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tv   Bloomberg Markets European Open  Bloomberg  December 29, 2017 2:30am-4:00am EST

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♪ guy: 30 minutes ago until the start of castrating. good morning this is the "bloomberg markets: european open.". talk aboutg, let's what we are talking about. hitching a ride. softbank buys a big stake in uber. keep an eye on this story. will the massive investment create a smoother ride for the ride hailing company? does it solidify the position of the new ceo?
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dollar to climb. the greenback had slower against all major peers to its worst year and more than a decade. we will bring you some of the key traits. asian equities, what they had a bumper year. they had hired to year-end. we will bring you the winners and losers from 2017. let's talk about was going on these markets right now. the cac relations for the idea that we are actually looking to a positive start in europe. its low volume and not that much of arise. looking at the s&p, there's a slight dip. we will see with the futures deliver. asian markets are little more mixed. china has come off a little bit and australia has had a soft day. let's see was happening with the gmm. as you can see, australia down by 3/10 of a percent.
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the dax did not have a great day yesterday. chinese well bid. let's show you was happening in the commodity complex. this could be interesting. crude, well bid. of 60 box a barrel. look for the oil story. copper, is trading softer this morning. into thes back australian markets. wonder whether some of the european miners might take a little bit on the chin as well. let's get a bloomberg first word news update. >> happy friday from asia. donald trump has warned china over alleged oil trade to north korea.
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to unidentified south korean officials, satellites is observed chinese vessels transporting oil to north korean ships 30 times since october. tweets, he isp right disappointed. he also says the investigation into possible ties between his campaign in russia makes the u.s. look very bad. he believes that robert mueller is going to be fair. the comments are made in an interview with the new york times. republicans believe the idea of the investigation is tainted by anti-trump bias. the u.k. government is withholding the publication of files on the european union. the document state from 1992 and are due to be released today. 500 documents, 114 are being held back and a dozen
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of them relate to european policy. the cabinet office denies deliver the hiding sensitive material. u.k. prime minister theresa may will meet french president emanuel macron next month. meeting touse the discuss britain financing border controls between the two countries after brexit. who pays for tighter border checks? it could prove a headache. liberia, they have a new president after decisive victory. in marks the nations first fully democratic transition in more than 70 years. president previously played for top football clubs in europe. this is bloomberg. guy: thank you very much.
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the dollars year in meltdown has accelerated. up 16 major currencies are in the kurds is headed for its steepest decline in more than a decade. let's go to singapore. mark, it's a simple trade is to come of this year. next year, dollar down, come -- come -- commodities up. that's exactly what going on is been going on for a few days. it will likely extend into the early part of next year. people are focusing on the fact of the u.s. has a large trade deficit. u.s. infants -- interest rates have been rising and are not helping the u.s. dollar go up. what can drive the dollars higher rates can do it? looking to next year, it's becoming a problem for the ecb to maintain this negative rate policy.
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they are where it will be too long until they have to start changing their language and telling people when they're going to move ahead and go back to some kind of normalization policy themselves. that's a very -- very big factor. right -- ratethe hiking also sells they will be joined by other central banks next year and it will be a negative factor. guy: rate differentials have not worked this year. you have a treasury of 2.4. the dollar should be strong. why will interest rate differentials matter going forward? i think they will they start to go the other way. when you see european rates rising more quickly. u.s. rates will peak sometime next year. the yield curve will be flat. that's negative for the dollar as well. the curve is starting to predict the next recession. truepposite of true -- is
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in europe and asia. the yield curve effects while the play. and just the fact of the psychology that commodities are doing so well and people know from previous examples about 10 years ago, in particular, when --lar prices were soaring stock prices were soaring was negative for the u.s. dollar. these kind of consensus traits can make people nervous. everybody is one way of the dollar. how badly out of position will the market be if the dollar actually stages a recovery here? mark: he could be very messy as one of the things that could trigger that is if the equity market -- we have a great surge across the market -- the world. he could reach a point in the first quarter of next year that equity markets are overextended
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and you get a sudden reversal. a quick 10% decline, for example. that would surely make people go defensive and pushed back into the dollar. it's not that we could not have some very abrupt changes. people are getting used to that. over the past decade, corrections tend to be quite file it and short-lived but we do get done. gethe first quarter, we can a sharp correction in the market. commodities are on the front foot. for about as does the dollar but also the supply-side stores. this one of these things are underestimating? we saw the super cycle psychology. even a little bit of that, even returned to people getting up to even wait in their portfolio, could really change that story. definitely, because we has
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in the past there were times who commodities became attracted to people don't usually trade commodities. when the asset class you are not trading become so interesting you start looking starter capital into that, it becomes a big play. we've seen it in oil before. people suddenly all shift into oil. there is room for people to shift towards commodities. when you have one of the biggest companies in the world, china itself is starting to pull back for environmental reasons, that's a big factor for the rest of the world. china cannot be underestimated the situation. guy: great stuff. thank you very much. we will see you in the new year. follow the entire team's thoughts throughout the day. get analysis on what is happening in the markets. in the light be go -- ego.
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go.liv it is good smoked was 12 months you got into big coin. what have been the best and worst acids in last year? we'll talk about the next. ♪
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♪ start0 minutes into the of european trading. the final session is coming through for the year.
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we are counting down to that market open. it's get a first world news update. apple hasphie: apologized to customers for software changes is reduced performances of older other phones -- older iphones. they said they did not intend to shorten life the product. they said they're cutting the price of replacing batteries for phones no longer covered by warranty. a new provision in u.s. tax law intended to prevent u.s. companies from shifting profits from bought might also hit foreign banks with significant payments in the states. because global banks frugally move money around, the requirement would amplify their income for calculation. uber shareholders have agreed to sell a sizable stake in the company to bob -- to a group led
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by softbank. it implies a $48 billion value for the company. also 1.2 five quarter -- $1.25 billion directly invested. that you very much. play 17 is been great if you invested in the coin. -- bit coin. or venezuelan bonds. the looters and loser of 2017. of 2017.s and losers in a year where volatility has been low, what is the dispersion of asset classes look like? who has been a winner and who has been a loser? it's interesting. there's a lot more winners than losers this year. you look at some of the stocks
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and currencies that are done well. the emerging markets are going to be the outliers. we have a number of central and east european currencies and stocks that of done particularly well. if you look because exxon, ukraine, all of those markets have done very well. the check karuna is a standout. many of the other eastern european currencies as well. we also have a lot of comeback kid stories. you have argentina and south africa. both their stocks have done quite well. you have leadership transitions from people who are populist and focused on well distribution to more business leaders. doing well for the markets.
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looking up at underperformers. what is particularly striking as it has been such a good year for markets that even the dogs are not that bad. the worst-performing stock market is pakistan, down 22%. barely in the correction category. the second worst would've been the qatari stock market. that's down 17%. it's been a terrific year for markets across most asset classes. number one is obviously the current of currencies. -- the crypto currencies. although big coin went out, it came down 30% the past week. it's a small asset.
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its market capitalization is less than wells fargo. just one of the largest banks. a year when everything has gone up, the dollar has gone down, is a couple of other factors. what is the outlook for 2018? you sell the stars and by the dogs. does the outlook for next year. >> looking at the bill big sell side and the fund manager calls for next year, the consensus appears to be that we have six to nine months of more of the same. stocks,d good times for fairly contained rise in yields, because you have the synchronous global economic recovery and you
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have this well telegraphed scaling back of monetary stimulus from the big central banks. mark was telegraphing that there could be a little bit of volatility in the first part of the year. one thing many people are saying, that we are keeping an ion, is global inflation trends. if an laois and finally starts to emerge, central banks will have to hold back their stimulus that much faster. have a great new year. thanks so much. to give us a retrospective and maybe a little bit of a look ahead. we talked about with mark. they coin. coin. it appears to have found the bottom this morning just above
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the 14,000 level. fromstill around 20% down its december 18 high. join us from hong kong, erik lamb. the volatility around this clamping down by the south koreans, it appears to be a factor in the market. is this what we can now look forward to into the beginning of next year? volatility has been a feature of this asset class. with a b regulatory fall that takes his new 2018? from talking to strategists and observers of the market, there is a sense that we have been waiting for regulators to voice their opinions and come down on crypto currencies through the year. south korea's seem one of the bellwethers for the global trade
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of crypto currencies. 1/5 of global trading comes from south korea. this asulators may see south korea taking a lead. if we are talking about them taking a stance now, we very well might see other regulators go further in 2018 and come up with their own kind of revelatory ideas. ideas.latory one of the more eye-catching comments from south korean governments, including talking about clamping down are shutting down exchanges, they have stepped up the rhetoric. it's a process and that's likely to continue going into next year. guy: whatever you learned? is the crypto currencies space a
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zero-sum game? this was postulated to me earlier this year. move out of one, they move into another. itcoin loses, etherem gains. >> at the beginning of the 90% ofbuiitcoin was investment anchor currency. that's now down to 40%. other crypto currencies have taken their share of the money in the space. when you talk to people in the industry, they see these rivals is a good thing but that's as long as you assume the pie keeps growing. of money invested tops out at about three and a billion dollars.
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if that's the case, you have a problem. their slice of the pie is smaller. the ability for more institutional and mainstream investors to get into the space, that works out for the better for both. the see of as a way to grow overall. if they grow, there is more room for everybody. it andle stop buying start buying alternatives, that's a problem with bitcoin. guy: thank you. up next, take a look at some the stocks will be watching this morning. airbus could one of -- could be one of those. ordering.raft also that's next. this is bloomberg. market open seven minutes away. ♪
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♪ let's talk about the things that could be moving. a bunch of orders for airbus. one out of china. those are for the narrow bodies. the a320 neo family. most of these look like deals previously announced or the china deal, which is a transference within a
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pre-existing set up. maybe the market will react. keep an eye on energy. oil is trading higher. crude is now north of $60 a barrel. the market open his next. this is bloomberg.
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yes, indeed. amazing speed, coverage and control. all with an xfi gateway. find your awesome, and change the way you wifi. guy: last trading session of the year, minutes to the start of cash trading in europe. let's talk about what we need to know. the pound well bid into the open, up another .2% against the dollar. the dollar is down against everything. oil, it couldion have an impact into the open. it is up another .6%. wti trading north of $60 a barrel. the nikkei closed fairly flat going into year-end. the yen has had a cracking year and in some ways, it will be interesting to see if that is a feature of next year. climbeddutch -- s&p
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close.e . not expecting a lot. the market could be fairly quiet today and lacking a little bit of liquidity. there could be interesting year-end twists. let's see what we can expect. is where we are on the ftse 100. keep an eye on the minors. you saw copper rollover after a crashing run. the oil story could be one to watch out for. the ibex opening up just north of 1000. now dipping into negative territory. at a headline level, there have been very little moves this year. below that level, the sector story is where all of the action is. let's take you to the sector
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story and talk a little bit about what the map is telling us. it has been this rotation that has been so important in whether you have outperformed benchmarks and delivered the alpha. we will talk about that later in the program. volatility at a headline level has been compressed, but the sector rotation story has been interesting. financials are met -- mixed this morning. health care trading a little softer this morning, one of the losses.we are seeing energy, i call that wrong, trading softer despite the slightly stronger oil price. materials look more mixed losses. despite copper is coming under a little pressure. ftse trading in negative territory. most of europe is down by .1%. i.t. isals fairly next,
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one of the areas we are actually seeing a little outperformance. doesn't exactly have a great deal of i.t. to think about, does it? look at the quick markets. ftse is flat, nothing to see. downnd dax down -- cac .1%. dax was down about .7% yesterday. we get cpi data out later on. inflation will be something to know about into 2018. the movers in terms of the individual stocks stories. if you were to pick anything out this year from an equity point of view, the sector rotation story, the stock story is more idiosyncratic. we will talk about that more later on. poly metal a little lower in the as a.pace, paddy bank of ireland down .9%. i don't think there is a great
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theme there, anything that tells you about what is going on more broadly. let's rotated hand look at some of the winners. here is the picture we are finding ourselves with. health care, astrazeneca better bid. trading a little softer this morning. i wonder if there is an oil price element. reckitt, nex, i don't think there is a theme to what is happening here. this has been a year where volatility has been very low. volatility at a stock level has been more broad. the dispersion has been greater. let's talk about one of the stocks stories -- investment stories we have been focusing on, a year of management trying to get a grip on a business. uber shareholders have agreed to to an 17.5% stake
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investor group in japan. it implies evaluation of $48 billion for the start up. that is a steep discount. joining us from tokyo is our tech reporter. what can we take away from this investment? talk to me about how significant this new investment by softbank is. you just mentioned the steep discount. in addition to that, the deal has come with quite a bit of all ofnce reforms and that has made it a cliffhanger. we didn't know whether it would go through to the last moment. the governance issues are probably one of the interesting ones from bloomberg's perspective. the border will be exposed -- extended to 17be seats and softbank will get two of those. the structure for
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stockbroking, which heavily favored the early backers. as a result, it would seared -- severely reduce the influence of the x ceo and cofounder, travis kalanick. he will also get something out of the deal. we don't know if he is selling any of his 10% stake, but benchmark capital agreed to drop their lawsuit against him. in the end, hopefully this will help the company and the that have marked 2017 and let it go back to business. guy: there have been a lot of scandals surrounding the business. good for uber, bad for lyft, right? that's right. it is part of the $9 billion investment, most of which will go to original investors. at 1.2 5 billion, that will go to uber itself. that will help them try to catch
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up with lyft in north america. plus, help them catch up with their investments abroad. they have been in the middle of very aggressive global expansion. guy: very quickly, do you think 's management were anticipating the idea that softbank could invest in their business rather than uber? he has certainly made it public that his interest was in both public -- companies. it was never clear if you seriously considered lyft, but it paid off as a scare tactic for existing uber investors. at this point, you can rule out investment in lyft. guy: thank you very much. that was our tech reporter joining us out of tokyo. let's turn to the united states, alex rutland says america is in
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a new era of low inflation. >> i don't see any signs of inflation and neither does the fed. inflation has been falling. it is very mysterious, but actually, i have been saying for a long time i think we are in a new era in which the threat of inflation is almost nonexistent. rivlin, buts alice former vice chair at the reserve. let's talk about what a bad year it has been for the dollar. the investment director at london capital is with me on set. how significant -- this has to be the most significant theme on the year. dollar has been down, despite the fact that interest rate differentials should have been working in its favor. you have seen such a big differentiation between asset classes. is that a theme going into 2018? it should get stronger. when you think about what has happened in 2017, we have had a
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send in the up global prospects. we see europe recovering very strongly, the rebounding markets are going far. it has been the growth potential that have been the big driver. the u.s. is provide -- expanding, but we will have a slight uptick in u.s. growth, but if you look at the pmi indicators, that is telling you there is stronger momentum of growth in europe and most of -- >> how -- how do they carry on at this level? we are going to struggle to get -- struggle to get these numbers a little higher from here. ashok: we may be at peak in terms of the numbers, but they will remain reasonably high. that means that the growth momentum will remain intact for
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most of 2018, and that is great news for lots of things, from job creation to production two, you name it. the consumer spending cycle will remain incredibly strong and hopefully, the capital spending cycle, we have seen the telltale signs picking up. as long as it remains at these high levels, the capital spending cycle reinforces itself. guy: for those who want to invest externally, next year will be a great year for u.s. investors. let me show you what is going on here. i havelook at the wei, .ade 5% in the s&p this year domestic have made 20%. 20 percent in europe, where as i have made 12%
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if i am a european investor. the foreign exchange story is massive. if dollar continues to climb, that thing -- decline, that carries on. ashok: i wouldn't expect the weakness in dollar to be itended into 2018, but shouldn't we can, either. from a u.s. investor point of view, it is time to come out of the u.s. market and look worldwide because the u.s. markets for last couple of years have been the best place to be. anyone under weight in the u.s. market has been punished on a relative basis. up, dofore we wrap this you worry that -- the credit markets still looks reasonably whichor u.s. companies, are leveraged and look to continue to leverage. now they will get tax money, which is the chance for them to buy back. driver behindig
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what happens in the united states. the picture in europe looks very different. why will those factors not keep the u.s. on the road, despite the growth potential? ashok: it will keep u.s. markets reasonably well founded for the first half of 2018. everything is saying it is fine, the tech industry is a big positive for growth. medium-term, it means we are may be looking at a cyclical -- in earnings, which means they begin to do rate a little bit -- and then peak earnings start to -- >> overweight europe, under rate u.s.? ashok: for now. guy: plenty more to come from ashok shah.
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he will stay with us. and surprises.ks we look at 2017's winners and losers and what was behind the success stories and why did some companies perform so poorly? that is next. this is bloomberg. ♪
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♪ we are 14 minutes into the last trading session of the year.
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good morning, let's look at the markets and to show you what is going on. not a lot is what you can take away from the map. as you can see, most of europe based in gray, i.e., these markets aren't budging. be honest, it has been a theme of the year. we have seen low volatility at a headline level. below the first -- surface and there has been no shortage of drama, particularly in u.k. stocks. the biggest losers have been marked by rapid declines, while winners have been gradual triumphs. for more, let's bring in the bloomberg equity market reporter. sam, let's talk about london more broadly in a minute, but the individual names. is there a theme i can take away from the u.k. stock market? >> in terms of the big winners and users, not really.
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there are a few underlying factors that a few analysts brought up to me. one of them is there seems to be a sense of complacency, so investors are not giving companies the same kind of scrutiny they did in the past and when something happens, stocks are falling rapidly. we saw that with provident financial this year, a lender that fell 66% in a day. in addition to that, brexit -- >> is that -- because normally, people see a big move like that and by the dip. has there not been that backstop of money? sam: that is exactly what i have found from looking into the --ry is that there has been if you are a fund manager looking to allocate money to europe, you look at the u.k. and the first thing you see in big letters is brexit. if you look around the rest of europe, germany, france, italy, there are still risks. theyare not perfect, but
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don't have that big flashing sign above them, so that money that previously would have come fell 66% in atock day, someone might have jumped in and bought 10, but this money is not there anymore. that cap on the fall isn't there anymore. guy: are the winners easier to understand in the linkages between them? sam: yeah, certainly the winners we picked out this year are companies that are fundamentally doing quite well. they are being run quite well. delivering high revenue, higher profit. best-performing oil stock, gamers workshop, who makes little figuring collectibles, they are going to end the year somewhere around 280% higher. the way they have done that is by consistently beating expectations. guy: i remember one seo telling
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me the best way to have a good year is to have a bad year before hand. freddie lait that helps -- sam: that helps. they had hit a bottom around 2014, 2015. they changed things and listened to their customers quite well. they are quite interesting as a u.k. stock. -- revenuesfit higher, profits higher, same with the other companies we picked out. cows minerals, a copper miner. they have done really well in operations. their operations into kazakhstan have been run well, no major hiccups, and they have been boosted by the copper price. with the rises, there is a they areal -- delivering higher revenue, higher profit, higher cash and are being rewarded. guy: you expect next year to be a better year for the ftse 100?
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the ftse 100 has done 6% this year. it has done 2% if you are a euro investor coming into the united kingdom. clearly, currency has been a factor but in domestic terms, the ftse has underperformed. now it is stacked with minors, health care companies, oil companies. is it the mix of london that is wrong or is there a brexit factor and does it change in 2018? we know ftse will remain out of favor because brexit means allocations will not be listed. from a macro point of view, you are looking at a very slow economy with very slow -- thelining the economy, so momentum is going to -- >> but most of the ftse isn't domestic? ashok shah indeed, there are a lot of cyclical sectors -- factors and many of them had a
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rebound in the last few months. mining, minerals, so on. the best of the returns are are ready on the table for the sectors that have recovered already. the earnings based a lot higher. to recover at the same pace next year seems difficult to do. oil prices jumping another 30% is unlikely. the good news from the outperforming sectors is already on the table. the other bid that is also halting ftse going anywhere is sterling showing gradual signs of recovery. those that have been more positive with the weaker store -- sterling is a story that has run itself out. you are only buying it for the dividend flow rather than capital and when you buy ftse. i think it will be some time before the sentiment turns around and value is getting
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created, but not exploitable for some time to come. much more of a buy and longer-term hold. guy: you've got the brexit story hanging around the entire markets. we will leave it there. sam unsted, thank you for bringing us the best of winners and losers. stickshah is going to with us. if you have been overweight asian equities in 2017, you have had a great year. in techshould fear a -- stocks. we will talk e.m. asia and tech next. this is bloomberg. ♪
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♪ guy: welcome back, you are watching the market open. we are 24 minutes into trading on the last session of the year. not a lot happening in europe. if you upgrades and downgrades, astrazeneca one worth mentioning. equities are not doing a lot. a headline level, that is true. even at a sector level. let's talk about what kind of a year you have been having. it really has been a important to be on top of the sector in terms ofry and being on top of the geographical dispersion. if you have been overweight asian equities common you have generally done well in 2017. markets from india to indonesia to south korea have reached record highs.
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indonesia, in particular. thanenchmark surging more 28% this year. how much of that outperformance has been driven by technology and what happens if tech stocks have a bad year in 2018? .till with us, ashok shah people talk about e.m. being a different asset class than u.s. equities -- asian equities. but dig into the detail on what you find is asia has been driven by tech. there are key markets out there that are tech stories in the same way the united states has been. ashok: if you look at the taiwan stock market, it is one with apple, with a slight lead. market youon which are looking at. if you start looking at markets has driven more than the mystic demand, whether indonesia or india, that has been good
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long-term structure as far as boosting the markets and that the flow into them. they are different stories that seem to be working together. chinese equities have been very good domestically, plus the i.t. stocks. a big the tech has had impact, but i think we must not forget that it has been the tech which are global companies, but the technology user in asia is changing at a faster pace than the rest of the world. the demand for technology products is going to remain incredibly strong. peoplewrote question is think about them as uncorrelated assets. they are not. ashok: that is true. a large part of the index is correlated to the main markets, but there are markets which are also driven by their own domestic stories. it depends on what kind of portfolio consumption you want to build. how much diversification you
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want to build into your portfolio. 2017 has been one of those years were global liquidity has driven assets around the world. ashok shah sticks around, up next, i want to talk about saxony ppi. ♪ is this a phone?
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guy: 30 minutes into the trading day. pitching a ride, softbank buys into uber. will the investment deliver through the journey in 2018? the greenback heads lower against all major peers on its way to the worst year in more than a decade. the best years, since 2009, but the holiday cheer failed to ignite european trade. we will bring to the top picks 2018 later in the program. good morning, you're watching bloomberg markets: the european open. i'm guy johnson in london.
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lot happening in european markets. i'm going to be honest about that. there are a few upgrades and downgrades, but not a lot is moving around. the reason is pretty straightforward. most trading desks aren't staffed. it has been an interesting year. let's get a retrospective. what you can do with the grr function is drop it down, change it to year to date and it will give you an idea of what has done well and what has not this year. we are in that mood this morning. let's talk about what has done well. technology has been the big out performer in 2017. the problem is europe doesn't have a great deal of it, which is why in some ways, you see better performers in asia or out in the united states. it skips europe a little, this technology story, except it has 20% in europe. if we had a bigger waiting, that would be a bigger story.
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services hascial done well. it will be an interesting story to see how the industrial story does in 2018. where have we seen weakness? telecoms relative to a market. retail, looking at the u.k., media has not had a great year, either. this was the surprise to me. oil and gas has not had a great year, either, despite we have wti crude north of $60 in error -- a barrel. will we see a fight in 2018? what will opec and the shale producers mean for the output of this sector? a big thing next year is going to be inflation. i want to show you would little data, because there is some news today. but's talk about the inflation data we are getting out this morning. saxony cpi data dropping this
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morning. december, 1.7%, down from 2%. a lot of this is not in the core. it is non-core items that have been moving. rich jones writing about this on the mliv this morning. pay attention to this because there is an expectation being will-in that inflation return and the gap meaning the phillip curve works. does the data support that idea? not yet, but pay attention. here is ed ludlow. trump has warned china over alleged sales of oil to north korea. a newspaper sites south korean government officials, u.s. spy satellites have observed chinese vessels transferring oil to north korean ships about 30 times since october. trump tweeted, caught
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red-handed. very disappointed. there will never be a friendly solution if this continues. also said that while the investigation into possible ties between his campaign and russia asked the u.s. look very bad, he believes special counsel robert mueller is going to be fair. the comments were made in interview at his west palm beach golf club. the investigation is tainted by into trump bias. the u.k. government is a publication of secret files on the creation of the european union. the document state from 1992 and are due to delete -- be released today. 114 of 500 are being held back and a dozen relate to european policy. the cabinet office denies deliberately hiding sensitive material. theresa may will meet emmanuel macron next month has britain
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gears up for trade talks with the european union. macron may use the meeting to discuss britain financing some of the border controls between the countries after brexit. the issue of who pays the tighter checks could prove a headache for may as she seeks to approve a transition period and a trade deal with the block. hasiberia, george way or been elected president after a decisive victory. it marks the west african nations first fully democratic transition in more than 70 years. he grew up in a slum before playing for all -- football. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. guy: thank you, ed. is with us this morning. what do you like going into 18? the big driver for 2017
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has been the massive expansion of the central banks. we have seen 12% expansion in their relative to the euro in new year. in 2018, that is going to be half the pace, probably 6% or so. the ample liquidity -- liquidity is going to be less ample, though not yet tight. at its will hold for the first part of 2018. when needs to gradually become more conservative. probably the best place in terms of the fixed income continues to be the financial institutions, the tier one capital's, because the cycle for the last two years, fully entered with a change from two to three regulation. that is a good place to get fairly high income sources in a world of low interest rate structure. in the case of the equities, it
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is time to become more conservative and concentrate on companies which are more stable. very strong balance sheets, very high cash flow generation, rising dividend flows. on the margins, there are still a lot of great ideas. means the sector is going to be fairly good. the upturn in the european economy, especially the employment cycle, earnings cycle and consumption related stocks are going to have a very good year ahead of them. that way, you had a lot of the cyclical plays which have favorable stories running around the -- players that have favorable stories running around them. is going tospending continue to rise for much of next year, which means those companies are -- at the forefront will have more outer flow and a better earnings trajectory. there are good ideas on all of the place. guy: cash flow next year? answer,ery difficult to
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but what we are seeing is a gradual tightening in the start in the u.s.. in terms of the interest rate structure, it is the base for everything and we have seen slight flattening. we probably have another two rate rises for 2018. i don't think we are looking at the total here and now. in that sense, cash yields will be incredibly low. mostcash balances on portfolios are quite low. ashok: that's right, what will likely happen is because markets are still reasonably soundly based for now, it means we could could see the milledge is be forced to put more money to work in the market because they don't want to underperform too early and be too conservative. guy: three letters that have signified this year for india, gst.
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ashok: the markets have done extremely well, but it is the long-term changes that have driven the market. there are a lot of positive things, and if the conversion of the black economy into a much taxable economy, there are longer-term fundamentals. the budget deficit will come down. the means that the funding government needs to do for infrastructure and social security programs will be well-funded, not deficit funded. that means more medium-term, inflation will come down, interest rate structure in india will come down which will be a massive boost. indian asset marsa -- markets will be primary beneficiaries of this long-term change taking place. in the meantime, it looks expensive and fully priced, but if you are a medium-term investor, the story has a long there should be
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an always allocation to india given the structure story is on an improving trend, unlikely to reverse in a hurry. guy: thank you for being here. ashok shah, investment director at london in capital. on london joining us dab digital very shortly. coming up, a look at the prospect for european banks. nonperforming row -- loan cleanups. we will discuss the wildcards for 2018. that is next. this is bloomberg. ♪
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♪ 8:43 in london, 43 minutes into the equity market session. to be honest, europe going nowhere in a hurry this morning. the oil story is interesting, the metal story as well. let's talk about the banking story. it will be a pivotal year for european banks. revelation -- regulations coming will be and it interesting to see how the economic cycle affects the story. we probably need to talk about italian npl's. -- senior eu banks analyst from bloomberg joins us. what are the big themes we will be seeing in 2018? >> you touched on one of them.
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the nonperforming loan cleanup will continue. we saw the ecb approaching this from different directions. wins out where? the ecb having a softer line in the ecb will be pivotal for its ,talian banks, monte dei paschi the analyst favorite across banks. if you look at stocks relative to price markets, italy is 30% below and the sector is about 7% below. you play in italy, you know there will be volatility and if you get it right, decent returns. is inhat is interesting some ways -- if you were dealing with an npl book and had to make a start somewhere, you would start with the easy stuff, wouldn't you? does it get progressively harder the further into the story? jonathan: yes. ireland, a lot of their npl's are mortgages.
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in italy, it is sme's. you've got the bankruptcy rules in italy, which haven't changed. that is a reason they sat on 4 billion in nonperforming loans. work to still a lot of be done, but if you look at the bad loans, they have fallen by 30%. they did nothing for a long time. last year, we began to get traction but we still don't have n market.zatio there is a lot of work to be done and my guess is we kicked the can further down the road, more of the same. one of the big stories when people think about european banks, the valuation gap across the atlantic. but what about against europe? north versus south, nordic versus core, what does the story look like? jonathan: nordics have always been more expensive because they are more well-capitalized.
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we know what the capital position is because we have the new capital flow rules. in december. relatively, they look less expensive. there is not a great deal of growth there, so if you want capital return and a little growth, you look at the denmark's. if you look at the u k, there will be a capital return story somewhere in there, but the u.k. are a little mired in growth thertainty and we know bielby has to be harsher on capital. if you look at france, relatively inexpensive and the credit agricoles have the story. barclays has been one of the big disappointments. guy: let's do a ranking of how european banks -- we can bring this up. let's see what happens with them next year. right at the bottom, the one
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that stands out for me as barclays, down 9%. jonathan: its a good story of how it gets it right. all year,en rising bad expectations falling. that is the sort of stock you want to own. .ommerzbank is about m&a personally, i struggle to see a big deal. never say never, but on the other end of the spectrum, barclays, deutsche bank would have been in the group if it hadn't been for the m&a story. they need to stop lagging in sales and trading. we know all three are putting more capital in. barclays is putting another 50 billion in risk assets to work there. it is -- the markets need to come alive next year for those stories to turn around. jonathan: exactly, it is discounted in the price. we know what the problems are, but it is also hard to see how
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they pull a rabbit out of a hat. europe from a economic point of view, a macro point of view, has spent the back half of this year on the front foot and that momentum looks to carry on into next year. do investors look at europe and think if i want to get outperformance here, i want to deliver on the upside, i need to be invested in financials? does that hold water going into 2018? jonathan: you are going -- getting loan growth of 5%, because you still have margin pressure. the sweet spot is the imgs of this world, where you are getting decent pair, decent capital. want to gotruggle to overweight financials, but you stick withand well-capitalized growth stories that you understand that will continue to throw off capital. nordics, dull stories can be
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good because they are not as expensive relatively. guy: thank you for getting up early and seeing us. jonathan joining us from bloomberg intelligence. coming up, the year in deals. europe led the pace in m&a this year. we look ahead to 2018. that is next. this is bloomberg. ♪
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♪ guy: welcome back, we are 51 minutes into the market equity session in europe. the final one of the year. inope proved to be a hotspot 2017 for m&a. uncertainty over tax rates hit volumes in the united states. that cleared up toward year-end. aramcoon the high coats, with a takeover at westfield. thating in europe showed interest is continuing to intensify in the region. why did europe have such a good year? init came down to confidence the economic rebound. europe had been in the doldrums in terms of economic growth and that is turning the corner. we have seen that reflected in the m&a activity. the biggest deals have been in southern europe. that was an area that was
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traditionally slower than north in europe. it is all about confidence returning to the region and those companies seeking growth. they know europe is in the long term a bit slow, so they will buy abroad. just to boost global growth, etc.. clarify this a little bit. transaction volume, transaction price total are two different things. are we seeing smaller deals or a few big deals with a bigger price tags? aaron: we are seeing fewer megadeals. billionhe u.s. with 50 plus deals where is this year, we have seen fewer of those, especially in the u.s. that said, in december, we saw the biggest december in a decade and that came down to a couple of things. as you mentioned, uncertainty in the u.s. was a big topic. people were waiting for tax reform, they want to clarity on what would go through and how it
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would impact catch below -- cash flow. that will have an impact in december and going forward. guy: m&a rebounding faster in the u.s., let's talk about what next year brings. the rate of change we see in europe has been significant this year, but now we have some clarity in the united states. his next year going to be better for an mende in the u.s.? aaron: i think in the u.s., definitely. we will see a lot of cash coming back that has been stuck abroad. how will they use that cash? for share use it buybacks, dividends, but they will also deploy it in mn day. we will see eight pick up in the u.s. according to bankers and analysts. guy: which sectors should we keep an eye on? we haveetail consumer, seen activism in that sector and a lot of these companies have become so big with so many businesses, they are trying to either focus on their core or
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they will look to bulk up, cut costs and boost margins that way. had five years ago, if i said there is an activist over there with 2% of the business, he wants to make changes, he would have told me to go away. activism has started to happen in europe. is that something we can see more of and are we also going to see more hostile takeovers? aaron: i think so. the real turning point in activism was when we saw dan loeb target nestle. the biggest european company by market cap. i think that sent a message and we immediately saw a share buybacks, etc., things that accelerated that. that has given a lot of u.s. activist more courage to come to europe because we have seen activism in the u.s. for years, but there is not as much low hanging for. in europe, there are companies you can target, big conglomerates, slower moving so there is a lot of appetite for activists in europe. what about this issue of
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stepping up and making hostile offers, because that is something that hasn't traditionally been the story in europe but there has been a lot more of it in the last six months. aaron: i agree. hostile is never the first choice. it can be difficult, especially nowadays with such a big antitrust question. if you don't have the target board working with you about what you we need to sell, it makes hostile's really difficult. that said, you are right. theybuyer wants an asset, are willing to go hostile and take it directly to shareholders. a current theme in the u.s., look at broadcom, qualcomm, biggest deal of the year. they are going to shareholders directly. error certain ceos that are willing to go hostile's. guy: thank you for coming to see , thank youirchfeld indeed. up next, "surveillance." manus cranny in the seat. i will join the radio team on
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london dab. that wraps things up for the year for the european market open. have a great new year. we will see you in 2018. ♪
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manus: ending with a weber. the dollar is set for its debts its biggest weekly drop. uber shareholders agreed to sell a sizable stake toy softbank group. not for publication, the u.k. government has decided it will not release secret files on the creation of the eu. the cabinet office denies hiding sensitive material. ♪


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