>> good morning from bloomberg european headquarters in the city of london. i am david j church -- nejra cehic. a globale announced banking solution of 500 million euros at the 2020 horizon. nejra: societe generale announcing cost cuts at its investment bank. we have the full interview with the ceo, including his thoughts on brexit. brussels ingoes to search of legally binding changes to the deal, but doubt circle over a revised plan emerging by february 13. and a tale of two central banks. forecast, andted

could a more dovish tilt be in the cards for the reserve bank of india? ♪ nejra: welcome to "daybreak europe," just after 6:00 a.m. in london. we are in earnings season for banks. fourth-quarter net income coming in at 1.7 billion euros, the only number crossing the take at the moment. looking at for any information on nonperforming loans. that is including a tax gain of 887 million euros. a little more detail filtering through here. looking ahead to this, we heard from intesa earlier this week, they will keep increasing profits, 85% of profits will be returned to shareholders as dividends. i spoke to the intesa sao paulo

ceo, talking about the target for reducing nonperforming loans. anything more on unicredit, we will bring those numbers as we get them. socgen, we brought the headline, shrinking the trading business as they seek 500 million euros of cost cutting. one of the main lines coming through here. cutting 2020 profitability target to 9% to 10% return on tangible equity. those are the main lines. let's hear from the interview, annmarie hordern spoke to the oudea in paris, starting by asking where the 500 millions of cost cuts will fall. frederic: we are aware we have posted more disappointing results, and what we are doing is not just reacting to a difficult fourth quarter, we are taking into account the environment we are expecting in the coming years. have a change

versus what we had in mind 12 to 15 months ago. in many aspects, financial environment, but also the regulatory framework that will impact markets. given the current performances, we need to adjust our strategy, refocusing capital allocation towards our areas of excellence. for example, the distribution of investment products, brokerage activities, and effectively fromcusing our activities t the areas where we have less profitability and no real capacity to improve. that's why we announced in the global banking, a 500 million euro saving plan at the 2020 horizon, in order to take into account the new environment and of course improve profitability of these activities. annmarie: will this mean job cuts?

what level of job cuts is implied for the investment bank? frederic: it is too soon. we have a process where we effectively refine our plan, and we have to discuss with the trade unions the potential consequences. it is too soon to comment. annmarie: what else is on the chopping block? eric: we have effectively closed prop trading activities in asia. dedicated prop trading activities are part of what is in review beyond asia. again, the idea is to concentrate, given the constraints, where we have leading franchises and what is the core, to improve profitability. commodity and credit-rating is expensive, but doesn't bring a lot of money. the business is where we will be cutting. annmarie hordern joins us

now from paris. good to see you. clearly a tough fourth-quarter for socgen. what stood out to you? annmarie: the 500 million euros of costs, on top of what they announced a year ago, over one billion euros. the trading revenue they flag in january.fixed income , currencies, commodities down 29% the revenue. they are citing geopolitical concerns and economic growth, on top of a longer-term low interest rate environment putting pressure on profits. head oflacing their global markets and cutting about 8 billion euros of risk-weight ed assets. finally, you mentioned this when the earnings came out, trimming returns on tangible equity targets. that is a key performance target, something they are working on, trimming that by 2.5%.

so given all this, i asked frederic oudea, what does this mean with bonuses? will bonuses be slashed the second straight year? he couldn't give me an exact answer but he alluded to it. listen. frederic: we have always shown rationality in that matter. annmarie: this would be the second straight year of bonus post shrinking. a 25% decline? frederic: no comment. we of course take into account performance when we decide on the bonus pool. annmarie: what worries you most? you mentioned geopolitical tensions. trade wars between beijing and washington? is it brexit? visit the low rate environment? i think: on the brexit, anat there's now understanding that there will be a transition period for

financial services even if there is a hard brexit. the transition might be longer if it is a soft brexit. it is more the impact on the u.k. economy, and i hope of course that there will be a more soft brexit than a hard brexit. generally speaking, the trend changed radically. 12 to 15 months ago, there was a kind of euphoria in the world economy. things were accelerating, the u.s. was so happy with the tax cuts, the potential benefits, so there is a change. and effectively, we should avoid adding to this natural economic slowdown, because of a geopolitical decision which would create a lot of uncertainty. but fundamentally, we are facing changes that we are factoring in our strategy, and we want to build a model. i'm encouraged, even by the fourth quarter, with how we manage our risk. the high quality of our

portfolio, all this is part of solid foundations. annmarie: your bank is one of the biggest middlemen when it comes to derivatives, and you announced with brexit you will move some of the clearinghouses on the side of the channel. have you started moving employees, given the deadline is next month? : we have taken some time to adapt to the scenario. as you know, we are very balanced between the two sides of the channel, with people, with premises, with systems here. and there was no need for us to aticipate, to ask for license. now we have a transition period, some time to adjust, and to know better what might happen beyond the transition period. annmarie: any other preparations you're taking for a no deal exit? frederic: we already made a preparation, to know exactly who might move. we will have the transition period.

we do not yet know what will happen beyond the transition period. we are discussing with all the regulators to understand the legal framework, and we will adapt, and i think among the european banks we will be one of those with the most capacity to adapt, because on both sides we have a pretty balanced business. annmarie: but no one has packed bags yet. frederic: not yet. annmarie: no one packing bags oudea saysederiuc they are ready for brexit, they will have this 12 month grace period to get things in place. he says the scenario is unclear for them to move the pieces they have in place. nejra: annmarie hordern in paris. thank you so much. coming up, we stick with the financial sector and speak to the ceo of switzerland's biggest insurer. interview with the ceo of zurich insurance is next. when you are traveling to work, tune in to bloomberg radio live

on your mobile device or d.a.b. digital radio live in the london area. this is bloomberg. ♪

♪ nejra: this is bloomberg "daybreak europe." i am nejra cehic in london. many markets in asia are still closed for the lunar new year. msci asia-pacific slightly on the back foot. s&p futures edging a little lower, and the 10 year yield down one basis point, 2.69. the dollar index carries on gains, up 0.1%. copper snapping several days of gains, down 0.6% on the lme. after the poor year we saw last year, three top u.s. banks see a rally for copper, saying signalsstimulus optimism for increased demand. iron ore, the rally we have

seen on concern about output, pushing european miners into a bull market. goldman expects miners to boost production. today, we are asking the boetion on mliv, will the hike or cut rates in the event of a no deal brexit? let's go to bloomberg first word news with olivia house in london. olivia: theresa may goes to brussels, hoping to restart brexit talks and win concessions from europe. but with a deal looking increasingly unlikely, sources say the next brexit could be delayed. this comes as opposition leader jeremy corbyn issued five brexit demands, including a customs union, clarity on security cooperation and commitments to european union agencies. the bank immigrant has long been at the mercy of brexit, but now

a slowing economy is also disrupting its plans. officials are likely to hold the benchmark rate at 0.75% at a meeting today, but the focus will be on governor mark carney's news conference and the bank forecast, even if they become obsolete by the end of march. jay powell has given a positive assessment of the u.s. economy. speaking at an event, the fed chairman said the u.s. economy is "in a good place," this as investors from pimco to vanguard say the fed has killed off the immediate risk of a yield curve inversion. president trump's nominating senior treasury official david malpass to head the world bank. he is seen as a loyalist, a sharp it of china. the u.s. has traditionally supplied the bank leader, although member nations are encouraged to put forward their own nominations. there seems to be little appetite to challenge his choice. don't miss bloomberg's interview with david malpass at 1:30 london time. investors seem to be tossing

aside concerns over italy's relapse into recession. the sale has allowed it to raise 8 billion euros, but the imf fall italy could still short on much have needed reforms, saying economic growth will remain below 1% through 2023. global news, 24 hours a day, on air and at tictoc on twitter powered by more than 2700 journalists and analysts in over 120 countries. thank you so hows, much. breaking news from the reserve bank of india, a big surprise. cutting policy rates to 6.25% from 6.5%. we were asking ourselves if we would get a dovish tilt, and we are actually seeing a cut in the policy rate, the red headline on the bloomberg. unexpected, that cut to the policy rate. just trying to go through the other headlines here. the monetary policy panel was unanimous on the policy stance. the rupee coming under pressure,

down 0.2% in reaction to that. sensex meanwhile extending gains after the r.b.i. cuts the benchmark rate. a drop in the rupee, a gain in the equity market. just trying to go through the other headlines. there is by the way a tliv blog you can follow to get all these details from the r.b.i. now, i also need to break total, numbers coming through. fourth-quarter adjusted net, $3.2 billion. the median estimate was $3.05 billion, so that is a beat from total on the adjusted net. a lot of on the theme, oil majors doing better than expected this reporting season. the total dividend comes in at 64 euro cents per share, in line with estimates. total said it will continue its policy of giving back to shareholders. this is what total is saying here, that it plans to buy back shares for $1.5 billion in 2019.

the fourth-quarter adjusted, coming in at a beat. let's get to our guest from j.p. morgan asset management, with us for the hour as a guest host. stephen, your initial reaction, as we have these numbers break from total? it has been a pretty positive reporting season for the oil majors in europe. stephen: it has been ok. the oil prices has not affected them to negatively and the prices are stabilizing now. these companies that have done a lot to address balance sheet issues the last three to four years, they look reasonably well set at the moment. nejra: oil majors and banks were two of the worst performers on the stoxx 600. we had socgen saying they will shrink the trading unit, cutting the market rout. and numbers from bnp paribas yesterday also lowering targets after a jolt to the trading arm.

are european banks looking attractive to you at jpmorgan right now? stephen: at valuation, they look attractive. barely under pressure from what happened at the second half of last year, yield curves managing and banks tend to be correlated with the shorter end of the yield curve, so that flattening did not help performance at all. we think most of the capital ands have been completed, interesting to see the results from italian banks on the nonperforming loan side, a very serious issue for italian banks the last 5-6 years. overall, i am not sure there is yet an enormous amount to show bank -- to propel bank share prices higher. you would have to see more credit for that, which was slightly muted last year. nejra: i have a credit actually that nicely shows european

banks' long-term underperformance. you can see that. there is not a lot that you see that can lift share prices from here. is that also because in order to get growth for european banks, it comes down to cost cutting and there is a real difficulty of growing the top line? stephen: absolutely right. the difficulty of generating topline growth has been relatively muted. but given that the eurozone is less than we have seen in the states. credit often operates on a cycle, and it is possible in five to six months it could be a little healthier. nejra: so while banks are vulnerable to the macro environment, which you are pointing to with credit, what more can they do from a business perspective to appeal more to shareholders in europe? with italy, there's obviously idiosyncratic factors, you

mentioned the nonperforming loans. would italy be an area you would look at as an opportunity because there is something that can be done to show to shareholders? stephen: potentially. the valuation case is strong. but you need some kind of growth in profitability. i alluded earlier to the necessity of shrinking the nonperforming loan base in italy. the secondary market in nonperforming loans in italy has been healthier the last two years, mainly because of the sense that they have turned a corner on the ability to inject capital from the government. paschithat with monte resolution happening earlier last year. the important thing for us is that all european banks are not created equal. there are opportunities in other countries. nejra: and that would be where? the u.s. presumably? stephen: in the u.s., yes, speaking as an employee of a

very well-capitalized american bank, american banks are a decent investment. i think within europe, in northern europe, there are still some opportunities, particularly in strong savings franchises. anywhere where you can find a bank whose profitability is neted more on fees than interest margin in a savings-based culture that is a good place to be. nejra: elsewhere in the financial sector, i asked because we will speak to zurich insurance ceo mario greco any moment, is insurance a europe in area -- an area in europe that could be more attractive? stephen: insurance is in a very different place. it did not have the nonperforming loan problems, obviously. insurance balance sheets have been strengthened in preparation for the capital testing they are now in. a lot of those balance sheets are pretty attractive. they are held back by the fact bond yields are so low, and it

is difficult for them to generate investment income, and therefore they have done an enormous amount of emphasis on cutting costs, making sure that underwriting is profitable. a lot of the insurance companies have performed pretty well. nejra: in terms of low rates, we look ahead to the ecb, we look for more guidance in march. how much more of a proposition can european banks become, based on anything the ecb does? i know they will have more impact on italy than anywhere else. stephen: yes, they benefit from the cheap funding. i think there is a potential threat, if that cheap funding rolls off and is not replaced. they need to be debating that. people look at the fact that interest rates are extremely low, and that that as putting pressure on net interest margins. if you look at the blended five-year rate from the eurozone, it is 1.5% to 2%. corporate lending rates are around 2%. if you are getting funds at zero and lending a 2%, you have a net interest margin, so it is more

about the volume of credit you are extending. nejra: what are your thoughts on french banks, to come back to this? we talked about socgen and bnp paribas. a number of them have quite a bit of exposure to italy. benelux, part of that would potentially attractive? what about france? stephen: french banks are very cheap. they have a much larger investment banking business than in northern european banks. and it just happens at the moment that investment banking revenues are slightly under pressure, and they are suffering from that. domestic franchises are reasonably strong. french banks have gone through a process of domestic consolidation, which would be nice to see in italy. it is already happening in spain, in germany. one of the key things that in italy might improve banking profitability. in france, they have already done it, and it is really just a matter of the ship being in reasonable trim, now just catching some favorable winds.

nejra: a big question we keep asking people, consolidation in the european banking industry, is that actually what the industry needs? stephen: not only what they need, but what the ecb actually wants. if you think about the ambitions for the eurozone, particularly the capital markets union, the effect of that will be to shrink the role of banks within the economy, and they will be more there to enable the intermediation of savings into corporate credit. but if you're in a situation where corporate credit is going to be a less important part of your business, that will be important. nejra: stephen macklow-smith, from j.p. morgan asset management. we will chat more in just a minute, but let's check on the markets from the perspective of the reserve bank of india. bloomberg's partner in mumbai is with us. surprise decision from the r.b.i.. reaction.een the

>> they have cut rates by as much as 25 basis points. the nifty gaining for the sixth straight day at this point, well above 11,000, which it had moved around for the first time since the first week of october. we have seen strength in the sensex as well, and the nifty banking index is holding on. down to the money markets, we have seen a little bit of a drop when it comes to the 10-year yield, which currently stands at 7.34%. as far as the rupee is concerned, flat at around 71.6, but on the whole indian equity markets are cheering that rate cut coming through. nejra: thank you. agam bakil, talking through the surprise rate cut, the r.b.i. changing its policy stands to neutral. traveling to work, tune in to bloomberg radio on your mobile device or dab digital radio in the london area. much more on the markets next and updates on brexit. this is bloomberg. ♪\

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nejra: this is "bloomberg daybreak: europe." i am nejra take it in london. zurich insurance -- nejra cehic in london. zurich insurance increased its dividend, which was lower than analysts expected, the second increase under ceo mario greco, who joins us now for an exclusive interview. thank you so much for joining us this morning and giving you a little time -- giving us a little time. let's talk about the dividend first. increasing your dividend, to 19 francs per share. will you continue to increase the dividend? mario: [laughter] we cannot say that.

but we are pleased to have increased the dividend for the second time. this year, we just followed are dividend policy, which is to distribute back to shareholders and thisr net income, dividend is a spot-on on the 75% policy. nejra: yes. also, if we look at the full year net, as i said in the introduction, that was a beat at $3.70 billion. what's the explanation for that number? so, 2018 so -- mario: was a tough year. we had catastrophes above average. we had huge volatility in the markets. but nonetheless, we managed to perform and to deliver what we wanted to deliver by year-end. when we presented our three-year plan in 2016, we hinted to investors that we will be delivering high returns to our

shareholders, dividends, because profit will be growing through the years, and we are glad to see we are respecting those policies. nejra: yes. now, also, as part of the restructuring you have overseen, mario, zurich has made a series of acquisitions in recent years, diversifying the business, rebalancing the weighting of corporate and retail clients. let me ask you what your next acquisition is. mario: [laughter] we don't know that yet. we are busy trying to make the positions we made as profitable as we wanted them to be. so far, they are all delivering. our traveling services platform, we acquired this company a year and a half ago, and we progressed with other acquisitions in order to build a global franchise, and they are doing extremely well, we are very pleased with their results. equally, in south america we

acquired businesses in argentina, in mexico, in brazil. we are integrating them, and we are glad to see they are performing as we hoped, and as we wanted them to do. it's about discipline, about focus, about continuing to do the things that you promised to do, and doing them every day. nejra: yes. you talk quite a bit about continuation, mario. as you pointed to there, zurich has been looking outside europe for growth. is that strategy going to continue? mario: yes. i mean, we focused a lot on emerging markets. we see the world shifting towards emerging markets, especially asia. we are mindful of that. we see that it is not just a matter of gdp growth, but also a matter of innovation, and the people there have, you know, they are bringing ideas,

bringing solutions which are extremely interesting for us. so that's why we focused, our last acquisition was in indonesia. we have not yet concluded that. we are working to conclude it. but it shows the focus we have on emerging markets. it shows the focus we have on being bigger in asia and being closer to where the changes are happening. nejra: yes. you also said, just a couple months ago, that you are confident of hitting the $1.5 billion cost cut goal. just give us an update on that, in terms of how that's coming along and where the cost cuts will come from? set this target in 2016 of reducing nominal expenses by $1.5 billion, a nominal target, quite simple to monitor and quite simple to ear by year.that y if you plan for the right

actions. this is exactly what has been happening. on our nominal cost 8 by $400 million. so far, we have reduced our cost basis by 1.1 billion. this is exactly what we planned to do. we have $400 million to go through 2019. we have plans for that, andrea quite confident we will achieve it by year-end. nejra: where is the next investment push? i think the next investment push is on technology, innovation, and customer solutions. we need to continue bringing new solutions to customers. the world is changing. 5g will accelerate these changes . we are engaged in that, and we want to bring the best possible

services to our customers, as quickly as possible, in order to get there we need to keep investing, and keep developing our capabilities to serve the customers in a better way. nejra: well, we certainly wish you luck with that. thank you so much for joining us this morning. ceo of zurich insurance group speaking to us exclusively. let's get the bloomberg business flash with leslie humphrey in -- desley humphrey in dubai. desley: softbank up the most in 10 years after announcing a $5 billion purchase in stock. working onon is closing the disparity between what he thinks the company's worth and what the market thinks. it is the biggest buyback in softbank history. more bad news from european banks. societe generale cut its profit targets and will shrink

trading units. the french lender is cutting 500 million euros of costs, reviewing less profitable parts of the business after a 20% revenue slump in the fourth quarter. >> we have announced effectively in the global banking and investment solutions a 500 million euro saving plan at the 2020 horizon, in order to take into account the new environment and of course include the structure -- improve the structure of profitability of activities. desley: that is your bloomberg business flash. nejra: desley humphrey, thank you so much. federal reserve chair jerome powell gave a brief but positive assessment of the economy, saying "the u.s. economy is in a good place." inflation, in a good place now. furtherpause on tightening has firms like pimco and vanguard to say it is time invertedhe risk of an

yield curve off the radar. stephen macklow-smith of jpmorgan is with us still. jpmorgan has said a couple times the rates markets priced in a dovish fed, the equity and credit markets haven't. has the u.s. equity market not yet fully priced in this pivot? stephen: really interesting what happened in the fourth quarter of last year. i was surprised by the extent of the swoon in the u.s. equity markets, going from a market that was a standout of the year, one of the only major markets that was up, and then down for the year despite earnings up 22%. , and was a huge de-rating you could infer from that the equity market was worried about recession, the evidence for which is lacking at the moment, as jerome powell said. nejra: now that we have had this relief rally that a lot of people are calling in january, does that mean it has more legs to run? now we seem to be not talking so much about recession, but still

about a slowdown. as the market fully taken that on board? stephen: i think a lot depends on the brexit policies, and the short-term direction the economy is taking. the first six months of the year will have a sign that economic demand is running slightly higher than people thought. one of the issues is the slump in confidence, in the second half of last year, which was particularly to my might aggravated by the uncertainty over trade wars. forink 2018 was marred investors by a shift in policy towards a more protectionist states,f the united which threatens globalization and supply chains, and you saw the corporate reaction, particularly from american corporate slick harley davidson, -- like harley davidson, caterpillar. equity markets will continue to be concerned, but i have hopes the u.s. and china will come to some sort of trade agreement. and i think in china you could

see some more stimulus happening in the first half of the year, which will relieve some pressure's on growth there, and it is a question of what the u.s. does. nejra: you have some nice graphics in the jpmorgan outlook about what the biggest risk globally is, and you mentioned two of them, recession and trade war. if recession fears are receding and we get to march and don't get the increase in, tariffs does does that mean a rally in equities, or is that rally stalled because that than means we might get a hike from the fed if the trade war -- stephen: i am not sure the fed would change policy that quickly. they have made clear they are more dovish. nejra: they said it could go either way. stephen: they have, but that was a big change from what they said in december, so i think it would be slightly troubling if the fed were to tack in such a dramatic way in a single year. so i think they will wait for

more evidence. i think also they will talk about the likelihood they might pause in shrinking the balance sheet later through the year, that we are talking about internally. overall, as chairman powell said, the u.s. economy is in a reasonably good place, and now it is just a question of what happens to inflation, given unemployment is extremely low, labor markets are quite tight. nejra: how much of a risk is inflation in your mind? stephen: i don't think inflation is a massive risk the next 5-10 years, partly because from a demographic point of view you are seeing a massive headwind i parts of then developed world, likely to mean inflation is contained. i think one other thing worth mentioning, in an ideal world what we would see at the moment is companies increasing capital investments, trying to boost productivity, which has been disappointing the last 7-8 years. with lower interest rates,

companies unfortunately still prefer to divert capital to buying back costs, rather than trying -- buying back stocks, rather than trying to boost productivity, so it would be nice to see productivity rising, but no signs at the moment of a massive surge on the way. nejra: in the u.s., small caps are looking more attractive than they have over the last 28 years, what i am reading from your global equity views. what sort of strategies will work best in 2019? you also point out in the global equity views, a classic combination of value, quality and momentum factors didn't really do so well in 2018 and that was a little frustrating. so what strategy would you employ in the u.s. equity market or elsewhere for 2019? stephen: 2018 was a really tough year for active managers. you have to admit that. it wasn't just in the equity space where i manage money. hedge funds struggled as well

income managers struggled as well. if you had to explain that, the unpredictability of political direction, particularly the introduction of tensions in trade, would explain that. but i think as you look forward, what has been created is a valuation opportunity, with a big rise in earnings, valuations look attractive. in the states, the stock market was trading below average violation for the first time in a long time, and i think if you look into the markets, you highlighted vi value, quality ad momentum. i think those will stand you in good stead, because effectively that means cheap stocks with strong balance sheets, good business momentum will outperform, and that is honest a truism, but it seems a decent way to orient your investments. nejra: stephen macklow-smith from j.p. morgan stays with us. coming up, with just 50 days to

go until britain is due to leave the eu, theresa may goes to brussels seeking changes to her brexit deal. can a compromise be reached, and what does it mean for u.k. equities? this is bloomberg. ♪

♪ nejra: this is "bloomberg daybreak: europe. i'm nejra cehic it's in london. we are asking on mliv, would the boe hike or cut rates in a no deal brexit? you can reach out to the mliv team on your bloomberg. let's get to the bloomberg first word news. toley: theresa may heads brussels today hoping to restart brexit and win concessions on europe -- from europe. but with a deal looking unlikely, sources say the next brexit vote could be delayed, as

opposition leader jeremy corbyn issued five brexit demands to the prime minister, including a customs union, clarity on security corporatio cooperationd commitments to e.u. agencies. officials are likely to hold the benchmark rate at 0.75% at their meeting today, but the focus will be on governor mark carney's news conference and the bank's forecast, even if it becomes obsolete by the end of march. and stay with bloomberg for coverage of the bank of england decision, followed by mark carney's press conference half an hour later at 12:30 p.m. london time. global news 24 hours a day, on air and at tictoc on twitter powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. nejra: desley humphrey in dubai. thank you. let's get more on the boe decision. any plans for a rate rise is at

the mercy of brexit, with a slowing economy only causing more uncertainty. with what to expect from the uk's central-bank, bloomberg's dani burger. dani: the boe is expected to the 9-0 and hold rates, but breakdown of members is important because the forecast is crucial here. over here we have the reliable doves. and then the biggest cohort, the neutrals, please five i have up here. carney, of course, right in the middle here, are most important. will he have to cut the growth forecast? dovishnessn more possible. or will the hawks have it out, these last two over here? the interesting one to watch is saunders, who said that no matter what happens with brexit, the boe should not hold back with cutting rates. so there is some possibility of a 9-0 decision. there could be some dissent in the ranks. speaking of dissent, i want to

show you how rare that is. since 1997, i have the votes for cut and hike. only three times have we seen a split vote. once over here, twice over here, the financial crisis most recently we got that split. so, should we get a decision e presidentound, th is the financial crisis. it really is the forecast we need to watch out for. nejra: thank you so much, dani burger. theresa may go to brussels today seeking legally binding changes deal she reached with the e.u., but there are few signs they are reaching a compromise. may is not expected to bring a revised brexit agreement back to parliament bay severe -- parliament by february 13. stephen macklow-smith of jpmorgan is with us. with the uncertainty, are you

taking a neutral view on u.k. equities, or seeing reasons to buy certain parts given low valuations? stephen: you are right that falla relations are low, and you are also -- valuations are low, and you are also right it is important to look not at the u.k. market as a whole, but a series of parts, defined by their relationship with sterling. the u.k. market is an extraordinarily international market, 75% of revenue and profit generated outside the u.k., so when sterling moves up or down, you see a rotation in the market. at the moment, we are probably neutral because a deal with the e.u. would relieve some pressure on domestic u.k., and some valuations look extraordinarily attractive, even though in sectors like retail there are particular problems, as we have seen with some high-profile casualties in the last two years. domestic u.k. is still cheap. any kind of relief on the relationship with the e.u. could see a rally, but i don't have enough conviction, actually, to

make a strong move either way, because we are in negotiations and it is a multilateral negotiation. a the outcomen -- and the outcome is currently uncertain. nejra: you talk about international exposure. 75% to 80% of the ftse 100 has international exposure, but the ftse 250 has about 50%. so does that limit the amount of out performers or underperformers we could see from the ftse 250 relative to the ftse 100? stephen: very difficult call to make, but probably yes because it is a more domestically focused benchmark. if you have the relief rally, ftse 250 stands to benefit slightly more. nejra: let's look at some of the sectors. big components of the ftse 100, oil and gas and miners. let me start with the miners. i said earlier in the show had top u.s. banks, goldman,

citigroup and bank of america are offering rising forecasts on copper, and we have seen this run-up in iron ore, pushing miners into a bull market. momentum going to continue for the miners? stephen: you mentioned earlier a this bulletin, there is very sad one-off from the incident on brazil, the effect on metals prices. the effect from chinese stimulus will be slightly more, so yes, in that case if you see the recovery, particularly in china, that rally in metals prices could have legs and valuations in the basic resources area of the market look pretty attractive. nejra: and what about the underlying businesses, if we separate them from simply what's happening with the prices of metals, which of course can be volatile? stephen: the underlying busi ness, we exited the so-called commodity super cycle some time ago, and at that point balance

sheets were pretty extended. that has been cut right back, so the balance sheets look somewhat healthier, the dividend looks more dependable. a lot of that pain has been taken, so we don't have that many concerns on the balance sheet side, so now it is more about business momentum. nejra: and on the dividend policy, you mentioned there for the miners, that has been key for oil and gas as well. i keep repeating this, because it is an important point. with oil and gas, investors are not only looking for return of capital, but also signs of debt being brought down and investment for future growth. from here, do -- can the oil and gas companies deliver on all three of those points for investors? ifphen: conceivably, yes, the cycle remains healthy. when you think about what happened to the oil price, in a

way, that very steep correction in the fourth quarter was a belated recognition of the fact that it had been strengthening,, the dollar all year. normally the dollar and the oil price are inversely correlated, but because the request and marks about the supply from iran and venezuela, there was strength, and then you had a correction and reset. we think from here energy prices could increase modestly, a more stable background against which to make investment decisions, but i think energy companies will prioritize dividend payments. i don't think they want to because cutting payouts to shareholders. nejra: we are coming to the end of the hour, stephen macklow-smith. your top picks in industry sectors in europe for 2019, and what you would stay away from? stephen: it is still the case, if you get a strengthening in economic demand, given that in the last six months of last year there were some extra and are a one-off's, livkke emissions tess in the auto industry and bizarrely water levels in the

rhine causing a bottleneck in germany. we just havelf, to wait to see whether you get an acceleration in china, and an improvement. nejra: so that would mean financials, cyclicals, potentially an opportunity, and what would you avoid? stephen: financials and cyclical are the obvious things that should benefit. you might see steepening yield curves, which could be bad for high-quality growth stocks, which tend to be inversely correlated. nejra: stephen macklow-smith, great to have you with us today. for of strategyat europe j.p. morgan. coming up, an exclusive interview. remember, bloomberg users can interact with charts using g tv , to catch up with key analysis and save charts for future reference. this is bloomberg.

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>> good morning. i'm nejra cehic. these are today's top stories. announces cost savings in its investment bank. the ceo says the changing environment are to blame. --we have announced [indiscernible] 500 million euros saving plan. 2020 horizon. nejra: theresa may heads to brussels in search of changes to the deal, but doubts circle. and a tale of two central banks. the boe will hold policy.

meanwhile, the r.b.i. delivers a surprise rate cut, dumping its hawkish stance. just on 7:00 a.m. in london. just under an hour from cash equity trading. let's get to numbers from germany. industrial production month on month drops 0.4%. the estimate was a gain of 0.8%. that was a miss to the downside. the estimate was for a drop, but one of 3.4% year on year. more evidence you could say of the weakening economic outlook for germany and the eurozone. let's get to the futures. looks like we could see a weaker open in just under an hour as we take a look at the ftse 100, dax and cac.

we saw the stoxx 600 close yesterday ever so higher. the u.s. markets were a little lower by the way. u.s. futures and european futures lower today. ftse 100, dax, cac 40. dax leaving the losses just a little bit. investors will be assessing the numbers we are getting through earnings season. hotel --ad socgen and totale. if we take a look at the bond markets, the 10-year treasury yield, not a huge amount happening. we could see a little bit of bomb spread widening. -- bond spread widening in italy. the 30-year got a pretty good reception. that in this low rate environment we have seen a number of countries take advantage of that low rate environment in europe in terms of issuance. let's get the first word news in

dubai. >> thanks. theresa may heads to brussels today opening -- hoping to win concessions from europe. a deal is increasingly looking unlikely. sources play the next brexit vote could be delayed. this comes as jeremy corbyn lists five brexit the man's, the changes include a customs union, clarity on security cooperation, and commitment. jay powell has given a positive assessment of the u.s. economy. speaking at an event for teachers, the fed chairman said the u.s. economy is "in a good place ." as investors from pimco to vanguard say the fed pivot has killed off immediate risks to the yield curve inversion. president trump is nominating a senior treasury official to lead the world bank. he is seen as a loyalist, a sharp critic of china, and keen on the shakeup of the global order.

the uss traditionally supplied the bank leader, although member nations have been asked for their own nominations. this seems to be little appetite to challenge the president's choice. don't miss bloomberg's interview with david malpass at 1:30 p.m. london time. president trump he expects to be able to announce next week that all the territory once held by islamic state has been won back. the insurgent group controlled large parts of syria and iraq, but has lost the vast majority of that in recent years due to local and international support. secretary of state mike pompeo is reassuring allies that they are not being left behind by the troop withdrawal plan. >> the drawdown of troops is a tactical change, it is not a change in the mission. it does not change the structure, design, or authorities on which the campaign has been based. it simply represents a new stage in an old fight.

sovereign bonds look to be a good thing for italy. investors seem to be casting aside the country's relapse into recession. the imf warns italy is still facing -- falling short on much-needed reforms. economic growth will stay below 1% through 2023. global news 24 hours per day. this is bloomberg. nejra: thank you so much. a 6.5% increase in net current cash flow per share, exceeding initial guidance. the results come as europe retailers fight their with your online competition and faltering growth in the euro area. joining us now is the chairman of the executive board at click

lepierre. thank you for joining us. let me ask you about the growth outlook in the eurozone. german industrial output falling more than expected. are you seeing any impact on your business from the environment of slowing growth? >> good morning and thank you for welcoming me. i think the outlook for next boomingprobably less than 2018. i think when i look at klepierre , what is most important for us is that we are exposed to all of europe. germany will see less gdp growth, but you look at europe, we are doing extremely well. important is always

for people like us to look at the macroeconomics in europe because we are in 16 countries. nothing more to comment on that. yes, sure, of course. in view of slower gdp growth and the fact that rent is inflation linked, do you expect any underlying rental growth to stall because we have a low-inflation environment? jean-marc: if we look over the we have years, 2018, already seen it pick up in the inflation. year will be higher than 2018. the indexation is favorable to the business. translates.

we see it as a favorable movement for klepierre. nejra: yes, i want to knew about the new 400 million euro share buyback program that you announced in the latest numbers and you are talking about the cash dividend proposal which is up more than 7% from the previous year. is this part of a plan to keep returning cash back to shareholders? not thec: this is purpose number one. first of all, we have very strong growth. we have revenue growing by 3.4% in 2018. debt thatve a cost of decreases significantly and we are investing in our properties to generate more cash flow. so the share buyback is one tool

for us to size opportunities. we will do the share buyback, but we are more focused on organic growth. nejra: ok, more focused on organic growth. that youe that to mean won't be looking for any acquisition opportunities in the u.k. or elsewhere? have been looking at many opportunities in the past. we have been consolidating in the industry very significantly. today we have no specific plan. in theour challenges industry is to invest to make it more attractive to the customers. this is been quite successful.

increasing by 7.1%. is part of the strategy to cities and to make them more attractive to the customers. investment you are making to make malls more attractive to customers, that is important with all of the competition out there. is that going to increase occupancy cost for tenants? not really. if you look at the figures that klepierre we have low-cost for the retailers. that is at the lower range of the industry. we still have significant room for improvement. we investh significantly in our properties, focusing on that.

we spent 80 million euros every events and toing do a traction for the customers. so, marketing is one of the motivators. nejra: yes, that said, some distress is starting to be felt among retailers. i'm wondering if you have seen any impact from online retail causing any signs of distress among your tenants? jean-marc: i think that you and access -- cannot have access without being unreachable, so we go digital, we go in the store.

think the retailers which are , those aret the two the ones that are going to succeed. i think the technology online is a huge opportunity for retailers to reinvent expanding into the stores. nejra: think you so much. jestin, chairman of the executive board at klepierre. first-quarter revenue and profit misses estimates and we will speak to the company cfo next. when you are traveling to work, tune into bloomberg radio live on your mobile device in the london area. this is bloomberg. ♪

in london. 45 minutes from the equity market open in europe. this is bloomberg daybreak: europe in london. today, we are asking the question, with the boe hike or cut rates in the event of a no deal brexit? joined the debate, reach out to us. on your bloomberg. let's focus on investment strategy with the fed tightening paisus and some surprisese -- pause and some surprises from china. my next guest talks about some of the big risks and opportunities that markets need to watch out for. let's welcome martin malone. great to have you with me on set. i hope you are well.

we are looking ahead to the boe. we talked about the pause in the fed numerous times. we get the surprise rate cut from the r.b.i. today as well. are central banks fueling the party for risk assets right now? >> i think so and correctly so. last year in 2018, we had a significant amount of central bank hikeage. china has cut rates this year. india cut today. chairman powell at the fed flipped from hawkish to dovish. even the markets are to a certain extent predicting maybe even a chance of a rate cut in america this year. we don't expect that. ifwill be quite interesting the bank of england later today was hawkish. i expect them to be dovish and not hawkish. there are large amount of uncertainties out there. central banks have to come to fore and give markets

something. nejra: if it is fully priced now , is that fully priced in equity markets right now? martin: not in equity markets, but in bond markets. we have seen six weeks of a significant rally. a large part of that is a reverse from the crash. a lot of the markets have lagged to the u.s. performance. asian markets, european markets. arepolitical outcomes potentially very significant and we have to focus on them. very difficult to predict. etc., we haves, to take the risks as they come.

central banks have given a dovish tilt. bond markets have responded to that. equity markets have more upside and you think the dollar has more upside. martin: very simple. nothing to do with trump, china, or trade. 5% last year.t up because america is outperforming on many measures, we expect america to outperform relative to 2019. nejra: america will outperformed the rest of the world, see you europe and the emerging markets? martin: yes, everywhere, and especially emerging markets. nejra: would you be taking any emerging markets at all? they have had a good one so far this year. be slightly cautious. a strong dollar will be a drag on the emerging markets.

developed markets are under threat here, particularly if political risks turnout negatively. europe could be hard hit if the u.s.-china trade war and other risks turnout worse than investors are expecting, but within europe, are you still saying to buy italy? martin: yes, italy is a structural trade. the absolutely need to have tenure borrowing rate as low as possible. the end of last year, we were that is a.5% necessary requirement. nejra: i wanted to also bring up italy. a global thirst for bonds has seen investors scooping up italian debt.

interested in that bond? martin: absolutely, that's got at least another 10% upside in price terms. it is a structural hold. it has been a domestic investor space. the italian banks have not performed yet. they are the largest holders of b2b's. anybody that has missed that rally could look at italian banks. the dollar,re long buying italy, cautious on emerging markets, you have talked about opportunities and risks. one of the big risks is brexit. martin: there is no trade on brexit significant -- specifically. it does not pay to have significant risk on. really very much left on the table.

the domestic equity market will actually a post-brexit environment, not the brexit scenarios. we are very concerned about u.k. property. u.k. property has a 10% downside risk. that will trigger monetary and fiscal easing. it will be a lot more impotent this time than it was 10 years ago. so, there is not much space left. this will put a huge emphasis on the currency and we have quite a bearish assessment on the currency. it is going to have to take up the main easing stance. i literally need a one-word answer from you. cross asset volatility chart declining. is that going to continue? martin: yes. because of the demand-side policies. monetary easing, fiscal easing, and because most of the political risks, we expect some of them. nejra: thank you very much. martin malone, really great to have you with me on set.

let's update some numbers coming through that a car off saying the bloomberg. -- crossing the bloomberg. 959 million euros. the estimate was 1.0 one billion. excuse me as i look down at these numbers. that is a miss. the dividend share also comes in at a miss. 8.69.timate was full-year revenue comes in at 10.1 billion euros, again on a miss -- a miss on the estimate. let's get to another interview. has postedd -- licht estimates. they say a weak automotive market hurt revenue in china. joining us now on the phone from ofich is ingo bank, the cfo osram. i just outlined the first quarter profit missed as

automotive in china were a bit of a sting. is this going to be a one-off movement in the numbers or can we see the pain continuing in 2019? ingo: good morning. thank you for having me on the show. quarter, a a tough difficult start into the new fiscal year. particularly the month of december showed quite a drop in the business volumes. we had an unexpected strong decline in china in the first quarter were revenue was down 18% year-over-year. what we also saw was that we still see some sort of post w ltp ramifications with the car industry in europe. if you think about all of the special effects we have going on , the tariff discussion, and the china slowdown, that makes it very difficult right now to make

exact predictions. at the same time, these are issues that can be resolved relatively short term. we are confident there will be some resolution soon and we should see some improvement in the fiscal year. had a that said, you have number of profit warnings and a little over a year. is an activist investor about to swoop on osram licht? ingo bank we don't disclose --ingo: we don't disclose the investors we speak to. the longer-term strategy is to evolve. we will talk to anyone that supports that strategy. nejra: to be clear, you would welcome an activist investor rather than be worried about one? that i did not say specifically. i said we welcome every investor our helps us to execute

strategy with specific things. would you also welcome private equity interest if that approach happened? we don't differentiate between the type of investors. investors are very welcome. as long as they support our strategy. your strategy, you are confident going forward. ingo: our strategy is to evolve what used to be a traditional lighting player to a photronics player, which means quite some portfolio moves. we have sold our service business in the united states. for luminous activity, so that is going well. the only thing we have right now are some short-term market winds

we have to navigate through. nejra: yes. ingo bank, the cfo of osram licht. the european open us up next. this is bloomberg. ♪

>> good morning. welcome to "bloomberg markets: european open." i anna edwards alongside matt miller. >> good morning. today the markets say let's wait and see on the boe, but investors are watching earnings the continent.n futures are pointing down. the cash trade kicks off in 30 minutes. anna: a