tv Bloomberg Daybreak Europe Bloomberg July 20, 2020 1:00am-2:00am EDT
matt: good morning. from berlin, i'm matt miller with annmarie quarter and in london. breaking news on the european summit. it looks like, according to an official telling bloomberg, eu hardliners are ready to accept 390 billion euros in grants. there had been a dispute about the amount of grants in the
package. el wanted 500 billion, but the hardliners were said to be pushing for as little as 350 billion. grants ase amount in opposed to loans that countries like italy, that stricken, would have to pay back. bloomberg eulling hardliners are ready to accept 390 million euros in grants so a deal can be done. a mixed picture for stocks amid a spread in coronavirus cases. infections hit a daily record as a u.s. congresswoman calls florida's outbreak out of control. underways in getting in europe. we will see how the pandemic impacted phillips when we get their earnings and we had to zurich as there is a big week for the banks. let me just tell you quickly that we have phillips earnings,
second quarter revenue four point 4 billion euros across the bloomberg, the estimate was for four point 31 so revenue beating the estimate as far as earnings are concerned for philips. the earnings before taxes, philips in the second quarter, 418 million euros and we were looking for, according to a survey of analysts, 363.9 million euros so beating on the top and the bottom line. annmarie: we will be speaking to the ceo for philips. baer withve julius their results. manus will speak to their ceo at the top of the next hour. first-half operating income at 1.80 5 billion swiss francs. the first half adjusted net profit, 524.4 million swiss francs.
the swissllow bank on wall street, it will be another bumper quarter. we will be speaking to the ceo later today. onant to recap what is going in the markets. we had at 6:00 the headline that we are inching closer to this deal coming out of the european union. theliners, ready to accept grant. the big thing has been grants versus loans and we did see the euro take higher to that. 1.14 39 on the dollar. u.s. futures to the red, the outlier has been chinese equities although across asia, we are seeing thin volume on trading. oil also to the back foot. angeles, potentially on the brink of another lockdown. that is worrisome. bloomberg dollar index is
pushing higher. you see the dollar index going higher, risk assets fall. euro 1.14 and gold, a touch lower but citi thinks it will reach an all-time high soon. matt: i wanted to recap that european news. we have been waiting for this all evening yesterday and the night. leaders want to get a deal done before the markets open this morning so it is important we hear from an official that the frugal four, the eu hardliners, are ready to accept a deal. in terms of this 750 billion the european recovery plan, fight was over how much money would be given to the countries that needed in terms of grants rather than loans. initially, 500 billion euros was the proposal from the core
bloc, from angela merkel and others. last night, we were looking for charles michelle, the european council president to propose 400 billion euros in grants instead and we are hearing hardliners are willing to accept 390 billion euros in grants. it looks like we could get a deal possibly before markets open, but i think markets will be pretty happy with this headline. you were talking about the euro taking into the green on headlines and we continue to watch the euro-dollar at 1.1446. head ofing in the fixed-income research at socgen and guy, you had been counting on -- i was reading through your recent notes come your forecast, expect haitians, some kind of agreement here. this be all right with you
if we got 390 billion euros in grants? as good as the original plan, but i think what is probably more important than the numbers is the psychological impact and the message being given. what is significant with this plan is the first step towards some sort of real fiscal union in terms of europe and one of the problems with the monetary make a monetary union work, you have to have a fiscal union so in that sense, the psychology behind this decision is more important than the numbers. i know you are bullish on italy. they will be one of the big winners in this plan, but are you worried about the political uncertainties in italy? just this weekend, politico had a expose on the politicians looking to be the next nigel
farage and you are hearing more rhetoric from italy coming up about a referendum on the eu, and exit? is: the big problem in italy the north and south agree on solutions and when pushed to vote, they are -- italy has been of of the longest members the eu. italy in general has been a beneficiary, significant beneficiary of the stability of the euro relative to the inflation a half before so i over the age of 40 will certainly remember that and i think younger people in general across europe tend to be pro-euro so although there is a lot of rhetoric about where the eu is, i think a lot of that rhetoric is gauged at getting
more benefits for italy and when push comes to shove, this kind of deal we are seeing now will encourage italians to stay in. matt: is it a problem if the deal loads more debt on to italy? already, forecasters are looking for 150, 100 60% debt to gdp ratios, unsustainable certainly. what kind of solution would you like to see that problem that we all have to deal with after the recovery plan? guy: that's a good question. of itselfin and because the numbers are relatively small, part of it is in grants, is not going to do an enormous amount in italy's debt to gdp. the increase we are seeing at the moment comes from the fact that italian tax revenue has gone down and italian spending has gone up and that has been the same everywhere. not just in europe, but the world.
the problem for italy is it has a big debt to gdp, unsustainable. the good news here is a lot of the debt is owned by italian citizens. one of the criticisms that other people in europe make is italian citizens have a lot of financial assets. a lot of those financial assets are their own government debt, so it is a little bit of a circle that we don't really know how to get out of just in terms buthe debt to gdp numbers, it is less alarming than those numbers make it seem. annmarie: how long can this fiscal stimulus high last? where do you see the italian to german spread going? i think the first question in terms of how long can the fiscal stimulus last, it is probably dependent on what the trajectory of the coronavirus is. abig part of the stimulus,
big part of the problem here is the stimulus is partially due to the fact that tax revenues are going down and spending is going up. these aren't deliberate distortions -- decisions. he's are questions of what is going on in terms of the disease and the automatic stabilizers having an impact. sorry, go ahead. you howwas going to ask much in control of the spread is the ecb? i think directly, they are not really in control but they do have the ability to cap the upside in terms of the spread. tp is a very flexible program. they can target their purchases where they want. morewe've seen much
relative to any other program is it is more countercyclical. central banks come in and intervene when they think the market is weak. thehat sense, they can cap upside, violent moves to the upside in terms of spread. matt: guy, we will talk more about the ecb coming up. rest assured, we will talk more about the eu, the possible eu rescue deal. guy stear from socgen is our guest cohost for the hour. right now, the first word news with laura wright in london. join itse u.k. may international allies insist spending its extradition pact with hong kong. the move could come today when the foreign secretary addresses parliament. hongons between u.k. and kong have ramped up. london could introduce human rights abuses. if the u.k. government goes ont far to impose sanctions
any individuals in china, china will certainly make resolute response to it. if seen what happened tween the china and the united states. laura: president trump is playing down arising coronavirus cases, telling foxnews many are experiencing nothing more than sniffles and positive tests are only up because of wider testing. he's calling infectious disease expert anthony fauci "a little bit of an alarmist." he says the two have a great relationship. russia's elite have been didn't -- given early access to an experimental covid vaccine. the country races to be the first to develop an inoculation. top executives began getting shots as early as april. they were developed by state drug facilities in moscow. last week, it completed a phase one trial involving russian military personnel. >> global news, 24 hours a day, on air and on quicktake by
matt: welcome back to "bloomberg daybreak: europe." i'm matt miller in berlin. annmarie hordern in london. philips has reported second-quarter earnings that beat the street estimates. the health technology company saw a drop in demand for non-virus related treatments in the three-month. , offset by increased demand for ventilators.
the company is one of the world's biggest makers of ventilators and expects to return to growth in the second half of the year. joining us to discuss is frans van houten, ceo of philips. asonder first of all, someone who has so much experience in this industry, but surely sees what has happened as completely unprecedented, how does your experience in q1 and q2 change your outlook for business in the covid era? very big experience and at first, we were focused on our triple duty of care, taking care of the demands of our customers, health and safety of our people, and business continuity. we have been delivering a satisfactory result despite the circumstances. shift inso seeing a how health care will evolve in the future.
the validation of our strategy with a stronger adoption of informatics, telehealth, enabling remote working between caregivers and also between hospitals and of course a direct doctor-patient relationship. we think the pandemic relics are late -- pandemic will accelerate that because it camp deliver -- can deliver better health outcome. what is on my mind is the incredible job the health care caregivers are giving and we have been standing right behind them throughout the first two quarters of this crisis. for joining us. last we spoke to you, your last results, there was a pickup in you were going to see for non-virus related treatment in the second quarter and then the western part of the world would follow. are you seeing that trend in
parts of the united states and europe? frans: indeed. the critical care in equipment like ventilators, patient monitors, ct scanners follows the peak of the pandemic in every geography, and currently, we see very strong demand in hotspots in emerging markets and north america. on consumer demand, we have seen a recovery of demand in china after the first quarter but we are not yet entirely back to 2019 levels. where weowed europe have done remarkably well, actually, given the circumstances and as the second quarter unfolded, we saw the demand starting to come back. we had forer growth especially our connected critical care equipment plus the fact that for diagnosis and treatment, we still had a big
order book and the recovery of this consumer demand gives us confidence we can resume growth in the second half of the year and still deliver for the whole year a modest growth rate. matt: what does that mean for earnings in the second half? you expect improved profitability, but can you qualify or quantify exactly what you are expecting now in q3, q4? frans: of course, it is an uncertain period and in the second quarter, we saw a 9.5%. forward, we think the results of the second half of the year will improve and if you take the full-year, it can be slightly above last year. we have not quantified that.
delivering aght, black figure in terms of growth and profit expansion would be a good achievement and we are focused on trying to do that. annmarie: everyone is worried about a second wave. are you seeing countries start to stockpile ventilators now to prepare for this potential resurgence in a second wave? frans: the demand for ventilators as well as for patient monitors and computer tomography scanners has been very strong. we have a huge order book that we plan to deliver and also in the third and fourth quarter. we still see orders coming in of geographies that do not have enough intensive care capacity, and i think it is also giving the insight to health ministers and care providers that you
cannot wait until the last moment to build at least some degree of capacity, whether that is ppe's equipment or in scanners or monitors or in ventilators. across the board, i think people realize it is important to invest in health care. i'm very pleased to see this adoption of tele-critical care. we own a big order with the veterans administration, a 10 year agreement to expand the remote care for veterans throughout the united states, and we saw in total 14 new large-scale strategic partnerships being signed in the second quarter, which is remarkable because hospitals are very focused on the pandemic. inll, they want to invest the transformation on how health care is being delivered and
raising cloud technology informatics so people can work more safely and people supporting the patient's. in cardiovascular care and not having them come to the hospital where the infectious disease is being treated. matt: i want to ask about your supply chain. obviously this has been a tough time for smaller companies you work with. how stable is your supply chain? have you had to give those smaller suppliers that may have run into cash difficulties? frans: that's a great question. first of all, we saw a tripling of capacity for ventilators. phonee all been on the contacting suppliers in order to help them ramp up. themselves,rs were,
in the lockdown area and governments have been helping us to have those factories resume production so that the supply chain across the world could continue to function. we have been giving messages to governments to please keep supply chain's open. installed air bridges to make sure critical components could find its way to our factories. for example, in pennsylvania, the united states as it is so important we were able to do that ramp-up. i'm very proud we were able to triple the production of ventilators and more than double the production of monitors. it does point out the onerdependence the world has thousands of smaller suppliers across the world and i think we also have a responsibility to help those smaller suppliers navigate the crisis. annmarie: thank you for joining us. frans van houten, ceo of philips
annmarie: this is "bloomberg daybreak: europe." i'm annmarie hordern with matt miller. what a start to the week. european hardliners ready to accept 390 billion euros in grants as talks tough over the weekend. at one point saturday, talks broke up between medical and they said they walked away grumpy but they have finally been able to get closer to this fiscal deal. we saw the euro pop off the back
of 1.14.trading north matt: interesting stuff. we will be following this closely and as our markets. they are waiting for a deal before the market open. eu officials were looking to get some traction before the market open so it is great we got those headlines right at the top of the program. of course, we are all looking ofward to seeing what kind rescue package comes out of the u.s.. i know you've been following it closely, having spent some time there. will talk about that throughout the program, could be 1 trillion and could be $3 trillion. there is a huge gulf right now between republicans and democrats. we will discuss that and go back to brussels, as well. more on the eu rescue package
annmarie: good morning from london. i'm annmarie hordern with matt miller in berlin. this is "bloomberg daybreak: europe." a summit ends deadlock but a cold and ash according to an official, holdouts are ready to accept 390 billion euros in grants for the fund. a mixed picture for spot -- stocks. infections in hong kong hit a daily record as a u.s. congresswoman calls florida's outbreak out of control.
earnings season gets underway, phillips reports beating estimates. good morning. the top news this morning has to be what is going on in the eu, able to get a deal at the last moment after a lot of back and forth this weekend between the group. the hardliners are in for 390 billion euros in grants. i think the week will be the spotlight -- the spotlight will be on the fiscal front. both sides of the atlantic, we see the want for a stimulus package. the european union, inching closer to there's while in america, they are kicking off negotiations. want $1blicans trillion, while the democrats want three point trillion dollars and president trump yesterday said he might veto a bill if it comes to him without payroll tax cuts. it will be tough negotiations in washington. matt: i think that is one of the
most exciting stories. the eu recovery plan was priced in already by markets. the participants like our guest cohost guy stear saying they expect something to happen. on the u.s. side, a bigger concern for a lot of people watching bankruptcies. that is a much bigger concern in the u.s. they need to see more fiscal help in the u.s. and they are not so confident they will get it because most economists we talked to, most fixed-income people we talked to are looking at the possibility of more bankruptcies, more of a jobless recovery in the u.s. than in europe. and the timing is so crucial. we have a number of stimulus measures like the $600 a week ending at the end of july and this is really the last moment for the united states to add a stimulus package big or there is november,and
this will be about the elections. matt: the election is crucial and in the most recent polls i read on the bloomberg last night, joe biden has a 15% lead over the president. the main issue for voters is the coronavirus pandemic and the handling thereof, so that could change as we see the situation change in the u.s. forink a worst experience americans than we are dealing with in europe and it has been a very big political issue here in europe, especially in the u.k., as well. annmarie: certainly has. moving from new york back to london, i'm seeing as different things as how people are acting on the street, at least from my
window in terms of mask wearing. everyone in new york was wearing a mask, and a little less and u.k.. in the markets, u.s. futures a little under pressure. risk offeing a little sentiment this morning although china is bucking the trend. up. csi 300 of you have a major driving city like l.a. saying they might lockdown. what will that do for demand? let's see what else we have. the bloomberg dollar index is rising a touch. relatively unchanged. havedollar of higher as we -- up higher as we have the deal clinched in brussels, edging closer. and i put gold in there because citi expects an all-time high. 30% probability the next three to five months, $2000 an ounce on gold. we will watch that
closely. i will say it was a long slog watching it gate to 1800 -- get to 1800. to the eu story, because it is the top story for markets this morning. hardliners, it looks like, willing to accept 390 billion grants according to officials talking to bloomberg. later today, those talks will resume. joining us with the latest is our reporter on the ground maria tadeo. thingss like some changed overnight for at least this morning after leaders were pretty deadlocked finishing up the weekend. what is going on? for almost three days, entering into day four and the fact negotiations are ongoing is good news because at one point yesterday, this seemed like the negotiations could collapse. when you look at everything over
the weekend, it is clear there have been three major sticking points. the overall size of the recovery fund which counted 500 billion euros. that money is handed out to italy and spain, who will ensure it is handled appropriately? and it is used for reforms that has been an issue for the dutch. the dutch prime minister had suggested he wanted to get a super veto on the money that could potentially stop the payments if he felt the money was not used correctly. we had a bigger issue overall when you look at the role of eastern european countries. we understand the size of the fund, there is a potential compromise being agreed, 390 billion euros would be the overall amount paid in grants and direct transfers to countries like italy and spain. it is a compromise but if you look at the details, you are looking at a downgrade of more than 100 billion euros with the original paper. merkel and macron had suggested
they wanted to see 500 billion euros. that was cut over the weekend to 400 billion euros and now, we are looking at 390. the question is if the market will think this is good enough or if the recovery fund is no longer that ambitious. annmarie: we have a deal inside but talk us through the rest of the day in brussels. what can we expect? maria: as you know, nothing is agreed until everything is agreed so we are looking at potentially a compromise over the grants, but i mentioned sticking points in terms of the e of the deal and rule of law for the next seven years in europe. european leaders have gone to bed. it has been a long night and no one has really had any sleep. they will be back at 4:00 p.m. the negotiation will resume and perhaps we are looking at a deal sometime today. i would point out that i bumped to his hotelhe way
and he said he is ready to stay until the weekend if necessary. that would be a record for european summit, but anything could happen. certainly can. i remember these evenings go well into the evening and saturday, he said merkel and micron walked away grumpy. that was maria tadeo from brussels. let's get to laura wright with the first word news. laura: in the u.s., the white house said to stop talks on the next virus stimulus packages as debts has 140,000. lord is outbreak was described as out of control by democratic representatives. the mayor of los angeles said his city is on the brink of new restrictions. president trump said the u.s. has the best mortality rate. the white house's own data says the u.s. rate is the lowest.
matt: laura wright with the virus recap. let's get a -- annmarie: i want to bring in guy stear. we have the european union looking to clinch its fiscal stimulus deal. laura was talking about the states. are you hopeful we will get another stimulus package in washington and what does that mean for your portfolio? guy: what you were discussing before is correct. the window is very short in terms of getting a stimulus package agreed in the u.s., and there does seem to be quite a difference in terms of what the republicans and democrats want. 50-50 int is about terms of probability of it happening. i think the really critical thing, we'll know how necessary it is as we go through q2 in the u.s.. the reason why is probably the most important thing to focus on
in the earnings season in terms of the number of bankruptcy will be liquidity figures. companies have borrowed a lot of money in the second quarter. if there liquidity figures, there liquidity ratios look comfortable, then they are going to be a multiple him through for the next six months and probably we won't see the defaults accelerate. liquidity figures look as bad as they did at the end of q1, or not much better, the pressure to get some fiscal aid quickly is going to be very strong. matt: can the size of the fiscal aid change your outlook in the u.s.? i know you expect it to be worse in terms of bankruptcies than here, in terms of fallen angels and that is the main concern for you, because you are pretty bullish on bbb debt. guy: i'm bullish between now and the end of the year, in part because i'm confident the
liquidity figures will look better in the second quarter. more or less preclude real acceleration of defaults in the second half of the year. i concerns about defaults are in the medium-term. i think we will worry in 2021 about whether the biddle -- business models are sustainable in a post coronavirus world. i would be bullish toward the end of the year and think we can go tighter. annmarie: where does that leave you january 1, 2021? guy: it depends on where the think it will i not be january 1 but early february where it will be right to take profits and switch to underweight positions. i would be looking for european ig, currently in the 150 plus basis point area to be down at 100 basis points at the end of the year. we may stay there in the first quarter for most of the first quarter but as we get to the end of the first quarter, we will go
wider next year. matt: guy, thanks. guy stear from socgen will stay with us, our guest host for the hour. i want to get you stories we are looking for this week. starting today, u.s. secretary of state mike pompeo kicks off a visiting the u.k. with a meeting with boris johnson, the prime minister. wednesday, the u.s. senate banking committee is set to vote on president trump's two federal reserve board nominees. annmarie: also wednesday, tesla reports its second-quarter earnings. ,he stock has been on a rally advancing 60% in the last month alone and friday, we will keep an i on the release of european pmi data for signs of a pickup in economic activity. on the docket, european earnings season kicks into high gear after promising numbers last week. can the good times keep rolling? we discuss the region's results next. this is bloomberg.
annmarie: this is "bloomberg daybreak: europe." london.arie hordern in the reporting season near -- in europe is underway with novartis and unilever expected this week. it is early days but results for the region have been promising. here's what to expect with dani burger. dani: about 11% of firms so far in europe have reported and it is too early to draw any big trendsions, but if the continues, it is promising for the rest of the earnings season. expectations were set low. analysts had downgraded earnings etf's point where expectations year-over-year are at a -46.6%. at 23% only 11%, we are of the companies reporting, -47%g us an eps growth of
so pretty much in line with those expectations. it willk and next week, be too is the busiest weeks in terms of earnings some 77 firms report today. so we can next week expect some individual volatility as stocks report. spoke to which you them earlier today. they are expected to move 4.8% up and down according to options. the next two weeks, options are applying a move of 4.3% so that is a lot of volatility expected from these companies once they report. the good news is in terms of earnings revisions, analysts are moret -- starting to give upgrades. the pace on a net basis is more downgrades but it is almost neutral and that tells us perhaps analysts are seeing this quarter as a bottom in terms of earnings and they can improve
heading into next year. matt: thanks very much. dani burger, looking at the changing earnings picture. guy stear from socgen is still with us. how do you see corporate earnings doing right now? is do you see balance sheets the most important part, especially when looking toward the smaller companies that you are interested in. guy: you are right to say those are two different questions. let's do the balance sheet question first. the most important thing is if you look at liquidity measures like the quick ratio or cash ratio, when we were coming into this crisis at the end of last year, they were cyclical lows, 10 year lows in terms of liquidity companies had on the balance sheet. problems,e of the they were susceptible to the slowdown in growth, too weak operating cash flow and what they really tried to do in march
in particular, we saw an improvement in march but i think we should see a bigger improvement over the second quarter as they have tapped lines, raised money, borrowed money from banks and that should improve the liquidity picture. as a credit person, what i am looking at out of the q2 earnings figures is really the liquidity ratio we will get in the second quarter. the earningst figures, i think it is going to be very different depending on the sectors and what we will care about comets you two should be the worst quarter for economic growth in europe so it should be the worst quarter in terms of earnings, as well. we will look at a lot of dispersion. some sectors will do better and other sectors -- some sectors we have seen like banks, in terms of trading books but it will be interesting seeing how the consumer sector does later in the earnings season. talking about sectors,
where do you see value? what sectors are you overweight? sector,like the banking not necessarily because we think earnings pictures will be good but because banks have been on a 10 year process of reducing leverage on the balance sheet. they are being given helped by central banks in terms of adding liquidity and they trade well so we think the banking sector offers some good value. another sector which could do well as real estate. i think you have to be careful looking at various parts of the real estate market but i think real estate does trade cheaply. andad widened out a lot since we are bullish the next six months, between now and the end of the year, we think real estate will tend to do well. some industrial sectors, surprise on the upside if liquidity is decent, we see the figures being fairly strong. people have been negative on the industrial sector because of high sick -- cyclicality.
in terms of industries, these are things i like but factors will be more important in the long haul. matt: when i read through your research, it seems the common thread is markets just got two barris -- too bearish into march and still the outlook is to bearish. you think it is better than markets are pricing? guy: that is correct. we started the year fairly gloomy because we got the market was expensive and we expected the u.s. economy to slow down. certainly not for the reasons it we wereng down but fairly lucky in our gloomy position of credit at the end of the year. by the middle of an art -- march and too early, we changed our view because we set the market has gotten too cheap and there is a lot of value. i think that is broadly still the case.
that isr thing significant is we have technical support because of all the central bank buying of credit in europe in particular. i think that is going to be the other factor which drives us higher the next six months. a lot of this is being driven by the central banks, jpmorgan asset management talked about the pollution -- hallucination when it comes to investors and central banks and trying to find valuations. what happens when they start to pull back a little bit? say we already saw what happens when central banks start to pull back work talk about pulling back in 2018 and it wasn't pretty. that will be part of the story in 2021 because although they've been pretty clear in europe in saying we won't pull back in 2021, i think there is expectation, there should be that they won't add to the programs in 2021 as they have
been doing in 2020, and if we just see stability in the programs, the next step is pulling back so people will worry about them eventually pulling back. don'tt sense, 2021, i think it will be a repeat of 2018 but that will be an issue we deal with next year. annmarie: thank you for joining us, guy stear, head of fixed-income research at societe generale. is "it is note summertime and the credit is easy to cope to extend its extradition treaty. will that lead to tensions with china? we are live in the territory next. this is bloomberg. ♪
i'm matt miller with annmarie hordern. the relationship between u.k. and china is about to be tested. the british foreign secretary dropped a heavy hint the u.k. will suspend its extradition treaty with hong kong. the move would mark a further diplomatic escalation intentions from britain banned huawei its five g networks and possible sanctions over human rights abuses. for more, jodi schneider joins us from hong kong. know about this actually happening and what would it mean for the u.k.-china relationship? like it is very likely to happen and to happen today because the minister will address parliament and he has given a big hint, big signals that the u.k. will suspend its extradition treaty with hong kong, which is a former colony
that it handed back to china in 1997. this would definitely escalate tensions. bowingalready the u.k. -- what china says is bowing to u.s. pressure by banning huawei from 5g networks. there is the human rights abuses that they might sanction for and the invitation to have as many as 3 million hong kong residents apply for u.k. citizenship after beijing imposed the national security law on hong kong. following the footsteps of canada, australia, and the u.s. in these measures. the u.k. seems to be really ramping up those tensions. annmarie: jodi schneider, bloomberg's senior international editor in hong kong. that is it for "bloomberg daybreak: europe." the european open is next.