tv Street Signs CNBC November 14, 2018 4:00am-5:00am EST
. welcome to "street signs." i'm willem marx. british prime minister theresa may prepares her draft brexit proposal to her cab neinet but e deal could be doomed already europe's powerhouse runs out of steam the german economy contracting for the fist tirst time since 2s trade standards weigh on the key
exports sector >> it's a difficult moment, all the international institutions, all the economic experts agree that germany still is in a good economic shape italy sticks to its guns rome resubmits its spending plans with no concessions to brussels as mateo salvini warns the eu against imposing sanctions. >> translator: i can only say we're working on a financial plan that includes less taxes. if europe doesn't like it, we'll keep going our way oil prices have been suffering their biggest one-day loss in more than three years, trying to stabilize now in today's session this is a stunning reversal as the opec secretary-general tells cnbc the alliance between producers is steadfast. >> the saudi/russian
relationshrelation ship is as strong as the rock of gibraltar. we will do all it takes to protect and guarantee the stability that have taken us nearly four years. the end of the uk single market, a surrender to brussels and as bad as it possibly could be these are a handful of examples of the sea of criticism for british prime minister theresa may's draft brexit deal before it's even been presented her cabinet is set to meet at 15:00 cet to discuss the draft agreement before it faces the greater challenge of being approved by parliament the dup, labor party and brexiteers within the conservative party have been
quick to threaten to vote it down >> if what we've heard is true, this fails to meet the conservative party's manifesto, and it fails to meet many commitments that the prime minister makes it would keep us in the customs union and in the single market. this is the state. this is a failure to deliver on brexit it's potentially dividing up the united kingdom it's hard to see any reason why the cabinet should support this. i hope the cabinet will block it if not, i hope parliament will block it >> the leader of the dup, the party propping up the british government, has piled further pressure on theresa may. arlene foster has warned her party would not back any prex deal that leaves northern ireland cut adrift from the rest of the uk. willem joins us from westminster with more. what more can you tell us? >> arlene foster like everyone
else in the dup has not seen the details of this text, so she's saying that based on her understanding of what it will contain. last night her party spokesperson on brexit essentially issued a threat towards the prime minister >> if she doesn't keep her side of the bargain, she knows the consequences though i suspect our agreement, of course, is not with theresa may. it's with the conservative party. it will be up to the conservative party to decide whether or not they wish to keep the agreement with us in place >> it's worth reiterating that today is about getting this proposal through the cabinet that is a very small group of conservative mps with theresa may as their head. she has been working hard to bring them on her side, talking to them about specific concerns they may have to do with this draft text that her negotiating team has agreed. further down the road, we will
see a parliamentary vote on any withdrawal agreement that is where the parliamentary mathematics becomes difficult for theresa may if you have the dup voting against the measure as arlene foster seems to imply they will do if you also have large numbers of the labor opposition party voting against it. the point person on brexit said this about where we stand now. >> we said on a number of occasions that we need a customs yuchb union with the eu. the prime minister has not been negotiating in the national interest she's been negotiating what she thinks she can get past her cabinet. given the shambolic nature of the negotiations, this is unlikely to be the right deal for britain. so the various interested parties have respective different reasons for why they might vote against this once it
comes to the house of commons. the fact there's so many of these various parties willing to criticize theresa may, willing to vote against her draft proposal as it stands now will make it challenging for this to get done before that march 2019 deadline at that point we're looking at either a hard brexit, an extension of the article 50 period, or we could see this going as many people inside the conservative party now are saying they would like to see to a peoples vote a second referendum on the eu membership >> willem, thank you very much for that dan scott has joined us around the set. dan, a lot of uncertainty clearly in where we go from here hopefully we'll get some guidance out of the cabinet meeting later. how do you look at uk assets at the moment either buying stocks or owning sterling >> we recognize from a valuation
perspective they're inexpensive right now. whether it's sterling or uk assets we don't want to gain exposure to uk assets right now we think the risks are difficult to calculate it's similar with italian assets we're also avoiding exposure because we think on the spreads, italian bonds, it's not compensating the risk you have in there is 300 bips enough compensation to be taking we think no. a number of areas in europe we are staying away from because we think there's other areas where you get better compensation for the risk you take. >> represent you worried about missing out on a brexit bounce if we get a resolution if you're just buying what the market is buying, you miss the opportunity, don't you >> definitely. we need to calculate the risk, otherwise it's not worth taking the position in these potential binary type outcomes, not a way to try to manage money in the long-term.
>> through the course of q3 earnings, we have seen investors rotate out of cyclical stocks and into more defensive names. is this the rite strght strategy >> we agree with that. part of the retracement has been a repositioning. interest rates have been rising. clearly we're more towards the end of the cycle you need a more defensive positions. where we think opportunities have come up is there are some anomalies in the market. you see a lot of opportunities unfolding. the tech selloff, for example, we think has been overdone a lot of the tech companies had pe multiples that were far too high a contraction in multiples is okay in general. many of these companies are defensive in nature. we see a lot of defensiveness in texas. companies like apple are not exposed to interest rate risks if you're trying to position defensively for rising interest
rates, you don't need to be selling companies that have strong balance sheets. >> isn't there an inventory problem? isn't that what the chip companies have been telling us for some time, maybe they're not so sensitive to the interest rate risk, but there's a clear risk around they remove our abio see key sales data around handsets, we should be suspicious of what the inventories are telling us >> we don't think the demand picture is that bad. we've seen a slowing down in demand consumer demand is strong. it's growing you see it in the singles day numbers that chinese consumer demand is strong growth rates are still there they've come down. there's been a contraction of growth, but we're not moving into a recession we're moving into a stabilization of growth. from that perspective there's no
reason to be so excited. when markets were only trading in one direction, we were all looking for a correction we said markets need a healthy correction now that we have it suddenly everybody gets nervous we don't see this as moving into a bear market. at worst, it's a bit of an earnings recession like we saw in 2016. we're not there yet. we haven't seen a decline in earnings, only growth rates. >> on that point, it feels like the market is very consensual in sort of hating cyclical stocks when we have seen little pieces of positive news flow, in particular in the auto sector, stocks have soared, which suggests to me the market is positioned negatively. if the earnings picture is not that dire, isn't this a great opportunity to step into a nonconsensual play >> what we did, we sold our puts we had puts in our portfolios for a structural reason to protect for downside because of increased volatility
we think this is an opportunity to be investing in equities. at the same time we don'twant to be overweight equities because we think there are a number of risks going ahead. so be invested in equities but don't lean too far out the window at this point >> that's great. dan scott, thank you coming up on the show, u.s./china trade talks resume but how much can be achieved before president trump and xi meet at the end of the month stay with us - learning from him is great... when i can keep up! - anncr: thankfully, prevagen helps your brain and improves memory. - dad's got all the answers. - anncr: prevagen is now the number-one-selling brain health supplement in drug stores nationwide. - she outsmarts me every single time.
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when you buy a new smartphone. xfinity mobile. it's simple. easy. awesome. click, call or visit a store today. welcome back to "street signs. european markets have been open for more than an hour. i'm surrounded by red. it's been a week start to european trading so far this morning with the stoxx 600 giving back all of yesterday's gains and then some. the stoxx 600 is down more than 1% this morning. losses have been accumulating throughout the morning a number of factors on investors minds today. we have brexit with the break
through deal between downing street and brussels. still waiting to hear how the cabinet reacts we have italy in focus yesterday was the deadline for italy to submit revised budget proposals but they decided to stick to their guns, no key revisions. we have weak german data out this morning and oil. oil has been a key focus down nearly 8% yesterday that's having a big impact on markets. stoxx 600 down 1.1% now. i want to take you through the european markets and see how the different regions are faring through this morning just starting with the dax some weak data out of germany today. the dax is trading about 1.1% lower. this was the key positive point yesterday. the dax saw some strong gains. so giving those back this morning. over in italy, down 1.8% for the ftse mib so your italian stocks not having a good day. a negative picture across the
board. in the uk down 90 basis points let's get into the sectors and see what is driving these losses at the bottom, firmly at the bottom, basic resources, oil and gas, chemicals, industrials. so the oil price clearly having a ripple effect through here in europe oil and gas down 2% in early trade. at the top, autos up about 0.74%. the picture is really a red one this morning. the trade war between the u.s. and china is weighing on maersk they lowered their full we're guidance after volume growth was slower than expected the company did beat third quarter operating profit expectations they warned demand would remain under pressure iliad opened the top of the stoxx 600 after posting a sharp rise in third quarter revenues the telecom group saw frefrm
mobile and fixed subscribers fall, but the venture into the italian market provided over 2 million new customers. >> alstom opened higher after posting a more than 200% jump in first half net profit on the back of new contracts in dubai and mumbai after criticism from the european commission yesterday, the french train maker reiterated it expects to close the siemens mobility merger in the first half of next year. the european commission called the deal incompatible with the internal market. in a statement alstom confirmed they have received an official letter of objections and will continued to work constructively with the body. u.s./china trade negotiations have officially resumed. larry kudlow confirmed to cnbc that bilateral talks are under way, laying the ground work for presidents trump and xi to talk
trade at the g20 later this month. kudlow said the development was a good sign. >> we are, again, talking with china. i think that's very, very, very positi positive the president initiated a phone call with president xi we know we will discuss trade at the g20 meeting in argentina we didn't know that before there will be many things, security and things on that list, but trade is one of them right now we're having communications at all levels >> kudlow also had sharp words for trump adviser peter navarro saying that any deal with china would not be wall street's terms were way off base and a great disservice to the president. for more head to cnbc.com.
let's get back to the conversation with dan scott. let's talk about some other asset classes. oil, dramatic plunge through the last 24 hours. 7% downside in wti where do you think the opportunity is in the commodity markets at the moment? >> first, on oil specifically, when we were back at $80 a barrel president trump was putting big pressure on the saudis and russians to keep production high and get oil prices lower we had a supply response saudi is using its spare capacity and pumping 2 million to 3 million barrels of its own spare capacity we also have the situation that iran has been given exemptions and can export oil to a number of southeast asian countries that was the additional supply on the demand side we've seen a bit of weakening in line with the slowing down of growth globally and that has led to this big speculative position downward
and pushing oil prices lower longer term oil prices clearly will trend higher and back towards the $80 level because we're in a 1 million barrel per day market, and oil will continue to grow demand will continue to grow between 1% and 2% per year, and the big integrated companies, the upstream companies are not investing into extracting or exploring new assets you've seen it in the cap capexnumbers they're not replacing reserves that will keep the oil that can come to market constrained >> the trouble with believing the upside is the demand story at the moment. i take on board what you argued in terms of the supply but on the demand side, germany just printed a negative gdp print for the third quarter.
it's hard to stand up the demand story outside of the united states at this point, isn't it >> for oil, what's important is emerging markets over 60% of deman for commodities comes from china alone. the rest of the emerging markets make up a good chunk germany and german economic data is interesting because if anything up until recently we had a situation where we were worried about an overheating of the german economy because interest rates are too low the rest of the eurozone is struggling if germany slows down, that's not so bad it would be worse to see an overheating situation. germany in particular has an issue related to trade look at the car industry it's the most affected by global trade jirmi iskirmishes the biggest exporter is who? the german automotive industry so they're fighting a battle against germany really >> want to go back to your point
on capex but broaden it out. capex spending is on pace to grow 13% year-on-year. that's a slowdown from the pace of expansion in the first two quarters, but they're still increasing capex if you're bullish you take the view because demand is set to increase, butbayi ibay bearish view is they're investing at the top of the cycle >> in '14, '15, '16 we had a crisis as oil plummeted. and it had real scars. since then capex has not gotten to the point where you can invest for growth. whether you have maintenance capex coming back up to reasonable levels is one thing, but it doesn't give you new supply for oil there's a shale component in the u.s. yes, production in the u.s. has
come up a lot, but shale is a swing factor shale is growing up in importance but makes up about 15% of supply. also they have issues getting shale out of the u.s. at the moment i think capex is a far distance off from bringing on big amounts of supply. that also affects the base metals you see it in companies like rio tinto, glencore, none of them are investing really in new greenfield assets. they're handing the cash back to shareholders in the form of dividends. look at the year-to-date performance of the miners, they outperformed the market because their defensive. as a short seller do you want to be shorting a company that has a 6% dividend yield? probably not just on that point we're seeing massive ullback in the miners. i take it this is a good opportunity to step in >> again, yes.
on a year-to-date basis they're outperforming. on the day-to-day moves i don't know if i want to read much into it whether it's a risk on/risk off move we have concerns about italy, about brexit, what's happening in the u.s on oil specifically much more important on a short-term view like today, we have api inventory data that will be published. there you will get a clear view on how the deman situatid situas >> can you give us a specific line on china? i know the market is fretting about weaker growth dynamics out of china one report out, this week it says 22% of chinese housing stock is empty so there's some fakery in some of that data >> the statistical data is hard to read. what we've seen in the statistical data has been encouraging. we're past the lows.
we've started to see a recovery. whether it's in housing data, in new housing starts so if you believe the data, there's been a bit of a recovery if you take a step back and try to be more sanguine about it, you can say obviously trade wars are having an impact on china and there will be a slowing in chinese growth rates at the same time as an investor the risk/reward prospect in emerging markets is far more appealing to me than what i'm getting in developed >> give us a line on the fixed income markets where do you put money >> fixed income is an interesting topic. it's positioning back to a defensive. 20 years ago we all would have been piling back into government bonds if we wanted a defensive positioning. clearly that's not defensive right now. so what do you buy at the moment there is an alternative. it's no longer a t.i.n.a.
situation, there's an alternative in u.s. dollar cash. i think that's what you see market doing in part, moving over to u.s. dollar assets there is yield there to be had that's also not a long-term investment profile for us it's important to seek out corporate credit where the fundamentals are strong to say short in -- credit risk rather than duration risk and to look for opportunities in fixed income markets, we think there's quite a few. >> dan, thank you for coming in dan scott joining us coming up, we'll hear from opec's secretary-general, mohammed barkindo amid the biggest oil price slide in three years. reaction after the break
party says it would leave ireland adrift from the rest of the uk europe's powerhouse runs out of steam the german economy contracts for the first time since 2015 as trade standards weigh on the key exports sector >> it's a difficult moment, all the international institutions, all the economic experts agree that germany still is in a good economic shape italy sticks to its guns rome resubmits its spending plans with no concessions to brussels as mateo salvini warns the eu against imposing sanctions. >> translator: i can only say we're working on a financial plan that includes more job roles, more rights for the retired, less taxes. if europe doesn't like it, we'll keep going our way oil prices suffer their
biggest one-da loss in more than three years, and the secretary-general says the alliance between producers is steadfast >> the saudi/russian relationship is as strong as the rock of gibraltar. we will do collectively all it takes to protect and guarantee the stability that have taken us nearly four years. away from the brexit story we do have some economic data out in the uk. one would imagine given that employment wages data that we had yesterday showing wages rising at the fastest rate since 2008, we will get a blowout figure on the inflation front. british inflation failed to rise as expected in october according to the official data we have
cpi rose at an annual pace of 2.4% in october, which matched the september number did not exceed the september rate the economists, those smart people who spend their time trying to figure out where this economy is going had put in 2.5% but that number was not achieved 2.4% is the number delivered here for uk inflation. let me give you some lines out of the body that organizes this data core inflation also held steady at 1.9% in october prices paid by consumers continued to rise at a steady rate with falls in food and clothing offsetting increases in utility bills and petrol as crude oil prices continue to rise that according to the o.n.s.
statistician the bank of england had suggested that we would continue to see inflation drift down, but just remain above its 2% target over the next 24 months. so we are seeing a flat print effect ively on the september t october number in terms of the inflation print for the uk brexit the end of the uk single market a surrender to brussels, as bad as it could possibly be. these are a handful of examples of the sea of criticism for british prime minister theresa may's draft deal at the meeting they will consider the draft agreement between the uk and the eu before it then goes on to face an even greater challenge of being approved by parliament the leader of the dup, the party propping up the british
government, has piled further pressure on theresa may. arlene foster warned her party would not back a brexit deal that leaves northern ireland cut adrift from the rest of the uk one presupposes then, willing, if the dup is weighing in with criticism at this early stage that they already have a draft copy of the 400 to 500-word deal do they? >> our understanding is just cabinet ministers have been shown a copy, beyond the negotiating team responsible for it they were taken through the dock the over the last 24 hours by theresa may and her leading civil servants in terms of the dup, arlene foster repeatedly said if there is separation between northern ireland and the uk, they won't be able to back the deal what's interesting is some of the criticism from other members of her own party jeffrey donaldson saying they're not afraid of a general
election something they were in the past afraid of because it could mean journey corbyn coming to power someone else from the dup talking last night saying theresa may should watch out because the dup's deal is with the conservative party itself, not with her personally, implying she could no longer be leader there's a whole range of outcomes beyond today's cabinet meeting. if it doesn't go well, it will be difficult for theresa may to try to go back to brussels, reword things, once again come back and sell it to the cabinet in time for an eu summit if that is not the time this agreement is approved by all eu 27, that march 2019 deadline becomes slightly in doubt. if it gets past the cabinet, the parliament is the next big challenge for theresa may. we heard a lot of criticism not only from the dup, but also the
labor party, the s&p saying they would like to see more scrutiny as part of the parliamentary process. they would like to see more time afforded to them for possible amendments so we can expect a huge challenge for theresa may trying to get a majority in the house of commons once this agreement does come through there. >> thank you very much, willem one person who is confident the uk and the commission will agree on a final brexit deal is germany's finance minister however he insists his government will have contingency plans in place in case of a no-deal scenario >> we are working very hard to get an agreement between the european union and the uk. i'm still optimistic or confident that we will do it second, it is absolutely necessary that anyone understands that a hard brexit
would be difficult, mostly for the uk also for the or countries. we'll be able to stem the situation and to act in this situation, but it would be better if we have a fair and agreed solution. >> are you doing contingency planning already >> we are working for both possible outcomes of the debate. in germany we are prepared also for a hard brexit, but we work not to come into the situation >> eu ambassadors from the 27-member country also meet in brussels later today to discuss the proposals. annette is in brussels and joins us over the phone with more. >> thank you very much it's interesting to see that in brussels there's not a lot of euphoria also if you look at all the different national newspapers, the french, the spanish, the german ones, no one the
headlines are extremely positive talking about a deal which is reached between the uk and the european union that's the general tone here in brussels nobody wants to talk about a deal yet probably the front-runner for the job of jean-claude juncker is talking about white smoke and positive signals a spokesperson of the eu, michel barnier, is saying there's no deal yet reached the meeting today of the ambassadors will be crucial in brussels they will decide together with michel barnier whether the solution reached is viable and whether it will bring it to the next level it is a technical agreement so far. we need to -- they also need to
sort of see how the discussion in the uk is going, whether it's worth pushing the negotiations to another level ultimately there could be a meeting on november 22nd of the eu designate, then this could be followed by a meeting of the head of state on november 25th that's according to reports. that's the positive timeline if everything is going according to plan. but there are so many possibilities of failure for now that as i was saying, brussels is not talking about a deal and nobody wants to sort of step out now and declare victory on that very complicated issue back to you. >> thank you very much, annette from brussels. stronger global oil supplies will surpass demand in 2019 according to the iea the paris-based company says record output levels from saudi
arabia, russia and the u.s. is outweighing declines in iran and venezuela. the energy organization left its oil demand forecast for this year and next year unchanged at 1.3 million barrels per day and 1.4 million barrels per day but cut the forecast for nonoecd demand growth. crude prices have turned higher in the last few moments following a report that suggests the opec group of producers could take 1.4 million barrels of oil off the table in a supply cut. let's get out to steve and hadley who are in abu dhabi. now i'm totally confused i thought our read was that there would beplenty of oil around and we weren't going to get definitive cuts from opec. has that story now changed >> the story changes quickly there's no doubt about it. i'm confused, you're confused, i
think opec is confused i think there are geopolitics coming in here, market algorithms, and you have the old fashion supply and demand story. it's goingmixture. >> it's fun to be on the sidelines of something like this >> we have contributed to the story. it became clear to hadley and i about an hour or so ago that opec would come out and talk, a bit of verbal intervention they used cnbc among others, but cnbc with a first-on with the secretary-general to say they will have a new policy for production in 2019 decided hopefully at the december 6th meeting. i believe that's the verbal intervention that has taken the price higher but the fundamentals are still tough so we've got a blip. the machines have responded to the comments, but things are tough for 2019 hadley and i were talking to the secretary-general of opec,
mohammed barkinda, will there be a cut pencilled in this is what he said >> i can tell you with all authority that opec and non-opec partners in the declaration of cooperation will do whatever it takes to protect the declaration of cooperation the implementation of the supply adjustments, and the return of balance to the balance to the market including going forward into 2019. >> they do not want all the hard work of the last three years to be wasted because they had this declaration of cooperation you did some of the groundwork on that one as they were working towards it in 2016 it worked. now there's a feeling they lost control of the narrative, and mr. trump has control of the narrative. >> absolutely. that's not something they'll
say. it is certainly something we've been talking about for days now and something they're looking at as well. also you have to remember this is political given the fact that saudi arabia, the khashoggi investigation is ongoing certainly there's more pressure and more pressure out of washington to make something happen here. that has not gone away >> let's make the connection for viewers between khashoggi and saudi oil policy trump is tweeting saying saudi and your allies do not cut production we want lower prices and if they were to cut production, then maybe there would be political pressure on the khashoggi front. that's the connection people are making >> absolutely. >> we also talk about the iran story. the big geopolitical event which they refer to when they are eluding to other factors in there. we spoke to the opec president, i asked about the waivers and about mr. trump and whether this was adding to the volatility and the downtick listen to his answer >> the waivers are a contributor
to changing the strategy as i said we need to change the strategy because of the volume. that's one component, but not the only component there's the selloff. there's the trade, there's speculative elements those are historically there in the market now the volatility and geopolitics and the volatility from the speculative market are playing higher, and have impact on the oil price than the fundamentals it happens sometimes the fundamentals play. sometimes the geopolitics and sanctions and market sentiment plays that role. so we need not to jump the gun or overreact, we will do what's necessary. we have three weeks to our
meeting, and we will do the right thing. >> he has been -- this is a great quote, he's been hitting the phones, building consensus that says that they still have work to be done to build that consensus. >> absolutely. i thought it was interesting that mr. barkindo did not rule out, did not shut me down when i asked him if we'll have another meeting before that. >> two other factors, they cannot control u.s. production u.s. production at record levels second factor, is russia on board? if novak doesn't come out soon and say we'll join this as well or we'll cut, i think that's another factor for the market. and the problem is does mr. novak control the oil companies of russia as well? the answer may be yes, but it's a difficult thing to work out. lukoil and rosneft, people think
toe don they don't want to cut one barrel >> mr. barkindo said they were speaking to the industry, but did not say they were speaking to the one person. >> julianna, i know you're having fun back in london. back to you. >> i am. thank you. italy resubmits its budget proposals to brussels without making concessions we head to the ubs conference to speak with klass knot when we come back. plaque psoriasis can be relentless. tremfya® is for adults with moderate to severe
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the grinch: euch.tmas already? narrator: the grinch might not love an early start. but you can get an edge by learning to code and build a career in computer science. and your future will be as bright as christmas the end of the uk single welcome back to "street signs. the italian government defied the european commission declining to change its economic growth forecast for 2019 last month the commission rejected rome's expansionary budget urging rome to submit new spending proposals the imf warned further stimulus
could plunge italy into a recession. joumanna is at the ubs conference and joins us with more >> yes it is a big day for italy. i'm happy to say that joining me now is klass knot, the dutch central bank governor. given that it's such a big day for italy, given we're seeing a widening in spreads, i have to ask you at what point do you stop worrying about the transmission mechanism given that italian yields seem to be breaking out >> let me begin by saying that the italian problem is an internal redistribution problem. there's a lot of focus on the high level of public indebtedness in the italian economy, there's less focus on the private sector is quite wealthy. in order to avoid such domestic imbalances spilling over to our one single monetary policy, that's the reason why we have
these fiscal rules so in that perspective it's pertinent that italy complies with the rules if it doesn't, the result is that spreads will go up. there's some rational pricing there. that's a fact their will play into eurozone deliberations with the weight that the italian economy has in the eurozone averages we cannot, as a european central bank for the whole area, make monetary policy just for one single member state. >> but if it's m pacti impactin transmission mechanism and there is contagion, you would have to change that. >> but we're not seeing contagion, we're not seeing an overall deterioration in financial conditions, those are the kinds of things we would have to see before we could contemplate changing our course of action.
>> i spoke to your colleague, mr. praet yesterday, he warned perhaps of stumbling blocks coming up ahead for european growth, whether it's protectionism, trade wars, the italian situation, brexit as well do you think downside risks are building for the eurozone economy? >> it's inevitable i think to conclude that there are these downside risks on the horizon. but also the rezsilience of the economy is much better than years ago. we've seen five years of consecutive growth, the last four years growth has consistently exceeded potential growth capacity utilization is at much higher levels. the labor market has been strongly improving so the environment within which we have to cope with these uncertainties is much better now than it was a couple years ago inevitably these uncertainties are there, we will have to take them into account.
at this point in time, it would not take us to fundamentally change our outlook >> you say that, but the market has already started shifting out the timing of the first rate hike from the ecb. it was supposed to be around the summer of 2019, nowlabilities as the beginning of 2020. do you think it's right for the market to get more cautious? >> i would not question the wisdom of the market, but the market sees the interest rate is the beacon of policy adjustment. so the analysis of where the euro area gets reflected in expectations of our first rate hike, what we have set thus for is an expectation of not hiking rates until summer that's not a commitment, that's an expectation we always knew there was a
probability distribution on either side. >> is it fair to say when there is a hike t will be , it will b0 basis point increments >> that is open. we said 2018 is the year to wind down asset purchases, not only after winding down the asset purchases, only then would we open the debate on interest rates. that would be one factor to be taken into account >> one of the lines that the ecb says is that all instruments are available to be used if we are in a situation where growth deteriorates and if ecb has to start going back to asset purchases again, active quantitative easing, do you ever envision a situation where you may shift away from the capital key? >> i don't want to speculate too much about all the potential states of the future where the eurozone economy could be heading. thus for i'm not convinced we
are moving in that direction that sort of drastic decisions would have to be taken as long as that is the case, i won't speculate on whatever move happens in that direction. what do you think is the big the risk for the eurozone economy next year? >> it's not a single risk because confluence of a couple risks that are at the horizon, at the same point in time. so we have the brexit risk we have the italian risk we have the trade dispute which is primarily between the u.s. and china. we could have broader ramification we have uncertainties in the emerging markets, uncertainties about china. the biggest risk for the euro area, if too many of those risks were to materialize at the same point in time. >> all right, sir. klass knot thank you for joining me on "street signs. i should tell you that i will be
back yet again in about an hour's time speaking to the chairman of ubs, that is ax axel weber stay tuned for that one. >> always great value, joumanna bercetche. we look forward to that conversation later on. something else to tell you about, coming up at 11:30 cet, we will be talking to rwe cf rwe cfe markus krebber how are we setting up for the u.s. trading day as you might expect, an implied weak start to the trading session. we'll be back with more krebber shortly. that's it for "street signs. stay tuned "worldwide exchange" is up next. xfinity mobile is a new wireless network
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