tv Whatd You Miss Bloomberg August 30, 2016 4:00pm-5:01pm EDT
♪ matt: u.s. stocks closing lower, dragged down by apple. joe: "what'd you miss?" matt: u.s. stocks retreat from record highs. , asset market action class by class. pay $14.5 ordered to billion after the european commission said ireland illegally/the company's tax bill. >> lawmakers on both sides of the aisle, we speak to goldman sachs about what is next for the country in the market. let's kick it off with market minutes. stocks down across the board, individual movers, one
being apple. down three quarters of 1%. not as big, 14 billion dollar company, will enter into a merger of equals. by the samewn amount that potash is up. joe: the government bond markets quiet. virtually nothing going on. short-term rates down. long-term rates up. , that's some steepening why the financials rally. >> some action in the fx markets. a fifth dayng for
of against the yen, the longest winning streak since march. this is on speculation we will get a rate hike from the fed this year. i am also keeping an eye on the brazilian currency, the best-performing against the dollar this year. lower,y, a little areulation that banks seeking to weaken it be for the central bank's determine a key rate in settling contracts. the optimism about a new government pulling the country out of a recession as the impeachment trial heads to the final stages. joe: on the commodities front, let's look at an intraday chart of oil. a got slammed early this morning, anxieties about whether we will see supply buildup.
we've seen oil in this region for a while. one more commodity to keep your eye on is gold, which had a great start to the year. this chart pointing out that gold is at the bottom of the two month trading range. tumble, keepes to an eye on that. commodities on my main page were down, except for coffee. let's take a deep dive into the terminal. we will show you the functions at the bottom of the screen to access these charts. at a function that i hope will get bigger for bloomberg clients. this allows you to be competitive, not only with your ,olleagues at your own company
but with colleagues at other bets ones and place various things. drop-down menu and you can pick from any number of data points that come out. joe, you will want to focus on initial jobless claims, but nonfarm payrolls is a big one coming out on friday. are still looking for this already, 180,000 is the survey. the last time we blew out and 225,000. speaking of the jobs report, a little preview that might be relevant with today's consumer confidence index. check out this chart comparing the labor differential and x versus the unemployment rate.
index versus the unemployment right. do you perceive jobs as hard or easy to get right now? that is the goes more they think jobs are easier to get. we have just that the best level since the financial crisis. people's perception of the labor market continues to get better. you can see how nicely direction he tracks with the u.s. employment rate, so we will see if we continue to see a decline in the u.s. unemployment rate as that measure of labor market health from the survey. matt: very coal index. >> my chart sticks with the macro seen, but looking at cyclicals versus defensive. i wanted to look at it globally. here i have the ftse cyclical index and white and the ftse
defensive index. cyclical shares are outperforming defensive for a second straight month. economic data has beaten forecasts since july, but still the world showing the slowest growth rate in seven years, but still seeing this rotation globally. from index have members japan, korea, switzerland. it is really looking global here. since the end of june, the ,yclical index has jumped 9.5% where as the defensive one has dropped to 0.7%, so that really tells the story. are beatingguys this rotation thing to death. oliver renick is onset. everybody is talking about this shift. that's so old news.
what are people saying? do people see this trend is having room to run? oliver: perhaps. it depends on why you think it is happening to begin with. this one is potentially important because it is one of the few areas of the market that has survived, weaker the past month, but through the first six months, it was the only part of the stock market getting higher levels and higher valuations, so ofyou think this is a result speculation interest rates will move higher and dividend paying companies will not be the hot commodity to go after, then that could be one explanation, but if you look at the bond markets, it is very interesting, 30 year now below treasuries, so
you basically have a market that indicates expectations of lower rates in the longer term duration bonds. if that is the case, that must not be an interest rate few on what is happening and dividend socks. either the markets are wrong, or these types of companies are doing less well because of some other reason. it is a valuation story, a sector rotation, corporate earnings. you could see, if you're going to utilities because you like the dividends they are theng, but earnings missed streets expectations by 30% last quarter, maybe they will have to cut those dividends. payouts from telecoms, staples, and utilities, all these defensive sectors, but it they don't earn money, they can't continue to pay you this unless
they borrow. that could be one of the concerns. into a largeromes picture in the equity market, which is high payout ratios, profits weakening, but dividends have not been cut. we are seeing some of that in more distressed areas, but which sectors are the ones that will have to cut dividends if they need to. there are different metrics you can look at showing company stretched in terms of their cash levels and moving down the past couple of quarters, debt levels getting high, the first thing to go is not the dividend, but these other shareholder activities, buybacks, etc., that have stretch the company thin. if we don't see that quick turnaround and earnings, which keeps getting pushed up quarter and quarter, guess what? now it's negative earnings. that will be important, to focus on whether they can keep up to begin with. >> i want to talk about multiples.
we have do have a chart to show them elevated historically and almost across all metrics. they remain below the rest of the developed world. tell me lot of people that europe is attractive versus the u.s., japan is attractive, but are using something different? oliver: this is an interesting thing, when you look at the s&p, no matter what metric, you will highlye market is either valued relative to history or in one of the top percentiles. they will show an overvalued stock market, but you have to remember there is a logical explanation for why valuations are high. that is because it is sort of the best house on the block. there is a mathematical consideration you have to take into account. if you look at te, they have not been great, but if you look at europe, they have gotten
demolished. if you look around the world, the denominator keeps getting lower and lower and those valuations are very high. the ftse is trading 50 times. if you look at market relative vibration come the s&p trading at 20-22 times, lower than its peers in the developed world. so it is interesting to try to figure out whether valuations in the u.s. are high based on our own history, but around the world, they could be attractive. joe: this chart i have been staring at the last three days, the sp y etf -- spy etf. bonds andrkable how stocks are moving and lockstep right now. in the broader scheme of things, there does not seem to be any diversity within asset classes. aiver: right, if you are
portfolio manager, then you don't want to put your money in cash. it's not going to do anything, so you have to think about where you are going to put it here and if you want to go into a riskier play, then maybe a emerging markets. you want to be somewhere where you get some kind of return, then go to the u.s. up, bondes stocks yields down, but whether the correlation can stay in tact will be a big deal. joe: thank you very much. matt: up next, a deeper look into market trends. this is bloomberg. ♪
let's get to first word news. could surebama has the sentences of 111 inmates convicted of nonviolent drug offenses. he has long called for phasing out strict sentences for drugs. he says they lead to excessive punishment and incarceration rates unseen in developed countries. the white house says the president has granted eight total of 673, more than the 10 previous presidents combined. the state department says 30 e-mails involving benghazi have been recovered by the fbi. they are among the thousands recovered during the recently into thevestigation former secretary states use of a private server. the agency said it will need to the end of september to review e-mails and reductive classified information before they are
released. a suicide bomber detonated a truck near the gate of somalia's presidential palace. 20 people were killed. some cabinet ministers at a nearby hotel where among the injured. al-shabaab has claimed responsibility. last week's deadly earthquake and italy were honored today at a state funeral in the devastated town. service was held in an area constructed overnight after relatives rejected lance to have the funeral in an airport hangar 40 miles away. the death toll stands at 292. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. >> thank you so much. "what'd you miss?"
why a by the dip strategy may not be a simple solution for recent volatility. >> you have seen the vix creep up, back around 13, a support level. it did below, and now back up. seasonality ino september, brexit, you have a spike up, bondix andds creep up globally, these bond proxy stocks, utilities, dividend stocks, ,mall outflows, underperforming and so some of the things that have supported the equity market are not there. >> that is like the theme of the week for us here. the death of the safety
stocks. why do you think that is? it couldn't it be that the economy is improving and thinks of better so we no longer need to hide? --there is some relevant element to that. you are seeing a rush into beta, but a lot of people chose this as the last bastion in the equity market. they did not want to own equities, but not the dividend stocks. as yields go higher and they get nervous, i think they will want to go out of that. i think the next exodus is out of the stock market completely. that, they are selling the equity markets, and that will create pressure. this hunt forbout yield, and one thing you talk about are the opportunities presented by the increasing libor. a great column about how the fed
actually has not paid a lot of attention to the prospects of this rising, so how are you playing this? >> we like the leveraged loan space, the high-yield bond equivalent, so floating rates. you are starting to creep above 75, an increase in rates, stepping up the capital structure, so i preferred that element of safety. within that, there are close in the funds, etf's, so you have rise,pside if yields do and a lot of protection because the libor move is isolated. floating looking at rate in bonds, citibank came out with a seven-year floater. ,here are corporate floaters etf flt, so you're not giving up much to avoid interest rate risk.
that trade-off makes sense to me. does this advantage people looking for diversification and portfolios. i'm looking at the degree to which equities and treasuries seem to be moving in lockstep. there seems to be no diversification. friday was one of the worst days in a long time for the multi-strategy indices that was a strong very. does the strategy you represent offer alternatives? >> it will behave more uncorrelated. moving into libor and taking advantage of this rise, which is technical and wonky, but will be mainstream and hit people if they see their mortgages go up, so it's a great way to get yield and diversify away from fixed income. matt: we are looking for a gain of 180,000.
we got a blowout number last month. if we get a blowout number this month, does the fed go in september? i think there is a decent chance to go even if we get a decent number. report is typically disappointing, so if we, in line, that will be good enough. where i differ is that the fed spent so much time putting june on the table, then didn't raise. intos different is coming june, we had bad data after bad data. it was more than that. now all of a sudden you have the exact office -- opposite. inflation,igns of jobs there, so i would not be surprised to see a september hike if we get a good jobs report. joe: that was peter cheer. up, there's return to the market. can'te the chart you
spot price and blue. as the line goes up, the yuan gets weaker. in augusth volatility has climbed at a faster rate than any month since january. because of that, you can see traders think the yuan could get wilder. you could look at the fact that puts are more expensive than calls right now. the forward contracts traded at a discount to the spot price. all these things indicate that everyone expects the yuan to weaken. joe: there is a volatility pickup. the s&p 500 or markets don't respond to the weakening currency, but do respond to a spike in volatility. speaking of the china story, i
want to look at my favorite data point, which comes out later this week, maccallum gaming revenue. -- macau gaming revenue. over year change, only down by 7.1%, compared to where we were, we are one point down on , 23% down gdp last year, so this is quite a comeback. the blue bar chart is gaming revenue. we will get that later this week. that has also been improving. health ofrits and the the emerging markets, you can see how that tracks the general shape of emerging markets, so deep and i on those gaming revenue numbers. on those gaming revenue numbers. 3117, foreign
investors have been pulling their money out of mexico's bond market. pulled $7 billion from the country's peso denominated debt between march and june, the most during a single quarter since the bank be gain tracking data in 1995. ont this could do is weigh the peso. the peso is already the second worst major currency in 2016, tumbling 7.5%. what hasn't helped is foreign direct investment also falling, and oil exports. matt: and brexit. the pound to seem to crush the peso like a proxy. joe: and a trump presidency probably would not help. matt: how profitable with the wall be? the rally in brazilian stocks in 2016 amid the prospect seven a new government is unmatched in the emerging markets. next, the latest in the
>> first word news. to discoverorking whether it can foreign services are hacking election systems. the director of the fbi did not cite a specific country, but officials have raised the possibility that hackers linked to russia could try to access voting systems to interfere with elections this fall. arizona senator john mccain is seeking a sixth term. is hoping to pull out a
victory so he can focus on the fromal election challenge ann kirkpatrick. florida voters go to the polls. marco rubio faces his opponent. the u.s. agriculture department closed offices in five states after receiving anonymous threats. the usda spokesman said the department received anonymous messages that raise safety concerns. the close offices are in our water, connecticut, north carolina, and west virginia. ,ohn kerry a is in india pushing for more cooperation on trade, defense, and energy. the two countries are trying to expand trade fivefold to $500 billion a year. have beenials pressing india to quicken reforms that would make it easier for foreigners to invest there.
global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. recap of today's action. in equities, a retreat from all-time highs. .e dow off .25% that's still above strategists forecasts for year-end. s&p so odd to see the far above wall street strategists. they tend to be optimistic in august. the nasdaq down .2%, apple wiped off three points be cause of this irish tax problem. joe: financials are the one category rallying thanks to a steepening yield curve, which is much different than what we have seen in recent days.
"what'd you miss?" brazilian stocks in 2016 is leading the emerging markets. you can see what a monster rally senatebeen as brazil's is wrapping up the impeachment of doma rue saif -- the president tomorrow. do the fundamentals of the economy justify this rally? let's talk to the chief economist and head of latin american economic research i goldman sachs. thank you for joining us. an extraordinary rally across the board, the currency has had a huge year. what is being priced dan? how much is it about the impeachment, global macro indicators, about the domestic do we need tohat
see and the domestic economy for it to continue? >> external environment, a lot .ore supportive the rates in the currency have been reflecting that. the final in peach mint vote is expected to clear congress tomorrow. that is a lot of hope that will lead to a better policy framework, and administration where conditions are stronger. if you look at the performance of the currency, up 22%, at nine percentage points in cary, total return of more than 30%. 35%, 65% in dollar terms. pounds.% in poundsare a #investor -- investor, you have almost doubled your money. a reflection of the hope
invested in the political transition. it leads us to anticipate a turning point. confidence indicators have improved, industrial production shows the cycle may be able to stabilize. we need the administration to deliver more on the fiscal front. intervention by the central bank? the currency is weaker today. how much does that play into this? could that put a stop to this rally? the central bank has playing it lightly in terms of intervention. they have been unwinding the waps.r s i don't think it is a forceful
driver on day-to-day action. may be a day like today, more of an impact, but overall they are disposed -- less disposed to intervene in the fx market. joe: assuming the new administration remains permanent, it it needs to do more on the fiscal front. talk specifically about what the task ahead is. >> it is monumental. primary fiscal deficit 2% of gdp. a primary surplus of 3-3 .5% of gdp. the administration is going to go in incremental steps. there are two bills that need to be submitted to congress, an amendment to cap the growth of primary spending. clearpe is that will congress with not too many loopholes.
the second one is a strong social security reform that a tree fore church the social security system. the than that, we need government to stop accommodating demands for additional spending for interest groups. in the you look terminal, i'm looking at the wayil misery index, a crude of looking at the pain in the economy, adding the inflation rate to the unemployment rate, extremely high. the years have not been kind to these expansionary austerity in aies that governments deep all need to cut spending. , why arelook at europe you confident that is the right prescription? showing how way of painful the situation is. of the is a reflection imbalances that having human
related over the last few years. you end up with inflation and double digits in 2015. this is an administration that expanded way too much. the fear that on this path we will go into fiscal unsustainable situations. key to recover confidence. levels ofen depressed consumer and business confidence, and part of that was related to the massive fiscal expansion in recent years. >> you talk about the great ask ahead for these physical changes and the hope in this political the newon, how far does president have to act on these new reforms and measures to keep buoyantet point -- and -- buoyant?
we understand that some of these measures are politically sensitive and unpopular, but that does not mean they are not needed. they are critically needed. once the impeachment clears, the market will be focusing on the capacity of the administration to collect congress into adjusting. matt: we will take a break. aboutl continue talking economies of south america. next we will talk about chilean. this is bloomberg. ♪
matt: time for the bloomberg business flash. general electric buying ship express to bolster its supply chain offerings for railroad customers. terms were not disclosed. ge is hunting for deals to strengthen its software business. clear skies ahead for the first u.s. commercial flight to cuba since the 1959 revolution. jet lose flight tomorrow will originate in fort lauderdale, flight -- jetblue's tomorrow will originate in fort lauderdale, florida. it will be the first of as many as 110 daily flights to cuba. american airlines will begin flights to cuba in september. rival high-frequency trading in talks to build a
chicago to japan communications link. project would install a line of microwave towers from chicago to the west coast. the towers would connect to an undersea cable to asia. the companies involved are said citadel and jump trading. that is the bloomberg business flash. >> dashed hopes for an end to chile's economic slump. manufacturing and mining contracting. industrial production has fallen .or four consecutive months are there any catalysts on the horizon. chile experienced its first economic contraction in six years during the second quarter. is this about copper or is there much more to this?
>> there is much more to it. we have manufacturing production , mining production slumping, so the industrial sector is retrenching. there is softness emerging in the labor market. public consumption and investment have been constrained by the limitations that have been in post on the budget, so our expectation is that growth is been modest and is expected to remain so for the near future. that is something the central bank is paying attention to in the way they have been communicating that they will stop the normalization of monetary policy given the softness emerging. -- peso pay so has had has had a strong year. more toneed to weaken help bring the economy into balance? >> yes and no.
some of these issues are related to the overall decline. a freer currency is not lunch. it would put pressure on inflation, now running above target, and then put pressure on the central bank to increase the weight or delay accommodation. we have a bearish view on copper going forward with an economy under performing and expected to grow less than 2% this year. of how muchtion depreciation you need. have a chart of copper with a trendlines. have af people do bearish view because the stock files that have now turned around and are starting to grow. how key is this for chile's economy? >> it is quite important.
it is not the overriding concern for the macro economy moving ford. -- moving forward. exports,ance of copper thechile is open to trade, terms of trade can be a meaningful impulse to the economy. mentioned that the task ahead for the brazilian government's fiscal consolidation. fiscal picture and does the government have policy levers? >> it is not as dramatic as brazil. thepublic debt is lower and carrying cost of that debt is lower. they have been able to find that debt at much lower real interest rates. the capacity to use the budget in an expansionary way is limited.
you also need to evolve once you accommodate. the trend over the medium-term should be towards lower deficits as well. >> thank you so much for joining us. matt: apple is ordered to pay more than $14 billion plus interest in a three-year eu crackdown against corporate tax avoidance. we will break down the decision and ireland's reaction. do they even want the money? this is bloomberg. ♪
the european commission has ordered apple to pay more than $14 billion plus interest in a tax case. it is the largest tax penalty in a three-year campaign against corporate tax avoidance. apple and ireland about to fight the decision. we asked if they are stretching rules right using them to enforce new tax laws. >> not at all. taxation is a matter for member states. no member states can give out selective benefits to a company. it is a long-standing practice that goes back to the 1950's. in that respect, there is no novelties here. this is the work we are supposed to do. >> there is disappointment from
both parties and the u.s. treasury. you what they said. the treasury is disappointed that the commission is acting unilaterally and the parting from the important progress that the u.s. come the eu, and the international community have made together to combat tax avoidance. why did you feel the need to act ocd hasally when the made so much progress over the last three years? important a very point, the progress we have made over the last year. in the european union, new legislation has been proposed and passed and is now being implemented. good and fine because it makes the global taxation much fairer in the future and taxation as such more transparent. the case here is specific.
we have a long-standing prohibition of member states handing out benefits or advantages to specific companies. thanis the case here, more it is a case of taxation. these benefits can come in the form of a cheap piece of land, a generous loan, a grant, or a tax benefit, and that is the case here, much more than it is a case of interfering in the very good work done by the oecd or g-20. ireland also plans to fight the ruling. earlier today on bloomberg, the irish finance minister rejected arguments that apple is getting special treatment. appledon't manage how organizes their affairs. we tax the economic activity that multinational companies carry out in ireland. if there were any ranged in's
made beyond irish law and the competence of the irish tax authorities and an argument is being made that apple does not , then it is a matter for other jurisdictions. the commissioner in her press statement today has acknowledge that. the taxi ise of attributing to ireland may be due to other european countries and advises them to look for the attacks. she also says that if apple wants to make an alternative arrangement with u.s. authorities in terms of to research profits and develop men costs, then they should do that, so by her own press statement, she admits the liability may not be in ireland at all, but elsewhere. 700 u.s. companies employ 40,000 people in ireland. investment,mage
jobs? what is your message to u.s. companies doing business in ireland today? all, when the european commission with the assistance of the irish authorities were researching the apple case, they looked at almost 100 companies, and most of the significant american investors in ireland were looked at, and the commission have come to the conclusion that the only case theyase is the are prosecuting against apple, so there is no contagion effect. don'tam saying is that we think this decision is valid and we will appeal this decision and we are saying that we will stand by those companies that invest in ireland and we will apply the tax regime applicable under and we have assurances from many of them that they will continue to invest in ireland and create jobs in ireland. joe: that was ireland's finance
industrial production tonight at 7:50 p.m. eastern time. valor-yen the highest in a month, the dollar on a fifth day of gains. matt: it's time to go to tokyo. don't miss this, german unemployment tomorrow at 3:55 a.m. we are looking for a rate of 6.1%. joe: i will be looking at pending home sales tomorrow, 10:00 a.m. economist looking for a 2.2% rise for july data. a lot of housing data and data overall for the u.s., other data is adp employment, chicago pmi, so lots more coming up over the next several days. you don't want to miss it. matt: nonfarm payrolls on friday. joe: have a great evening. this is bloomberg. ♪
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