Skip to main content

tv   Bloomberg Daybreak Europe  Bloomberg  July 10, 2019 1:00am-2:30am EDT

1:00 am
manus: good morning from dubai. this is "bloomberg daybreak europe." unprecedented emergency. moon jae-in tells korean companies to prepare for a prolonged trade battle with japan. the u.s. and china sit down to talk. markets await testimony from jay powell. mp's backup plan to prevent a no deal brexit in a heated debate, boris johnson refuses to rule out defending the chambers. boeing deliveries slide 54%.
1:01 am
it is a different set of numbers, but tesla is said to be production after a record quarter. manus: welcome to daybreak europe. battered, bruised. i'm not talking about politicians. i'm talking about the pound. kingdom, in the united sentiment is being battered and bruised, something to do with brexit. pound faces a two-year low. why isn't sterling rallying? if it was such a demonstrative statement in the house of parliament or not, as the case may be. no rate hike from the bank of england until 2020. the worst quarter since 2012. is it brexit or global slowdown? have a look at the rest of the
1:02 am
world. bonds are a treacherous asset. that was mng's line yesterday. back up to 2.3%. ratios were slacked to say the very least. have a look at nymex crude. credit suisse with a higher core on the oil market. nejra: have bond traders fallen into a dove trap when it comes to the fed? we look ahead to jay powell. the two-year back above 190, jumped 22 basis points since the lows in june. a touch of curve steepening. what's that going to look like after powell? futures flat. we saw u.s. markets not move a lot yesterday. the next direction could come from jay powell in his testimony this week.
1:03 am
the peso took a beating yesterday. we broke through 19. weakness yesterday pushed the bloomberg dollar index up above the 55 day moving average. the finance minister quit, but was replaced. how much more risk is out there for the peso? manus: to south korea now. this is one of the big issues. warnednt moon jae-in has the country's top businesses and leaders they may be in for an extended trade battle with japan. tokyo ruled out lifting export controls on key tech components. let's get an update now. we have our bloomberg reporter standing by. good to see you this morning. >> the president has invited these company executives to warn them, as you mentioned, that
1:04 am
this trade spat with japan will prolong because it simmers down not only economically but also with diplomacy, its history in a way, that countries view it. president moon suggested to executives that they diversify importers, that the governor will be supporting an extra budget bill within the national assembly to respond to this. tell us more about the purpose of the meeting and who attended. jihye: who attended the meeting were company executives. the companies that would likely be directly targeted by the export curves from japan along with about 30 company executives. they held a two hour closed meeting with the executives.
1:05 am
the president summoned them to hear what the government can do. economy has been a lingering issue for moon jae-in throughout his administration since he took office. nejra: thank you so much. cut some headlines breaking here that we need to get to off the bloomberg. me.ts management -- excuse investment management, 52 billion swiss francs at the end of june 30. this is what happens when your i.b. flashes up. francs.on swiss it is on track to sell the remaining assets, the problematic unit, and it is seeing the net loss about 14 million swiss francs. total group asset fund -- as oft of about june 30. it is seeing adjusted pretax of
1:06 am
2 million swiss francs. let's get to the markets in asia. good to see you. >> you mentioned treading water. pretty much, we are fluctuating in asia. at testimony with jay powell later today. 225, despite the fact we are seeing trade tensions between south korea and japan, are intensifying here. a lot to talk about when it comes to the tech sector. that is leading gains. csi 300 not doing a lot here either. despite the fact we saw these ppi prices in china disappointing. deflation for the month, which is not boding well for central banks. the airline stocks in india are in focus today.
1:07 am
indigo plunging by 12%. there is a feud going on between the founders right now. one of which is now asking regulators to look into these corporate governance issues. the stock certainly under a lot of pressure today. we have gone from record loss to record gain in 24 hours after that trade english. manila.p 50% in the auto sector in china sees pressure. more downgrades than the likes of credit suisse, down more than 2% today. samsung electronics, the tech sector looking better. we are seeing a close to 2% up. nejra: thank you so much. fromtors awaiting clues federal reserve chairman jay powell's today testimony to congress. he will face questions on the economy, but only one will matter to the market.
1:08 am
he is trying to push the fed toward its first interest-rate cut. joining us now is the chief economist at g plus economics. what does an insurance cut actually look like to you? are we talking about 25 in july? two cuts of 25? >> the insurance cuts will be framed by communication. even more important than what the fed does this month is what it says about the outcome. that ensures a defensive case bym cuts the economy framed the fact that the fed faces a duality inisk -- a risk outlook. the fed intoe another embarrassing you turned down the line, or if it over further, creating even extreme positioning in the
1:09 am
market. the fed will clearly want to now forlatility volatility later. the best approach is to go to a framework which is based on the fact that we have an economy with labor growth above trend, but we just growth below trend, which allows the fed to retain some of the optionality it got in the last month by signaling the need to manage this risk cycle. course, prevent tightening financial conditions. manus: good morning to you. this is almost like shoot out the ok corral for jay powell. he has to get communication right. . pieceis a lovely peach -- on the bloomberg opinion this morning. the fed have a dove trap. they said they will act as
1:10 am
necessary to sustain the position. in a dovish time? is the bar for disappointment quite low? the risk the fed could trigger a disappointment in either scenario if it under delivers. creatingover delivers that extreme valuation scenario that could trigger some disorderly correction down the line. what we need to recall is that the fed is not really in a traditional and nation targeting ratesetting environment. the reason volatility and behavior in financial markets has been driven by fear, that is predicated on three core principles. ubiquitous andis
1:11 am
it is the uncertainty that leads to unpredictability. because of that, the global risk cycle momentum has risen quite sharply. tois no longer specific manufacturing. the third is that markets are realizing this is between here in the end of the policy cycle. central banks have managed to step back. manus: let us hope they don't inspire another temper tantrum. we will discuss more. fed huns -- the hedge funds. banks.central stella returns hang in the balance.
1:12 am
powell later today. if he fails to confirm rate cuts , some of the hottest strategies may flounder. dani burger has the data. >> we start with the basics here. assets are valued on their expected cash flow. that gets discounted by interest rates. bond rates boosted nearly every market. the has benefited a whole swath of hedge fund styles this year. winners may slip if powell does not deliver on the dovishness. sources i spoke with pointed to a leverage quandary made famous by ray dalio called risk parity. on less higher waiting risky things like bonds. really anything with a heavy bond exposure has done well with rate cuts.
1:13 am
example, theyfor have seen positive profits for the consecutive eight past months, gaining 16% this year. those are the bond market winners. when it comes to equities, it is about low volatility funds. the strategy here, talk -- track stocks with muted pricing. safety plays do really well during rate cuts. that tends to signal a weak economy. these are also bond proxies, so that is playing into that bond market play. let me show you the performance of the three strategies. you can see really well how the dovish ship has fueled them. i do not have that chart for you yet, but we have fed speakers coming up, so that ben's -- begs the question. where did these strategies go from here? great work, and a big question as to how powell, if he
1:14 am
wants to walk back market expectations, how could he do that? let's get the first word news in hong kong now. >> u.k. members of parliament have delivered a warning to the country's next prime minister. they will not allow no deal brexit without a fight. the house of commons narrowly passed a measure to stop parliament inc. suspended to .orce the country out of the eu deutsche bank will pay bonuses to deserving staff according to a chief executive speaking on a conference call despite the lender being posed to post its fourth annual loss. boeing's second quarter jet deliveries slipped 54% from a year earlier after the global airbus ends the first half of the year net 207
1:15 am
orders ahead of boeing after it signed contracts for 14 -- 145 planes in june. global news, 24 hours a day on air and @tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. show, coming up on the top trade officials from the u.s. and china resume conversation. the world's leading supplier of consumer goods is sounding the alarm on the damage the trade war is doing. this is bloomberg. ♪
1:16 am
1:17 am
1:18 am
nejra: this is "bloomberg daybreak: europe. i'm nejra cehic in london. manus: a quick snapshot of the world. how brave are you? what if jerome powell does not
1:19 am
out dove the dovish sentiment? if he grabs the hiking or the last dovish treasury yields -- less dovish treasury yields? it is getting squeaky. a tenuousely is couple of days, isn't it? nejra: it absolutely is. look at oil jumping the most in a week. industry reports showing drawdown. the bloomberg dollar index went above the 50 day moving average. the dollar against the yen at a high. the slide in the peso after the mexican finance minister quit. where is the outlook from here? i urge you to read john's piece on the bloomberg. tesla says it is exploring plans to boost
1:20 am
production at its plant in fremont, california according to an internal email. the move comes after tesla achieves record deliveries in the second quarter. that beat expectations and eased fears over demand for electric cars. sold $214s spacex has million in equity, the third offering the company has undertaken since december. the loan investor was not identified in regulatory findings -- filings. richard branson's virgin galactic will become the world's first publicly traded space tourism company. it is planning to merge with social capital. the deal will help fund the company until its spaceship can operate and generate a profit. possibleal was not with the saudi's.
1:21 am
if we were to take this public ourselves, it would take a long time. the approach seemed to work well for us. debra: that is your bloomberg business flash. manus: thank you very much. top trade officials from the have reneweda discussions and we are closer to face-to-face talks. the pessimism that has dominated the conversation among experts tech.jing is the world cup supplier of consumer goods is sounding the alarm on the damage the trade war is doing. they supply goods to the likes of nike, walmart, and chinese factories are becoming desperate. the u.s.-china trading corridor is being disrupted by whether there is a deal or not, whether there are tariffs or
1:22 am
not. customers are trying to diversify outside of china. not leaving china, but diversifying outside china. putting less eggs in one basket. manus: our guest host is chief economist at d+ economics. economics. ubs said they don't see a deal done. it is going to rumble on the next 12 months. 6% growth are we facing if there is no near-term resolution? there is a cyclical element to this. there is also a systemic element. andnesses in the u.s. china, but also globally, or adjusting, as well as it investors and governments, to the inevitability of economic
1:23 am
disruption here. we are nowhere near returning to the 1990's open markets. more than near-term headline political risk for markets. it is system disrupting. a change of global relationships predicated on the fact that we have a clash between different economic systems of capitalism state run and market run. that is raising questions about economic dominance, about hegemony, and about national defense. that will drive the narrative and reactionary as well as economic nationalism and trade protectionism.
1:24 am
it is no longer specific to the u.s. and china. it is only a matter of time before japan and the eu get involved. this is a disruptive environment that will run for many years. the point you make about china is, can china engineer soft lending for an extended period of time? to that point, we have the factory prices today, the -- basicallying causing concern china could start to export deflation. what do you expect from the pboc in terms of stimulus to engineer that soft landing? lena: there is clearly a dynamic the aggressive using the pboc introduced at the start of the year, but of course, the need to manage the systemic impacts of trade tensions through fiscal easing.
1:25 am
the concern here is that the longer this process of geopolitical risk and trade disruption globally continues, and let's face it, we are in an environment where some chinese regions have had negative gdp growth. big parts of the global economy are seeing much weaker growth momentum. we are flirting with a recession in the u.k.. this is a hotspot and it is very vulnerable to both a tightening of u.s. financial conditions if not -- but also a hardening of the u.s. foreign trade stance. balancevery difficult to be able to carry. the longer that continues, the stronger the chance china will export some of that domestic stimulus through a weaker yuan
1:26 am
with destructive considerations for global risk assets. manus: maybe the bond markets ed. not diluted -- delud very briefly we have seen friction between japan and south korea. we are under pricing an escalation. japan, south korea, europe, u.s., japan, these major legs of disruption have yet to come to bear. lena: geopolitical risk is the common denominator. the markets have been too sanguine about the effects on global growth. that has seen dramatic revision through repricing of recession risk. investors have been too optimistic about the level of accommodation and support central banks can offer in a world where geopolitical risk is -- nejra: lena stays with us.
1:27 am
to support then next prime minister forcing through a no deal. ♪
1:28 am
1:29 am
1:30 am
manus: this is bloomberg daybreak: europe. i'm manus cranny. nejra: i'm nejra cehic. with the 10 year yield back at 208 and two year yield having jumped 28 basis points, the question becomes what it be enough for the markets if powell signals yes, july to be a done deal, but beyond it is unclear? manus: yes, it takes us back to the peace you started the show with. the piece on the bloomberg opinion column which is has the fed set up a dovish trap? talkeday, we had m&g
1:31 am
about a torturous set of assets to hold which is bonds. the question is what is the next pivot from powell in terms of what the information and direction they take? nejra: exactly. if he does walk the markets back, what does he say? point to the underlying strength of the economy? what will it mean for equity markets as well. they will likely take direction from powell this week too. manus: i know you live and breathe these. that is a decade low to cover 10 year paper. is that because yields worse regionally -- were screeching the unappealing or something much more brutal to come in terms of the debt level in the united states of america? that is a question being asked. a great piece to read. another market. i know you believe it.
1:32 am
a team in mumbai. our very earned dani burger. traders waiting on the sidelines. we are all waiting for powell. he better deliver, ay? >> i hope he does not deliver too much of a negative. to be honest. good morning to you. the last few days has been a bit of a problem for bulls considering there is some issues. that has resulted in equity markets coming off. waiting for powell commentary. as you mentioned, i don't need to add more, does not sound too hawkish. india is looking very flat today. it's interesting because a public spat in a-shares. that's having ramifications.
1:33 am
aside from that, it is seeming largely flat. currency is strong. steady as she goes. nejra: thank you. i know, dani, we are waiting for powell. i have been obsessing a bit about the mexican peso as well but what are the moves and the rest of asia looking like? dani: that piece was especially interesting for the dollar but a lot to trade on. we had chinese ppi coming and missing -- in missing. we had consumer prices rising. you can see the effect it is having on equity markets, especially linked to china. new zealand stocks trading higher by 1%. now trading at a record high. korea, south korea also gaining today after sending its index to the lowest since may. minutes from the central bank coming out. they had a case for easing for monitoring the risks.
1:34 am
there might be some central-bank action there. oil we have been talking about, gaining. falling u.s. stockpiles. i have a technical chart forget. five days of decline for chinese stocks. these are specifically stocks listed on hong kong exchanges. those declines might continue because the 50 day moving average has just crossed below the 200 day moving average. that is called a desk cross. a negative technical signal. the last time that happened, these chinese shares fell about 10%. manus, getting your names mixed up, it is only happened three times in the past five years. manus: it's fine. it happens a lot more often. great rundown. the very latest on the markets. tech is something that is one day famine in the next they feast. what do you think of the taiwan
1:35 am
semiconductor? it's actually probably a little bit of a surprise. the second-quarter numbers at $241 billion. all the doom and gloom in tech is not reflected in those headline sales numbers. they are saying for june is the toe sales rose 22% for cash $85.87 billion. the topline numbers certainly look better than the market had already penciled in. let's see how that impacts the rest of the tech sector as we go through the day. first word news to be had. debra mao has it in hong kong. debra: south korean president moon jae-in is warning business leaders of an extended trade battle with japan. this over its neighbors export controls the materials needed to produce semiconductors and computer displays. there are concerns the fight
1:36 am
could disrupt global supply chains. boeing's second-quarter jet delivery slid 54% from the year earlier after the global routing of its best-selling 737 max after fatal crashes. airbus ends the first half of the year a net 207 orders ahead of boeing after its on contracts for 145 planes in june. deutsche bank will pay bonuses to deserving staff, according to chief executive. speaking on a conference call. it's despite the german len dor being set deposed its fourth straight loss. it is trying to prevent its best employees from jumping ship. fed chairman jay powell will likely leave rate cuts on the table when he testifies to congress. that is even after the strong jobs report tiles dow the urgency for a policy move. the central bank chief is set to speak today and tomorrow. another key release tonight is
1:37 am
the minutes of the latest fomc meeting. global news 24 hours a day, on air and on tictoc on twitter. powered by more than 2700 journalists and analysts. this is bloomberg. ♪ nejra: thank you. it has been an eventful evening for u.k. politics. mp's voted in favor of a plan prevent it -- designed to prevent the next prime minister from voting for a note due brexit. the amendment passed by one vote. the issue led to a class on live tv between the two men vying for the party leadership on whether they would be willing to shut down parliament to deliver brexit. >> i'm not going to take anything off the table anymore than i would take no deal. >> it would be a rather curious thing to do if this is about taking back control for parliament to shut it down. >> we prepare for no deal. we come out on october 31. >> i'm as keen as boris and as you to leave by october 31.
1:38 am
>> i think that a badly handled no deal brexit could be costly. >> what you are telling businesses is that they don't need to prepare for no deal. that is very dangerous. >> i don't think we are going to end up by any means with a no deal exit. i don't think there will be a disruptive or disorderly brexit. >> we need leadership that will guide us through a constitutional crisis and make a great success of brexit. >> put ourselves on the path to long-term success. the way to do that is to get brexit done. nejra: still with us is lena, chief economist at g plus economics. can the pound get any support from here in terms of what we heard on the politics front related to no deal against an economic backdrop that's all disappointing retail sales yesterday? all fromthink from our c a month ago that the u.k. is
1:39 am
heading towards a recession has become the consensus. it's quite clear at this point. for observers outside the u.k., it's popular to hear that brexit is not going to happen. the reality for those of us close is how brexit remains a no negotiated deal brexit remains the current default position. it remains the view of the governing party. it remains the strong position of the most activist faction of this governing party in parliament. so, the route to deliver a soft brexit is not available, not in this parliament. i think the assumption that parliament will block a hard brexit is valid in the short-term, is not going to be valid through a general election. we are looking at a really polarized environment where we are looking at either a coalition between the tory party and brexit party, or a pivot,
1:40 am
although unlikely based on the european election results in may. a pivot towards a corbyn, left wing style brexit. in any case, it is difficult to think how we are going to get the constituency of parliament in this term or the next term for a two thirds majority for another referendum. it would really be the way towards ensuring no brexit or brexit. extremely pessimistic both on the economic, political risks. i don't think that is pricing yet. i think we will see a rate cut, rather than a hike. manus: you paint some very potent visual symbols there. you have to watch of the european parliament speech to begin to understand the kind of rhetoric that is being used. a rate cut by the bank of england by the year end. what else could carney do?
1:41 am
do you think there is a risk of more qe? do you think there is something more radical he needs to do because of this push and shove by other central banks? it is almost like a cataclysmic double punch. lena: i think the bank of england faces two difficult realities. one of them is that an environment where you have geopolitical volatility and risk driving economic unpredictable at, it is very difficult to anticipate the kind of direction, the net balance of risks the economy will take and therefore act preemptively. the view here is is that when you have supply-side disruption, as is the case in the relationship between the u.k. and trade partners and the u.k. and the rest of the world in the event of brexit, then you have a scenario where the neutral rates drop. they are much lower than it would be otherwise. therefore, rate cuts would be less effective. the other end of the
1:42 am
consideration is the u.k. is unique in the sense that it is an open economy with a very large financial sector. that makes sterling vulner able, which is very much driven by political risk. the currency is very much the political risk currency among the g10. the bank of england is looking at the volatility, looking at its inflation forecast driven by political risk. if you look at the u.k., g10 break evens out. it is in the outlier trending what is up and down. manus: ok, as you say, it could bring some unconventional policy to bear and a rate cut before the year-end if there is a hard brexit. komileva, she is staying with us. something positive on brexit. next, it is almost that time again. corporate earnings results. and we are getting ready for
1:43 am
them. banks will be a key focus. will noyds and barclays doubt spend much of the time detailing plans for the interest rate outlook. mortgage competition and brexit risk. bloomberg intelligence says competition will hurt net interest income into 2020. from a capital were turned, not interest income, they are the bank's secret sauce. our bloomberg intelligence senior analyst, banking analysts jonathan. good to see you. good morning. what exactly is in the secret sauce? jonathan: if you look at european banks at the moment, we know it continues to be the top one. we talked about this for months and months. if we get a rate cut, which is likely, that continues. sme growth was the only bit of loan growth these banks have
1:44 am
had. what can banks to to make it more appealing? if you have big buybacks, there are not many banks and you have a healthy payout. rbs is the interesting one to go was was a darling early in the year. the ceo announces he will be gone within a year. it is still 62% owned by the government. when thecan they start buying back that stake? it is a harder question with a no deal brexit or harder brexit has become more real. nejra: that is the secret sauce from the positive side. but if we look at the second quarter and we look ahead, given what we heard from deutsche bank, how might that affect what we hear from barclays when they report? jonathan: barclays, the big investment bank -- they are in relatively good shape compared to europe. if you look at what is up for grabs, 2 billion in equity trading. there is no reason to think they
1:45 am
would take much more than their market share. they need to deliver, it has been a disappointing last couple of quarters. fixed income, we are expecting to be down hi siegel digits -- high single digits. they have to do what the u.s.-backed does, if not better. they have to talk about how they take share in europe. complaining if they don't deliver. manus: we'll probably speak to him in a couple weeks time. for him, when you hear the discussion that we have just had in regards to the u.k. for barclays, it is like headwind after headwind there. net interest margin and in terms of confidence and growth. isathan: the only good news it is not going up. we pushed back on expectations. the fact that the u.k. has been growing is no secret.
1:46 am
you've got intense mortgage competition. manus: even in a hard brexit scenario, you still think they holdfast in that cycle? you are not bothered by hard brexit or anything like that? jonathan: not in the short-term, no. i think if you look at the bank's positioning, their biggest problem is there is not any topline growth. they have plenty of capital to absorb any left field single-a risk. i don't think we will have any. nejra: bloomberg intelligence and senior banking analysts jonathan tyce. coming up, why wait until september? data out of europe is hardly inspiring so i would mario draghi wrap up another six weeks to wrap up stimulus? we talk about the risks of underpricing next. this is bloomberg. ♪
1:47 am
1:48 am
1:49 am
1:50 am
manus: it is bloomberg daybreak: europe. i'm manus cranny. nejra: let's get a bloomberg business flash with debra mao in hong kong. report of first half net loss after management are not hitting revenue. the loss is expected to total about $14 million. this as a swiss investment manager is trying to recover from a scandal involving top traders. exploring plans to boost production at its plant in fremont, california, according to an internal email seen by bloomberg. the move comes after tesla achieved record deliveries on the second quarter and resolves beat expectations and east fears over demands for electric cars. has anotherspacex $214 million in equity.
1:51 am
the third offering the rocket company has undertaken since december. the lone investor was not identified in revelatory filings, but the ontario teachers pension plan announced it has backed the closely held company. that is your bloomberg business flash. manus: thanks for the roundup. investors are betting the ecb will wait until september to ramp up monetary stimulus. they may be underestimating the risk of earlier action. the economy is still limping, giving president mario draghi reason to follow through on last months pledge to act if the outlook does not improve. economic data from the european nation today and tomorrow. that could direct the course of action for the european central bank. lena is the central economist ig plus. u.k., where is your recession-o-meter for europe and more pointedly for
1:52 am
germany? the euro zone growth has turned down. germany is seeing negative growth at the moment. thatealization here is risk is a regime changing factor for the global environment. the euro zone is more vulnerable than most to a global decline in the investment cycle of what we have seen in china of the last year. i think that clearly with that in mind and the fact euros of inflation has been stuck at 1%, the ecb has the advantage of being able to focus exclusively on managing downside risk to growth and it has signal it is prepared to move in that direction before the end of the year. has to do technical work to prepare euro zone thanks for periods of lower and longer negative interest rates, and more liquidity injections both
1:53 am
in the form of qe but improved incentives for banks to take advantage of the long. nejra: the questions being asked whether the market is underpricing the risk of a rate cuts from the ecb in july, some are calling for a 26 cut in july. but the consensus is for september and that is when we get more economic forecast and that is when the ecb announces more stimulus. do you have september down for when you expect a rate cut an indication for something more? lena: september is a strong probability. maincb has taken its policy collateral at the moment, its communication stance. the choice is no longer whether to cut in september, but whether it could afford for financial conditions, particular give the fed moves away from the pricing of rate cuts to signal a cut at the end of the month, followed by a commitment to not raise
1:54 am
interest rates. that would still mean a degree of tightening financial divisions. at a time where global market positioning is imbalanced, if volatilitycascade that would destabilize. they have to manage financial positions with respect to the outlook for economic risk. that suggest taking the time technically and ideologically right. manus: lena, another very good friend of daybreak is alberto gallo. i got to his twitter account this morning. the return of qe forever. investors -- the baseline on alberto is qe did not do the job it was supposed to the first time around. investors are buying the return of lose policy, but not buying the asset like to growth or inflation. markets pricing in that there
1:55 am
will be more qe, but that it won't work. will it? qea: the fear i have with forever mentality is that it creates a duality between financial conditions and economic conditions where crisis and bubbles are born. thanking tooinst much on central bank stimulus, because what we are looking at is a volatility trap and a period of recession. reale have at the moment, neutral rates will have to go down. forget thet's not downturn economic sentiment we are seeing globally, but also the pricing of recession risk in yield curves has been driven not by a degree of economic feasibility, but by concern political volatility will drive economic unpredictable he and
1:56 am
weaken central bank liquidity hedge. it is growth dividends attached to more qe getting lesser, i would be cautious about going long into the credit, cyclical strategy the qe forever recommendation would suggest. that is buying more risk for less return. nejra: thank you so much. great to have you with us. chief economist ig plus economics. lena will be joining us on daybreak europe radio live to carry on the conversation. i wanted to ask who she thinks will win the dance of the dove, the fed or ecb. taking a toll. boeing second quarter deliveries drives 54% as the grouting of the 737 max. we will discuss what this means for rival airbus. manus: dances of doves? you can see all of this on gdb go. you're the dove, i'm the hawk. everything that we use,
1:57 am
everything the bloomberg team puts together. you can jump into the terminal and tell us whether nejra is really the hawk or am i the dove? this is bloomberg. ♪ we're the slowskys.
1:58 am
1:59 am
we like drip coffee, layovers- -and waiting on hold. what we don't like is relying on fancy technology for help. snail mail! we were invited to a y2k party... uh, didn't that happen, like, 20 years ago? oh, look, karolyn, we've got a mathematician on our hands! check it out! now you can schedule a callback or reschedule an appointment, even on nights and weekends. today's xfinity service. simple. easy. awesome. i'd rather not.
2:00 am
nejra: good morning from bloomberg european headquarters in london. i'm nejra cehic. manus: i'm manus cranny live from dubai. this is bloomberg daybreak: europe. these are today's top stories. tellsent moon jae-in companies to prepare for a prolonged trade battle with japan. markets await testimony from jay powell. nejra: trading blow. u.k. mp's move to prevent a no deal brexit in a heated debate. force johnson refuses to rule out defending the two chambers. and taking a toll.
2:01 am
boeing second quarter deliveries slide 54% as the grounding of the 737 max. different numbers for tesla as it is set to boost production after a record quarter. ♪ nejra: welcome to daybreak europe. 7:00 a.m. in london. one hour from cash equity trading in europe and the equity market in the u.s. poised to take some direction from jay powell. we hear from him this week. the s&p 500 did not move a lot yesterday. futures not giving us a lot of direction in terms of s&p 500. looking to the european open, three days of declines for european equities. really, not getting a lot of direction, treading water, killing time ahead of jay powell is what it looks like. attention turning to some of the
2:02 am
expectation around earnings as well, manus. manus: cut off for my headline prime. i like what you said. the presumption is the u.s. will tread the line today with jay powell giving his testimony. let's look at bond yields, rising for the fourth day in a row.the longest run since january. they promised to do everything to sustain the growth. have they moved to a dove trap? yields rising. futures pricing falling. the bund market, what you have here is the specter that the market could be underpricing, mario draghi. whatever way you look at it, yields are rising higher. such an amazing run really on the bund and the bond markets. nejra, let's leave the markets and go to yvonne man.
2:03 am
it's let the fed games begin. we are in a bit of a holding pattern when it comes to asian stocks. not seeing a lot of activity today. we are pretty much flat for the regional benchmark. large-cap and small pretty much flat. coffee ended the day half a percent higher. tech stocks and semis catching a deal today. nikkei 225 is slightly lower. indian stocks were lower yet again. consultancy,kes of the big tech names reporting earnings to kick off the earnings season. earnings isg the not going to look good for india. not going well for the market after the budget spooking investors last week. take a look at the movers we are watching out for. talk about what is going on for indigo. the feud between the cofounders
2:04 am
are getting pretty ugly. each side they are going to go to regulators and raise the corporate governance issue. we are seeing inter-globe aviation down today. likely to weigh on the stocks. recovering after the record lost , whichay with the trader led to the trading error. a record lost to a record gain of 50% today. continuing to see these chinese auto stocks facing a lot of pressure. a downgrade on great wall motor. and samsung electronics seeing a second day of gains. semis looking better despite the trade spout. memory chip prices are actually on the recovery. manus? manus: thank you very much. a couple of headlines. as you go into the start of trading, an indication for gam, the swiss fund manager.
2:05 am
6% higher at the start of trade. why? the net loss is 14 million swiss francs. that is what they expect to lose. 136 billion swiss francs. but, they are wrapping up the fund associating with tim hayward as they begin liquidity that fund. the top fund manager that was suspended. abf should be wound down by the middle of july. this is coming to the end of their issues. first half loss, net loss shrinkage is beginning to bite on the numbers. the market seeing net inflows in the first half. have a past the point of the worst contamination from the suspension of tim hayward and the liquidation of abf? stock is down 70% in one year. to the biggest story driving
2:06 am
markets. it is about the investors and we will be looking for clues from the federal reserve jay powell. two days of testimony in congress. a barrage of questions from policy, the economy. but only one will go into the markets. is he ready to push the fed towards the first interest rate cut since 2008? a european equity portfolio manager at allianz global investors. great to have you with us. what happens in the united states of america and the language from the federal reserve, it is going to exert at the very minimum more pressure on european central banks perhaps to do more. how important is today for the scene setter for you for european equities? guest: i think it is incredibly important and comes at an interesting time. on the one hand, we have seen global trade data treading backwards. economic data more broadly weak
2:07 am
at the moment. that was partially upset by surprisingly drawn jobs data on friday. the market in the u.s. is pricing in one interest hike at the end of this month. investors will be watching closely are signs of any moves later in this year. the ecb has changed directive in recent months to a more dovish tone. that will provide some support to markets. nejra: we have been talking all morning about what might happen if the fed in any way disappoints. commentary on the bloomberg about a dove trap. u.s. equities might take the direction from powell this week, but what moves could we see in european equities if the fed in any way disappoints what you say the equity markets are right now pricing in the one cut? marcus: the fed is so important to global markets.if the fed does disappoint , you will see it affect the region. particular at this late stage of the economic cycle. we are in a strange stage where
2:08 am
the markets have been rallying on relatively weak economic data. people have been expecting rate hikes. little upside for the fed at this point because the market has priced in this cut. manus: we really are sort of touching on the big themes that we have debated which is when it is bad news, actually bad news for equities as opposed to good news and giving you a softer or -- when does an bad new really become bad news for equity markets? because europe lags the u.s. anyway. marcus: i completely agree with you. strong economic data in a growing economy and potentially a slower fed on the back of that rather than the strange environment we are in at the moment where markets are waiting
2:09 am
to see this negative news emerge. as an equity investor, what you want to see his underlying growth incorporates and moderate inflation which it help corporate to be able to grow their own sustainably over the long-term. quite concerned about the industrial sector. how much more concerned are you given the data we have from china today? the ppi numbers. people talk about concerns about deflation and exporting out to the rest of the world. does that add to your worries about the industrial sector in europe? marcus: definitely. we are seeing worrying signs from china both of economic level, weak manufacturing data. but but also, the corporate level. the challenge for us is really to discern between those companies where trade is the dominating factor. those companies where trade should in many ways be seen as an excuse. we have seen this in the past.
2:10 am
manus: one thing that you make a very clear point about is under loved and under owned. something which lucy, one of ownedompatriots, under and under loved. what is the turning point to get global investors to reach a recap -- we participate? restarting qe, what is the turning point? marcus: it has been difficult in recent years, but i think the challenge is really accelerating growth. for the last probably seven or eight years in europe, we have only seen one year of material earnings growth and that has been one of the big fresh traders in the region. particular when juxtaposed with a very strong growth in the u.s. corporate market. fortunately, one of the upsides in europe is valuations are -- the earnings growth gap between europe and the u.s. has
2:11 am
narrowed. the negative spin is it has narrowed because the u.s. this slowing rather than the eu is accelerating. the opportunity in europe is while europe is probably a lower quality market than the u.s., there are some attractive companies that stock pickers can identify. many of these companies are trading on significantly lower valuation multiples. nejra: have you fallen into the draw that some have had towards the bond properties in europe or are you being even more selective than that? marcus: i can see the attraction to that, particular when investors struggle to get a return in the fixed income market in europe. if you look at the top three performing sectors in europe over the past year, it is many of those. the health care sector, insurance sector and consumer staples. the challenge for us is most of that has been driven by multiple rewriting. it off theave taken
2:12 am
table and look to harvest that yield. at a time when people are relatively cautious on the wider economy. nejra: european equity portfolio administer -- manager stays with us. let's get the first word news with debra mao in hong kong. factories barely escaped deflation in june. prices were unchanged from a year earlier, falling 0.3% from may. the deceleration raises fears of eroded company profits and trouble repaying debt. the world's largest supplier of consumer goods is warning to the trade war threatens the very existence of some chinese factories. >> because now, the u.s. -china trade corridor is being disrupted. as a result, a lot of our customers now are trying to diversify outside of china. not leaving china, but
2:13 am
diversifying outside of china. put less eggs in one basket. debra: tesla's exporting plans to boost production at its plant in fremont, california. the move comes after tesla achieved record delivery in the second quarter. it beat expectation and eased fears over demand for electric cars. deutsche bank will pay bonuses to deserving staff, according to the chief executive speaking on a conference call. it is despite the german lender set to pose its fourth annual loss in five years. it is trying to prevent its best employees from jumping ship. global news 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists and analysts. this is bloomberg. manus: thanks for the roundup. coming up on the show, boeing deliveries fell a whopping 54% last quarter after grounding its
2:14 am
best-selling 737 max. we look at the implications. nejra: when you are traveling to work, tune into bloomberg radio on your mobile device or digital the london area. this is bloomberg. ♪
2:15 am
2:16 am
2:17 am
a.m. int is 7:17 london, 42 minutes away from the cash equity markets open in europe. i'm nejra cehic in london. manus: i'm manus cranny in dubai. quick check of the markets. our markets in the middle east are up and running. i up by dobby -- abu dhab a couple of pips. dubai is also up there. the employment index under
2:18 am
pressure. 856. 5 the longest winning streak since february. double helpings. good morning. nejra: take a look at what is happening to the 10 year yield. that has repriced a little bit in the past few days along with a two-year yield. the dollar slightly on the front. yesterday come above the 55 day moving average for the bloomberg dollar index. some of that driven by the weakness of the mexican peso after the finance minister resigned. u.s. futures have been struggling for direction but turning a little weaker. that is the key thing for markets -- what will powell have to say? will he walked back the rate cut expectations? here's debra mao in hong kong. hasa: elon musk's spacex another $200 million in equity. the third offering the rocket company has undertaken since
2:19 am
december. the lone investor was not identified, but the ontario teachers pension plan has announced it has backed the company. gam expects to report a first half net loss as declining assets under management art hitting revenue. the losses expect it to total $14 million. the swiss asset manager is indicating higher this morning after forecasting net inflows for the first half of the year. that is your bloomberg business flash. manus: thank you. the grounding of the 737 max 8 is started to hit home at boeing. last quarter, overall plane shipments fell 54% from a year earlier, after its best-selling plane was barred from following -- flying following two crashes. let's let's get more from her asia transport reporter. good to have you with us. this is a colossal, monstrous
2:20 am
drop, 54%. how do you think going into the second half -- they are still building these things, the 737. >> yes, they are but the problem is they are not delivering because it has been grounded. i think we have seen bad numbers for the first half so far. i think the second half will be -- could be worse as well given we have just seen the first airline to cancel the 737 max commitment. we could end up seeing a lot more in the second half as this unravels further. with these software updates being worked on and the approval process being worked on as well, i could see probably there will be more challenges going forward for boeing in the second half. nejra: on that point, other than the 737 max, is anything else hitting demand for boeing's planes? kyunghee: the other factor that is really causing a bit of
2:21 am
concern is the trade war, not just between china and the u.s., but other trade disputes going on with eu and u.s. as well. that is going to be a bit of a factor in terms of going forward. also, we have seen a slowdown in travel demand. obviously, that is part of the trade war we are seeing now. that is starting to flow into some of the travel demands expected for this year. there is also that aspect fundamentally and the trade war that is going on right now. nejra: thank you so much, kyunghee park, in singapore. an eventful evening for u.k. politics. mps voted in favor of a plan designed to prevent the next prime minister from forcing a note you brexit against the wishes of parliament. the amendment passed by one vote. said he would not take
2:22 am
anything off the table. on the data front, u.k. gdp at 9:30 p.m. london time today. with us is marcus morris. marcus, we are exciting perhaps some of the worst growth since 2012 for the u.k. we have the retail sales data yesterday. where do you stand? marcus: they are in a challenging place at the moment. economic data is going back in the u.k. a number of industries are structurally challenged. to pick up on your point in the u.k. retail sector, a third of the sector warned. things are not getting easier. they face cyclical challenges of lasting year-over-year when we have the heatwave. we also have the world cup. also the structural challenges. we are relatively negative on the sector despite the relatively cheap valuations you
2:23 am
see currently. manus: marcus, you make the point that the euro plays into the european equities story. another line from another one of our regular guests. share prices to stock. if that were the case for the u.k., it would have a sell rating flat or over it. is that a ballast for you if we have potentially a hard brexit? is it the ballast we all hope it is? marcus: to some extent, but what companies really need is certainty. if we get a no deal scenario, yes, you will probably see a decline in the pound. but equally important, a decline in trade and probably a decline in industrial confidence. the flipside is what we don't know is how the government will respond because in will likely be a fiscal stimulus package.
2:24 am
that will mitigate the factors we discussed. selectively, it is not a bad time to look at the u.k. but you need to be looking at stocks that are not structurally challenged. for us, many of the stocks we rated quite significant in the last couple of months are not particularly cheap. a wide valuation dispersion the u.k. market. nejra: looking at europe more broadly, is the right way to approach this to buy quality because you don't trust the earnings or are we underestimating what we might get out of european earnings? marcus: the market clearly does not trust earnings and the profit warnings we had in the last couple of days will only accentuate that. the challenge for european corporate is these companies are setting the guidance of the beginning of the year and february and expecting acceleration as the year progresses. now, does not look like we will see that acceleration of growth in the second half of this year. i'm fearful you might see companies resetting guidance
2:25 am
during this result season. that is why investors like us should be looking for companies with very visible recurring revenue streams with that protection in place. manus: which industry groups throw those hallmarks first in front for you? marcus: on the positive side, you have the technology sector. only elements of the technology sector. the tech sector is re-rated quite significantly this year after a difficult q4. the companies that miss and the result season will be penalized. companies with visible recurring streams could benefit from that policy. i expect to see wider disparate -- performance dispersion. on the negative side, things look incredibly tough and are not getting easier for the industrial sector, particularly anything with automotive and market event. chinese automotive sales declined 13%. china is the most important
2:26 am
market there. we really have to take it on a case-by-case basis to make sure the companies have the right exposure. nejra: i know you have been talking about consumer staples exposure. on tech, give us names you would highlight that you would buy. marcus: companies with very strong visibility. they have 60% to 70% of their earnings recurring. many of the customers that use sap will use sap for many decades. one of the newest stocks we bought -- they came out with guidance the last two months where they outline they are expected to grow revenue by 10% to 15% over the next decade. these are companies that benefit from structural tailwinds. manus: ok, marcus. good calls. come back and join us again very soon in the heart of earnings season. we will get you back when sap is on. marcus morris-eyton.
2:27 am
that is it for us. gam will be in focus on the opening. first half loss, decline under management is an issue. we will break it down in the next 30 minutes. this is bloomberg. ♪
2:28 am
2:29 am
2:30 am
anna: welcome to "bloomberg markets: the european open." i am anna edwards in the city of london carried treasury yields rise as investors settle on a fed cut for july but they aren't sure what to expect afterwards. will we get clues from jerome powell later today? european equities expected slightly lower. is 30an cash trade minutes away. anticipating powell. stocks in a holding


info Stream Only

Uploaded by TV Archive on