'Bloomberg Surveillance: Early Edition' Full (02/22/23)
This is Bloomberg Surveillance early edition with Francine Lacqua. Good morning and welcome to Bloomberg Surveillance Early Edition. I'm Ana Edwards, in for Francine Lacqua this morning here in London. Here's what's coming up on today's program. President Biden says Vladimir Putin will never win his war in Ukraine. As The Wall Street Journal reports, Xi Jinping is preparing to visit Moscow.
We'll discuss with Ukraine's deputy minister for agrarian policy phasing out the big four. China is urging state owned firms to stop using the biggest international accounting firms, signaling continued concerns about data security. Plus, Lloyds drops in London trade after a mixed set of results as the lender announces a two billion pound buyback. We'll have more from our interview with the CEO. Welcome to the program, everybody, just for 9:00 here in London, 10:00 if you're in Paris or Berlin. Let's get straight to a markets check, an hour into the trading day. You can see the stocks.
Your appearance here in in Europe is down by eight tenths of 1 percent. Pretty broad based across sectors. Only one sector last time I checked in positive territory, that was media. And that was largely to do with an
update from voters clear over in the Netherlands. So that's the state of play on equities. S&P futures pretty flat. We've actually seen a bit more positivity in the US futures picture. So that's deteriorated over the past hour or so. We'll keep that in mind as we head towards the U.S. session. And keeping an eye certainly on the
yield story, we see yield movements really to the fore. Yesterday we saw yields going higher in treasuries and on gilt markets in yesterday's trading session. Today, we've got yields going higher in the U.K. up by 3 basis, 3 basis points at the short end. I can see and similar amounts actually across the curve up by around that over at the 10 the 10 year tenure as well.
Let me get to some data coming out. In fact, let me get to the map of European stocks. You can see it's pretty broad based. I mentioned there was only one sector in positive territory. We'll know geographies in positive territory, as you can see there, as some of the worst of the selling coming through, it seems, over on the IBEX in Spain. Let's get to some breaking news. The German Ifo data is in this crucial measure of business confidence at the E phone number, then coming in that confidence index at ninety one point one. The estimate was for ninety one point
two. So not a million miles away from where the estimate was. This is a crucial guide on the German economy, of course. And have we seen a deep a deeper downturn averted for the German economy? That's the key question, really, hanging over Germany, hanging over the eurozone. Hearing yesterday from the ECB,
Christine Lagarde, she expects no economies to be in recession in the eurozone in 2023. Is that a bold call? We'll talk more about that a little bit later. We're going to be talking to the deputy director, head of surveys at the Ifo Institute. That conversation coming up a little bit later on. So we'll deep dive into the German economy shortly. For the moment, let's take a step back
and talk about the global picture. Global bonds are poised to erase all of the gains made in January's record rally. As I said at the Fed, pivot hopes with a Bloomberg index of global bonds has dropped some two point nine percent this month, unwinding most of its surge early this year. Joining us now is JP Morgan Asset Management's EMEA chief market strategist Karen Ward.
Karen, very nice to have you with us. Thanks very much for joining us. And let me ask you about the global bond market story then and how it's developing very much before our eyes, because just yesterday we had that PMI data that was positive, a positive in the sense of the economy is doing well, but that gets everybody worried about how high rates go. What do you see for the rate story as a result of the strength in data? Well, I think that's exactly it. I mean, certainly the slowdown, weak activity, recession this year was required.
It was what the central bank's last year was saying was the price they had to pay to bring inflation down. So unfortunately, we're in that point in markets where good economic news is bad news for markets. And I think the market just got a little carried away at the start of this month that Goldilocks was back and that we could have strong growth with inflation pressures completely diminishing because we had a couple of indicators that shelter inflation was rolling down, wage costs were at least peaking in the US. So that Goldilocks narrative gave a
little bit too much momentum. That was just too complacent. We're just not going back to that very low inflation world. And I think investors, particularly in the bond market, just need to shed the idea that 2 or 3 percent on the US 10 year is the right number.
OK. And so how high do those rates go and how long do we stay there? I suppose crucially, because you think that we are in a structurally very different world, the higher inflation, higher rates are here to stay. Yeah, absolutely. And I like 4 percent on the US 10 year feels about. Right. I think what what I was getting uncomfortable about in in pricing wasn't so much that rates needed to go much higher. It was the idea that the Fed was going
to be dramatically cutting them by the end of the year. And again, it just seemed to Goldilocks to me that inflation pressures would completely diminish and they'd be able to rapidly cut to try and engineer that soft landing. So it's there. It's the sort of medium term trajectory for where rates settle or not. Think they're going to go much higher in the short term.
So I don't think in any way we're looking at bond problems like we experienced last year. The scale of that. Pricing and reset, I think was a one off, but I just don't think you're gonna get capital gains on bonds this year in the way that some are forecast, maybe we just don't reverse those bond moves. Exactly. That's fine with getting them 4 percent income on it on a US 10 year. We're getting five and a half on on an investment grade bond and we're getting something more comfortably now what we could actually call high yield. Right. I don't want those yields to come lower like the income. And then, of course, we also get
diversification from those bonds if things do turn out. But I suppose we spent a lot of time worrying about high inflation, worrying about where the global economy lands, Karen, and maybe not enough time reflecting on the end of the low interest rate environment and what that really does offer to investors. Give us a sense of the opportunities then that you see. Yeah, absolutely. And I think the critical point to me is that inflation will come down. It's not going to stay in the double digits, but I think it's going to settle structurally something a little bit higher. The goods, disinflation that was so evident.
I mean, the best stuff to give you hear on is that in the UK, the basket of the goods we bought cost the same in 1990 as it did 30 years later. It's really hard, I think, to envisage the same thing happening again. So we're not going to see that goods, disinflation, the structural forces raising inflation slightly. You're going to be there. And I also think the central banks eventually not today will move their inflation targets on the basis that 3 is a better number than 2. So I actually think for investors, though, this is really good news. You know, often investors say to me, well, hang on, zero interest rates, low inflation was great for investors.
It was great for investing in mega cap tech. Yes, it wasn't great for the whole market. It wasn't great for bonds, it wasn't great for European stocks. It wasn't great for financials globally. It wasn't great for value stocks. And say, for me, it's really about thinking what this new world looks like and then who will going to be the beneficiaries? It will not be the beneficiaries that were those of the last cycle.
That's what's really critical. So this is a different cycle. So where does that leave European stocks then? We've got a few dynamics in the mix. I mean, European equities had a good start to the year. We had been having a good start to the year because of Chinese reopening. That was certainly a narrative we're
following closely. Some houses saying maybe that's done. Maybe we've seen that rally. Also, the banking sector doing well out of net interest margins. I mean, where do you see the focus for gains in European stocks? But it was a cyclical and a structural story. The cyclical is the risk that we faced a couple of months ago, which was that Europe would simply run out of gas and then they would be working out how to ration it between corporates and households. That's gone. We've got 70 percent gas in storage. We're not only find for this winter, 5
for next winter. And by the time we're looking at the 1 billion, we've got renewable plans. So, in fact, the energy crisis for Europe. But risk has not materialized. I also don't think Europe then, you know, we talked at the beginning about whether resilient data is actually good news for investors.
I think for the US, it's very questionable. That's not necessarily the case for Europe. I think the ECB isn't as worried about overheating in the way that the Fed is. So I think the cyclical story has improved dramatically.
The resilience of consumer demand in the face of higher interest rates. Then there's the structural story, which is partly about nominal growth. I mean, I just think that the the euro zone's lost decade, which it really was. I mean, last decade was just awful. Nominal GDP stagnant. I think austerity was a really big part of that story. And we've seen the mindset of governments in Europe totally change during the pandemic and the war. And it's do you see more fiscal
generosity? It's in the it's in the pipeline. The plans, the recovery plans are well, I think just be further ramped up. So I think that the underlying nominal growth picture for Europe is now structurally different. And then, of course, I don't we haven't even got into the sectoral composition of the benchmark, which is really important also because as we've said last year, the last decade, you wanted mega cap growth. Where would you go for that?
You went to the US. Now you're thinking about financials. You're thinking about some value segments of the market. You're thinking about climate technologies as the structural trend.
Where would you go if you can come to Europe? So is it crucial, then, that Europe tries to match some of the subsidies that the US is doing around incentivizing investment in climate technology, if that's going to be part of of Europe's system, a USP, possibly? I mean, I think that we have to distinguish between investors and economies, because if there's a subsidy, which means a company, a major turbine producer, for example, an electric car manufacturer sets up a plant, a European company sets up a plant in the US that's going to boost their economic growth. But if you're a stock picker, it's less relevant. Yeah. So I think Europe benefits whatever shakes out of the IRA vs. EU plan. But I'm I'm sure we'll see some degree of matching.
OK. Karen, thank you so much. Really good to see you. JP Morgan Asset Management's EMEA chief market strategist Karen Ward joining us here to talk about her outlook for the.
Coming up, we'll discuss that latest iPhone DAX. We just broke at the top of the hour. We take the temperature of the German economy. The deputy director of the Ifo Institute joins us next. This is Blaine. Economics, finance, politics. This is Bloomberg Surveillance Early
Edition. I'm Anna Edwards in London in for Francine Lacqua today. Let's get to Bloomberg First World News updates and other top stories we're covering this morning. Here's beanbags, LeAnn Karen's. And good morning, U.S.
President Joe Biden says Vladimir Putin will never win his war in Ukraine. In a speech marking almost one year since the invasion, Biden also warned there will be hard and very bitter days ahead. That fire will never be able to ease the people's love of liberty. Brutality will never grind down the will of the free Ukraine.
Ukraine will never be a victory for Russia. Never. Now, China's top diplomat says relations with Moscow are, quote, as solid as a rock. When these comments were broadcast on Russian TV after a meeting in Moscow. Now The Wall Street Journal reports Chinese President Xi Jinping is preparing to visit Russia for a summit with Putin in April or May. Global news powered by more than twenty seven hundred journalists and analysts and over one hundred and twenty countries.
I'm the AM guarantees. And this is Bloomberg. Anna Van, thank you. Now over to Germany. Germany's business outlook has improved for a fifth month as Europe's biggest economy looks set to avoid the gloomy scenarios many feared after Russia invaded Ukraine. And expectations gauge by the Ifo
Institute rose to eighty eight point five in February from eighty six point four the previous month. Joining us now from Munich is Klaus Rule Rabah, who is here to discuss the findings, deputy director and head of surveys at the Ifo Institute class. Thank you so much for joining us. So the business outlook improving further amid some signs of resilience, I suppose, in the German economy. How would you sum up what we've seen today? Yeah, you stated why did German economies show signs of resilience? So we see a further easing of supply bottleneck. There are lot of firms that say they are less pessimistic about the upcoming months.
So we could be energy prices are slowing, deaths are decreasing. That is good news for both the industry sector and also for the auto sectors, especially the service sector. Yes, indeed, especially the service sector. I mean, yesterday we saw a German manufacturing PMI data clouds that seemed to come in below estimates. It seems to be a little while since we got disappointing data from Germany. Are you at all nervous about maybe parts of the economy? The manufacturing side, for example? Yeah.
I'm not. No, I'm not concerned about the upcoming development of the German economy, BBC, a slight little drop in the assessment of the current situation in the industry sector, which is some kind of due to a weakened global demand. So the export expectation dropped a little bit. But there's no signs of concern and disagreement in this way. Is that because the outlook so the number of firms that seems to be pessimistic in the last months are gaining more and more optimism with respect to the upcoming months and also the service sector especially. We saw this sign that the hotel sector
in the tourism sector is quite optimistic with respect to the summer holidays. So these are good. Good news for the German economy. Yes, a lot of optimism around the summit then from the tourism space, Clowes. Let me ask you about the supply shortages. You've said that we've seen an easing of
some of the supply bottlenecks. How normal does the supply side look then in Germany now? To be honest, we are a little bit far away from being normal. So we have seen a drop off a sweet percentage points from 48 to about 45 percent, which is historically quite high. But we see this reasoning happening over the last half a year approximately. So these are good news.
So for a lot of films. Yes. To supply bottlenecks, which allows them not allow them to produce as much as they want to because we still have a large backlog of orders. But if this development would continue, we will see it picking up off the industry production over the next months.
What do you expect to see for the German economy as a whole this year, whether we see a recession or not clouds? I saw the Bundesbank said this week it still expects output output to fall slightly this year. I know that Christine Lagarde yesterday said she doesn't expect to see recession in any eurozone country this year. What do you expect in 2023? Yes. So we have begun to have a technical
recession in this quarter. So we have, as we quote, the last quarter in 22 and we will have a negative growth rate for the first quarter this year. But after then we will see a pickup of growth rates in Germany. But for the whole year, we would expect it. Best case is stagnation. Maybe a slight pause, maybe a slight negative.
So we will be a gross way to wound close to zero. So not as pessimistic as many of our expecting last year, but also not so optimistic as we would like to have. So but given the current situation, these are quite a good outlook. Times a lot of European countries have done a lot to try to find alternative sources of energy to diversify away from Russian gas, and Germany has been certainly a driving force behind that.
How far through that process do you think Germany is? How far down the road in finding alternative sources and removing that concern from German business? And so do you. The politics was quite encouraging or was trying a lot to accelerate change or to to have new sources of energy supplies. So given the approach change order given to start off on the Ukraine, we were quite successful, but it did generate development for new sources.
Yes, a lot of weight to be done. And so a lot of things to do for you, but some politics. So we do it. We cannot rest and say, OK, we have done quite good way.
So energy prices went down, but it's still a lot of way to go. So politics, a lot of things to do. Also, de enterprises, two companies. So even deposits are low again. So that can be changes. So we do kind of walk in gross again so that we could have a shortage or an increase in energy prices. So the films on products must be a way I
did. Things can change quickly. So they need to go away for us. If I started last year. Yeah. Be interesting to see how businesses
respond to those lower commodity prices. Thank you very much for joining us. Klaus Valderrama, that deputy director and head of surveys at the institute. Coming up on the program, the EU says a Brexit deal is within sight.
We have the latest on efforts to resolve the impasse over the Northern Ireland protocol. That's next. This is LIVE. Economics, finance, politics, this is Bloomberg Surveillance Early Edition. I'm on Anna Edwards here in London. The EU's chief exec negotiator, Mario ISE Covid, says the finishing line in talks with the UK is within sight.
Thornton and Brussels are seeking a resolution to the implementation of the Northern Ireland Protocol, which deals with Northern Ireland's trading relationships with the EU and the UK has been a post Brexit sticking point. Joining us now, Bloomberg's Joe Maze with analysis of this and other themes here in the U.K. right now on the Northern Ireland protocol. Then, Joe, we saw at the weekend to
expect details on Monday than we saw on Monday. We should expect details on Tuesday. Something is holding this up. Is it entirely domestic UK politics that is holding this? Yes, it feels like it is it's where she's not trying to get his party on board with his plan and especially that key caucus in the Democratic Unionist Party. No bonds DP who are basically going to
be the party from whom other conservative parties take their cue as to whether to support the next deal. So, yeah, lots of work. How is it going in western states to get all the ducks in line? But Richard, you know, have this ultimately decide he can't get all those people onboard but proceed regardless because he might think that their red lines are just too difficult. This negotiation. My just a few of the GOP massager. I mean, it's not that sort of tight control of parliament that we saw on the Theresa May and therefore the DP had much more of a role in terms of the number of votes.
Is it more about the tone that they set for Brexit is. Yes, it's the tone and the very strong relationships they have with the European Research Group within the Tory Party, the AIG, and very close links with influential former cabinet ministers like Jacob Rees-Mogg, Simon Clerks at the meeting yesterday. Deep in the AIG. Yeah, that isn't that there are a pretty vocal minority and yet they can really set the tone for this and then they will kick up a real fuss.
It's a bit like that being portrayed by C, not in the negotiations. So yes, there is a threat that has to be managed. Yet despite some of our reporting suggesting that Northern Ireland, one of the places in the UK that's done quite well, actually out of the Brexit agreement, RTS is in terms of the economics, at least the politics is something different. Just briefly then, Joe, how do you interpret the fact that UK nurses have suspended their strike for intensive talks with ministers? It does feel like there's been a subtle shift in moods. We saw the evidence go into the pay review bodies yesterday where the Treasury was saying three point five percent pay increases could be permissible.
But then again, it seems like we've entered a new phase of these discussions around pay, which could be more positive. The government's keeping his cards close to his just this point. But, yes, a potential shifting the mood that suggests we could see potentially an end to all these strikes. OK, Joe, thanks very much, Bloomberg Daybreak. So with the latest on the U.K., we'll be covering all things UK every week on Thursdays at 930 and a half hour, special programming around the UK economy and UK politics.
Coming up, Biden and Putin take center stage as the world gets ready to mark one year of Russia's invasion of Ukraine. More on Ukraine next. This is. President Biden says Vladimir Putin will never win his war in Ukraine, as the Wall Street Journal reports, Xi Jinping is preparing to visit Moscow. We'll discuss with Ukraine's deputy minister for agrarian policy phasing out the big four. China is urging state owned firms to stop using the biggest international accounting firms, signaling continued concerns about data security. Last Lloyd's drops in London trade after a mixed set of results as the lender announces a two billion pound buyback.
We will bring you more of our interview with the CEO. Good morning and welcome back to Bloomberg Surveillance Early Edition. I'm Anna Edwards in London, in for Francine Lacqua. This morning, President Biden had words for Russia in a speech marking one year since Moscow's full scale invasion of Ukraine. A dictator gone on rebuilding an empire we'll never be able to ease the people's love of liberty. Brutality will never write down the will
of the free and Ukraine. Ukraine will never be a victory for Russia. Never. The US president was speaking in Poland after President Putin used his State of the nation address to say that Russia is suspending its participation in a key nuclear treaty. Bloomberg's Oliver Crook is in Warsaw with the latest, has been watching the movements of the US presidents and all the meetings he's been having. Oliver, what do we know about the the
pact that Russia said it will withdraw from this important nuclear pact between Russia and the United States? That's right. The new START pact, that is the nuclear agreement between the United States and Russia. It is the only such pact in existence and is the two biggest nuclear powers on the planet. So obviously, when we talk about withdrawing or suspending from that, just a suspending it gets people's attention. So it's a nonproliferation agreement. This map.
This puts a maximum of fifteen hundred and fifty nuclear weapons that each nation could have. It comes with also some arrangements about being able to check and inspect for these weapons. But these inspections have been put on hold since the beginning of the pandemic. And then in January, the U.S. said that Russia was not permitting these inspections to take place. So this suspension is perhaps more of a negative signal than an act of immense substance. We should note a couple of things. Putin made it very clear this was not a withdrawal.
This was a suspension. We should also say that the foreign ministry later said that they will actually abide by the treaty until 2026 when it ends. And also, this does not cover these the battlefield nukes. That is the fear that could be used in Ukraine. China's role in all of this clearly crucial and looms large on the agenda. Then this week we know that China's top
diplomat, Wang E, meets with the Russian foreign minister, Sergei Lavrov later today only. What what is China's role in this? So it seems that that meeting has just taken place. We've got a couple of photographs. We did not get a huge number of lines from it. What we did say is one line from from
when you using regardless of changes in Internet, the international arena. China is willing to maintain good relationship with Russia. That is a fairly hedged pronouncement. We know that China has been sort of semi Russia aligned throughout all this, but it seems now it kind of wants to come to the table as a neutral broker for this year for the war in Ukraine, saying that they may have a roadmap for peace that they're going to put out this Friday. Very hard to say how that avenue is completed while respecting Ukrainian territorial sovereignty, which is obviously a red line for Ukraine while also giving Russia what they need. Also, The Wall Street Journal overnight saying that Xi Jinping may go to Moscow in April or May.
So an interesting line that's being tried here by China. OK, Oliver, thank you very much. All of a. Life for us in Warsaw. It was known as the breadbasket of
Europe. But since July, Ukraine's grain exports have dropped some 30 percent, meaning nearly 11 million tons less wheat shipped to global markets as the war in Ukraine approaches eight one year mark. The impact on global food prices has been stock. For a more detailed conversation, we're joined now by Ukraine's first deputy minister for agrarian policy and Food, that is Tariffs VI Sawicki at times. Very nice to speak to you. Thank you very much, Deputy Minister, for talking to us. I want to ask you about agricultural
policy in Ukraine. But first, I just would like to get your view. Your thoughts on President Biden's visit to Keeffe and also to Warsaw. What do you think of seeing the U.S. presidents in Ukraine? Hello. Thank you for calling. Of course, it's way too important for us
as a country. We are thankful for this visit was this signals and of course we're going to find deals. And it's very important that we have the support or support or for the three counties, Democratic counties, which is a USA. And it's very important for the agricultural sector of Ukraine because it provides the possibility to lend forward and to keep their organs.
Eugene Collison and more on. So this visit has also provided the necessary feelings of stability for the farmers Ukrainians. It's just important because we are going to start seeing in a few weeks.
Okay. So that provides a backdrop of more stability, if that's possible. Deputy Minister, can I ask you about the grain export deal that is currently in place that allows Ukrainian products to be exported around the world? The deal signed, of course, with Russia. I know that the renewal of that should happen in the middle of March.
What progress has been made on that grain export deal? When you talk about grand, you export a deal. Two deals have been signed. One deal was signed by Ukraine, Turkey and United Nations. And the NASDAQ. Why take United Nations some trust? So Ukraine keeps negotiating and communicating. Is our partner successful tech and united factions? That is where it is extremely necessary.
Approval that a great deal which really ends the month of March. First of all, it is really critical for the national security. So far, our partner is doing its best to prolong all of the rest, and Francis understands the importance of all negation. And we hope that it's going to happen and the sooner the better, because once again, it is a possibility to keep planning for the ships to come in for the production Trident and so on. Mm hmm. So you're hoping that the deal will be prolonged.
The conversations are ongoing. Do you think that perhaps Russia will change the terms? I know that you've pointed out there are two deals here. Your deal is not with Russia, but do you think that Russia will try to change the terms? Plus, each time it's there's there are some negotiations. Russia also tries to get maximum for each side, but also Ukraine has proposed for my exam amendments. Damn salsa. Adding additional false or identical additional varieties of cultural products. So distills a matter of negotiation.
At least it's very important to save as the current conditions because we have seen the positive effect of exports from Ukraine to the international markets. And we'll do our best to keep. It also kind of keeps developing also as unnecessary its roots of export because we are ready to see all the obligations in supplying agricultural products to the countries in. Deputy Minister, you've said that the planting season is going to the sowing season is going to start in a few weeks time.
What are your expectations for the grain harvest in 2023 compared to last year or compared to two years past? So first of all, when they talking to our farmers and Lanyon, it's sold out positive news that farmers are going to. See it all Zach's areas available. So the whole lands that at least the same areas are going to be lighted and then harvested as in 2022. Unfortunately, still as the overall harvest, it's likely you'll be less than 20, 21, because in 2021, because the crops harvests, first of all, because less fertilizers are used due to their economic problems and lack of financing for the farmers, but feel that Erik Schatzker are going to be used and sold are going to be the same. And that's very positive news. How are farmers faring financially? How are their finances looking? It is a lack of finance holding the farming.
The farming industry back in Ukraine. It's one of the biggest challenges, availability of finance. That's why Ukrainian government have started since last year's arms program, which compensated interest rates for their credits taken by the farmers.
The banks, which have supported the law, also set up plans to keep her finances, his problems. So you guys have with such Basil's legal arguments and support of international partners. We are doing our best shows is finance and challenging and still provide the necessary information to farmers. But Dewar Tools, that already spans the
logistics, first of all, because of financial blockade. Of course, steel farmers receive less prices and it's hard for them to invest in very intensive technologies. Tamara, thank you very much for joining us. Ukraine's first deputy minister for agrarian policy and Food, Terrorist Vice RTS.
Thank you for giving us your time. Coming up on the program, we'll switch our focus to China. The big fork could be no more in China as authorities urge state owned firms to phase out using the world's biggest international accounting firms. We'll have that latest story for you
next. This has been. Economics, finance, politics. This is Bloomberg Surveillance Early Edition, I'm Anna Edwards in for Francine Lacqua in London this morning. And now to a Bloomberg scoop. Chinese authorities have urged state owned firms to phase out using the four biggest international accounting firms over data risk concerns. For more, we're joined by Bloomberg's China regulation reporter Killian Wong, who's in Hong Kong for us.
Keegan, good morning to you. So what did China tell its state owned enterprises about this change? What was the message from China? Money. So from what we understand, Beijing has told some of the state owned companies Gillette audit contracts worth deep for firms to expire so they don't need to cut ties immediately, but gradually offload them and to replace them with local Chinese. Our Hong Kong auditors. There's no hot that line as far as we know. OK, and what's interesting about this is
the story itself, but also the mood it creates and it seems to fly in the face of recent developments where we saw the U.S. regulators and Chinese companies reaching some kind of or the Chinese government rather, reaching some kind of deal around audits. How are these stories joined up? But the PCAOB instruction itself was successful. But Beijing is still concerned of data
security with all its companies financials to be handled by Western auditors. And on the other hand, China also wants to grow its own professionals to let them have more experience to deal with bigger companies. And as we heard about the directive. Mm hmm. Yeah. So that there's a sort of competition element to this as well.
Why do these companies then need to cut ties with big four firms? I mentioned in the introduction that this has to do with data concerns around data security. What's the argument there? Well, they are really not quite sure about how the Western auditors is going to handle those, and that's why they want to look into that. But then for international investors, it could be worrying because it could be even more difficult for the Chinese as our is to appeal to international capital. If they shift from bank for two years, local auditors. So, I mean, we will have to wait and see how the impact setting. Yeah.
So we'll see how this plays out for the Chinese firms and for the auditing businesses, the international ones and the Chinese ones. What will it mean for international investors then looking at China, trying to work out what this tells us about how open to outside expertise. China is? Well, this is certainly not a good sign for them with, you know, China seeking to be included in more global indices and then or the international opening schemes, that that could send a not very good signal to it. So but then again, this is kind of the
very early beginning that we we are we are seeing the signs. So we had to wait and see what the impact. Q Yes, thank you very much for joining us.
Bloomberg, sir. Q Yin Wong with the latest on that developing story in a Bloomberg scoop. Back to the early stories here in Europe. Lloyds shares have slipped after the bank's guidance for net interest margin disappointed some analysts outweighing the announcements of a two billion pound share buyback. Some analysts describing that as a little light.
Now, speaking to us earlier, the CEO of Lloyds Banking Group, Charlie Nunn, said the UK lender has resilience and remains very competitive for savers. We're very focused on our savings customers and our borrowing customers. I think the important point of context for savers is about 80 percent of our 26 million customers have less than five thousand pounds in their deposit accounts and savings accounts and 65 percent have less than 1000 pounds.
So in terms of the cost of living and those that are struggling to make ends meet, we have a real focus on those customers for those customers that do have money to invest. We've been very focused on the savings market, as you'll have seen at about Q3 last year when base rates got to about 3 percent. We saw a much more dynamic savings market. Consumers were looking for returns and Lloyds Banking Group has started to put savings products on the shelf that can meet the needs of those customers. There are savings products, but ranging
between 2 percent and 5.5 percent for those looking to build their savings over time. And you've said this morning that you're seeing more competition in that space. Charlie, what kind of businesses are providing that competition at this time? The savings market in the UK is a very dynamic, competitive market, and there's a set of smaller financial institutions that offer competitive rates. Investment firms, but also the major
high street banks and policy. Lloyds Banking Group is the biggest retail and commercial bank in the UK. So we're in the latter group, but you've seen dynamic competition around all of those players in financial services. Can I ask you about the the bad debt story over at Lloyds? Any sign of distress? New books, clearly.
You've given us an update on provisioning today, but what are you seeing? Yes, the overall economic environment is resilient for our customers, both for individuals, families and businesses. And as we exited 2020 to use, as you said, we did increase our provisions around our economic scenarios largely for 2023 and 2024. But we continue to see very resilient customers. There are some very specific areas where we're seeing customers start to miss early payments, but it's still by product significantly below or below the levels we saw pre-K grade. So very resilient customer behavior. Lloyds Bank CEO Charlie Non speaking about the customer base and the experience of running that business, talking to me a little bit earlier here on Bloomberg TV.
Coming up on this program, we check out your stocks on the move today, including Rio Tinto. That's after the mining giant missed his profit estimates and cuts his dividend. The stock trades down in this morning's session by two point nine percent. This is Philippe. Economics, finance, politics. This is Bloomberg Surveillance Early
Edition. I'm Ana Edwards in London. Now let's get 17 Big Business Flash. It's all corporate stories we're covering here at Bloomberg. His plan guarantees high honor. Microsoft said there will be no deal to buy Activision Blizzard unless it comes with blockbuster game call of duty. The UK's anti-trust watchdog suggested Microsoft may need to sell the title for the takeover to go ahead.
The software giant's president spoke after a closed door hearing with EU regulators. We don't see a viable path to sell off that part of this company, Activision Blizzard. That makes Call of Duty. Given that, I think that the alternative is really quite clear. Either the deal gets blocked or it gets
approved with guardrails, with regulatory controls. Now, Cities Group Jane Fraser has been awarded twenty four point five million dollars in pay for 2022, making her the only major US bank CEO to receive a pay rise in her first full year in the job. Fraser was granted one point five million dollars in salary plus stock awards of just under 20 million dollars in total and 9 percent increase on the year. And Mackenzie is said to be cutting two thousand jobs and one of its biggest rounds of staff reductions ever. Bloomberg sources say the move will affect support staff and those that don't have direct contact with clients. It's part of a plan dubbed Project Magnolia and aims to preserve the compensation pool for the firm's partners global needs.
Powered by more than twenty seven hundred journalists, some to analysts, and over one hundred and twenty countries have and grins. And this is Bloomberg. Thank you very much. Now from the business stories we're following to the stocks on the move.
Let's go to Fara El Barbie, who joins us from our equities team with a rundown of stocks that we are we have in focus farmer. Take it away. Good morning, Anna. First off, we have Rio Tinto and focus fell as much as three point two percent after the mining giant cut its dividend. Dividends have been a major investment theses for these commodity stocks. And we've seen Rio Tinto slash its payouts to two point to five dollars per share. That's nearly half of what it was a year ago.
It did say that its earnings were impacted last year due to softer demand from lockdown hit China. But like its rival BHP, who yesterday said that they are more optimistic and China going to this year. Rio Tinto sees slightly better outlook for 2023. And this is kind of just another highlight of how China continues to be a major factor for European stocks. And then looking onto Lloyd's this fall, as much as 3 percent after it announced the buyback of 2 2 billion pounds.
But that wasn't enough for investors because it did slash its net interest margin. Forecasts and margins and buybacks have been the key focus really for European stocks and actually for the global earnings season. And we've seen Lloyd's miss on that. And how did that to do to higher competition for the mortgage market, as well as central bank rates peaking and the UK recession or lack the recession weighing on its margins? And finally, we had still Qantas, which followed Mercedes Benz and BMW. And again, those shareholder payouts and they are the most important things really this season. And shareholders rewarded it strongly. This buyback program of as much as one point six billion dollars was after strong results fuelled by higher prices for vehicles boosted its its profits. And then we'll look into the forecast
for this year. They're actually still optimistic for double digit profits. Profit growth. And they do expect actually vehicle price increases to start slowing as supply chain shortages start to ease. OK, thanks very much.
Thanks for being BOVESPA. Elbow Raji with the latest on the stocks that we have our eyes on this hour. She was just talking about Atlantis. We'll be speaking live with the talented CEO Carlos Tavares. Don't miss that exclusive conversation coming up at twelve thirty p.m.
London time seven thirty a.m. in New York. And another top interview coming up. Rio Tinto CEO joins us to discuss the mining giants full year results at ten thirty a.m. U.K. time five thirty a.m.
in New York. That's one stock that's certainly on the move. Surveillance EARLY EDITION is next. Equity markets are really pricing that outcome. Now, we don't think that pricing a recession, the biggest market in the world, we're looking at a flat return. We will agree that Fed is going to keen
to raise rates. That's not the issue. The issue is how long will they stay up? How long will bond yields be up? The Fed is going to keep going. I agree. I think they'll go through to June, maybe even July can't be ruled out. So, no, I wouldn't be participating in stocks right now.
This is Bloomberg Surveillance early edition with Anna Edwards and Matt Miller. 10:00 a.m. in London, 5:00 a.m. in New York, 6:00 p.m. in Hong Kong. Our top stories today. The feds is in focus off. The bonds were battered yesterday. FOMC minutes take center stage with traders looking for additional rate hikes and clues on those hikes. The big four suffered a big blow in China with authorities in Beijing urging state owned companies to stop using the world's biggest international audit firms and still insists the maker of the Dodge Challenger Hellcat Red Eye shows its muscle.
The automaker sees surging cash flow and strong demand and critically announces a big buyback for investors. Welcome, everybody, to Bloomberg Surveillance, the early edition. I'm Guy Johnson stepping in and of course, for Anna Edwards in London, Matt Miller, of course, over in New York. Matt, it's going to be a big day, big day yesterday in terms of the sell off we saw in bonds and equities. What's the setup overnight out of Asia?
Yeah, it was a huge day yesterday. I mean, for one thing, we had the Dow Jones Industrial Average completely erasing its gains for the year. Further, we continue to see a climb in yields that amazes. I mean, I can get seventy three on a two year right now. That's pretty incredible compared to what we've seen for the last decade or so. Check out futures right now.
S&P futures just barely up after the worst drop we've seen all year yesterday for stocks. The S&P was down 2 percent, bringing its gains for the year down to just over 4 percent. The US 10 year yield about 5 basis points shy of 4 percent right now.
Three ninety four. Sixty eight. And as I said, the two year yielding 473 seventy three. So you're getting some pretty big climbs in yields that obviously offers real competition in terms of stocks and raises a lot of other questions in credit. They're going to put down Al Pelt elbow Taji a little bit later on, crude coming down a little bit a dollar.
Twenty six to seventy nine. Oh not seventy five 0 8. Maybe that's going to lower prices at the pump. When I finally get my Dodge Challenger, Hellcat red eye, I'm probably gonna get about eight or nine miles per gallon in that beast with seven hundred and ninety seven horsepower and then bitcoin you can see off about a third of one percent, but still over twenty four thousand. So twenty four thousand or eighteen. This I find very interesting if not as big an asset or asset class as it once was.
The lack of volatility is amazing because as the S&P falls 2 percent, typically you would expect bitcoin to take a battering as well and it holds pretty firm here. In terms of Asia, what we see is more of the same big drops in equities. The MSCI Asia Pacific Index down one and a third percent. The NIKKEI a big loser, one in the third person as well at the close, and then the dollar weakening a little bit against the yen, but still holding at a relatively high level, just around 135.
Guy, what do you see in Europe? I definitely write that headline for you, Matt. By the way, thanks. Matt told me before the show the coolest Covid scientist make makes is that Hellcat. So hence we had to put it in the headlines. European equities not looking quite so clever this morning. It is a follow through trade story a little bit on Wall Street still to be priced in. And you can see that really across the piece.
Footsie one 100 down by around a percent. You got the DAX down by six tenths of the CAC on this, down by seven tenths of one percent. Those are the main markets. Let's take a look at some individual assets and see what's happening there. I want to start with the stock 600. In terms of the level 460, you were right at it now with down by another seven tenths of one percent.
Keep an eye on the German to you, but also keep an eye on what is happening with peripheral spreads. You've got them up by another 4 basis points today. That is the Italian 10 year BTB in terms of individual stocks. We're going to be speaking a little later on to the Rio Tinto CEO. Is this a new reality in terms of returns for investors? Rio Tinto certainly pricing maybe that's in today after that move lower in terms of the dividend returns to shareholders.
We're down by, let's call it, circa 3 percent still. Let's get back to that hellcats. That stock is up by one point eighty eight percent. Right now, they're seeing an easing chip story. The cash flow story looks good as well as selling higher priced costs. It looks like still Qantas is on the
front foot and it is certainly showing that kind of view to its investors right now. The surprise today, I think, Matt, is in that buyback coming from the is the cash flow is really good. Yes. And we're seeing buybacks really across the industry. Right. Mercedes and BMW as well. I think Jonathan Ferro is going to talk
to Carlos Tavares of scientists a little bit later on. I'm looking for. I would like to see Farrow and a super stock on the drag strip. That would be a great play. Yeah, I think I think I think I think he is going to be focused more on the fact that Real Madrid beat Liverpool last night, 5 2 5 2 at home.
I Liverpool were at home Satya Nadella girls soccer game. I would watch that amazing game. All right. Let's get back to China right now. And the big four authorities have urged, which in Chinese means ordered state owned firms to phase out using the four biggest international accounting firms over data risk concerns. Ken Wong, Bloomberg, China regulation reporter, joins us now from Hong Kong for more. So, Qian, what what did China tell the yes is really its own domain about the change? From what we understand, Beijing has told some of these state owned companies to let all the contracts with the big fall firms expire so they don't need to cut ties immediately, but then to gradually offload them and to replace them with local Chinese or Hong Kong auditors.
So as far as we know, there is no hard line. Is this going to be something that continues beyond the state owned enterprises? Is this going to be something that ultimately gets applied to all Chinese firms? We have no information on that yet. But then so far we have seen quite some dozens of private and state owned firms have changed to smaller or their firms already. It's from the public filings. All right, John, thanks so much for
joining us. Qian Wang reporting from Hong Kong on what could mean a loss of revenue around the size of three billion dollars for the big four accounting firms. Let's get to consultancies right now, because McKinsey is said to be cutting two thousand jobs in one of its biggest rounds of staff reductions ever. Bloomberg sources say the move will affect support staff in roles that don't have direct contact with clients.
For more on this, we're joined by Sonali Basak, global global finance correspondent for us here at Bloomberg Television. So what does this mean, Sonali, especially for MBA is because this is, you know, one of the obvious choices for someone graduating from business school to get a start before going on to make millions as an investment banker or you choose it instead of an investment banker and then move on to the C suite in corporate America or whatever you want to do. But I think the important thing here is this idea that they're doing something very similar to what Goldman is doing here. They're doing this to preserve the money for the senior partners, for the upper echelons of the firm. What does that mean for the rest of the staff? Is this mostly support staff or does it impact at a broad degree to your point, this incoming hiring? Because McKinsey, Bain, these large consultancies tend to be some of the biggest hires of MBA programs. The tech pipeline is starting to cool off. The pipeline for investment banking jobs
is starting to cool off. And again, as you said, these are typically very big pipelines for young people looking after the big finance, tech and corporate America workforces. Sonali Chan, GBC has arrived on Wall Street and JP Morgan, according to one of our stories, is restricting the use of of that champ from its stop buying stuff.
How quickly is this story moving? I How embedded already is this type of technology into Wall Street and how regulators going to treat this? Yeah. Listen, this was kind of only a matter of time because when you're working at a large bank where you work with as a third party technology firm is a really big deal. But you have traders and we've been hearing this for weeks now all across Wall Street playing WeChat CBT for all sorts of functions, whether that's how creating a pitch book or how figuring out in an investment thesis or writing letters to shareholders and research notes. So, yes, of course, JP Morgan is sitting there like many banks saying, wait a minute, we have not chosen this as our technology yet. But remember, Wall Street has been transforming very quickly into automation. The very big question that's under the
surface, guy, is what is tragedy to mean for the businesses that are not already heavily automated? You think bond trading, for example, where there hasn't been that huge shift towards automation yet, can chat TVT because of its natural language processing help, something like that more than other things like creating a pitch book, which frankly there are already already tools to automate that I would get a little more creative than Chad. TB You know, by the way, while we're on the subject of Dodge Challenger Hellcats, right? I literally tried to use Chat GP over the weekend to find me a car. They're so difficult to source in this market. And the thing was useless. So it can't do everything. Maybe it can write you a speech. But even that, I mean to say, I've heard
from traders saying that they were exactly, as you said, more successful on finding a vacation than they were figuring out how to automate the trading of the bond market. All right. Sonali Basak, our global finance reporter, thanks so much for coming in early this morning. Now let's get back to the car story. High vehicle prices and pent up demand proved profitable for still antis and surely for their dealers as well. The parent, the Fiat, Chrysler and Peugeot unveiled a share buyback of as much as one point six billion dollars after forecasting another year of double digit returns. Joining us now from Paris is Bloomberg autos reporter Albertina Soares solely. So, Albertina, what was the biggest surprise from these results? As you say, the the the buyback definitely was a surprise.
We've seen buybacks in the industry, as you cited earlier. Mercedes Benz and B W BMW. But those are high end cars, expensive cars. Of course, the whole sector has been charging a lot for cars in the past couple of years. Semiconductor shortages, supply, other supply constraints that held production back. So people were really willing to pay a lot for the cars they managed to get their hands on.
But again, Salant, US and Tavares had been good in guiding down the expectations for the fourth quarter and the second part of the year. There were massive delays in the deliveries just because of a lack of truck drivers. So a glut of finished cars parked inside and outside, for example, the social a plant in eastern flat France. So I think the expectations were lower and nobody had predicted a buyback. So definitely good news there for investors. I'm going to ask this question because Matt doesn't want to talk about these, but Tesla talking of charging has been cutting prices.
Albertina is is still and is gonna follow suit. What are they saying about those price cuts and what they can do to compete? Absolutely will be interesting to hear what Carlos Torres has to say on Bloomberg Television in a bit less than two hours. But we did speak with Chief Financial Officer Richard Palmer this morning. It was an intriguing comment. He sees, you know, the pace of car price increases that we've seen in the past a couple of years are probably over supply. Its supply chain, as are easing the problem. So more production.
But he sees prices stabilizing. So a bit of a bubble that is over and prices that will continue rising probably. But to a lesser extent. He also noted that the industry so far, ex Tesla, apart from the Tesla move and Fords move on, one specific model remains disciplined. So from what we heard this morning from
the talented CFO from Renault last week, we're not really expecting massive price and price cuts immediately across the panorama here. So no price war yet to date. All right. Albertina, thanks very much for joining us.
Albertina talks only there in Paris. And we will be talking to the CEO of still artist Carlos Tavares a little bit later on. We will also speak with the CEO of Mercedes Ola Felonious later on today. So you definitely wanna stay tuned for those exciting interviews.
Just get a look at some of the stocks that are moving in the pre market today. Coinbase is one of them after posting a more than 650 million dollar loss in the quarter yesterday. You can see the shares down about 1 percent in the premarket at 60, 150. Of course, Coinbase has already taken a
massive beating since its high last year. So definitely keep tuned in for what happens at the open. And video is another stock that you want to watch because it's coming out with earnings later on today. Right now, only down six tenths of one percent. This chip maker has been hot in the news
lately because of the graphics capabilities that it has. So it's useful for video games like Call of Duty, which is a hot topic in the news right now as Microsoft refuses to unload that in order to buy Activision. Also, Stan Druckenmiller, I believe his family office got in big to end video and then Palo Alto had a revenue jump that pleased investors. And as a result, those shares are up almost 10 percent in the pretty market. So going against the grain this morning, watch Palo Alto at the open guy.
I'm gonna be fascinated to what the video has to say about A.I.. I think that could be the new big thing for that company, man. It's gonna be a fascinating report after the bell, as you say, coming from that company, talking of companies that we are going to be talking to. Rio Tinto reporting lower than expected profits after weaker demand from China.
The company's CEO is coming up. We are really looking forward to this conversation. What is going to be the message on China? And then what about the markets? And he CAC any to go. Good to Wisdom Tree, director of research is going to be joining us. What did she make of yesterday's sell off? Plus, crowd funding their defense, how Ukrainians are digging into their own pockets to fund everything from drones to mortars. Read more on that story today in the Big Take. It's online.
It's on the Bloomberg terminal. This is Bloomberg. Welcome back to Bloomberg Surveillance. This is the early edition I Matt Miller in New York at Guy Johnson in London, Anna Edwards has been doing a lot of other stuff apparently this morning, so not this show in terms of what's going on with buybacks. We talked about Star Landis.
We heard about Mercedes and BMW. And a ton of companies obviously have been boosting their shares with buybacks. This shows just how much better companies that have executed buybacks are doing than just the regular S&P. But I was talking to Guy Johnson this morning as he was riding his bicycle in a yellow warning vest. I wish I had a picture of that this morning through the rain. He said, I wonder what effect these buybacks have.
We know they're good for equity holders, but on credit and a company's credit profile, we should ask Dan Alba Taji that. And I said, yes, we should. Let's get Dan and Elbow Taji in studio. So here she is, Bloomberg managing editor for credit to talk about this. I thi
2023-02-23 22:45
