tv Bloomberg Markets European Open Bloomberg October 21, 2021 3:00am-4:00am EDT
investment banking revenue tops estimates, but that is driven by equities. the key fixed income unit misses. more from jes staley this hour. francine: let's look at futures moments away from the open. a lot of inflationary pressures. traders trying to get their head around what is happening in earnings and china, the property sector giving a little bit of concern out there, which is why we saw futures down. markets are just opening up and i see a lot of red. tom: there is red on the screen, futures are pointing lower. you look at the ibex over in spain opening down. as we were discussing, leaders in brussels meeting to discuss the energy price crisis and resolutions or policies they could put into play to resolve or reduce some of those pricing pressures. the ftse 100 is down. increased concerns about the rapid number of covid cases.
the government so far restraining from putting in additional measures to support that, but health chiefs are concerned about the spread of covid in this country. over in france, the cac is lower . in terms of the asian session, you do have that concern renewed again about evergrande. let's see how things are playing out across some of the other asset this morning. bitcoin remains in focus. it broke new records. now there is some profit taking around this cryptocurrency. some coming up with price targets of $80,000, $100,000 by the year end. that is one to watch. the pound sterling, 1.37 is what you are getting. the yield on the u.k. 10-year guilt, 1.15. you are getting -12 basis points on the german 10 year bond. francine: let's have a look at
some of the sectors on the move. very clear that some of the earnings are dissipating, but not quick -- completely taken away. you can actually have a look at health care the consumer discretionary, it is a sea of red. unclear how the day shapes up. usually, there is a bit of dip buying. staples may be a little bit of the early one where you see a little bit of green. there is not an overarching theme for these staple stocks. utility goes back to the energy story. when you look at earnings overall, it is an ok crop. margins though were squeezed. tom: it looks like we have more misses today in terms of the earnings. barclays certainly trading flat. income disappointed. the equity part of the business did very well, beating estimates.
taking into account the fact that you may be getting a boe hiking in november, may higher rates will boost. we are currently trading flat or down. unilever disappointed in terms of volume in sales, but profits were pretty solid, getting 0.9%. the ceo telling francine that he sees inflation continuing another 12 months. sap getting 0.2%. some strong numbers and terms of the cloud part of the business. get the bloomberg business flash with angel feliciano. >> thanks. barclays bankers made the most of the market, helping offset more earnings that its trading units in the third quarter. investment banking grew to 971 million pounds following the strong performance. analysts had predicted 775 million pounds of revenue from this business. revenue from fixed income trading plunged by 20% as the
rally that drove record profit a year ago faded. tesla's revenue trailed estimates, but profits beat despite a trip shortage, rolling blackouts, and supply chain issues. the electric vehicle maker delivered a record number of cars globally in the period, making its ninth straight quarter of profits. it also reported a bitcoin related impairment. shares slipped in late trading, but are still of 12% on the month. paypal is said to be exploring an acquisition of pinterest in a deal that would value the company at about $45 billion. paypal recently approached pinterest about a potential buyout worth around $70 a share. that is an 11% premium over wednesday's closing price. paypal's shares slid 5% in new york trade, while pinterest surged. evergrande has plunged almost 11% at the open after the distressed developer ended discussions to sell a 50.1%
stake in its listed property management arm for about $2.6 billion. -- $20 billion. evergrande claimed the buyer had not qualified to make a mandatory buyout offer. the failure adds pressure on evergrande to raise money as creditors seek payment of more than $300 billion and is real estate sales plummet. software company sap expected to continue to search for cloud deals following on from last week when the german software giant raised a full-year revenue forecast, a promising sign amend the company's turnaround plans. sap shares are up almost 12% so far this year. that is your bloomberg business flash. francine: european equity markets opening lower. inflation concerns, also chinese property markets and focus with evergrande. our guest, thank you so much for
coming in and speaking to us. you are the ever-optimist when it comes to equities and despite some of the struggles, you said this is a good time to buy. what will make you change your mind? >> earnings and interest rates. it is very early in the earnings season. so far, the results are fairly constructive. companies are increasing profits, increasing earnings. we have lots of companies talking about maintaining margins. that is encouraging. interest rates, we are talking about the hiking cycle. we do know it is going to be shallow. we will have very low interest rates for a very long time. tom: how prominently does the energy crisis factor into your decisions when you are making that choice about where to invest? how high up the list is it for you? >> it is really important for thinking about energy prices going higher. all the talk in the media about
shortages, supply constraints, that is true, but why are we having shortages? we are having shortages because demand has been stronger than people anticipated, stronger than companies prepared. it is really a demand story. markets should really not forget about it. having a strong recovery, companies and consumers have money to spend, they are spending, and that is really what long or medium term is driving the stronger energy. that is why when you think about how to play the stronger energy, we still tilt for the cyclical oriented areas of the market. francine: i just spoke to the unilever chief executive who said he had not seen this type of inflation into decade. is there going to be a policy mistake by the central bank or how are these companies going to cope with ever higher prices if they can't pass it on to consumers? >> can they pass it on? that is the key. we are in a situation where we still have a lot of money on the sidelines. consumer balance sheets overly strong.
corporate balance sheets are really strong. i think that is the key differentiating factor between winners and losers over the next year. who sees strong underlying demand and those companies will probably win. they are able to raise prices or maintain prices and see higher sales, while other companies mostly will be defensive sectors, which will struggle with higher costs. it is about who can and who can't. tom: why do you see no opportunities in the banking sector at this point? there is an argument that as rates go up and yields go up, you start to see improvement, but you are not attracted by banks. >> i guess i've been scarred by following european banks for decades nad european banks really struggle in the low interest-rate environment. despite all the talks about interest rates going a little bit higher, i think the operative word is a little bit,
we are still in a low interest-rate environment and that is a really hard business for banks. banks are making better profits, but the multiple depends on margins. if we are living in a low interest environment, it is hard for those margins to go higher. that is the crux of the argument. francine: some point, we will start normalizing the interest rate, won't we? we have to. [laughter] >> if you look at the forward curve, even the expectation about interest rates 10 years from now are still below levels. we are normalizing, but we are normalizing below levels. we are not normalizing to 4%, 5%, 6%. tom: the energy of marija stays with us. we get her thoughts on all things china, as well. coming up, evergrande's woes continue.
we are 12 minutes into the european trading day. little bit of pressure on these markets. overall, there is a feeling that we don't know what the next thing for the market is. that could change very quickly. tom: unilever near the top of the pack on the back of this line that they are able to raise prices, even as input costs increase for the company. shares doing well in the first few minutes of trade. let's focus on what is happening in china. the real estate story with the evergrande evergrande, shares have -- the evergrande saga continues. evergrande said sales sank 97% during peak homebuying season. for more, we're joined by our china credit reporter in hong kong, who i cannot stress enough has been following this from day one. where do we stand now with
evergrande? >> falling through of this deal is certainly a massive blow to evergrande and its investors. evergrande is really running out of time and it is facing this crucial test on a coupon, a dollar bond coupon originally due september 23. it has a 30 days grace period, which would mean that comes at the end of this weekend, to make that payment. for doesn't, bondholders could choose to accelerate payment and trigger what would be evergrande's first default annoy public bond. that concern is still rippling through markets, but it is really adding to this broader fear about potential domino effect of another default among weaker rated property firms, in particular, over the last couple of weeks. you have seen a lot of firms scrambling to meet their debt maturities because the offshore market has been shot for a lot of these borrowers with yields reaching as high as 20% at one point in time.
on the one hand, we are watching for evergrande, will they or one day? on the other, we continue to look out for stress among the broader core of developers with a lot of debt that is coming due over the next month and a half. francine: thank you so much, rebecca. let's get back to our guest from state street. thank you so much for sticking around. i don't know what you do at this point with china, whether it feels like it is very esoteric, or if you could still see fallout. >> we are in the former camp. we underrate china and our investment portfolio, so we stay away from their. regulatory worries are still very substantial there. it is quite risky for investors. however, we don't think it is systemic for the rest of the market.
the key is earnings and interest rates. we stay out of china, very constructive for the rest of the world. tom: staying out of china, constructive for the rest of the world. where is your regional bias? >> we love u.s. for about a decade. it is very difficult for us not to love the u.s. the u.s. is across stable earnings and that has been the story for a decade. europe is really interesting and we have been underweight europe for a very long time because what europe needs, it is a very high leverage country. it means global growth. it is one rare period where we are having a big economic upswing. we are still growing above trend. we are still having this positive momentum and this benefits european countries test companies. that is a good story for us. francine: we are not growing at the rate we should grow if we had not have the pandemic. >> yes. francine: when does that happen?
is it a strange scenario that we are living through? >> yes, i expect you are right. europe is living on borrowed time in a sense. this recovery spurred, money pumped into the system, that is beneficial to european stocks. better earnings outlooks, that is great, so we can kind of benefit from it. tom: does the more hawkish stance of the bank of england, does that change your view on assets in the u.k.? >> u.k., we have been underweight quite a while. it is about sector composition. it has too many sectors we don't like. it is the most offensive market in the world. it still has very high proportion of health care, financials, so the sectors we don't particularly like. i think what is really
interesting about bank of england and market expectations of hike, the market has the broader expectation of a first hike quite closer to now, so we have an earlier hike, but how far they are going to go, that expectation has not moved at all. the five-year forecast is exactly the same as it was in the beginning of the summer when we were not talking about a hike. it is about when we start, not how far we go, and how far we go is not as important. francine: what would you be buying? all these concerns that everyone else faces with, but compounded because of brexit. >> in the u.k., no, we will stay out of the u.k. francine: there is nothing? >> if you have to be in the u.k., by energy stocks. we think the oil price will continue to go higher. commodity prices will continue to go higher.
those companies are not domestic companies, they are not based on what is happening in the u.k. tom: very quickly before we let you go, what do you do with tech? >> love tech. tom: that was very quick. [laughter] expand on that briefly. >> fast-growing and stable earnings sector. tom: hi yields don't worry you? >> they do, but they need to be a lot higher to be a lot more worried. francine: next time you come on, we will do a full 20 minutes on technology stocks. coming up, soaring energy prices take center stage as eu leaders gather in brussels for a two day summit. that story next. this is bloomberg. ♪
earnings front and center to that point. pulling to the upside to some extent. broadly, the earnings have come in relatively positively, francine. francine: there is quite a lot going on. it is not like you wake up on a thursday and you say, i really need to watch inflation expectations. there are these micro stories, as mark cudmore was saying. i really wanted to hear your thoughts. there is another group on payment. are they defaulting or not? tom: it is hard to see them not defaulting. you see share prices of that business falling one of the back of this. the grace period ends this weekend. hard to see how they don't default. policymakers saying, we've got this. francine: last week, i spoke to bill winters and he said china is not done to let this go. he thinks that. it is just about the political
will. whether you see a fallout or not. tom: that is the consensus among many china watchers. you have skilled technocrats in charge, but there are the opportunities to miss things. they missed things with the currency pressures. francine: so watch this space. i spoke to unilever. i asked them three times whether this was a supply chain environment over at unilever. he said, no, we have always had comings and goings. he is expecting inflation expectations to rise and put pressure for another 12 months. he said what we are seeing now is already the worst in 20 years. tom: really important statement from the ceo of such a major company. they are able to pass on the costs. francine: for now. tom: that is some relief to investors. francine: i'm going to check of my ice cream prices are much higher. european leaders are gathering in brussels.
for more, we're joined by our european correspondent maria tadeo. are we expecting anything conclusive that could increase supply and lower the price? >> yes, that is really the question in brussels today. this is a two day summit. we know the energy conversation is going to dominate this gathering of european leaders today in brussels. there has been already calls from a number of countries to see the european union at the eu 27 step up in order to renegotiate some of the contracts to do this as joint procurements. some of the country's point to the vaccination effort as a means to show that doing this as an eu 27 bloc does help another pricing. nonetheless, the european electric market, the energy market overall is very fragmented. it is hard to see how one solution fits all. today, that is the question, but it does seem it is going to be a very lengthy negotiation and we
are not going to see anything majorly concrete on paper. the other issue that will be debated, what to do with the geopolitics? we know that russia is sending clear signals that it is willing to increase the gas supply, but only if it is done through the nord stream 2 pipeline. both berlin, which is in the midst of coalition talks, and brussels agree they don't want to fall into what they believe would be a trap. they want to see the gas, but they don't want to get it done just through the nord stream 2 pipeline. it is a complex geopolitical story going into the summit. tom: we know poland is going to be featured, as well and you will be across all of that as well. thank you very much indeed. maria tadeo following the twists and turns with that upcoming summit among eu leaders. coming up, it is a big day for european bank earnings. barclays revenue beat estimates.
francine: welcome back to the open, everyone. 30 minutes into the european trading day. evergrande shares sink on a worsening cash freeze, and moving dollar bond deadline could tip the developer into default. barclays third-quarter investment banking revenue topped estimates driven by equities as a fitting fixed income unit misses. plus, unilever misses on underlying sales in the third quarter. we will bring an interview later this hour, but share prices, the
share price of unilever is quite supported. some of these earnings dissipated concerns on inflation, but did not get them off the table. tom: can these companies pass on these costs? unilever is in a position to be able to do that. they're going to meet that increase in sales by the end of the year. they are going to raise prices. not all companies will be in that position. the earnings story in focus with barclays, sap, the scandinavian banks as well. the dax is down about 0.1%. sap coming out with very strong news in terms of cloud and the sales. the ftse 100 is currently down 0.3%. covid is back front and center. concerns about the spread, so
far, the government not willing to put in play positions to restrict that. they want to see the economy continuing and relaxation still remaining in place. let's switch out and see the sector by sector basis. basic resources were near the bottom last time i looked. that remains the case. 2.2% basic resources. we got consumer supported by the likes of unilever. the pricing power, even though the sales in volume did miss at estimates. technology also higher by 0.5% as well. banks also lower by close to 1%. despite what we saw in terms of the broad beat from barclays. francine: let's turn to earnings from barclays. the lender's key business saw worse than estimates, that slump partly offset by the equity business, which climbed 10%, far better than expected. the ceo jes staley spoke to
bloomberg. >> the investment bank had a very solid quarter. the investment banking fees on the primary side, we had the highest quarter in the history of barclays. in the markets business, very strong profitability. mixes between equity and other parts of the business, but overall, we were very pleased. we delivered a record 7 billion pounds year to date. park place has never been this profitable, never been this well-capitalized in the markets business has done its part. when we look at the environment and the u.k., there are two things we have our eye on. one of them is the u.k. consumer, focused on their balance sheet during the course of this pandemic. and borrowing under our credit card has gone down. it has gone down by quite some measure. what we are seeing now is we are seeing, actually the number of cards being held by u.k.
consumers is now higher than it was pre-pandemic. the spend level is now also higher than it was pre-pandemic. it will take some time for the balances, for borrowings by consumers, to return to pre-pandemic levels. that will have a headwind on the revenue level of our consumer bank. on the other hand, interest rates we think are going to start to move. if you think about and a simple way a bank balance sheet, it has three cylinders where we extend credit, whether it is unsecured or secured through mortgages, that is doing recently well. then it is the deposit side, where we receive cash. profitability is decide -- tied to our interest rates are. with interest rates close to zero, that is the side of the engine that really has been stalled for the term of covid. interest rates start to move and
we will start to generate revenues in the back of the cash that is held with barclays, that will be quite positive for the bank. >> so, solid results from the third quarter, but potentially changing interest rates regime, how is the fourth quarter starting? is it better or worse than last year? >> it is very early. again, our portfolio businesses from the u.k. consumer business, our drummer and consumer business, and a lot of very exciting things going on. a lot of exciting things happening in the payment space. now we have duplicated or replicated here with amazon in the u.k., where we are tied to their whole platform. investment banking business continues to be robust. we are pretty encouraged about the fourth quarter. for a number of years, a lot of
people were questioning the 10% return on capital. we are roughly 10 to 15% for 2021. i think the bank is showing the profit potential that it has in its core businesses. if we had the inflation that many people are anticipating, our projection for economic growth this year, we will have to have that translated into how we pay wages. we have annual discussions with our workers and i think we will see compensation be aligned with inflation. variable compensation, that is very much tied to the performance of the corporate and the investment bank. i think you will see variable compensation higher this year given that they have generated a record profit. tom: that was the barclay ceo
jes staley speaking earlier to anna edwards and mark cudmore. for more on the wider european banking picture, our correspondent joins us. >> cost and the outlook. there were concerns about variable. the shares were down nearly 10%. they have reaffirmed 12 billion underlying cost this year. i think he is doing a good job. better than that, we have seen guilt moves, the way these guys have articulated how the margin will work, i think consensus will rise. should we worry about loans going forward? >> that is the flipside. inflation, higher rates, you think about bad debt, you think about businesses struggling.
we have 80 billion of government lending over the past 18 months that we know nothing about. i'm less worried about barclays book at the moment and a more interested in what is happening with the wider economics. tom: what is the read across from the rest of the sector? >> i suspect barclays are going to struggle more than most did. bnp and socgen look good. the market won't get excited. you won't see this growing consensus. you think one q last year the french got hammered, their recovery has been pretty strong. francine: but overall, and interest rates are normalizing, some of these valuations, the business model of a lot of these european banks, i don't know what they are. to be rude. [laughter] >> if you are returning more than 10% capital, i would say they are not expensive. the issue is growth.
relative to where we were three months ago, at least there are a few players with headwinds disappearing from the outlook. that said, of course you've got fintech, you've got mortgages, still incredibly competitive, the world is changing and we do have inflation is a risk factor. tom: is that the competitive landscape? is it inflation? what is top of the list for you? >> the fee side of the equation. we know that these big tech are eating their lunch slowly. you will run into a standstill, but at least you got a bit of an uplift, which has not been much good news for the sector for a long time. francine: i want to ask a little bit about, and day, but what happens to the city of london once the clearing extension is out? what happens to london? >> i think ultimately it is not as painful as we think. we have already seen the bank
levy. looking at changing that to ensure the playing field is as level as possible. that said, look at france, look at germany, they are clearly very -- i suspect things are a lot smoother than we realize. tom: in nice note of optimism. any other names on your radar within the banking space now that we've got barclays behind us? >> clearly, lloyds has had a lot of struggles. margins improved for both of them. capital return for lloyds is a big thing. how quickly can they return the extra that they've got? francine: you are right. we will have to get you back in to answer that. jonathan tice looking at some of the banks you should check out. check out the research he does. we are in the worst inflation environment and two decades according to the unilever chief executive. the company has increased prices
we are 40 minutes into the trading day. the ibex down in the u.k. you are lower by 22 points. 43 minutes into the trading session here weighing up inflation concerns with the earnings picture, as well. talking of earnings, tesla missing in terms of sales, but profits beating. tesla shows progress on profit as investors seek perfection. they did really well considering the supply chain constraints, the struggle over semiconductors. they managed to eke out higher profits. elon musk not on the conference call for the first time since the company listed. the cfo taking over. francine: i forgot that it is only 18 years old. tom: dominating that space. francine:francine: it is incredible. you see them more and more around london also.
it was almost like a taxi and i was like, it is very futuristic. i forgot what tesla actually represents. if you are doing better than your competitors for chipmakers and you have such a strong brand, you will do well, which is why it is translating into the stock price. we will see if they continue to stick with some of their targets, even if some of the chipmaking supply-chain concerns get worse. we also looked at paypal. tom: cofounded by elon musk, as well. but they are looking at acquisition's. francine: china has these super -- you have a phone, you have alipay. tom: you have we chat. i have to add 10, 15 apps to do what you can do in one app over in china. francine: i don't know whether it is here there is regulation, but paypal is trying to buy pinterest. unclear what they will do. pretty pictures, but then you could have something that at the click of a finger everything all
at once. regulation seems tricky and europe for that. tom: we will see what the european commission has to say about that, if that comes to the forefront. that is super ambitious of paypal. francine: unilever accelerating price increases to the highest rate in years to offset rising raw material costs. raising pricing by 4.1% in the third quarter. speaking to me earlier, the unilever chief executive said he expects another 12 months of inflationary pressures. >> costs are growing up across all materials. commodities, paper and board, energy, labor costs, transport. we have seen that accelerate through the second half of 2021. our current few of the future is that peak inflation will be in the first half of 2022 and it will moderate as we move toward the second half of 2022, so i think we are in for at least
another 12 months of inflationary pressures. francine: how aggressive can you be with your price increases without actually alienating any of your customers? >> our first reflex is to try to look for efficiencies, take out cost, so that we can minimize the need to pass along price. however, we are in a once in two decades inflationary environment, and therefore we have stepped up the level of pricing. in the latest quarter, it was around 4% priced. that is not distributed evenly across the world because we also have to factor in the currency movements that we see in different countries. right now, we are being very judicious in how we apply price increases. the decisions are largely made locally based on local customer and competitive situations, but so far, so good. francine: is this the toughest
supply-chain environment you have ever seen it unilever? >> supply chain disruption is something that we are quite used to, whether it has been brexit or covid. what we look at as an ultimate -- alternate measure is our our brands available on shelf the way they are meant to be? right now in our top 10 markets, we have 96% on shelf availability for our products. that is actually up 17 basis points versus the same period last year. our supply chain is resilient. we have built the agility necessary to absorb the shocks. that all being said, i do think the bottleneck at the moment is transportation logistics. there are many countries in the world where procuring truck drivers is becoming the most important element of our supply chain. as i said, the unilever supply chain team is doing a great job of keeping our brands and products on the shelf. francine: it is not the toughest, sometimes it feels
like the toughest from a financial point of view because there is so much confluence that comes together to kind of scupper some of the supply chains. do you think -- how would you sit describe it? >> i would say it is the toughest environment for inflationary pressures we have seen for two decades, but we are used to dealing with social unrest in the middle east or economic volatility in latin america or currency movements in southeast asia. i think the one thing that has been added on top are the climate related shocks, so whether it is floods in china and eastern and central europe were fires on the west coast of the united states, these climate related shocks are adding an extra challenge. francine: the unilever chief executive speaking to us earlier. let's get straight to the bloomberg first word news. angel: the fda has cleared the
way for millions of americans to receive covid-19 vaccine booster shots. the agency approved madrona boosters for those over 65 and younger people at high risk. it has also authorized a single booster dose of johnson & johnson's vaccine for those older than 18. the fda approved a mix-and-match approach, allowing any brand to be used as a booster for eligible individuals. bitcoin rallied to a record, topping $66,000 for the first time. optimism surges for greater mainstream acceptance. that follows the successful launch of a fund for investors. the cryptocurrency added more than $1000 in a minute after the open of the u.s. on wednesday. former president donald trump on wednesday announced a deal that would enable him to regain a social media presence after he was kicked off twitter and facebook. he said he plans to start a social media company. if all goes according to plan, it would occur well ahead of the
2022 midterm election. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you very much indeed. coming up, bitcoin surges to an all-time high. optimism across digital assets. a bit of profit taking. the views from our markets live team. this is bloomberg. ♪
francine: welcome back to the open. 50 minutes into the european trading day. the focus is on earnings, margin pressure, for the moment, inflation a little bit of a backhand because air earnings are not as bad as they could have been because of inflationary pressures. they are able to pass on these more elevated costs onto their consumers. joining us to talk about these markets, our markets live team. thank you for joining us. if you look at the market today, kind of direction-less. you have inflation kind of hovering in the background. >> exactly, one the other hand you have these inflationary worries. if you look at how the market
measures inflation, it seems to be at multiyear highs. yesterday, we touched the highs of 2013. for the u.k., the highs of 2008. pricing and more hawkish fed path and a bank of england path, it does seem the markets are still worried about inflation, even a central bankers try to tamp down. tom: earnings have proven to be supportive. the earnings story is still there, it is still constructive. do you buy into that? does that continue? do these numbers continue to support broadly what we are seeing in terms of equities? >> i think so, yeah. i think it pushes back a lot this week. economic growth, economic optimism. that will be one where maybe was not so positive before, maybe five or six months ago, it is going to be one where inflation is going to be higher than it was before five or six months ago. while stagflation is maybe too
strong a phrase, it is something that needs to be grappled with. francine: we had a note that said the bank of england is not as cornered, here is how they can get out. is there a reason they need to get out? >> we are looking at a lot of hikes in the next year. two years, three years, four years down the line, markets are not convinced. whether or not that is the right way to go, that is what people are debating. tom: greg ritchie, think you very much indeed. did not get a chance to talk about bitcoin. francine: we must always talk bitcoin. tom: we must. we have 30 seconds on the clock. a lot of focus on the cryptocurrency space. paring some of the heavier losses. over in germany, 16 points.