tv Bloomberg Markets Bloomberg February 16, 2016 12:00pm-2:01pm EST
alix: from the bloomberg world headquarters in new york, good afternoon. i am alix steel. here is what we're watching. a new currency war. we get perspective on the fed, china, the oil glut and more. investors are running out of patience with european banks. the zika virus and the threat of airbnb, how much will these headwinds impact earnings? we have that preview. for more on today's activity, let's send over to julie hyman. julie: we have this rally going on. we seem to have skipped europe somehow but we are seeing this rebound effect with stocks in the u.s. rise for the second straight session after being closed yesterday. they are extending the gains here today, the nasdaq, the underperformer of the year is the outperform or today.
if you take a look at the , you will see that information technology is one of the groups that is participating in the rally. tech is coming back today. banks are coming back today, as well. we do have to mention what is going on with oil as well. because we had the big overnight move upward in oil prices on the news that saudi arabia and russia had agreed to freeze oil production but then disappointment as that was all they agreed to do. we started to see oil move downward. we are lower on the day. oil drillers are lower today. we did have wells fargo cutting earnings estimates for many of the drilling companies and cutting production targets overall for the industry. we had yet another driller claim bankruptcy. all of that is putting the pressure on and this is one of the groups that is not participating in the rally. alix: what is up with consumer discretionary?
why is that getting a lift? julie: different reasons depending on what fax you look at. casinos are doing well. it is seeing a lift. out withnalysts coming the estimates for february gross gaming revenue and we will be getting that number in the coming days. it looks like that number is not going to be as weak as we have seen in recent months, according to some analysts. mgm, among all of those filings we have been getting, point72 asia reporting an increase. that looks to be helping that stock. also gaining. citigroup says the risk reward is favorable on that stock, the upgraded to buy from neutral. even after this drop from the content, we have heard it will still not be that detrimental.
he stock is trading at a level that is usually typical of companies in secular decline. citigroup does not believe that is the case for viacom. the best-performing stock in the after it wasp acquired. $6.9 billion. we are seeing those shares rise, as you may expect. alix: thank you so much, julie hyman. i want to check in with the bloomberg first word news. look to the united nations where the world body says it may have to use controversial methods to get rid of mosquitoes spreading the zika virus. them those, it may make sterile. and environmentalists have criticized this approach. --ing a budget crunch slashed wages.
coalition airstrikes that the measures have uprooted millions from islamic state finances. thatatellite photos show china has expanded the island building activity in the south china sea. is underter base construction, that is happening as president obama meets with southeast asia and leaders in california. vietnam and taiwan have complained about china's action. 4:30 tohave coverage at show you what you miss. retailers that accept food stamps may have to start stocking a wider variety of healthy foods. that is according to new federal government rules and bill today. that ensures the americans who use food stamps have better access to healthy foods. the scum the rules don't dictate what people buy.
global news, 24 hours a day. i am ramy inocencio. are the u.s. and europe in better shape than strategists give them credit for? vera had a call the was bullish on economies. since then, the ecb dipped further into negative rate territory and last week, the stocks slid into the bear market. tulio vera joins me now. i was curious to see if you had changed her call, based on what we have seen. tulio: a lot of things have happened. i would say that we are still reasonably upbeat about profits for the u.s.. we think that the markets has exaggerated some of the downside risk. and we are reasonably upbeat about europe. it is clear that in the final months of last year, the u.s. economy took a softer stance. .he data trended down
it is not a recession but the data did slow towards the end of next year and that has been driving a lot of the nervousness. surrounded by that is the question about earnings in the u.s. that is the bigger driver and the question there is, our week in an earnings recession? that question will probably not be answered quickly but as far as the u.s. economy is concerned, we are still in the camp that the economies will continue to do ok, nothing spectacular but ok. alix: the thing that has also changed is that we saw panic over china and that spread to then panicoil and over european banks. we have a chart that shows banks merged with oil and they actually track each other very closely, at least over the past few months. does this speak to the contagion that we have seen? tulio: there is an element of contagion, especially in the financial sector in europe but
also the u.s. alix: a perception or a reality? tulio: one thing is the fundamentals and the other thing is what is happening in the market. what i mean by contagion is that there is market contagion but my point about the banks is that as -- as oil has trended down, the notion that this reflects a slower global economy and all of that has led to this idea of negative interest rates. japaneseis feeding the and the europeans. negative interest rates are bad news for the banks, let's be clear. there is a connotation in this country that the fed will have to go slower or come to a halt. wellhas hurt the banks as through the question of the interest rate margin's not improving as expected a year ago. hinge ons all of this oil reaching $40 a barrel?
if that happened, would it solve all the problems? tulio: no. there are things going on that are tied together. of them is china, especially on the currency side. the has been a loss of lack of transparency. , and wend thing is oil just talked about that. and the third is the impact of that on u.s. earnings and the drag that the energy sector has on u.s. earnings. u.s. earnings, i go back to what i said earlier. that is in question right now, it is on the table. it is a big question. alix: the fourth leg of that stool is the oil impact on emerging markets, in particular, i am looking at venezuela. i have charted them on the five-year credit default swap versus greece. what is staggering to me is the
cost against protecting against that in venezuela is near what we saw in greece. i don't hear this being talked about nearly enough. in emerging markets it is being talked about a lot. there are not that many thetries who trade in market that are that close to default as venezuela. venezuela is running out of reserves and that is in large part because of the oil situation. it also has a lumpy interest rate schedule over the next 18 months and that is causing tremendous nervousness about whether they can continue to serve their debt. is there a tipping point for markets, where we go from risk to crisis? venezuelaon't think is large enough, even within emerging markets and people who trade within emerging markets -- people know that it is in a deep problem so it will not be a new
problem. get there, you people know it. so they're not talking about a crisis or anything like that on a global level. but venezuela has problems. marketn the emerging space, last year you like to mexico because it had less exposure and it rises with the u.s.. as the u.s. has struggled, do you still like x ago? -- do you still like mexico? inio: you have to speak relative terms. out of all of latin america, mexico stands out. so you really have 21 from the other. the thing i would say is that emerging markets are having issues and there are not that many bright spots. one bright spot i will mention is argentina. not a big country in terms of it is aet capital but
turnaround story. and they are few and far between these days. alix: great stuff, thank you so much. that was tulio vera. minneapolis -- gives lessons that he learned from the 2008 financial crisis. since 2008, european banks have announced major layoffs and announced severe penalties. will the nightmare ever end? our negative rates the new currency were? we will discuss. ♪
i am alix steel. it is time for the bloomberg business flash. in puerto rico have approved a last-minute bill needed to restructure the indebted public tower company. they seek to reduce the $9 billion debt as well as diversify resources. citigroup called it an audacious idea -- city analysts say that google's alphabet should by aig and turned it into a lab for innovation. has compared his company to google and he said they may sell or spin off. indebted public tower company. they seek to reduce the $9 billion debt as well as diversify resources. given its ceo a three-year extension of the contract. that comes after they reported record annual profits. the contract would have run out by the end of this year but will now run through 2019.
the head of car department -- car development will be leaving the company at his own request. and that is your business update. let's head to julie hyman. you are starting with hospitals? julie: community health has been leading a decline in hospital stock. company reported an unexpected fourth-quarter loss. analysts had been looking for a gain. if you go back, shares are down 80% since the record high in june. trading at the lowest since 2008. we have been talking about a lot of companies hurt by warmer weather over the last quarter. interestingly, this caused it to not be as dramatic of a flu season. so the company's admissions were down 3.6%. the shares are plunging. some analysts are saying it is
not just about the flu but also about the company's cash position and other internals. take a look at the bloomberg here. i have plotted that year-over-year decline in hospital admissions. this is the orange line for community health. it is the third straight quarter that it has seen the decline. is doing worse than peers over the last couple of quarters. also on the movers list, we are watching gold miners. gold is pulling back today as we see a more risk on appetite. gold miners are suffering. mattel, we have been getting a lot of the filings that show it no longer has a stake in there. the toy fair is going on at they are having an investment meeting as the shares are down 1.8%.
voice fair? toy expo? of thehe former manager bank rescue known as tarp told the institution that the dodd frank act did not go far enough and policymakers need to act now. >> while significant progress has been made, i believe that the act did not go far enough. i believe the biggest banks are still too big to fail and continue to pose an ongoing risk to our economy. failures of large financial institutions pose massive risk to society that policymakers must consider. -- spendchoice in 2008 taxpayer money to stabilize large banks or don't. and potentially trigger many trillions of dollars in additional cost to society. a crude analogy is that of a nuclear reactor. letting ao society of
nuclear reactor meltdown is astronomical. given that cost, governments will do whatever they can to stabilize the reactor before they lose control. i believe we need to complete the important work that my colleagues are doing so that at a minimum, we are as prepared as we could be to prepare for a large bank failure. but given the enormous cost given with another crisis and the lack of certainty about whether these would be affected in dealing with one, we must seriously consider older transformational options. raking up large banks into smaller and less connected entities. turning large banks into public utilities by forcing them to hold so much capital they cannot fail with regulation akin to that of a nuclear power plant. texting leverage throughout the financial system to reduce systemic risk. the financial sector has lobbied hard to preserve the structure in the immediate aftermath
of the financial crisis when the dodd frank act was passed, the outlook was too uncertain to take truly bold action. but the economy is stronger now. movehe time has come to past parochial interest and solve this problem. the risk of not doing so is too great. still ahead on bloomberg markets, the european bank nightmare. these banks have yet to recover from the 2000 a crisis. it will take a look at why investors are losing patience. ♪
alix: welcome back to bloomberg markets, i am alix steel. investors are running out of patience with the european banks. crisis, about 100,000 employees have been laid off. they have lost $420 billion in market value. when will the nightmare and russian mark joining me now is edward robinson. why is it taking european banks to get to where they are now? the process began after 2008 and even as the u.s. moved ahead with dodd-frank and ahead with tarp, writing off the losses, the europeans didn't have as tidy of a system in multiple countries.
it took them a few years to come together and establish similar types of regimes that we saw in the state. they are about three or four years behind where the states were. they didn't get a banking union until 2012. so that is the primary reason. alix: many lenders are pointing new ceos -- are appointing new ceos. edward: in the case of deutsche bank and credits reese -- and suisse,reese -- credit they will make a bigger impact than their president there's -- and their predecessors. going to preserve the franchises that the banks have built over many years. that wasn't going to be enough to change this new environment. so now the outsiders have come into these banks and they have
told the market to make more profound cuts in these units than their predecessors are willing to do. that is what we will see over the next year. what is so fascinating to me is that if you flash back 15 years ago, the idea was to build up your business to get really big. the same with oil companies. and now the theme is to trim and streamline. what are the risks of that going forward? edward: the risks are to the income statement. you have a diversified income. if you are no longer going to be a global investment bank, then the corporate customers that you have may begin asking questions about whether they could service in asia or the u.s. or in latin america. but was the model before. investment banks have to go global in order to support big
german multinationals. so now what they will test is whether they can entrench even though they may not have the same presence. it seems likely market chatter is that european banks are selling off because of the oil contagion. at what part of that do you think markets are read breaking the type of bank that you describe going forward? edward: the bonds were the flashpoint. oil affects them indirectly theuse they are affected in home markets. but the bonds are what spooked the market. alix: but it seemed like the stocks were moving before the bonds were? so the risk was in the stock market first? edward: yes, a lot of that had to do with poor fourth quarters.
they are just suffering. remember, we are in a subzero rate situation in europe. they are not generating the revenue that they could be or should be. so back to your first point, we have new ceos in place. they are untested and that is another part of the uncertainty. alix: thank you for joining us, that was edward robinson in london. still ahead on the bloomberg markets, the bank of japan launched a negative interest rate in a good to beat deflation. is the policy already a bust? ♪
welcome back. i am alix steel. let's start with the headlines. ramy inocencio has more. the: let's head to presidential politics where hillary clinton and donald trump are leading in virginia's upcoming primary according to a new poll from christopher newport university. 52%.ry clinton leads marco is at 22%. virginia's primary is on march 1. bernie sanders will be a guest on with all due respect today at 5:00 p.m. the head-onsay train crash in germany last week was caused by human error by the train dispatcher. 11 people died when two commuter train's slammed into each other 40 miles southeast of munich. pope francis has arrived at a stadium in mexico for a mass in
the heart of the nation's drug trafficking region. he is expected to offer words of encouragement. the un security council says that the former leader has died. he served just 1, 5-year term. he was also deputy prime minister for the four affairs of egypt. day innews, 24 hours a more than 150 news bureaus around the world. alix: thank you so much. the bank of japan's negative interest rates came into effect today. it will be applied on ¥10 .rillion here is where the real impact can be felt. here is what happens to currencies when they did into negative territory. does this mean we are in a de facto currency war? let's ask axel merk.
in that chart, the result seems to be the weaker currency. do you call it a currency war? axel: of course, although i think the u.s. dollar is missing here. yes, this is a currency war, everyone would like to have a weaker currency and it feels good to have a week currency at first but then you are trading with a great deal of limits. alix: if you take a look at what happened to the yen after the boj an ounce negative rates at the end of january, you have the yen fall immediately but then if rallied. there you see the inversion. so as the dollar declines, the yen gets stronger. so does this work? course it doesn't. it doesn't fix structural issues. for so many years
and last summer, the fed took the lid off the pressure cooker by saying they will pursue an exit. the fed is the biggest elephant in the room. they are all desperately trying to weaken the currency but keep in mind this is in the context of years when we were told that the fed would hike rates when everything was great in the u.s.. coming down ine the u.s. that we will not be hiking as aggressively. we are scrambling to convince the market that the currency should be weaker but it is not effective. alix: what is the central bank responsibility on the market turmoil right now? i would just repeat what i have been saying since 2008 -- the best short-term policy is a good long-term policy. forget bankers tend to that. the increased volatility is a natural reaction. fear was compressed and when that happens, people invest in
all kinds of things that they should not be investing in. they put too much money into the stock market and into junk bonds. you support the fracking industry more than you should. so there needs to have a fear come back in the market. the banks don't like it. they arescrambling but scrambling because they put the wrong policy in there in the first place. alix: is very distinction between the fed and every other central bank diverging? or is it that the fed is on hold? what is the market we rating? axel: the market is rating that the fed does not know what it wants to do. a freight tanker that has a tough time turning the ship around. we know what mario draghi wants to do but it is difficult to weaken a currency. i'm not suggesting that the yen further simplyen
because volatility is high and people want this kind of environment. mario draghi has always said the markets is not the transmission mechanism and yet he uses them to impose policy. it cannot work and there is no divergence because the fed will yield sooner rather than later. people have to come to the realization that while in the fed future, there will not be a rate hike at any point soon, currency markets take a longer time to absorb that. fed -- think about it from this type -- from this point of view. janet yellen doesn't look at volatility in the market as to when she is going to change rates. mario draghi looks much more at inflation expectation. is slowert data that to react. so in that context, janet yellen will be slow. will have tohe turn around because the headwinds are too severe.
what they are underestimating is that the lower house of prices shows economic growth. she is shrugging it off but it has real consequences. mario draghi recognizes it but there isn't much he can do. the: if you come inside bloomberg right now, i'm pulling up a chart of the forecast versus the 10 year yield. they tend to move in tandem with each other. we have seen a huge divergence. thepoint being that underlying tracking data is much stronger than the markets are giving it credit for. axel: you can have the glass half full or half empty. thathas changed is investors are increasingly looking at the glass being half empty. her many years we had good data being good news for the market.
now it has turned the other way around. people are trying to protect the money made. there are things to be made for but other things to be pessimistic four. the market thinks the glass is half-empty. alix: what is the biggest question you get from clients right now? axel: they are asking about goals. -- about gold. nobody asked about that a year ago. alix: will gold need more sustained buying? are these guys looking for a safe haven? axel: people are over investing in risk assets. now everything is tumbling down so people are looking for answers and diversification. i can tell them a strategy but it is complicated. we want something easy that has a low correlation. there are other solutions. it is not just gold. but it is something that investors look at when they see they need to get out of risk
assets but they don't like anything else. alix: something i hear chatter about in the market is the potential for grand bargaining between the central banks and with the shanghai meeting later in the year, everyone will get together and work together. do you see something like that happening? axel: the eurozone can't even agree on one policy. but at the other end of the the d 20 we do have meeting coming up at the end of next week and i wouldn't be surprised if there was an --ouncement that the chinese they would love to have some line with the fed or the bank of japan or something along those lines to try and induce confidence. something like that is something that could happen but they have to do it in a way that is politically acceptable. they can't do it through the imf. i don't think the
central banks will agree on things. alix: glass half-empty. axel merk, thank you very much. up in the next 20 minutes, despite the global market turmoil, the ceo of airbus has never been so healthy. we will bring you his comments. saidast week, janet yellen negative interest rates are not off the table if the economy continues to slide. gold is one of the few beneficiaries. saudi arabia and russia have agreed to freeze oil output to battle the record low prices. will i ran follow suit? ♪
alix: welcome back. at this time we have stocks trading higher in the u.s.. lead by up more than 1% the tech heavy nasdaq. they're being boosted on a point basis the most. apple and amazon are trading higher after the company is working on the fifth bond deal. amazon is trading higher after learning they have acquired -- to enhance payments. they each are down more than 25% from their perspective takes last year. it'll be interesting to see how the tension plays out. today's top percentage employers, viacom, shares are sharply higher and citigroup has
upgraded them. the risk to reward profile is favorable here, even without dish. they are trading at such a low multiple that is usually reserved for assets in a secular decline. the stock could trade up by 30%. i am abigail doolittle. now, more bloomberg. you are watching bloomberg television. this is your global report. anglo american sees no relief after posting the fourth straight annual loss. we will hear from the company ceo. russia and saudi arabia freeze output at january levels for oil. we will hear about the impact. volkswagen's scandal hit nearly six months ago but they still feel the impact.
details with the shrinking market share just ahead. first, let's start with anglo american. they reported their first -- their fourth annual losing quarter in a row. lost threecan quarters of the market value last year. the company plans to dramatically reduce the debt. >> generating cash and we have or capital expenditures that are starting to fall away so our cash flow improves as we go into 2017. we have identified the right disposals. good assets where people are willing and have demonstrated the willingness to bid cash for those assets. i think we are in a good position. russiaaudi arabia and have agreed to freeze oil export. freezing at january levels will be an adequate measure to stabilize the markets. ahead of the next policy
announcement, mario draghi spoke .efore brussels he pledged action if needed. >> if either of these two to priceive risk stability, we will not hesitate to act. alix: it is the highest level government criticism yet. the chinese premier says regulators didn't respond actively to declines in the market. some agency had -- some agencies have managed the problem. volkswagen sales in europe fell 4% last month. they still have about a fourth of the market. but it is losing ground. that is your global business report. all eyes to the sky. the airbus ceo spoke about the outlook for his company at the singapore airshow. >> many people talk about it but
we don't see it. the reality is that we have never had such happy customers. been so profitable. it is true but it is dynamic, there is a lot of hope and there is a big fight about some competitors. all in all i can confirm that we see growth and asian pacific council now -- deliveries last year. the eye of the growth. it will continue. except if everything collapses. the just came off one of new a350's. -- is a little bit upset. and the delay with the engine. did that come from you? >> he has right and we will not disclose confidential conversations.
50% human reduction. and we have delivered the first one to move guns a a few weeks ago. week.l catch -- in the [indiscernible] are you seeing and indications that with the low price of oil, the new generation engines are not as welcome? no. it is clear that we have to look at that. but the projections for our customers are based on the current price. and even at $50 or $60 a barrel, i can tell you that the new aircraft make a difference. so no, we still see airlines
that are looking toward the new traditional aircraft. >> there have been a few new orders. airlines, singapore asian governments haven't come back to the table yet. >> yes, but we have all different airlines. we had three that we started with. we have a commitment from iran air. we will need more and more big aircraft from big cities like singapore and hong kong and london. 54 three there are 80's taking off or landing every day. alix: that was the chief executive of airbus from the singapore airshow. coming up, goals and negative rates. we will see why they have been one of the few beneficiaries. ♪
gold has rebounded from the biggest drop since july. while it is still the best performing commodity this year, sees isischs actually dropping to $1000 an ounce. -- actually sees gold prices dropping to $1000 an ounce. >> we don't comment directly on goldman sachs research but we do take a more positive view. there is a number of things, sees isis dropping to $1000 anincluding ne that is in some countries and we think there will be an on risk aversion in the market going forward to support gold from an investment point of view. in we do have the recovery the estimate after a couple of years of steady drawdowns. alix: i have been covering gold for a long time. negativee had said
interest rates then, we would have heard calls for i've thousand dollars. do you feel like the negative rate environment has been fully priced in? it will depend on how negative they remain and how long they remain four. but on a theoretical basis, it is bullish for gold. you don't have negative rates without some level of risk. that is the reason for negative rates to begin with. increases the opportunity for owning goals as well. we are expecting a weaker dollar against the euro this year which would be positive for local markets. alix: that is a confusing thing to me. if you have negative interest rates, that pushes your rate lower which means the dollar winds up appreciating against the currency that has negative rates so that we have a stronger dollar. jim: our view is that we will see as many rates increases this
year from the fed. and secondly, the gold market is already bringing this into account. the weakness in the gold markets that we have seen over the past couple of years was predicated on the number of rate rises. and if we don't get that many, there is room for the gold to go to the upside. risk and howion of it impacts gold is interesting. last year and the year before when we had time of risk, a dollar would be supported and that would offset whatever safe haven buying was going into gold. this time, the money is going into treasuries. it is not supporting the dollar so much and gold is more the beneficiary. alix: i have charted the 10 year yield. these tend to move inversely. as the 10 year yield falls, gold prices rally. the one thing you didn't mention
in your thesis is the china selling treasury. they may be putting extra pressure on the yield. be a positived for bullying. alix: how so? jim: the level of any large bele government asset would supportive of hard assets, namely goals. alix: so the theory. jim: that is correct. alix: we have seen a lot of money flow into the euro and the yen. at what point does this change and old becomes more supported over the long-term. jim: it is an issue of an insurance policy. that is the best way to look at gold. it is nice to have it because it is inversely correlated to paper assets but it is not anybody's counterparty.
it is not a question of us looking and our upside is ready modest. but we have an average of 1205 and a high of 1255. the market has caught up with us. but it is a question of having a diversification. and that is what the market showed. is there a price level that turns off the physical buyers? $79 an ounce. jim: an excellent question. that is one of the reasons we have been down today. the lunarack from holiday and have greeted a significantly higher gold price. $30 a discount in india of compared to world prices. that shows that they are resistant. the physical market has got to effectively accommodate these
high prices. fairlyt is why we have a modest upside. even though we are bullish. he will begin to see a ammunition in physical demand in emerging nations. if you get over $1500 like we did a number of years ago, we saw the physical demand tail off. alix: thank you so much. always a pleasure to talk to you about gold. jim steel. coming up, more on volatility. and later, an interview with jeff curry. we will ask him about that call. ♪ . .
from bloomberg world headquarters in new york, good afternoon. here's what we are watching at big oilr -- is this the freeze question saudi arabia, russia and others agreeing to keep oil at january levels, but is it too little too late? the once dependable cannot miss recession predictor may not be so dependable anymore. thepressure on priceline -- online travel site reporting after the bell. how the strong dollar and the economy may impact sales growth. let's go over to the markets desk julie hyman has the latest. we are holding up. -- as i saye seeing this, i want to check and see if all you ms. lower today.
is a vacation week here in new york, so we are seeing a lot of people away for the schools. all three major averages are feelng higher and it does like a snapback affect from the declines we have seen. we have risen pretty steadily to the highs of the session, so what is going on? one of the folks arguing for a bottom in the stoxx is a strategist at wells fargo says we've seen signs of capitulation. one of the things she talks about is that bullish sentiment is so low. based on thet chart in her note. here you have the bullish sentiment. it has fallen to levels we've only seen over the past several years occasionally. it was closetimes to this low, the market was
already in a bottoming process and we are even lower. that's one of the signs she is looking at as a sign of capitulation. so what does that mean? that we have exhausted all the selling. year to date, you get a feeling for what that has been. all three major averages lower on the year but the s&p 500 was down as much as 10.5%. we have seen a bounce off the lows. what are the other signs we are seeing reallocation of the money? where our yields have been following, we see the buying of treasury and that has reversed to some extent and the yield is back up. gold prices are indeed coming off as we see the risk on
attitude coming back to the market and gold prices falling once again. look at the dollar, the yen has been the standout trade during this year earnings before havens and the dollar continues to fall. it's not applicable in that case. the euro falling and the pound falling, so it depends on what asset class you are looking at. let's check in on the bloomberg first word news. my: the u.s. is confirming the release of three u.s. citizens abducted in iran. -- in iraq. shiite militia was behind the kidnappings. the supreme court is honoring the life and services of and then scalia by draping his chair and bench in blackpool.
that tradition dates back to the 19th century. scalia joined the court in 1986 and was its longest-serving justice. he will lie in repose at the supreme court on friday and his funeral will be held on saturday. marco rubio says he will release his tax returns any day or even momentarily. he said he plans to release 2009-2014.ering that missing a malaysian jetliner is approaching a milestone. it's now just weeks from becoming aviation cost a guest unsolved mystery. fresh clues,are the hunt may and in the ocean. a wing flap was discovered on reunion island thousands of miles from the search area. passed ae, parliament
motion of no-confidence and has called on the prime minister to resign. global news 24 hours day powered by our 2400 journalists in 150 news bureaus around the world. on to the story of the day -- saudi arabia and russia have come to an agreement to freeze oil output at january levels. qatar has agreed to join in on the freeze. oil prices initially gaining at them backing off after a monster rally last week. live fromow joins me london. take me behind the scenes. with does this agreement look like behind closed doors? ofst: there has been months diplomatic talks and back itnnel talks and a lot of
qatar acting asy an honest broker. does not reduce the current supply, so it's not going to help the market or the price in the short-term, but the leading oil producers think things have gotten a little out of control. prices below $30 are not in their interest and they want to try uploading to the oil market. alix: talk us through what happened in 1998 and what was similar. guest: 1998 and 1999, oil prices went to $10 a barrel. at that point, it was a lot about saudi arabia and venezuela. mexico acted as an honest broker
and started to convene secret meetings in places like cancun and miami. in embassies around the world and that resulted in a big production cut that send prices from $10 to $30. thated to pay attention this is a similar round of negotiations using back channel communication. but there are many differences. automatic relations between saudi arabia and iran are much better than they were and that's a big obstacle. is going to be the back channel conversation now? arguably, they need to be able to cut or at least freeze for this to have any weight. guest: exactly. the venezuelan oil minister is expected to land later today in
arun and will be holding negotiation talk with the ministers of oil and that will be the first attempt. iran may offer a special deal so it does not have to seize reduction immediately. but it is going to be key, what is the reaction of these will have to be watching what opec says in the next few weeks and months. minister of saudi arabia said today was not the end of the process, but rather the beginning of a process. king solomon is going to moscow in mid-march. was this significant of that business? guest: this is not fully confirmed, but if it happens, it will be quite significant. saudi arabia and russia have
been on opposite sides of the civil war in syria. they have taken different views until today on the oil market. so maybe what is happening behind the door is not only a better agreement in the oil conclusiona broader of the differences between moscow and saudi arabia in syria, but that remains to be seen. it is way too early to say it is absolutely going to happen. alix: what helps the oil market more? do prices need to stabilize or do they need to rally? prices need to find a floor at the moment. i don't see many reasons to rally because we continue to be producing too much oil. the risk, it is clear off, shorting the market, traders may wake up one day and realize that actually opec and
other countries are taking definitive action. it may not be a freeze like this morning, but there may be production cuts. many people suffered in 1999 -- it could the very painful. it seems saudi arabia and russia wanted to stop uploading to the market. alix: brent long positions are at their highest positions. shorting could look a little ugly. think you for joining us. our chief energy correspondent at bloomberg news. but take a deeper dive into this deal. the global head of oil research at societe generale joined bloomberg markets. brendan greeley asked about the real substance of the oil freeze deal. expectations were that russia and saudi arabia were not going to increase out that it anyway and the last 15 months, it has always been nothing
serious is going to happen unless you have saudi arabia, iran, and russia. sign iransolutely no is going to do anything. thatsent out signals today what they have been saying for the last month's we've got sanctions lifted, we've -- we are going the other way. really the best opec can come up with is a freeze must work the market wants to see a cut, so this could be bearish. brendan: it does seem like the first step is to figure out how to talk to each other. are we looking at the possibility that russia and saudi arabia have opened munication channels and have recognized they have the same interest? is that something? it is a little something. it is a fair point that you make. delegationigh level in 2015 from saudi arabia
visiting russia. the king is going over next month and they are talking. russia has softened their position a little bit because as recently as december, they wouldn't even consider having a discussion. now you have some signals that they are willing to talk about market needs to see a cut. ultimately, what we look at is how u.s. reducers respond. if that achieves the floor, that's good news for u.s. users. it's never going up above 50. guest: but if we are talking a lot of floor at 30, give or take, that's going to cause steep edge it cuts among u.s. producers and output is going to decline. the issue is almost the other way. say we get the 5% cut we talked about couple of weeks back. just hypothetically, if that happens, we are going to be back
to brent 50 in a heartbeat. then u.s. production is not going to go down this year. with things as they are, what's the medium-term outlook for the price of oil and did today's announcement affected at all? now. say a year from guest: a year from now, our forecast is we are back around $50 brent. that's based on the markets being balanced in the second half of this year. and production comes down the wheels are turning and a global rebalancing is underway. we want to keep our eye on the ball with demand but what is going to be moving most quickly this year is the supply side, specifically the u.s. that is key. we'll have much more coverage of this very important story throughout the day, including an interview with jeff curry at goldman sachs.
that's coming up at 4:00 eastern. coming up on bloomberg markets, is the yield curve as strong an indicator as it used to be? a look at what the markets are saying next. a selloff may leave the riskiest corporate bonds way too expensive. we're going to dive into the junk pile. and after news of a loss this an american businessman weighs in on his business.
markets. time now for the bloomberg business flash, a look at some of the biggest stories in the news right now. boeing and lockheed martin -- lockheed martin have lost the challenge to build a heavy bomber. the deal was valued as much as $80 billion. they can pursue the deal in court. recallingtors is vehicles in america because airbag inflator's can explode with too much force and hurled metal shrapnel. it is part of a broader recall of more than 5 million vehicles announced last month. shares of hormel foods are rising the most in a decade today after the maker of spam increased its forecast for refrigerated food. quarterly profits topped for sales.
there is a lot of debate in the market as to how to read the yield curve. come inside the bloomberg here for a look at the curve. this is a cool function called a 3-d go. one-monthking at the versus 30 year curve. if you are worried about a recession, you're looking at an inverted yield curve. you are looking at a severe flattening of the curve, so what does that wind up meaning for what is freaking markets out about this? showing thehart is flattening we have seen since the beginning of year. the yield curve has indeed flattened and when it does that, it is indicating low growth and low inflation. people are looking at this and
combining it with everything we may the world and say be headed for a recession in the u.s. low growth and people saying what we could be seeing. curvewe have the yield paired up with recessionary points in our history which professionted equal but a lot of people say we don't need an inverted yield curve and we might already have an inverted yield curve. bank of america saying if you strip out some of the distortions, we are inverted. can you explain that? this is the overnight swap yield curve and they've used it to adjust the proximity. the fed has held rates at zero for such a long time that bank of america is saying it's ethical for the yield curve
arelf to invert, so they using this as a proxy to show the yield curve is indeed inverted and there's a 64% chance of a recession over the next 12 months. and there's a 50% chance but they aren, looking at inflation expectations instead? are looking at financial conditions, inflation expectations, and where people are pricing up the fed. primarily, inflation expectations because it goes to record lows. this is telling us that we are probably entering into a deflationary time and that is what people are concerned about. goldman sachs still does look at the yield curve, however they look at indicators like the job market and say we are flattening, but the fundamental in jobs is really good. guest: that is what goldman is
doing and some other folks are saying we see everything else turned upside down, but if we look at the jobs market, it is at the lowest since the crisis. usuallyployment translates into wage inflation, which will then see broader inflation and the rest of the markets. chance of seeing a recession, but the jobs market is pretty solid. and bank of america had them at 67 percent? guest: 64%. discrepancy a huge and points to the fact that no one has a clear understanding how interest rates are going -- how yields are going to behave in a low interest rate world. guest: if we can't see the yield
curve telling us where the economy is headed, what do we look at? you get people flying blind saying we are going goinginnovative and we're to fold other metrics into the model. alix: i really appreciate the breakdown. had, session highs right now -- we have an almost 2% rally on the s&p. if you take a look at what sectors are moving, it is relatively green across the board there. groupon's soaring for a second straight trading day. we will tell you what is behind that ride, next. ♪
julie: let's start with one that is not going up -- go go -- the in-flight provider of wi-fi services is plunging after american airlines told the company that via stat offered better service. contract, it can be broken if american airlines find a competitor offers better service. their shares are down 29% and anecdotally, the company has got a lot of negative feedback about it service. viastat is up and they provide services to jet blue. groupon is up again after surging again after alibaba bought a stake in the company. its shares are up by nearly 40%, said a really significant bounce here. have ag of bounces, we lot of those where we have a lot
of double-digit moves that don't have anything to do with fundamental news. sun edison is the particular example. shares are up 18% today and tomorrow, the company will be in delaware where a judge is scheduled to hear arguments from -- about blocking and acquisition. alix: that is a tough right. good stuff. still ahead, ubs says we have not hit the bottom and junk-bond . more details after the break. ♪
at the first word news desk this afternoon. word news begins with u.s. presidential politics. the campaign of ted cruz has a new focal point -- the supreme court. is texas senators as it crucial to replace and since glia with another conservative and the current high court is activist and out of control. before becoming a senator, crews did argue before the supreme court nine times. an air raid killed at least seven people in syria. the hospital was supported by doctors without borders. a spokesperson for russia says those who lame russia cannot back up their claims. the old quotas had yet to be divided. they'll be working with turkey to reduce the flow of refugees.
that's war than five times the current number. flights that operate between the two countries right now are charters. the federal judge will decide whether cliven bundy will be able to go home as he awaits trial. he was arrested on charges from 8.14 standoff. global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world. even after the riskiest junk bonds plunge this year, ubs glue areds would investors into the $120 billion
high-yield market. us as wellwicz joins as a ubs credit strategist joining us from chicago. it's quite a call. why so fierce a decline? guest: the premise we have is you are in a very unique case in the junk on the markets. a lot of the issuance was coming out and you had essentially a perfect storm. he had quantitative easing pushing into investment and an earnings investment due to and veryofit margin good performance historically in 2008 and 2009. all of that leeward investment into corporate credit. we see a lot of those factors unwinding, so the fed is tightening policy and earnings are flat to weakening. more broadly, default rates are let-up by the commodities sector and returns have been very poor, down 5.5% last year.
thehe outflows continue in asset class, what we see is an up in quality trade, increase in risk aversion and the lower the market. of most of the investors who ought the market still own the market. you need to find a new marginal buyer and we believe that is distressed or stressed had fun -- hedge funds or total investors. a lot of them at this point in the cycle, and given the concerns alluded to around the economy, both the u.s. and china are concerned about the credit risk and are pricing the credit risk through recession. we think yields need to fall oratory 5%0 -- 20% versus the high double digits where they stand today. lisa: one of the most compelling parts of the report was a trillion dollars of distressed debt needed to be refinanced by
2020 and if it was not refinanced or able to be worked out in an orderly fashion, this could cause some kind of contagion. what would that look like and would it affect the higher rated debt people are hiding out in right now? the maturity wall really begins to increase around 2019 and 2020. we believe the next 12 or 18 months are critical. up,he false start to tick what we believe happens is a liquidity vacuum. to circle back to fund flows, the outflows have in generated by poor performance and rising default rates. if those default rates spread more broadly, you can expect further outflows. that means investors will have to sell but if they are not able lower quality
securities, you are going to see those sales affect the higher quality part of the market. alix: the idea is you have to sell what you can, not necessarily what you want to. lisa: so far, year to date, there has been $14.5 billion in junk-bond sold to the u.s., that since lowest total volume 2003. it seems like capital markets are shut to high-yield bonds. like what about big guys john paulson saying the opportunities is now. we are seeing contrary and calls. lisa: are you seeing that marginal buyer coming in to some degree or saying they are going to come in? guest: that's a great question. distressedressed and bottom-up investors see value to your point in the marketplace, but it is fairly minor relative to the share of the market. a lot of investors see value bottoms up doing the analysis
through a workout or reorganization in secure bonds but do not see broad value in the unsecured market. these investors, because of concerns around liquidity, are focused on a narrow share of the marketplace. the rest of the marketplace perceived as less liquid is not something they are looking to get involved with from an investment perspective. interestthe negative rates -- what is the result of that on the broader market? guest: that is a good question. in general, the strongest fallout has been in the financial sector. you think about negative rates, as policymakers have indicated, there are positive benefits to negative rates. some of theat actions taken by the bank of japan or switzerland, think the main concern is coordinated
negative rates. that's to say a lot of merits like currency or relative currency depreciation start to not be realized if you think about the world moving to negative rates. fallout a lot of that is in the financial sector and the impact is not just for banks, but income streams for life insurers or pension plans with fixed payout. also, for asset management. where think of a world not just a certain region or country, but potentially globally, where rates may be flat or negative. lisa: this should be an argument for why people should go back into high-yield. conducive towas so people going into the high-yield bond market because they needed yield somewhere but all of a sudden, that no longer applies?
trillions of dollars of negative yielding debt and people don't want anything to do with that. alix: it seems counterintuitive. why don't you just go and buy a high-yield? it is a great question. in our view, there's certainly demand for higher quality credit risks at this point. we see strong demand for double be securities. what was lost in the past few years was a fundamental valuation through the cycle. if you think about triple b credit, corporate bonds over five years generally default at a rate of about 2% cumulatively. double, thatabout increases and triple c's, it increases to 44%. , in the pastenges
few years, investors have been forced to reach into have only beend compensated couple of hundred basis points, whereas the loss rofile is much more in triple c's. alix: thank you very much for joining us. fast commentary on bloomberg at fly, search bloomberg gadfly on the web. coming up, what should the mining company do in this global commodities route? and priceline is pushing into the asian travel market with a an online site. justiceeme court antonin scalia's unexpected
up the largest financial institutions. treasuryd the u.s. $700 billion rescue of banks in the 2008 crisis. this is the fifth multibillion dollar offering in 2013. one person familiar with the matter says apple will sell securities in as many as 10 parts. apple issued $8 billion in bonds back in may. owners of small businesses remain optimistic about their companies even as they grow more concerned about the economy. two thirds of those surveyed said the financial situation is good, up slightly from a prior survey. that is the bloomberg business flash. to our markets desk where julie hyman has the
latest. looking at a mix right now. let's start with lending club. the stock rising today and it has to do with the death of antonin scalia. according to analysts, it's adding uncertainty to the docket of cases the supreme court will consider. one of those cases looks at usery laws, how much lenders charge for their services. had some uncertainty related to lending club shares. the fact it might be delayed is helping the stock in today's session. we are watching computer security shares -- palo alto shares rising after its recommendation was raised from a neutral. the price target is well above where it is now an analyst say the stock is well valued and its products get good reviews and it
could be a haven for nervous investors. their competitor is rising even more. these stocks tend to be quite volatile. let's look at square -- goldman sachs says in a filing that it has class b convertible stock equivalent to a 9% stake if it were converted into class a shares. expires onfoursquare may 17. elder bear workshop earnings are out, beating by a wide margin even though sales fell and came in in line with what the company had previously reported. i was starting to say earlier about chesapeake and some of the other movers, a lot of moves we have seen in the market have versus whaterated you would see in a lower volatility environment. a couple of examples on this list. metalthe collapse in
prices have metal -- have mining companies trying to dig themselves out of holes. anglo american is the site -- is trying to recover after reporting a loss this morning. ceo appeared on bloomberg tv and discussed shrinking its business. i think it is a matter of stripping us back to the core, rebuilding the base and making sure we are fit to go forward in the strongest way we can. we have been making changes over the last 10 years that have been incremental and i think it time for a bold step out. we've been working on that strategy over the last couple of years and i think the opportunity is there to reset and start with a different looking portfolio. >> if prices don't improve or stabilize, are you going to have to put further access into the field?
are you going to have to do more than this? we lookthe risk? guest: at all those issues, but i think we have gotten ahead of that curve. we've gone back to the core businesses we think we have competitive advantage in. we have leadership positions with great assets in copper. have identified those assets and there are some good assets for sale that will help us reset the balance sheet and create a very different group for the future. i think we've gotten ahead of the curve and we've needed to do that for the last couple of years. we have made significant improvements across the operations. massive reductions in capital. i think we are setting the business up for success. >> stocks traded down for the last couple of minutes. what message would you try to
give to people trying to figure out what your business is worth this morning? up, down, up, down -- is anglo a volatile business? is that just what we going to have to get used to? miningi would say the industry is a volatile industry with the movements we've seen commodity prices. diamonds, our on platinum business, the copper business, the quality of the assets that underpin those businesses, i think people will see a good story and that's what we are going to unpack during the course of today. >> can you 100% rule off the rights issue? we don't believe we need a rights issue. we are generating cash. we have assets or capital expenditures that are starting to fall away, so our cash flow improves as we go into 2017.
we have good assets where people will be willing to demonstrate that there is real cash for those assets. it is very much a self-help story and with our liquidity, time to put all those pieces in place. >> how do you measure time? he was dashed you measure in weeks or months or years? i think the back will be broken. we are generating cash in 2016. we have advanced on most of our process of selling assets, so we expect to see between $3 billion and $4 billion. within a relatively short time, i think we will be down around $6 billion off that core portfolio which would be 2.5 billion dollars.
alix: welcome back to bloomberg markets. we want to get a look at the monster rally we are seeing. the nasdaq up by 2%. and s&p looking at its best to gain in more than five months. some weakness and oil prices but you have the banks and retailers leading the advanced stop it has been a confusing day for oil.
oil had the monster rally on the ,ews that saudi arabia, qatar slow down oill production. now down by 2% on the day. online travel agents like priceline have beat earnings estimates for five straight quarters, but there are some headwinds with the zika virus and the paris attacks and a stronger dollar, and airbnb. what happens when they report today after the bout? my guest is here with what to expect. a $1290 price target on the stock. take down all the three variables. the biggest what has to be the stronger dollar. stronger dollar will have a big impact, but it is in everybody's numbers already. while it is the biggest number,
priceline will do a good job raking down here is what our numbers would have been. you haven't seen big movements over the past few weeks in the euro versus the dollar, so i think they are ok on that front. the other part is tourism. we have the zika virus and a paris attacks in november. but there are travel issues. what part mike that play? kevin: priceline is a share gain overs so travel lodging is $500 billion and it's growing if you percent the year. priceline is growing around 20%, so really nice growth and early indications are yes, we have some headwinds, but if you look at expedia's results last week, they said no major changes in the first quarter today. on aink they are all right
macro front and we expect to see priceline gaining share because they are giving people a product they want. it's very convenient, lots of selection and they have the best websites and mobile apps. alix: the third leg of that is airbnb. has priceline seen some of its business are eroded by people going to airbnb? i just did it on my vacation. kevin: we have never seen an online travel brands grow so fast so quickly. they did about $7 billion in booking last year, growing at 100%. when you look at the travel market, it has only cannibalized about 1% of hotel demand. we are certainly keeping our eye on it. alix: in terms of growth, china's big player for priceline. china does not have a lot of travel sites globally.
what will be able to hear from them? kevin: i don't think we are going to hear a lot from china. you will see an outside impact from the paris attack on priceline's results. we suggest looking past that. early signs out of europe is that you are seeing the european hotel industry bounce back a little bit post paris. you so much. we appreciate your insight. today on bloomberg markets, president obama will be holding a news conference at 4:35 eastern time. you will be at the annual summit of southeast asian nations. we will bring that to you live. ♪
from bloomberg world headquarters in new york, good afternoon. i'm vonnie quinn. here is what we're watching of this rally. goldman sachs says it is time to barometer.ar what you want to know about the bearish call. be senate republicans may fearing the most after the death of justice antonin scalia. let's head to the market does where julie hyman has the latest. an upbeat day. julie: mostly up. a little bit of choppiness. the s&p will be up by p