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tv   Bloomberg Markets European Open  Bloomberg  January 19, 2023 3:00am-4:00am EST

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two current fed voters back moderating the pace of rate hikes as u.s. data disappoints. european stocks are set to open lower. check on the ropes, amazon and microsoft begin cutting 28,000 jobs as the industry faces a post-covid reckoning. the world economic forum continues in davos with the ecb president christine lagarde due to speak. live interviews. let's take a look at futures. when bad data, bad news seems to be bad news for the equity markets for the first time in a long time. retail sales out of the u.s. falling. producer prices coming in lower than estimates. the open as we look at potential european equity snapping seven
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days of gains, futures are pointed lower. of course, you are weighing up the data front softer on the u.s. side with the commentary from those fed voters. yes, they do expect to see rates continue to rise and rise and keep in be held at a higher level. notable that two of those voters suggest you will get step down. the markets pricing in a terminal rate in contradiction with what we are hearing from fed officials. the ftse 100 now down 0.5%. in spain, losses of 45 points. the cac 40 down 0.5% as france braces for mass protests. what a rebound for the japanese yen. this time yesterday, the currency was under pressure down about 2%. that has all been wiped out. you have ubs and schroders continuing to keep their short positions. that is playing in to what we
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are seeing. a reversal currently. futures stateside pointing to losses of 0.2%. this was fascinating watching the yields reaction. that continues today, two basis points on your u.s. 10 year. that has moved down from the highs for the 10 year. brent down 0.8%. on recession concerns, but also data around inventories building up. pressure in commodities. so, fresh data out of the u.s. house raised fears. producer prices slid by the most since the start of the pandemic and retail sales fell by the most in year. larry summers told bloomberg's david westin he's a bit more optimistic than a few months ago.
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>> i'm still cautious, but with a little more help than i had before. soft landings are the triumph of hope over experience. we have seen some slowing of inflation indicators. we have seen continued strength. that has to be what we all want to see. tom: ok, joining us now is the cio and global head of multi-asset investment at schroders. what do you make of the u.s. data and how it informs your views of recession risk in the world number one economy? >> our central scenario is we are going to get recession in the united states. that is in line with our view. that is why we have turned more positive on bonds.
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tom: in terms of the market reaction, you did have this selloff and rally in bonds. that historical asymmetry, will that continue through the year? >> for now, yes. we see opportunities and the rest of the world, but i think there is the potential for bonds to offer diversification benefits which were clearly not apparent in 2022. yes, we would expect that correlation to shift back to more of what we have seen in recent years. tom: i mentioned the disconnect between the markets pricing and a terminal rate of 4.8 percent, but fed officials, even if they see a step down, they still expect a terminal rate of plus 5%. that disconnect, who do you think is right? which side are you aligning with? >> we think that the bit we are
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more concerned about is the rate cuts that are raised in for the second half of the year. the terminal rate is still very much small spread. if you look at what is priced into bond markets, what is interesting is that significant rate cuts start to get priced into the second half. maybe that is one we are little bit more worried about. maybe there too quick to price and the pivot. certainly the level of concern about growth is not reflected in corporate earnings in the u.s. that is where we see the disconnect. tom: so that is the disconnect, the pricing of a rate cut. i wonder what that tells you about your view on the u.s. dollar. is there upside risk now for the dollar? >> again, i think that the
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dollar has been attractive to us recently because it was positive carry and it had diversification benefits or bonds didn't. i think now with the potential of bonds to provide the diversification and with other central banks catching up with the state, we are less positively on the dollar. we are very much aligned. tom: a big focus yesterday throughout the week on the boj sticking with that yield curve control policy yesterday, you talk about the divergence between central banks and the potential opportunities, what are those opportunities? first >> of all >> on a more -- >> first of all, we think economic out turns are proving to be better than the united states, where we are more
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concerned about recession risk. when with in about central banks , i think there will continue to be speculation about shifting policy at the boj in months to come. the japanese yen is an interesting investment because it is quite diversified in the context of economic weakness. not just because of expectations of boj shifting, but because of expectations for weakness in the united states. that's the interesting thing about this year. it was difficult to position for divergence across economies. now, we are seeing quite a bit more divergence. the opportunities are therefore following from that. tom: and you touched on emerging markets. the msci emerging markets index up about 20% since october. you see that trend continuing. china clearly a factor as well. >> china is a critical factor.
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that has been driving our view. the reason we upgraded emerging markets is on the view of the chinese reopening. there will be bumps along the way. we think that that is a good position to have in the portfolio. we also like local points for emerging-market debt. valuations are attractive and we get decent carry. and in some places we have central banks further along in the battle of inflation. tom: value in emerging assets, more of your calls after the break. join a kirkland. -- joanna kirkland, come back, getting more for thoughts and the next few minutes. coming up, howard marks says we have become too comfortable with low interest rates. more from him just ahead. this is bloomberg.
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>> with the appearance of the inflation and the increasing of rates to try to stamp out the inflation, things have gotten harder. the important thing to know is that that was not normal, that was the easiest, the best of time. my own belief is that we are not going back there. tom: howard marks speaking exclusively to romaine bostick. let's start with the credit space and where you don't want to be exposed. i'm looking at u.s. high yields.
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how much risk do you want to be taking on in the credit space? >> we were positive, but on profits. we want to redo some of the cyclicality. ultimately, it is important to earn that yield, but we are opting for higher quality more defensive allocations compared to where we were three months ago. tom: before the break, you touched on the earnings picture. which sectors do you see is most exposed at this point? >> we don't focus on the specifics of the sectors. it is more about the downturn in the economic environment. we would be most concerned about cyclical areas of the market in the united states.
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we don't know if tech is out of the wood. there is evidence of weakness on that front, as well. tom: when it comes to the euro zone, we are hearing that may be the euro zone escapes the recession, and yet we have the hocks within the ecb pushing back against this narrative. how do you square that view with some assessing that maybe there is a little bit more resilience to the euro zone economy and how that feeds through to the corporate space? >> the reason we like european equities is they have got very cheap. from an economic standpoint,
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this is coming back to the point we were making earlier. europe is still having to catch up. the environment we have been in for negative yields was ultimately symptomatic of a very challenging environment for the european economy. a return to positive yields is a return to normality and a welcome adjustment. we have to keep an eye on our position, but this is a sign of fact that europe is having a decent recovery. tom: tying back to howard mark'' comments that he expects default rates to get back to a 4% level
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-- in terms of corporate europe in a higher rate environment, the resilience there, do you expect to see a step up in defaults or can they whether this? >> we think they can weather this, but we would agree that we are not going back to the regime of the last decade. the last decade was very unusual. we are moving back to a normal rate cycle, which is a healthy development. it means the end of easy money is over. tom: you talk about the role of china. do you want to play through the luxury space in europe? >> whether stock pickers want to
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focus on opportunities, from a top-down perspective, given the fact that china went into a bear market before everybody else, valuations were cheap -- i think there is room for a continued rally in the chinese market. we are expressing indirectly. tom: is there a level of concern about the inflation impulse out of china? >> right now we are in an environment with inflation falling in of the year on year effect. we are in an environment where we are not going back to the last decade. we think inflation will be structurally higher. ultimately, we are back to worrying about it as we head back into 2024. certainly, the chinese recovery can be part of that story.
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the number of trends pointing to inflation being higher. the last decade was what was unusual. returning to a more normal environment for inflation and rates. tom: briefly before we let you go on prospects for the u.k., we have had the ftse 100 outperforming last year many of the major indexes. do you expect that outperformance to continue? >> we did have a position, we did take profits on it. it was an extreme position that did very well. generally, it does offer attractive valuations. it has more of a value orientation. where the rate cycle is back, it is quite helpful. generally, it is still an interesting market. in this environment, we are starting to back the profits.
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generally, compared to the last decade where the u.k. was in underperformer, it is a much more interesting market in this market regime. tom: thank you so much indeed on the prospects of opportunities around diverging central banks and within the e.m. space. also on investment grade. coming up, strikes sweep france over the government plans to overhaul the pension system reviewed we will have the latest live from france. this is bloomberg. ♪ so, am i still on track to reach my goals? the plan we created can withstand uncertainty. lately everybody has opinions about the economy, but i count on personal financial advice. my ameriprise advisor understands the markets and me. she knows my goals and can help me reach them with confidence.
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tom: welcome back to the open. 21 minutes into the european trading day. futures in the u.s. down by a 10th of a percent as investors adjust to prospects of a recession. retail sales falling to the lowest any year in the u.s.. let's zero in on individual stories for.
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the online fashion retailer. you can see revenues fall by about 12% this year. they are focused on cost cuts given the conservative nature of consumer in the u.k. bhp, very different picture terms of prospects. they saw a record. lvmh, just a little fun story. 6 billion euros in terms of export demands. total shipments within its coterie of products and brands. talking of france, taking part
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in the nationwide day of strike action. against the government plans to revamp the pension system. what do we know about the disruptions likely to impact france today? >> it is the first day of the general strike against the pension funds. it is, according to the transport minister, going to be a very painful day for the friend. we expect disruptions in public transport, schools, hospitals, oil refineries, even nuclear sites. the tgv high-speed trains, there will be one in three maximum. some metro lines will be totally closed. some open only at rush hour. for those who have children, it is a very difficult as well because 70% of primary school teachers are striking today.
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to give you an example in paris, at least one quarter of the schools are completely closed. in other schools, there will be minimum service for those who cannot do without having their kids at school. is a lot of disruptions also in oil refineries one day of strike. you already have some french who have an lining up to fill their tanks because they were traumatized by the last refinery strike last fall and finally in terms of electricity production, the union has said they would reduce electricity production today equivalent to about twice the consumption of paris. this afternoon, everyone will be protesting, marching in the streets. i will check out the protests in paris this afternoon and unions
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are targeting at least one million people in the streets. tom: at least one million people in the streets and these are coordinated actions between the unions. this was their threat before this reform was announced. what does it mean for emmanuel macron? will he back down? >> it really depends on the numbers. if there are more than one million people in the streets, it will be a victory for the unions. if there are less, it will be a victory for the government. when you think about it, about two thirds of the french people are opposed to raising the retirement age, but that doesn't mean everyone will descend in the streets in protest. it depends on whether those opposed to this reform to send another streets. you will see more strikes over the next weeks and months. in the past, a lot of french
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presidents have tried to reform the pension system. some of those have succeeded. some of the managed to raise the retirement age from 60 to 62 years old, but some have failed and the most famous example of all his 1995 -- is 1995. you had more than 2 million people in the streets for three weeks that the government had to back down and abandon its pension plan. tom: a very real standoff. thank you very much indeed. coming up live in davos for the world economic forum. do not miss our interview with the managing director of malaysia's sovereign wealth fund. this is bloomberg. ♪
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tom: welcome back to the open. 30 minutes into the european
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trading day. downshifting gains support. u.s. data disappoints. stocks point mostly lower. tech on the ropes. amazon and microsoft cut 20,000 jobs as the industry faces a post-covid reckoning. the world economic forum continues in davos with christine lagarde due to speak. we will be joined by the managing director of malaysia's sovereign wealth fund. let's check in on these markets. down 0.5 percent across the european benchmark. the ftse 100 down by 5/10 of a percent -- 0.5%. you did have the europeans, the hawks within the council, their feathers have been ruffled. today, saying that is not going
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to happen. that is giving a bit of an uplift to the euro and replaying or making investors reconsider the rate hike trajectory for the ecb. let's look at how things are playing across the data. across the sectors, just gaining a 10th of a percent. everything else in the red. energy down. under pressure on recession risks, but also the inventory buildup in that economy, as well. let's get back to davos. discussing the outlook for the global economy. haslinda is standing by live with a very important guest. you are almost at the finish line. [laughter] >> almost there, but not yet, tom. we are talking investment and
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investment strategy now. 2022 was about quantitative tightening. 2023 is about living with that tightening. the managing director of the malaysian sovereign wealth fund, $30 billion in aum. good to have you with us. >> thanks for having me. >> what opportunities are you seeing at a current environment with quantitative tightening and lots of uncertainty in the global economy? >> the good thing is we are long-term investors. when you look at it, there are some fundamental changes as a result of what we are seeing today. when you look at qt, it is coming out of the pandemic. a couple of things have come to light. if you look at geopolitics and food security and energy security, that becomes more important on everyone's agenda. it becomes a very topical theme
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for investments. the other thing we are seeing is climate change as well as also an opportunity as long-term investors, we have partners who take a longer-term view than the volatility of the private markets. themes such as trying to look at areas where we could potentially improve, the green environment, the climate environment, looking at manufacturing in those sectors as well. those are areas which are quite interesting. >> you talk about re-shoring, friend-shoring, you think about markets like india, southeast asia. are these the markets you are focused on? >> india is a great example for us. we have seen a lot of growth. valuations are high and will always be high. southeast asia is one region where it is very interesting. from private as well as public markets. emerging markets.
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>> valuations in which sectors in particular? >> when you look at the potential for pe multiples, whether it is indonesia or vietnam, etc., those are quite interesting. malaysia is very attractive. those are the areas we are looking at. >> 2023 is also about china's reopening. valuations are very low, but they come with the risks still. >> yes and we hear good things coming out of china. we hear that when it comes to regulations, understanding the need to be transparent and consistent is important for the markets. being market friendly. i think what the market is perhaps a bit cautious and looking to see how this will pan out, valuations are attractive. you look at technology and
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industry as well, but you have to pick and choose. >> you are already exposed, will you build on that exposure and where? >> i think private markets we would be looking at that. when you look at menuing -- manufacturing, there is still opportunity. >> malaysia has seen two years of slow down and there has been pressure on companies to boost local growth by investing locally. how are you balancing domestic and international investment? >> we do that by creating funds so we are focused on what we do domestically and we're focused on what we do internationally. we created an impact fund which we started last year and we are beginning to look at opportunities and deploying that. looking at catalytic growth areas. we also have a development fund. we are looking at how to realize value.
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there are a lot of investments focused on domestic expansion. then we look at commercial retail. we look at trying to achieve strategic asset allocation, manage risk because we are long-term investors. >> doing well in terms of investments in the country? >> investments in the country is still about 60 odd percent. we are focused on that. we are focused on making sure that the companies we are invested in create value creation opportunities. look at the balance sheets. looking at the businesses and seeing how they can unlock it. i bank we are invested in, they have done while managing the cost. an example of unlocking value. that's another focus we would like to see. >> international investments
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account for 30% of your portfolio. you are looking to build 260 270% international exposure within 10 years. what are your own targets? >> the targets are there. >> what is that, 60%? >> but of the investment portfolio. we have an investment portfolio where we need to diversify, but if you had the impact fund, if you add on the development fund, then that number for domestic becomes much lighter. it's ok. >> you are invested in an international carrier saddled with all sorts of problems. the company has been looking for buyers, partners, what have you, all the options on the table. what is the latest? >> the latest is never waste a good crisis and they took that to heart. the first thing they did was to
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fix the balance sheet. make it more resilient. the next thing they did as they looked at operations and reduced the fixed cost and made a more variable. after that, focusing on yield. they committed a lot of equity to make sure it survived. they managed to taper that cash. the focus is on sustainable business. >> what are you considering still disclosing your steak in malaysia aligns? >> that is always an option. we want to make sure we have a sustainable airline. >> the biggest risk, is it still the fed? >> it is global markets, it is
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everywhere. >> uncertainty. the managing director. tom: great stuff, very much indeed. a little bit more cautious on china. the ceo of the malaysian sovereign wealth fund. coming up, cash bonuses. credit suisse incentivizes staff to stick around as the bank undergoes another restructuring. more on that next. this is bloomberg. ♪
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tom: welcome back to the open. 42 minutes into the european trading day. losses across the european benchmark close to 0.6%. data out of the u.s. looking weaker. the ecb pushing back on the idea they will get a step down lower saying we should expect multiple 50 basis point hikes from the european central bank. let's get the bloomberg first word news with laura wright. >> thank you. the total energy ceo is urging french consumers to not panic
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buy fuel after strikes are set. diesel and petrol deliveries are set to be paused as part of a 24 hour walk out across france today. the strikes are expected to disrupt everything from energy to manufacturing as labor unions protest the increasing retirement age. new zealand's prime minister jacinda ardern says she is stepping down in a surprise resignation ahead of a general election later this year. ardern, who was the world's youngest female leader since she took office in 2017, says she no longer has the energy nor inspiration to seek a third term. her ruling labour party will hold the first round of voting for a new leader on sunday. >> i know what this job takes and i know that i no longer have enough in the tank to do it justice. it is that simple. >> microsoft and amazon have begun cutting a total of 28,000
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jobs, a reckoning for the tech industry. microsoft has started notifying some of their 10,000 workers that will lose their jobs this quarter. the 18,000 job losses at amazon represent 6% of the online giant's workforce. both companies say the cuts are needed to offset slowing sales. english football clubs have cemented their position as the leading revenue generators in europe. manchester city took the first spot in the deloitte annual money league for a second year running. five more english clubs fill out the top 10. man city's revenue was boosted by a sharp increase in commercial income. liverpool and manchester united also made the top five. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom? tom: thank you very much indeed. let's get back to the banking sector and the question around
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pay and bonuses. credit suisse will pay senior bankers and upfront cash award. the bank intends to incentivize staff to stick around as it undergoes a broad restructuring. >> clearly last year was a tougher year than the year before. it is a cyclical business and the conversation will continue to follow that trend. >> let's bring in charlie wells for more on this. will the incentive scheme actually work to hold onto that talent? >> not necessarily. credit suisse offered a similar bonus last year and they still saw a significant stream of departures. credits we set a very difficult 2022. the chairman said it was a horrifying year. this is a difficult calculus for bankers to make. do they take the short term cash infusion or do they try to go to
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a different employer. there are still jobs out there. hsbc is actually sending recruiters to other banks that have been laid off. tom: we have had a lot of news come through from the banks. give us the overview of where things stand in terms of hiring and bonuses. >> that recruiter said there is not all doom and gloom. think about citigroup. yesterday, we had a story about how they are offering bonuses to junior staff. differing from credit suisse. we also had news that bank of america is effectively bringing in a hiring freeze. that all-important tech group.
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bonuses will actually be this year. it looks like that is going down. they need to keep staff while still keeping expenses low. tom: it is a mixed picture. what does the divergence tell us? >> anyone with huge layoffs is overstating the problem. banks are planning to spend a lot of money. it does not indicate they are necessarily going to lay everybody off. they don't have a forward-looking plan. the question is when this is going to happen. tom: still a significant number and good to hear that the hiring is still an opportunity, something of a silver lining as
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we face up to the job cuts. thank you very much wells. up next, the global bonds bonanza. the best start to a year for bond returns helping fuel and unprecedented debt sale bonanza. we will bring you all the details next. this is bloomberg. ♪
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tom: welcome back to the open. the selloff across european equities becoming more pronounced. just a sharp leg lower. futures lower by 0.3%. the ecb saying you should expect a series of 50 basis point hikes going forward, pushing back on some reporting out of bloomberg that some officials are looking at stepping things down in terms of rate hikes. of course, the weaker dater out of the u.s. fallen to a one year low showing recession risks are becoming more acute. we were getting a little bit of a bid. the pound is 1.23. across the energy space, pain is being felt across the space. wti off by 1.4%. let's take a look at some events we're following today. ecb president christine lagarde
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is due to participate in a panel at the world economic forum. really important given the tug and pull between the hawks and the dives within the ecb we have seen. the ecb will publish the account of its december policy meeting followed by u.s. initial jobless claims. then the ecb's isabel schnabel and susan collins are due to speak at separate events. and finally, we will hear from two of the most influential fomc members, lael brainard, the vice chair, and john williams, speaking tonight. the best start to a year for bond returns is helping fuel and unprecedented debt sale bonanza by governments and companies around the world. global bond sales have hit nearly $600 billion in 2023 so far. what are we, january 19? wow. i'm joined by valerie. all of last year, the question
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was who was going to buy these bonds? and that dynamic has changed. >> changed quickly and it turns out everyone wants to buy these bonds. investors globally are gobbling up this issuance. we are seeing alongside a bond rally that is showing a strong demand behind these deals. yields are tasty and investors don't want to miss out after such a long era of low yields. look, i think they are probably looking ahead seen we are pricing in central bank cuts later in the year. investors are keen to lock in high yields while they can and perhaps the best place to hide out if we do see a global economic downturn is in these bonds. tom: tasty yields. the look pretty attractive. take us through, talk us through where the issuances coming from. >> in europe, financials have had a hefty amount of issuance. the region saw its biggest week
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ever, up 40% from last year. asia, there is a decent amount of dollar bond activity. people are willing to invest in asia. em solvers, issuing in euro and dollar-denominated debt. so far, the issuance from em equals 40% of the entire sales from all of last year. as you mentioned, it is only been 2.5 weeks in january. tom: em really taking advantage. >> let me rattle off, saudi arabia, the biggest emerging market sovereign debt deal in almost three years, hong kong, hungary, israel, mexico, turkey, mongolia, and a few others in the pipeline. em is having a blast. tom: any sector not looking so strong? >> the one sector lagging is high-yield corporate's. they really took advantage of the low yield era to extend the maturity of their debt profile, so they don't necessarily need to come to market at the moment.
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they might as well be patient for later in the year if we do see yields decline where they can borrow at lower rates. the other one that has been soft is japanese corporate's. it is not surprising. deal flow has plunged, but we have had a lot of tumult in the sovereign bond market as the boj looks at their yield curve control and liquidity in the sovereign market dries up. it is not surprising that corporate does as well. tom: high-yield and japanese corporate not issuing as much. when it comes to default rates, howard marks thinks we get back to 4%, that is a risk. >> it is definitely a risk, but investors are seeing these level of yields, they understand the risk/reward. it is difficult with downside risks in mind. profit margins for both ig and high-yield have declined. i guess that elevates the risk of some sort of a default risk you have to bake in. maybe it is the calm before the
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storm if we have a hard landing in the later half of this year. we could see default rates spike, but investors see the yields and want to gobble them up. tom: the question is how big is that window? valerie, fantastic breakdown of an important story. briefly before we let you go, across the sovereign debt market, you are seeing treasuries bid, yields down, but the context was the 18 basis point move lower across the benchmark. equity markets currently now down 0.8%. futures lower by 0.4%. that said for the european market open. surveillance up next. this is bloomberg. ♪
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