tv Bloomberg Markets European Open Bloomberg July 13, 2018 2:30am-4:00am EDT
matt: welcome to the european open. we are live on our european headquarters in london. i am matt miller. the cash trade is less than 30 minutes away. undiplomatic visit. president trump warns theresa may's exit plan is likely to end hopes of a trade deal. he said boris johnson would make a great leader. as china's monthly trade surplus to the u.s. hits a record, the fed warns tariffs could be
harmful to growth. but markets ignore the politics. stocks in asia rise, set for a first weekly advance in five. u.s. and european futures pointing higher, as well. less than half an hour from the start of european equity trading. look at futures, euro stocks fit -- -- euro stoxx 50 gains. across the continent. we saw treasury yields climb, as well, in our new bloomberg forecast, looking at a continually climbing treasury yield. look at equity indexes. in asia, led by the nikkei almost 2%. we had gains across the globe in markets that are now closed, but the s&p was up yesterday, stocks in canada were gaining. we saw brazil up.
in fx, it starts to get interesting. possibly with the trump effect, you saw a weaker british pound against the u.s. dollar, but you see a stronger dollar against most of the major currencies. a stronger dollar against the euro, stronger dollar against the yen today. if you look at what we see in bonds and commodities, japanese two-year yields falling -- rising this morning. the price, down, but the yield is coming up. maybe we should flip that around. commodities, natural gas down. we saw brent crude down, but nymex gaining a little bit. that spread getting a little tighter. let's get the first word news with in hong kong with debra mao. debra: thanks, matt. u.s. president donald trump has dealt a double blow to u.k. prime minister theresa may on the first day of his visit.
he told britain's "sun" newspaper her brexit plan would "kill any future trade deal with the u.s." he suggested boris johnson would make a better leader, saying may ignored his advice on dealing with the eu. britain's financial industry slammed may's latest proposal, some calling it the worst possible outcome. protests greeted president trump and his wife melania during the first official event of their first official u.k. visit. hundreds lined up where the trump's dined with theresa may. it is unlikely they even saw the protest as they flew in by helicopter from london. they will meet the queen today before spending the weekend at trump's resort in scotland. the u.s. and china have signaled they were open to resuming negotiations over trade after days of exchanging retaliatory threats. high-level trade discussions between the economies have stalled since last month. treasury secretary steve mnuchin said beijing must commit to deeper economic reforms and
downplayed the severity of the trade dispute. >> i don't think we are in a trade war. we are in a situation of trade disputes. -these are not trade wars and we are very focused on the nafta issue, which is renegotiating an old agreement. we are very focused on the china issue, which is very complicated. debra: china's total trade with the u.s. increased in the first half of it year even as a trade dispute deteriorated. in dollar terms, total trade grew 13.1% in the first six months of the year, exports were up to america 13.6% compared to the same period in 2017. imports rose 11.8%. all the data is in dollar terms. the philadelphia fed president has defended the central bank's symmetrical inflation target. he would be comfortable with price increases at 2.5%, half a
percentage point higher than the official goal. he also sees up to four interest-rate hikes this year. >> at the beginning of the year, i had put in three for this year, three for next year. i have not moved off fat, though -- of that, though i open to a am fourth if we see increased -- inflation start to accelerate. debra: global news 24 hours a day, on-air and tictoc on twitter, powered by more than 2700 journalists and analysts in .ore than 120 countries this is bloomberg. matt: thanks very much. now let's get more on our top story. will donald trump kill a u.k. trade deal if theresa may opts for the soft brexit she has put forth in her white paper? joining us is annmarie hordern. what did trump say? he had in interview with the sun."-- " what are people saying?
annemarie: let me show you the cover. it says "u.s. deal is off." this is an exclusive interview " interview.n the u.s. would not be able to strike a deal with the u.k. because they don't want eu regulation. will notagricultural be coming into the u.k.. on top of that, he also targeted her in terms of a personal blow as boris johnson left her government this week, he said boris johnson would make a great leader. he also attacked or yesterday at nato. take a look at what he had to say. >> i would say brexit is brexit. it is not like -- i guess we will use the term "hard brexit" i guess that is what you mean.
the people voted to break it up, so i imagine that is what they will do, but maybe they are taking a different route. i don't know if that is what they voted for. annemarie: this article is just another political grenade thrown at the prime minister and it comes right before the two are set to meet at may's estate in chequers." . ift: it does stand to reason the prime minister has the same regulations as the eu, there is less of a purpose for donald trump even negotiate a bilateral deal, right? wouldn't theresa may have expected this outcome if she put forth such a soft brexit plan? i don't know if she was expecting this outcome in terms of the u.s. president coming here and getting heavily involved in her domestic politics, but this is just for
goods, not services, not telecoms, not financials. they are going to be striking their own deals with individual countries in terms of financial services and telecoms, which is why banks are so upset they are not included in the soft brexit plan with the european union. there is still the deal the united states could strike with u.k. without eu regulations in terms of telecoms and the financial services injury -- industry. i first saw this, i thought it was "the onion," but it turns out there will really be a donald trump a.b. blimp flying over parliament. has it gone up yet? annemarie: that's right. be right behind me. it will go up around 9:00 local london time. it is in protest of donald trump. they were blowing it up yesterday. we have seen a lot of protest around the capital.
there is another one set this afternoon and what is happening now, because of the protest's, donald trump alluedded to them, saying he felt unwelcome. he is helicoptering everywhere he needs to go. helicoptering to chequers today. there are a lot of british citizens on the street, feeling annoyed with his allegedly races in and sexism and they wanted her to see is not welcome here. one thing will be the baby and we should be seeing it in a few hours. matt: bloomberg's annmarie hordern joining us from across the river. we will have more just after 8:00 a.m. u.k. time, after the start of stocks trading. seems the markets aren't really concerned about this. we do see stocks gaining in asia
into the close. the nasdaq reached a record high, japan sores into the weekend -- soars into the weekend. the lack of new escalation has continued. euro stoxx 50 futures up and s&p futures, as welcome to joining us, richard jones, mliv strategist. so much talk about donald trump and his performance at nato, now his flash -- clash in the u.k.. it doesn't seem to be bothering markets one bit. may, it isr theresa probably something that will be a longer-term concern for her. the topemarie said at of the previous segment is true. donald trump struck two blows. one is praising her chief rival, the other is putting in doubt the idea that the u.s. and the
u.k. will be able to do bilateral trade deals if the current chequers plan is put in place. i think the problem theresa may faces right now is that the eu has had a very tepid, lukewarm endorsement of the chequers plan. there is a lot more negotiation to go on. a fair bit of give and take there. plan is not the basis for the president for bilateral deals. if more concessions are granted by the u.k., that makes it difficult to see where the u.s. and u.k., where brexit is a success from a u.k. perspective because a key thing is to be able to strike trade deals independent of the eu. is the markets, the pound trading on the back foot. it is not moving that much yet, but the longer this drags on, the more difficult it will be for the pound to move higher from here. matt: i wonder what you think about the rising rates on the
10-year, especially after we heard from jerome powell. is that set to continue? a new bloomberg forecast sees rates rising a bit, but gary shilling said over the weekend he doesn't the any reason for them to rise too much. there are still buyers out there. right.: that is probably across the curve, i look at the two-year part of the curve at around 2.6%. that is an attractive level. that is turning u.s. cash into a very attractive asset class in and of itself. you didn't have to go too far back in the calendar to actually see you need to go far out the curve to get that yield. the fact you can get it in two-year u.s. paper is attractive. that will attract yields going forward. the fed funds were probably near than the trough. i don't think we are at the end of the cycle, but it feels late cycle. we had a sugar rush of fiscal
stimulus that will wear off. is talking about concerns of a potential trade war and the u.s. won't be immune to the negative effects of the trade war. we might have a little more upside in yields, but the 10 year specifically didn't like above 3% resistance level. it will be difficult to get upper traction from here. richard jones, bloomberg and life strategist, coming to us out of the german capital. livean follow markets inside from richard and the team, type mliv on your bloomberg terminal. up next, the dog days of summer have arrived for equity quants. why they are experiencing their worst in eight years. dani burger is next. ♪
matt: welcome back to "bloomberg markets: the european open." 13 minutes till equity trading kicks off in the u k and across the cotton. let's get the first word news with debra mao. some business story for you. at&t says the trump administration's appeal against its merger with time warner doesn't change anything because the deal is closed. the justice department is challenging a decision allowing the 85 billion dollar takeover which created a telecommunications giant.
at&t closed the transaction june 14, two days after the earlier decision and it was the first time in decades the court decided a merger on companies operating on different parts of a supply chain. johnson & johnson has been ordered to pay $4.69 billion to women who claimed asbestos in the company's health products caused them to contract over very and cancer. n cancer. the punitive damages are on top of the $550 million awarded to comments eight each of 20 -- compensate women for their losses. this is part of more than 9000 claims alleging talk products cause cancer. twitter's ceo says he has lost , taking hisowers account to around 4 million. withd accounts are those suspicious changes in activity. it is identifying more than 10
million dubious accounts each week. that is your bloomberg business flash. quants arey experiencing their worst turns in eight years. factor in vesting, which is -- slices equities like private -- on price volatility has buckled while the broader market has stayed afloat. dani burger is here to tell us more. what is going on? underperformance. i have on the board one of the largest equity quant funds. haveost of this year, they had down months but recently, in june, that was a four per and 8% loss. -- 4.8% loss. that is the worst for this mutual fund since its inception. we are seeing these kind of losses across the board for these kinds of funds.
even if you are invested in quants, you are not impervious to losses. matt: what is driving the downside? what is the reason behind it? it doesn't look like they were doing too well before this year, either. dani: they invest into two strategies that are popular among quants. is investing in companies that are cheaply priced. that is in the blue. run since its worst 2011. meanwhile, momentum is really popular investment stocks that are highfliers. did really well this year, then the past few months happened. its worst return in two years. these together show that quants have nowhere to hide and behind that, the underbelly of the stock market was not as healthy as the surface seems. matt: dani burger, our markets and quants reporter showing a negative trend. we are minutes from the open of stock trading here in europe.
we are looking at gam. -- has cutlook like jobs since 2013, maybe doing it again. exactly. this is something that caught our attention this morning. this is the defense companies that makes the freedom fighter jet. the newspapers are saying they have entered -- information that management is looking into cutting 1300 jobs. we haven't been able to confirm. the companies reporting second-quarter results the 20th of july. we may no more there. the context is they have struggled to reach their long-term margin of 10% in the previous two quarters of earnings. they have disappointed markets. that is the context in which this is happening. something to watch for in second-quarter earnings. matt: absolutely, and i am glad
that some people remember the iconic carmaker. joe, what have you got on hayes? they reported strong growth in the last quarter, driven by earnings abroad. this yearprofit for should be marginally above expectations. they are doing well in countries like belgium and france. also in china and the u.s. is very strong. for the u.k., that jumped 5% from the last quarter. london is doing well, the best of all regions, up about 9%. been subdued since brexit, but that appears to be coming up a bit now. although, we are coming off low comparatives. positive for not just the company, but also hiring in london that there is an improvement coming through from hays and that follows reports from the group this week that was also quite positive. operatingeadline is
profit is expected to be above expectations. matt: we will be watching gam too. >> first half earnings net is key.t gam gam is forecasting a non-cash increment charge of 59 million swiss francs. this is related to the acquisition of the quant fund. it bought about two years ago. gam says they see room for growth, but analysts are calling this down at the open. matt: thanks very much. covering the stocks you need to watch. there could be a lot more going on, so stick with us. we will see the equity markets open in about four minutes. the stockso follow team at first go. subscribers can get the first news on their mobile app. the market open.
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minutee are less than a away from the open of european and u.k. stock trading. -- the the indicators pound is down against the dollar but i will point out that the dollar is also gaining against the euro, the yen and a number of other major currencies. probably more interesting to look at the gains we say -- we see in asia. the s&p was up yesterday and we see s&p futures up again. is downown and brent and we now see wti coming down as well. take a look at european futures -- gains across the board.
on the euro stocks futures, ftse futures, tax futures. wherever you look, we see the gains. it looks like the markets are ignoring the politics making headlines this morning here in london and bidding up risk assets across the board. let us take a look at the market -- as a market opens out. what we see in the first few seconds of trade. the ftse is the first out of the gate. already, it is climbing up one tends or 0.2 percent. opens verymarket quickly this morning and we see 0.4ibex in spain gaining percent. it will take the dax and the smi open up.longer to we are seeing gains almost that much around to the continental as well. expect to see similar gains in
germany, in frankfurt and zurich. one a look at the imap bloomberg index europe. there is some read in consumer -- there is some red in consumer discretionary. consumer staples. very interesting gains here considering the headlines we see a across europe. let us take a look at the movers. see which individual stocks are moving up and down on the stoxx 600 this morning. i have it sorted why index points. biggestsee sap is the gainer. tech stocks doing well as far as adding index points to the stoxx 600. -- you america tobacco see some luxury stocks, those
are the consumer discretionary and tobacco and out the hall are the consumer staples -- they are doing quite well. on the losing side of the trade, there are few -- not as many as the gainers. only 90 stocks down. 437 up. novartis is one of the biggest losers in terms of point lost. basically the same anywhere you look across the screen. european markets just opening higher across the board. the news dominating the continental is president trump's visit. he has already made real headlines at the nato summit and he has made waves here in the ok as well by dealing a double blow to u.k. prime minister theresa may on the first day of his visit. this is how the papers in the u.k. reacted. sun" here."the
a strong headline. "may has direct brexit -- u.s. deal is off." daily mirror -- interesting headline there as well. it seems like our paper selection is interesting. if you are picking up the times, you see he is on the front cover there. wherever you look, donald trump will be on the front page of u.k. papers regardless of the choose --u e youdless of the mileu choose to read. joining us is annmarie hordern. all theabout first of sun interview. what are the headlines that
everyone is picking up this morning? marie: everyone is purchasing this paper. the u.s. deal is off. president donald trump loves a trade deal. that is what his whole last year has been about. since brexit is looking to be soft and closer to the european union rules and regulations, things like chlorinated chicken cannot come into the u.k. he does not want to do a separate deal with the united kingdom. and in another blow, boris johnson just left the may government this week and in this interview, donald trump says he thinks johnson would be a great leader. matt: that is rough. a slap in the face of his host. is going out he there with checkers. he also criticized theresa may at the nato summit. what did he say there? there he said brexit
was questioning why theresa may gave into a soft brexit. and even in the sun interview, he said -- i told her how to do it but she did not take my advice. before the interview, he dropped another political grenade. before he started the european trip he said -- out of all of these meetings, the president felt that the russian leader would be the easiest of all and holding a tough political stance right now with russia. matt: absolutely although donald trump says it will be easier to deal with the russian meeting or vladimir putin then it is to deal with theresa may. we will come back to you in just a little bit.
as soon as the blimp goes up there at parliament. bob parker.ow is but it a lot about this does not seem to have terribly negative impacts on stocks. at least not today. what do you make of the political situation with donald trump? visit toerms of his the u.k., it is compounding the political pressure points we have already. conflictt is internal to the conservative party, let us not forget that the labour party does not have a particularly coherent policy on brexit. we have the area pressure points. president trump has added to those political pressure points. you have to sympathize with the point he is making which is if the u.k. remains in some form of customs union all be a buy a
different name with the european union, that would be on the trade of goods and not the traits of services, but his argument is that the u.k. would be aligned with the eu and so therefor he could not have a separate deal with the u.k.. matt: what is the point? he tries this with angela merkel all the time. she says do not talk to berlin or brussels. this would be the same case. leaving that aside, it is trade with china that fuels how markets are doing these days. asian markets look like they are doing pretty well. are you concerned about that situation? bob: we have been concerned about that for about a year now. the trade conflict has been progressing. we now have the imposition of actual tariffs, first on steel and aluminum and now with another $16 billion to come.
with china retaliating to that. that wehas always been probably now will go through a period of stalemate. we will not end up with an outright trade war. that would be if the u.s. proceeded with what is terroristswhich is on another 200 dark -- which is another $200 billion. the model suggests that the impact on the chinese economy would be on the order of 0.2%. a different order of magnitude if it is $450 billion. matt: and on the u.s. economy. that would be cutting off his nose to spite his face. major troubles with supply chains and it would boost inflation. europe is still very subdued. don't forget that headline cpi
in the u.s. is edging up towards 3% year on year. if you went ahead with $450 billion, then potentially in the second half of this year, inflation would be well above 3% and that in turn causes a big problem for the federal reserve. matt: we are going to talk about your base case. bob parker, investment committee member. wealth management. he will stick with us. up next, we bring you some of the stocks on the move. efour is extending losses from yesterday. this is bloomberg. ♪
bloombergome back to markets, this is the european open. 12 minutes into the trading day. that us take a look at the top stock stories. : let us look at the spanish energy giant. outperforming. it has upgraded its price target. a 12% premium from its current valuation. and it is in the green. markets seem to like it. -- concerns about growth. revenue and profit are to come
in under pressure. and finally come i want to end with a built-in operator, a mobile operator, telenet. the concern is that the belgian be inor has set itself to the market. the stock is down more than 4%. matt: maria, thank you so much. those are your top stock stories. more on brexit. theresa may released the most contentious document of her prime minister ship. the howling to keep to her plan. brussels?lan flow in still with us is bob parker. brussels and then it has to float here. it seems very soft in terms of goods at least. you would still accept eu , theations, eu tariffs
european union court of justice. make is first point to that you have to make a clear distinction within this white paper on the treatment of goods versus the treatment of services. a simplistic way of putting this the plan,e plan is -- on the treatment of goods -- we will stay in a customs union with the european open. not clearlyding is saying that it is in the european union but if you cut through the verbiage, it is a customs union with the eu which is why boris johnson and david davis resigned saying that they did not like the customs union. the answer is in this plan, the
u.k. will be essentially in a free trade area or customs union. resolves the northern ireland problem because one way of resolving the northern island problem -- the border with southern ireland is that you have to have a free border and therefor you have to union.he customs the converse of that is a hard brexit on services. the argument for that is that the service sector, which takes account of about 80% of output in the u.k. economy, the argument is that it is so strong it can look after itself and it will not be the if it is under a hard brexit. matt: it is worth repeating -- alliance share of output. the other thing that is interesting is that this seems to be contrary to what the country voted for. the country, the goods sector, voted for a brexit. the services sector, london, voted to stay in.
bob: what you said is correct. where the may government has been lobbying very hard -- -- has been lobbied very hard whether itis airbus, is lufthansa saying it is very concerned about future investments. with the ofut future investment for its many plant near oxford. there is a long list of manufacturers saying that we have very complex global supply chains and if we do not have a free trade agreement those supply chains and future investment will be disrupted. the manufacturing sector has resulted in the white paper on goods. in terms of the service sector, it has not received the same level of lobbying. that thereas assumed
would not be what we would call a passport into your. that is why as that managers have switched operations to luxembourg and dublin. bankss why investment increasingly allocate resources to paris and elsewhere. matt: it almost seems like the lobbying has worked better than that democratic process. that is a long discussion. bob parker will -- will stay with us. i will get his thoughts on what you should be doing with your money right now. let us check in on the markets and see how they are doing 70 minutes into the session. green across the this green on your world map. breakdown of the markets. do not miss our interview with the london mayor especially considering donald trump's comments. that will be after 9:00 u.k. time here on bloomberg.
a fiery nato summit and brexit turmoil. as earnings season approaches, will companies deliver for investors? the politics.h still with us is bob parker. you are optimistic companies will deliver on earnings expectations which have actually risen. bob: first of all, look at the economic background. start out with the u.s. i am a big fan of the atlanta fed gdp forecast. be closeg growth will to 4% annualized for the second quarter. athink any discussion about growth slowdown in the united states has to be delayed until the middle of 2019. the economic data and background are positive. i think if one looks at margins, consumer demand particularly, the numbers look very robust indy. look very robust
indeed. corporate earnings in 2018 relative to 2017 will be up close to 20%. second-quarter numbers coming out in the next few days will be consistent with annual gain. matt: how much of that is priced in and are we at the type of this -- at the top of the cycle? not think it is priced in. we have had a miserable performance. outperformed europe and japan where we have had negative returns. look at the price earnings ratio in the us, we have come down from close to 22 around 16. equities in the u.s. are not into but we have moved more reasonable territory. a combination of good economic they do, demand holding up, the fact that the fed will raise
rates another two times, totally discounted by markets. the probability of a major selloff is low and the corporate earnings numbers will be supported. that is why i am not surprised that in the last 10 days, despite the rhetoric about the trade war, the markets have started to improve. matt: do you think we are at the tight -- the top of the cycle? you mentioned the atlanta fed indicator. does that put us at the top of the cycle especially with the yield curve coming so close to inversion? bob: i think the answer is yes. next year, we could see growth 3%.he u.s. at 2.5% versus the fed forecast of 2% for 2019 may be too pessimistic. that is assuming we do not have
an outright trade war but rather a stalemate or some resolution. 2.52% growth in 2020, it percent growth in 2019 -- the message is that we are at the top of the economic growth cycle but the pace of growth reduction will be very moderate indy. coming down slowly. and a similar comment on corporate earnings as well. matt: i assume that is the same globally. or only the u.s.? bob: european growth slowed down. they are starting to improve. what is interesting in europe and in japan has been a recent pickup in exports. after a poor period of european and japanese export growth in the first quarter of the year, that is now accelerating. whereas u.s. corporate earnings in 2019 will be more moderate than what we are seeing at the moment, it is quite likely we
will see u.s. corporate earnings in 2019lose to 10% relative to 2018. in contrast, we will see an improvement in japanese and european corporate earnings which is why an interesting investment position is will europe and japan do the opposite of what they have done so far this year? so far this year they have underperformed. the secondthat in half of this year and early next year, we will see europe and japan outperforming and the u.s. begin to underperform. matt: a fascinating position. bob, thank you for that if i. will stick with us. we have a lot more to talk with him on this very busy friday. one of the things i want to point out to you is our stock of the hour. we spoke about it earlier in the program. holdings. seven .1%.alls
investor sentiment expected to materially worsened. it will be difficult for the shares to outperform this. says that first half a profitwere hurt by warning. if you take a look at the graphic dashboard, there you go. the stock is down considerably. a 20 day average of volume, which you can see in the blue box on the top, is also up considerably compared to the typical amount traded. checking quickly on the markets. 26 or 27 minutes into the session. gains across the board. all of the political talk and headlines here in the u k and across the continent, negative four may on trump. nevertheless, we see gains in
matt: former foreign secretary boersma johnson would make a great prime minister area china's monthly trade surplus hits a record and the fed warns tariffs could be harmful to growth as well area markets ignore the politics. europe trades higher after a positive session in asia. u.s. futures are in the green as well. good morning, welcome area i'm here at europeans headquarters -- at the european headquarters in london. let's take a look at how things
are shaping up as far as individual movers. ayes earlier,ut h it's up. showing ar phone also decent gain but it's a volatile stock. most of the losers were looking at our off. almost 500 of the stoxx 600 are gaining so it's interesting to see which ones are down. metro is off 1.5%. siemens health and ears is off 1.8%. none of these stocks, interestingly enough, our ex dividend. we talked about holding -- we talked about gam holdings down almost 8%. we go to sebastian. >> u.s. president donald trump has dealt a double blow to theresa may on the first day of her visit. her brexitt he said
plan will kill any future trade deal with the u.s. and says boris johnson will make a better leader. the britain foreign ministry also slams the proposal. president trump and his wife. hundreds lined the roads were the trump's were staying. the unlikely they even saw protests as they were flying by helicopter. the week atend trump's golf resort in scotland. the u.s. and china have signaled they were open to resuming negotiations. high-level trade discussions with the world's two largest economies has stalled since last month. beijing must said commit to deep economic reforms and downplay the severity of the trade war.
presidents have defended the banks symmetrical inflation targets. ,e would be happy with 2.5% half a percent higher than the official goal. he also sees up to four interest-rate hikes. >> i have put in three for this year and three for next year. i have not moved off of that though i'm open to a increase this year. powered by more than 2700 journalists and analysts in 120 countries, this is bloomberg. matt: thanks very much for that. let's focus on the u.s. economy. we just heard from philadelphia fed resident patrick harker defending the central banks symmetrical inflation target. he also said he would support a fourth hike this year if inflation picked up. he was speaking at the rocky mountain economic summit.
let's talk more about that. we touched on this earlier. i want to get views on this. we had a bloomberg survey out saying the market expects the 10-year to continue rising steadily. that's contrary to some of the opinions i got on wall street. they think there's enough buying from international investors to hold rates where they are. bob: international investors are attracted to the 10-year given the very poor yields that they have alternatives. no one looks at 10 year treasuries versus 10-year bonds. we have a yield spread to jj hb. we have a very clear picture.
to 12 months. that's one of the reasons why international investors are buying the international treasuries -- or bind the 10 year treasury. it's also a lot of hedging because people are saying they don't know whether they'll be a trade conflict. they are worried about geopolitical risks. how are we going to hedge ourselves? investors are hedging themselves by buying u.s. treasuries, not gold. you have seen what happened to the gold price of the last two or three months. that's the reason behind the buying. your question about where the 10-year treasuries are going to go, i think it's fully discounted that the edit raises rates another two times this year. what is not discounted is will they raise three times next year. my own view is after a strong u.s. economy in 2018, as the u.s. economy starts to moderate, i don't think we're going back
into recession but as we start to moderate, especially in the second half, i think the fed probably won't raise rates three times next year. they may only raise one or two times. i think the tightening cycle may end. i think that puts a ceiling on the 10 year yield -- 10 year u.s. treasury. aswe get headline inflation i think, close to 3% for some time. frankly, 10-year u.s. treasury yields represent very poor value. i think a central case of the unit this year is a 10 year treasury yield close to 3.2. i think it's highly unlikely. matt: thanks for your time. joinarker is going to myself and mark barton on u.s. -- on bloomberg radio on london
dab and tournament -- dab in 20 minutes time. let's hear from patrick harker. >> the prominent part of u.s. economy is services. service inflation is what i watch most closely. >> the cbi's not the fed's favorite method of tackling inflation. it tends to run three or 5 -- f5 basis points -- three to ive basis points below. >> what we've always said is the target is symmetric. it staying there. i would become through with it. be comfortable with it. i think it's a matter of acceleration and change inflation rather than the overall number. do isher thing we have to
not just the core, breaking it down in my mind, services are by -- if we see increases in service inflation it was see wages increase as well. growth rate of 3% or better in this quarter, and bramson this quarter as well, -- in the most recent quarter and perhaps in this quarter as well, does that change how many moves you need to make? >> i put in three for this year and three for next year. i have not moved off of that but i'm open to a fourth increase this year. >> that raises the question of where you stop. this that mean only two next year? >> we need to let the market play out in the economy play out
next quarter and next year. thehe spread between december 2000 19 and 2020 will be little wonky. done andn 2019 seems is a chance by 2020 that you will have to be cutting. >> my crystal ball is not that good. we should be pragmatic and proven about these increases. i think the term that reviews and i'm strongly supportive of our gradual increases. that's why haven't moved off of freeze yet. i could support a fourth if the data vaults in a way that would support such a move. right now, i think we should take this slow and steady as we have done in the last few years. the gone the trading desk is saying once that fourth move depended on? >> i think it's inflation. if we see it, we have to act.
i think there's lots of good reasons to hold off area -- hold off. >> you submitted new economic forecast so what your forecast? how fast you see the economy growing? wears unemployment going to does inflation go? >> we see unemployment around 3% where it is now. unemployment we see as coming down a little bit more area -- little bit more. it went up because of more people entering the market but the evidence is pretty clear. economist at philadelphia that a lot of work on demographics. we will look at labor force participation going down of perhaps two percentage points. although it's good news that more people are coming of the sideline, i don't think we can bet on that for the long-term. we will see unemployment come down for little bit, maybe 3.6
welcome back, this is the european open. president donald trump affirmed the u.s. commitment to nato. but only after dragging top allies through a chaotic today's of insults, accusations, and demands for more military spending. with us now from brussels is guntram wolff. thank you very much for your time. i have been following this from new york. you get a more u.s. sympathetic take from there. to me, the most fascinating piece of this is that the north stream pipeline continues to be an issue. why do angela merkel has put so much of her political firepower behind making a deal that enriches vladimir putin and hurts the ukraine?
that's a very good question. it's a project that would increase and improve energy supply in central europe, in germany in particular. if weice would be lower import more gas from russia then we do from the u.s.. having said that, i don't think under the merkel herself was ever very sympathetic to the project. the party that has really been driving this with the social democrats. her coalition partner and the foreign ministry in germany that always thought of this is a project that is helpful in a blue -- improving their relations with russia. i would reject a bit the notion that it will hurt strongly the ukraine. i think at the end of the day, ukraine's gas supplies can be
ensured with gas flowing from the west to ukraine. i think it's a little bit of an overblown story. story frommore of a the social democrats and angela merkel has reluctantly bought into this. rewarding ams to be country whose unilateral -- unilateral behavior is often condemned by angela merkel. we've been receiving last 50 russia for the or 60 years. , even atalways been the height of the most confrontational time, it's been not an issue. so even in the cold war, west germany has been receiving gas from russia and from the soviet union. and it was not an issue.
sense, i think it's more a question if we buy less, a lot of u.s. companies would benefit. we would pay higher prices that the end of the day russia will be able to redirect it supplies elsewhere. i think it's a little bit of an overblown story. butave commercial contacts we are also very tough on russia. matt: let me ask you another question about what has been the case is the second world war. it's some people think time for a change. the u.s. pay such a huge share of nato's budget. the u.s. pace 72% of nato's budget. is there a reason it should be so high still?
guntram: i think the main reason the u.s. spends so much is for its own interests. president putin wants is he wants president trump -- is he wants what president trump wants, he wants europe to spend more to the u.s. can redirect some of the resources to asia. i think in principle, the u.s. president has a point. thatpretty unacceptable germany still doesn't have a functioning military and germany needs to get its act together on the military. it needs to make sure that they swimmingng planes, submarines and so on. it's pretty embarrassing area i'm actually quite on trump's site here. merkel and the german establishment need to move. they may not have to move all the way up to 2% but at least
gets it right relatively quickly. eventually the 1.8 or nine or what ever. i think germany is underspending in the military. is germany underspending in general? they need to be spending not only on military but drastically need to be spending on infrastructure as well. i entirely agree with that point. germany has been extremely reluctant in using its budget capacity but also it structured policy to actually increase investment in germany. both corporate investment as well as public investors, germany has been underperforming andthe last 20 years area there's also to pretty significant current-account surpluses and its not even good for germany.
instead of investing and consuming at home, we are into unprofitable investments outside of germany. it's time for germany to change is domestic economic policy. time areaks for your at go from wolf is a director of bruegel. at&t says the trump administration appeal against his merger with time warner won't change anything because the deal is closed. the company says it will take the fight on the way to the supreme court if necessary. challenging a judge's decision. i guess past tense is the best way to talk about this. let's talk to our global business executive editor, and jackie simmons. is this a done deal? does it matter that the doj is trying to throw a wrench into the machinations of this merger?
at&t ceo randall stephenson's is the five this week and says this is a done deal. it's all about execution. however, the company has left the window open in case there is an appeal. turner broadcasting and put it to the side. they can offer a separate company for year just in case government comes back and went on appeal. they are moving ahead but yes they are pretty much aware that is a possibility the government might when an appeal. matt: what is the significance for vertical mergers in general? >> it sets a huge precedent. it's been decades since we've seen a deal of this size and magnitude.
we have other vertical mergers that are basically underway. blocked, it's can have an influence on how those are made. not,e looking at cvs, and two different companies and two different business lines coming together. we have a comcast deal were looking at frost. that's in a set a precedent for what is to calm. the justice department faced an uphill battle this appeal that at&t's vauxhall in after-hours trading. is the market going to be concerned with all these other related deals? >> it is having a knock on effect. it throws a little bit of skeptic is that skepticism as to whether this will fly. or will they have to sacrifice major asset like direct tv or turner broadcasting? the market does think that there's the possibility it's not
a clear shot. i think that's what we are seeing from after markets. thank you very much, jackie. let's get you should be watching today as we have been hearing donald trump is here in the u k. invited to an audience with the queen at windsor castle later on today. we will show you pictures of the blimp as soon as it goes up. before the u.s. open earnings season takes off, we have numbers from several banks. a big day for u.s. financials. we of sovereign rating updates for germany, italy, pain, turkey, and qatar. i quickly want take a look almost an hour into the session at how markets are faring. it looks like investors are seeing directly through this political noise and buying stocks. the ftse outperforming the rest of european markets, up two thirds of 1%.
time for our battle the charts. maria today are will play dani burger. maria will kick in soft. go for it -- kick things off. go for it. story of the day. president trump attacking theresa may telling her you need brexit plan or there's no u.s. trade deal. look at this chart. this is the trade relationship between the u.s. and the u.k.. what you can see is that in reality when you look at the data, the u.s. gets the best end of this deal. last year they posted a massive trade surplus with the u.k. and this year the u.s. is also on track to see a surplus area right now, we have about $500 million but as the year continues, that could go higher. the idea is when you look at data, it's the u.s. that is eating the good deal. we will take that one into
consideration. what do you have? >> always given me some tough competition. i'm looking at another trade angle of this is not just crude reacting. this is another knock on effect. this is bearish options on the largest junk bond etf. look at how the number has skyrocketed lately. it's sitting just under a record that was set in may. we are seeing the more a merge in this space and hedging going on as people are nervous that trade is going to have an impact on high-yield companies, especially in the energy space. taddeo have to say maria brings it with the news of the day. it's all about trump, it's all about trade surpluses but i prefer danny the high-yield angle. i like to look is that my think it's a longer term trend. investors desperate for yield are looking at it very closely so i will declare you, dani
burger, the winner of today's battle of the charts. you can see all the charts that we used on the program here on bloomberg. just type g tv on your terminal. to seal the charts, feel free to use them in your work or copy them foreign instagram. will bring you are live interview with london mayor sadiq khan in just a little bit. it will be especially interesting considering the comments that donald trump has made about the mayor in relation to terrorism. we will get his response to those comments and certainly a lot more. stay tuned for that interview with city on. -- with london mayor sadiq khan. up next, francine lacqua joints you for surveillance. we are watching westminster very closely. this is live. there is not yet a blimp. we will bring it to you and there is. join myanmar barton. that's live on london dab.
francine: the u.s. president slams the prime minister's brexit plan. what does it mean for the trade deal? protests are expected across the u.k. is the president meets this afternoon. target with the frequent of cap tax sadiq khan. china's monthly surplus with the u.s. hits a record. welcome to "bloomberg