assumptions that are attached to that -- what kind of confidence do you have? >> we have some good confidence on companies that are providing us great earnings growth, quality companies with thematic trends. true that they are incredibly cheap for a good reason, because we are seeing those companies not giving up at thethe ability, given current economic environment. we are still sticking with which have given us some decent performance and decent protection to the trump rhetoric. >> which has been plenty. >> i've been looking at a
similar charge from a slightly different perspective. this is the s&p dividend yield that outweighs the 10 year treasury, the yield premium burden of discount. i wonder what you think about dividend stocks if we are headed into a recession. this that mean we see company start slashing dividends? up someay they can hold of the probabilities -- traditionally the companies we are invested in don't have high dividends. maybe a small exception on health care. it is not really the dividend pushing we are after, otherwise we would head down to the venue stocks, which is not how we are constructed. have a strong assurance that companies will
get through this next fairly period, whereonth we are certainly heading into a much lower growth below trend, and i don't think the market is aware of that. with growth stocks being isdful, cost valuation pretty well held. we are looking to rotate some of the companies that have really been priced fully with smaller onernet companies, providing disruption. >> lots of opportunities out there. >> you are focused still on the growth. how is the fed going to cushion it here? i saw in your notes that you think the fed is behind the curve -- what makes you think that?
>> if we look at the soft and hard data, the soft data is showing us there is a significant lack of confidence and a potential feedthrough into the hard data towards work that should lead to 200, 300 basis point. scenario, we are not at 5%, so there could be some limitations. but if we go through this data and look at what the fed could be doing in the next 12 months, it certainly is beyond the 91 basis points pricing in the futures curve. >> do you have any expectations for german spending package? a couple weeks ago they were talking behind the scenes. they are famously frugal, the germans, and want to stick to a surplus, but they get paid to borrow here, so why not do it?
>> they are going to have to do it otherwise there would be a new recession. we saw the figures that came out yesterday, trying to project were german growth would be. it could be another -.6, definitely moving into a recession. we think the german government will put aside their zero limits and look to the sustainable package, the environmental package, something like 1% of gdp. they are also hoping to bring out a full fiscal stimulus, potentially anywhere between .3 and 1.5. if they have the scope they can go up to 2.25. i believe now, given the weak coalition, i think all efforts
will be made to bring a much better environment in germany. >> thank you very much. member of the investment committee. center will be joining me in conversation on bloomberg radio. up next, we will bring you some of the stock movers, including this uric airport, taking flight after the revenue numbers say it produces estimate. this is bloomberg. ♪
♪ >> welcome back to "bluebird markets." this is the european open. day,nutes into the trading and with the exception of the fancy, which is gaining, we see losses in the equity indexes with the ftse 100 in london down about .3%, as is the cac huron in paris. now over to italy. on optimismre lower elections can be avoided. we understand the five-star movement and the democrats are close to a deal on a new coalition -- that would see the prime minister stay on. joining us from milan is rafael
tang connie, chief economist and founder of ada economics. surely markets would love to have some kind of certainty and theynuity, which is why are buying btp's and equities. foris this coalition good the medium to longer term italian growth story? >> good morning. agreement isthis largely giving you the perception that this is good news in the sense that you will probably see a smoother relationship the eu and avoid the anxiety around elections, but in reality the problem is that the coalition is unlikely to show sufficient ambition in driving the growth strategy and the fiscal strategy. the fact that the economy is
stuck in stagnation has potential growth that it is practically nil. even with exceptionally low borrowing costs, the public debt sustainability is at risk in the medium-term. with the three to five-year horizon you still need to consider that italy will lose investment grade. >> how likely is that, and how significant would that be for italy? well, if nothing changes, then i would say it's actually quite significant to the risk. of course it depends because we are talking about three to five years, it depends what is the global economy doing at that stage, and whether anything is done between now and then or if it is just ignored. i would say the probability has not zero.ically nil,
it's a matter of urgency to make sure fiscal policy is sufficiently ambitious, to make sure what are the current competitive advantages of italy, which is cheaper labor costs and extremely cheap housing costs, and still some areas and public actually valued right now and expanded, whereas if nothing changes the economy will continue to bleed human resources and industrial capacity. losing investment grade is actually the biggest financial risk italy is talking about in the long term. frank, iar-term, to be don't think it matters who will leave italy and the next months, whether there is an election or
isn't an election, it doesn't matter, because it will trade within a very tight range thanks to the fact that the fed is about to start another massive easing cycle and the ecb is starting qe. >> one are the budgetary moves that we could see? for example, a minimum wage in italy that you think would affect the longer-term outlook? would that be good for the economy? is it a problem because of the ratings? they are broadly agreeing on some priorities -- labor market reform including potential minimum wage is one, giving more emphasis to the green economy and circular economy.
the problem with the minimum wage as proposed right now, which looks at a minimum hourly rage of nine euros, is that it is too high for a large section of the economy, maybe even more depending on how broad you make the definition. they will have to face a wage increase, which from one point of view seems like a spot from the other point of view it isn't because the corporate sector has not finished restructuring. int do you think will result higher compensation for many in reality will probably result into lower job opportunities and more companies shutting down. from my perspective the minimum wage proposal is negative in the near-term. what the economy needs is more flexibility in the labor market, or if there is no agreement, no changes, because quite frankly
the labor market has been tweaked every single year in the last nine years. the only thing you know for certain as an interpreter is that the rules will change. what is the upside of trying to invest? >> thank you, the chief economist and founder of ada economics. let's get to our top stock stories -- dani burger has an update. >> ferguson industrial supplies company falling to their lowest level in more than a month after bank of america limited upsides from the recent activist , saying that their short-term trading outlook is slow at best. then zurich airport gained first half reports, a lot of pot of the analyst notes, positive on the cash flow coming from the
company. volatile day, up as much as 3% at the beginning of trading and no falling after third-quarter results. we spoke to one analyst to says there's limited upside when they are charging such low fees, saying you can fly then, but don't buy them. >> thanks very much. up next, the man who built age 82.en is dead at over the weekend. we will talk about his legacy turning around the world's largest car maker, building the world's largest car maker, as well as a number of milestone vehicles. this is bloomberg. ♪
♪ >> welcome back to the european open. day,nutes into the trading european equity markets are under pressure, the ftse going its own way, the optimism surrounding a government formation listing some of the stocks that are related to that and moving the bond market. the negative moves to downside as u.s. futures point lower. let's turn to the man who built volkswagen into the world's largest car maker, who has died at 82 stop he became ceo of vw
in the 1990's and successfully returned the automaker to profit and laid the groundwork for dominance in the sector with his acquisition of porsche. joining us is kris bryant. what do you think the legacy of him at volkswagen looks like. >> it's an extraordinary life that has come to an end -- he took over a company that was going nowhere and almost single-handedly turned it into empire,bal car acquiring a huge stable of brands. much criticized for vanity projects, acquiring brands like lamborghini, spent a lot of money on developing complex engines, and the possessive and difficult man to work for stop but volkswagen wouldn't be where it is today without him. >> he was eventually thrown out for developing too much money --
then he went to audi and built their quattro brand, winning a ton of rally races and moving the brand up market before the move to volkswagen brought bugatti in the 16 cylinder engine. with him, and kim can they sell those brands? stepped away from the company a while about -- a while is noo in that sense vw different from yesterday. do to him vw assembled this amazing stable of brands, and following the listing of ferrari investors seemed to like luxury car companies since they are with shareable, prices that have been quite poor. porsche on its own is phenomenally profitable, some
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♪ >> training on tone. throughtried to get trump's words on china, risk assets going to trade hopes. coalition confidence. italian bonds rally on hopes that there can be new elections. and iran says he would be open to talks with the u.s., but only if sanctions are lifted first. welcome to "bloomberg surveillance," i'm matt miller. let's check in on the markets this morning. it looke