tv Bloomberg Markets European Close Bloomberg February 6, 2018 11:00am-12:00pm EST
this is "the european close." ♪ mark: the market is seeing swings after yesterday's big drop on both sides of the atlantic. we are 30 minutes away from the end of the tuesday session. the left-hand column is equities. netherlands, norway, belgium, switzerland, germany, all down by 2%. if you are long in this market, the german dax was down earlier by 3.6%. it is down by 2%. the stoxx 600 opened down by 2.6% -- is now now by and is now down by 2.6%.
market.the stock this is the currency market. all of these are falling against the dollar. the pound is down by .3%. the euro is .5%. we have seen of flight to safety. look at the bond yields. the german ten-year, four basis points lower. earlier it was down by six basis points, the biggest drop since the end of 2017. on friday we saw it rise to 70 six basis points, the highest since 2015. commodity that is gaining's natural gas. all of the others are declining. gmm.is it is not only about the broader market moves today. there are corporate stories. , the biggest lender
is reporting fourth-quarter profits and trading results in ' estimates.alysts it may exceed the 2020 profitability target for europe's economic expansion taking hold. bnp posted its lowest quarterly trading revenue and a couple of years, showing how the industrywide slump in revenue upset brightding spots and equity derivatives and prime services where income did rise. down by 3%. sector,in the banking it is bucking the trend and up by 1.5%. the chief executive is seeking to secure its lead over his italian competitor. the new planning expanding its insurance. delivering on most of the targets outlined in the previous four-year plan, including a commitment to pass
on 10 billion euros to investors . the stock has risen by 30% since the presentation of its first plan in march of 2014, compared member5% drop for the 47 services index. sticking with financials, munich is down. shares did slump as much as 6%, the biggest fall since april of last year. profit estimates for the fourth quarter as the insurance industry suffered a record year for natural disaster claims. 90 minutes into the session in the u.s.. julie: i can tell you how it is looking at this moment, but not five minutes ago or five minutes from now. we have seen such crazy swings continuing. the stocks have gone positive and negative again. an enormous amount of
choppiness. at the moment, the stocks are down. the s&p 500 injured a chart come you can see the choppiness -- can see thert, you choppiness. some traders are calling it a flash crash. not only the s&p, but the dow and the nasdaq. today, we have the choppiness once again. to findally difficult direction on the major averages. one of the factors might be technical. we have the s&p 500 with its various moving averages. 200.0, 100, and it looks like we are seeing a bounce off of the 100-day moving average. that is the blue line. we saw the s&p trade below it today and bounce up. we will see they can hold that level. the mov function on the
bloomberg, and we should update this because everything is changing moment by moment, but it looks better than it did yesterday. yesterday only two stocks rose. at the moment we have 166 in the s&p 500 that are positive. apple, amazon, and home depot are among them. vix.ve to talk about the the volatility index is so important to the story that we have been telling. it has been bouncing around today as well. at the moment, and those words are very important, it is at 37. still at elevated levels. very interesting 2 days in the market. i'm curious as to how much of this was an isolated volatility event and how much will be felt in the wider markets. i do not think that you can
characterize it as an isolated event. i think it had been growing on the market for a couple of weeks. my view, markets began to be afraid that the january narrative of strong growth and moderate inflation was strong. they sound very poor productivity and high labor costs. the fed casually talking about 4 hikes instead of 2 or 3. that left them questioning what the upside of the equity market was. vonnie: people are in and out like a euros. .hey are seat -- like yo-yos they are seeing opportunities. when this is over are we back to "healthy volatility."
steven: i think that the market overestimates the benefits of healthy volatility. we have have low volatility for a number of years because inflation was so far below target that we knew that the fed would backstop the market on any shock. now inflation is towards target in the fed doesn't feel like .uch of a backstop the possibility of having a significant downside has gone up in the market's view. personally, i think the markets do better when we are below target on inflation, but we have to take what we are given. dollar justhe sitting by and watching with glee? today it is a little stronger, but it does not seem to be impacting the dollar all that much. moven: when you have this that is probably felt across the is still adollar relative safe haven. they think that in the prior
couple of weeks what happened is that the market had gotten short quickly. when vol except up they cut the short dollar positions. my guess is if we see stability restored, we will see those positions restored as well. vonnie: what are you doing today? like everyone, looking at the markets, trying to see if there is any sense and buying. i think that the story for higher rates at these levels is probably more telling than the immediate story for higher equities. i do not think -- whatever you believe from january, i do not think that the fundamentals have changed as much as the market has moved. vonnie: thank you for jumping on the phone with us. has beenry effect erased. that is about it when it comes to equities. mark: we are joined by lou kick
hickmore. when it comes to fundamentals, is the market, as our last guest over relative to the fundamentals? that feels more comfortable than where we were. more comfortable than the historic looking pes/ it is good when you are overvalued. europe i has been more surprised by. there is more value now. that would be interesting. mark: that is what you are suggesting? luke: if i was an equities fund manager, which i have not. mark: what are your thoughts?
credit has been really stable. in many ways that will give equity investors comfort. mark: what are the signs that it will or will not remain the case. .uke: if capex picks up if we get a fed that is aggressive with hiking and an ecb stopping in september rather than a taper. the fundamentals are great. ellen's sheets are fine. the leverage might be up a little bit, but nothing dramatic. goldilocks.hing is as long as the fed keeps gradual and inflation does not get out of control. are there signs for the metrics that you are looking at that inflation might be picking up more than the markets anticipated? friday -- with the wages,
that is the direction we are going. you are seeing signs that big cities in the u.s. have been getting wage inflation. german and negotiations from the union going through now. in the next weeks or month, we could get results from germany. mark: the ig result was roughly around 3%. to the not to halt and not too cold, it is ok for ?ow it suggests some evidence of the ability to wage bargain. but that is germany with the lowest unemployment rate on record. what about spain, italy, other countries c? getting there. not quite full capacity, but we are only months away.
germany, they passed it two years ago. the whole of europe is being lifted. that is where i would like to see yields higher rather than the u.s. , 76: the german ten-year basis points on friday below that. where should it be? luke: i think one. are starting to look at value. with the ecb might need to do, 1% will look back quite fondly. mark: i wish that we could chat forever, but we can't. it is a busy day. let's get a quick check on the markets. 18 minutes left in the session. ifare not as low as we were you are long. that is the positive.
3.2% lower at the open. a decline for the other major benchmarks. we have not seen the pullback we have witnessed in the united states. we are literally 18 minutes from the close. the dollar is in the ascendancy. the money has moved into fixed income. is luke right? does the german 10 year yield have to move to 1%? it is not there today, but who knows what will happen in the next few days. this is bloomberg. ♪
mark: i am mark barton. vonnie: i am vonnie quinn. black is calling for regulation that would spin out the risks associated with inverse and leverage exchange weighted products. following yesterday's collapse linked to volatility, that call will take on more significance. we are joined by the bloomberg intelligence etf analyst. have the calls gotten louder following yesterday's one hour of trading? saying isackrock is something that we are acting on at bloomberg intelligence. we are coming out with a system tomorrow call the etf stoplight that will be a way to give advanced information on nasty surprises from a product stem point.
-- standpoint. the whole category would be a red light. it would explain in fractions so the investor could use products appropriately. stuff like vanguard etf would get a green light. stuff in the middle would get a yellow light. this is probably needed. i think that blackrock does not want this to sustain their etf business am a which they would call basically mutual funds. i call it the exotic weighing of products that could hurt you if you don't know what you are doing. they should be labeled. can we get to yesterday and even a product like that would not be able to save you wants the velocity picks up in the 3:00 hour. you would not have had time to sit down and have a cup of coffee and read any research at that point. eric: it went down in a hurry.
99% in one day. xiv had returned in the two years leading up. those returns are outlandish. it looks like it made up for all of that in one day. it kind of did its job. the second month vix futures spiked up the same amount. not going to close this thing, it did what it did, it was not a good day. we will keep it open and not have any problems. terminationutomatic clause in the offering documents that said that it can terminate it if it gets to a point where it is almost at zero. mark: more news like this to come out of the sector. a dozen etp czar suspended. velocity will be called on
february 23. what else is going to come out of the closet? eric: who knows. those are the two big ones. they are by far the bulk of that area. fix product is interesting. that was up 38% and no one is complaining. we have seen cases where in the area of etn and the exotic products, this is not new. there have been automatic terminations. in 2011 there were a couple. then in this exotic area, there are spasms and issues. i have been doing this for a long time. it seems to happen every couple of years. not to say that it is good, but the moral is to know what you own. these are exotic products. they use derivatives, yet they come at you like they are normal etf. mark: thank you for joining us.
etf analyst for bloomberg intelligence. let's look at what is happening to european stocks. where 11 minutes away from the session. what a 24 hours it has been within the european asset space. the stoxx 600 is down. the lows when of it fell by three points -- 3.2 percent since the open. the kleins in 2% hurting those long investors. the close is 10 minutes away. ♪
thank you for joining us. it was a great piece that you wrote today at you spoke to traders and fund managers. been surprisingly difficult to find a true stock bear today. everyone is saying that we waiting for the best time to buy dip.in europe , it was not going to be today because we have to catch up to the steepwhich saw route yesterday. we were expecting declines. people are waiting for the right time to buy. alreadylining up orders is what we are hearing. fundamentals are "strong." even in the selloff, there is a lot of optimism. mark: europe remains a good destination for the money despite the fact that we are playing catch-up? bigreverse has not been as as the u.s., does that tell us anything? investor that we
interviewed making an interesting point that because of the valuation in europe being more manageable, europe might be a good place to hide in a correction like this one. obviously, this was imitating from the u.s. we will have to see signs of stabilization there before we see it in europe, but people are speaking up to say that this might be a good place to be right now because there was not as much euphoria in this region as the u.s. vonnie: how much are people blaming or crediting the algorithmic traders? has nothing to do with us, we can keep doing what we were doing all along? >> that is a great question. some of my colleagues are working on a story trying to figure out what is to blame with a steep drop that we saw on the u.s. yesterday. algos are blamed all the time on
the way down. would we are seeing is while that may have been the case, it is not something that will affect things going forward. even for the u.s. investors ands. they say that they are also waiting for the right time to buy. you can see the s&p turn positive for a bit today, so some signs of stabilization might be emerging. the question is how much algos are to blame, i don't have the answer and i don't know if we will any time soon. .ark: esther robot did his job what makes me angry is we spent so much time dealing with the regulation. the bombshell might be trading without any regulation. is there any frustration you are sensing today? >> definitely. especially from active stock pickers. all of these people, they are
not sure. they are active fund managers and they do not know what is happening behind the scenes. there is a lot of frustration, but a lot of optimism. no one is saying this is the end of the bull market. closed thent we lowest since the brexit referendum. it is a correction, but it seems to be stabilized. minutes away from the end of the tuesday session. this is the stock board. we are off of the lows of the day. this is bloomberg. ♪
this chart shows you the extents of the market route we've witnessed on this tuesday session. if you are long equities, the decline we are seeing at the close of the session is in just as big as the one we saw when the market opened. the stoxx 600 opened down by 3.2%. still the biggest drop since june 27, 2016, but not as big as the drop we saw a earlier in the day. it is a broad-based decline across the space. volume is much greater than the daily average, up 119%. down for the seventh consecutive day for european stocks, the worst run since november. high -- the month dax was down by 3.6% earlier in the day. it is now down 2.5%. this is one of the most
important charts of the day. this is the euro sphere index, this is the volatility index. .31.ier, and rose 13 that was a record gain. in percentage terms, a 71% increase, the highest level since june of 2016. it is rising for a seventh consecutive day, longest stretch since april. the gauge is just returning to a decade-long average short volatility has been one of the favorite strategies. compare it to the french election last year, marginally ahead. not at the levels we saw around devaluedd when china the yuan in 2015. , thisities space
highlights the fact that commodities have been escaping the worst of the global market route, losses in raw materials as evidenced by -- cap by speculation the bullish outlook remains intact. i want to finish with the bond space. we have seen a flight to quality today. safe haven assets like government bonds in europe have benefited, sending yields down. the german ten-year yield down five basis points today. don't forget, we did see the yield on friday rise to the highest level since september 2015. the flight to quality has seen bonds rise and yields decline. today, people involved in the volatility trade taking advantage of the selloff in various areas today.
this is one of the more interesting asset classes to look the spear gauge -- sphere gauge. let's take a quick look at treasuries -- we saw a big uptick in the 10 year yield yesterday around the time volatility products are going haywire -- started going haywire. let's switch to wm on this side of the pond. this is the asian session.a lot of contagion overnight. here in the u.s., this has been shipping around. it has been green, read right now -- red right now. currencies having
a better day today. there are some indices in brazil and colombia where we are seeing gains today. people here still trying to figure out what's going on. mark: we will continue trying to find the answer to that. stocks encoded worst day since june 2016, down 2.4%. -- stoxx 600 worst day since june 2016, down 2.4%. is today just following the drop yesterday or is there something separate going on u.s. versus european equities? ifit is a global contagion, you want to use that sort of phrase. the genesis has been primarily rates from the standpoint of the obvious culprit. underlying earnings plays into this story as well to the degree intowe've gotten ourselves
a momentum market. when you're in a momentum market, all it takes is a prick and all of a sudden the air comes back out. it's a case of going around the globe, we will sell and it will come back to an earnings story. earnings right now are looking solid. let's call it somewhere around 12% as we go through the reporting period. that is ok. momentum,arket wants wants positive surprises and positive revisions, that's not enough. that's where we were two weeks ago heading into earnings. that's interesting part. --undamentals we think
fundamentals, we think, are solid. that is a knee-jerk, fundamentally driven response. we've gotten back to an earnings space which is pretty solid. vonnie: buy everything? >> it is an interesting thing -- if you look at the u.k., say ftse 100 versus continental europe, whether you look at the stocks 15 or the continental stocks, they are both down 7.5% from recent highs. the baby perspective, is being thrown out with the bathwater regardless. if you think rates will be moving higher -- it does make some sense that we are rebasing, and that is a sustained move -- that is a good thing for financials. financials tend to outperform shorter term and long-term all
else being equal when we have a moderate rise in rates. that clearly is an area to focus is aong with what we think solid macro picture which gives you a feeling of discretionary and industrials that have more of a cyclical bend. vonnie: it's hard to not talk ifut yesterday's events -- you were to decide that event had nothing to do with me or my investing philosophy, why are value stocks not getting the same credit as the growth stocks and other types of stocks that have rotation? this a situation like where we have market oriented phenomenon, whether it was too many players being short volatility in the u.s. and possibly europe and things along those lines where you have the
baby being thrown out with the bathwater, everything comes under pressure. i wouldn't read the in discriminate selling -- indiscriminate selling yesterday as more than what it is, a panickyort of cell -- sort of sell. when underlying fundamentals are solid and we see a spike, what comes up goes down. --atility comes back down , thank you.aighead vonnie: let's get more on the markets. we are joined by tony dwyer. take us through the events from your perspective and what people are doing today. >> it's funny, corrections are
only considered normal until you get them. they by get them, definition seem like something scary is going on. after you've had such a low level of pessimism paired with institutional investors newsletter writers, this is historically low -- when that happens in the past, you get a 5% or greater pullback. expectinglan has been increased volatility and when it comes, use that to your advantage. people want volatility until they actually get it. vonnie: a 4% drop really shouldn't make us blink that hard. maybe a bit painful, but it shouldn't extract the kind of
torture it did yesterday. time, time it is, -- this it is because we are used to so much calmness. do we go back to what used to be the normal? >> that's the problem -- people would like to blame the etn's creating this increased downside -- that was born out of complacency for very low volatility. you've had historically low volatility over the last year. one of the strongest drawdowns --the history of the s&p 500 you are in this department where people were just kind of test it was sentiment that created the problem. you had a vehicle in the etn that allowed for the execution of the problem. what we do, we know the market correlates to the direction of
earnings full stop. as long as the direction remains positive, you should remain in the market. the only thing that changes that is an inversion of the yield curve. you that shuts down credit, end up in a recession. we are still years away from that. buying thewe are volatility. vonnie: have the markets open up from their slumber? you could say the market was in slumberslumber, a fed waiting for things to happen. are we awake now? is this it? >> the markets are -- again, until you have an identifiable even back in 1987,
that crash was in the peak of the market. 1987 wasn't the peak of the market. 1989 was once you shutdown credit. the long-term view that we have with our institutional clients and wealth management clients outside the u.s. is that until you get that recession, we use high volatility periods of opportunity. we don't believe you have to buy the next check higher. you want to wait for these periods of volatility. they seem like so much more when you get them. as long at the fundamentals remain in place, you want to buy it. vonnie: thank you for coming on in short notice. have a look at what
downil: the major averages over 2%. a tremendous amount of volatility following yesterday's big decline. the dow between yesterday and friday had its worst today drop since 2018 -- people don't know what's happening. take a look at it today chart of o-day chart- tw of the dow. this is the russell 2000 over the last year. in just three days, the russell 2000 slides through its 50 day and 100 day and is resting on the 200 day moving average. more selling is likely ahead. not surprisingly,, volatility has spiked superhigh.
you will see the huge move up and volatility -- in volatility. the complacency is gone. one reason to think it will continue, the selling pressure, beyond the technicals of the 200 , this is theerages bank of america merrill lynch global financial risk index. 2007, superlowd before the stock market crash of 2008. something similar ahead of the pullback we saw in 2016. this suggests the stresses for the financial markets are just getting going and we could see the pullback for stocks continue and perhaps intensify. mark: which might play into our what our next guest is going to say.
you've written a piece today -- this is the global equities maelstrom. words, i guess. if this is a game changer in terms of markets waking up to a beingwn of risk assets bereft of monetary stimulus and high-yield, you really would see more volatility in interest rate markets. mark: can we bring this up? this is our wonderful move index. 20% in recentd by session. it is still around september 2017 levels. nowhere near the taper tantrum levels or the levels we had in the aftermath of the u.s. election. mark: you have to move up to 90 approaching 100 for us to get
concerned. >> perhaps doesn't need to go up that high -- we live in a world of extra nearly subdued market conditions. we need interest rate volatility in order for global bears to consider this will be a sinker nice risk off market which will endure for fundamental reasons -- markets waking up to higher inflation. it's not clear that higher inflation expectations are the approximate cause of the selloff. todayne i've spoken to has a theory -- higher inflation expectations seems to be a reason. we have some mechanistic settings, risk parity funds
we were wondering if it was useful as a gauge anymore. is it? >> it's useful to the extent that it measures what people are thinking at any given time. whichea that this index is based on option prices will tell you what volatility will be in the future. that has been the presumption. you have to question that. what you can't question is that it is a real gauge of what people are looking at in the market at any given time. things have settled down a bit. vonnie: some of those products have started trading again. >> one of them in particular is an inverse vix etn. it is an exchange traded note designed to move up when the vix goes down and vice versa. the are two of them out there that plunged yesterday.
.ne of them from credit suisse credit suisse decided to stop trading altogether. another is a pro shares inverse vix etf. it has resumed trading, down something like 84%. vonnie: there's only $3 billion or $4 billion in these -- algorithmic traders are trading. there's a retail aspect of what hedge funds are doing. day traders -- are having a field day. >> getting the ups and downs of the market. the longestded
streak without the s&p 500 falling more than 5% from a peak. now, the market is trying to find a bottom. you saw the index down 9.7% from its record a week and a half ago. whichite at the 10% level generally signals a market reaction -- correction. mark: are we in a new paradigm given the period we've seen without a notable percentage decline? >> that is the open question mark at this point. it's a reasonable want to ask --en how long the trading how unusual the trading has been. -- can the market move up
you have seen the market move up -- we are more than a year into president trump's term, things have happened or not. we have an economy that is sustaining growth. you have to wonder about the effect of higher interest rates. there's a lot of unknowns now. vonnie: thank you for that. they wilson is our market -- dave wilson is our market live blogger. again, markets bouncing around. this is bloomberg. ♪
stocks dropped sharply at the open, then turned positive, then bounced around -- shery: all around the place. vonnie: both the dow and s&p down. let's get to julie hyman. julie: it has been a moment by moment session. we have seen an enormous amount of bouncing around. we saw some of that bouncing around yesterday. some of it has been more to the upside. the dow just turning into the green. asve seen it swinging today, have the s&p 500 and the nasdaq as traders try to find their positioning in the wake of the big selling yesterday. where is the appropriate level here? take a look at the percentage difference, the spread between the intraday low and high.
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