tv Bloomberg Markets European Close Bloomberg August 26, 2020 11:00am-12:00pm EDT
guy, kailey leinz in new york. "the european close on bloomberg markets." european stocks struggling to make headway, slightly higher, counting down to jackson hole. stoxx 600 finding it hard to break through the 200 day moving average. germany extending its scheme. berlin will use 18 billion euros to reduce fiscal issuance, the fiscal hawks getting back in the driver seat. france will detail its issues and stimulus next week. italy's health minister has ruled out new nationwide lockdowns, despite a big increase in coronavirus cases we are seeing in europe. markets, very light volume on equities, little higher on both
sides of the atlantic. 1%, tech00 up 4/10 of doing the heavy lifting. the stoxx 600 up 6/10 of 1%. euro weakness today. it started before the durable goods number and the news out of berlin. weakness in the russian ruble. isssure from belarus increasing on moscow and the ruble is taking it harder as a result. keep an eye on japan. there is a press conference with it is friday and fascinating to see where we go. european stocks lagging their american peers. this anlysts calling opportunity to shift investments from the united states to hear in europe. will that happen or will that be missed? scarlet: it is kind of happening
right now, and europe looks appealing because it is a diversification away from the u.s. which is crowded, high devaluation, and trading highs. there is stimulus coming in europe, 27 member nations able to agree on more public spending , in contrast to what we have seen in the u.s. fund flows for the biggest equity etf in the u.s. got the itt since january, and since is a vanguard etf it is targeted for retail investors. evidence europe is the most favored region and investors are harboring the largest overweight in european stocks since 2018 due to the potential for catch up. the stoxx 600 has rallied and given a return of 17% since late
march in contrast to the united the s&p,2% return for more for the nasdaq. the u.s. market is making new highs on a daily basis. one reason europe has trailed is a relative lack of technology versus 20% ony 7% the s&p 500. one of the highest european tech names flamed out, wirecard, which is insolvent. industrial companies in europe are more directly tied to china than the u.s., and that will likely be the case with tensions rising between the u.s. and beijing. a lot depends on the path of the virus and how that is reflected in fx markets. europe and asia are seen managing the virus better than the united states but there is a headwind for european stocks.
some say europe could have reached its limits and jane foley says the euro is likely to --ak above one dollar 20 1.20. guy: let's bring in bhanu baweja. money in the states or europe? bhanu: for the next three months, europe. scarlet gave a good round up. to main factor if you want understand country allocations is to understand sector allocations and one step further, factor allocations, do we want to be in growth or low-volume,entum, or quality? the market has been more and more priced in, will price in jackson hole and the vaccine. these are already in the price but there is room to run, and as
we move away from growth to value which is difficult because of how strong it has been, but if you want to start on a clean sheet of paper, value stocks will do slightly better and that should be a reallocation towards europe. that is a tactical call, i emphasize that. longer term, the amount of stimulus the u.s. economy has, there will be a much bigger recovery in the u.s. next year. tech, from a short-term perspective, is the future. allocationsset portfolio, it will be tough to diversify, given china, given the hopes on vaccines. it will be tactical asset allocation. europes a trade value on and investment growth, tech. kailey: we have seen plenty of value fixed over the years that has yet to be sustained.
when looking for value in europe, where can you find it without falling into a value trap? bhanu: we have to distinguish between cyclicals and value. cyclicals have done very well. , industrialcks companies linked to china have done extremely well. -- gone one warren , companies that trade quite cheaply. spain, you could see a tactical move and the reason why the value trade is always going to be one step forward, two steps back is because it is difficult for inflation to recover and difficult for inflation expectations to pick up sustainably. the market has done well in picking up inflation u.s.tations, 1.72 in the
and europe as well, but oil has only recovered 15% of its profits and its trading is heavy. there is a limited time in the most under discussed factor -- and the most under discussed factor is china. if china cannot continue the pace of stimulus, in the next six months global expectations are likely to hedge over and china drives the value change. there will be a time for value to do well for europe. it will be in the case that china is giving the credit stimulus that is now. when the dollar is slightly weak, these are the requirements that the value trade can do well. these are short-term developments. if i had to start on a clean
sheet of paper with a trade i would be thinking about a rotation now. guy: what happens if china doesn't deliver? the dax is heavily geared toward what is happening in china. if china decides it cannot continue to deliver the stimulus it has been, isn't the high beat rate on that the german market? bhanu: the question will lead to timing. it is inevitable that china will not be able to -- let me put some numbers. 42%a has delivered stimulus of gdp, incremental stimulus. even for china, that is a crazy number. china has liquidity at about 30% of gdp and the tightening of liquidity is only 22% of liquidity, average numbers of the last decade. in the first half of this year,
partly because nominal gdp has not growth, china has added liquidity of 42% and that is percolating through the autos market, excavators market, and properties market, helping europe. by the fourth quarter of this year, the chinese credit impulse will start coming down and that will have a major impact on european earnings into next year and that is when the market will smell the coffee will comean stocks under greater pressure. this is not the time to press the panic button on european stocks. europe,with china and as scarlet alluded to, they handled the virus better and they will outperform, but the bloomberg has a basket of activities and they are seeing that come down in italy and
spain with a resurgence of cases and a lack of activity. what does that say about the fragility of this rebound? bhanu: let me also add in a point i think is relevant, although the virus cases in the u.s. have been very high, mobility improvements have been higher in the u.s. in the last two months than in europe because europe has had significantly mobility improvements until late may. despite high virus cases, mobility has not improved. if you look through the mobility lens, it makes more sense in terms of the u.s. versus europe. the big risk in the u.s. is the election, one issue we need to think about, but biggest issue we need to consider in the u.s., the entire focus is on jackson hole and how much more help the government can give us. a lot of monetary policy is
priced into that market. the festival is -- question is whether physical help can come in time -- fiscal help can come in time. the s&p will definitely sense it. the russell will definitely sense it. it will be a large enough move that it has an impact on the s&p overall. that's when you can see rotation away, not necessarily because europe is attractive but because thestart worrying about primary factor, the fiscal problem in the u.s. where you don't have the same supplementary benefits for the unemployed. up issues of spending. thatthe market always at point has gone, it doesn't matter because the fed will step in, the powell put exists.
what do you make of that argument? at this point, the fed stepped in all the time. they bring down the risk rate. bringing down the price of risk, the price of money and the price of risk. the price of risk is already done, credit spreads are already tight, so the price of risk is in the bottom quartile. the 10 year real rate is below where it was in 2012, so the key question is whether or not real interest rates can be defined further. the key question is if inflation expectations can rise. -- inflation expectations rise?
a lot of people think it is very likely. -- unlikely. 2% is not a binding constraint so 2.5% will not be a binding constraint. 20think we are within 15 to basis points of real rates bottoming, an important call for the s&p and global stark markets. dutch stockmarkets. -- stockmarkets. of course there can be overshoot and rotations, but the fact that risk pre--- risk-free rates are bottoming is important. kailey: bhanu baweja will be sticking with us. we will have more on the fed and monetary policy. extend taking steps to employment but does not want to spend to do it. this is bloomberg. ♪
♪ york, i ame from new kailey leinz with guy johnson in london. still with us is bhanu baweja at ubs investment bank. at this time tomorrow, we will be picking apart everything fed fair -- fed chair jay powell has told us that jackson hole. what should we be looking for? [indiscernible] kailey: that sounds like we are having a bit of an issue. guy: this was my great fear.
fear, thatnu's great the technology would let us down and the internet would not provide us with the band with we would be hoping for. we are going to be picking apart everything jay powell has to say. we will get more details come september, but the big question that keeps being asked, if we go to average inflation forecasting that the fed is potentially moving to, how do you communicate that? people can understand a 2% inflation target. it raises the risk of a miscommunication by the fed, and jay powell had a few of those. kailey: that is a huge issue, not just on inflation but how they will communicate their forward guidance. whodoes fed chair powell, has been quite open speaking to the american public, has gone on "the today show" remains an open
question? we have been talking about the resurgence in virus cases in 1367e, italy reporting more cases. thatf the areas in europe has seen activity indicators start to come back down as we see these indicators climb up. guy: what is happening, a lot of people are coming back from places like sardinia and bringing the virus back. we were talking to the italian health minister early are -- earlier on and he was suggesting we do not see a national lockdown, but numbers like this may suggest that more targeted, maybe more draconian lockdowns could certainly be coming towards italy. is still am told bhanu with us. sorry for the technical difficulties.
we have talked about the inflation targeting, the communication issue. how is jay powell best going to communicate this? bhanu: he is going to talk about this in broad brush strokes. this will not be the big reveal tomorrow. at jackson hole, i think it will have to wait for the details in the meeting september 16, the fed meeting. what he is likely to communicate --he is increasingly dashed increasingly worried about fiscal policy so he will say we will do everything it takes and this will be the whatever it takes speech, equivalent of that. -- the talk about administration spoke about them not being the key -- but he will term premiumsand
and inflation expectations getting up. he will be speaking and broad brush strokes, and a significant commitment from the fed to do whatever it takes is what we can expect. there will be a lot of good sounding stuff from the fed for the markets. were discussing earlier is whether or not inflation rates can maintain another 10 or 15 basis points, especially if we get a democratic sweep. a six month is on view, can you push up inflation? i have my doubts. guy: let me ask you the kind of hypothetical. what happens if the fed is successful and we see fiscal stimulus and monetary stimulus and a vaccine combining to produce a reasonably strong, maybe not relative to history, but recent history pick in
inflation? what happens then? -- pickup in inflation? what happens then? bhanu: if that happens, first, you would need to see a -- and the labor market. mores a discussion done than it needs to be and the labor market discussion is done much less than it needs to be. unless we see wages even out, it will be tough to get inflation. the only time you saw inflation pick up without wages picking up was in the 1970's during the oil shortage because of a supply-side shock. this is not a supply-side shock. let's assume you are right and demand picks up independently of significant healing of the labor market, just monetary and fiscal policy. months,go up in six
what kind of world would we wake up to? a significant rotation of growth towards value, especially in the u.s. because real rates have been declining over 200 basis points in the last two months, much less than germany and emerging markets. up,nflation begins to pick you will see a major value rotation and i would argue the dollar would be much weaker and the curves will not steepen aggressively. breakevens. will be there will be some steepening of 1.60, but iwards would argue you don't get a major selloff in the market. the five-year is trading flat. that is where you get the biggest optionality because nothing is priced five to seven years.
the canadian regulators looking for the test. it will be interesting to see when this aircraft makes it back. the ftse is down, cac is up. the ftse is down because we have seen oil stocks come down like bp. from a sector point of view in europe, technology up 1.72%. there is a read across from salesforce and we are seeing the technology sector outperforming. careoms, utilities, health are underperforming a little bit as well in london. "the european close" is coming up next. this is bloomberg. ♪
i have to put a few caveats on that one of these is there is spectacularly light volume. we are at the end of a bank holiday in the u.k., a lot of people have taken the week off even if they were not able to leave the country. pushing higher throughout the session and we are up 8/10 of 1%. the technology stocks have been the lead performer. here's what's happening with and the technicals in these markets, the stoxx 600, while it has reallyhigher, is struggling to make headway. you can see the yellow line is the 200 day moving average. you can see that we bump up against this. this is something that a lot of people are paying attention to. does that provide the kind of
thatrio and the rotation may last a little while? and does this continue to provide a moderating force in europe? of the individual markets today, we see the ftse 100 struggling to make headway and the dax is a big outperform her over last few months, up by 8/10 of 1%. astrazeneca is acting as a bit of a drag and you have the oil stocks, fascinating despite the fact that we have a category four hurricane approaching united states. we have some clues as to what's happening here, the grr is showing up and the technology has been relatively well.
, the utilities and gas as well as an eclectic mix. you have mentioned, the european stocks have been struggling to make through -- breakthrough the moving average. katie,st joins us now, we have been flirting with these levels for weeks, are we going to break out? this is really neutralized over the past as the benchmark fights with the 200 day moving average. resistance, or sometimes a support level in part because it is so widely followed. if you go back to october 2019, the 200 day moving average was support and now we are looking at it as a resistance.
a breakout would be an incremental positive and require more than just a day. we need to see a couple of strong closes for the stoxx 600. that would indicate a breakout and put the next major resistance at the high. the benchmark does have the support. of people are looking to the u.k. for a catch-up tray. we contrast.w ritika: it's really the u.k. -- katie: it's really the u.k. or the ftse 100 that has an a lagger. underperformed, and really there's no indication
of a reversal in trends for the ftse 100 versus the stoxx 600. where we are seeing that outperformance come from his sweden. ireland, even the countries that we rely on for the upside leadership. these are more likely than the u.k. to get the stoxx 600 above resistance. >> here in the u.s. the market rally has been very narrow, what does it look like to you in europe? it's actually not been too narrow, it has expanded with the march low. and in the u.s. we have the s&p 500. it's add a degree in which it , i think what folks
confuse it with his leadership, which has been quite narrow. it's a small segment of these .arkets the outperformance is coming from this small group of stocks. that does not necessarily were a weakeningect trend. because participation can be strong in that environment. out of curiosity, we are in the dog days of summer, everybody's on vacation. is there a calendar affect we need to pay attention to? katie: it used to be that we would see volatility pickup around september or october globally. that seems to have been bumped up in recent years to august. here we are approaching the end of august with not much downside
volatility. i think september holds the possibility of capturing a pullback in the major indices around the world. we are just not seeing that malt -- that loss of momentum in earnest. we do have some radians in sentiment which could be an issue once folks get back to their desks. i think what that has done to the stoxx 600 is really kept it in its consolidation phase. there has not been enough strength or momentum to break it out, but there has been enough to keep it firm. laughinger here because when i asked you to speak out with us about the stoxx 600 you said yes, not about the s&p. so i don't want to ask you about the s&p but i want to ask about the nasdaq. today, howe than 1% long can we sustain this rally? katie: isn't it wild?
if you pull up a chart you can see everything and it gets higher even after an extended up the move and sometimes trends do go parabolic. it's where you see the short term moving average like a 20 day moving average turning up higher and well below current levels. it makes it if occult to add exposure because you feel like you're chasing things but it has been the right thing to do. we do still have that momentum and also the major constituents of that benchmark but there are signs of exhaustion that have been attuned to the short-term gauges. we have some countertrend signals that have arisen, enough to suggest that we are tuned into those doctrines. we have also seen a lot of gaps in some of these large tech driven the have
indexes higher. if we see them fall quickly that would be a check against the market in the near term. this is a momentum market, how strong is the momentum? katie: quite strong on an intermediate and long-term basis. short-term, not a strong as you might think. the 20 day moving averages are a gauge.e -- great when you look at the short-term indicators for the s&p 500 and other benchmarks they are not as extremely positive as they have been for the nasdaq and the composite index there's enough momentum to sustain or uphold the conditions since the beginning of this month. it's unusual and difficult but it has been tough. is a sensitive loss to any
momentum and we can watch the downturn andes for moving average base indicators. that is the reason to hedge exposure broadly. thank you so much for your time today. time now for the first word news. laura isurricane taking aim at the texas-louisiana coastline. become arapidly life-threatening category four storm. it is expected to make landfall keep some, this could of america's biggest refineries shut up. in wisconsin the governor has declared a state of emergency after a night of violent protest over the police shooting of a black man.
businesses were vandalized and buildings were set on fire. shots were fired in a confrontation between protesters and a group of large men. and mike pence gets his term in the spotlight. he is delivering the keynote address at the third night. should president trump be elected, pens may have his own bid for the white house in 2024. and a push back at the annual summit in dabo's, from january to next summer because of the pandemic. 3000ings together executive and political leaders to discuss the pressing issues facing the global economy. the virtual event will take place as originally scheduled. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries.
welcome back. newy has reported 167,000 virus cases, the highest in 3.5 months. we caught up with the italian welth minister who said should not be surprised by the recent increases. it's natural after several weeks from the end of lockdown in countries like france, spain, and germany that there is a new significant circulation of the virus. the increase in cases and data should not surprise us the pressure on the national health services is very low compared to recent months and it highlights that we have to learn how to cohabit with the virus. my opinion remains the same. we have to be quick and rapid and do a lot of tests and transition which will last
--lead us to a vaccine. now, he guests joins us specializes in infectious diseases here in london. professor, thank you for your time. let's deal with what's happening here in europe which does seem to be a significant pickup and the number of cases. it does not surprise the italian health minister, does it surprise you? >> listening to the minister i would broadly agree. in italy it is surprising we have not seen more cases, they were heavily affected early on and this really brought us under control but there is an increase in the moment, we see more increases particularly in spain.
it is a good opportunity to respond early and i think is the minister was saying, to test and isolate patients. we know that there's a lot of barriers, the amount of testing rolling out a large-scale, do you see any changes where we could see some tangible progress? prof. cooke: certainly in the u.k. there has been a been -- there has been a multi-pong -- multipronged approach. in the components, we have been trying to get a rapid test that could get results in under 90 minutes.
it's going to require different components. guy: what you make of the progress on saliva testing. you are pursuing a faster test, would you make of the progress being made more broadly, and how do we make sure that we can continue to monitor the numbers so we have an idea what's going on at a localized level? has had a nose swab, it's not something you want to have often. the key thing is to understand -- is that it is a sensitive. and there are still some studies being done on that. to test a lot of people in the community at home
early, getting people before they transmit and are unwell and having other approaches is going to be helpful. i want to move on to treatment, there's been a lot of noise about convalescent plasma therapy with the fda chief having to walk back some comments. i will not ask you to wait for the political part of the conversation but should we -- are there more treatments more effective? we have systems to collected, and we can say with some confidence that it is relatively safe. there are a number of well-recognized publications but they are uncommon and a large number of people have been given it. saying -- the more
question is how effective this is. a bit like an be antiviral, where we want to get it relatively early, there is a sense that it might have been -- and one of the concerns as if you go to early in recommending --.there is a way in the u.k. we have a large platform for recovery. we may get a breach until such a time where we have a therapy which might be helpful. but at the moment it is an experimental phase. whati want to think about governments can do to maybe mitigate some of the risks. there was a world bank study
under the auspices of the world the risk of death from covid-19 increased by a patient is5% if the obese. the u.k. and the united states have some of the highest levels of obesity in the world, are we tackling our response from all angles or should we do more? there is an opportunity to .ake in some long-term a it is very clear -- long-term aims. it's clear that the risk of infections go up and the risk of mortality goes up. there's definitely a real phenomenon.
and this offers an opportunity for people to be more incentivized to change behavior to reduce their weight and risk. the bigger problem is to prevent infection and there are bigger things to be done in terms of but there issting more messaging possible about what is a risk and motivating with high blood pressure and their associations. >> thank you so much for joining. we appreciate it. this is bloomberg. ♪
kevin cirilli is joining us now. what should we have our eye on tonight to mark kevin: policy come in terms of the economic policy that mike pence is going to continue to say that president trump would hit on in his second term, including more deregulatory policies and lowering taxes per lookout for what he has to say about china. i on amy iona handful -- hint -- eye on a handful of other speeches. two female
senators, senator marsha blackburn and senator joni ernst, senator blackburn from tennessee and joni ernst is in a very competitive reelection fight in on a y against a progressive challenger, theresa greenfield. from a nexgen or a conservative ,tandpoint to congress members a republican from new york and dan crenshaw, a republican from
texas. look for them as they look to usher in a new generation of republican conservatives. guy: thank you very much. kevin cirilli joining us ahead iteration of the rnc. we are clearly waiting to see with the president has to say. , it's going to be fascinating to see what the polling looks like next week in terms of how this has changed. >> we saw the democrats bump after
the convention but there was a lot of buildup to biden's speech on thursday. we will likely hear from the president again and i wonder that takes the height out -- hype out. may not deliver the big bang approach that we got from biden in many eyes
outperformed expectations on that speech that he delivered on the dnc. the markets are clearly not focusing on this. they are clearly focusing on what we are going to get from jay powell tomorrow, we are drum beating towards the virtual conference and jay powell's speech tomorrow. by 1.25%, is up volatility is coming down just a touch. europe is broadly higher. coming up next, balance of power with david westin who will continue the coverage from the rnc. this is bloomberg. ♪ experience the ultimate sports hub.
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headquarters in new york to our tv and radio audiences. welcome to balance of power. where politics meets business. day two has brought us a message and -- a message of compassion from audio trump and a tribute to president trump's foreign policy. we welcome the men who served as policy director for mitt romney's presidential run. always a pleasure to have you with us, give us your impression of the first two days of the convention. lanhee: the goal was twofold. the first was to speak to trump's political base, to mobilize that base and to get them enthused. that is something you see a lot of content oriented towards the neck and lee too often the edges -- and secondly to soften the edges of donald trump he i think that was last night's goal