tv Bloomberg Markets European Open Bloomberg January 8, 2018 2:30am-4:00am EST
♪ welcome to bloomberg markets, this is the european open. i'm guy johnson at the london headquarters. matt miller is in berlin. cash trade less than 30 minutes away. ♪ guy: stocks on a tear, european equities go higher again as it has the best start of the year since 1999. are investors being driven by a fear of missing out? merkel's mission, german coalition talks resume within the next hour.
can angela merkel can face off against her own party? -- asee that as a list risk, are they underpricing it? we have an exclusive interview, -- tells bloomberg he is looking at this aggressively. this is bloomberg. let's look about the markets, matt. matt: take a look first off at where futures trading, less than a half hour to go before the start of the castrate in europe and we are looking at a positive trade in futures across the board. you can see a little stronger on the continent than it is in the u.k. right now. bunds.look at i have a three date chart of german bunds here, the yields have been heading down. it's going back up a little bit today and it came back little on friday, as well, so maybe investors selling off that debt, pushing yield and using that to
buy equities as mark cudmore tells us, the doesn't seem to be a lot of bearishness left in london. guy: absolutely not. he was taking a temperature of what was happening in the markets. here is the picture. commodities doing nothing. the market is very long. it's also pretty long on the euro area the s&p has had its essence starts since 1999 -- on the euro. startp has had its best 1999. matt has been indicating. in terms of where the commodity story is feeding into the equity market story, look at the aussie dollar, trading down .3%. china is off a little bit, but the bid is up .2%. let's get a bloomberg first word update. here's juliette saly. juliette: in the u.s., steve
bannon has issued a lengthy apology to donald trump and his family over comments in a book. the former white house chief strategy said donald trump junior is both a patriot and a good man after fire and fury at your read comments to been in over his 2016 meeting with russian nationals to get damaging information on hillary clinton, saying the gathering had been treasonous and unpatriotic. in the u.k. after a year marked election, thesnap departure of several high-profile ministers and an unfortunate conference speech, theresa may is looking to enter 2018 on a stronger footing. she ended months of speculation and confirmed a cabinet reshuffle is imminent. price that the after green departure before christmas
changes will be made and i will be making changes. juliette: the u.s. federal reserve won't need to pick up the pace if the rate increases in response to the tax overhaul package. that's according to the white house chief economist. he says the administration's peter modeling of the economic effects resulted in interest rates that aren't inconsistent with the fed's current guidelines. in the united states, travelers face more chaos yesterday after flooding at new york's jfk international airport caused fresh fright -- flight delays. are restrained by a snowstorm and freezing temperatures. the meltdown two days after the first major snowstorm left passengers to deal with long lines and canceled flights and to search through mountains of luggage for their bags if they could get into the airport at all. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg.
guy, matt. guy: thanks very much indeed. it will continue to hit new records, volatility edging lower. -- our investors suffering of fear of losing out? mark cudmore back in asia joining us from the mliv team. is it driving the markets? mark: i think it very much is. rally to a-- the circuit -- to a certain extent. there is a narrative that people are looking to buy in the markets and everybody is bullish, at least nobody is harris is heavily -- is bearish is probably a better way to clarify that. they think they would get opportunities to buy in, but no one is looking for a bear market in 2018. matt: does that mean you can
expect investors in london to buy the debt? every time we have to dip in markets, they will buy it up? mark: that's the mindset in a moment that people are hoping to get opportunities. there is an expectation there will be more volatilities. they had rock bottom lows and has been a sustained was, the people think it will pick up this year. people have thought that for a long time. we have gone through this narrative of volatility must be at an all-time low and everyone is expecting it to pick up. they might be optimistic thinking, but they are definitely looking to buy into pullbacks. i don't think couple back will lead to a greater selloff, certainly in europe that is the mentality. closee are looking at a on the vix. what will that signal? we have a chart here. you can pull this one up. it's been moving lower and
lower. what will the close tell you? that exact level is arbitrary, but there are two things to think about. what narrative shows is the excess complacency. i find it hard to call it texas complacency. -- excess complacency. it's extreme in terms of people don't have the position. last year, we saw this rally despite everybody being suspicious. now they aren't suspicious, but they weren't suspicious last year and i'm not sure if there is a panic because vix is low. on the flip side, there are some causes in these etf markets that are short the vix. datee vix jumps 80% on a then they have to close by short positions. we've never had an 80% move on a close to close basis. on a close to close basis, it's very hard.
the lower the vix closes, the easier it is to get an 80% day and date move. that would bring us back below the average. matt: we had last year everyone agreeing that the dollar was in for a good year and then felt most 10% over the course of 12 months. and now obviously everyone thinks the dollar is going to continue down this year. what would be the ramifications rally in 2018?id mark: is interesting because i think the price action at the moment is very constructive for the dollar. we have disappointing limited up on friday and the dollar is trading well. it does look like the dollar wants to rally. this morning, particularly in euro-dollar, we have seen euro elysian news. news.uro bullish the dollar is struggling to go higher.
it looks like that position is saturated. what i think is interesting is that last year the market super excited by u.s. growth even though the u.s. wasn't the fastest-growing economies in g10, that alone emerging markets. this year, only australia and new zealand are set for higher growth. suddenly going, he was growth is not that great. it's weird. last year, fundamentals were bearish and the markets were bullish. this year, fund metals work marginally bearish, but i don't think they are negative. yet the market seems very negative. i think that means we see the doctor -- dollar depreciate and we might do for a correction in the short-term. matt: thank you for your time. mark cudmore there, numbers mliv strategist out of singapore. you can follow his market insights on the blog. coming up, then and apologizes.
cutting down to the market open. two stocks that make moves this morning. the belgian rival has rejected the takeover. he is pressuring to open talks on a bid to could value the business at 2.6 billion euros. the maximum payment come up 44% more than the stocks closing price friday, which you can't describe as an undisturbed price. let's talk about the logic stranding this. the managing editor joins us now. what is the industrial logic here? what does nolo hope to achieve? is them trying to make itself less vulnerable to -- the main market. this is beefing up area. is looking to make an m&a play, but is making large cash plows.
they've clearly done their homework. matt: what is the history of this relationship of this offer? we know this is the second offer they are telling us in a statement today and is also 14% higher from the first offer. ceo has telling us the spoken to the ceo of avenue the case put forward and they are hoping to shareholders will persuade the , the to see the deal preempt suggests the deal. novo doesn't intend to do much m&a, so the significance of the bid would imply they have done a bit of groundwork for going ahead with this did. matt: thanks so much, the bloomberg mentioning editor in copenhagen.
acquiren talks to majority stake in its china securities joint venture. in an exquisite interview with tom mackenzie, sergio armani weight in on equity and olatility and what policy normalization will affect the economy. >> we see a robust economic growth. the 3.8% should be repeatable. the growth will be different. we are probably owing to lose some momentum from the u.s., or at least not as strong as we had in 2017. some are from the rebound of commodity prices, generally speaking. some of it from the property are in china. on the other end, we expect still and india to develop well and we expect to watch the other end. what's the repercussions of the monetization of the monetary policy by central banks?
are equities starting to look a bit frothy or is that signal has global recovery underpinning those valuations? >> i think we can say that starting the year, they could the a good place to be. at least in terms to other asset classes, it also on their own, i think at current levels we do believe it is the place to be. valuations across all asset and they wantgh to focus attention on quality and diversity. tom: what are you seeing in terms of trading activity with your clients in terms of volatility? are we seeing a pickup now? are you more bullish about that? >> the reason january is too early to talk about the quarter, but in general it was like january in the first quarter to be more active, that in terms of
market volatility and realized volatility on financial markets on fx, it's still very low and therefore, i don't see a change. in the last six or nine months. 2018, imxking to pecking amort normalizing environment for volatility than the one we saw in the last few quarters. tom: had you factor in this move to normalization from the central banks? from the boj to the ecb to the fed? how will that play into the markets? >> i think to a large extent, they are anticipated. they are discounted in the markets and therefore, i do also look at the positive side of a normalized rate environment will create some benefits to a diverse and also, in general speaking, having a normalized rate environment should also
have some positive effects on the rest of the economy. ermotti, was sergio ubs ceo speaking to bloomberg. the fallout from the bombshell look about donald trump and his fitness for office was the focus in washington over the weekend. former chief strategist steve bannon apologized to trump for comments that you did to him in fire and fury. meanwhile, the president fired back in a series of tweets. numerous demonstrations officials, including cia director mike pompeo and u.n. ambassador nikki haley defended the president in a television interviews on sunday. joining us to get a take, jodi schneider. jodi, why did then and feel it necessary to apologize? jodi: obviously, the president
came out very strongly against the book and mr. bannon obviously does not want to be out there on his own. he wants some connection with the white house. i think that's why he apologized. the larger question here is, what does this mean for the white house in terms of their agenda? instead of talking about, sort of doing a victory lap on tax reform, which is what one would have expected after the big win they had at the end of the year, instead, the president is having to have his top advisers and cabinet officials go on television and defend his mental fitness. it's really a distraction from what they hoped would be a good start to the year in terms of the agenda. it's an election year, midterm election year, and certainly this is something they have to be worried about how it's going to play out when those elections start happening. the primaries are just a couple months away. matt: do they really have to be
that worried? it seems like this is a bombshell book for people who didn't like trump to begin with and those who do support trump just think it's more fake news. doesn't this just polarize? i mean, isn't everybody already polarized enough that this doesn't make much of a difference? jodi: there is certainly an argument to be made for that, that people are set in their opinions about the president, about the white house, and how things have been running. but the real issue is how much energy does is take away from trying to legislate, from trying to run the country? and if you are having to defend your mental fitness to put cabinet members on television, talk shows, to do that? is that really the tone you want to be setting? i think this is a huge distraction for the white house. is it a temporary one? perhaps. guy: quite a big one. thank you very much indeed. jodi schneider joining us later
about the stories running washington. i also think it was quite interesting, the comments regarding the fed. clearly the white house worried the fed would up the price of rate hikes, which would take away from the tax story that jodi was just talking about. minutes away from the start of european trading. up next, let's take a look at stocks you need to be watching, including at the links it is rebuffing it's takeover bid. the start ofed at trade. it will be interesting to see when it will happen. the open is now eight minutes away. this is bloomberg. ♪
♪ guy: five minutes to the start of trading here in europe, a huge week for the pharmaceutical sector. we have a conference taking place in san francisco that will kick off later. plus you have this novo transaction they are pushing to shareholders. they are making this offer novo nordisk best known for its diabetes therapy. ynx continues to look to see if it is suspended to trade. just be aware of that. the markets are way underpricing this judging by the anr. the price target is sick the significantlyis
below with the offer could come through. then we are talking about airbus in china. matt: absolutely. at a time when macron is there making a call for the vinci to open up desk for president xi to open up the globalization that xi stood for at davos last year but hasn't come through with. a380us offering an partnership to a chinese company and on top of other interesting airbus stories, that the turkish airlines accord, where it got rid of some more metal there and the fact that technically, the stock is down below 50 day moving average. a lot of reasons watch this stock is morning. guy: it will be interesting to see if they look to do transactions. watch, keep an eye on micro focus. , keepn eye on mothercare
guy: discussing the start of cash trading. let's talk about what the equity open is likely to look like in europe. the dollar is trading stronger this morning to be aware of that when you think of how the commodities are going to train. that is interesting given the backdrop of this vibrant commentary. oil trading down. be aware of that when you look at the oils and commodities. closed today. hong kong, to be honest, drifting sideways. but here is the real story. the s&p was up .7% on friday. a moderately disappointing payroll number. the best start to the year since
1999. think about what happened in 2000, the run-up. the european equities this morning, higher once again. let's show you what the fair values look like. by .6% this morning. let's take a look at the numbers on the board. i will give you an idea of how this open is coming through. london could be more mixed this morning. you are not going to get much coming out of london. , and i think the commodities are struggling. .2%.bex up similar numbers coming out of the cac 40 as well. the docs could be an interesting story this morning. let's take a look at the sector story. it's interesting, with focus this morning. energy is trading higher despite the lower story on oil. health care is interesting. we'll see how novo nordisk
trades. financials look reasonably well bid this morning. consumer staples trading a little bit off. i'm quite surprised at how much strength we are seeing. some strength. i wonder with the dollar up this morning, you have got copper fading a little bit. the market is long copper at the moment and oil fading as well. the market up by .2%. let's see whether we have got a german story yet, to focus on at the moment. we are waiting to open up the german market this morning and get some details on what is going on. i blame matt for the tardiness, so let's go back to him and see what is going on with the stock story. guy: the docs always takes -- ax always take the longest to open. at the german stock exchange, a couple of humans down there drinking a couple champagne. they need to get that to open a little bit quicker.
that's take a look at the stoxx 600 here. the index move, you can see the winners and the losers. the hundred 86 stocks up. 127 down. winners toy, 3-1, losers. you see, guy, your health care index sector was lit up on the imap, and we have health care gainers. novartis is a gainer. thehave got some of up aser staples stock well again today. this is a trend we saw last week with nestle gaining among the big gainers. take a look at fiat chrysler automotive. ofery interesting stock late, up 20% over the last month. it looks like there is some thought about the value, the undervalued price.
investors are looking to move that around. as far as the losers go, you did see a big green slice of the high for financials, but hsbc is the biggest loser as far as who is taking index points away from the stoxx 600. you see some more consumer stocks here, although these are the ones you cannot really live without. tobacco is up.n unilever as well. consumer stated box doing poorly. again, unilever on the red side of the leisure. -- ledger. thele on the green side of ledger. equities have started 2018 on a tear, pretty much. up, with its best start since 1999. in europe, the stoxx 600 gained more than 2.86%.
it has opened fire this morning. joining us now is the senior investment manager at aberdeen standard investments. saying hek cudmore met with 20 equity fund managers last week, none of whom were bearish. is there any reason to be concerned about equities as we start this year? james: i'm sure if you look hard enough, there are probably plenty of reasons to be concerned, because they're normally are. from a macro perspective, there's not really much to pick holes in. i'm sure if you cast your mind back a lot further, and you can recall booming growth periods of the past, -- relative to the post crisis recovery, things look pretty great, globally, in a coordinated fashion we have not seen much of at all. the problem for equity investors , something we have heard a lot
about in the last 12 months, certainly, is valuations and to what extent things have run ahead of the recovery, and again, without wanting to sound too much like a broken record, that is because they have done it intentionally. they have borrowed recovery from the future to stimulate asset present. the pariso at some point, that used to go into reverse. that is worse than the current environment, because of the central bank policy and the changes we are expecting over the next 12 or 24 months. guy: say we get to the euphoria phase with global equities. a few kind of attributes that would lead us in that direction. is it better to get out early or get out late? james: very good question. i do not think there is a correct answer to that problem because it depends how wrong you are, obviously. if you are three years too early, withdrawing from equity
investments, it really needs a dramatic drop for that to have been a good decision, so there is no right answer. that is one of the imperfect information problems. guy: this is what you call the auditing question, i think. james: i think the interesting thing with this bull market recently is how unloved it has been, how much -- exactly. normally, when you have an unloved equity market, people are not positioned for it. there is cash on the sidelines. people are waiting for a debt, dip, but itr -- a never emerges. it is a capitulation trade. when everyone is growing the ,owel on, being underinvested having to buy a higher equity market because of fear of missing out -- i think they probably have. you get an aggressive spike in
price action and suddenly, everybody is positioned for it and you see a bit of a collapse. it is a bit early to say at the moment, but it does appear people are chasing this equity market higher as opposed to revising both forecasts. aboutwhat do you think the difference in valuations that we are seeing in the three major developed markets? prettyw, the u.s. is now expensive when you look at it, especially compared to europe. james: it's a tough one, isn't it? there's lots of different valuation metrics, and the period over what you judge things like earnings versus prices, whether you are looking at forward earnings, pastor earnings, spot earnings. that gives you a different answer. people start to look at the currency impact, and you look at some equity indices, for example in the u.k., in germany, where large proportions of revenues
are actually from abroad. they are not just domestic equity indices. then, you have sex oral influences again. ral influences again. comparison tovel say that x is more expensive than y. i would observe from my perspective there needs to be a more permanent political risk premium inequity indices in europe because of the construction of the eurozone and how partial it is and how prone ofproblems that organization their monetary union really is. and then again, because the u.s. economy is so far advanced in this cycle, relative to the european economy and to european equities, there is going to be a difference in valuation for that reason before udell down delvehe sectoral -- you
down into the sectoral section. i would feel much more confident that we could see the macro environment continued be supported for equity investment in the u.s. versus investing in europe. we are more concerned about the problems we will have to face over the next 12 months to 18 months, between monetary, fiscal, and political issues. matt: all right, james asked she athey is going to stick with us. we are going to talk about the french connection in china. president macron begins a visit to the country. will he succeed? we'll discuss that. a couple of stocks you are going to want to watch. micro focus down 9%. it sees a decline of 2% to 4% in fiscal year revenue. mothercare. it is a microcap stock.
guy: welcome back. you are watching the european open. we are 13 minutes into trading this monday morning. it was quite a friday for global equities. s&p charging. european equities on the move. this morning, to be honest, with the exception of london, which is going nowhere in a hurry, equities are continuing to push on. let's take a look at the map. you can zoom in. the dots is up by .5%. a decent story in paris. nordic countries looking reasonable. london is the laggards. ireland trading up by .7% reported all doing reasonably well. it is the periphery on the real move this morning. the dax doing reasonably well as well. in terms of the breakdown from a stock point of view, let me get my grr trading to get you an idea of what is going on. the auto parts are doing really well. jpmorgan last week suggesting 2018 is going to be the year of the bull market. basic resources as well despite economies trading lower and technology are the only sectors
to be negative territory. matt. matt: let's talk about what is going on in france. or rather, what is going on in china with the french president. he has begun his state visit. emmanuel macron will attempt to drum up business for his companies including airbus during the three-day visit while pushing for greater reciprocal market access. in a speech, in the last hour, macron called for a establishing a "trusted relationship with president xi jinping," and says honest dialog is needed to ensure honest ties. sterling kanaan -- caroline connan joins us now. he is really trying to set the tone for this three-day visit to china. he is asking for trade with china, improving market access
of e.u. and french companies to china. --anuel macron is trying to a little bit of what donald trump called for last november. even if macron was not with a perfectionist approach, -- protectionist approach, he said that e.u. cannot have the door haveopen while some others it have closed or three quarters closed. during the speech this morning, this was a very symbolic location, because it is the departure of the former trade route that china is trying to revive with this massive multibillion-dollar infrastructure project that he said was also becoming an interest between the e.u. front and china. emmanuel macron trying to revive
this trade discussion with china and also of course trying to get some trade deals done. to draw macron trying business for french companies. airbus looking may be at options surrounding the 380 three what are they going to get done, do you think? so, this is a discussion. we are going to have the details probably on tuesday. of course, the ceo of airbus, who as you know is stepping down next month, it's a big deal. if he manages to get some sort of commitment from china on the a380. this big superjumbo, the double-decker airbus has had a hard time to sell over the last few years. the finalto showtimes, there could be some sort of industrial partnership
where chinese suppliers would get some access to walk on the superjumbo in the finishing center. we don't have much details on this quite yet, but given that airbus has only sold 5a380's to china so far, this could obviously be a game changer. you could say you could say the future of the a380. joining us.e connan so with us, james athey at aberdeen standard investments. james, the macron magic has worked for europe over the last nine months. it has been incredible to watch europe on the front foot, feeling more buoyant about what is happening. get a sense of that. long theling very euro. are we over doing this now, coming into 2018 with too much on europe? james: yes. that's the short answer. the euro trade has been one which has been probably largely
more just about how the tuneup it is an short positioning it was, and that flow dynamic has let lots of street forecast to be very bullish the euro. as you described, positioning suggests a pretty huge long. is the next 12 months, that risky. with rate differentials and economic outlook and monetary policy outlook, i don't see much justification for that. in terms of the political agenda and how that has helped to feedback into this bullish euro story, actually, it is better to be lucky than good. macron has taken over at a very good time. in repairingwork the euro zone economy has come from time, healing of time, and reparation of confidence with positive steps and the monetary policy support we have had. i'm not sure there is anything he has done of yet which has been impactful. i would observe that his rhetoric with respect to trade
is quite conflicting and confusing because he talks about free trade but he talks about the need for some protectionist policies. he talks about it with respect to china. there is sort of -- he sees it as an asymmetric relationship because europe's doors are wide open. well, obviously, that is not true because they have external tariffs. china without a deal will be subject to tariffs etc., etc.. i do not think it is as asymmetric as he thought. talks a lotent xi about free trade and globalization. at least, he did last year at davos. do you see him acting on any of that? i don't want to say anti-trump, but rhetoric that should aim to differentiate himself from trump to improve his trade relationships as the u.s. degrades it. james: i think all of these leaders use different terms and depending on who the audience
is, the language can be more or less aggressive, or more or less conciliatory. ultimately, i think they are all trying to achieve the same, which is to say they want trading relationships which benefit their own countries and people. we talk about free trade, but as we have seen, if we take an example of the european union's trade deal with canada, we see these incredibly complex trade agreements. they do not need to free trade in the sense of completely removing all barriers, all restrictions. what they do is qualify. they try to get to a place where there is as much agreement as possible, as much which will benefit as possible, based on the specifics of the two economies or multiple economies, trying to get to a position in the middleware there is as many areas as possible which have been reduced and removed. that is the name of the game to get as much as you can for your own country, your own constituents, without giving away too much and leaving your economy open to, you know, behavior which can look like
something problems, which can because for specific sectors which can affect specific geographical areas and cause the political problems further down the line. as always, there is nuance here. what all of these leaders are trying to aim for is something in the middle. i don't think there are any economies which have got such unilateral free trade dynamics which can be seen as truly open. it is very much about qualifying have economies -- how economies deal with each other. matt: james athey at aberdeen standard investments. we will get your stock movers this morning. take a look at what is moving with market street we have gains across the continent, but as we look at a gloomy shot of st. paul, we see the ftse is down .1%. .25%.x and the cac are up we will talk more about that. this is bloomberg. ♪
it is the diabetes business. it has been facing a lot of competition in that particular field. branching out into bio pharma. this is a belgian blood disorder specialist. it is unchanged because it is suspended on the belgian exchange pending a press release, pending a reaction. they have been trying to open up communications with this business. so far refusing to come to the table. will that be enough to change the mind of ablynx? will they tell us anything different when they put up a press release? considerable upside to the ablynx share price because they close on friday. watch out for press releases coming from ablynx. mothercare, a very small business in the u.k.. keeping the focus on the
retailers, this is a retailer of children's where in the u.k.. they had a very tough business period. 7%. by more than they talk negatively about international business and also the u.k. business, so keep an eye on this. the other retailer, keep an eye on those. 3.2%g semiconductor up by it was down by more than that on friday at one part of the trading day on the back of a negative note. today, they tell us revenues are coming above estimates. matt, guy. matt: thanks very much for that, and a. starta may is expected to a reshuffle of the cabinet as early as today. following the loss of three ministers in 2017, may has an opportunity to recast her team as she seeks to move talks with the european union to the next phase. we will discuss more on that reshuffle after this break. this is bloomberg. ♪
matt: we are 30 minutes into the trading day. here are your top headlines. stocks continue on a tear. european equities higher a get today -- again today after the best start to a year since 1999. are investors being driven by fear of missing out? resumecoalition talks this morning. investors seem to assume a deal will get done. the question, of course, are they right? ubs wants a bigger piece of china. in an exclusive interview, sergio tells bloomberg the bank aims to buy a majority stake in its joint venture.
we are 30 minutes into the trading day. let's see how things are shaping up. take a look at what is going on in the markets. ,e have gains on the continent so the dax is gaining, and the cac is gaining. meanwhile, the ftse is down .1%, so it looks like that bullishness inequities is prevalent here on the continent, but not so much in london. let's get the first word news right now. for that, we go to sebastian salek. sebastian. u.s.,ian: matt, in the steve bannon has issued a lengthy apology to donald trump and his family over comment in the book "fire and theory." he set -- and fury." he said donald junior is "a patriot." -- to get damaging information on hillary clinton. gathering was treasonous and unpatriotic. in the u.k., after a year marred by disastrous snap election, the
departures of several high-profile ministers and an unfortunate conference speech, theresa may is looking to enter 2018 on a stronger footing. bbc show,rview on the she ended months of speculation and confirmed a cabinet reshuffle is imminent. >> there is no prize in forgetting. it is the departure before christmas which means some changes have to be made. i will be making some changes. sebastian: the u.s. federal reserve won't need to pick up the pace of its planned interest rate increases in response of the recently passed tax overhaul package according to white house chief economist kevin. he said the computer modeling of the economic effects of the tax plan results in interest rates that "are not inconsistent with the fed's current guidance." sticking with the u.s., travelers from around the world faced more chaos yesterday after flooding at new york's john f. kennedy international airport caused fresh flight delays and freezinge amid
temperatures. the meltdown two days after the year's first major snowstorm. they rebooked canceled flights and had to search through mountains of luggage their backs. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. guy, matt. sebastian, things are a much for that. equities are on a tear across the world, continuing to hit new records. let's talk about the outlook for 2018. still with us, james athey, senior investment manager at aberdeen standard investment. we have been talking about this throughout the program, but you know, as we hit you record after the record on the s&p 500, and you know, 26 year highs in japan, why does europe seem to be such a laggard in this? james: i guess there are a few
things. the first, i would definitely point out, the strength of the currency we have seen in the last six months. as i noted previously, the eurozone economy -- the commencement of the recovery was an external one. obviously, that wealth gets recycled through the domestic economy, and what we have seen is domestic amanda starting to play catch-up, but a good proportion of company revenues, companies based in the eurozone, are getting the revenues not just within the domestic region, but globally, and there is a currency impact. a stronger euro means those foreign earnings will be worth less, and that has to be taken account of by equity investors. i also think it is right and proper that there is a political risk spread between the u.s. and the eurozone. i don't believe that just because donald trump is in the white house, there should be any meaningful political risk premium in u.s. equities, because i think, as we have seen over the last 12 months, we get
a lot of talk, and not necessarily a lot of action on some of the more eyebrow raising policies or tweets, should we say, whereas in the eurozone, we have a partially constructed monetary union. ck of fiscal transfer, banking union, and pooling. it is a very fractious one and will require lots of electorates. there is no reason to believe that that is where domestic electorate want to go. must the reason for the politics of europe to still play a role in dampening equity performance in that region. this is the chart we have got. we are at the lowest level on the employment rate since 2000 and the debate over the weekend once again is is the phillips curve rogan? is whatever you want to call it, phillips curve, broken? are we getting -- about to see
inflation happen in the u.s.? james: it's difficult to say there is a magic number. we were just talking off air. when you look at the state level data, you do see the states are with thet on them -- lowest unemployment have the highest inflation. there is acceleration in wage trends at state level. -- as always, these things happen at different times, in different sectors, and different geographic areas of the economy. the point is that that drives the aggregate economy along. there is not a magic wand at which these suddenly change. we are getting closer and closer to the domestic economic situation which is going to need workers to be paid higher wages in order to keep up. if i step back and look further afield and look at the global inflation dashboard, i see commodities prices going up considerably. , still see a week chinese yuan which helps export inflation
elsewhere. i see lots of reasons to think inflation is going to be higher. guy: 10-year breakevens -- that gives the fed credibility in the medium-term. let's talk about the front end. i have this chart, euro-dollar sure these are butterflies, an indication that the market is getting shorter and shorter at the front end. how much more does the curve flattened? it is the front and just to be avoided at this point? james: technically, that is a bit of a concern. largely -- has largely been the story of 2017 and has not prevented too much performance. we are not getting much indication of the fed is looking to replace its terminal rate. given that there is always a ,hance of disappointment disruption concerns again because of what is happening on the east coast, you know, i think it is proper that the market does not immediately work to price three hikes next year because the fed has it.
there are risks around those views. it does feel like we could have a potential disappointment of some stayed over the next two months or three months. big picture, absolutely. with the euro-dollar surprising, me,, way into 2019, for that is not enough given what we see in today's economy and potential future changes. matt: you did have the disappointing jobs number on friday coming in at 148. we were looking for 190,000. is there any chance that we get surprisingly positive european numbers and the ecb really does to really normalize policy? is there any chance you get that kind of shift? the fed not going three or four as some have expected, and the ecb getting a little bit hawkish? james: i would not suggest that
friday's report was really that disappointing. , that is completely rounding error away from the trailing averages, which were around 170 thousand. again, the dynamic we would expect to see late in the cycle when labor markets are relatively tight is that it will become more difficult to generate both large headline jobs numbers from his reasons. there are less roles open, and there are less people freely available to fill those rules. that is where you get the frictional dynamic, which means we should get headline jobs growth slow. you might argue that that is a poor tender of higher inflation down the line, and that is something the fed should be more cognizant of with respect to izeir needs to normal i policy. it forces them to go too far. eurozone, itto the is an incredibly difficult situation.
this is an incomplete monetary union. set policy to the entire region. despite the fact that the region is doing well, there are huge differences between the individual economies. what is right for germany today is probably not going to be right for italy or france, who are somewhat placards in terms of -- placards inter -- laggards in terms of such matters. i certainly think that they areh, that guiding us towards buying bonds. it seems like it is a high bar for them to shorten that. high bar asa well. it is afterwards that we are looking at rate hikes. i do not think they would look to hike rates for the first time at christmas. for me, you are looking at 2019 before the eurozone is able to start to think about hiking rates. guy: let's wrap it all up and take a step back. equity markets are on a tear this morning. we are seeing a strong start to the year.
do i fade that or do i carry it on? how does the relationship work? look what it says on your business card. which one would it be right now? james: put my business card aside and i would say that bonds are more mispriced. the economic cycle is supposed to give us faster growth, rotter growth, higher inflation, which wages.es higher none of those things is particularly good for government bonds when gilda 45 basis points on a 10 year german bond or 2.5% on a u.s. 10 year bond, or 125 basis points on a u.k. guilt in in 10 years. you are not really being rewarded for taking any of the risk, and you of the currency risk, or any of the inflationary risks. [laughter] james: absolutely. there are lots of reasons above and beyond a macro call why some
investors by bonds. you have insurance companies and regulation has changed. completely changed how you can pension funds are invested. playf these influences a part and will continue to play a part. this does not mean we should be buying bonds at any price. there is a chance that there is a bit of an inflationary shock. equities, they should still do ok in that environment. however, if bond yields moved too far, that first two feet into equity prices. guy: james comer going to see you this running. james athey, joining us from aberdeen standard investments. and i on dabmatt digital radio at 9:00 a.m. this morning. we are going to continue on the conversation thread what are regard to carry on with here? one last chance. angela merkel calls for a deal asa make or break talks -- they start in berlin. she is optimistic. what about the rest of the party
by her own party block as exploratory coalition talks continue here in berlin. they kicked off yesterday. the chancellor's bavarian sister party is seeking to force policy to the right, forging a tougher line on immigration and the european policy. after more than three months of political still make, merkel is seeking commitment for the democrats. joining us from our brussels bureau is the director of the center of european policy studies. daniel, let me first ask about the european policy. i mean, obviously, the popularity of the alternative bavaria hasand in forced the csu to the right on immigration. in fact, everyone has been pushed to the right on immigration here in germany. what about the european policy? what does this mean for brussels? afd meanstually, the
very little for germany's stance towards europe, because the afd doesn't really have any strong the major parties are all united in wishing to give something to macron. they realized they had to advance on the european front, and so i think, in that respect, it does not really matter which coalition will govern germany. matt: there is a story in the most widely read newspaper in germany over the weekend that martin schulz says his career is over if this coalition does not come to fruition. spd that mean that the is going to go with this even if they had to agree to some further push to the right immigration policy? daniel: yes, that might be true. they will have to really be very careful in what they are giving in, but it is also much about
schulz himself. it is more about what the party will want to do at the bases level. because the leadership seems to have very strong motivation to become part of the government. the party days is very skeptical, and the key question is therefore whether any deal with might do with -- which my deal with merkel might survive a test with the party base. if that does not happen, then the political career will come to an end. guy: daniel, good morning. it is guy, in london. how should we think about that relationship? what does it tell us about the csu's relationship with the spd? forel: this is more internal bavarian purposes to show that they are not falling with political correctness with tentative views.
that does not have any bearing on what they are doing in berlin. this is grandstanding. matt: how much longer does he have an office anyway? daniel: exactly. is anyway not very strong right now. they are below their target of 50% in the state of bavaria. you have to read everything in this local prison at the european level. there is no alternative for germany to play a strongly constructed role in europe. which i havee consistently taken ultimately in berlin and brussels. forget about what is happening in bavaria. matt: is this the end? i mean, the writing on the wall is clear for him. what about angela merkel? she has been not only the , and in somermany
sense, of europe, but at the g20 in hamburg, she got a standing ovation when she walked into the philharmonic as the leader of the free world. could this be the end of her career? at least the dusk of angela merkel? it happens quite often, when leaders become too popular abroad. they lose their standing at home. and this is what has happened with angela merkel. people get a bit tired of her, seeing always the same face, and to the fact that she leads the free world, it is really --elevant to local german come and therefore, she has a tough position. she is in the center, but she both a partner, and with partners being hesitant, she looks weak. as soon she has a partner again, the spd, or maybe the ftp will come back, i think she will recover some of her strength.
she knows that ultimately, her days are numbered. this must be a last term. guy: there is a lot of optimism with paris and brussels. germany will be a willing participant. do you think that is slightly overstated? true inthink that is the general sense. thee is a consensus in german political -- that something has to be done about europe. more integration is better. it is perhaps different than that of france or italy. germany thinks the monetary union and the banking union are pretty much good as they are right now. they don't see a lot of need for change there. more on defense, internal , andity, on borders traditional corporation, and i think these are the areas where
also macron would like to do something. if the two can come together on this basis, more security, i think a deal can be struck. matt: is it necessary for grand tolition 2.0 or really 3.0 happen for that deal to be struck? europeanany way that integration continues if we get some other outcome, either a minority government or a new election? daniel: a ground coalition would of course make it easier for germany to agree to those steps, but i think the main difference between a grand coalition and all other possible alternatives would be that a grand coalition might actually make some incessions on the front terms of european finance minister, european monetary front, or these issues. whereas, if there was another government with all the spd, then maybe germany will have
even less room for maneuver on the economic, on the monetary and banking front. something of the security will certainly be done. guy: daniel, this all assumes the italian elections do not cause any problems, right? the assumption must be that the italian election will cause problems. one has to be prepared for a government which has been -- which will be very weak. it will not be a strong populist government nor a strong anti-european government. just a weak government. that is what has happened over the last decade almost. usually doesnment not have a lot of interest in european affairs. if france and germany agree on something, the mattis, in the end, whatever the italian government will have, they will be forced to agree. therefore, i think that although
we created difficulties, in the end, the italians cannot stop an agreement on the way forward towards more european integration. guy: daniel, thank you very much. thank you very much for joining us. daniel gros, director of the center for european policy studies. let's get back to the stock market and back to anna. anna: let me take you through a few of the stocks on the board. they could be on the move this morning. let's take a look at airbus, trading up by .9%. a lot of talk about whether they will find some sort of deal in china this week. the french president making that big first visit to asia. he is in china making a lot of noise about cooperation between the chinese and europeans, but will they be at deal in this for a330s?a320's, a350's, we will see what side this ends up being. focus down by 12% earlier in the session. this is a software management
company, put together through a number of deals. softwareht hpe's business in september, 2017. they finalized that were announced it before. sayings from invest tech the lower than previous guidance revenue statements coming through from this business -- saying that what we are hearing what that evidence of merger with hpe is doing to the company, and they are concerned that perhaps some of the negatives are coming earlier than they had expected. the focus is on what impact that has on revenue and outlook for the company. the synergies that can be associated with buying hpe. they are also announcing today the creation of a new m&a role for that business. m&a director of all, which had a mixed reception from analysts. as a result, we saw this company -- down by 10% this morning. of a reshuffling by morgan stanley in the ledger
sector. this is a betting business down by 2%, saying the price target for this business should be 75 pounds. trading more at 86. poundnsensus is the 82 mark. this is an industry that is really in flux with regards to regulation. guy, matt. matt: all right, anna, thanks very much. among the stoxx 600 right now, we have got about 400 issues gaining, 200 losing. basically 2-1, when is to losers. if you take -- winners to losers. health care is leading the charge as far as the gains. on the top 10 stocks that are adding index points to the stoxx novartis, bayer are all there. guy: stay with bloomberg
francine: the fire, the fear in the fallout. an apology from steve bannon. there are still a lot of issues to be addressed in europe that good derail the recovery. president macron arrives in china, echoing the call for moral markel upset. -- for more market upset. but what could endanger the retreat? good morning. welcome to "bloomberg surveillance," i'm francine lacqua in london. let's check in on your markets.