tv Bloomberg Markets European Close Bloomberg March 5, 2021 11:00am-12:00pm EST
guy: from london, i'm guy johnson. alix steel is in new york. we are counting down the european close. what you need to know this hour, let me tell you, let's start with the vaccine issue. france backing a lease decision to hold exports to chip -- to australia. australia is calling on the commission in brussels to review the decision. we have a breakout with oil surging. this is pushing through $68 a barrel. goldman sachs, j.p. morgan, ups all raising their forecast sharply today. and the london stock exchange's matched -- matt -- exchange smashed its turning numbers that it -- far higher than expected. the ftse is outperforming, and
some of the mining stocks are standing by. we are up by over 3%, 68.78 percent -- 60.78. alix: that sets me up well. the way it looks in the u.s. is an at versus cyclical move. part of that is the oil prices. to me what exemplifies that is zoom which is down over 3%, exxon is up. last year they had a 40 year low. this exemplifies the move we have been seeing if the yields were higher. we are taking a break but nonetheless. one of the most important charts is the breakeven. you are still seeing this move jump higher. particularly with very good job numbers in the u.s.. that leads to a stronger dollar. if you look at the dollar-yen,
the yen is headed to its biggest weekly decline against the dollar since march of 2020. i don't think we are prepared for that stronger dollar story. it will be interesting if we could sustain it. guy: but it is sending a message of european underperformance. i think the markets are sending are really mixed messages when it comes to the s&p markets and the bond markets and the currency markets. i want to talk about this chart. investors appear to be investing in a positive outcome for the vaccine story. basically, betting on a return to normalcy by the end of summer. this is the stoxx 600, it's up let's call it 13%. that's here to date. -- that's year-to-date. europe is still largely lockdown. the dates in terms of the virus in the vaccine rollout are
pointing to different story. lockdowns are being reimposed. look at what's happening in finland, milan going into a hard lockdown. germany spending the bulk of its lockdown, the european analyst is joining us now to discuss this. frederico, the uk's heading into a wave around christmas and spain and portugal after that. it looks like the bulk of europe is experiencing this third wave. how bad can it be and how long will it last? frederico: last year outbreaks in europe were more or less aligned and there's more diversions this time around. there are growing signs that continental europe could be facing a resurgence. italy is very much leading the way, as are france and germany who are a little farther behind. there's growing indication that
things will get worse before it gets better. you also mentioned the focus on vaccines. which is unlikely to pick up speeds until well into a role -- into april. it's likely we will see more restrictions, and for longer. probably for much of the second quarter before meaningful change takes place. alix: if we see more vaccine nationalism within europe, does that hurt or help? frederico: i think it helps the margin in terms of vaccine supplies, it's not entirely unexpected. we have seen the first significant instance of this yesterday. we know the european commission and other state governments are coming under huge political pressure to speed up the vaccination campaigns. supplies a big component -- supply is a big component. i suspect on the other hand, the e.u. has been a huge proponent
of vaccine mutualism. i think there's a fine line. we could see exports being banned over the next few months until supply picks up speed. still with the focus on astrazeneca which has consistently under delivered in terms of supply to the e.u.. and a focus on those countries that are perceived, like australia, to be in less danger of the virus. but the e.u. is in a tough spot for time being. guy: what's the lag between what's happening in the can what's happening on the continent? as we go towards the summer -- what's happening in the u.k. and what's happening on the continent? as we go towards the summer do we see an impact on the case count? frederico: to a good extent, yes. europe is well behind. the u.k. is coming out of what was a very strict lockdown in the easing plan that has been
laid out by the government is quite cautious. we are looking at the easing of restrictions at the end of mark all the way through june. vaccinations are going quite slow now but we do expect them to accelerate. particularly from april. i cannot stress enough that there's huge uncertainty about supplies which should come through in greater quantities in the coming month but also in terms of the logistical challenges at the national level. we could see significant improvement in all of our european economies with that expected increase in supply. alix: and counterintuitively, the u.s. and europe are doing the two shot vaccinations and the u.k. is spreading them out more. the numbers of fully vaccinated people be higher in the e.u.. does that point to potential positive news for europe? frederico: i think prioritizing
first doses has been quite a success story for the u.k.. i'm no medical expert but it seems the first dose -- it does require two doses but the first does provide significant immunity and i suspect we will see more countries move closer to the u.k. strategy as time goes by. in these new vaccines are meant to come online in short order which only require one dose, that's good news in terms of the logistics. i suspect we will see this going forward. guy: thank you -- alix: thank you much. joining us now is our next guest. we love chatting with you. if you take a look at the ability for europe to not vaccinate and having a lot of problems, on the flipside you have the trash -- the travel and leisure set to -- sector ripping. >> the rollout of the vaccines,
as discussed, has been so much slower and weaker compared to the u.s. and several other countries. but the other issue is the political response. we are waiting for the purchase from the recovery fund, probably coming only sometime in july. that means it will take some time. we could get to queue four or next year before we see a meaningful impact on the fiscal response to that different from the debate we are having in the u.s., where we are about to get another round of stimulus checks . so the lag in the delay in getting fiscal policy out and dealing with the rollout is going to have some significant consequences for the recovery of the euro area. guy: how big is the gap going to be? >> that's a good question. when you look at the fiscal
response, it takes longer times. there's also some conditions associated with loans and grants that come from the euro area recovery fund. i'm trying to figure out the profile and it's difficult to get any strong growth before we get to 2022. one answer to your question is that we are three quarters of the way before we see that happening. we could be surprised, going through the rollout, but also in terms of the magnitude. the unfortunate thing is that europe is just lagging behind in this situation when it comes to the trajectory of the recovery. alix: and we have seen a lot of these calls go neutral, how much more upside is there for the dollar. torsten: it's probably a big
headache for the ecb. they will have their meeting next week and this has been getting so much attention. several governing council members have been talking about this. when you have a recovery that's weaker and takes more time you don't want long term used to go up. that's creating a number of different challenges for the ecb. that's why this will probably continue to be an issue. i do think the consequences that u.s. yields will continue to rise where the buns will content -- the bond -- bunds will go sideways. guy: we are seeing spreads wide and again. we are back up 100 basis points. hemp -- this has not been buying as aggressively as we thought.
how much capacity do you think they have at this point, you see christine lagarde come out next week. torsten: this is something that has been in the background for many years but continues to pop up every once in a while. not only are we talking about the pandemic and the rising yields but also the sold issues of what's going on between the periphery on the bond -- bunds. the key issue for policymakers as the euro area recovery fund, getting the fiscal policy response out into the economy and getting money into the hands of people who will spend it. and unfortunately there still some time before we get to the impact of that. with that backdrop it's difficult to see any strong aggressive response from the ecb
in terms of what they should be doing. i think their focus will continue to be on supporting the fiscal policy rollout and everything to make sure that the yields don't go up too much. alix: how much could those two things divert, you can have the two tens and the five 30's steepening. guy: as long as the -- torsten: as long as the recovery is continuing, as jay powell was talking about earlier this week, broadly speaking it's all about financial conditions. it's not about individual variables on their own, particularly with the yields. but you are right, at some point with the tensions pointing out they will begin to be more severe. and the response from the fiscal side is four to five months away
and we do have a tense period that we are going into. they need to micromanage this and the fed needs to micromanage what the rise in yields means. guy: will the ecb or the fed follow what they'd be a jaded overnight? they made a pretty clear to the market that it was in control. you saw massive reaction. torsten: that is the chatter of the fixed income market every day at the moment. the doj managed overnight to quite impressively hammer down long jgb yields and put them in line. same we are not going to widen the bands. so far, the fed and the agb has
been -- lagarde has been asked about this at several points. if we are standing at the cost of increasing -- the cusp of increasing growth, particular the u.s., and fiscal expansion in the u.s., and later the euro area, the central bankers will look at that and say we probably don't need to take the rabbit out of the hat. that's not really a tool that we want to take out unless there's a leap. at this instance, there's a way to make sure -- they will be waiting for growth to accelerate. i think for them, they would hopefully be thinking that we do not need to do this because we do have growth coming in over the quarters. guy: stick around, we do need to carry on the conversation and talk about the payroll numbers.
torsten is staying with us. the headline number was strong, some of the components quite strong as well but they create -- paint a picture of a slow recovery. the payroll number, the headline number is way above where everybody was expecting. we do see a bit of a slow down and stabilization in the jobless rate and average hourly earnings which creates the picture of the labor market that has a recovery that has a long way to go. and quite a few more stations we need to pass before we get back to deployment. torsten will be back in a moment. this is bloomberg. ♪ so you're a small business, or a big one. you were thriving, but then... oh. ah. okay. plan, pivot. how do you bounce back? you don't, you bounce forward,
>> that hasn't changed because of this one print pay let's get under the hood and take a breath and recognize that many americans are still in the throes of this crisis and need to help delivered by the american rescue plan. alix: that was a council of economic advisors weighing in on the jobs report and why we need another round of fiscal spending. torsten, paint a picture, we get the job numbers, it's a blowout, there's work to be done. we are going to get stimulus, let's call it 1.5. and higher yields. what's the reaction if we are firing on all cylinders? torsten: not only is the pandemic ending, we also have one point 9 trillion fiscal stimulus and on top of that, the household sector there in
checking counts as $2 trillion in savings that they've saved simply because consumption went down and income went up. you have a fairly significant amount of tailwind to the economy. the rate move is probably a precursor of the growth that we will see. so what was being mentioned is that the number was raise but we are still nine point 5 million jobs behind in terms of where employment was in february of 2020. the fed still has a long way to go before we get to full employment, but growth is going to pick up over the next several quarters and it will be a significant spurt. guy: when we see some labor market inflation? how low is the star in the cycle? torsten: that's an important point, there is some decent wage
inflation, as you know it's been relatively elevated and a lot of the people who lost their jobs during the pandemic were low income jobs and it shifted away the composition of the wage index. that mean it gave the illusion that wages have been going up simply because there was a change in who was counted in the wage index overall. the short answer is that the labor market should pick up over the next several months. broadly speaking we should be expecting to see 300 to 500,000 on payrolls and potentially even higher. as you can figure out quickly that does not bring you all the way back to re-creating 9.5 million jobs but it helps in terms of getting back to full employment. alix: hang tight. breaking news prayed the u.s. and the e.u. are said to reach a
deal to suspend boeing airbus tariffs. there's a planned announcement on a four month tariff truce. that's quite significant. guy: this is what has been going on for 17 years but really anted up during the trump administration which took the position was going to penalize europe despite the fact that the wto agreement probably fairly even stephen in terms of damage done. it looks like this is a pause to allow some sort of deal to be done in terms of how new aircraft will be subsidized going forward. it looks like something is coming off the table and that might be something we don't seen the future. but this will help her this will allow normal resumption of a whole bunch of things. yesterday there was whiskey and cop -- clotted cream. there will be more stories about imports and exports with the
united states and europe. it's a whole range of things. but this is like an opportunity to figure out a way to get out of this mess. because it has been going on for a long time. alix: and wine. guy: wine, other spirits, luxury goods, some agricultural products. alix: yeah, yeah, wine. guy: let's get to what's important to alix, it's friday and were talking about for seco. it's serious. alix: it is. torsten, let's bring you back in on the jobs markets. the fed has made it clear that they're not afraid of higher yields. is that the equity market testing this out? torsten: at this point if you think about the yields at the 150 in the 160, by any measure, still low. in that sense, the market is may
be overreacting. but it is the way that things have been happening which is somewhat surprising and i think surprising to the fed. so far, equity is still at a relatively high level. and the parts of the s&p 500 that are most vulnerable to high-yield, particularly tech. those have been hurting more and trading more negatively. broadly speaking. markets should be focusing on financial conditions more broadly and remain very supportive of the economic recovery. guy: it's great to see you torsten, have a great weekend. we always appreciate it. this is bloomberg. ♪
the week in europe, we are coming near the european close. let's talk about the numbers, let's talk about the broad trends we are seeing. we see the ftse 100 and let's take a look at what's happening in the commodity market. oil prices are trading. and you were getting a steeper curve here today. that's helping out the banking sector. the two sectors outperforming our banks and oil. the dax is down by around 8/10 of 1%. industrials are under pressure. cac down by 7/10 of 1%. we will get more details in just a moment. there are some interesting stocks and we will take a look at what's been happening today. this is bloomberg. ♪
we are approaching the end of the week in the end of the session for the european equity market. it's a little different at the close. you are getting a real dispersal and sector performance, banks and energy doing well, travel and leisure is certainly taking a hit today. one of the facts behind that is the higher energy price for airlines as they are not flying that much. we will see what a significantly higher oil price means for recovery. we are down by around eight tens of 1% here. let's break it down. i want to talk about how the individual markets have done. this goes back to the underlying themes we are watching. this is one week, ftse, dax, cac , outperformance in the ftse 100. there's been a relatively strong week but it's mainly the big minors -- miners bouncing back
and an uplift in the oil stocks. the ftse outperforming but the other markets are higher. the dax and the cac are up, tech gotten beaten up stateside. that's acting as an anchor when it comes to the u.s. markets. breaking it down from a different perspective, i want you to get a perspective on the pickup we are seeing because it is quite significant. this started in november, we started to get that good news in terms of the story. it's starting to get the traction, 68 .78, many banks have come through and reviewed their targets. counting out where they were, now they had to lift the more they were higher. well within range at the moment, are we can ago higher than that, certainly some of these are pointing to that. maybe to the 80's with some of these numbers. let's talk about how that's affecting the sector break down. you could certainly see the evidence today.
there's a steeper curve here with energy. backup by nine tens of 1% today. the energy sector up at 8/10 of 1%. the flip side is take a look at what's happening in travel and leisure. it is down and technology is also giving back today, that's more related to what's happening with the higher yield curve. that's the story from the sector from a rotational point of view. these are emblematic may be of what we are getting in these markets. this is up by 2.9% today. bp is up by 1.61%. both of those two stocks are really part of this narrative really driven by commodities. and i want to talk about this, absolutely pummeled today. came out with earnings little earlier on. i think what they pulled out was that acquisition was going to be significantly more costly and
expensive and tricky and complicated than people had anticipated. we are starting to see some evidence of this. a big break today ironically on the london market. and you can see, down by nearly 14%. a significant hit. alix: definitely less get to that breaking news for moments ago. joining us is said, -- joining us is our correspondent. how did we get here and what does this mean? >> this is basically suspending the 11.5 billion dollars of tariffs across the transatlantic and this has been going on for the last 17 years. the trump administration imposed tariffs last november, and essentially the e.u. was imposing tariffs on boeing aircraft send u.s. imports.
so this dispute has been looking for settlement and it seems like it's good news for airbus and boeing. guy: and a whole bunch of other companies as well. let's talk about how this gets resolved and this long-running issue, this 17 year dispute, we can all breathe a sigh of relief that it was resolved. are we hearing news that we could for instance see -- being banned. what are the remedies to get this done. these are huge programs, they cost a lot of money, governments have been supporting them in the early stages and relative performance has been a problem. how do we resolve this? >> the only way around it is to essentially try to negotiate some sort of sentiment -- settlement that stipulates how aircraft programs will be run and the funding for those programs. obviously aircraft programs are extremely expensive and you need
a lot of capital to develop and get them to market. i think a disputed settlement between the u.s. and european union, with a massive duopoly -- guy: we appreciate it. thank you for joining us for. -- for joining us. let's get back with the currency market, the dollar strengthening comments the third day, yields are picking up. we have seen this post february jobs report. we do have what happened with powell yesterday. our guest is joining us now. the indexes up by 1.4% over the last three days, where to be go from here? how much is there on this dollar trade? >> i think what we are seeing,
what we have seen over the last month is a pickup in real yields. it first led to question marks on the dollar. and then you had the expected pushback from the fed that came very tepidly. so the market is viewing the fed as doing the opposite of the yield curve control, basically. telling the market what it's going to do with short trades and what it expects inflation to do and what currencies to trade off of. we have not changed our dollar negative forecast. this has introduced some risks. alix: what would make you change your forecast? >> i think that the quality of the programs being put in place are still poor, in the sense that it's -- the 1.9 trillion is
going to end up being income support, consumption, there's likely to be a big expansion to external deficits. some of the microeconomic measures, the by america -- buy america measures are cost increasing. we have to be convinced that those factors have changed and that the fed is really out of the game, rather than stepping back for a little bit and then coming back into guide the market with long-term yields. guy: overnight the market was smacked around a bit and it was made clear that the bha was in control. if we see the same thing from the ecb is that enough to change your view of what's happening? if the fed seems to be having a relatively relaxed attitude with what's happening. the ecb is probably not.
i don't know if it will take action. how important is that ecb move next week? >> what they say doesn't matter very much. they are always saying that they are focused on the currency and its impact on inflation. if they do something i think the market will react. i think the biggest move they could make would be to cut short-term rates and not really expect it, if they increase the envelope that would be a big deal but they just come out and say look, we are using what we have as needed, that will not be very exciting for the markets. guy: -- alix: we just had a chart up with japanese 10 year yields, he saw the boj coming out saying we are not increasing -- we saw the boj commencing we are not increasing. you have the currency having a
pretty bad week. what are the repercussions in rate differentials of central banks doing different things? >> i think the issue is that when you have the u.s. and canada yields going up by 30 and 40 basis points over a month, it's hard to get excited over the boj shooting its bands by a bit. this is not the trump administration. it's the biden administration, the japanese authorities are willing to let the market take the dollar-yen higher until they see that there's some repercussions. maybe there's no repercussions. it's hard to say why they would be reacting at this stage. guy: as we progress through the year, there's also a duration, there's a mismatch between the timeline on the u.s. program and
the european program. in terms of the effect of that's going to have, can we get your perspective, and what's happening in terms of the vaccine rollout? the european vaccine rollout is slow and they are struggling. if we continue to see this, the spread between the u.k. and europe, europe and the united states, it's going to get bigger and bigger. >> it's going to get bigger in the short term because the supply has really ramped up in the u.s. and seems to be doing fine in the u.k.. it's essentially going to shrink. we are seeing a global improvement in supply. i'm sure europe will get more than their share of the incremental supply coming. this could last a couple of months but it's a temporary factor. the biggest factor is that the u.s. seems to be contemplating
monstrous fiscal. the 1.9 trillion under discussion in the senate, the subsequent infrastructure bill, there's discussion about making some of the direct payments permanent. in market terms, that's overwhelms the discussions that we are seeing in europe. even those longer terms are clear that that would be healthy for the economy or currency. i think in the short term, the market looks at the headline numbers and is impressed by the difference. guy: -- alix: always good to catch up. thank you. guy: the week is over. for seco -- prosecco time. it always is. it may or may not get cheaper because of the tariff war but it's important to have. and the other thing alix is
involved with is the oil price which is having a huge impact in terms of performance in europe. the ftse 100 is down. the oil stocks had a good day today relative to the market. bp up 1.5%. you did not get the pick up on the dax is down nearly 1% coming to the close. the cac is down by around 8/10 of 1%. europe is finishing the week and it was not a blowout week but it was a modest week and it showed this week and relative performance. you did see travel and leisure coming up quite sharply. this is bloomberg. ♪
coming up, the u.s. council of economic advisers at 12:00 in new york and 5:00 in london. this is bloomberg. ♪ guy: live from london, i'm guy johnson. alix steel is a new york. this is the european close. let's talk about china kicking off its annual national people's congress with a relatively conservative growth target of above 6% this year. the move seems to signal a more restrained monetary and fiscal policy which will be part and parcel of this narrative. it's a contrast to other nations. these are the details, about 6%, a proactive fiscal policy, prudent, this is -- hong kong is
going to be something of a sticking point or let's talk about economics. our guest is here to run us through. >> you mentioned the 6% growth target. for a lot of people, that's the most important thing. because china did not have a target last year. look at with the chinese are doing, they have an over 6% target in the blue line. the orange line is almost 8.4%. that's with the economist who studies the chinese economy are going to think they're going to do. why the space in between? the chinese want to go beyond just growth and modernize the economy. the 14th national people's congress and 148 pages worth of documents show is it's not just growth being down back a bit. we are also looking at a number of economic indicators that will be softer than with the forecast tells you. gdp growth again is looking at a roughly 6% rate but there was none for 2020. around 3% for cpi.
they don't think they're going to get a lot of inflation. a fiscal deficit, they will try to bring it down. that's the opposite of what a lot of countries are doing. the jobless rate will fall, but not huge amount. still higher in other countries. but there data is not exactly comparable. let's talk about that deficit. the chinese are going to be aiming to bring down their fiscal deficit as a percentage of gdp. the truck comes out a little weird. there percentage of gdp will be 6.17%. by contrast, look at the united states. 15.2% because we are spending all kinds of money at this point. the chinese want to leave fiscal space so they can work on anti-pollution control, raising living standards and improving technology in the economy. their goal is to modernize the economy, move it up the value chain rather than growth above all which used to be the way
they did things when they were running 9% growth rates. at 6% they figure this gives them enough room. alix: thank you, we really appreciate it. for more what to expect is our next guest. it to dr. -- it is a pleasure to speak to you. what you expect as we continue question mark -- continue? >> we expect approval of the details of the plan. that finance plan is not only talking about the chinese economy in five years, but how to view the targets which are doubling china's ddp by 2075. so essentially 15 your plan. on the economy you're going to talk about foreign affairs as well. of course with all of the difficulties between china and the united states, really how china will be able to manage
even more precarious relations will dominate the discussion as well. that's the domestic side and also foreign affairs. guy: you talk about those two factors, it looks like things are going to get tougher with the relationship with washington and potentially europe. is that the reason why we have this cautious 6% growth target? dr. yu: not necessarily. this is in line with what happened with the two sessions last year. we already did not set a target by saying they would like to improve the quality of the economy to make it more sustainable. i think it's very much in line with leadership thinking. but much of the facets will be put into the innovation sector. how china will be able to upgrade itself. to give it a self reliant supply chain and technology sector.
these are the key things that will be discussed next week. alix: draw some lines for me. if they become more self-reliant they will be importing less, what happens to their exports? a lot of other countries want to be self-reliant and they don't want to have ties to china, take a look at what happened with huawei and the mate -- and the made in america program. dr. yu: we actually see an erosion of export earnings for china, it's been happening over several years, nothing new. and what kind of export that china has decided to sell sooner or later. we may have this discussion later about carbon neutrality. and part of the reason why there is this idea of carbon neutrality is also looking for an alternative market for the chinese renewable sector. this will also include export
earnings as well. in a way it's not upgrading, it's about setting things up differently. guy: how should investors reach higher defense spending? dr. yu: that's very much in line with what we discussed with innovation. most of the money would be given to innovation either in the civil sector, the military sector, or a hybrid of the two. but i think the spending will be mostly on technology. alix: if you were in the biden administration, what keywords or languages would you be looking for to understand how china wants to reset u.s.-china relations? dr. yu: i think the second paragraph on the plan says very clearly that the whole world is experiencing a power shift. clearly china's one of the most precarious. the chinese are very clear that
they would assume that the u.s.-china relations are not getting better and they accept that reality and deal with it by introducing dual circulation internal circulation and increasing domestic spending and supply. guy: can china be contained? if you go back and you think about what sort of cold war doctrine would have been dictated, in the cold war we tried to contain the soviet union, is that something that could be achieved with china? can it be achieved with china in key areas like technology? dr. yu: [indiscernible] the soviet union was extremely isolated in its economy. it's a premature one dimension economy. china's very different. it's really integrated itself
into the economy. so when you say contain china, perhaps whatever is contained will also have that sense of self-harm. to contain china would perhaps be sounding ideologically appealing, but in practice it's very difficult. if you look at the investment between the united states towards china, it's not really changed since donald trump came to power. which is to say that we are now having this ideological conflict with china but on the other hand , the economic world, the economic community is looking for a guaranteed return in the economy. guy: i wonder if it's a more refined tenant when you look at these sectors like technology, which could end up being so critical in terms of other
alix: that wraps it up for me and guide. coming up, balance of power. jack lew will be joining david westin on television and radio. guy: and tune in, we are looking forward to having you on dab digital radio, alix and i had the top of the hour. we are going to kick back and talk about the kind of the week it's been. that's coming up. this is bloomberg. ♪
david: from bloomberg headquarters, working to balance of power with the world of politics meets the world of business. encouraging job numbers this money, how are the markets reacting? kailey: this jobs reports has reinforced the idea that growth and inflation are coming. we are seeing a continuation of the dramatic moves we have been seeing. we are about flat on the 10 year treasury. 1.56%, above where we started the year. the yields are weighing on big tech. just to fit -- the yields are hard to justify. the nasdaq 100 is in correction territory. higher yields are not just impacting the equity markets but fx. the dollar is stronger for a