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tv   Bloomberg Daybreak Europe  Bloomberg  October 30, 2018 1:00am-2:30am EDT

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yousef: this is bloomberg daybreak middle east. markets swing from negative to positive as president trump predicts a great deal with china on trade. the yuan weakens to the lowest level since may 2008. the end of an era in europe. as angela merkel prepares to step down, who will take charge of the world's fourth-largest economy? emirates nbd beats expectations with a 60% increase in third-quarter profit. we have more details from dubai's they just bank. as the khashoggi scandal continues, the u.s. pressure saudi arabia to wind down its
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isolation of qatar. ♪ ♪ this is "bloomberg daybreak middle east. " i am yousef gamal el-din in dubai. the offshore yuan coming within striking distance of the key 7 level, a potent symbol of the wider trade war and possible weaponization of the yuan. will china bring more firepower to bear or not? let's check on the wider market action. the initial signals from the u.s. president about a great deal in the trade war between the u.s. and china, well, the president backpedaled a little in the conversation, but the markets are holding on to the theme, liking the risk appetite. japanese nikkei leading gains, up 1.8%. south korea with upside.
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still a little downside pressure now, swinging back-and-forth. and risk00 is up 1.4%, appetite reflected in foreign exchange, australian dollar with some gains. the question of the day in terms of risks lurking amid the followin volatile global market, what are the hidden risks of a u.s. correction? diverging views from goldman sachs, morgan stanley. let's check in on the first word headlines with debra mao. debra: data from the crashed indonesian airliner shows the plane hit the sea at hundreds of kilometers per hour, plunging from 1500 meters in just 21 seconds. it carried 189 people, all of whom are feared dead. shortly after leaving jakarta,
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one of the pilots requested permission to return to the airport, indicating the crew may have been struggling with some type of failure. angela merkel has confirmed she will stand down as leader of the cdu after 18 years, but says it she will remain chancellor for the rest of the current legislative term, meaning she would quit in 2021. merkel says it she will not seek other political office. she is in her fourth term as chancellor, but her government has been weakened by infighting, and coalition parties were punished in recent state elections. the u.s. treasury says government borrowing will more than double this year from last, to $1.34 trillion as the trump administration finances a rising budget deficit. ohe department expecting t issue $400 billion from october to december, although that is lower from the estimated $440 billion forecast in july. chancellor of the exchequer philip hammond delivered on the
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budget promise of tax cuts and an end to austerity despite continuing uncertainty about brexit. he says the country has reached a defining moment and views the future with confidence. 24 hours earlier, hammond had mean an extraght emergency budget and prolonged austerity. >> i can report to the british people that their hard work is paying off and the era of austerity is finally coming to an end. set a newf bezos has wealth record, but probably not one he enjoys. his personal fortune has dropped more than $19 billion in the last two trading days alone, the most ever in such a period. mark zuckerberg used to hold the record, when he lost $16.5 billion in july on disappointing facebook results. os is still worth $128 billion.
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global news 24 hours a day powered by 2700 analysts in over 120 countries. yousef: thank you. let's get back to our top story. asian equities have flipped into positive territory after president trump made a bullish comment about the trade deal with china -- >> i think that we will make a great deal with china. and it has to be great, because they have drained our country. we have really helped rebuild china. they have been taking out an average of $500 billion a year. not going to happen anymore. was after sources in washington said the u.s. was preparing to slap tariffs on all chinese imports if the talks between president trump and xi do not ease the trade war. china is considering a tax cut to revive the flagging auto market hit by the trade tensions. let's get more on the story with tom mackenzie.
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your initial reaction to the latest measures by the chinese government, is it too late for these kinds of drip-feed approaches? tom: they are truly taking measures to cushion the blow of the trade war, and there is a lot of focus on the talks in november. if those talks lead to a framework for going forward to ease tensions, that would give china a way out and take pressure off of their economy. perhaps there is some way forward. if the talks to not progress, we are back to where we started, the risk of tariffs, on remaining goods in december as our colleague washington reported, and an increase of tariffs in january, all of which would be quite material for chinese -- the chinese economy. there is a lot of focus on whether this meeting in argentina will yield results. put a: bloomberg, they
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number out on what the gdp drag could be for 2019, in the vicinity of 1.5%. tom, let me get to you to try to figure out the extent of the slowdown in china's car market, and whether this latest measure by the chinese government is actually going to fix the problem. tom: that's the key question. this is another additional stimulus measure, if indeed is it -- it is implemented. this was reported by our team last night, that the chinese would look at a proposal of cutting the sales tax on smaller engine cars from 10% to 5%. we don't know the exact timetable, but that was reported at thee ndrc, officials state planning organization. it is a lever china has pulled before, and comes at a time when the market faces pressure, particularly smaller engine vehicles targeted by sales tax
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cuts. we look at four straight months of sales declines for the chinese auto sector, the largest auto sector in the world. accounting for 5% of chinese and gdp, with all the upstream and downstream businesses associated, so it is crucial for policymakers to ensure the bottom doesn't fall out. it would be potentially the first slowdown in over two decades for the chinese auto market. an analyst put out a note, saying it might have initial benefit, but longer term because of the maturity of the market, those benefits might ebb. certainly we see a positive reaction from stocks here in china. yousef: thank you both. enda curran, tom mackenzie. let's get more perspective. the executive director of e.m./asia fx strategy at jpmorgan.
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our earlier guest made the point, you can see the yuan, we the trade 7.3, that skirmish will turn into a trade war. from the latest developments in the last three or four hours, do you agree with that for you? think yo have, i to take a step back and look at the factors driving the weaker currencies. this is quite different from the previous episode in 2015-2016. i think there is a risk that in the medium-term it's weaker, but that will be weakness in a bounded fashion. we don't see the same type of bounces, particularly in capital accounts, that china experienced in 2015 and 2016. this will still be, as i said, we will not see the same capital
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outflow pressures we saw during that period, but we have to look at where the relative economy monetary a relative policy perspective, with the u.s. raising interest rates, china maintaining a steady interest rate profile. that should push dollar-cny higher, but in a controlled, bounded fashion progressing into 2019. yousef: jonathan, you analyze all these different scenarios, but doesn't it all come down to a simple question, possibly a simple answer. are you a believer of a protracted, structural shift in the balance of power between china and the united states, or is this just leverage, negotiation, but ultimately they know they have common interests here, they have too much to lose, they will come to a consensus? jonathan: right. that is a very good question. obviously, we have seen a shift in relations between u.s. and china, and that is probably
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likely to play out over quite a long period of time. i thinkortant to note, you can look at what happened with the nafta experience, where the u.s. threatened to pull out of deals and it looked as if canada would not be included, and then would be included, etc. this is a very dynamic situation. the u.s. president's comments from earlier today kind of hit that. obviously there is some scope to see a deal at some stage. that is important to keep in the back of your mind, that obviously this situation could change quite rapidly. that's why everyone will be focused on that november meeting between the two presidents. yousef: the real elephant in the room is what's going to happen with chinese equities, because a quarter of the msci emerging markets index, roughly, is chinese stocks. what is going to happen if chinese stocks continue to tank? n assetat mean e.m. as ab
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class is doomed? jonathan: it is a bit premature to say e.m. as an asset class is doomed. you are right to say that a lot of what happens in the emerging markets-based depends on what happens in china. and obviously, there are still some fairly significant headwinds on that front, but yesterday the announcements around potentially boosting the auto sector, i think, is a step in the right direction. what we will really look for between now and the end of the year, the extent to which china launches more aggressive fiscal stimulus. that we think can ultimately put a floor under chinese equities, put a cap on how much capital outflows we see from china, and that can then in turn have positive spillover effects for the rest of the e.m. space but we are clearly not at that point. the market is still waiting to see how big the stimulus is, and evidence of that, not only in the auto sector, but also in the
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local government sector, boosting fixed asset investment, things of that nature. yousef: hold that thought. we still have quite a bit to get through. jonathan is staying with us. here is what is next. we hear from the bosses of ibm and red hat as the u.s. tech giant chases amazon into the cloud. first, the s&p 500 on the brink of its second 10% correction since 2018. a closer look at the events unfolding there. this is bloomberg. ♪
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yousef: 5:15 in london, 9:15 in dubai. some clouds. live shot over the dubai financial center. brent crude down 0.2%. some of the world's biggest crude producers delivered conflicting signals about global supply. let's show you what's happening with middle east equity markets.
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this is the summary of the trading day. mixed picture on the whole. a four-day losing streak for dubai stocks. from dubai'sgs biggest bank, profits beating estimates on interest income, a catalyst for the opener in about one hour. saudi arabia with a little upside on the back of corporate earnings. let's check in on the latest business headlines, back to debra mao. posted a 16%es nbd increase in third-quarter pr ofit, benefiting from higher interest income. net income rose to $719 million, from $620 million. to interest income rose 18%, $901 million. the bank's cfo described the result as satisfying. bank of america plans to pay special bonuses a second straight year after seeing
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profit jump on tax cuts, and a focus on cost cutting that has eliminated thousands of jobs. $1000 cash bonuses will be paid in december to eligible staff running under $100,000 annually. many higher paid employees will receive a stock award early next year. a regulatory filing says outside investors may not be the only ones pulling money from bill gross's bond fund. his family's personal stake in the janis henderson global unconstrained fund fell to $566 million, down more than $200 million from one year earlier. 6.3% loss suggests gross may have moved $150 million of shares. snapchat tumbled after reports that a new chief business officer was hired on friday and replaced on monday. ceo evan siegal promoted kristen o'hara, and then changed his mind and chose former amazon
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sales chief jeremy gorman instead. o'hara has already left snap, telling she is going as part of changes to the team structure. yousef: thank you. a october comes to a close, familiar theme is playing out in markets. u.s. stocks saw their sharpest reversal in three years, leaving the s&p 500 at the brink of its second 10% correction of 2018. the benchmark has tumbled 9% this month, the most since february 2009, and volatility has surged. it was led by companies with high valuations, as investors seatac and consumer shares that have led the bull market. jonathan cavenagh, head of e.m. strategy. spreading to asset classes, and i wanted to
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talk about how this could be reflected in bonds, dollar strength, weakness. run me through your initial thoughts. said, thats you has been the key focus point for global investors over the last two or three weeks, and what it kind of highlights, eventually what happens in the rest of the world ultimately kind of can come back to the u.s. and have some negative consequences. there's a good proportion of s&p 500 earnings that are outside of the u.s., so as the rest of the world has not done so well over the last six months, we start to see that reflected in the u.s. stock market performance, and a significant move up in real yields as the u.s. economy has continued to do well. that has also had a bit of an impact. obviouslyse is that going into 2019 we still expect to see the federal reserve
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raising interest rates in the gradual path it has done that, but these episodes can becomes something the market will have to get used to, particularly as we get a sense of when we get toward the end of the u.s. cycle and when we see that potential next week downturn. se episodes will likely become more common than less frequent. yousef: so what does that mean for u.s. bond yields? anput together a graphic, update from the u.s. treasury saying they see funding, borrowing needs surging to $1.34 trillion, expecting to $425 billion of debt in this quarter. that is, at least in terms of conventional economics, that should be resulting in dollar weakness, shouldn't it? jonathan: that's exactly right. we are all talking about at the start of the year, late 2017, the very large deficit in the
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u.s. and how that was a big headwind for the dollar in the medium-term. that is still likely to be the case, if you take a view over the next two to three years. ultimately, the twin deficits from the u.s. are certainly going to weigh on the dollar from that perspective, but for it to be a more material headwind, we need the rest of the world to be looking better. in terms of europe, we need some of the italian problems to go away, we need china to look more stable as well, and those conditions have not happened yet. that is why the dollar is still well supported. but over the medium term, the deficits, the budget and current account, can percent a meaningful headwind for the dollar. yousef: the yen is the other currency we are looking at for with the broader central banks theme. maybe we will get something interesting from them, even though the 46 economists surveyed by bloomberg don't expect much interesting moves. where do you stand on the yen weakness currently underway?
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it has been a, little surprising to not see more yen strength in light of the equity market correction we have seen, in u.s. equity markets. but the counterpoint of that has been, we are obviously seeing a meaningful move in yield differential, which has made it more attractive for japanese-based investment to be pushing more money out of the country. so you have kind of had two opposing forces, in that sense, which has left dollar-yen fairly range bound. i don't think that the boj will deliver any major surprises, at least in the short-term. i don't think that's really on the radar, from a central bank that can deliver a major shock or surprise. that i think will leave dollar-yen largely driven by forces outside of the country, and that is really going to come back to what happens in terms of developments of u.s. interest rates and equity markets. yousef: jonathan, always great to catch up.
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jonathan cavenagh, executive director and head of e.m. and fixed strategy at jpmorgan. angela merkel steps down as party leader and will not seek another term as chancellor, the end of an era for germany and europe. we will discuss the effects on markets. this is bloomberg. ♪ ♪
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yousef: 4:25 in the afternoon in sydney. the sydney opera house there. australian dollar, rallying against a group of peers. investors saw what the u.s. president said about trade, intensifying a bold missed move on. even though he put the comments in context, the market is hanging onto the upbeat sentiment. let's cross to a different story in europe. after nearly 13 years in power, willny's angela markel step down as the head of the christian democrat party and will not run for another term as chancellor, signaling the
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beginning of the end of an era for europe. analysts and investors have been telling bloomberg what her departure means for the markets. >> it is hard to overstate the role she has had in being a stabilizing figure in europe, and markets will be very concerned about the vacuum she could create. >> brussels has got so much on their plate right now. this is why merkel is still in the job today. if she were to leave, with everything else in europe, the euro would have a very bad day, and european assets. so this is something of a relief to me. >> this widens the distributions of outcomes, meaning risk premium should be slightly higher in europe, and europe is already struggling from an underwhelming year in asset performance. >> one of the reasons why the bond yields are rising in germany, maybe the low-policy era is finally coming to an end, whether it is because angela merkel moves, the replacement of the ecb, there is a tolerance to keep rates low. the tide is finally changing. >> it is a lame-duck chancellorship, and the question
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of whether she can get anything done depends largely on social democrats,. they don't like new coalitions, but they like the idea of a post-merkel era that might be better for them. yousef: we did not see much of a move in euro-dollar, but given the size and scope of the shift in power, you would think more would be priced in. perhaps investors think it is little early. you think about the shift in unity in europe in sanctions on russia, what is happening in italy, what is happening around brexit, these are uncertain times for the continent. if anything, this could be bad timing and terms of a shift at the epicenter of it all. we will keep a close eye on it for you, and meantime a preview of what's next on the program. we talk about iran, bracing for u.s. sanctions and taking the opportunity to exploit saudi arabia's khashoggi crisis. very dramatic few weeks for this part of the
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world. we talk about the implications for fixed income as well. some interesting trades to be made. this is bloomberg. ♪ ♪
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my name is mike, i'm in product development at comcast. we're working to make things simple, easy and awesome. yousef: 9:30 a.m. in dubai, a live shot of the financial center. there are clouds in the background, and it is raining. i don't know when it last reigned in dubai. a change of scene. u.s. equity futures building on positive momentum, up 0.7%. let's check on the first word headlines and cross to debra mao. debra: yousef, sources in washington say the u.s. is preparing to slap tariffs on all chinese imports if talks between president trump and president xi do not ease the trade war. they are meeting in argentina next month, and an announcement could come in early december,
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meaning the effective date of $257 billion of new duties would be around the lunar new year, early february. markets then moved when the president said he would make a great deal with beijing, because the u.s. will not be used anymore. >> i think that we will make a great deal with china. and it has to be great, because they have drained our country. we have really helped rebuild china. they have been taking out an average of $500 billion, billion, a year, for many years. not going to happen anymore. debra: chancellor of the exchequer philip hammond has delivered a budget promise of early tax cuts and an ending to austerity despite weak growth forecasts and uncertainty about brexit. he says the country has viewed a defining just reached a defining moment and views the situation with confidence. 24 hours ago he said that brexit might mean an emergency budget and austerity. >> i can say that their hard
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work is paying off and the era of austerity is coming to an end. debra: turkish and saudi prosecutors met in istanbul to discuss the jamal khashoggi killing and turkey's demand the suspect be handed over. the two sides announced a joint investigation, but turkey has leaked evidence to the media in effort to put pressure on riyadh. ankara says a saudi hit squad flew to istanbul to kill khashoggi, and tried to cover it up. presidentng mexican scrapped a $13 billion airport project backed by some of the wealthiest people, after nearly 70% of respondents to a referendum voted against the project, already 130 completed. analysts say it could put pressure on the central bank to raise rates. bloomberg sources say some google employees will walk off the job, unhappy with sundar
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pichai's response to alleged sexual harassment against employees. they are said to have compiled a list of requests for the company, aimed at helping anyone affected by sexual harassment or power dynamics at work. global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. i am debra mao. this is bloomberg. let's get to rishaad salamat for a look at markets. the words-- rishaad: from donald trump really affecting sentiment, saying they will make a great deal with china, taken as good news by markets, but is it? he's talking about $500 billion a year. would the chinese do a deal like that? being interpreted positively, so we see a turnaround. 1.3% thusomposite, up far -- 1.75% thus far. 3 percenti 225, 1.1
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rise. there has also been talk about china reducing the amount of tax people have to pay on cars, and reducing that tax something like 50%. that is something -- great wall motor racin -- erasing losses from yesterday. honda moving to the upside. eely auto up four point -- 4.2%. down 6%issue -- zte was at one stage, because news the trump administration will look from thect imports fujian integrated circuit company, which could affect the industry as a whole.
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remember what happened with zte, with sanctions imposed on them. unisplendour corporation down 2%. hengtong electric also feeling this one, down 7%. unisplendour is an optical fiber company. telecom related stocks feeling fear that this could be something of a war, which could have wider implications down the road. a look at stocks in india on the move. tata motors was upgraded, a buy. 2.3% up. at 10ra, earnings looking billion rupees. the optimism as they prepare to report, 1.8% up.
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bhararat petroleum down at the moment. there we have it, a look at what's going on. down to thosee, comments from president donald trump. yousef: let's talk about u.s. sanctions on iranian oil exports, looking to resume november 5. the iranians are looking to score points at the expense of their gulf rival after the murder of journalist jamal khashoggi created tension between the u.s. and saudi arabia. this really screams opportunity, standpoint.nian walk me through what the government and media have been doing. >> it's very apparent in state media. the top officials have kind of stayed clear from making, you
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know, big open scandalous remarks, but that has really been apparent in state media. i have been speaking to individuals very close to the government and political establishment. the way this is happening, there is an element of i told you so. the last year, iranian officials have been trying to say, there is someone pretty much at the helm in saudi arabia who is a person who is-old very impetuous, who has made a series of miscalculations in the region, including conducting the war in yemen, leading arab qatar. against for iranians, it is a way to say, we warned you, there is someone making moves that are threatening the region. yousef: sanctions kicking in on november 6th. is that going to derail the u.s. push on iran, the khashoggi
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killing? ladane: it is important to see that this controversy is really striking at the heart of the saudi-u.s. relationship, and for iran, the way they are looking at this, there's a big element there. the u.s. had been relying on saudi as an ally to kind of make up for any shortcomings on the global oil market when it comes to reining in iran's oil exports. next week, we will see u.s. sanctions coming into effect, with the aim of the trump administration to cut iran's oil exports to zero. that question, if tensions escalate between saudi and the u.s., will this encourage, in effort to keep the market stable, prevent possible rising this of prices, will
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encourage the trump to perhaps consider granting more waivers for more countries to continue to purchase oil from iran. yousef: excellent insights as always. our government and economy reporter. yields remain close to record highs, off the back of the wider geopolitical concerns. theing us now -- a look at latest bloomberg story about a potential rapprochement with qatar. i know you have thick-skinned as a bond trader, but to what extent is this? weighing on yields? albert -- weighing on yields? the region has been stable, with the exception of raising 100une,
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basis points. now they are still hanging around 95. that confirms, there is still a lot of risk perception in the region due to instability and the deal that over -- jupiter risk is among the biggest drivers -- geopolitical risk is among the biggest drivers in the region. but looking, this confirms the bonds, the region are considered, if not a safe haven, a more stable asset class. cds was thethe highest when oil prices were trading at a lower level relative to now. yousef: a good entry point for my follow-up. you can see the volatility in emerging markets, global markets, with a pass-through
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effect on the region. you say that liquidity has been poor in the gulf, despite promising returns. when is the liquidity coming back? when volatility goes away? alberto: liquidity has been horrible in all emerging markets. specific regions why --reasons why liquidity is poor. most is owned by international investors. the main driver for improved liquidity in the region is the that willin 2019, bring from 30 billion to 60 billion to the region, improving liquidity and tightening the spread. the country that will benefit the most from the inclusion are bahrain and kuwait, because of the specific way the weighting works, reducing the weight of
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bigger shares in the market. yousef: so what does that mean for positioning in some of these trades? what are you a buyer of, what are you a seller of, or are you just holding on to cash? alberto: it is difficult to get a strong view at the moment, but looking at specific countries, for example. bahrain, i was sharing with you a couple months ago my vision on 94, now trading at around 99. aftertill an opportunity 80% retrace from the lows. with the spread being the tightest ever. story onhe macro bahrain is positive, allaying short-term financing needs. to gdp direction
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gdp.% debt to bahrain could still be an opportunity. low, would buy on the because the spread versus ksa is too tight. yousef: alberto bigolin, from exotix partners. up next, still quite a bit to talk about. we will be hearing from the ceo of dubai islamic bank. this is bloomberg. ♪
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yousef: another quick check of the latest business flash headlines, crossing to debra mao. posted a 16%es nbd increase in third-quarter
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profit, topping analyst estimates. the biggest bank in dubai benefited from increased toerest income, rising 18% $901 million. the bank's cfo described the results as satisfying. bank of america plans to pay special bonuses for a second straight year after profits jumped on tax cuts and a focus on cost cutting that has eliminated thousands of jobs. cash bonuses of $1000 will be paid in december for eligible staff earning under $100,000 annually. ceo brian moynihan says many higher paid employees will receive a stock award early next year. a regulatory filing says outside investors might not be the only ones pulling money from bill gross's bond fund. his family's personal stake in the janus henderson global and constrained fund fell to 56 $6 million at the end of last month, down $200 million from one year earlier. factoring into the fund's loss,
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it suggests gross may have moved $150 million of shares. snapchat tumbled on reports a new chief business officer was hired on friday and replace on sunday. sources say ceo evan spiegel promoted kristen o'hara, and then changed his mind and picked former amazon sales chief jeremy gorman instead. we are told o'hara has left, telling colleagues she is going as part of changes to the team structure. that is your bloomberg business flash. yousef: thank you. let's talk about dubai islamic bank. -- theup ceo says lender lender is always looking for acquisitions, but they will not do so simply for the sake of doing so. manus: from where we sit geographically in dubai, if you visualize we're trying to connect three dots, far east
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asia to indonesia, east africa, and we are already operating in southeast asia. think we are trying to make our own triangle, this is where a quarter of the muslim population is. the demographics make sense. these are nascent markets. banking in general is not penetrated. manus: does it organic growth rather than buying? adnan: it can be organic or inorganic. we have done operations in certain markets. informationlot of available to the bank, which could be a mixture of organic and inorganic. manus: how is the economy doing here? you are at the front edge of islamic banking. the last six at a nine-month -- six out of nine pmi's in dubai were negative.
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where is it on the scale for you? if you look at the last three or four decades, the leadership has always look at economic development a little differently. what i mean by that, we create capacity and then over time consume capacity. macro economically, there always has to be a linked between supply and demand. when supply in any sector would higher than demand, you would have muted prices. dubai has created capacity across real estate, health care, aviation, education, and over time we will be consuming that capacity. i think the economy today, irrespective of what people say, is on the right track. nous: so no bubbles, material risk in the sectors you lend to?
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adnan: as far as the bank is concerned, we have robust asset quality. we have not seen signs of stress over the last nine to 12 months, and we see that clearly the economy is where it is, one has to find adversity within the challenges. manus: you are outperforming your peers, 10% to 15%. can you do 15% loan growth in 2018? if youwe are on track, look at our guidance in the first nine months, we achieved every metric we have for ourselves in the first half of the year. so we would be in the range. manus: at the upper end of the range? adnan: you could say midrange, but we have been outperforming our peers over the last four or five years, which necessarily means we have been gaining market share. manus: you gain market share, on track for the middle of the
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range, but that comes with a risk reward. can you still hold the npl target of 3% to 4% with that growth? adnan: we have done that in the last 4-5 years. one thing i would like to clarify, whenever we grow, we do not compromise credit quality or price. both these metrics have been validated by every analyst, agency, and that is the reason why today the credit quality of the bank is robust, why rating agencies have a good outlook of the bank. yousef: that was the dubai ,slamic bank ceo adnan chilwan speaking exclusively to manus cranny. here is what is around the corner. one of the biggest tieups in tech history. ibmear from the ceo's of and red hat about hopes for the $34 billion deal. this is bloomberg. ♪
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$33 billion bet on the cloud with its red hat deal is not only the biggest purchase ever, but one of the biggest tech acquisitions in history. the ceo's of ibm and red hat spoke about the challenges and what they expect from the tie -up. >> we have been working with ibm for many years. over the course of this year, we started to do more together. we made big announcements in may at our summit, of more work we were doing together. we really started speaking more seriously back in april. so it has been something that will continue to evolve. it just became a natural next step. in terms of why we see so much value for red hat, we do see tremendous opportunity for open source in the enterprise, and as a leader there, we see a large,
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growing market in front of us. what we lacked is scale in getting to the market, the depth of customer relationships, because again, we are a newer player. we lack deep industry vertical expertise, and just the overall level of investment we need to meet our full potential. ibm brings all of that. so together, we can dramatically accelerate the red hat business, what we do today, and together be able to offer unique offerings that can continue to grow ibm's business as well. >> what about for your point of view? not just ibm, but of ginni rometty? a lot of people said that ibm needs to make a move. this is a big move, if not your biggest move, one of the biggest moves as ceo. why did you decide this would be your legacy, or an important part of it? >> well, we have been reshaping ibm for this moment, and this is to me all about resetting the entire cloud landscape, and this is the inflection point to do it. if you look at our clients,
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chapter one of the cloud is over. the cost saving they wanted is done, but the 80%, that's a one trillion dollar market. this is the moment, and to go after it, they need a hybrid cloud. they need hybrid meaning on premises, private cloud, many public clouds.they need it based on open standards . they say they are tired of the other clouds that are often a lock-in. we are the open source, portable answer for them. you need to manage multiple clouds, and they have data spread everywhere that we can securely pull together. this next chapter, a $1 trillion market, 80% of workloads will move. jim talked about our industry expertise, services, ability to do that. we will give them that answer. so we catapult ourselves to number one. you have to remember, linux, ibm
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, open source, we are the biggest contributor to the open-source community. linux is the starting point for the cloud, and the destination. so when i say phase two, we own the starting point and the endpoint now. that is a great move for and it is why we are accelerating all of ibm, and it is good for our high-value model. yousef: ibm chairman and ceo ginni rometty, and red hat ceo james white hearst, speaking to bloomberg earlier. let's get back to markets, broadly risk-on in asian assets after comments from the u.s. president that he is pretty sure he will get a great deal with china. it shows that traders want to be optimistic, which we see reflected in the australian dollar, the turkish lira. u.s. equity futures up 0.6%. chinese yuan very close to the
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critical 7 level, such a potent symbol for the trade war, for the possible weaponization of the yuan. "daybreak europe" is next. this is bloomberg. ♪ show me movies a grinch would love.
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"all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. bloomberg european headquarters in london, i am nejra cehic. manus: i am manus cranny live in dubai. this is "bloomberg daybreak: europe." these are today's top stories. nejra: a great deal says president trump. the end of an era in europe, angela merkel prepares to step down from party leadership, what does it mean for the continent and brexit? big earnings day, bp set to report in the next hour. we will break down those numbers.
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manus: these markets are reacting to what could be a great deal between united states and china. the latest words from the united states. let's look at the you want -- y uan. we are waiting for a feast of data and results across the bloomberg terminal. citigroup is saying 7:30 is the line in the sand for the pboc. that is the yuan. where do we go next? the pboc did not stand in the way of a lower yuan. let's have a look at the futures. a lovely headline. trump,ase from donald and the value, trading at 15.5 is below its five-year average at the moment. that is a critical thing coming through from the valuation side
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of the s&p 500. you have a nifty under pressure in the emerging market space. -- you will kick this off. nejra: even though it is only 6:00 a.m. in london we are building up to the european equity market. u.s. futures are pointing higher. u.s. stocks just shy of technical correction. european stocks closed higher yesterday. we have a focus on the positive. lufthansa third quarter revenue, 1 billionate was 10. euros, so that is a little bit of a mess. third -- little bit of a miss. billionmate was 1.34 euros, adjusted a bit. the full year adjustment slightly below 2017, a little
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bit of a mixed picture on the positives and negatives. the funds a has seen lower capacity growth in 2019. -- lufthansa has seen lower capacity growth. let's get to the market i am looking at. we talked about it looking risk on because of what president trump said in an interview, despite what bloomberg is reporting about more tariffs on china. the 10 year yields edges higher. futures hit a session low at some point in the session. money moving out of treasuries. dollar against the yen, yen weakness. the aussie is rallying. bid andeeing the aussie brent crude, it looks like oil will extend its losses. manus: it shows you how the markets are, we could react to one line in a tv interview and
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literally upend a market. to the markets, to the results. sony delivers, an upgrade to their guidance. outlook from sony, raising their guidance. the other thing they gave us is the upgrade in income, a lovely be, more than 30 billion yuan. , they arertable beat raising the outlook. playstation heads for a record year. i do not play it, but everybody else on this production team does. you are looking at an upgrade from sony. that's give you the numbers. the buffers of r up. -- are up. deeperket -- let's dig into the global markets.
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that is where the risk comes. straight quarterly contractions in bond trading. 1.19.rket has penciled in paribas joining deutsche bank. equities trading lower. , 452.uity number this market business is not delivering with the kind of expansion. let's get to paris. we had the leaders of these banks. not whatumbers are they want to face this morning, is it? >> that is right. it will be harder to reach 2020 targets for b.n.p. paribas. it continues to weigh on the
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incorporated investment. than -- they did not manage to compensate, this was due to lackluster environment for capital markets in europe. that continues to obviously weigh on these investment banking. course, there are some lackluster environments in europe. we compensate by deploying our resources efficiently. if you look at the past, the costs are picking up in the specialized businesses of retail. reducing to face the pressure. bank,side the investment
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we are seeing an increase of 4.7% in domestic markets in europe. also belgium and italy, however droppingrevenues are more than 8% in italy. their main markets, revenue is down 0.8% in the third quarter, rebound iny expect a the fourth quarter for the french retail. they will continue to reduce but the in france, rebound should continue into 2019. b.n.p. paribasat in comparison to other banks, it is looking more like deutsche bank right now rather than barclays. you talk about the cfo telling you it can be hard to reach 2020 targets.
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what else is b.n.p. paribas giving you about the challenges ahead questio? >> he remained very cautious about 2020 targets. he is trying to focus on profitability and equity targets. that should happen by 2020. 60% targets difficulty with business, and like barclays, as you mentioned, they are exposed to italy and turkey as well. that is what we will be looking at today. havefo told me he did not a specific concern on brussels pressure on the italian budget, but the pressure in
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italy will be compensated. >> there is pressure on the top line, however that is more than compensated, and that is what we see. our bottom line in italy is increasing because of continued improvement in positive risk. manus: great work on the interview with b.n.p. paribas, and the numbers. about trump,alking and the comments from the president talking about how he wants a great deal with china. we are seeing a quick turnaround area it was a quiet session at the start. up by 1.5% here today. hong kong is still pressured. you can say it was president trump's words, and around the time of this interview, regulators in china trying to
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support these markets. buybackshey think m&a will support the markets. that will lift sentiment overall. is it too little too late. gains right now, although modest. the one to watch let's look at the board and show you the movers. we did see more stimulus measures, sources telling us china is looking at a tax cut to revive the auto sector. autos docs are rocketing higher -- auto stocks are rocketing higher. maker,panese equipment second quarter is looking good. they raised their forecast. stock up 6% right now.
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bank of china earnings right are in line with estimates. thank you so much. taking you through the asian equity market rally, let's dwell on the fact we are in correction territory. we are asking the question, which had market risks may be exposed by the stock selloff? let's get the first word news with debra mao in hong kong. debra: sources in washington city u.s. is preparing to slap tariffs on all chinese imports if the talks between trump and president xi fail. they are expected to meet briefly in buenos aires next month. an announcement in september would mean $257 billion worth of new duties around the time of in lunar new year
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february. the ceo of rio tinto, the world's second-largest miner, this talk about trade wars, current demand in china is strong. >> the mood is pretty good. a lot of talk about trade wars, but if you look at the ground, in terms of aluminum and iron ore, they are full. the chinese machine is working very well. ebra: philip hammond has promised an end to tax cuts and -- has promised tax cuts and an usterity. they promise money for schools, and roads. and 500 million pounds in case the u.k. leaves the eu with no deal.
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along with an increase in duty on internet gaming operators. >> i can report to the british people that their hard work is paying off, and the era of austerity is finally coming to an end. data from the lion air -- according to data compiled by flight radar 24 of flight tracking system, it was carrying 189 people, and all are feared dead. shortly after leaving jakarta a pilot requested permission to return to the airport. that indicates the crew may have been struggling with a failure. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. news, comingng
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do when yourdo you exposure to turkey and argentina delivers you numbers like these? billion i mentioned argentina and turkey. spain, five consecutive quarters of growth. months,me for that nine 4.32. that is ahead of the market last year. theish lira, a slowdown in third quarter. turkey was battered in the quarter. you have the balance between turkey, spain, and argentina. it is a red headline. we will dig deeper as the morning goes on. back to the yuan. the magic number is? nejra: let's get back to the broader market action. the yuan has slipped to its
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lower level in a decade. a level not reach sense the financial crisis. asian equities have flipped into positive territory after bullish trade rhetoric from the u.s. president. president trump: i think we will make a great deal with china, it has to be great because they drained our country. we helped rebuild china. they had been taking out $500 billion a year for many years, it is not going to happen anymore. nejra: sources in washington said the u.s. is prepared to slap tariffs on all chinese imports if talks between president trump and president xi fail. me joining me now is clark fenton, cio, agili investment management. one day a green does not make a rebound. we saw it in asia, and we see the selloff in the u.s. could geopolitics pull the markets out of the slump?
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clark: i think we are in a period of great volatility. it does not take much in the short time to create strong market rallies. we will still be in this corrective phase for a while. snippets of positive news can get the market moving, but we think the trend for the near-term is down. manus: good morning to you, clark. it is amazing how these markets react to one line, one sentence in a fox news chitchat. it turns these markets around for the moment. on the yuan, everybody has an opinion, it does not matter until we get to 7:30. the pboc did not draw a line in the sand today. do you think this is giving more of a signal about intent and
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direction from pboc? clark: yes, i do. f thatk the lack o line in the sand is significant. i think we will continue to see weakness. part of this is trade negotiation posturing, despite their insistence that it is not. we need to watch for capital flight, that is where things can create more downside risk once again. nejra: what position would you look to take if this standoff does work? maintained a position, a long position in volatility, and we will maintain that. it is the one asset class you can trade in these market conditions. the really interesting ones move into credit. we think the market overall is highly leveraged.
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the stock market selling off first, credit could be the next shoe to fall, so we are positioning ourselves for credit spread widening. manus: stay with us, we have a lot more to get to area that is clark fenton, cio, agili investment management, he stays with us. theng up, we sit down with volkswagen cfo at 7:30 u.k. time. that, 11:30 after a.m. london time. nejra: when you are traveling to work, tune into bloomberg radio live on your device in the london area. this is bloomberg. ♪
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nejra: this is "bloomberg daybreak: europe." i am nejra cehic in our european headquarters in london. manus: i am manus cranny in abu dhabi. let's get to the markets. s&p futures managed to turn it around. dollar-yuan, where is the line in the sand for the pboc? that is at the fx traders are saying. desperate times desperate measures. could the chinese lower taxes on autos? outperforming,ei 1.8%, gaining strongly on the back of a weaker dollar yen. gaining if you look at the fx space.
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the 10 year yield up two basis points. it is a on we are seeing across assets. we are seeing softness and brent. manus: let's get to the u.s. markets, because stocks, the sharpest reversal in three years. the s&p 500 in perspective on the precipice of a second 10% correction this year. the benchmark, the last nine days some of the steepest selling since 2016. there could be further negativity on the market. president trump moves to unseat the fed chair is a possibility, that is something experts say ould introduce an incredible amount of uncertainty. cio, agilin, clark investment management is here to
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make better sense. everybody can have a look at it. we are now back at the cheapest levels since 2016 below the five-year average. a good metric for you? is it an opportunity to jump in? think it is a little early yet. tempting,looking better than it was for sure. one of the other metrics we are looking at closely is the enterprise value. that also incorporates the debt side of the equation. we think leverage is an issue, in the corporate sector, and the weential risk, therefore still do not think it is safe on valuation grounds to step back into the market in a meaningful way. nejra: i read your notes what
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you look at for market direction. i will put it in context. let's look at that. in the context of the u.s. stock selloff, where the weak points are going to be, the question of the day, which had market risk may be exposed by the selloff? clark: i think what has caused the stock selloff in the first place has been a rise in real rates. lightates are shining a on the leverage in the system. real rates are not very high. if you look at tips, the five-year is yielding at 1%, the 30 year about 1.25. crept intorate has positive territory, but the market is struggling with a historically low level of rates, a sign of the volatility of leverage, and that is what it
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exposed today. mnuchin is about to issue debt to refinance. is the market focused on the inicit sufficiently? $779 and clark: i think that is why real rates have been stubbornly high throughout this selloff. treasuries have rallied as they normally do as muscle memory kicks in and people go for the flight to quality. if you look at 30 year real rates they have stayed persistently high, anchored to that 125 level throughout this selloff. that does have to do with the supply question, the market could indeed have a level of indigestion. duringalso interesting the selloff, some of the auctions were poorly received. nejra: clark fenton, cio, agili
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investment management stays with us. how the landscape of europe is changing. we will talk the u.k. budget with john mcdonald at 8:30 a.m. london time. this is bloomberg. ♪
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nejra: let's look at the world map, the u.s. may have closed in the red, but we are seeing risk on in the asian section. we are also seeing the nikkei gain on a weaker yen. president trump is looking for a great deal with china. a couple of words can give the market a left. manus: a trump bump, or will it last? volkswagen got a bum from porsche. 3.51


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