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tv   The Pulse  Bloomberg  February 29, 2016 4:00am-5:01am EST

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>> fragile china. stocks tumbled 2015 month low after the pboc fails to step up stimulus. is it market expected to much from the central bankers? no plan b. the german chancellor wants that greece needs europe's help to deal with the influx of refugees. is this the next greece crisis in the making? zero down. zero zone inflation is expected to flatline in february. will this be the number that forces draghi to do more extra week? ♪
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welcome to the pulse p where live from bloomberg's european headquarters in london. i am guy johnson. on scene is -- she will be here in the next hour. she will be up and surveillance. let's check up on the markets and see what is going on. this is the picture of negative euro stocks, 1.1%. banks are doing the damage. you can see the safe haven trade, dollar yen trading one one dollar $.12 -- most people are telling me we are at a stabilization rate. let's get your course of. here's nejra cehic. nejra: thinks guy. in the us government has stuck with its plan to narrow the deficit in the next fiscal year. financial minister says the shortfalls -- 3.9% of gdp.
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that is the smallest gap since 2008. providing relief for farmers and a budget that signals the intent to win back support in rural areas ahead of key state elections. prospects facing the of a grand alliance after the general election. prime minister is expected to finish ahead of the pack but will have to negotiate with other parties. they include traditional rivals. the outgoing government suffered a big lost when voters angry at spending cuts and tax rising. texas senator ted cruz said dom chu may all but lock up the presidential nomination if he wins back -- wins big on super tuesday. hillary clinton won a landslide victory over bernie sanders and south carolina's primary. and seems much more likely to clinch her body -- her parties nomination. leonardo dicaprio finally won an
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oscar. meanwhile, spotlight was crowned best picture. global news 20 for hours in a, powered by our 2400 journalists in more than one budget 50 news bureaus around the world. guy guy: -- guy? guy: investors disappointed by the g-20 meeting. thegore expecting a speech pboc might deliver on the weekend. it didn't. let's speak to enda curran. wasn't the market really expecting more from the pboc? andreas: enda: -- enda: trying to inject confidence back to the global market. there is a feeling that the g-20 has not delivered. perhaps people were expecting a push that they would deliver
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interest rate quotes. anything, they overstepped the mark a little bit. fundamentals are not as bad as you would think from watching the global up-and-down of the stock market. has made clear over the last few days, they are willing to do more if needed. i don't think the market altogether expects them to quote interest rates in a hurry because they need to watch the downward pressure of -- of the yuan. this is the balance that is going on at the g-20. there try to send a signal that things are slow but no crisis yet. no need to pump up the volume. guy: do you think there was a message from the the peers -- from the peers to the chinese saying do not accelerate this. do you think the chinese are
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going to do this at a slower pace, because of what they have heard from the rest of the g-20? enda i think that is an interesting observation. -- we are going to do this but we can do it less under the monetary policy side. we can work in a structure reform side of the economy which is much more difficult and politically hard to achieve. that applies to china. the message to china is we are going to do these reforms by cutting back on overcapacity and tackling those companies that are saddled with debt. you get the longer-term economic dividend, rather than going for targetingr -- may be exchange rate. i do feel it is a narrative of the g-20 that no near-term fix. we got to buckle up for the long ride.
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get the longer-term gains. guy: and a, always a pleasure. asia's chief economic correspondent. our next guest calls negative interest rates a risky experiment. let's welcome samantha azzarello. let's carry on the conversation. the market used to expect that central banks are going to deliver more. your view is that is a mistake. samantha: i do think that is a mistake. it is not that there are many countries that have negative growth, that are in recession. there are only three. the real problem is a lot of growth is below trend growth. the market does not know how to price that because we are growing a lot slower than we did before and where not going as much as we would expect. central banks to leave it to center banks to have to fix that problem scenes -- to leave it to central banks to have to fix that problem seems unreasonable. market say we know the
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likes asset purchases. that seems to work well here it kind of transmission mechanisms have -- transmission mechanisms, how that affects the real economy, -- i do not know if there is enough proof that that supports real growth. -- it isit harder supposed to weaken the currency but it doesn't hold true. guy: the negative rate, they cut it if you days back pretty aggressively. the governor has been pushing the negative rate story early on. samantha: that is one example, we see the small economy did i looked to dan, they cut rates. the stock market jumped. it reversed within a couple of days. it is not a method the market seems alike. in a doesn't seem to hold. guy: the financials are really suffering here. do we understand the applications of how it feeds back into the banking sector?
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samantha: i think it is affecting financial through the sentiment channel. there was expectation that the fed would start raising rates quicker than they seem to have. that was going to be a tailwind from financials. as soon as became apparent that the fed is likely not to raise rates that many times, all of the central banks are easing and cutting into negative territory, it took away that tailwind and imposed they had went on financials. guy: walk me through why that happened? what are you guys talking about when you try and strategize on what is going to happen next. give me a sense on how far the pendulum swung. samantha: it's one pretty quick in january and february. it had to do with all of these headwinds coming together at once. if you think about it, all of the things in the market is opening around the fed, china and oil up it all three of those things became uncertain. the fed raise rates in december obviously, but we are in the
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same boat we were in pre-december. we are still hands, looking at every single work there saying looking for a clue. guy: it looks like it is stabilizing a little bit. the fed, maybe it hikes one or two times this year. give me the story that i take away. samantha: i think you have to focus in on the fed. we could see to rate hikes in the second half of the year. it depends on how you u.s. data -- on how u.s. data holds up. consumer is doing well and that is the basis of the u.s. economy . it is difficult for the u.s. to go into a recession on exports or inventory mishaps along. we have to look at consumer credit growth and consumer spending. it is all holding up. we could get to rate hikes. if they stay dovish for the first half of the year, it will set up financial conditions likely for them to be able to move nicely in the second half of the year as income down. guy: hold that thought.
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samantha azzarello, she will stay with us. we will talk about that. up, warren buffett bullish on the u.s. consumer. blasting donald trump's take on the economy. we are going to discuss the strength of the u.s. the man who called the 1998 russian crisis has a warning for the e.m. he predict crisis for brazil. angela merkel, no plan b. will she come to the rescue yet again. the chancellor warning that the european union should not abandon the country as it grapples with the migrant crisis. ♪
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guy: welcome back. let's get a bloomberg's is a splash with nara. nejra: barclays has boosted its severance package for employees dismissed in tokyo last month. payl added three months of -- it added three months of pay. ahead of barclays announcing its full-year results tomorrow. the most in almost seven years. plans to buy back $3.5 billion in stocks. the chairman and fellow
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directors have fallen to a 20% decline for the company's shares this year through friday. former deutsche bank co-ceo is a joining online lender social financial sophie. advisorbegin a -- as an after stepping down nine months ago. he follows john mack into the centex state did amazon has stepped up its move into the u.k. grocery market. it signed an agreement to sell hundreds of market -- hundreds of products. shares have gone up on that news. sharp shares have fallen with stocks said to be weighing up a possible revision of a takeover deal. the two companies worked over the weekend to salvage their $6 billion deal. of new sharpg liabilities they could exceed $2.6 billion. that is your bloomberg's
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business flash -- bloomberg is a splash. -- bloomberg business flash. guy: it is super tuesday tomorrow. and the votermer is in the spotlight. samantha azzarello is still with us. what are the investment implications? samantha: it is important to keep in mind that if you look back historically, it doesn't matter who has had the presidency and congress. there is no difference in market returns. for the most part, the market has continued to go up over longer periods of time. it hasn't been predicated on who controls congress and who controls the presidency. guy: on trump is an interesting candidate. -- donald trump is an interesting candidate. samantha: there are a few candidates who are antiestablishment. there is a disconnect between
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what some of the candidates might be saying or promising versus what they are able to implement. as well, it is important to see who ends up getting the nomination, because part of the platform will be determined by the party at the convention. guy: you're talking to a european clients, what you say about them investing in u.s. assets? samantha: we still like u.s. assets broadly. we need to be more selective is really a play in this kind of phase in the market cycle. we are still at risk on in some sense. we do like higher-quality. sometimes it can be really wise we don'ty -- necessarily think the broad market is going to have the type of return it had over the last five years. guy: give me an example of some of the selections. samantha: we are going with the sector picks, we like consumer discretionary. consumer is quite strong and we do not expect that
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-- we like technology and growth. if we are in a low growth environment, yields are low across the curve. we are going to pay up for growth. investors are going to pay a premium for growth. capital appreciation is going to be key. guy: i want to get it extra bang for my buck -- get a next bang for my buck. samantha: the dollar is interesting. it has stayed very strong. it's going to be less of a tailwind. guy: the market has not priced in any fed rate hike. you said there could be one possibly to. -- possibly two. samantha: the fed is ready to move and other central backs or not. that is our opinion. -- central banks are not. that is our opinion. expecting dollar
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weakness, because the dollar is overvalued. guy: the u.s. consumer is going to's that's going to's dark selling -- we start seeing it coming through. samco it is holding up in broader numbers. it is not holding up in retail sale numbers. we could get the pop. net worth has been going up. it is hard to say when they are going to start using it. they have to believe it to be true if they are going to continue to hold on to that. echo if you compare the u.s. -- the u.k. and the -- guy: if you start to compare the u.k. with the u.s., i wonder why the economic conditions look different. samantha: gases kind of tricky. if the only price -- gas is kind of tricky. sensitive. very prices that start to go up a little bit in the u.s., but for
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the most part, they are very low. the consumer is saving. i would not argue it is a bad thing. it is in their pockets. hopefully it will be spent this year and we will see a pop. guy: when you look at what is happening more broadly with the oil sector. i looked at the account on friday and it is coming down pretty sharply. to the consumer and how much of that damage has been done, clearly there was huge employment and then huge unemployment. if we price that in, do we understand what that means? samco looking at energy broadly, -- samantha: looking at the energy broadly, i would say the pain felt is mostly halfway done. layoffs, been a lot of those that are going under water with houses and oil-producing region. all of that is slowing. we are seeing it show up in growth and spending numbers.
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we have more upside of this -- more upside at this point. guy: how sensitive is the u.s. the summer to a rate rise? what is the evidence of the first one? samco that is a really in -- samantha: that is a really interesting question. it is primarily interest rate s.set if anything, they're going to get in and -- and income pop. you do not see it on the liability side. guy: rate is not going up. u.s. consumer is going to start spending money more aggressively at that point? samco i would say so. we look at the consumer and they are a bright spot. that is why i find it hard when i hear a lot of rhetoric around u.s. recession. i don't see it because the consumers are doing well. guy: is that because of the
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income divergence we are seeing. the economy is now rich people and poor people. there is nothing in the middle. is that accentuated, the fact that liabilities improve on the interest rate going up. is that because of that? or in spite of that? samco is more so and inequality issue. talk has started to bubble up is the disconnect between the u.s. economy and the equity market. factors that are dragging on the equity market, like a strong -- areare supported supportive of u.s. economic growth. guy: think you very much indeed. during his -- thank you very much indeed. she is what to stay with us. could there be value in japanese equities that go how big is the brexit risk force consumers -- for consumers? ♪
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guy: 24 minutes past the hour. welcome back. a quick mark at them -- a quick look at the markets to show you where we are. story out of shanghai, and negative assessment story. -- a negative assessment story. from get more thoughts
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samantha azzarello, global market strategist jpmorgan. i want to take you back home. what are people talking about when they talk europe? what are they focusing on. samco there is an interest in european equities. a lot of people are viewing europe's growth and placing the cycle five years past -- behind the u.s. we're seeing the grass grow a little bit in europe. a little bit of positive data. there is a lot of interest in migration and a lot of the movement -- guy: does one upset the other? do they worry that one can get in the way of the other? samantha: it is curiosity about how it will work out. will it also run -- will bolster growth in the long run? aboutre they worried greece having an effect on the global economy? are they worried we could see a replication of that scenario?
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i was say there are concerns because right now it is apparent that global governments are not coordinated with fiscal policy or immigration. a lot of these key issues that could go awry. it is unclear whether that is going to work itself out. eurocould a chief of encourage them to invest more in europe? samantha: it is hard to say. if you think that u.s. equity markets have a fairmont to offer, you could augment a lot of that by looking abroad. you could just hedge out your currency risks. it you're still saying you like your. samantha: we like the cyclical story. guy: will be to leave it there. thank you very much indeed. next, guests that saw
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the slump in russia before 2011. he says what he thinks china and brazil are headed for economic crises, next. ♪
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guy: welcome back. you are watching "the pulse," live from london. breaking data out of the u.k. -- let me take you to the u.k. function. 74,000, approvals at touch stronger. net lending on line with expectation. that is interesting in terms of what is happening on the credit side, the idea that consumer spending may be seeing some housing dividend and we will come back and delve deeper into
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that data. let me get you caught up on everything else -- here's a bloomberg first word news. the us government has stuck with its plan to narrow the deficit in the next fiscal year. it should narrow as planned to 3.5% of gdp in the years after april 1, the smallest gap since 2008. that is despite providing relief to win back the poor in rural areas ahead of key state elections. prospects facing the of a grand alliance after the general election left no party with the majority. the prime minister is expected to finish ahead of the pack, it will have to negotiate a coalition with other parties, including his traditional rival. the outgoing government suffered a huge loss of support with voters angry at spending cuts. maycruz says donald trump
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all but lock up the presidential nomination if he wins big on super tuesday. hillary clinton wins landslide victory over bernie sanders in south carolina. it now seems more likely to claim the nomination. leonardo dicaprio finally won an oscar. he scoops best actor for his role in "the revenant." guy? guy: thank you. --gh go for those headlines let's talk a little bit about what is happening with the financial markets. mark barton is here with the details. disappointment, with a vague commitments to spur growth over the weekend, falling to its lowest level since november, 2014, the yuan falling for a seventh straight day. this is the stocks 600 month to
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date. basis, onlyry group one has risen -- basic resources up by 13.6% since this industry group fell to a 13 year low on january 20. it has risen by 26%, that is some turnaround. the all conquering currency today is this currency -- the japanese yen. yen is up by 7% month to 2008 amidbest since speculation that the yen will gain against the dollar, driving it to a four-month high. this is a great chart that shows the price of gold against the msci all country world index -- it was normalized at 100. the global corporate bond
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indexes the red line. priceite line, the gold is up by 15%, so gold outperforming all those asset classes, coming off the back of three years of declines, the worst losing stretch, very much the haven asset in these uncertain times. there is the yield -- this is the 2011 peak when irish bonds were yielding close to 14%. we have an inconclusive election which will announce an unprecedented alliance between the traditional rival and the pm's party. the inconclusive election dozens in to be doing too much in the bond market today. guy: thank you very much. our next guest says
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emerging-market assets are setting themselves up for a major disappointment. good morning. earlier -- aubs top-down macro economist saying he thinks we will see a massive capitulation for the emerging-market in 2017, 2018. you approach it from a different and but come to the same conclusion, which is a little worrying. >> that is. disagree but to most macroeconomists have been way behind the curve in terms of emerging-market financial assets and the economic forecast of the last five years. they have been consistently too optimistic or too complacent and i think the consensus out there is still to muddle through -- most people describe themselves as bearish but they are probably not bearish enough.
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i approach it by looking at the andorate sector particularly looking at the relationship of the corporate sector with other stakeholders, particularly the government. it is that relationship between governments and companies that has set the stage for something along the lines of your previous guest was describing. guy: why are blackrock and goldman sachs and these smart people -- why are they getting it wrong? >> they aren't necessarily. if you look at emerging-market debt, that has been pretty reasonable. it has been local currency debt and particularly equity markets, so we have to draw a distinction there. but the benchmark between a hard currency debt index is different -- if you look at inequity index, it is dominated by china. there could be a perverse situation where hard currency
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debt is maybe wrong to be bullish but i will be less bearish than it would be on local currency, particularly emerging markets and that is an important distinction to make. guy: the difference this time strikes me as they are differently financed. happeneds have already if this was foreign denominated debt? >> yes, absolutely. china's debt level is 260% of gdp and some of that is financed externally -- the fear in china from my perspective is if you look at the corporate sector, the manufacturing sector into industrial sector, we are nearing a crunch in terms of working capital. because of overcapacity, because of deteriorating return on invested capital, you are starting to see a situation where companies are literally running out of money. in order to safeguard these companies which are inextricably linked to local governments, the
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authorities are doing everything they can to ensure that financing is pumped in and the return on that financing is deteriorating over time, so you end up spending a bigger portion of your credit creation on ever greening loans rolling over. over time the risk is that it will drive internal capital out of china and discourage external financing which is quite important to keep the whole thing going. i think in the year to 18 months time -- the danger is that we reach a tipping point where you have this loss of confidence starting to take place -- flight and people arep now very rightly focused on the level of fx reserves in the underlying level of flight capital in china. spots?e there any bright
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they often get thrown out at the same time. >> to me, it is all dependent on policy, so if we think back to 2002 when i was an asset manager it was obvious that emerging markets would do well because only with very cheap valuations do you have very progressive policy development. the only country i can think of where you have that are mexico and to an extent india but in both those countries you have other issues and problems which are likely to hold that back, and more importantly valuations of equities in both countries are quite expensive. you are looking at this combination of improving policy and low valuations and low macroeconomic credibility. it is very difficult to think of any emerging market that has that. guy: the politics is a big part of your thinking right now.
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policy is one thing, but context is another. it is easy to change policy but it is difficult to change the context. if you look at the chinese corporate sector, industrial material companies -- it is often very difficult to pick out who controls them. they are so linked to local government and these linkages are hidden -- they are very insecure. ultimately you don't know what is driving the investment policy in particular and more importantly even if they make announcements about wanting to change policy in practice it is very difficult to do. yes, you can announce changes in policy, which is what beijing has been doing, but you can't control it because it becomes difficult. guy: thank you. john paul smith.
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two guys, same day, clear difference about the emerging markets. up next, angela merkel doubles down on greece as they face an influx of refugees. can she hold off the chaos? ♪
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guy: welcome back. you are watching "the pulse," live from london. here's a bloomberg business flash. nejra: shares of searching for the most in seven years after
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the company announced plans to buy back $3.5 billion in stock. the chairman and directors are responding to a 24% decline for the company's shares this year through friday. former deutsche bank co-ceo is theing social finance -- gaming as an advisor to a san francisco-based company after stepping down from his role nine months ago. sharp shares have fallen with stocks said to be weighing up a possible revision of the takeover deal. companies worked through the weekend trying to salvage their six billion dollar deal. foxconn delayed after learning of new sharp liabilities that could exceed $2.6 billion. that is your bloomberg business flash. guy: thank you. angela merkel is facing doubters with her party losing support
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and she is insisting on staying the course, yet she has refused yet again to impose refugee camps. solutionfor a european is falling on deaf ears but in greece she has a potential ally. let's go to hans nichols. what she said last night struck me as being really important. she is sticking with greece and really flagging up what is happening. hans: she is trying to let everyone know that this is very serious, but that europe has to come together. that in sopart is many ways through the greek crisis she was thought of as the enemy within greece and at this point she is almost seen as the best ally. she is talking about a pan-european solution where in the east they are talking about sealing the border which could have disastrous effects and could spell the end of schengen. here's which he said -- "we
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didn't keep greece in the euro only to leave the country that is part of the eurozone, a country that has many problems in the lurch." it wasn't just what she said but her tone -- this is the chancellor that is not backing down to her critics both outside and within her party. guy: what are they saying in germany about the risks? how nervous are they inside the inner circle about what is going on? we got a very concerned that greece would leave the eurozone but this is far bigger than that and if you look at the economic and locations and what it says to the rest of europe, this has got to be bigger? it doesn't seem like they are talking about the disintegration of the euro yet. ishink most of the concern how is she going to withstand this politically? they had a big goal of a zero budget deficit, and we just
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heard from the deputy finance minister that he is talking about the 2.3 billion euros of surplus going on directly to refugees. for all the talk that he had in shanghai about no more fiscal stimulus, they are spending a lot of money on refugees. this is a backdoor stimulus. -- that is the green the budget surplus and a lot of that will go directly to refugees. guy: great stuff. hans nichols out of berlin. the other european risk is the potential brexit concern, putting a strain on the pound which had its worst week since 2008. let's bring in the head of fx research. you put those two things side-by-side, the euro-sterling pear, and you wonder if they have mispriced the risk.
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but you listened to merkel and the concern in her voice, the worry she has about schengen and greece -- >> that is what happens with european clients now. whenever we go to sweden or spain or germany the question is about brexit and then what happens to europe. the fear is that if we end up having brexit that could lead to an escalation of the potential weakening that is still keeping the eu together. the parting point is always the countries willing to maintain the safety of their borders when it comes to decide who they want to let in. it could be further from here and across the board. guy: why is brexit worth a pound? that certainly does imply in the event of brexit both euro and the pound should weaken precisely because of
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that. from that point of view when we were approaching the eu summit we were arguing that the europeans have a lot to lose and the refugee crisis is playing into cameron's hands in the sense that europeans could fear the brexit could become the catalyst with the suspension of schengen. guy: let's say brexit -- who knows. this story is not going away still. with a more long-term position, could i see the pound bounce strongly? >> sure. we do see the weakness is a temporary development and we are keen buyers of the pound against and certainly europe could drift lower and if you
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think of what has been happening in the markets and how they are approaching that it does feel a lot of negatives already in the price. crisis amonge the other things as a touch on how long it could drop and that has dropped is about 15%. if you bring that up to the brexit fears we have about 80% of those highs which invites more than a 50% chance of a brexit which is not what you see from the polls. word i lack of better think it is a bit overdone. i think it could stabilize from here and it could be an interesting selling opportunity. guy: i want to get your take on china. >> it is concerning. it has given the chinese
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toporate's -- that desire repay that increasingly expensive debt and the dollar remains quite strong, that keeps the back end of the cnh curve so supportive. there is a pressure on the currency and from what we hear from the officials they are part of that- could be taken away by chinese companies coming over to europe, issuing european debt in europe and selling it to repay the expense of dollar debt at only a fraction of what we were dealing with. maintaining or restoring currency instability which is paramount. yuanear of the sharp, weak leads to further anticipation of losses. presumably a debt that is clearly manageable need not
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because inc. so much trouble. that could worry potentially cause more concerns -- deteriorating chinese growth. guy: thank you very much. the head of g 10 fx research. flatlining and zero. they couldk at why make a tough reading for this man -- mario draghi. ♪
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guy: euro area inflation data expected to show price growth dropping to zero, dipping back over. let's get over to frankfurt, with paul gordon. economists are expecting this to be flat. how are officials going to come out, post this number, and give us a narrative? >> well, there is not much room to give a narrative. steer market expectations but we have policymakers speaking this week although often not on monetary policy matters. onre is one to watch wednesday when he speaks at a conference here in frankfurt before heading off to brussels and speaking there. if the ecb when it gets the inflation number it will have to
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react fairly sharply ends the singly and clearly. this is the single needle in the compass, isn't it? this is what they should base everything on. >> well they are looking at inflation expectations -- this number will influence that. they are very weak which, whatever way you look at it, they are not going strongly. the question is, what do you do in order to get those expectations higher before they get raked into the economy? as the bank of france governor said the big concern now is deflation, not inflation. guy: we look forward to your coverage. thanks for joining us. that is it for me and. "the pulse." francine lacqua would normally be in the seat, but she will be
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joining tom keene in new york for "surveillance." that inflation data is about to drop, and they will be covering that. have a great rest of the trading day. ♪
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francine: g-20 underwhelmed. china stocks tumble for the 15 month low after the pboc failed to buy back stimulus and raises its risk options. zero inflation expected a flatlined -- we will receive the numbers for mario draghi. and angela merkel warns that greece needs europe's help to deal with the influx of refugees. the next greek crisis. keene, new york with tom and we are getting some huge inflation figures.


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