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Speaker 1: Comments on negative rates and his comments on the future

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Speaker 1: path for his central bank. It's gonna take a lot

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Speaker 1: to sort out everything that they have done today and

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Speaker 1: will continue doing that with Brendan Brown from Mitsubishi u

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Speaker 1: f J and Wacom Fells from Pimco. In just a moment,

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Speaker 1: you're listening to continuing coverage of the ECB decision and

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Speaker 1: Mario Drags press conference on Bloomberg eleven three oh w

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Speaker 1: b b R New York, Bloomberg, w x k S Newton,

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Speaker 1: w j M nine point five h d two Boston,

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Speaker 1: Bloomberg nine sixty k n E W Oakland, KO s

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Speaker 1: F one oh three point seven h d two, San Francisco, Bloomberg,

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Speaker 1: w an E, w FM Booie and w jay Z

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Speaker 1: one oh five point seven h d to Caytonsville and

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Speaker 1: of course around the world on satellite radio. Before we

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Speaker 1: get to dr Fells, Brendan Brown with two more questions,

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Speaker 1: if we could have been so patient to listen to

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Speaker 1: this historic moment, here's a front line academic dealing with

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Speaker 1: nothing he learned at m I T are you learned

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Speaker 1: with your steam career or what Yakom Fells learned at

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Speaker 1: work in Stanley in PIMCO it's original territory. Where does

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Speaker 1: drug go from here? Well, I think where drag goes

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Speaker 1: from here will depend very much on the reaction from

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Speaker 1: outside the e CP halls and how Germany and German

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Speaker 1: political opinion responds to this, and how eventually US and

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Speaker 1: opinion elsewhere, because what we're seeing here is a an

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Speaker 1: assault of currency market assault, so that hasn't been so

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Speaker 1: successful within within the last half hour and m Secondly,

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Speaker 1: we're seeing a massive protect protection program to help bail

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Speaker 1: out for weak European banks, especially in Italy, and I

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Speaker 1: would imagine in Spain too. And thirdly, the corporate bond

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Speaker 1: buying program, which is revolutionary in many ways, is another

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Speaker 1: backdoor subsidization of European finance. Well, that's a key point.

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Speaker 1: And right now video Constasio is explaining the impact as

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Speaker 1: the ECB season on banks of negative interest rates. Bio

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Speaker 1: Draggy suggested that they had not seen a negative impact.

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Speaker 1: Will of course be monitoring the news conference and take

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Speaker 1: you right back to it when we get something more

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Speaker 1: on that. But Brendan, just one quick last question. The

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Speaker 1: ECB says there's no impact on banks, but they're doing

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Speaker 1: the t l t r O s there they cut

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Speaker 1: the main refinance rate, all designed to help the banks

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Speaker 1: very much so, and it ready as a puzzle as

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Speaker 1: to how a flattening of you cap such as we've

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Speaker 1: seen um, together with the banks not passing our negative

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Speaker 1: interest rates by customers will will not hit European bank profits.

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Speaker 1: Brendon Brown, thank you so much for coming. An honor

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Speaker 1: to have you here with your academics and your books

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Speaker 1: on the challenges of the euro Central Bank. This is

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Speaker 1: we like folks, Olivier Blanchard, Brendan Brown. And then we

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Speaker 1: get to go to Yakom Fell's to review. Yakum Fells

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Speaker 1: has been an original thinker on Europe and on international

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Speaker 1: monetary policy at Morgan Stanley and of course now with PIMCO.

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Speaker 1: Uh yeah, come, wonderful they have you with us today.

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Speaker 1: I must go just first to your thoughts are the

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Speaker 1: immediacy of what Mario drug is doing. Yeah, good morning,

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Speaker 1: Tom Well. I think this is huge um, as Donald

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Speaker 1: Trump would say, I think this is one for the

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Speaker 1: modern textbooks on central banking, because you know, the ECB

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Speaker 1: is really employing the entire conventional and unconventional tool kit here.

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Speaker 1: So it's quantitative easing. It is rate cuts, including negative rates,

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Speaker 1: but importantly it's also credit easing, right venturing into buying

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Speaker 1: private sector bonds. As Brendan just said, that's revolutionary. Um.

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Speaker 1: And of course they are giving a lot of funding

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Speaker 1: at zero or even negative rates to the banks. But

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Speaker 1: what I found remarkable is banks will be able to

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Speaker 1: finance thirty pent of their entire loan book at zero

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Speaker 1: or negative rates at the ECB for four years. So

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Speaker 1: I think this is a big, big step. Well, it's

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Speaker 1: a big step because it's going to enable the banks

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Speaker 1: to lend a lot more, but they're going to be borrowers. Well,

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Speaker 1: I think this is not so much about ah that

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Speaker 1: borrow us. I think this is about helping the banks

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Speaker 1: to restore their net their their their net interest margins,

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Speaker 1: helping bank profitability so that banks will be able and

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Speaker 1: willing to lend more. So I think so far the

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Speaker 1: problem has really been on the supply side of credit,

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Speaker 1: not so much the demand side, and this is a

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Speaker 1: big step in that direction. I was struck. And this

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Speaker 1: goes back, youlcom to your thinking that prediction, but you're

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Speaker 1: thinking about a core Europe versus many peripheral Europe. And

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Speaker 1: within the European experiment two is careful language paying homage

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Speaker 1: to the fear of inflation. What is the pressure on

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Speaker 1: Frankfurt at a first order condition from the bundes Bank,

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Speaker 1: but in general from inflation eastas within Europe. But think

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Speaker 1: the interesting thing is if you look at the CBS

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Speaker 1: inflation projections, they've they've lowered them. That was not surprising,

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Speaker 1: but they're now telling us that they will still miss

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Speaker 1: their target by the end of two thousand eighteen. So

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Speaker 1: they have inflation going up to one point six percent

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Speaker 1: in two years time, um which means that there is

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Speaker 1: a need to do more easing. And I think that

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Speaker 1: the key question within Europe is whether or not German inflation,

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Speaker 1: which is as low as euro area wide inflation, will

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Speaker 1: finally start to pick up. You need that relative price

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Speaker 1: adjustment in Europe. The periphery needs to become more competitive,

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Speaker 1: and that means German inflation will have to run above

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Speaker 1: peripheral inflation. So far that's not really the case. Um.

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Speaker 1: So I think we need to watch what will happen

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Speaker 1: to German wages and prices going forward. Well. With inflation

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Speaker 1: very low, that should have a depressing effect on Whidge

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Speaker 1: demands in Germany, it's looking like yeah, that's right. I

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Speaker 1: think there is clear evidence that inflation expectations have shifted

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Speaker 1: downward and that this has affected wage demands um. But

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Speaker 1: the labor market is very tight and the German economy

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Speaker 1: on a relative basis is doing well, so I would

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Speaker 1: expect wage growth to accelerate in the next couple of years. Mike,

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Speaker 1: we see data here where the futures coming back, gold

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Speaker 1: surging in the last ten minutes, complete reversal back up

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Speaker 1: to twelve fifty seven. The euro one or seven is

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Speaker 1: almost round trip from euro weakness to Euro strength. And

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Speaker 1: the confusion of what we hear out of the ECB

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Speaker 1: press Garnence much focus going into this. The rate that

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Speaker 1: the ECB is charging now. They're also increasing the amount

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Speaker 1: of kwie another twenty billion euros a month. The impact

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Speaker 1: of that, in your estimation, well, buying by buying more,

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Speaker 1: buying more bonds. I think that will keep a lit

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Speaker 1: on interest rates, on bond yields um. This is supportive

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Speaker 1: for peripheral bonds. We've already seen the Italy versus spoon

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Speaker 1: spread narrowing and so so I think this this continues

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Speaker 1: to provide a cap for interest rates. Yeah. Come, Carl

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Speaker 1: Weinberg has just been on such value to us at

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Speaker 1: High Frequency Economics with his experience on South American workouts

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Speaker 1: and of course his dire predictions for Japan and the

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Speaker 1: challenges of Europe. Dr Weinberg would like to know from YACOLM.

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Speaker 1: Fell's your expertise on that linkage of finance over to

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Speaker 1: what banks actually can do. Are the banks in a

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Speaker 1: position in Europe to affect what Mario Draggy wants? If

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Speaker 1: they have the capital, can they actually lend it out? Well,

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Speaker 1: that that's the key question. If they have the capital,

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Speaker 1: they can lend it out. So I think the main

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Speaker 1: constraint on lending in the past has been that they

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Speaker 1: you know that the that regulator, the regulators which you

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Speaker 1: know also sit at the ECB. The regulators at the

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Speaker 1: ECB require them to have adequate capital, and that's been

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Speaker 1: that's been a constraint on lending. Now, what the ECB

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Speaker 1: has done today will help bank profitability. So this should

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Speaker 1: help the banks to build up some capital through making profits.

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Speaker 1: I think that's the avenue how this will affect lending

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Speaker 1: over the longer term. Very quickly, um, we're seeing the

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Speaker 1: yield curve flatten in Europe, German yields in particular. Why, Well,

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Speaker 1: we're in a negative interest rate world, so I think

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Speaker 1: investors are reaching out for bonds that still held positively

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Speaker 1: and you can only find them at the longer end

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Speaker 1: of the yield curve. So I think this will this

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Speaker 1: will keep pushing investors out the curve, and this will

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Speaker 1: drag longer day to gels lower and lower our coverage

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Speaker 1: this morning, and economics, we begin with Olivia Blanchard with

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Speaker 1: US now Holcom Fells of Pimco. We will continue with

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Speaker 1: Mr Fells right now, we continue with Mr Wilson, who

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Speaker 1: got an equity market gift from Mario dragging this morning.

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Speaker 1: Do you see in US equities moves up, Well, you're

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Speaker 1: seeing it in the European banks to trade here, no question.

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Speaker 1: You look at Deutsche Bank up four and a half percent,

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Speaker 1: I n G up four and a half percent, and

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Speaker 1: then the Spanish bank santand there also up four and

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Speaker 1: a half percent. B b v A with a gain

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Speaker 1: of more than five percent in early trading. So it's

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Speaker 1: definitely showing up here, no question. Uh, just a couple

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Speaker 1: of stocks beyond that, valiant parmaceuticals up three percent. The

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Speaker 1: drug maker reached a settlement with RNO Pharmacy, which was

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Speaker 1: part of a drug store network with ties to Valiant,

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Speaker 1: and Rno was among the pharmacies stunned at a short

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Speaker 1: sellers October report that sent Valiant shares tumbling. Earnings out

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Speaker 1: today from Dollar General, the stocks up five and a

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Speaker 1: half percent. The dollar store chain's fiscal fourth quarter profit

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Speaker 1: beat analysts high assessment in the Bloomberg survey. Sales also

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Speaker 1: surpassed projections, and Dollar General raises quarter lead divodend by

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Speaker 1: fourteen percent to twenty five cents a share. Yah Who's

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Speaker 1: up one percent. The web portal filled two board vacancies,

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Speaker 1: bringing the number of directors to nine. Of course, Yeah

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Speaker 1: Who considering options to split up the company, which owns

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Speaker 1: stacks in China's Ali Baba Group holding in Yahoo Japan.

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Speaker 1: One more Quick one for You. Nuanced Communications down five

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Speaker 1: and a half percent. The speech recognition software maker is

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Speaker 1: buying back five hundred million dollars of stock from billionaire

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Speaker 1: investor carl I con Its Lord, a shareholder. The repurchase

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Speaker 1: will cut ICONS holdings to about eleven percent from twenty percent.

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Speaker 1: David Wilson thank you so much. We're with yacolm Fells.

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Speaker 1: We will continue this discussion. Michael McKee looking at the

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Speaker 1: nuanced headlines out of Frankfurt as well, with futures up

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Speaker 1: thirteen down, futures up ninety three. Uh the euro round trip.

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Speaker 1: Wea khurt now stronger one oh nine sixty seven on

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Speaker 1: euro dollar. Let's get caught up on world of national

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Speaker 1: headlines now with Michael Barr, Mike Tom. Thank you very much.

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Speaker 1: It could be a very valuable memory stick. Germany's federal

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Speaker 1: criminal police say the stick contains files on Islamic State fighters.

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Speaker 1: Authorities believe the information is authentic. Britain's Sky News reports

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Speaker 1: that on the border with Turkey and Syria, a former

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Speaker 1: fighter gave them a memory stick containing twenty two thousand

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Speaker 1: Islamic State files with fighters, real names, where they were from,

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Speaker 1: telephone numbers, and even names of those who sponsored and

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Speaker 1: recruited them. President Obama says Libya is a mess. President Obama,

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Speaker 1: speaking to the Atlantic magazine, blamed lack of support from

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Speaker 1: European and Gulf allies and longstanding tribal divisions within Libya.

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Speaker 1: Five years ago, the US intervened in Libya to Topple,

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Speaker 1: then Dictator Momarket NAFI. The second day of a public

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Speaker 1: viewing Financy Reagan begins today. The body of the former

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Speaker 1: First Lady lies and repose at the Reagan Presidential Library

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Speaker 1: and Cini Valley, California. Global News twenty four hours a day,

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Speaker 1: powered by hours journalists at Michael barn Top. Michael, thanks

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Speaker 1: so much. It is an historic day for monetary economic

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Speaker 1: Mayo dragging in Europe. We'll do that next. Bloomberg's Surveillance

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