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tv   Bloomberg Markets European Open  Bloomberg  September 30, 2020 2:00am-4:00am EDT

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♪ anna: good morning. welcome to the european open. i'm anna edwards. the cash trade is less than an hour away. here are your top headlines. next to the peaceful transition. donald and joe biden clash on everything as the first presidential debate dissents into a chaotic core of insults. we are 34 days away from the u.s. election. recovery.haky
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germany is set to rein in public and private parties. it's inflation rate falls further below zero. the ecb may need to do more. christine lagarde speaks in 90 minutes time. disney cuts deep. they will lay off 28,000 workers at its resort business, leaving one of the deepest economic scars of the covid era. welcome to the program. just gone 7:00 in london. waiting for data to come out from the u.k. economy and some news expected from shell. let's get to the u.k. data first. this is the final reading on u.k. gdp, coming in not far away from where we anticipated it to be. estimate was 21.7. 19.8 percent for the quarter on quarter numbers. these are all negative. a retreat of 19.8% in the second corner.
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the estimate was 20.4%. that's just a small detail. we are dealing with incredibly large negative numbers. they are very backward looking. the real question will be, how does that data perform? how has the economy performed since the second quarter? how will liberal -- perform as we head into the second bout of this virus? we are in the throes of it now and the united kingdom. what does that look like in the winter? that's where it is when it comes to u.k. gdp. we also have housing data to look at. we get to u.k. corporate news. this is to do with the energy transition. oil majors are having to deal with energy businesses. they are talking about job losses at shell. 7000 to 9000 after the expected. an integrated gas trading is expected to be below average.
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job reductions of 9000 are expected to come by the end of 2022. they expect to deliver cost by 2022.f $2.5 billion post-tax impairment charges of 1.5 billion seen in the third katter -- quarter. significant impact on lng charges. we are getting some renewed guidance coming through from this big oil company. let me talk about what's going on at the gaming business that is william hill, the betting business. 272 pence per share in cash. this had been much talked about in markets last week. a big spike up in the share priests -- price. we are looking for the details around this particular offer. it has spiked up considerably in anticipation of this. the business will could -- be comparing that offer to where
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they traded before there was talk of the bit in the market. we are an hour away from the start of cash equities trading. let's have a look at futures. it's been interesting to watch overnight. we have not talked a great deal about what's been going on in the u.s. election debate. there is plenty of european news to talk about as well. in terms of european futures, downside. we are following what's going on in the u.s.. let's move to u.s. futures. down by more than 1%. u.s. futures picked up during the conversation. some mliv blogs suggesting that was due to a not bad performance by joe biden. see that u.s. futures moved to the downside. is that concern around they hand our -- a handover of power? let's get into the details of the presidential debate. president trump and joe biden herling in folds -- insults and interrupting each other. sparring over topics ranging
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from health care and race to the economy. >> everybody knows he's a liar. [inaudible] i want to make sure -- >> you were last in your class, not first in your class. >> [laughter] >> mr. president, can you let him finish? >> he doesn't know how to do that. >> you be surprised. >> the wrong guy, the right night, the wrong time. >> you agreed with bernie sanders. >> there is no manifesto. >> let him speak. >> just lost the left. you just lost the left. you agreed with bernie sanders on a plan -- >> folks, do you have any idea what this clown is doing? leinz has been following the debate from new york. a lot of chatter about how heated the debate was. he is always heated. the conclusions are fairly scathing. how would you characterize the
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debate? kailey: they may always be heated. what we saw tonight is really unprecedented in american politics. that clip wasn't ticket if of what the entire 90 minutes look like. these candidates stepping over the each other. president trump rarely letting biden finish a complete thought. ayden asked the president to shut up. that's a quote. he calls him a clown, a racist, the worst president america has ever had. president trump questioned bidens intelligence. he talked about allegations surrounding hunter biden. it got very messy right from the onset. as a result of that noise, it was hard to cut through all of that and get to the meat of the policy discussion that the moderator really wanted to have. anna: did we get to any policy? was there anything we could take away on specific policy? where their key messages communicated? kailey: it was few and far between.
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they talked about the supreme court, the trump nomination to fill ruth bader ginsburg's seat, the implications that would have for the aca. biden talked about health care. he talked about his economic plan. he said he would have the u.s. rejoin the paris climate accord. on the part of president trump, he spent time defending himself. his response to the coronavirus pandemic. talking about the strength of the pre-pandemic economy, the jobs that were created in the first three years of his term. when pushed to give more details on his plans for his next term in regards to health care and what he wants to do on the virus, we did not get a lot of those. anna: did the candidates do what they needed to? if we judge them by the bars they set themselves, how did they do? kailey: the consensus seems to be that they didn't really do enough. there was no clear winner coming out of the debate. joe biden leading in national polls, polls in key swing states
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like pennsylvania and wisconsin. bysident trump is lacking the most of any incumbent president going in since the 1990's. it's not clear that president trump did much to close that gap or to revitalize his campaign. broadly, the consensus seems to be that this debate didn't change anyone's mind. for what comes next, we are expecting a vice presidential debate on october 7. two more presidential ones on the 15th and 22nd. even calling into question whether those will happen given how messy tonight's debate was. you have to think about what happens on november 3. the president again calling into question mail-in voting. the efficacy of mail-in voting, the legitimacy. not saying he would encourage his supporters to stay calm should there be any delayed election result. that is causing jitters in the market. the possibility of a contested election. anna: these debates are a
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fixture of the u.s. political election calendar. will we see questions over how they should be conducted? thanks very much. futures areopean lower. u.s. futures dropping quite fast. nasdaq futures down by 1.4%. that's after that bitter american presidential debate that highlighted the risk of a contested vote. let's get into the markets with laura cooper. are you drawing a straight line between the u.s. presidential debate and the negativity we are seeing an equity market futures right now? there are other things about -- things to think about. the ongoing fight against the virus in europe. is this all about the debate? laura: i think that is the clear read for now. aredow being moved that we seeing across futures is gaining traction. the catalyst looked to be when we see contested election
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comments within the debate. we saw futures higher throughout the two of them speaking. it was around these concerns about whether we could see a contested election. seeingsame time, we are treasuries remaining range bound. they are catching up at this morning. the dollar continues to hold within that range. maybe not quite a complete spillover of risk. it is quite a challenging day ahead. there are other factors at play. we have the eu recovery fund comments that are not a done deal. we have oil tumbling below key technical levels. we have asia on the back foot as well. a number of factors. the debate was likely the catalyst for the action today. anna: brent prices down over 1%. terms of the asian session, it has been sluggish.
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there were brighter data points in terms of the chinese data suggesting ongoing recovery. perhaps services starting to play more of a role. laura: that is the case. we saw september manufacturing pmi continue to extend gains. that does point to this ongoing recovery. not only internally but more globally. the new export orders are higher. taking domestic demand higher in terms of the retail front. we saw import gauges climb better than expected. that the poststs pandemic recovery in china continues unabated. that's largely going to be one of the only economies to edge out positive growth this year. the data this morning does feed into that ongoing narrative. matt: thanks very much. laura cooper giving us the market response to the debates and the other mass -- matters that markets are dealing with
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right now. 11 minutes past 7:00. up next, last ditch attempts for a stimulus package. nancy pelosi and steven mnuchin try to break the impasse. time is running out. we discussed next. this is bloomberg. ♪
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♪ anna: welcome back to the european market open. cash equities will open in 45 minutes. we will see some downside. u.s. futures point to the downside. let's get a bloomberg first word news update with laura wright. laura: the european union historic stimulus package is in danger of being delayed. germany says due to disagreement over how to make sure funds are not misappropriated in nations where checks and balances are week.
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the 1.8 trillion euro budget is designed to combat the deepest recession in the blocks history. regeneron may have -- help reduce virus symptoms. the company says the greatest benefit was in patients who had not mounted their own effective immune response. experimental antibody treatment could become a powerful tool in the fight against coronavirus. a wildfire in northern california's wine country is threatening thousands of homes, forcing the evacuation of an entire resort town. the glass fire has scorched more than 66 square miles, 70 thousand people are being forced to leave the area. more evacuations will be ordered. global news 24 hours a day on air and at bloomberg quicktake, powered by 2700 journalists and analysts in 120 countries. this is bloomberg. anna: thanks very much. let's get back to one of our top stories this morning, the update we got from shall.
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the energy business is a better title for these types of businesses these days. job reductions are going to total 7000 to 9000 by the end of 2026. that's the time horizon we are looking at. more detail coming through on who that is made up of. people who have already agreed to take voluntary redundancy this year. ,hat leaves a large number thousands to be found in terms of meeting that job reduction target. they are seeing annual cost savings up to $2.5 billion by 2022 from reduce organizational complexity. this is what we are seeing from various businesses in this sector. taking the opportunity to reshape their businesses for the new energy transition. trying to reduce organizational complexity and take costs down. we have targets around that. that might be quite positive in terms of investor response.
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the news around jobs is very worrying for many. they see significant impact on lng margins in the for -- third quarter. more details around these impairment charges. this spaceies in have had to deal with that because of the falling oil prices we have seen. let me get to other news that we've had crossing the bloomberg in the last few hours. that came from william hill. a gambling business here in the u.k.. caesar's has agreed to buy it for 272 pence per share. out,burger was pointing 274. a big ramp-up in the share price of this business as we started to get reporting around the bid from caesar's and others. , 272 pence per share.
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valuing the company's equity at 2.9 billion pounds. this has got the support of the board at william hill. they will recommend this offer unanimously and unconditionally. we are getting further details of the banks involved. deutsche bank is financial advisor to caesar's. that's what we are getting on that front. let me get to the plastics sector. we had breaking news at the top of the hour that we did not have a chance to mention. just doing that now. we've heard this morning that they plan to raise 450 million euros selling stock. this is all to do with the m&a that they are trying to do. further details. coming up, the ecb stimulus debate heats up as president lagarde vows to come to the rescue of the economy if needed. we will look ahead to her speech in frankfurt today. that's next. this is bloomberg. ♪
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anna: welcome back to the european market open. 40 minutes until the start of european equity trading. futures pointed to the downside. alsofutures crucially moving to the downside. nasdaq down by 1.3%. before we went to break, i was
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we had at the top of the hour from various european corporate's. we also have a group giving an update to markets in terms of daytrading performance. big picture stuff to deal with in terms of the reactant -- reaction to the u.s. presidential debate. the ongoing virus fight here. we have interesting corporate stories that talk about shall kahlo -- shell. hearing from a catering company. us a fourthing quarter update. organic revenue down by 36%. this has been a part of the economy severely impacted. operating profit excluding items demanded, around 3%. operations now at breakeven at the trading level. that may be seen as something of an achievement when you work in that kind of business. european equity markets will be dominated by what we've heard in the united states with regards to the presidential debate. u.s. futures are moving to the downside. nasdaq futures down by 1.3% right now. during the debate, the futures market was moving to the upside. because of what was going on in the debate itself. as soon as it finished and we had these doubts cast by president about whether there would be any orderly handover of
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power, that is weighing on sentiment. he was casting doubt around postal votes as he has done many times before. u.s. futures moving to the downside. let's get into some of the business stories we are covering here at bloomberg. let's get a business flash you now. 28,000 jobs in its slumping u.s. resort business. one of the deepest cuts of the covid-19 era. it of thanks -- affects cruise line and retail businesses. 57% of those being terminated are part-time workers. some disney parks are now open but it has not gotten clearance to restart operations at its flagship resort in anaheim, california. wall street banks complaining about trading venues. high prices for data. donald trump's chief competitions walk dog says it is playing coast attention. it will pursue any anticompetitive conduct on wall
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street. bloomberg news's parent company is among the firms that has contested fee increases for data. jp morgan has admitted wrongdoing and agreed to pay more than $920 million over spoofing claims. is the largest sanction ever tied to the practice. 15 traders over two of the bank desks. morgan will report its compliance efforts to the government. that is your bloomberg business flash. let's get some response to what we heard from the presidential debate. seeing market reaction as negative. futures moved to the downside in the u.s.. from what you heard, from what you read from colleagues about the debate, do you think it makes sense for markets to head to the downside? is this about something else? stephane: no.
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i think it has to do with the debate. before,ointed out just it was clear that the structure will except the result of the election. keeping the possibility of contesting the results. that is what is worrying the markets this morning. anna: that's what is worrying the market right now. in terms of the bigger picture, if we look ahead to november, are you anticipating around volatility in markets in the run-up to the november vote, and afterwards? given what we keep hearing about whether the result will be respected. well, actually, the volatility is already anticipated in the auction market for october and november. there is no cheap way to edger's -- hedge yourself against
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volatility. we are having a different view. we are more constructive. we believe the recovery is there and will stay. debate, i in the would say there was no big news from an economic point of view. ath candidates were having political attack against each other more personally. we did not learn much about their policies or what their program was about to get from that perspective, we think that in the end, they will both try to work for the economic recovery. , withould be a positive the addition of a vaccine that will be discovered by the end of the year. the vaccination campaign starting. anna: thanks very much. stay with us.
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up to 7:27 here in london. up next, the biggest risk for the bond market. we will get your morning call, next. this is bloomberg. ♪
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>> everybody knows he's a liar, but -- i want to make sure -- >> graduated last in your class, not first in your class. >> would you let him finish, sir? >> he doesn't know how to do that. he knew it was a deadly disease. he said he didn't tell us or give people warning of it because he didn't want to panic the american people. you don't panic. he panicked. >> the only thing i haven't done a good job, because of the fake news -- the matter what you say to them, to give you bad press. fake news.
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the slowest economic recovery since 1929. >i paid $38 million one year. i paid $27 million one year. >> show us your tax returns. >> you just don't know. >> i know a lot more about -- >> you don't know -- >> the fact is, there is racial insensitivity. people have to be made aware of what other people feel like. anna: some of the highlights from last night's presidential debate, although one opinion columnist called them only low lights, ubs saying everybody loses. let's look at u.s. futures, moving to the downside. futures,on nasdaq up 1.2%. reaction to the downside but not as extreme as it was. movement of the downside, concern over hand over of
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power if that is what is theded, the extent to which trump administration will stand by it. stephane monier is the cio of lombard odier. onat to get your perspective how the market is processing this because you mentioned you see fiscal policy coming through, delivering next year, almost regardless of who wins the next election. does that mean in terms of u.s. fiscal stimulus, we should not expect much before november and we should look to after november? what size of package do you think the market is looking for? the first element is that the initial package we got the covid-19 crisis was very peoples and the american are probably reserved in terms of cash in their pocket. we know there is a current dispute between the democrats
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and republicans in order to prolong this unemployment benefit, and there is no result so far. it would be good if they could reach a result before the election but we only see a 30% probability of that happening right now. numbers year, a lot of have been mentioned in terms of size of the package between $1 trillion to $3 trillion. we don't have a specific indication. would bepends on what the measure taken and where the money will be directed. it is important that money is directed toward investments that are productive for the future. anna: if we get better vaccine news or more vaccine news, further confirmation of success in the hunt for a vaccine, will that be used as a reason to not do further fiscal stimulus in the u.s. or do we get that regardless?
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risk,ne: that's the somehow, that there is early withdrawal of fiscal or monetary measures. we would probably advise against that, but the fact there is a discovery of a vaccine between ensure the can vaccine is safe and gets implemented in terms of a vaccination campaign for the general population, it would take some time. the fiscal and monetary stimulus needs to stay there for quite a while, and we got confirmation from the federal reserve that they won't act in terms of --erest rate families interest rate until at least 2023 which looks appropriate to us. anna: we will hear from christine lagarde this morning and onnd an hour's time the subject of monetary stimulus within the eurozone, which side of the ecb do you think she is falling on?
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with those who think further stimulus will be needed and those who think the recovery can handle itself on its own? stephane: that will be an interesting speech because it is difficult to say. one of the successes of christine lagarde so far is the ecb -- at the ecb has been to resent a unified face. tensions are building within the ecb between people who think we need further stimulus because there is damage to the economy and on the other end, people see a pickup in economic activity from june to september, therefore they would want to keep some reserve and the debate between the doves and the hawks at the ecb will need to be completed and her speech will show on which side she is. difficult to say at this point. .nna: thank you good to get your thoughts on stimulus in the u.s. and in
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europe. , cio of lombard oda, thank you for joining us. breaking news from the french utility space. france's finance minister talking about the deal. it won't be solved within 24 hours. he doesn't want a tie up. another red highline. they won't make an offer public unless the board agrees. they raise the offer for suez steak tip 80 euros per share. if you breaking lines around this particular deal. my colleague tells me the original offer was for 15 euros euros.0 let's get your morning calls and see how analysts are handling the latest on u.s. politics and beyond. juliette saly joins us from singapore. good morning.
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calls about the biggest risk for the bond market could be that the election goes smoothly. how so? a call coming's through from janet henderson, but worth pointing out, the downtick we are seeing in u.s. futures as markets suggest there could be a contested election results here in terms that if we do see a democratic blue suite, perhaps democrat -- president trump won't give up so easily. chris henson saying people are positioned -- who are positioned for a confrontation are being affirmed. janet henderson says there is one potential there could be a clear winner and they are building what they are calling a war chest of cash to try to look for opportunities if this is the case. goldman sachs says if you see a blue suite where the democrats take the white house and both chambers of congress, you could see the yield on the 10 year rise 30 to 40 basis points.
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this is on expectations of increased government spending. thans a different call eric robertson at standard chartered who thinks you could see treasury yields driven lower -- one haven if we see a safe and if we see a blue sweep. bya: a strong performance the democrats, what it would mean for the s&p 500, what is goldman saying? juliette: this could be positively -- modestly positive for earnings because of increased fiscal spending, and upside for a lot of companies balance sheets. from a a different call lot of houses that say if you see a blue sweep, that would be negative for earnings. they have reiterated their call to the s&p 500 target for next year. the large increase in fiscal spending would boost economic growth and offset headwinds from higher taxes. they highlight over the medium term, is really is about the fed and a vaccine.
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anna: juliette saly with your morning calls from singapore. disney cuts deep. giant will laynt off 28,000 workers at its resort business, leaving one of the d economic -- deepest economic scars of the covid era. this is bloomberg. ♪
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anna: welcome back to the european market open. 20 minutes until the start of the session. shall house and out has announced between 7000 to 9000 job cuts by the end of 2022. it will be part of measures to save $2.5 billion over the same time period. shell sees the price of oil
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trading below the historic average for the near future. how do oil companies handle the energy transition? let's talk about that with julie hudson at ubs. jumping off that specific corporate story around shell into the bigger conversation around how oil companies, what , they ares ioc's trying to become energy businesses of a broader variety. how does the esg lens for you that kind of move from big oil? julie: thank you for your very interesting question. there are probably two different perspectives in the esg area on this topic. it is clear and energy transition has to be made. next year is likely to be a big year for climate change because we have prop 26 coming up, the intergovernmental panel on china
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change -- climate change coming up. i think oil as a sector knows it has to adapt. as far as reaction of esg players, two kinds of reactions. some experts will decide they will not invest. others might look at it from a more transitional perspective and perhaps take the view the oil industry has industrial tow-how, geological know how bring about the transition picture. anna: you see different views taking hold within the esg community. we heard the first presidential debates last night, julie. a bit of mention of climate change, but we know the views of the two main contenders fairly well. are you anticipating a big change in climate policy in the u.s. as we head into 2021? julie: i think it would be difficult to comment on that at
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this stage when so much is in flux. the thing to focus on is what will happen next year. we have prop 26 next year, a really important near. delayed and covid has changed the landscape somewhat. one thing that has happened is covid has produced a change of mindset with respect to climate change. before, it was regarded as an environmental issue, but it has become clear through the therience of disruptions, environment, it is much more. it is an environmental and theal issue, therefore all best minds on the planet will be focusing on policy, global policy next year. a very important signal came from china, as i'm sure you know and everyone has seen, net zero in 2060 is the most recently announced target.
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that caught a number of people off guard. incredible headlines from china on that front. let me ask about what is going on around prop 26 in the u.k., as it has been delayed. the opposition labor party, now pushing for listed companies in the u.k. to be forced to report exposure to climate change risks. this has to do with the task force on financial disclosures around climate. the government has been moving in the direction of wanting businesses to adapt or adopt those rules, but labor trying to push further. do you think financial disclosures have a big role to play here? julie: i absolutely do. one area we watch very closely, notwithstanding brexit, the big body of regulation developing in the eu. the sustainable disclosure regulation and taxonomy regulation. happening is ais
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big body global regulation developing in different countries is aligning itself and there is a very strong push for climate change disclosure to come through, and this is all very encouraging. it is clearly going to be a challenge for everyone to put the information on the table but this has been going on for sometime now. if you look at things like the carbon disclosure project, for example, which must have been in place for 10 years and there is a collaboration of investment practitioners pushing companies to disclose. this isn't new news. what is happening is the boat -- the vote is being pushed further out each time. disclosure will be important in putting everything forward. anna: thanks for your time. annabelle droulers, global head of bund research --esg research at ubs. another topico never far from the mind of
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investors, the fight against coronavirus. an antibiotic cocktail may treat patients outside hospital. early studies indicate the treatment reduced virus levels and symptoms. joining us is sam fidelity -- from bloomberg. how promising does it look? >> the early results are intriguing. the company gave an indoor miss amount of data and information yesterday and when you look through it, the stuff works. it reduces the number of patients that need to have medical intervention. that is a deep definition, especially in those were only in those who haven't been able to get their own immune system to respond and that is quite important because a lot of those end up in hospital and it shows that in the data.
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the: this ties in with what novartis ceo has been saying, that it will take more than vaccines to fight covid, how it will take treatment. it seems intriguing from regen eron. in terms of the fight in infection rate, we are focused on europe. we've seen measures put in place in the u k, spain, in particular. germany has been up till now doing well to fend off the second wave, but is now considering limiting gatherings. what do we know? sam: unless the german population have a different genetic background that makes them less susceptible, if they also do the same thing others have done in france and england and spain in terms of partying and being lax with masks, they will end up in the same place. that is the direction the german government has to think about.
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do they want to prevent that earlier before it gets to that point? unrest i think the and unhappiness about restrictions is just as rife as elsewhere. that is the risk the government has to think about and the actions are the right to take. anna: the german government trying to fight infection rates and we've talked about drugs being used. on the subject and in keeping with the comments from the novartis ceo that it takes treatments as well, how much better are we at treating coronavirus now either in hospital or before people get to hospital than we were at the beginning? i asked someone from johns hopkins a few months ago and they said maybe 20% better than the height of the first wave of the pandemic. is that a percentage that rings true with you? how much better have we become? to put as difficult percentage on it, because you have to calculate it somehow. i don't know what methodology was used.
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we do have two drugs that reduce the length of time patients need to be in hospital. one of them is not targeted at the virus, so the virus can't mutate into a different thing. it can, but that would be a magic virus. we've got another drug that is slowly coming through. two antibody therapies show promise. we are making progress and the medical professional has learned how to deal with those patients. we have definitely been taking the right steps. anna: moving in the right directions. thanks for joining us. sam fazeli from bloomberg intelligence. willes from the market we get your stocks to watch. 10 minutes until the start of equities trading and shell in focus. the company is cutting as many as 9000 jobs by the end of 2022.
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anna: welcome back to the market open. the first session in europe after the first presidential debate of 2020 and european equity market futures point to the downside. individual stock stories to dive into. your dani burger has stocks to watch and shell in focus because of job losses announced. jobs between 7000 and 9000 by the end of 2022. the ceo, saying we need a simpler, more streamlined and more competitive organization. you've got to love some of the euphemisms of calling this more streamlined but it says they will save an annualized cost of $2 billion to $2.5 billion. this really as to a growing list of the oil majors who have had to pull back on costs to really deal with the impact of the coronavirus and the weakening
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demand for oil between slashing dividends and job cuts. charges,impairment shall cease an annual tax impairment charge between $1 billion to $1.5 billion. anna: william hill, also in focus. we've talked about bid activity around this gaming and online gaming business. dani: we have known for a couple of days both apollo and caesars entertainment were making bids for william tell. that has sent the stock higher but we have clearer ideas of what exactly will happen to william hill. caesars, agreeing to buy it for 270 pence a share. a bit war sent shares higher to what the offering price is. caesars price is a .8% premium from where it traded, so i wouldn't be surprised to see weakness from william hill as people try to arbitrage. boohoo also in focus,
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facing scrutiny on the esg front in terms of its supply chain. dani: we get a contrast in sentiment because there had been practice.over labor shares are called higher by 5% after their first-half revenue beat estimates coming in at 860 million pounds. estimates had been seven hundred 55. at the same time, raising their full-year forecast sees sales rising 32%. previously, they saw a 25% raise, so an upgrade on the front. online clothing sales, benefiting from people who are hesitant to go to the store and do shopping that way due to the pandemic. anna: dani burger with the latest on shell, william hill, and boohoo. 4.5 minutes until we get there. keep an eye on the catering space and a deal for a unit being spun off by dsm.
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a focus for markets is the aftermath of the first presidential debate. lucy european equity markets, futures on the back foot as a result of that and the continued fight against the virus. the open is next. this is bloomberg. ♪
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anna: a minute until the start of cash equities trading this wednesday morning. mark planted next to the peaceful transition. donald trump and joe biden clash on every thing from covid-19 to climate change as the debate ascends into a war of insults. we are 40 days away from the election. germany is set to rein in public and private parties if inflation rate falls below zero, a case the ecb needs to do more. christine lagarde speaks in 30 minutes. shell will shed up to 9000 jobs.
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covid-19 forces a restructuring of the anglo dutch company as it moves into low carbon energy. futures suggesting we will move to the downside. a lot of time for markets to reflect on what we heard in the first debate. futures in the u.s. move higher during the debate, but toward the end when we started to be made a little concerned about a handover of power, whether that would be orderly if dictated by the people, that seems to weigh on the minds of investors to the downside. open, u.s.arkets futures are still negative but they are off lows. we are down 1% on nasdaq futures, but not 1.4 as we were earlier. 600, down .5%, the ftse 100 down .6% and the cac underperforming the rest, down .8%. the ibex down a similar margin.
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u.s. futures lower, european equity markets lower as the first trump-biden presidential debate highlighted the risk of a contested vote. >> everybody knows he's a liar. i just want to make sure -- i want to make sure -- >> you graduated last in your class, not first in your class. >> can you let him finish, serve? -- sir. >> he doesn't know how to do that. the wrong guy on the wrong night at the wrong time. you've been up all night following the action from new york. what were the primary takeaways and what are the implications for the presidential race? was a veryard, this messy, undignified debate in many ways. candidates, repeatedly
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interrupting each other, president trump often talking over joe biden who at one point told the president to shut up. he called him a clown, racist, and the worst president america has had while trump attacked biden on his intelligence and allegations around his son, hunter biden. this was a lot of noise, not a lot of policy. they did cover a range of issues from health care and the virus to the supreme court and election integrity, but the candidates stuck to talking points. whatard a lot of noise and that means is many pundits are saying this debate probably didn't change a lot of minds. i want to point to a cbs poll that came out. 69% of people in the poll said it left them annoyed and 48% of those said biden won. that is a key question because biden was leading in the polls not just nationally, but in key swing states going into this. president trump is playing
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theirup and 40% said opinion of the president is worse after the debate. as far as what happens going forward, we are expecting to more presidential debates in october. will they happen after tonight is a key question and we have to look ahead to november 3, the contacted -- contested election, the president once again casting doubt on mail-in ballots. anna: thanks for bringing us the update. joining us now for a market perspective, the legal and general investment manager head of multi-asset funds. good morning to you. ofwe digest the latest lines the first presidential debate and move closer to november and the vote itself, are you focused on the policy platforms of the various candidates? are you preoccupied by the near-term volatility we expect? >> i think policy platforms
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don't matter that much because in reality, the two are so --larized and they are non- the nontraditional style of donald trump means his aim is to try to turn it into a personality contest so he owns the news cycle. i thought joe biden did very well yesterday because he stopped donald trump owning the cycle and it is donald trump who needs to make the catch up. going into it, a lot of the concern was would biden show weakness when trump tried to bully him and instead, he turned the whole thing into a messy outcome, which is better than he could have hoped for in a way and we knew trump would take the approach and the risk was biden would look weak. he said i'm not going to let you hold the headline, which is important. in terms of -- anna: in terms of what is driving the short-term volatility, how long do you think volatility last? i guess it depends on if we and up with a contested outcome. the next month, yes.
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before that, there is an issue which is around the virus. in the u.s., the likelihood of a stimulus package. that's probably a one in four, where the market is putting it on the stimulus package. the risk of that is to the upside because donald trump is clearly keen to do a deal and he doesn't want to increase the risk of equity weakness into the election given he's used it as an important gauge of his success. yes, there is a long gap on the stimulus package, but trump himself is keen to get a deal done. in the u.s. before the election, it becomes about the stimulus and after, a much bigger issue in europe around the virus. anna: is there some sort of white house put on equity markets right now when it comes to fiscal stimulus in the u.s.? 30% chanceest said
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of stimulus before the election. you've talked about 25% in the past. what you've said, if the president doesn't want to see a selloff, there is a higher chance of getting something through before november. john: the risk is to the upside. paste had success in the convincing the republican party to go his direction. as long as he remains competitive in the polls and the republican don't -- party don't see it about positioning for the there is a better than 25% chance that we do get that stimulus package. the risks are to the upside. where the risk is. the risk lies to the upside. in terms of your strategy, short investment-grade credit. how does that fit with the fed's policy of being in that market extensively? there is a lot of uncertainty out there and you can see that with the levels of the vix and the recent price
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movements in equities. problem for investment grade is upsideelatively limited 80 to 85%. really isn't that much more upside left. there is almost infinite downside. the fed can step in, but it is limited upside with a lot of downside. in equities, there is more potential for equities to rise and it is a more symmetric asset class. the same is true in high-yield. those are areas we think offer better risk reward in the current environment. anna: that is one of john's conviction trades. legal and general investment management, head of multi-asset funds stays on the program. minutes, we will cross over to frankfurt, where christine lagarde will speak at the ecb. interesting to gauge her
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willingness to do more around the coronavirus given the resurgence we are seeing in covid-19 across the european continent. we will bring you that speech live when she takes to the stage in around 20 minutes' time. this is bloomberg. ♪
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anna: welcome back to the european market morning. 10 minutes into a trading session that looks negative for european equity markets. the ftse 100, currently down by -- flat, just turning flat on the ftse 100. u.s. futures point to the downside, but often earlier lows. let's get a bloomberg business flash >> disney is slashing 28,000 jobs. one of the deepest cuts of the covid-19 era. the move affects theme parks, cruise line, and retail businesses. 67% of those terminated are part-time workers. some disney parks are open, but it is not clear to resume operations in california. wall street banks complaining about trading venues charging high prices. donald trump's chief competition watchdog says it is paying
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attention and will pursue any anti-competitive conduct on wall street. bloomberg news's parent company is among the firms who have contested the increases for data. jpmorgan has admitted wrongdoing and agreed to pay more than $120 claims,over spoofing the largest sanction tied to the practice and involves 15 traders over two of the bank stacks. two cases of wired fraud as part of the deal, jpmorgan will report compliance efforts to the government. that is your bloomberg business flash. anna: in london with your business flash. let's get to the economic picture because britain saved a record amount during the second quarter, on a record scale during lockdown. 29%,avings ratio soared to coming from the ons this morning. it paints a stunning picture for savings in the u k, but backward looking.
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what have they done with it since? john roe, at legal and general investment management is with us. we saw the same in the u.s. where there was plenty of saving. people could have spent some sense, but maybe this gives some comfort into the winter that some of the western european economies and the north american can be, the winter cushioned slightly by higher savings rates. that will definitely help. it comes down to people seeing the virus as a limited period and they will be prepared to use more of their savings. the more uncertainty as to how this might last, the more -- the less confidence they'll have. we've seen soaring savings. we haven't seen activity pick up as much as in the biggest countries in the eurozone and there has now been a slight concern over the fiscal plan, is the new deal to support jobs
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going to be good enough? that remains to be seen but it is clearly a risk of insufficient fiscal action in the u.k. anna: a risk of reduced fiscal action. what about the unemployment story and what will that do to inflation expectations because i know you were short inflation. is that short the u.s., u.k. more everywhere? is that because you expect to see unemployment higher and inflation more difficult to generate? unemployment will be between 7.5% and 9%. lots of slack in the labor market. we continue to make inflation like pushing on a string. for us, we are short inflation they u.k. in particular. it offers the worst value in the inflation market because a large theent of the market, pension scheme side is
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constantly trying to buy protection. the only inflation market in the developed side where what is priced is well above the central bank's target. the u.s., even on a forward-looking basis, .5% lower. are short inflation in the u k in particular and because we -behavior,e is a co inflation's tend to pick up with equities but only so far. it is an other asset class with an asymmetric risk profile with more potential for inflation expectations to rise and plenty of potential for them to fall if we see a setback. for that reason, we are short inflation and in particular, the u.k.. saved during the second quarter, they didn't spend it on travel and leisure because they had produced opportunity. you quite like the sector from here. why is that? are you not concerned we going
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to further lockdown situations in various parts of europe? john: we are concerned, but part of that is priced. it is a really hated sector and one of our favorite ways of finding trades is something no one has a good word to say on. leisure a few weeks ago, that was on the back of a pessimistic outlook for areas like cruise liners, and for that reason, yes, that entirely entirely -- is not justified, but leaves upside if you get small improvements. inthe u.s., the cdc is due october to decide whether cruise liners can begin. any small part of good news can start to be enough. in germany, a small number of cruises have started and feedback is good. there are ways things are starting to have success and with such low expectations, it is the laggard of the laggards, the worst performing of the outperformance and from that perspective, it makes it quite attractive to us from here.
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angela merkel speaking in the bundestag, saying there are difficult months ahead as infections rise. live pictures from berlin. the heart ofing to the questions that lie ahead for europe. said,s said, as many have that she does not want to go to a full lockdown again and that term itself has started to me less, hasn't it? do you think we managed to avoid something that looks like march and april as we go through the winter in europe? john: i think we do. that was a 25% to 35% hit to the economy as long as it went on so it is essential for these western european countries to avoid it. it is almost a surprise it has picked up as quickly as it has. i think you can see that in policymakers' response. the closest equivalent would be
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florida, arizona, california, and texas in the u.s.. they managed to bring down the infection rate with relatively limited measures. only limited impact on the mobility and activity data. it is really that template european countries will be looking for. as soon as one of them cracks it, it will give much more comfort to the market that others can follow suit. a lot of that will be targeting areas where infections are happening, so in the u.k., nearly half of infections are related to education, university and schools. care homes are a lot more difficult to deal with, but areas where they need to start to target incrementally to get that below zero. anna: john roe, legal and general investment management head of multi-asset management funds. i will continue my conversation with john roe on bloomberg radio at 9:00 a.m. u.k. time. a few more lines from angela merkel, speaking in berlin.
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she wants to return to budget normality as soon as possible. the german government taking action that many before the pandemic would have thought was impossible in terms of the blacks zero, the commitment they have to that in germany. certainly she is talking about budget normality, wanting to return to that. we also want to tell you about what is coming up next. we will be talking about the oil or energy industry. shell is cutting up to 9000 jobs in a virus related restructuring. this is bloomberg. ♪
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>> i was asked to bring back chrysler and general motors. he blew it. they are gone. and the fact -- >> ohio had the best year it has ever had last year. michigan has. >> not true. >> many of our -- >> they are not. >> take a look at what he has actually done. he's done very little. his trade deals are the same way. he talks about these great trade deals. china has perfected the art of the steel. we have a higher deficit with china than we have ever had
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before. >> china was taking -- china a yourlunch, joe -- ate lunch, joe. anna: discussing manufacturing and its relationship with china. let's check the markets for you. european equity markets are down, only by .2%. the london market, and out performer. the ftse 100 is in positive territory right now. the swiss market, not bad because the biggest contribution on the stoxx 600 to the upside is nestle. shell is moving to the upside, glaxosmithkline, diageo, and ifts that market. shell is cutting up to 9000 jobs in a restructuring. the energy company was moving to be a more streamlined organization. the revamp is projected to save
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as many as $2.5 billion by 2023. joining us come our oil and gas reporter. why is shell doing this? how much is coronavirus induced and how much is about the long energy transition? laura: it is a mixed picture, pressure. from shells perspective, they are saying in april, we outlined missions andn for e change the nature of our business to be a more green company. it seems from that perspective that covid has accelerated the pace of change. it is not just covid that has caused these redundancies, but something the company was gearing to anyway. plan how does this compared to peers from the industry? we heard from bp about their plans. laura: basically, we are seeing the majors cutting costs and headcount quite aggressively,
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and bp said earlier they would cut about 10,000 people, some more than shall. -- shall. -- shell. alsoon and exxon have start cutting headcount. it seems standard across the industry and majors. anna: what is the outlook for shell as it tries to manage this complex transition? what is the outlook for the business? laura: it is a tricky one at the moment. they said they would expect oil price sales to come down significantly fairly from last still seeing an impact of the coronavirus on-demand and just yesterday, we reflect thisders feeling that demand is yet to come and could take another 18 months to go back to where we were before the virus.
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anna: laura, thank you. laura hirst, our oil and gas reporter joining us with the latest on shell. we are going to bringing you -- be bringing you live speech of the european central bank president christine lagarde. she will be speaking at the ecb. that conference is supposed to put -- take place in about four minutes. we will bring you her speech as she delivers it. it is set to last over half an hour. in terms of the movers in the market, there are plenty of them. we might have a chance to recap in a moment. european equity markets were on the back foot in the aftermath of the first of the presidential debates. now to the upside in london and the stoxx 600 down .3%. nasdaq futures down .9%. frankfurtill cross to and christine lagarde will be speaking at the ecb event.
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we will bring you that live. this is bloomberg. ♪
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>> it does help ensure monetary to go to not forced the lower bound when faced with shocks that push inflation too low. know,ince 2003, as you the ecb has used a formulation to set our objectives. afining price stability as year on year increase in whileion of below 2% aiming for inflation of below, but close to 2%. wasthis formulation
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perfectly appropriate at a time when the ecb was seeking to establish credibility and to high inflation was its main worry. as our research shows, it was a key factor in successfully capping inflation expectations. but things have changed. in the current environment of lower inflation, the concerns we face are different and the needs to be -- this needs to be reflected in our inflation aim. isuring that there sufficient space above zero to re-empower competitive monetary policy becomes more important and to underpin inflation expectations, we need to ensure bet our aim is perceived to diametric by the public. so we should have an inflation
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aim that is credible and that the public can easily understand. is the horizone over which price stability should be achieved, which is captured by the ecb medium-term orientation. this forward-looking orientation reflects traditional and well-established principles of prudent monetary policy, which is consistent with the notion that monetary policy works with a lag and can influence inflation over the medium-term rather than the near term. but within the ecb framework, the medium-term orientation has also been a way for the governing council to take into account what is happening in the real economy, including unemployment. mandate with price
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stability at the top. the medium-term which is a flexible concept allows us to avoid an unnecessarily conflicting jobs and growth in the event of a supply shock, which temporarily pushes inflation of -- up. environmentation creates some new questions about how to operationalize the medium-term. for instance, the existence of large and persistent disinflationary shocks related to the ability to compare prices to callively is likely for more flexibility. failure to meet the inflation aim can feed into inflation expectations and would call for a shorter policy horizon.
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we also need to reflect on our two pillar approach for reflecting development in the economy, which is economic and monetary analysis. crosschecking between the two helps determine the risks of price stability. the monetary pillar could be enhanced to provide information on financial stability, which over longer time horizons could be relevant for the inflation outlook. some central banks have considered adding a backward looking element to the policy horizon in response to the low-inflation environment. in the ecb's case, the reference to underlying inflation dynamics in our forward guidance means that we already look at the past when deciding whether to change policy.
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today ishe discussion whether central banks should commit to explicitly make up for inflation when they have spent some time below the inflation goals. strategy cansuch a strengthen the capacity of monetary policy to stabilize the economy when faced with the lower bound. this is because the promise of inflation overshooting raises inflation expectations and therefore lowers real interest rates. while makeup strategies may be less successful when people are not perfectly rational in their probably awhich is good approximation of the reality we are in, the usefulness of such an approach could be examined. issue is the measure of inflation that lies behind our inflation aim.
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hicp has served us well so far and is continuously being improved. examples of these improvements include quality, and you in consumption weight, more granular categories of expansion , and timely data. but at the same time, our economies are changing increasingly quickly. broadd to keep track of context of inflation that captures the cost people face in their everyday lives and reflects their perception, of occupiedasures housing. is not about moving the goal post for monetary policy where it is suitable. it is about future-proofing how we measure inflation.
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but we also need to recognize that adjustments will have issues in terms of reliability and frequency of data. likewise, to get a better sense of the evolution of the hicp over the medium-term, we need to complement our analysis but looking at more cyclical and less volatile measures of inflation, such as underlying inflation. to public rightly expects us defend the purchasing power of money and that is why we target the overall hicp. underlying inflation measures are more responsive to economics predict tend to better inflation over the medium-term. let me now turn to the relationship between inflation and the real economy.
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if the anchor for inflation is the inflation aim, the curve plays a central role in allowing central banks to steer inflation toward that aim. but in the low-inflation toironment, prices appear have become less responsive to the real economy. research suggests that the empirical phillips curve remains intact. flat, as wee rather have seen. i'm going to borrow from george bernard shaw at this time, who said the reasonable person adapts themselves to the world, the unreasonable one persists in trying to adapt the world to themselves. i'm sure that we can all agree that we should try to be reasonable rather than unreasonable.
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speaking, three factors might explain why inflation responded so weakly to improvements in the economy in the run-up to the pandemic. the first possibility is that economics lack, the amount of unused, underused resources in our economy was actually larger than we thought. is thatnd possibility the relationship between slack by inflation was obscured persistent structural forces. the third is that the anchoring of inflation expectations might have loosened, affecting where inflation settles when both demand and supply shocks are passed and slack converges at zero. the intuition behind the first factor, slack, is that the phillips curve is alive and well , but the euro area faced a
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series of large shocks that made it harder to measure economic activity relative to potential. what matters to move inflation in the phillips curve is the distance from full employment. if that distance is underestimated, inflation may remain subdued even as measured slack gets smaller. there are numerous potential causes for miss measurement, including measures of unemployment that ignored the effect of part-time work and underemployment. output, to potential which miss took cyclical change for structural trend, or a failure to fully account for external factors that added to euro area slack, such as relative demand imbalances linked to trade surplus.
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supports such a role for hidden slack. it was assumed that the output gap has been much larger and has in general outperformed those that use traditional measures. ist is striking, though, that in the run-up to the pandemic, we saw labor markets slack diminishing and wages finally rising. but without inflation picking up. research finds that there was no missing wage inflation, what we saw instead was a slower pass through some wages to prices because companies preferred to can press margins rather than pass on cost rises. policy, itnetary matters whether firms did this
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because they expected slowing demand or because they were affected by persistent structural changes that distorted historical regularities. that brings me to my second factor, long-running structural forces. how could they have weakened the link between the real economy and inflation and thereby require a revised approach to monetary policy? clear that globalization has lifted the global labor supply, sharpened competition and has caused firms to set prices more strategically. globalization also went hand-in-hand with digitalization , which increased price transparency and enabled many industries to reduce cost. these factors of could have depressed flight --
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price inflation even as wage growth was being supported their productivity against from technology. , adverseel demographics in advanced economies may have led to higher savings rates and structural weaker demand. suggests that these forces have affected inflation in the euro area and recent decade. a recent study finds that global factors such as global commodity prices, global slack and reduced competition can all significantly affect inflation. ecb research also finds that digitalization and disinflationary in the euro area. -- [inaudible] yearly increase of 0.06%.
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empirical evidence suggests that a shrinking working age population may depress inflation. that is the disinflationary forces. at the same time, structural forces may not be that deflationary, particularly in the aftermath of the covid-19 pandemic. while globalization and digitalization have tended to pull in the same direction over the last 20 years, it is conceivable that they might now pull in opposite directions. triggeremic might both deglobalization as we see protectionism rise and firms shorten their supply chain to increase operational resilience, and accelerate the expansion of the digital economy. changing global demographics
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might also reduce the global labor supply. that, a moreo active countercyclical role for fiscal policy after the pandemic may strengthen inflation dynamics. and we have to factor in a renewed focus on mitigating climate change. which could have an impact on inflation through progressive transition toward a carbon neutral economy. allate change effects aspects of monetary policy come output and inflation, long-term interest rates, and policy transmission and that is why we understanding climate change for the primary objective is part of our strategy. in any event, structural factors can only have a lasting negative
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they seepinflation if into inflation expectations. this leads me to the third factor that may explain the apparent disconnect between the real economy and inflation. empirically, it is not straightforward to gauge the anchoring of inflation expectations. as well as the measure and horizon of inflation -- inflation expectations. that said, market-based measures of longer-term inflation expectations have fallen, notably, even when adjusted for various risk premium that can distort the picture. those measures have become more responsive to short-term news, which can be interpreted as a sign that the anchoring has softened. survey-based measures remain more or less within a range that is consistent with the ecb aim,
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that is between 1.7% and 1.9%, although they have moved to the lower end of that range in 2019. process of setting , it is the expectations that matter most. since our last strategy, there has been more research about how they inform inflation expectations. scarce, there still general picture that consumers expectationserse around inflation expectations that appear far less tethered to the claims than far less expectations. 2015, average perceived inflation among euro area households was just under 5%.
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was 0.3%.al inflation the generally higher level of household expectations is not necessarily a cause for concern. emergesrgence -- what is that households take a long time to absorb new information on inflation, but when there expectations to adjust, they can be hard to dislodge in the direction in which people perceive inflation to be heading can affect the economic decisions. course isprocess of not exiled in us to monetary policy. it is greatly influenced by the central bank objectives and how policy is conducted and communicated in pursuit of that objective. ofs is why the discussion the numerical definition of price stability and of the
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instruments that can supported over time is so important. iearly, the three factors have just discussed are not mutually excluded. it is crucial that we get a much deeper understanding of their relevance and interactions to draw appropriate conclusions of how we conduct our monetary policy. as part of this, we need to understand how they might have interacted with monetary policy approaching the lower bound and that brings me to my last and final area that i would like to monetaryoday, which is transmission and effectiveness. as monetary policy everywhere has approached the lower bound, all major central banks have faced questions about their policy space and the traction of their tools on the economy. a key challenge has been the
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long-term fall in estimates of the natural interest rates. let me just unpack that a bit. the national rate is the unobservable interest rate that brings defined saving and investment into balance. or put another way come output close to its potential. accommodativey is when the policy rate is below the natural rate and restrictive when the policy rate is above it. estimates for the natural right in the euro area have dropped from anywhere between 0.6% and 2.2% on average. and 2011, to between 0.5% after that.
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this has required progressively lower policy rates in order to ease monetary policy or even just to prevent that an unchanged policy stance becomes more restrictive. worldl banks around the have shown that this is not a barrier to stabilizing the economy. before the pandemic, the ecb was able to offset the effect of the declining natural rate by taking the deposit facility rate into negative territory and by deploying forward guidance and asset purchases to ease financing conditions at longer maturities. purchases by compressing longer-term bond yields can induce an easing of financial conditions that can partly compensate for the diminishing scope of conventional policy rate cuts. launched a series of
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targeted longer-term refinancing operations to strengthen the pass-through of these measures to the real economy. effects of both financing conditions on the real economy was indeed significant. considering all the measures then since mid-2014, overall impact on euro area real gdp growth is estimated to be anywhere between 2.5% and 3%. -- andively until 2019 the impact on inflation between 1.7% and 2% cumulatively over the same period. now, theloser to response to the pandemic has provided further evidence of effectiveness. programemic emergency and the new series of tltro's
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have proven to be powerful tools for stabilizing financial conditions and stimulating credit growth. estimates, ther measures we have taken since mid-march this year will increase inflation by around 0.8% cumulatively between 2020 and 2022. growthhave increased gdp by around 1.3% over the same period of time. however, we have to reflect on what will happen if natural rates remain low and inflation remains subdued. to continues have to resort frequently to balance sheet policies to deliver on other mandates. and this scenario throws up to issues that we need to consider more deeply and they are the two
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issues that i want to finally touch on. be first one is what should the standardized toolkit for a world where unconventional policy is normal policy? the implicit assumption since 2008 has been the policy normalization would mean returning mainly to interest winding downnd unconventional policies. whatf normal is closer to we saw before the outbreak of the pandemic and i'm afraid what we are seeing even more vividly prepared.need to be we need to have a clear consensus agreed within the governing council after good discussions -- and we need to be
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understood by the public on what tools are available to us when inflation is too low and how they should be systematically deployed in response to different types of shocks. so, we need to further and deepen our understanding of the transmission channels of our different instruments and to evaluate the relative side effects, whether they are intended or unintended as they work their way through their economy. the central question is the extent to which different tools are substitutes or complements and their potential nonlinearity. that is how the effectiveness might change over time or in different economic conditions. we already have evidence. findsample, our research that without the use of
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large-scale asset purchases since 2015, the deposit facility rate would have had to fall to -2%, 200 basis points, to achieve the same path of inflation we observed. this is a level that would probably have triggered reversal rate dynamics, a situation where a rate cut becomes and disruptsy monetary policy transmission. conversely, other instruments have displaced complementarity. trtro's andample of our negative rate policy. the long-term refinancing operation has been able to leverage the power of the negative rate policy by channeling the stimulative impulses of subzero rates
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directly to banks. scenario reversal rate , this promotes credit creation because banks can borrow at very low interest rates and at the condition that they lend on without impairing monetary transmission. thatecond and last issue we need to reflect on is the interactions between monetary and fiscal policies. banks have to use monetary policies extensively, there is an inevitable strengthening of the interplay between monetary and fiscal policies and this interaction works both ways. fiscal policy empowers monetary ,olicy by fostering demand which brightens economic prospects for firms. this leads them to being
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encouraged to borrow and allows them to profit to the full extent from monetary policies. monetary policy makes fiscal policy more effective because when monetary policy is at the lower bound and committed to staying there via forward guidance on rates and asset purchases, fiscal multipliers are higher. indeed, one explanation for the superior inflation performance of the united states relative to the euro area in recent times is that monetary and fiscal policies were more aligned in the united states. 2018, fiscalough policy in the euro area gdptened by around 2.5% of compared with a loosening of
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0.8% in the united states. ecb analysis for the euro area finds that while monetary policy was supporting inflation during this period, it was being largely upset by demand headwinds. that in theion is current environment, both policies must remain expansionary for as long as necessary to achieve their respective goals and in disinflationary conditions, when the economy is running short of its potential, the goal of each policy are naturally aligned. but it seems like there is always a but -- if monetary policy and fiscal policy are interacting more closely, it raises important questions. that will probably become even more acute in the
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aftermath of the pandemic. these include how to set policy in a world of possibly permanently higher levels of public debt and what is the appropriate design of europe's fiscal framework? why sincee reason restarting our strategy review, we introduced the new work stream of monetary/fiscal interactions, precisely to address these questions. conclude. sometried to lay out preliminary considerations that and atding our strategy this stage, as i sat at the outset, it is too early to draw any firm condition -- conclusions. i rather attempted to identify some of the key issues that the governing

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