tv Bloomberg Markets European Open Bloomberg March 22, 2017 3:30am-5:01am EDT
travelers are reacting. we are going to speak to the largest holder of french debt. we ask the head of fixed income for his strategy ahead of the election. matt: we are less than a half-hour away from the european open. take a look. first off, at futures at the drop-offs in u.s. markets. we had more than 1% drop in s&p 500, actually 1.25% drop. we had futures down here in europe as well. take a look at bunds here. i will pull up a two-day chart of burnds. gains for days of yield so investors buying german debt and it weighing on the yield here. guy. guy: let us take you around the dmn. -- the gmm. yasiel market is down by 1.56.
japan by 2.13. the dollar is bouncing back a little bit. in some ways, that is logical. the dollar doesn't feel that criteria so we are seeing that clearly. look at the aussie dollar, swedish krona. that is the trade you are seeing at the moment. there is a number of interesting things going on here. we are going to discuss why we are seeing this selloff in a little bit more detail. the other thing to mention is the commodities selloff continues as well. steel is down again by 3.15 back in asia. near 6% downside move in iron ore as well. that is interesting in terms of the relation between us to, the commodity and currency, but down.big move i will show you the chart later on. let us get a catch up on what to know. juliette saly. guy, thank you.
china's central bank has injected funds via open market operations for a third day. the pboc pumped in a net $5.8 billion, taking that injection so far this week to around $16 billion after the benchmark money rate climbed to the highest level since april 2013 and some smaller lenders failed to make that payments in the interim -- debt payments in the interbank markets. -- beating expectations as they grow by 11.2% from a year earlier. the increase was the biggest in two years, reflecting the timing of the lunar new year holidays in asia. imports increased by 1.2% which left a trade surplus of $7.29 billion. that is as strengthening global demand helps the nation's moderate economic recovery. has joined the u.s. in banning laptops and other electronic devices in airplane cabins on flights from several middle eastern countries amid
concerns over security. inbound direct flights from turkey, lebanon, jordan, egypt, tunisia, and saudi arabia will be affected by the ban on laptops and tablets. phones larger than normal sized mobiles will be for bid in. in france, -- will be for bid bidden. paperirical news published a broad and probe -- broaded probe into his affairs. emmanuel macron rose half a point to 26% while national front candidate marine le pen lost ground. u.s. supreme court nominee said hersuch would not hesitate will against president donald trump of the lot required it. he also refused to say whether he would uphold trump's ban on travel from six muslim nations
although he said the constitution has many for religious minorities. gorsuch told his confirmation hearing he has made no promises about how he would rule on any issue. global news, 24 hours per day, powered by more than 2600 journalists and analysts in more than 100 and 20 countries. this is bloomberg. diane matt. -- 120 countries. this is bloomberg. the euphoria of the trump toade may be beginning t come to an end as investors turned to the uncertainty over the president's policies. some of the biggest losers yesterday were the banks. goldman sachs was hit the hardest on the dow. jpmorgan and caterpillar getting hit hard as well. for more on the selloff, let us bring in mark cudmore from our markets live team. you have been arguing the
reflation trade was doomed for weeks, but what was the catalyst for the drop we saw yesterday? mark: one of the things i read about a week ago was the fed hike would kind of be the death knell for the reflation trade and that point is that there is not a sustained a inflation -- sustained runaway inflation everyone was talking about. inflation was running away in america and policy stimulus would recess. there is no sign of that stimulus coming through anytime soon. it may come at some point but is unlikely to impact in 2017. a lack of stimulus and commodities start to turn lower. that has been a warning sign. the reflation trade was looking quite worrying. the policy is coming soon from the trump administration. the i want to go to opposite line on whether or not this is a year in effect coming out of japan. could this be a portfolio effect?
questiont is a great from paul. he mentioned it last night before he meant to go to sleep. i think one of the factors people are arguing at the moment is is some of this correction a little bit tech thnical? it might be japanese year-end profit taking before the march 31 deadline and it might be just, you know, some optional selling. another thing we pointed out in the blog was a clear trend line clearly broke and lead to more technical selling. i do not think there is any major panic starting to this correction can continue for another few percent and can last a few weeks but i do not think the u.s. is at risk for recession. i do not think this is the start of a bear market. matt: you just used the term correction more than one time, mark. a lot of people consider correction a 5% move or more. we have not seen it yet. i saw your chart and pulled it
out of mliv. a little fibonacci action here. we could go another 5% to drop to the next level? a 5% drop, i think from here sounds very dramatic given the lack of volatility we just had. over 100 days without a 1% drawdown. it seems very dramatic, but the point is, that would still bring us to a level that is above any level ever seen before december last year. in the context of the eight year rally, it is really an irrelevant correction. at some point, these bull markets, any bull market, whether it continues another three years or is ending soon, bull markets have corrections of five to 10%. that cleaned up the completion feet -- the complacency. i think it would be healthy for a bull market. indeed,nk you very much mark cudmore, raising interesting questions about what
is happening out there, referencing the mliv blog. he is the macro strategist on it. you can five that -- find that mliv blog throughout the day. the head of multi-asset strategies at nn investing partners. he joins us on set. volatility is at incredibly low levels. down where it is, there is more sensitivity to smaller moves. valentijn: absolutely. first and foremost, what we are seeing now is not something that we should be starting complaining from fundamentals. it was very low. people were positioned in a certain way. it got a bit overextended and when you really need only a small trigger to get a move down. it has been a wild since we have seen one. so maybe that will feed into a longer-lasting correction, but i
do agree that for now, it is really hard to see this as the start of a negative sentiment or bear market. guy: am i buying dips, is that the strategy? valentijn: that is a good start. you know where it ends. that will be tempting. it is a bit early if you want to start buying today. but i do think that it is probably important to use the technical that you have to identify when things have normalized or even getting a bit oversold to get back into the market because if you look at the underlying story, i think the reflation story, the recovery story, is ray much still in place no matter what we are labeling the whole rally so far. it is far less to do with trump and more to do with economic data which looks strong to me. matt: i am -- i have got this foreignich shows investors staying away from your stocks, basically over the past 20 years here, you see trailing
12 month net investment in equities, in white, in bonds here in blue. why have foreign investors been shunning equities? have they missed out on this rally? do you see that turning around? valentijn: that is one of the biggest questions. we have seen a bit of a rally, but participation in terms of into of foreign investors equities is very modest and we are coming off a multi-year environment where it was enormous ebbs and flows into bonds. maybe some of them will start to bottom out because they have feared to enter and fear they have already missed the rally, but this might be a moment to get back in. lowhat sense, there is demand from investors who have been very high in allocation is ads bonds and if there
correction in equities, might be looking to get back in. matt: there has been a lot of talk this morning on mliv and n.l. list notes -- in analyst notes overnight and that could be one thing that controls the rates over the next year. where do you see rates and fixed income? valentijn: that is an element that is a dominant discussion in european bond markets about the shortage there first and parts of the curve, but i think also the u.s. economy will be the most dominant factor even further parts of global markets. i do think that recovery is in place and that further hikes will happen also into next year and that will push up yields. for the european markets, which remain very closely correlated to the u.s. one, although lower levels in terms of yields, we expect yields higher over the year. 's want to stick
around. i have interesting charts to show you and whether or not investors are starting to swing behind the idea that maybe they should be over allocating towards europe. we will have that conversation in just a moment. we will run through the politics as well. emmanuel macron extending his lead over marine le pen in the polls. we will speak as well to the largest holder of french government debt, vanguard. the u.k. banning people from bringing large electronics on certain flights from certain countries. still to come, independence take-two. scotland's lawmakers to vote on plans for a second referendum. could nichola sturgeon have a bigger fight? we debate those two things. the open is just under 20 minutes away. ♪
at $22.4 ppg's bid billion of the total value of the bid has been rebuffed for a second time. interesting move there and we will see how this moves at the open. guy: we have seen action in the last few days. caution from the market. let us talk about what is happening in france. presidentsidential emmanuel macron extended his lead in the balls for the first round. this is the first-round voting 2cording to a survey he has 6% of supporters. it puts them neck-and-neck. still with us, valentijn van nieuwenhuijzen. how are you positioned in advance to the french election? how cautious or not are you? valentijn: we are looking at it,
discussing it. not so much into our positioning so far. it is something we take into account in the last couple of days, before the election. i do not think we will get a decisive move in the polls before actually going out. it is probably only the second round that will be the shocker. it seems to be pretty clear who will move on to the second round and then really it is about whether those 40, 60 probability you are seeing between macron and le pen are fair or not. there is a risk and a downside risk, but for portfolios, we are positioned in a way were that is something we will put in place. not right now. i am running money i don't want to go to my bath everyday and say i believe these polls because my boss is going to say, yeah, but look what happened last year. valentijn: fair point. with a lot of money managers, in certain positions, especially the larger institutional players, there is an element of
risk that we will be managing apart from sort of the rational or investment thinking that maybe they should be using. guy: yeah, but look what happened after trump got elected. did you see that rally with all? -- we saw? valentijn: but if you were wrong, -- [laughter] valentijn: there is a bit of skewered in the risk from a career perspective that this is one of the nice example of why you can expand that sometimes markets are not being priced efficiently because these types of the motions to risk are playing overall. att: i would love to look the kind of asymmetric risks the market got wrong over the last year and see that it took three days to recover from brexit, three hours to recover from the trump election, three minutes to recover from the italian election, but would a le pen victory, as unlikely as it is, would it be very different,
valentijn? valentijn: of course, those three observations are way too little to have an idea of what would happen after le pen. i absolutely agree that the lessons from last year were that e completelyises ar different from economic crises. markets understand that much better than all the people discussing market and therefore, that is why i said we will be very cautious with giving too much weight to that political risk factor because actually the underlying fundamentals i think drove markets after brexit, after trump, right through the italian referendum, and it is still going pretty calmly. it certainly at least since the euro crisis -- that is why i think you need to be really focus and really, really cautious with putting too much weight, too much negative perspectives on the french election. markets wondering if
are beginning to sniff the opportunities in europe. this is the ratio going down and has gone down really sharply xx 50.the sto are people starting to go to the options market, which is a cheaper way of playing the story? valentijn: i think something like that is in play. this is a fascinating graph. to some extent, a sharp move. it is maybe explaining a little bit why you have sort of the background for a bit of a correction, but overall, what you do see is indeed french elections coming up. not a lot of people really willing to have sort of a straightforward position yet, so maybe buying a bit of hedging along with exposure is more to thinking you see right now, which is something that could disappear quickly after we get the french election out of the way which then opens the door for much more support because i
do think if you look at the european market, if you look at the european economy, earnings perspectives, there is a case. guy: thank you for coming to see us. valentijn van nieuwenhuijzen, head of multi-investment charges. we will take a look at some of the days movers. a company rejecting a missing its proposal. the airline sector. the open is now seven minutes away. this is bloomberg. ♪
matt: welcome back to the european market open. i am matt miller in berlin alongside guy johnson in london. we put a stop on your radar this morning and that is axe akzonobel itel -- is bumping it six euros and walking away with no deal. they say the revised proposal fails to reflect the current and future value. guy. we think it will be a negative open following in from what happened yesterday in the theed dates, just shy of -- united states, just shy of .5%.
>> we are committed minute away from the cash of in europe. ares talk about where we going. a little bit of catching up to do. down about half of 1% on my bloomberg. two to three to four tenths of 1% is where we are likely to see the market coming three. -- coming through. this is -- m&a playing a big part. the first time we have seen a move on the s&p of more than 1% to the downside in 110 sessions. the biggest loss we have seen on
the s&p october 11 last year. up.as been a great run opening, let's take a look at where we are standing. we know we are going to be softer. this is where we finished yesterday. we think it is going to be 0.2% to 0.3% downside. dax more on the downside. we stopped a present what happened at the close yesterday in the united states. cap now open trading down. will we were0.5% anticipating. were anticipating. let's look at the markets. >> we have the gilt market
opening as well. we saw the 10 year guilt year spike in the session yesterday. u.k. invasion going above the boe target. the 10 year treasury yield steady. which way is the 10 year yield yield going?- gilt we are up 0.2% on that. we are heading down 1.24%. that yield moving lower one or two basis points. following what happening in europe rather than remaining steady like the 10 year treasury yield. if we take a look at the stoxx 600, we are expecting a lower opening following the fall in equities across europe u.s. stocks falling the most since donald trump's election. financials are the biggest underperformers, down 1%.
followed by materials, this real risk off sentiment we're saying across the market. energy stocks are down. we want to show you that the stoxx index. we were talking about low volatility. we saw the next jump. it will be interesting to keep an eye on volatility in the euro stoxx 50 to. -- 52. i want to show you this chart. it is a great one because it really shows that the outstanding euro stoxx 50 puts are falling to their lowest since august. thes are retreating from extreme levels we saw last month. this is about concerns over the french elections, but also some of the conversations we have had
over the valuations of european equities versus u.s. stocks. >> let's talk a little bit -- ok. matt: i was going to pick it up there and talk about who was to selloff. this there has been a lot of talk about what sparked it. some were saying because he was maybe because of the health care bill having a difficult time getting through congress. that can concern investors. other donald trump measures will have difficult time getting to congress. i have a chart that shows a number of things. one is the fact that u.s. companies with high tax bills have underperformed those with lower tax bills since january according to goldman sachs data. we can see that in this yellow line. that would suggest investors have given up hope of any solution on tax cuts anyway.
usingks, possibly repatriated funds, have performed does not benefiting from that. you can see that on the blue line. you can see international and domestic companies, international companies performing companies with the rustic operations only. that suggests there is not really this trump trade built-in. here is the chief investment officer at royal london asset management, piers hillier. what do you think sparked up the selloff? 100% drawdown. there is a phrase with used for years it talks about the bull market being built on a combination of greed and fear. you have to have lots of reasons to be cautious. we were due for a healthy selloff. we are seeing that. you make a good point about the trump effect. tomorrow will be an important
benchmark and how successful he is in getting legislative change in the united states. markets move quickly to price in a stimulative effect from him. tomorrow will be the first test of what is happening not. -- whether that is happening or not. everybody talks about reading a day before the vote. that is normal. the real things markets are looking for is the evidence there in terms of a followthrough in terms of activity in the u.s. you have a republican house and senate. they are not all aligned to donald trump. the will steamroll assumption that these things will pass through congress. the markets have built-in optimism that tax reform will come through, health care reform will come through. this is a show me the money moment in can he actually
deliver in terms of change. >> if health care reform does not come through or it is not easy for donald trump to push through, does that mean investors will have little faith he can push through something as contentious as tax reform? >> i think it makes the confidence that markets had that change in the capacity for change will actually deliver. if you talk about higher tax companies and overseas earners, that is a real one. markets are waking up to the material opportunity for cutting taxes in the u.s.. there was a sense that was going to happen. this is the first test of the thesis. do domestic based on the hardwood donald trump claims is going to make america great again, will those companies benefit? this is the first test of whether that strategy will really be delivered. >> this is a 1% move.
it was not that long ago that a 1% move was a daily move. are we getting overexcited about that? the reason for that is this chart right here. vix is incredibly low. >> we have all been oscillating a little bit. we move very quickly to those macro issues we had last year. last week actually had a positive move in europe, reflecting the result and holland that was clear that some people thought. some negativity in europe has unwound of it. the presidential debate in france has set macron as a credible alternative to le pen. when that put comes off, there is almost the contrary and trade. we have been in the doldrums. we went through corporate reporting season. the message from companies was
they had a better year than last year they thought. markets having moved as much as they have come you have to have some evidence in terms of underlying performance. that is coming through. we are in the doldrums on q1 waiting to see if that will happen or not. >> the evidence is out there. the u.s. economy is recovering. it is a decent recovery at this point. europe is looking good at the moment. the stock market rally in the low volatility market is the fact that we are in a situation where the economy is doing better. >> i've been on the show now for over year and saying we are behind the curve in terms of raising rates. the markets actually have a 14% return in terms of asset classes across equities in certain fixed income securities in europe. have to remind yourself where you come from. the market has priced in a lot
of optimism. the rally is can that actually happened? seeing an expectation of rate rises across europe. the fed is the lone one. the markets are going to struggle and -- in an inflationary environment. the risk we see is somewhat unusual in this cycle, which is that normally zombie businesses a bus when we walk into recession. a lot of these businesses are still around relatively low margin. what makes some of the policy setters nervous and why some investors are nervous and not as optimistic given the economic data is that actually some of these businesses have more leverage than people appreciate.
you have financial leverage on operating leverage. you can see more defaults coming through. the backdrop is better white countries in more difficult circumstances get used to cheap money. we brought valuations in their that reflect that. we have a lots of programs buying back stock. that has driven earnings. does the economic fundamentals drive growth from the top line perspective? >> if you really believe that there is an unwinding of the trump trade, the inflation trade going on now, where do investors with their money? when they pulled out of risk assets, where do they put it? >> i'm not saying there is an unwinding. i'm saying there is a pause. is the reality coming through? can some of these things that
the us economy needs in terms of health care and tax reform actually be delivered by the trump administration rather than the talked about? that thist optimistic was something he could deliver. thing doing it at the executive order level, and another doing it through congress. >> piers hillier is going to stick around. let's talk about the markets quickly. i want to show you what is going on with the stoxx 600. giving back some ground is mine. when we are seeing money flowing this morning is the high trade of the financial sector. paribas, hsbc, ubs, some of the mining stocks, exactly the sort of trade you would expect to see in this risk off environment. just showing where the percentage gains are and losses.
a big move down on the morning. some of these financials coming through. let's go over to the gainers. gold is going higher. this is been one of the beneficiaries. there is some good news in the market this money. william hill continues to rise. you're saying more of the safe haven plays coming through. i'm going to put this to index points. doing reasonably well. some of the utilities are doing reasonably well. the market is rotating out of the financials. that is where we are starting to see some of this money coming out. what also going to talk about? slumping oil prices and a soaring deficit. a great piece on the bloomberg on the scottish referendum this morning. we going to get reaction from the middle east. let's talk commodities.
take a look at equities. we are down across the board. the indexes are losing about 0.5%. culprits are financials. following down the financials trade we saw yesterday in the u.s. yesterday had a drop of more than 1% in the s&p for the first time in 110 sessions. i keep repeating this. i think it is key. the biggest drop on the s&p 500 index since october 11. financials were down about 2.5%, leading the way. let's take a look at what is going on with your mid-cap movers. nejra: i'm starting with a stock that has dropped the most on record in this session. they designed and manufactured security software. the clientfor is a profit warning. are reviewing action plan
to minimize the hit. they see revenue for the first quarter to be lower by 7% to 9% at constant fx. that warning is pushing the stock lower. ingenico i have put here as well themse they were expecting to move in mind as they operate in a similaras gemalto. they were one of the worst performers on the stoxx 600. another of the worst performers is kingfisher, a home improvement company. full-year adjusted pretax coming ahead of beats, but it is perhaps moving lower on the comments. it remains cautious on the outlook for france, and the eu referendum has created uncertainty. shouldof the stocks we mention is akzo.
it is trading lower on the latest offer for the business. aroundisturbed price is 65. while they have gained back some ground, they are way north of that undisturbed price. take a look at the younger term -- longer-term chart. the prime minister theresa may has found a point of agreement for the scottish referendum, saying it should not happen right away. >> the prime minister has said that now is not time. i agree with that. the choice must be informed. it should not happen until the terms of brexit are known. >> with more on this story is bloomberg u.k. economy reporter scott hamilton, and piers hillier of royal london asset management.
let's talk about what has changed first of all. oft is the baseline in terms 2014 and where we are now? >> what we can see, if there is a new referendum of a, there are many similarities. the currency, the economy and public finances, oil, but the contours will be different. one of which is the economy. the scottish economy has underperformed. >> it is the white line. the blue one is the u.k. >> one of those impacts has been the decline in the price of oil climbing from $100 a barrel to $50 a barrel. that has hit public finances and activity in the north sea. economy isottish more reliant on public spending, government spending, but also manufacturing, both of which are hit by austerity. manufacturing has been
underperforming services since the financial crisis. >> does this undermine the argument for independence or support the independence referendum? >> it certainly does not rule out independence for scotland, what it does is refocus the debate away from oil, which was a big topic last time. the s&p argues the scottish economy should rely more on oil. this time because of the collapse in oil, we will see refocusing of the debate towards terms of trade. in that respect, there is no status quo, unlike last time where scottish faced the debate of staying with the status quo or changing. everything is going to change. whether scotland stays inside the u.k. or leaves. >> politics over the last year years has shown that if populations have become
disaffected, they tend to take radical options. is there a slightly contrar ian view here? if they continue to suffer out of the eu and single market and the u.k. as well, against the worst of both worlds? i'm interested in your reporting, does that point to the fact that independence becomes a more attractive option? >> in terms of the economy since the referendum, although it has underperformed them it does not seem to resonate with scottish voters. they blamed scottish underperformance on westminster. the conservative majority government is actually blamed in edinburgh for some of the underperformance.
in terms of whether scotland may benefit from leading the u k, that is probably one of the main strengths of nicola sturgeon's argument. negate ord can mitigate the impact by leaving the u.k. and staying in the you, that could resonate with scottish voters. >> do you feel like the scots are going to start holding biannual referenda? they seem to want to keep doing it. >> it is ironic in saying that this was a lifetime opportunity, and now that equates to about two and half years. the irony aside, there has been a significant change with the referendum in the u.k. last year. that has provided ammunition in some ways for nicola sturgeon's fire. she made a very positive case as
to the why scotland should leave the u.k. and emphasized positive factors rather than negativity. westminster in some ways was caught off guard. the timing as always was unthinkable -- impeccable in catching westminster off guard. theresa may was probably right in saying they should wait until seeing what the terms of brexit looks like. the movie's speech yesterday talking about scotland being a junk-bond status in -- after leaving the u.k., that has not been picked up. there is a bounce of trade with the u.k., 60% of scotland's activity comes from other parts of the u.k. it does less trade with the continent than it does with us. the sports have to be emphasized in terms of the case is why it makes sense to wait longer. in light of what we voted for and where scotland what last time, it is not a surprise that
the scottish parliament will approve that. we will be talking up this another couple of years. stickrs hillier will around. thank you for your thoughts so far. scott hamilton, thank you. let's get a bloomberg business flash. >> akzo nobel has rejected a second takeover approach from ppg industries. they are offering cash and euros per share. they say the latest offer is too low, not in the interest of shareholders, and lead to job losses. goldman sachs and morgan stanley are preparing to ship staff from london to elsewhere in the eu. considerings is making friend for its hub in the eu and could move as many as 1000 employees. people with knowledge of the
matter said last month. have fallen in after-hours trades. revenues rose to $8.43 billion lesser, about $40 million less than analysts expected. nike is losing market share to s in themour and adida u.s. fallen inres have tokyo trading after the troubled airbag maker is said to be willing to let carmakers affected by the recall decide on the company's restructuring. they will respect customers recommendations. takata spokeswoman declined to comment. that is your bloomberg business flash. >> thank you. the u.k. has joined the united states in banning tablets and laptops in carry-on bags in
flights from some middle eastern and north african countries. large electronic devices must be checked in. middleomberg markets eastern anchor joins us from divide. what is the reaction like their? -- from dubai. what is the reaction like there? >> the reaction across the board has been a reaction of bewilderment, surprise. to follow the logic, it is ok to fly from dubai to london and new york and have an ipad with you, but it is not ok to fly direct. if you can blow up stuff in the cabin, you can probably load up in the hold as well. that does not add up. there is a bigger conversation on whether this is an attempt to
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why don't you sit over here. something for everyone is awesome. find your awesome with the xfinity stream app. more to stream to every screen. ♪ trump dump? global equities selloff. who is the blame? the gulf, the u.s., and the u.k. we see how travelers are reacting. we speak to the largest holder of french debt shortly. the head of fixed income for vanguard in europe for his strategy ahead of the election. i am matt miller in berlin alongside guy johnson at the birds european headquarters in bloomberg's world
headquarters in london. we are down across the board. we are looking at a drop of 0.8% on the stoxx 600 the ftse down 0.8%. cac.the dax and droppeder the s&p 500 the biggest since october 11 yesterday. seeking original trade deal in australia as soon as possible following the stalemate on the transpacific partnership. australia's trade minister talked to bloomberg, saying the tpp deal is not dead. >> talk of demise is premature. all countries come all 11 countries living the united states -- excluding the united
states, are very willing to keep the discussion going and what we might be able to achieve. i have heard some country saying this is dead, forget about it. this meeting shows it is not. >> commodities are a big factor. let's take a look at what is happening with iron ore. this uptrend we have seen. this is back here to 2016, this iron ore move we have seen. it is an aggressive move. you can see we are now testing that line, really testing that line. some of this move overnight being put down to what has happened with the chinese housing market and the story that the authorities there are tightening their grip on that market. the global economy is moving on an upward trajectory. what happens to these commodities? piers hillier, chief investment officer at royal london asset management still with us. as a basket is
made up of contrasting assets. oil on one side, classic supply and demand. gold today stronger as a store of value. industrials are quite interesting. we had severe excess capacity in 2016 as chinese growth came through better than anticipated. a reflection of what you might call the trump affect touching on global demand. on some of those moves by the chinese central bank with concerns about lending in china, and it is easy for people to want to take office. -- profits. >> is it really china? >> commodities are an element of supply and demand. we saw this olympic affect
created a massive excess demand in china. large quantity passes put on excess capacity. we spent five years unwinding that. we got to a more normal level. we see some benefits of low-cost of money feeding through in terms of economic demand of growth in asia and china. china is the classic swing factor for metals. industries are picking up as the economic backdrop is feeding through into other metals that go into the automotive industry and other things as well. it is not just the china fact. -- effect. profit taking in the short-term. i asked you earlier where people were putting money, if they were unwinding the trump trade. one asset is gold. ve function on the
bloomberg, there is a great charts here showing bullion is moving back to its 200 day moving average. these are obviously just technicals. i wonder what you think about the precious metal? >> the challenge you have got in this environment where fixed income looks relatively expensive across the board, particularly at the government level, if you are running a barbell strategy looking for income opportunity in the equity space, gold is seen as that barometer. with a backdrop and rising rates and cash becomes that asset of choice, in the short-term gold is your barbell strategy. >> you mention other precious metals in relation to the auto's trade. platinum is one of those because of it being used in catalytic
converters. are you still optimistic for autos globally? were you only referring to china? can the new carbon continue -- car boom continue? >> in general terms we are probably back to a more normalized part of the cycle. it is interesting that this is a point of time that persia out and jim decide to do that deal dopergio and gm decide to that deal. oni look at the term investment capital in auto companies, they are still struggling to be the cost of capital. there is still excess capacity. consumer demand is supported because rates are low. aspect meanspacity
the outlook for the band is probably more measured than you would actually expect at this point in the economic cycle. >> it is great to see this morning. piers hillier, cio of royal london asset management. if your bloomberg customer, you can watch the show on your terminal. you can message the team directly. get your questions in. what do you think about what we're talking about this morning? big issues following the drops see and equities this morning in europe. you can also get the radio stream as well. we will talk about emmanuel macron extending his lead in the polls in france. the largest holder of french debt right now. we're talking to vanguard. that conversation next. this is bloomberg. ♪
♪ welcome back to "bloomberg markets." take a look at equity markets trading down across the board in the consummate and london as well -- on the continent and london as well. declining throughout the morning. 40 minutes into the trade, after the s&p posted their biggest drop in the u.s. in 110 sessions. the s&p 500 falling big, some saying that is because of the concern that donald trump will
not be able to get his health care reform bill through congress. investors in regards to what to do with tax reform or infrastructure spending. down across the board. bank stocks leading the drop as they were in the u.s. yesterday. let's get to our top stocks story individually. to.ra: i am bringing up gemalo . i thought it was worth highlighting. we are seeing the biggest drop on record for this stock in this session. this after a profit warning. they design and manufacture security software. they are reviewing an action plan to minimize the hit. they see revenue in the first quarter to be lower by 7% to 9% at constant fx. that cut to the outlook pushing the stock lower. i want to take a look at akzo nobel rejecting a second suite
from ppg.etened bid you will remember the previous offer was 83 euros a share. akzo nobel says the bid is still too low. cuts, andead to job antitrust obstacles excited in the rejection. losersone of the biggest on the stoxx 600. this is one of the reports that is getting a lot of leadership on the bloomberg. showinginal article that ing group says it could face significant fines related to money laundering in the europe and u.s. thank you. let's get to bloomberg first word news. >> rejected funds. 5.8 billion
dollars, taking injections to $60 billion. this after the benchmark money rate climbed to the highest level since april 2016. the u.k. has joined the u.s. in banning laptops and other electronic devices in the airplane cabins from several mideastern countries. be affectedies will by the ban on laptops and tablets. mobile willr than be also affected. -- will not hesitate against donald trump if the law requires it. he said the constitution has many inductions for religious minorities. senatersuch told his confirmation hearing that he has made no promises about how he will rule on any issue. fallence, fillon has
father behind in the french presidential race. this after a look at his financial ties to the russian government. laurentvey of first voting intentions, he dropped half a percent. emmanuel macron rose half of points. marine le pen lost ground. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. guy: thank you very much. let's talk a little bit about what is going on in the french german spread. you can pick this up on the bloomberg. you can see spread widening has been a theme. that is understandable given that we're going into the french election, which looks like one of the more controversial in the last few years. paul malloy is the head of
vanguard in europe where he manages more than $4 trillion in assets in europe. that is a big number. paul: good morning. guy: in some ways you have to be the largest holder of french debt because of the way a passive fund operates. how much of it is discretionary? paul: we definitely have to hold some portion of it. france is one of the biggest economies in the euro area. they issue a substantial amount of debt. we have to hold some of it. it is good practice for a passive fund, because as you can see these charts move around. it is hard to time political risk. investors looking to the broader economics of the eurozone, it is a great spot for them to be. when it comes to discretionary, then there is not only a passive manager but acted as well. it is all about low-cost investing.
that is where our discretion would be on the active side. guy: on the active side, what is your strategy? paul: we are starting to look at it a little bit and starting to move in a little bit. with these polls in the recent debate, macron started to separate himself away. this is a big welcome to the , that he wasron able to step up and show that he has something. he did not fail. he really established himself as a leading political candidate. this is his hello world moment. paul, spreads have narrowed in the last month as macron has gained in popularity and as it looks more and more like le pen will have a difficult chance of winning it and would have a difficult chance of pushing through the
measures that must scare investors. do you think there is a buying opportunity right now on french that? paul: i do. as long as nothing unexpected happens. -- probably a point to start in. you would not want to that the bank on this. politics is all about the unknown. the thing you don't see coming, a lot of writer. there could be another opportunity for another portion of the trade, but i don't think at this point it is something to be afraid of, especially in the shorter term. anything that would really be disastrous is going to take many years to play out. it is important to look beyond the political headlines and think about how something like this will play out. will there be ecb support? would they let all of your fall apart -- europe fall apart?
if brexit is any indication of how hard it is to remove yourself from the eurozone, we have been nine months on, and that is not even with the currency attached to it. paul -- matt: paul. what percentage odds you put on that, and how do you hedge against it? it is less than 1%, and it is one of those things that is thely unhedgeable due to complexities and uncertainties. there are too many things to try to speculate on other than just potentially owning german bunds. thatis the one currency would probably actually be in
higher value if it was redenominated. that is the only place i can think of given the uncertainty. back to this timeline issue and redenomination. three or four weeks ago, the number of articles i read about the domination -- redenomination started skyrocketing. this chart shows english law versus local law and the spread. it is designed to capture some of that risk. overdone? paul: very overdone. there are a couple things on the technical standpoint. most contracts are out to five years. -- priceto prices of this up in that five-year note gets weird technically speaking. this will redenomination, that is such -- that would be at
least five years to 10 years out. if you look at how long it took the eurozone to go from political union to economic union, it took decades. that is one of those things that seems to be overdone and just fear. you just have to look through it. matt: that is why it is so much fun for us to talk about. let's keep it realistic and look shorter-term. what have you heard from macron that you think will influence the fixed income market early on? paul: there is nothing that i think is going to influence it other than the fact that it will take away political uncertainty. it seems to be out there with some relatively moderate policies, things that are relatively good from an economics standpoint. generally speaking there are a lot of things that need to
happen in france. long, hard bought battles. -- is allot about not messing up the status quo. to: paul, you are going stick around. we need to talk about brexit. time is not on our side. paul malloy, head of fixed-income for vanguard in your area we are 51 minutes into trade. on the upside, a lovely day in berlin. this is bloomberg. ♪
♪ welcome back. while malloy from vanguard still with us. this is the front end of the german curve. how wrong is this price? paul: that is not a sustainable price over the medium-term. a lot of technical things going on the front end of the bund market. a lot of technical factors going on in the front-end. ,t is pretty far below refinancing rates in the ecb, and at some point best to come up with more supply and alleviation of the technical squeeze driving everything that much tighter.
matt: guy and i are having a little ib discussion. one don't you worry and on whether the ecb is tapering already. if they are cutting by 25% next month, how can that not be a taper? paul: semantic language. i have been of the opinion that i would not call it a taper. others on our desk call it a taper. as long as bonds are moving at a pretty good clip, it is not a taper. it is not like there's any stimulus really being removed. maybe they are able to elongate it more. you take the message from the fed and that it is really hard do you get accommodation from the market. guy: if it did, what would european peripheral spreads look like in europe? paul: you would easily see all
spreads, all rates move higher. i'm not sure if the corporate spread moves up. much of the periphery would be doing a whole a better presumably if they were to take away that stimulus. starting with the highest quality ones, italy is quite spready compared to where it had been over the last few years. that is probably something, presuming they got their head of d.king -- banking fixe guy: it has been great to see you this morning. paul malloy, head of fixed-income for vanguard in europe. i'm not entirely sure if we have dealt with our debate. we will carry on. i suspect it will be one that needs a little more chat online or off-line. matt: if we are debating it on
the yen rises. european equities follow crude oil lower and inflation trade takes a hit. the central bank is called on to continue the federal high court while trump battles over health care. and another blow to francois fillon. falling further behind in the polls after allegations of financial ties to the russian government. good morning, this is "bloomberg surveillance." tom, we have the french election, brexit and i know looking at your president in the u.s. and pullback on stocks. tom: the pullback on stocks is correlated. the trump reflation trade -- we will show a chart later -- it has come back to critical support over the next few days. they really matter and the reflation.on trump francine: i have a chart questioning whether this has to do with donald trump.