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tv   Bloomberg Daybreak Europe  Bloomberg  June 14, 2019 1:00am-2:30am EDT

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from: good morning bloomberg's european headquarters. these are today's top stories. the united states said iran is responsible for an attack on a tinker at the persian gulf. the u.s. deputy energy secretary exclusively. pompeo asct secretary well as national security advisor john bolton and others have reached that conclusion based on intel they have seen over the last few weeks. gundlach says the fed will not cut rates, but the bond market could push the fomc
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into a 50 basis pay point -- basis point cut in september. broadcom feels the trade fallout and slashes its forecasts. shares dive in extended trade. welcome to "daybreak europe let's have a look at equity markets. today s&p futures struggling for direction. talks of uncertainty. the 10 year yield down another basis point. the bloomberg dollar index range bound over the past couple of days. g10 fx, a lot more focus on the kiwi and the aussie dollar. rate cut bets really increasing after data out of new zealand, key calls from some of the
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houses where the aussie rates going. we are keeping an eye on oil. we saw the geopolitical risk premium come into wti yesterday. still heading for a weekly drop. issues around the trade war, demand, and u.s. supplies. let's check on the markets in asia. direction aor little on this friday. happy friday. >> struggling for direction as you mentioned. we are mixed when it comes to asian equities, but we are still set for two straight weeks of gains when it comes to asian stocks. 0.3%.kkei 225 up the hang seng under pressure, though not as bad as a couple days ago. we are still lower by 140 points or so as we prepare for more protests said to be planned this sunday opposing this extradition bill. we see this push and pull when
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it comes to the prospect of fed rate cuts as well as trade tensions here. watch the renminbi as well. we saw the renminbi extend losses here after the previous governor speaking today saying it trade war could lead to a competitive devaluation. south.urrencies head the dollar firm against asia. take a look at hibor rates. that has been a key focus. we actually saw hibor rates go down, the first drop we have seen this week. take a look at the terminal chart. we are quite elevated when it comes to hibor rates. we have come down 21 basis points for your one month hibor. that is still higher than the one month libor rate. liquidity remains tight, that adding strength for the hong kong dollar but continuing to weigh on assets.
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a potentially eventful weekend here. nejra: thank you so much. always on top of it for us in hong kong. let's get to breaking news on swiss re. swiss re is confirming its undertake an ipo. inssure, expected to occur july 2019. confirmation coming through of intention to undertake the ipo. let's get back to our top story. american officials have released images they say show iran was involved in an attack on a tanker in the interest of the persian gulf. it has raised tensions over the previous discuss is annmarie hordern. good to see you. if iran was not responsible, they were likely to get the blame. the latest we have from the u.s., releasing these images,
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they say showing the iranians moving an unexploded mine. >> i suspect secretary pompeo as well as national security advisor john bolton and others in the national security council have reached that conclusion based on intel they have seen over the last few weeks. i trust their judgment, but i look forward to learning more. reaction? the likely during the iran-iraq war, the u.s. government escorted tankers. are you likely to begin doing that again? >> that is a decision for day-to-day. we will see what secretary shanahan and others conclude. it may be the united states chooses to do that. at the department of energy, we are going to be focused on the markets themselves and seeing what the reactions are.
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>> how disruptive could this get? iran is not owning these attacks. a month ago, there was another tinker attack. it has everybody on alert. if this continues, help -- how bad could this be for the energy market? >> what you are seeing is a stable market. production is at a point or we can replace much of the oil we would lose from any disruption from iran or even other countries. a very good position right now, worldwide, with regard to oil production. whether iran is going to continue exploring -- continue this behavior, it is up to them. from a market perspective we are less concerned than we were 20 years ago. >> the u.s. deputy energy secretary. one of the things, could we see the navy escort vessels?
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hormuz as youf know is a chokepoint for oil. we are talking about 18 to 19 million barrels of oil a day. what have other nations been saying about iran being responsible? >> we should say tehran has denied it. the envoy to the yuan has said the investigation is still -- the envoy to the u.n. has said the investigation is ongoing. another representative said the u.s. does not have enough evidence. people keep focusing on two things. one of the ships was run by frontline. the man behind that made his fortune exporting iranian oil. he has been known as a lifeline to the ayatollah. it would be a weird turn of events if the iranians were to attack his vessel. the other is that the other
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vessel attacked is owned by a japanese company. japanese prime minister shinzo abe was in tehran speaking to officials to ease tensions between the u.s. and iran. people point to those two ships, given who they are owned, pointing to the fact that it would be a weird turn of events if it was iranian. nejra: annmarie hordern giving us the latest on those tanker incidents. today we are asking the question on mliv, does brent crude hit $70 or $52 a barrel? onch out to us and the team your bloomberg. joining us now, the global head of fx strategy and a multi-asset strategist at hsbc. let me put that mliv question. it is pointing to that tug-of-war. we have geopolitical risk, oil spike yesterday, but of course the bearish argument, demand and
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supplies out of the u.s.. does brent crude hit 70 or $52 a barrel next? >> my guess would be toward the lower end of the trading range. if you look at the oil market, it is still oversupplied. engineerot really higher oil prices. that is with venezuela offline. if we see global growth slow a little bit, it is more likely we will see pressure on oil prices rather than it move to higher levels. >> it is more liquid to the lower end. what you have mentioned regarding the u.s. story, i think there is one factor that is overlooked. speculativeof investing, you compare that with the shape of the futures curve,
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in brent and wti, you see a close correlation. essentially the same line. oil is nothing else right now. thank carry trade. -- nothing else right now a carry trade. earning --curve flat flattening. as that continues, we will see oil slumping a little bit. nejra: you might think these risks that came up yesterday you see traders pricing for an imminent spike, but the market did not show pricing in an imminent spike. are both saying the downside risks are greater. that is on the trade issue as well. kudlow morning china will face consequences if it turns down president trump's invitation to restart talks.
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trump has threatened to raise tariffs if president xi does not meet him at the g20 summit. if you actually want to play the trade war, do it to oil. would you agree? >> the better way is to play through proxies. some of them are looking mispriced relative to the bond markets we have seen until a couple of weeks ago. speaking of u.s. dollar high yields, if you look at the spreads there, over the last couple weeks, despite oil prices energy spreads tighten massively. rather than playing it, oil itself, because it has the political element there is much more an investment position. on the day-to-day basis, the trading aspect is determined politically as well. there is a bit of u.s. dollar
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high yields, a little bit of divergence going on with what average beaters and average sensitivities relative to the oil would suggest. nejra: we have been discussing how the downside risks are greater for oil. in fx markets are we underestimating the risk of an escalation of geopolitical tensions? >> it is hard to say. fx rates do not tend to move that much on geopolitical noise. you see downside movement in dollar-yen. i think if you look at oil prices and oil currencies, they are not correlating very well with the oil prices. ruble has been very stable and completely ignored ups and down we have seen in the oil price. for me, it is the level rather
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than the change that is important. barrel, go to $40 per that has a fairly bad impact on oil-producing currencies. below that, it tends to get really nasty for currencies. the positive impact is seen around $70. with the middle of this trading range, it is very little impact on currencies whatsoever. at the moment, and off a lot of risk aversion. stay with us for the hour. let's get the bloomberg first word news in hong kong. >> rivals to become britain's next prime minister are holding private talks about joining forces to stop boris johnson after the foreign secretary took a lead in the first round of voting. his rivals are so far behind that some are discussing consolidating their campaigns.
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more votes are scheduled for next week to narrow down the field. the u.k. coulded put future ties at risk if it fails to pay the financial settlement. it's part of the overall brexit deal agreed by outgoing prime minister theresa may and all the other leaders of the eu, but it has not been approved by parliament. boris johnson says he will withhold the money unless the eu agrees to a battle -- a bitter divorce settlement. chinese brokerages have stepped into the furor surrounding controversial comments made by a ubs chief economist. one group has urged the bank to fire all people involved. it extended its activity with ubs. thepologized for using phrase chinese pigs when talking about the impact on the economy. he says it was innocently intended. >> i issued an unreserved apology this morning.
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toeiterate that i apologize anyone who took any offense from my remarks, which were not intended to offend. i made a mistake and i unwittingly used a culturally insensitive language. i'm glad to have the opportunity to reiterate the apology today. >> white house press secretary sarah sanders is leaving the administration after a turbulent tenure. she said it was the honor of the lifetime to serve in the white house. asked if she plans to run for governor in arkansas, she did not rule it out. global news 24 hours a day on air and at tictoc on twitter powered by more than 2700 journalists. this is bloomberg. nejra: thank you. now, coming up, the bond guru's warning. jeffrey gundlach raises his odds for a recession. this is bloomberg.
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nejra: this is bloomberg daybreak: europe. the msci asia pacific index ending the week flat. the hang seng under pressure. the kiwi dollar under pressure along with the aussie. it is about rate cut bets increasing. in terms of the aussie, some calls coming out supporting for the third day the national australian bank royal bank of canada, adding additional rate cuts.
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we holding onto the gains saw yesterday. geopolitical risk premium is still heading for a weekly loss. the trade war overshadowing everything. brent crude at 6171. 10 year yields down another basis point. we will hear what jeff gundlach has to say in a moment. futures flat for europe and the u.s. after some gains on equity benchmarks yesterday. speaking of jeffrey gundlach, the bond guru is bringing the alarm, he says the fed is unlikely to cut rates next week. yesterday, he cited growing signs of economic slowdown. here are the details of the many calls with dani burger. to 45%. that's the odds good luck puts on a recession -- jeffrey gundlach puts on a recession this year. if we put it up to 2020, 60 5% chance. he says we are seeing the real effect of an economic slowdown
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is the trade war -- as the trade war starts to bite. we combined this with bond market signals and we get his fed odds. he thinks a july cut is a pretty good chance and september is virtually a lock at this point. he said we might even seen a 50 basis point cut. market seems to agree with gundlach. the odds for two cuts before the end of september just surpassed the odds for one cut in the green here. the markets seeming to agree. one last call i want to point out, to bring it back to europe, is his deutsche bank call. he says it is not just issues within the firm itself, but it is high correlation with the german 10 year yield here, which new lows.g with nejra: thank you.
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are these fed cuts a lock for 2019? >> i think the market is expecting a little bit too much. if we think mid-2020, we have a hundred basis points. that is probably a bit overblown. i think the direction is correct. i don't think there's going to be anything next week, but there to 50,e some kind of maybe even lower, it opens the door to a rate cut in july. i would not say it is a near certainty, but it opens it definitely. i would assume communication goes toward saying in june, if we want to do it in july, it will prepare the markets very drastically next week. think they will open the door for a rate cut at next year's meeting and then we'll cut in july or september.
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the market betting on 50 by september, i do not think it is --ossible, but i think it is at this stage. it would be a swift turnaround 50.ay, we are cutting how would the market take that? the market would take that in a panic stricken mode. unless we are in actually crisis time like 2008. we are seeing slowing growth. what jeffrey gundlach is saying is reasonable. opening the door to further rate cuts is definitely possible. what would that mean for the dollar? you have talked about that and treasury yields. hedge treasury yields have turned negative for european and japanese buyers. does this signal more downward pressure on the dollar? the bloomberg dollar index below its moving average. >> unquestionably. everyone was saying we could see the -- we did not see the dollar
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depreciated as much as people expected. one reason was the dollar has kerry. it is not going to anymore -- the dollar has carry. it is not going to anymore. there are not good reasons to hold the dollar. >> in your outlook you have talked about a disconnect between markets and data. i think you are referring to the equity market. are you expecting lower bond yields? also a turned down in u.s. equities? >> that is roughly fair value. that is roughly where if you look in terms of neutral rate about zero to 50 and inflation is fair value. i would not say we have to go all the way to 150. if we look at some of the fixed income spaces, there are good opportunities. if you look on the treasury curve, you can still play that. that should steepen a little bit more. you look at emerging-market
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external, even if you say the rally in duration has gone too far, iteration of two and a half between 5% and 4%, i'm happy to take that. euro high yields, again, i'm happy to take them. for the disconnect between the net -- between the data and what markets have been doing, relative to the sort of risk off assets, that got reinstated with the rebound we have seen in equity markets and risk assets more generally over the last two weeks. that got reinstated again. from an allocation perspective, it still seems improbable to be even if on -- improbable to beat. i would rather cut risk. fed rate we get the cuts, it does not necessarily give more thought to equities. >> probably not. what people are missing is where we are starting off. if you compared to october, we
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started from 2.5 hikes being price down to a neutral fed. that does not mean you have to change her overall picture. it is all about fine. if you go from two and a half cuts priced to this year, let's assume two to four cuts, inevitably that will have to mean we have a more sinister slope with the slowdown of growth. we have a more sinister selloff of equities against inevitably -- it is not as well as it seems. nejra: you stay with us. coming up, euro area finance ministers urge italy to respect its debt pledges with more than just verbal assurances. we are live from luxembourg next. ♪
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nejra: this is "bloomberg daybreak: europe." euro area finance ministers are that measures, as the meeting of european finance ministers continue. europe wants to see more action and less talk. exactly it. european finance ministers agreed with the european commission. they think italy needs to do more. more than 130% of gdp. they need to do that quickly to avert that financial penalty that could happen if they do not do this. the issue is that for the time
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being there has been a lot of talk, but not a lot of action. they want to see a plan. the italian finance minister believes there will be a compromise made by the end of the year, perhaps it can avoid that penalty. trio did not the bring anything new to the table. the italian government does think this is the start of a negotiation, but the politics of confrontation are not helping. usra: what can you tell about the euro area budget as well? >> this has been a long time in the making. policiese of those emmanuel macron put on the table , but we know it has been delayed many times. it has been watered down many times. there was an agreement reached at close to 5:00 a.m.. we will get more details today. there has been an agreement on the budget.
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it looks like everyone is on the same page. the dutch have disagreed, but it seems the french were able to get to a compromise and there will be clarity on the function. it is unclear where the funds will come from. i'm sure you will update us later in the day. thank you so much for us. peter and max are still with us. if you look at positioning in the euro, near the highest level since 2016, you were saying we could see dollar weakness. does that mean you expect the euro to grind higher or just be vulnerable to short squeezes? peter: we will have to see what the fed due next week. economy in terms of -- you have a dichotomy in terms of positioning. , weou look at risk reversal
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are bid to euro calls. there is a big distinction between with the market sentiment says and what positioning is. with a dovishfed surprise on wednesday of next week, we will see that short squeeze begin. move above 114, we could squeeze higher. on the euro side, what we tend to see, the number is really slow -- that is more or less what we are getting toward. euro: it sounds to me the strength is going to come from the dollar side. in 2020,t if we do get a rate cut, for example? does that put more downward pressure? peter: if you look into the deposit rate, for a one-off capital outflow, that's kind of what you saw in 2014. if you are looking at debt outflows from the euro zone, they were very large in 2014,
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2015. i think even a 10 basis point rate cut from the ecb would basically have no effect whatsoever even on the -- at least on the currency side of things. perspective, it will not do a lot. the central bank has done as much as it can. you are seeing euro at 114 by 20 according to your outlook. let me ask you, because hsbc had a great no out. in terms of the euro having to do the heavy lifting for the ecb, but given what peter said, can't do that? max: we are not that far away. the point here is from an economic perspective, i do not want to own the euro. i hear from people, everyone is so bearish on the euro zone, macro fundamentals, however, if
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you look at the forecast, simply gdp forecast, for q2 you have q2, q3, and q4, .2, .3, .4. that is higher than potential growth in the euro zone. that is actually still higher than potential growth. it does not seem to me everyone is overly bearish on the euro. you look at bund spreads, they have been bearish already. you look at french yields, some of the reasoning, bund yields, for japanese investors, for example, are negative. it does not hold that much. what we see at the moment, japanese investors in general turning to france. france is kind of stuck, now they turn to spain. look at spanish revenue. look at portuguese. looking at other markets in the euro zone as well, as long as thativot from the ecb,
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will continue. calling december. always good to have a little disagreement. max kettnerla and stay with us. joining us from mumbai is niraj shah. here in london is annmarie hordern. indian equities dropping for a third day. we have a parliamentary session due to begin next week. >> a good morning to you. for a change, i am not talking about banks. portion due to the economic uncertainty. a lot of people talk about how business confidence is being hit by a variety of factors.
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the budget coming up in 20 days from now, maybe people will take a more informed call. , a slow three days grind lower, more so for the broader sector. a look at the broader end of the spectrum. back to you. nejra: i'm sure we will talk about thanks again next week. the week ending with an extended bond market rally. the aussie 10 year yield hitting another low. how was the wider market looking? >> we are seeing a lot of money moving into global bonds. across asia, a lot of red on the screen. one bright spot has to be japan's nikkei. the philippines down more than 1%. the kospi, hong kong stocks, down 0.5%. the new zealand dollar, the kiwi, and the aussie weakening as the prospects of interest
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rate cuts increase. we have heightened u.s.-china trade tensions. equity investors think more support from central banks. we should point out the australian 10 year down more than two basis points. fresh low, surprise increase in the job data supporting idea the fed will cut rates. in commodities, i want to bring it to iron ore. $107 per ton. speculation that supplies in china remain tight. possibly one bullish story in this local growth story. let's talk about oil. while we did see prices in wti and brent shoot up, the market is focusing on another conflict. that is the demand story and that is the trade between the u.s. and china. opec was saying that is weighing on demand. oil is going to end the week down yet again. nejra: thank you so much.
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niraj shah and annmarie hordern, great roundups. let's get the first word news now. >> billionaire money manager jeffrey gundlach says he does not think the federal reserve will rower -- will lower interest rates, but the chances of multiple cuts this year are high. he says july is a good bysibility, but policy september is a lock. it could even be a 50 basis point move. the u.s. has released images they say show that iran was involved in an attack on a tanker near the entrance of the persian gulf. washington says at least one of the vessels was struck by minds, but admits it is not clear if the explosives were from the islamic republic. iran has rejected any role in the attack. >> whether irene is going to continue its behavior is for them to decide. i can tell you from an oil market perspective, we are less
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concerned about those activities then we were 20 years ago. >> sarah sanders is leaving the trump administration after a tenure and the disappearance of the daily press briefing. she says it was the owner of a lifetime to serve in the white house. asked if she would run for governor, she did not rule it out. president trump is still waiting a response to an offer of a meeting to restart trade talks according to larry kudlow. he warns beijing may face consequences of president xi refuses the invitation. both sides are blaming the other. trump has previously said there is no deadline for restarting negotiations. global news, 24 hours a day on air and @tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. nejra: thank you so much. let's get to some breaking news.
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a redhead line crossing the blue bird. bayerre saying -- single-a for sake reregistration phosate reregistration in the eu, that is what we are getting an update on. a method to combat weeds in the next decade, aiming to cut the environmental impact by 30%. the broader context here being roundup cancer lawsuits bayer has been facing. things are looking up for boris johnson. the favorite to succeed theresa may was the clear leader yesterday. hunt,osest rival, jeremy just 43. no women remain in the race. mark harper was also eliminated. we will bring you the latest.
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max kettnerla and are still with us. we are looking ahead to july 22, the first day, peter. the spread between sterling and one-month volatility climbing to a seven-year high. although volatility might be suppressed, trade is expected to pick up over the next year. how would you play that? some slightly longer data volatility. you look at fx in general, we are at low levels. we see a paradigm shift, i.e., if we moved to the hard brexit, you will see volatilities at the front and the backend of the curve start to spike. given volatilities are quite low anyway, you decay very quickly. you want to be doing is buying
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at a one-year tenor. we will have to see. the conservative party, they are choosing the new leader and they have the next prime minister. it is interesting, boris johnson is talking about not paying the eu the so-called divorce settlement, literally defaulting on foreign obligations. if an emerging market country did this, if turkey did this, the lira would be smashed. nejra: very interesting. will you be shorting sterling? on: we have a 107 handle cable, which right now seems overly ambitious, but if we do expect a bit of a pickup of dashboard if we see what peter just said, if we see that as maybe wishful thinking that that won't be paid, maybe we can see some short squeezing in cable. i would say from an investment
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perspective rather than a trading perspective, it is almost impossible to play it. what what i short? the only way i could really do it is by saying if i think there's going to be soft brexit, there is probably upside for sterling. i will have to go longer domestically. if i think it's going to be hard brexit, i'm going to have to go may atse 100 area one-week bit of trading on the horizon, that is the real problem i am facing. as an equity investor, i have difficulties moving away rather than just having a neutral stance. if i look at the gilt market, it is different. if i think about guilt versus bunds, going away from brexit, whatever will happen, it is still a heavily levered economy toward the euro zone. euros in potential growth keeps
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getting more and more suppressed. tome, it does not make sense have gilt yields almost extended. it does not make sense it is much higher than relative to bunds. there should be compression of that. kinsella and max kettner stay with us. coming up, the calm after the storm. over the protests weekend. we look at the wider follow-up for business -- fallout for business. ♪
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nejra: this is "bloomberg daybreak: europe." let's get the bloomberg business flash. brokerages have stepped into the fuhrer
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surrounding controversial comments made by -- why the industry group has urged the bank to fire everyone involved in the incident. there rival has said it suspended activities with ubs. he apologized for using the phrase chinese pigs when talking about swine fever's impact on the economy. he says it was innocently intended. >> i issued an unreserved apology on my podcast and i reiterate i apologize to anyone who took any offense from iris marx, which were not -- from my remarks, which were not intended to offend. apologized publicly for that and i am glad for the opportunity to reiterate the apology today. activist investor has disclosed a stake in sony. he is pushing the company to make dramatic changes, including spinning off its semiconductor business. he also wants the japanese media
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giant to sell his stake in a financial affiliate and companies such as spotify. sony shares rose on the news. that is your bloomberg business flash. nejra: thank you. here is what you should be watching today. at 8:00 a.m., we are expecting industrial production and retail sales. we are expecting an uptick despite risks from the trade war. we will bring you the latest from your's financial leaders meeting in luxembourg. europe's financial leaders meeting in luxembourg. at 1:30, retail sales and industrial production out of the u.s.. we are expecting an uptick in both. over the weekend, hong kong unrest. it may will continue with protesters preparing for another rally on sunday. what is the wider impact of the unrest on business and sentiment
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in the city? bloomberg is intelligence's margaret. with the prospect of more violent protests, how will this impact hong kong businesses? >> in the near term, we are going to seem immediate impacts toward industry. that is inclusive of hotels as well as retail business. in 2014 we similarly had the sort of protests. we thought tourism, more than 75% coming from mainland china, a double-digit slump after that incident. that hurt business in hong kong, which we might see happen here. we saw revenue per available room down again almost as much as 19% through mid-2015. we are also seeing retail
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gold is aecause product people come here to buy. more than 50% of these guys in hong kong were going to be hit if we don't see more chinese customers coming through. most of them have actually -- oil prices have hit a three year high. challenges,d with create margin pressure. there any potential winners amid these protests? these sectorsake or industries collective, you will see those that are more exposed to hong kong will be hurt more. but in terms of winners, we could see those that are better are better diversified, intercontinental, those that are more geographically diverse will be
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moreworse off then those exposed here locally. nejra: really great to have you with us today. kettnernsella and max are still with us. been, hong kong dollar has short since 2017. we saw it spike with these protests. that has had more to do with squeezes in liquidity. how would you position? bandwagon short? peter: no. i think these types of trades, people put them on for the wrong reasons. one or two famous hedge fund investors were short hong kong. it struck me they did not understand how the system operates. the fx reserves are solid. 380 billion, very decent. from a chinese perspective, do they want to see hong kong go?
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absolutely not. it is probably premature to bet on hong kong break at this stage. trade?s it going to 10% lower? 20% lower? i think it is a waste of effort at this stage. from a hong kong perspective, that is a problem they don't need at the moment. not a trade i would put on at the moment. wait to carry, basically. nejra: you say it is a problem china would not want. where is your outlook for the u.n. -- for the yuan? >> i do not think we are going to break seven before the g20. afterwards we will see how things develop. if we see trump implement sanctions, 25% tariffs in china, the chinese will respond. that is a given in my view. the question is the scale and the speed.
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to fully offset the impact of the 25% tariffs, you would need to see dollar see ny at 840. can you see 2730 in two or three months? sure you can. nejra: would you agree, max? for thehink we have 695 next couple months. that perspective, not really. it remains to be seen what happens when we escalate further. perspective, putting it into a broader scale, if we look into chinese activity data more broadly right now, they are fairly stable. we do see stabilization. however, when we look at the monetary side, it is not the same scale as we have seen in 2014 and 2016, 2017. you look at china credit relook at monetary condition, it is much more about long-term reforms now rather than
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short-term stimulus. it might mean in the short-term we might not see as much of a rebound in the data as we might wish for. over the long-term, it tells you we have a very decent possibility of positive second round effects as opposed to knock on effects. v-sh are you expecting a echo -- recovery? no, i think anybody who is betting on a v-shaped recovery is going to be wrong. there's going to be a lower growth trajectory from china from now on. nejra: peter kinsella and max kettner, great to have you with us today. peter will be continuing the conversation with us on bloomberg radio. coming up, the bond guru's
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warning. jeffrey gundlach raises odds for a recession. bloomberg users can interact with all the charts shown using gtv . this is bloomberg. ♪
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nejra: good morning from bloomberg european 500 corners in the city of london. i am nejra cehic. this is "bloomberg daybreak: europe."the united states says is responsible for an attack on a tanker at the entrance of the persian gulf. we exclusively hear from the u.s. deputy energy secretary. i suspect secretary pompeo as well as national security advisor john bolton and others in the have reached that conclusion based on intel they have seen over the last few weeks. nejra: tightening the noose, jeffrey gundlach, says the bond market could push the fomc into a 50 basis point cut in
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september. and the chips are down. larry kudlow says there will be consequences if china does not meet president trump at the g20. qualcomm slashes its forecast. in extended trade. welcome to "bloomberg daybreak: europe." we are just under an hour away from cash equity trading in europe. global equities with a weekly gain and u.s. equities as well. we thought green on the screen yesterday. today, muted. ftse 100 futures edging higher. dax and cac 40 futures flat. a little but a prevarication at the end of the week. the 10 year treasury yield continues to move lower. we are on a 2.08 handle, down one basis point. yesterday, we send the tenure
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10-year btp- yield. we could be there again, judging by the futures. -- not necessarily risk off. we are looking pretty flat on a headline level. >> flat. not seeing much direction either. we are mostly lower. even for asian stocks, we are set for a second straight week of gains for asian equities. keep in mind, we are waiting for key data out of china. retail sales, fixed asset investment as well as industrial production. not much appetite to buy on these dips large caps down. . mumbai -- large caps down.
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keep in mind manila seeing the biggest losses here today after we reached some key levels. 8000 on the t comp here which has a bit of resistance. board, a lot of action in currencies with the g10 space. renminbi extending losses after we heard some comments from the former pboc governor, saying a trade war could lead to competitive devaluations, so we did see some weakness. send and a lot of these asia fx currencies lower as well. the korean won weakening. hong kong dollar looking stable after we did see rates come down by 21 basis points, your one-month. still killing with the look -- dealing with the level we have had since 2008. flipping the boards, another round of movers as well. gasre watching mitsubishi chemical. this is one of the tankers that
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was attacked in the middle east, operated by the company. we saw it dropped 2%. we are ending the day .6% lower. chip stocks heading south like -- hong kong exchanges dealing with the volatility in liquidity concerns, down 1.5%. bank of east asia taking some -- tanking. we see the stock falling the most since july of 2015. nejra: we still look ahead and are waiting for that slew of data from china in terms -- slew of data from china. yvonne man, thank you. the bond guru is ringing the alarm. the fed is unlikely to cut rates next week. yesterday, he cited growing signs of an economic slowdown. here is dani burger.
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what did he say this time? 40% to 45%. that's the on cc for a recession this year. to 2020, he said yesterday, of a is a 65% chance recession, higher than his previous calls, saying there is a real effect of an economic slowdown starting to take hold as the trade war bites. gold over buy bitcoin, feeding the recessionary call. we take how he sees the economy, we take in the bond market signals. he says july is a pretty good possibility of a cut. september, virtually a look at this point. he says it might be a 50 basis point cut. it does look like the market is agreeing with him. let me take you into the terminal on your wirp go function and just recently, the odds for two cuts by the end of september, which is in the yellow here, surpassed the odds
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for one cut. the market sending the same signal. let me give you one more call from him, taking it back to europe, and that is his dislike of deutsche bank. he is no fan of the company and he says it is not just idiosyncratic issues with the firm, but it is really the german ten-year yield. you can see how highly correlated they are. both the shares and the yield flirting with new all-time lows. nejra: dani burger, thank you. joining us from frankfurt is an investment strategist at allianz global investments. thank you so much for joining. let me pick up on a couple of the points that dani was pointing to that we heard from jeff gundlach. we could get this double whammy of a 50 basis point cut from the fed before year-end. could we get that? >> thanks for having me this morning. good morning. generally the outlook for risky asset classes has
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become a bit more clouded for two keyons, concerning sectors for markets. one is the fed. margaret's are currently pricing in aggressive easing by the fed. several rate cuts until the end of the year. what i would question is whether these rate cuts will come as quickly as expected by markets. regarding the second sector, markets are still hoping for a trade deal by the u.s. and china. from my perspective, the past words a direct agreement of the direct party have to come less clear, particularly because the trade war has extended into the tech sector. from my perspective -- nejra: go ahead. so i think, in a nutshell, actually, this all speaks of more defensive provisioning, the
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combination of my headwinds coming from the fundamental side but also from the political side. nejra: that makes sense. if you do expect the headwinds from a trade war to potentially increase in the market has such an aggressive pricing around the fed rate cuts, the bond market at least, isn't there a very big risk of a huge repricing in the market if the fed does not deliver? don't you think they would want to avoid that? so i think a bit more medium-term, there might be of bondhat the pricing markets is too aggressive. on the other hand, while the fed is still signaling to be patient , it might be at some stage before to deliver rate cuts. in order to avoid this tightening for the financial conditions, which could then be a drag on growth, so it could be kind of a victim of the markets at some point in time.
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nejra: victim of the markets, and with the markets you talked about having a more defensive positioning, talk me through exactly what that means. does it mean underweight equities? would you be buying duration? would you be in gold? ann-katrin: exactly. that is an interesting question. in that context, the current situation suggests to be underweight equities as a form of be more defensive. ita fixed income investor, could be appealing to add to duration at the current juncture. follow a moreuld open quality approach when it comes to credit. a more riskd, in off environment, higher-quality credit will perform better than lower quality credit. nejra: ann-katrin petersen, investment strategist at allianz global investors. let's get an update from debra mao in hong kong with the bloomberg first word news.
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rivals to become britain's next prime minister are reportedly holding private talks about joining forces. foreignafter the former secretary took a huge lead in the first round of voting. his six rivals are so far behind that we have learned some are discussing consolidating their campaigns. for votes are scheduled next week to narrow down the field. the e.u. has warned that the u.k. could put future ties at risk if it fails to pay the settlement. it is part of the overall brexit deal and it was agreed by outgoing prime minister theresa may and all the other leaders of the e.u. but has not been approved by parliament. boris johnson says he would withhold the money unless the e.u. agrees to a better divorce settlement. still waitingp is for a response about a meeting to restart trade talks according to white house economic adviser larry kudlow. he warns beijing may face
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consequences if president xi refuses the invitation. talks clashed last month with other.des blaming the trump said there is no deadline for restarting negotiations. sarah sanders is leaving the trump administration. this after a turbulent tenure marked by attacks on the media and the near disappearance of the daily press briefing. she said it was the honor of the lifetime to serve in the white house. asked if she plans to run for governor in arkansas, she did not rule it out. global news, 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. in hong kong.ao thank you. american officials have released images they say show iran was involved in an attack on a taker near the entrance of the persian gulf, one of a pair of incidents that raised tensions between the u.s. and the islamic republic over the past day.
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joining us is annmarie hordern. a geopolitical risk premium yesterday. give us an update on where we are. thearie: in terms of geopolitical front, the u.s. has come out and said the iranians were responsible for this attack and are pointing to images of iranian boats moving in an mine.loded we spoke to the secretary about this incident. he slipped to kathleen hays exclusively. let's listen. i fully suspect that secretary pompeo as well as national security advisor john bolton and others in the national security council have reached that the conclusion based on intel they have reached over the last few weeks. i trust their judgment but i look forward to learning more. kathleen: what is the likely reaction? in the past for example, during the iran-iraq war, the u.s. government escorted tankers through the street of her moves
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-- strait. dan: we will wait to see what they conclude. it may be that the united states chooses to do that. at the department of energy, we will be focused on the markets themselves and seeing what the reactions are to some of the events in the middle east. kathleen: how disruptive could this get? iran is owning these attacks. there was another tanker attack. everyone is on alert. if this continues, just how bad could this be for the global energy market? dan: i think what you are seeing is a stable market. we could replace much of the oil we would lose from any disruption from iran or even other countries in the world, be it venezuela or others. we are in a very good position right now worldwide with regard to oil production, so whether iran will continue its malign behavior is really for them to decide, but i can tell you from
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an oil market perspective we are , less concerned about those activities than we were 20 years ago. annmarie: that was the u.s. deputy energy spectr secretary speaking to kathleen hays. this is a very important choke point for global oil. 30% of seaborne oil goes through that strait. 18 to 19 million barrels of oil. very important for the global oil market. nejra: it makes it more concerning if there is any escalation. have any other nations wanted to iran as being responsible? annmarie: the kuwaiti envoy to the united nations before the video came out from the united states says there is not enough evidence yet. another diplomat for the u.n. says the u.s. does not have enough hard evidence to really target iran.
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two things that people point to that would make it very odd if it was the iranians is the fact that - one of the vessels attacd was on by a japanese company. ,hinzo abe was in tehran meeting with officials. many saw that as a way for him to ease tensions between the u.s. and tehran. the other vessel that was attacked was owned by john fredrickson. during the tanker wars of 1980, he was moving iranian oil. he was called a lifeline to the ayatollah. ofs could be a very odd turn events if they would attack one of his ships. nejra: some great work out there. outlook for oil going into 2020, even though we did see that spike yesterday. they do so much to bloomberg's annmarie hordern. today, we are asking the question on mliv, does brent crude hit $70 or $52 next?
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reach out on your bloomberg. coming up, glass half-empty, our guest host says the euro zone economy has shifted into a lower gear, inflation is subdued, and protectionist measures will not help. is it at all good news? we discussed, next. this is bloomberg. ♪
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nejra: it is 7:19 a.m. in london. we are 40 minutes away from the start of cash equity trading in europe. this is "bloomberg daybreak: europe." i am nejra cehic in london. your area finance ministers are urging italy to respect its debt pledges. is nots the focus but it the only problem facing europe. our guest host says external risks remain fairly -- virulent. ann-katrin petersen is still with us. given that you have that view on europe, why are you positive on european equities? fromatrin: well, i think, a contrarian perspective, it could be appealing. positioning,at they are still suggesting eurozone equities are pretty unloved at this stage. when i look at the recent drop , theflation expectations five-year hitting 1.2%, markets
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are apparently pricing a eurozone. a lot of negativity is priced in valuations, and i could imagine n appealing at the for investors with a bit more contrarian perspective. let's also not forget that we a longer yieldin environment. what eurozone equities offer are a juicy dividend yield of up to 5%, and this dividend yield is even more attractive actually for u.s. investors who then hedge back their exposure in u.s. dollars. nejra: i suppose if you look on a comparative basis to where the bund yield is trading, you're are talking about lower for longer. that does make sense. in terms of the external factors on europe, we are waiting for some chinese data. we're going to get a bit of a data dump with the retail sales
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fixed asset investment and industrial production. how vulnerable is your call on european equities to the lack of a significant recovery forces" in china -- recovery or sustainable growth in china? ann-katrin: valuations always interesting for investors that take a bit more medium-term approach. and a less tactical approach. in the talk about china chinese data, china is contributing 28% of the world economy, so when china sneezes, the world economy catches a cold, and that is why we all focus on this morning's data. coming back to the eurozone, the eurozone is a very open economy. view, already mentioned, the eurozone economy is vulnerable to further trade protectionism. from two sides, it is called
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somehow between the u.s. and chinese trade war and also the cold war, but on the other hand, there is the lingering risk of protectionist measures targeted directly at europe. standpoint,economic while that side will continue to be soft and i expect exports to be sluggish, the domestic demand side looks much more rosy. so the economic growth in the eurozone will come to rely and will continue to rely on domestic land. -- demand. nejra: will we need to see a rate cut from the ecb? particularly the inflation expectations hitting that record low. ann-katrin: not for the time being, but i think that the ecb will continue to keep the door open. as for further stimulus, the rate cuts will be another round of net bond purchases by the
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ecb. having said that, it is flexing its muscles at the moment, but i anyk we cannot expect further stimulus in the near term. in terms of stimulus, and if we go back to china, we heard official saying this risks of competitive devaluations if the trade war escalates. no you see the u.n. -- yua pushing through 70, posted g20? -- post g20? ann-katrin: for the time being, the chinese authorities will want to deliver a message that they have the situation under control, so in the short term, i would not expect too much movement in the renminbi. however, if the trade war continues to escalate, and we see even more pressure on the chinese economy of competitive pressure on chinese economies at some stage, i would not exclude
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that. the chinese authorities would use the renminbi, devaluation of the renminbi, as a means to increase the >> competition in the world. the pricee competition in the world. nejra: ann-katrin petersen, great to have you with us today. bayer, rattling a wave of cancer inims, investing alternative herbicides. it will be open for public treatment. joining us from the team in frankfurt is our guest. great to have you with us. just update us on what it means going forward. >> what it means, i am not so sure about it yet. there are things we have seen in the past couple of months with its problematic weedkiller, roundup. it is not trying to offer an alternative to its customers and
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shareholders, who are very upset about stock price being ha lved. nejra: thank you so much. great to have you with us this morning. that is a stock we will be keeping an eye on. that is it for "bloomberg daybreak: europe." "bloomberg markets: european open" is coming up next. we will be watching bayer, and keeping an eye on where equities will go. equities heading for a gain this week. particularly, for european equities. we are flat on the futures, not going anywhere. u.s. futures also struggling for direction a little bit. a little more action in the bond market. the tenured bund yield down a basis point. -20 five basis points. the 10 year treasury yield on a 208 handle. tune in to bloomberg radio. i will be joining you there from 8:00 a.m. to take you through
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the equity market open. this is bloomberg. ♪
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>> good morning. welcome to "bloomberg markets: european open." i am at miller in berlin. today, the markets say data dump incoming. asian stocks in european futures trade mixed as markets await retail sales and industrial production figures from the u.s. and china. the cash trade is less than 30 minutes away. the u.s. points the finger. washington says iran

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