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tv   Worldwide Exchange  CNBC  July 24, 2013 4:00am-6:01am EDT

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welcome to "worldwide exchange." i'm karen tso. these are your headlines from around the world. european markets get an early boost from an earnings boost from arm. and helps lead the stock gains. the new ceo tells cnbc he's not concerned about competition from intel. >> it doesn't make much difference to us. we're in every smartphone being made now. we're not in the business of picking winners. we hope everyone is successful and a lot of competition through the is good. >> apple third quarter profits drop sharply but iphone sales
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easily top forecasts. chinese factories continue to fall back shedding jobs at the fastest pace in more than four years. hsbc leads to more calls for fresh stimulus support. and hedge fund under fire. reports say u.s. prosecutors are set to file criminal charges against sac capital over alleged insider trading as soon as this week. good morning, thank you for joining us. we have some information just crossing the latest picture on the eurozone. let's just dive into the eurozone composite pmi, growth for the first time since january 2012. in terms of some of the numbers that have just hit, the composite pmi showing us there is expansion in business activity. the flash pmi estimate was at
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50.4. the read for the markets was expected to be in the order of about 49.3. these are the estimates on the flash number for july. this compares to what we had in june when the number came in at 48.7. we got to 50 on this key number, which is interesting. we haven't seen that for quite a while yet. let's get instant reaction. joining us is chris williamson. let's dive into some of the numbers. good to have you on board with us this morning. what do you make of the numbers that have just been crossing -- the pmi flash estimate forecast of 49.3 and the number coming in above this. >> yeah, this is very strong number. it was surprisingly strong across the board really, leading growth is germany why we're seeing really decent growth in manufacturing and services. in france, which has been a weak spot in the surveys, even the manufacturing there returned to growth, and a rate of contraction and services called. and when you strip out those big
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two, there is even a brighter picture in there, the periphery. if you look at that lumped together, it was the shallowest rate of contraction for two years. it looks like they're dragging out of their downturns. it is a broad-based picture. led by manufacturing, manufacturing that was the best reading for two years, just above the 50 line. interesting that would be every single forecast from the reuters poll economy. so a really strong number, a big surprise. >> yeah, getting through the 50 mark is something we haven't really seen here in europe. china has been giving up on numbers above the expansion/contraction level. the numbers suggest we're not in a bad spot after all. >> we're getting there. that's the thing. so the ecb and many others are looking for the region to pull out of the recession in the second half of this year. there is a chance we display seen a stabilization of gdp in the second quarter. the consensus is for .1% growth in the third quarter. i think this number will lead to
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revisions to those. this is a good start. if you see further increase, we'll be seeing .2, .3%. much depends on the global environment and, of course, the political situation. but what this does, it does certainly take some pressure off the leaders for those political pressures to maybe start easing. there is signs of light at the end of the tunnel in terms of the recession going on for a year and a half now. >> i want to dive into that, the hsbc data out this morning confirms the world's second largest economy continues to slow. fresh pmi fell to 11-month low of 47.7, that's weaker than the 48.2 we saw last month. and the employment subindex hit the lowest mark since march 2 09. analysts says the data further cements views that beijing needs to run more supportive policies to stabilize growth. chris what is your read on china. the numbers keep on going south. >> yeah, we were expecting this one to have stabilized, maybe a
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tad lower, so the drop is bigger than we thought when we crunch the numbers. and saw that weakness. the one perhaps hopeful spot is the rate of decline exports did ease somewhat. maybe the external environment that china is operating isn't as bad as we thought previously. seems it is domestic and perhaps sucking the life out of manufacturing at the moment, does call into question whether you'll see any acceleration of growth from the 7.5. it is very much looking like growth will weaken further. >> diving into your comments about domestic demand removing some of the life out of the chinese economy, we have an economy looking to rebalance toward domestic consultion. is the execution around rebalancing not being perfectly executed right now? >> i think they're playing a longer game. they have clamped down hard on expenditure, on lavish luxuries among the elite. and that's not just the actual political leaders. it is the main corporate leaders as well who are reining in their
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belts. they don't want to be seem to lovish in their expenditure. that seems to be hitting the economy hard this year. we're seeing that come through, while the rebalancing toward general consumption will take a lot longer. >> are you worried about the sub index when you look at employment rate? we need to see stability in the employment side. is there anything in the numbers that would cause you to worry about dissent and unrest across the employment population in china? >> yeah, the employment index is signaling the steepest rate of job losses in early 2009. going back to the crisis. in one respect, that's bad news. in another respect it may prompt the authorities to do a bit of short-term to get some growth stimulus in place to make sure it doesn't accelerate even further. there is good and bad. >> thank you for joining us with instant analysis. chris williamson, global economist at market.
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let's check on the reaction across asia to those numbers from hsbc. li sixuan joins us from singapore. >> it is a mixed day of trading in asia as the weak china pmi data dampened the mood. the shanghai composite lost a modest half a percent and the hang seng in hong kong, in fact, trimmed losses in late trade, ending higher by about a quarter of a percent. meantime, china related shares also weighed on the taiwan and japanese market, both ending just a tad weaker. but south korea and australia managed to stay in positive territory. in china, the manufacturing and industrial related sectors were under pressure, so we saw weakness coming from automakers, steel companies and cementmakers. meantime, property developers and banking shares on the bottom row here also pulled back after yesterday's rally. standard & poor's released a
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report highlighting the financial risks in chinese developers while seeing smaller players may be facing higher liquidity pressure. as for the bright spots in the region, apple suppliers showed pockets of strength after iphone sales came in better than expected. taiwan's hanhui added 1.4%. south korea, lg display and chipmaker sk highnex had gains. despite the weak china data, they extended a strong rally helped by commodity prices. fortescue metals gained over 4% in today's trade. back to you, karen. >> sixuan, thank you for the update. across the european markets, you can see how much green there is on the charts. some is down to the earnings hitting the tape today. the overall stock share of 600, the benchmark is tracking higher by almost half of 1%.
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we have seen an acceleration through the morning session. the core in particular, the ftse ahead .6%. we're opened up .4% firmer. the xetra dax, half of 1% in germany. ibex 35, the strongest performer this morning, up .9%, accelerated through 1%, but has come back a little bit now. firm is the tone indeed. and the cac in france put on .7%. let's move on to what is happening on foreign exchange markets. a little selling in sterling dollar. a little above the 153. the australian dollar has succumbed to more selling pressure. had a firmer day yesterday. back to the 92 level today. selling off more than 1%, hitting a bit of dollar strength really when you look at the charts with the yen as well, just crossing 100 again. .6% on that trade. euro dollar, somewhat supported this morning versus the others,
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1.3232 on the charts. the earnings today, am numbers getting to more traction across here today in germany on the markets. 2.9%. apple, rather, relieved investors with the beat on forecasts in the company's latest earnings report. the company swatted away fears it is losing market dominance as it benefitted from strong sales of its iphone. if you look at how puma shares are doing, down .8%. it reported second quarter earnings below expectations. the general sports wear clothesmaker blamed the poor numbers on falling sales in china and southern europe as you would expect. easy jet soared to the top of the stock share of 600. the company has increased capacity, but also helped the budget airline raise its revenues as well based on that. the uk airline is forecasting a pretax profit for the year of up to 480 million pounds. elsewhere, we had numbers out too from arm, the british chip designer. it has beaten market
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expectations with a 30% rise in pretax profit, the rise in part is due to the strong demand for its latest processes used by mobile phones and tablet computers. earlier on the channel, the new man at the helm told us he's focusing less on the stock price and more on the group's pipeline. >> back to your question about stock price, not too concerned about that in the medium term. what we're focusing on is that r&d, the opportunities we see in front of us as the market expands and delivering into it. >> china's probe in the pharma industry is front and center today. glaxosmithkline ceo is expected to address the issue and reporting earnings at 1:00 p.m. cet. they say gsk is looking at cutting drug prices in china. astrazeneca, two more of its employees were questioned by shanghai police and officials are detaining another u.s. citizen in shanghai in connection to the probe.
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a uk business heeditor helia jos us on the set. tell us your perspective. >> i think what you mentioned about price reductions is key here. alongside results obviously china has taken the headlines. we're expecting to see a bit more detail on what the drugmaker will offer up to chinese authorities to appease them. and that's expected to be reductions in price across maybe one, maybe two, maybe all of their drugs that they're selling in china. that's pretty big deal. >> we got a couple of guests coming up this morning who have been looking that the from the stock perspective and their feeling is it could be a short-term issue. if you talk about price reductions, this changes the earnings profile for the company in china, and there too i would imagine for other drug companies trying to source profits from china. >> i think you're right. this is almost one of those stories that has hit the headlines, the scandal has been unfolding and we have all been caught up in it. when i've spoken to shareholders, they don't care that much.
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that's because what they're more focused on is the drugs that have been approved, had three drugs this year. remember, last year, gsk wasn't doing that great. same time last year they had to give up their guidance, they missed that completely, and numbers weren't great. in the last couple of months, things have picked up and analysts are saying this is a turning point. in terms of china, remember, this is just 3% of their turnover. it is a very fast growing market. but it is a very small proportion. it is about 759 million pounds, when the company throws off about 4 billion pounds in free cash flow every year. i think the price reduction point you mentioned absolutely key in the sense, how will that affect the profitability? but we're not quite clear. sometimes you give up prices in terms of you want to grow volumes. normally done out of a position of strength, not normally done out of a position of weakness which could hurt them. >> i wonder what the broader
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ramifications are for china here. we know in the past there has been a few scapegoats used in different high profile industries to try to prove a point. this in some ways would seem to be the latest. this also comes at a time in the chinese market is slowing. so is china as attracted to companies these days when they're throwing up enormous risks to earnings? >> i think china has always been a difficult market for multinationals, but let's not forget, even though it is just 3% of gsk's turnover, it is growing at 17% a year. that's a very healthy growth rate. so in terms of how important the market is, it is key. it is not -- gsk is not number one, not number two, not number three in china, but an incredibly important market. how it manages to make sure it falls in line, yeah, absolutely, i think it is going to want to do everything it can to move on with chinese authorities and we have got a bit more of that detail, as you said, later today. >> that does put into
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perspective, doesn't it? thank you very much for joining us, helia brahimi. u.s. prosecutors were reportedly set to file criminal charges against hedge fund sac capital as early as this week. the move follows a multiyear probe into alleged insider trading at the firm. reports say no charges are expected against founder steven cohen. and coming up in the next half an hour, we speak to an international lawyer who describes the civil charges against steven cohen and what he faces as obscure. stay tuned as we discuss the case at 10:40 cet. on today's show, the motor city has its day in court. the judge set to rule on whether detroit can file for the biggest municipal bankruptcy in u.s. history. and boeing is set to answer investor concerns over the dreamliner's latest woes when it reports earnings later today. cnbc's phil lebeau joins us from the aerospace giant's hometown of chicago. that's at 11:45 cet. and as the slew of tick
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earnings continues across the globe, we cross to seoul for lg electronics results in a few minute. apple's solid earnings boost suppliers across asia. we'll have expert analysis live from hong kong after the break.
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the once lost lotus submideastern car from the james bond film is set to go up for auction. robert frank has all the details. >> it is one of the most famous 007 cars ever, the lotus esprit that became a submarine. ♪ after the movie, the car mysteriously vanished and then in 1989, a long island man who rented tools for a living, bought a storage container, sight unseen like the storage war shows. he paid $100 for what appeared at first to be just a large lump covered in blankets. when he unwrapped it, he still didn't know what it was because he had never seen a bond movie, only after he loaded on his truck and strangers stopped him and told him he had the famous bond car. years later, doug ridinios told
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the owner what it could be worth. the car nicknamed wet nelly is expected to sell for more than $1 million. that's likely to change the life of the humble owner. >> first of all, you're going to go down in history as the guy who found the james bond car. but then if it sells for what we're hoping it will sell for, that money will give you an opportunity to live very comfortably for the rest of your life. >> the car will be sold by rm auctions in london on september 9th. the owner will also be there. back to you. >> we want to know what your favorite bond car is. get in touch with us by e-mail at by twitter @cnbcwex or direct to me @cnbckaren. i'll look at one of my favorite cars later in the show. stick around. we'll discuss it a bit more. lg electronics second quarter profit fell 9%. but still managed to beat expectations.
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record smartphone sales helped the south korean firm overcome a weaker television business report. let's get out to seoul for more. give us the latest. >> yeah, karen, i think lg's numbers really reflect what is going on in the global tv industry and the smartphone segment. lg electronics saw revenue jump 10% on year by the second quarter net profit. 8% in operating profit, fell on 9% year on year. the big takeaway here is that lg's mobile unit which has been lagging behind the likes of apple and samsung for quite a number of years and the smartphone space managed its best quarterly sales this time around of 12.1 million hand sets. its optima series did the trick and pushed sales across most regions. that wasn't quite enough for lg to create a substantial profit, because consumers snapped up cheaper smartphones, the l and s series with lower margins.
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there was a lot spent on that. as for tv division, sales of lcd tvs rose but more competition pushes prices lower and going forward we know the third quarter isn't going to be so easy either and in order to improve the bottom line, lg is rolling out high end models for core tv and hand set businesses as well and will introduce all new optima gt series and current quarter, we'll have to wait and see how lg does later on. back to you. >> thank you very much for that. we just spoke earlier in the program, apple's asian suppliers traded mostly higher today after the tech giant beat forecasts, despite the lower earnings. now, lg display, which supplies lcd panels to a s tto apple ros than 2%. and hon hai was up more than 1% in taiwan.
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let's going to steven pelea for asia pacific at hsbc. give us a read on what the apple results mean for the suppliers across asia as you see it. >> great, thanks for having me on. the apple news here, iphones were better than expected here slightly. it was the ipad disappointment that was a little concerning to me. ipads were down 14% year on year. and even if you exclude excess inventory impacts from last year, still down 3% year on year. so losing some market share in the tablet wars. we'll have to read across a bit negative for the ipad related names. companies that supply the casings and the back lights, these are companies like catcher and radiant of taiwan and maybe pan asia here in hong kong. some of the good news though that we see is there a huge bill that will happen here over the next, say, 90 days or so going to midfourth quarter to ramp up the new products that apple has going on. you're going to see certainly a big ramp across all of the apple supply chain and we like names
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there are companies that provide like flexible printed circuit boards, but the bottom line, it will be a steep monthly ramp on the supply chain. i wouldn't be surprised if you see the supply chain maybe see some constraints to try to meet apple's demands to get all the new products out, namely a lot of speculation for this low cost iphone coming, that potentially could be the majority of the fourth quarter shipments if you will. there is a very steep ramp. i think all the apple supply chains going to benefit over the next few months or so. >> wanted to ask you more about new products. this has always been what apple has been. tim cook told analysts to expect new products in coming months. was he alluding to that or about an ipad mini with retina display, about a watch or something else. how do you price all this into the supply chain process as well? >> sure. apple is one of most tight l lipped companies, very difficult for us to know exactly. we're expecting an evolution of the iphone 5. as you were just speaking earlier there, accelerating
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commoditization is affecting all smartphones and tablets. they need a low cost product. a low cost iphone is suspected with instead of a metal case, a plastic case, some way to save some costs there. it is really just a bunch of speculation. apple has not confirmed any of these things. even an ipad mini with the higher resolution or retina displays is likely coming as well. some new sources suggested that may be delayed until next year. the bottom line is that the cfo did give us a teaser that there was a bunch of amazing new products to be launched in the second half of this year and coming in 2014, and so we're going to have to wait to see about those kinds of ramps. >> the critics of apple stock of late have pointed to the declining margins and we saw this again, displayed in the numbers, gross margins, below 37%. how much pressure is coming through to the supply chain rather than from the pricing front with the consumer? >> you're absolutely correct. once again, an accelerating commoditization is happening
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right now. you're seeing much more intense competitive threats from the chinese smartphone suppliers. nokia just reported and their asps were down 18% quarter on quarter. a lot of the incremental demand is from the asian market which wants a lower cost phone, which doesn't have as much subsidies going on. pricing pressures are very real. on top of that, you look within the supply chain itself, and matter of fact, apple cfo spoke about this, d-ram prices have been up over the last six months or so. th nan flash prices are stable and high here. and panel prices have been flattish, they do expect them to moderate going forward. the bill of materials cost has also been a double whammy squeeze on downstream or individual brand margins for these products, in addition to the asp pressures already under way. >> steven, thank you very much for the analysis there, regional head of technology research,
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asia pacific at hsbc. still to come, another check on the global tech wars with the ceo of uk-based arm holdings. stay right here for first on cnbc interview right after the break. i want to make things more secure. [ whirring ] [ dog barks ] i want to treat more dogs. ♪ our business needs more cases. [ male announcer ] where do you want to take your business? i need help selling art. [ male announcer ] from broadband to web hosting to mobile apps, small business solutions from at&t have the security you need to get you there. call us. we can show you how at&t solutions can help you do what you do... even better. ♪ [ agent smith ] i've found software that intrigues me. it appears it's an agent of good.
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european markets get an earnings boost. the stock's 600 gain. the new ceo tells cnbc in a first on interview, he's not concerned about competition from intel. >> it doesn't make much difference to us, we're in every smartphone that's been made right now. we're really not in the business of picking winners. we hope everyone is successful. a lot of competition out there is good. apple's third quarter profits dropped sharply, shares rise after hours as iphone sales top analysts forecasts. china's factories continue to slow down, shedding jobs at the fastest pace in more than four year. more calls for fresh stimulus support. and hedge fund under fire, reports say u.s. prosecutors are set to file criminal charges against sach capital over alleged insider trading. charges are to come as soon as
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this week. european markets had been trading higher in the back of earnings news out today. the ftse holding up .6%, almost half a percent for the german market. just coming off slightly from highs of the session with the ftse tracking firmer, about .5%. there has been a spanish market that has been the outperformer this morning across the periphery. on bond markets, let's look at how yields are performing this morning. you can see the ten-year bond is at 1.59%. creeping a little higher in session. treasuries still above 2.5%, 2.36 on gilt. a gap still with treasuries. and on the portuguese market, slightly firmer, not too much higher, 6.43%. we did have some resolution of the crisis there, just in lisbon yesterday, and parties agree to try and keep the country on track to exit the ballot program
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by next year. on forex rates, this is how we're tracking. dollar strength has been the story of the day on dollar yen pair as well. 99.96. up half of 1%. the euro has been started. sterling is under pressure. shares in arm holdings are up after the apple chip designer beat second quarter forecasts. the pretax profit thanks to solid demand for processors. it is the first set of earnings since the change in chief executive of the company. earlier on cnbc, the new man at the helm, simon secar, shrugged off competition from intel. take a listen. >> when we look at the products we have today, they compete very well against what intel is promising. in june we launched new family of products, specifically at the midrange of hand sets. we're looking to provide on
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performance, lower power consumption and better user experience for the people who buy those products. >> syngenta shares moving to the downside. you can see off 4.3%. revenue coming in light. group said it is confident it will reach a 20/20 sales target of $25 billion. that's a 20/20 target. on first on cnbc interview earlier today, the ceo sounded particularly confident on emerging markets. >> the demand in china for our products is first expressed through shipments of soybean, from brazil and argentina there, and we're getting ready now to get geared up to serve the second half of this syngenta fiscal year and demand for our product in brazil and argentina is just terrific. >> the results here in europe follow a busy day of earnings in the states. apple's third quarter profit fell 22%, but still beat forecasts as revenues rose just slightly. the company sold more than 31
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million iphones, that was well ahead of analyst estimates. mostly on sales of older models though. average selling prices dropped, so analysts say apple was boosted by price discounts and lower end devices. tim cook says the iphone 4 continues to sell well with first time smartphone buyers. ipad shipments fell short of forecasts and apple's fourth quarter revenue outlook is also below expectations. he wouldn't comment on upcoming products other than saying apple has amazing things planned. fingers crossed for most of you out there. shares rose 4% in after hours trade and tracking higher in frankfurt today and putting on 2.5%. at&t second quarter profit came up shy of forecasts hit by rising costs. revenue is better than expected. the company added more than 550,000 u.s. wireless customers in the quarter. that was above its target and will be behind verizon. at&t fell in trade. and in frankfurt today, just
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slightly firmer. we are expecting another frantic day of earnings in the u.s. with boeing, caterpillar and ford among the big names reporting before the open. and facebook and visa come out with their numbers after the bell. joining us for the next hour is gina sanchez, chairwoman and co-founder of chantico global. i hope i pronounced that correctly. earnings out today, so much coming out, what is your focus? on the revenue print or on the top line number? >> i'm not looking at the revenue number. we have been watching the earnings continually beat, but a lot is fairly highly managed. so 12 months ago we saw a whole series of downgrades and expectations that have led to a series of beats and that's not that surprising. but revenue numbers haven't been that great and we haven't seen tremendous growth. in fact, right now, in earnings so far, about half of the sectors are showing negative growth in revenue.
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>> apple perhaps is a good example to take a look at. there was something in that for everyone, really. look at the revenue numbers, they came in okay, but china was really weak. and what they saw seemed to be lower cost products as well. isn't this telling us something about the pace of consumption. it is weak still in the states and weak still in china? >> that's absolutely true. i think that sort of -- that tidbit you mentioned, that really was the lower volume, the lower end products, the higher -- more highly discounted products tells a story about what we consider to be an anemic growth story in the u.s. so, you know, that anemic growth story has been playing out in a lot of places. and certainly it is showing in the revenue numbers. >> looking at some of your forecasts for the overall sectors it seems financials might be the place to be. we have seen already from a couple of companies that tradiig income was okay. >> if you look at the financials, look at financials
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earnings growth right now, it is off the charts. it is significantly higher than all the other sectors in the u.s. and that's not that surprising. and i think that that will continue to be the case. obviously issues with banks having to raise their leverage ratio is an enormous potential head wind for -- for banks because that will be an extensive endeavor if they're forced to issue now. >> overall, though, if you look across the rest of the sectors, you say the sales surprises have been -- half the sector is turning in negative sales surprises. so in terms of some of the worst performing sectors out there, what are you wary of. >> if you look at it, things that are very cyclical, like industrials. industrials, obviously materials had a terrible time of it. but, you know, the industrial sectors, we have seen i.t., we have seen health care, we have seen a number of sectors turning in negative revenue surprises and actual revenues and that's
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the challenge, i think. and to me, you know, when you look at a very strong recovery, generally you're looking for performance in the cyclicals, performance in the discretionaries, and that we're not seeing and it is not that surprising if you look at the labor data. it is actually a little mixed. it is not as clearly positive as people would like to think. this recovery has been very weak. >> not faring -- it says something about tapering. we'll get into that in a bit. gina sanchez staying with us. canon cut its sales target to meet the slower than expected recovery in digital camera sales in europe and emerging markets. we have the story live from tokyo today. >> canon said its 2013 full year group net profit will likely rise 16% on year to $2.6 billion. that's 10% lower than what the world's largest digital
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cameramaker projected three years ago -- three months ago. the digital camera business is suffering due to a slower recovery in global sales, and because more consumers are taking photos with their smartphones. canon still expects sales to increase 11% in operating profit to expand 17%. both projections are down from the previous estimates. sales of office equipment are what is holding up the bottom line. for the sixth month that ended in june, canon booked a net profit of a little more than $1 billion, down 5%. sales rose 3% while operating profit fell 13%. back to you. >> thank you very much for that. japanese exports climb for the fourth month in a row in june, up 7.4% from a year ago. but the rise fell short of expectations, due to slower demand from the u.s. and china. meanwhile, imports climb nearly 12%. analysts say the imports bill is higher because of energy costs and the weaker yen, pushing japan to post a trade deficit of
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$1.8 billion. elsewhere, sales were up 11% in the first half of the year for huawei. annual growth target of 10% remains in tact. despite slower economic growth, it tripped up its rivals. the world's number two telecom equipmentmaker is unlisted and doesn't release profit numbers. overseas business has run afoul in the u.s. and uk over security concerns from lawmakers. but analysts say they stand to gain from a massive buildout of 4g networks in china. let's give you a look at what's on the agenda in asia tomorrow. auto earnings will be in focus with results expected from nissan, hyundai and suzuki are the key report cards due from costco and singapore airlines. south korea releases second quarter gdp numbers and two central bank decisions on tap, from new zealand, where the reserve bank will be speaking,
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and from the philippines. uk business secretary vince cable has accused the bank of england of choking off an economic recovery by imposing excessive demands on banks. describing sections of the boe as, quote, the capital taliban. he echoed the views of the chancellor george osborne concerned a reluctance of financial institutions to lend is damaging the prospects of british business. this comes as figures from the british bankers association showed borrowing by nonfinancial firms edged up by 172 million pounds in june. and the number of mortgages hit a 17-month high. the top job at rbs is still to play for apparently. this after black rock confirmed that mark mccombe who heads the asian operations, turned down the role of rbs chief executive. it follows a report in the financial times which said he was the external front-runner for the post. the uk bank told cnbc they could
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announce a replacement as soon as next week. here is a look at how rbs shares are performing, firmer, up more than 1% today. and some interesting news as well in the banking sector. icbc lost its title as the world's biggest bank by market capitalization. after six years at the top, the chinese lender ceded its crown to wells fargo. as of the close yesterday, icbc was worth $225 billion, wells fargo valued at $237 billion. according to data from s&p capital iq. gina, let's pick up on this. icbc has been such a strong bank for so long in china. the numbers are still relatively close. is this just something that comes down to the currency, the exchange rate? >> it could be, certainly. you know, i think that it could be an exchange rate issue. >> wells fargo, if you look at how its numbers came out, it surprised the market with how strong the lending numbers were. but it matches up against
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citigroup saying they're cautious about how much demand there is going to be for mortgages in particular down the track. what is this telling us? are we having strong landing, has some of the growth happened? those are the questions i have. >> i think if -- the lending problem is two-pronged. one is the lending demand and the other is actually the ability of banks to lend and lending is actually continued to be very challenging, you know. some borrowers have a hard time getting mortgages. and so i don't think that is necessarily entirely demand, part of that is just sort of how many people actually qualify for loans. lending is still somewhat challenging in the u.s. and those credit channels are still somewhat blocked. it is not easy for people to get mortgages these days. those numbers, i think, are going to continue to show that credit blockage. you certainly see that around
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the world, and other channels, besides mortgages, but in the u.s., that's one area where you do see it, and i think that's going to continue to be a challenge to the housing market. >> the reason i ask you about that, the banks, it is bricks and mortar still to be able to lend out to the environment, because pushing back so much in other parts of the business. trade income was okay as we saw this time around. if you put all the metrics together and match them up against the chinese banks, doesn't make sense that the u.s. reclaims the mantle as still having the most powerful banks when you know that lending in china is still somewhat in its infancy, has to bring so many people into the system. so does it make sense the u.s. is still the most powerful banking institution in the world. >> perhaps, but so much of the lending in china, a lot of the lending in china was in the retail space and the commercial space and space that actually was being lent against projects that didn't have any revenue against them. so they were actually very poor lending projects and there was a lot of indiscriminate lending,
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really at the behest of the state. and so if you look at the lending standards in china versus the lending standards in the u.s., it is not surprising that the u.s. should be sort of on top. because lending standards in china, even though they have been tightened, still you're looking at a whole series of projects that are not really generating any revenues. these are empty, vacant buildings. >> we'll talk more about the banking sector. from a different angle from the litigation side, there has been so many cases out there, which, of course, also destroyed bank earnings. gina sanchez staying with us. coming up, litigation funding is on the rise in the uk. how can the small guy take on large corporations? our next guest says big banks have had an easy way for far too long.
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u.s. prosecutors are reportedly set to file criminal charges against hedge fund sac capital as early as this week. the move follows a multiyear probe into alleged insider trading at the firm. reports say no charges are expected against founder steven cohen. he's facing a civil administrative action by the s.e.c. for allegedly fostering a
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corporate culture that turned a blind eye to insider trading at the company. reports say there are no signs of settlement talks to avoid the criminal charges. nick rolls is consultant at vanen and joins us on the set. give us your thoughts on some of the charges that the s.e.c. could bring. they're obscure. why is that? >> i think the administrative charge is something that hasn't been used very much before. a couple of years ago, the same sort of procedure was followed with gupta and no charges followed. >> in terms of what he's accused of, he's accused of not knowing what his traders were doing. how common is this? he must have had so many e-mails that swamped his in-box. >> i think this sort of procedure is something which is not usually dealt with at the top level of the business. in this case, it suggested he only read maybe 11% of e-mails
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he received. so for him to be able to look and read at everything would be surprising. >> i'm not sure if it's entirely that he has to look and read the e-mails, but isn't this also an issue of procedure and ensuring there are procedures in place to sort of catch activity like this? is that really at question right now? >> i think it is a failure to supervise, which is the allegation. mr. cohen would say, and i think in his 47-page statement, he makes it clear there are clear checks and balances and procedures in place within the organization to protect the company and his traders. >> we were just saying there is no talks in place so far about a settlement. and let's bring this up in the broader context as well. how common are settlements these days with regulators? >> i think given the choice, if they're able to, they would much prefer to avoid criminal sanctions. there was a payment made in
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relation to some of the allegations here, around $600 million a few months ago. >> that didn't stop things and the investigation continued. that's quite uncommon. when you have a settlement, that tends to be the finish point for a lot of companies in litigation. >> certainly that's the case. you would hope that if you made a payment, it would settle all matters with the criminal and civil, that's not what's happened here. >> let's move on to the banking sector. we have seen this space littered with so many legal cases, libor, money laundering, but also cases against the small guy as well. how common these days is it for the small guy to have a win against a bank in the court? >> it is becoming more prevalent. historically less the case. the difficulty, of course, is that banks have huge resources. they're able to spend -- outspend opponents and that's something which the small guys you refer to hasn't been able to cope with. that's why there has been an increase in things like litigation funding to try and break down those barriers and help the david versus goliath argument. >> i was looking at a case where
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litigation funding was used. actually in a case where barclays was up against a trading firm and barclays used it as an example to say that can't be all that confident if they resorted to third party funding for the legal case. is that a valid argument? >> it is one argument, i think the alternative is that the litigation funder has invested in the case and that's a significant suggestion that the case has some merit, but in that case, i think it was whoever got in first with the sound bite. >> and do you think there are going to be significantly more -- is there going to be significantly more litigation in the future, particularly not necessarily by the small guys, but by pension funds, which we have seen quite a bit of recently? >> i think the use of litigation funding is widespread. it is growing. and i think litigation generally in the uk seems to be on the up, though we haven't reached the stage where you could suggest we got the u.s. start approach. >> thank you for joining us today, nick rolls davies,
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consultant at vannen joining us on the set. a u.s. man charged with running a ponzi scheme using the virtue wall currency bitcoin. the securities and exchange commission alleges that he raised around 700,000 bitcoins from investors, worth about $4.5 million between 2011 and '12 when his scheme was offered. the s.e.c. is warning investors to be worried of schemes involving the currency. and on a different note, beijing is rolling out more rules to restrict china's aluminum secretarier iny er se. companies are banned from building new smarters near environmentally sensitive zones. authorities are also talking limits on power use and emissions. the new rules come as beijing pushes to consolidate sectors suffering from overcapacity and to upgrade obsolete industries. earlier we told you about the long lost lotus submarine car from the james bond film, the spy who loved me, being
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found in a storage container. it is now being auctioned off. so we want to know, what is your favorite bond car. get in touch with us. gina, do you have one? >> i think it is the astin martin from casino royale. that's a beautiful and sexy car. >> i like that one too. let me bring up one more for you. this is an astin martin db-5, re-used again it was so popular. beautiful car. 1964 is the vintage on it. first in gold finger with sean connery, of course, starring in that film. so you can imagine him behind the wheel of that car, can't you? i watched that movie recently. fantastic. e-mail us at also via twitter @cnbcwex, or direct to me @cnbckaren with your favorite car, whether a bond one or not. let's move on to the story of the week here in the uk, the royal baby was introduced to the world's media yesterday as prince william and the duchess of cambridge presented their newborn child to the public
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outside london st. mary's hospital. standing on the spot where princess diana introduced him to the world 30 years earlier, prince william confirmed the couple is still working on a name for the third in the line to the throne. congratulatory messages flood in for the new royal parents including this special shoutout from the london set of an upcoming hollywood blockbuster. >> isn't it exciting? kate is a mommy. prince william is a daddy. and there is a new royal baby boy. >> yeah, it's wonderful, piggy. from the muppets and everyone here in london shooting our new movie, congratulations. >> kind of makes you want to have a royal child of your own, doesn't it? >> no, not really. >> oh, come on. can't you just hear the little pitter-patter of tadpole feet. >> tadpoles don't have feet. congratulations william and catherine. >> you really know how to kill a beautiful movement, don't you? congratulations. >> congratulations indeed.
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gina, you're from the other side of the pond. i think the americans are more excited than the brits about this, if possible. >> americans are always enamored and i think every young girl grows up wanting to be a princess in america because we don't have kings or queens. this is very exciting moment. >> do you think it makes more americans want to hop on a plane to come over to the uk, because the broader question is, does this do something for the uk economy? >> i would say that prince william and certainly the duchess of cambridge have been just such a wonderful, wonderful asset to the monarchy as a brand. and i think that certainly there are a lot of people who want to come and revel in the -- the excitement. >> i'm just wondering whether i would go out and buy one of those tea towels or plates or mugs that will come out with the three of them. are you going to buy one? >> i get tempted sometimes. i was out earlier this year for the diamond jubilee or last year, actually, a year ago for
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the diamond jubilee. it is moments like this, particularly, you know, the -- a new royal monarch is an exciting moment, even if you're not a part of the monarchy. >> good excuse to go and buy a brand of short bread anyway. gina, thank you. gina sanchez staying with us this morning. the bank of england governor mark carney is set to name the woman that will be placed on a new ten-pound bank note later today. we'll bring you that announcement as soon as we get it. the dow closed at a new record high on tuesday. can the positive momentum continue as we get another big wave of results out today? stay tuned.
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welcome to "worldwide exchange." i'm karen tso. these are your headlines from around the world. european markets get an earnings boost on hopes to lead the stock's 600 gainers after results beat. the new ceo tells cnbc he's not concerned about competition from intel. >> it doesn't make much difference to us. we're in pretty much every smartphone being made right now. we really are not in the business of picking winners. we hope everyone is successful and a lot of competition out there is good. >> apple's third quarter profits dropped sharply, but shares rise as iphone sales top analysts forecasts. china's factories continue
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to slow down, shedding jobs at the fastest pace in more than four years. a weaker flash pmi from hsbc leads to new calls for fresh stimulus support. a hedge fund under fire. reports say u.s. prosecutors are set to file criminal charges against sac capital, over alleged insider trading. the charges to come as soon as this week. if you're just tuning in, thank you for joining us on the show. here's how markets are faring ahead of the u.s. open today. we have green on the futures. this is on the back of what we saw, a record session again for wall street. so we are looking to top up on some of the levels. this has been driven by some earnings momentum, but fears around the timing of tapering and the pace of which asset purchases will rebe removed has
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stymied markets and investors. let's look at the overall picture. we see the ftse 100 is currently ahead, .6%. so holding on to some gains on markets today. at 6,640 on the ftse currently. the xetra dax also tracking higher. the ibex 35 has been the strongest performer today, we're up 1% on that. the cac is ahead by almost .8%. earnings driving some momentum over here. apple has relieved investors with an earnings beat that benefited from strong sales at its iphone. the german sports wear group puma, however, has reported second quarter earnings below expectations. blaming falling sales in china and southern europe. easy jet shares are gaining in europe, 8% on the trade. the company says increased capacity helped the budget airline raise its revenues. the uk airline is forecasting a
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pretax profit for the year of up to 480 million pounds. elsewhere in the tech sector, arm is the headline. it has beat market expectations with a 30% rise in pretax profit. it was partly due to strong demand for its latest processors used by mobile phones and telecomputers. you see the response has been strong here today. foreign exchange markets, you can see a story of dollar strength playing out here mostly. the exception is on the euro dollar trade, where the euro is holding up .1%. we're above the 100 level in dollar yen. australian dollar is also pushing back a little bit. it has reclaimed the .92 mark but down sharply in the session. sterling dollar is also sliding on the back as well. let's check in on the markets in asia. li sixuan out of singapore with more on the trading day. we had weak hsbc numbers there. how are investors reacting across the region? >> yes, indeed. thank you, karen. in fact, weaker than expected
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data from china's factory did put some pressure on asian markets today. the shanghai composite finished in the red after those pmi numbers dropped to an 11-month low to 47.7. chinese midsized lenders were broadly lower. this on fears that they will be tapping the markets to raise funds. this after authorities gave the green light to china merchants bank to issue 3 billion new issues. earnings news also very much in focus. japan's micromotors maker nidek soared 10%. and apple suppliers in the region also higher thanks to a better than expected earnings from the u.s. tech giant. in south korea, sk hynix and lg display enjoyed apple boost. look at lg electronics, the stock gained more than 2% after q-2 earnings came in better than expected on strong smartphone sales. while the company plans to
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launch its latest flagship g-2 smartphone next month. back to you, karen. >> sixuan, thank you very much for that. the s&p 500 is just a few points away from breaking through the key 1700 level. the index is up 19% so far this year and plenty of strategists are speaking to cnbc have year end targets above the 1700 milestone. head to to find out why some analysts think the s&p will define the risk posed by taper talk and unpredictable earnings. gina is staying with us today, founder of chantico global. >> i had a much lower forecast at the beginning of the year. my forecast was something closer to 1675, which i thought at that time to be aggressive. >> what changed your view. is it the fact that the markets seem to be getting used to the idea of tapering or earnings or something else? what is the assessment? >> what really changed was that
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bernanke managed to kind of pre announce to the markets that he intended to taper, causing the interest rate markets to climb back up, which made theoretically made equities -- equities went back into the 1500 range. and then he came back out with very aggressive rhetoric saying he had no intention of raising rates anytime soon and that this would all be data dependent, et cetera, et cetera, et cetera. he managed to effectively raise rates just high enough but not too high to make equities look extremely attractive again. and so he could have been -- it could go one of either ways. two ways. either the equity markets could actually -- the economy could be recovering quite well, which would be very good for equity earnings, or the economy could be recovered poorly which would be quite good for liquidity because on a relative basis, equities looked more attractive. i saw this as a no lose
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situation for equities. >> we're discussing before that the earnings numbers tell us that there is an absolute strength in the states, that there is still elements of weakness. so in terms of what this means on the liquidity side, you're saying that we're likely to see another program like qe-3 in the size and scale of the program, therefore any removal has to be very, very certain by the fed because it can't go back in to treasury purchases. why is that? >> the size and scale of the purchase programs that we have seen, the expansion of the balance sheet, is unprecedented in history. to be able to relaunch a program, especially given the concern that there already is on the fed, we're looking at a change at the helm of the fed, though likely that will go to someone who is, you know, similar in mind to bernanke, probably janet yelin, that still, though, raises the issue that from a credibility standpoint it will be very difficult for the fed to
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relaunch a new program. i think, my view is, is that the fed probably has to let the markets run well ahead of itself to ensure that the economy is, in fact, in a self-sustaining recovery before they can take this program away because they're likely not going to get another chance. >> when we do see the trigger here, why isn't there more volatility? >> right now. >> when it actually happens? we see volatility. it has settled down, but why isn't it more when it actually happens? >> there probably will be quite a bit of volatility. what we have seen in the futures markets is that the markets react quite strongly to preannouncements and that ben bernanke has been using preannouncements to help sort of ease the market into a high -- >> what you're saying is that if this happens in autumn, when he eventually pulls the trigger, we might see a further sell-off of markets? we're looking at a trading window really? >> yes. it is one of the reasons why i think he has been careful about
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how he does it. i don't expect it to happen in autumn. i expect it to happen later in december. >> it is a tricky thing for investors. we have stock markets climbing to fresh peaks. so you want to be in it and you're caught, do i chase it. but if there is more selling down the track, it is a precarious position for investors to wade back into stock markets, isn't it? >> it is precarious. it is an easy decision at 1575. it is not as easy a discussion at 1692. and i would say that the forward earnings still don't really justify the multiples that we're seeing because we have gotten expensive again. >> what is your best idea, do investors look elsewhere, is equities the right trade to be in. >> if you're in equities, you have to hold them. there is more to this trade. i don't think it is over. i think if you're not in equities, the challenge is what do you buy instead, and, you know, the markets right now have
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given up a little -- given little options for it. the emerging markets have done very poorly. china has been doing very poorly. there is a possibility you could see a balance if we potentially see some stimulus introduced into china and better growth toward the end of the year. but that is still a bit murky. and emerging market debt has done extremely poorly with the repricing of treasuries, high yield hasn't done particularly well either. so it has been a very much a challenge. either you're in equity or cash. >> which, you know, leaves you not much option if you're getting very low yields on the cash rate. gina is staying with us. gina sanchez, chairwoman and founder at chantico global. let's look at the other top stories out there today. if at first you don't succeed, try, try again. dell shareholders will gather at the pcmaker's headquarters this evening to vote on the $24 billion buyout offer by founder michael dell, and silver lake partners. the vote was originally scheduled for last week, but was postponed in hopes of convincing
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some investors to accept the deal. reports say dell and his advisers have reached out to shareholders to secure whatever votes they can. here is a look at how dell shares have been tracking before that vote. in frankfurt, just a little softer, down .1%. carl icahn has more than just the buyout battle with dell on his mind. the billionaire investor is about to take the social media world by storm. cnbc contributor and fast money trader karen finman says icahn will unveil his next big investment idea by twitter. the timing is unclear, but icahn says it will be presented like a treasure hunt with clues given first. icahn joined twitter a month ago. his handle is @carl underscore c underscore icahn. if you want to go, follow him on twitter, that's where you can find him. what will gsk ceo prescribe as the remedy for the shameful scandal in china as he prepares for today's call with investors? we discuss china's crackdown on bribery. that's coming up next.
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these are your headlines today. arm shares soar as the chip designer beats again the second quarter results. the group's new ceo tells cnbc he's focused on developing their
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product pipeline. that's after apple's third quarter profits dropped shortly. iphone sales topped forecasts. u.s. prosecutors reportedly set to file criminal charges against sac capital advisers over alleged insider trading. china's bribery probe in the pharma industry is front and center today. glaxosmithkline ceo is expected to address the issue when reporting earnings at 1:00 p.m. cet. it is reported that gsk is looking at cutting prescription sales commissions and drug prices in china. meanwhile, astrazeneca, two more of its employees were questioned by shanghai police and separately officials are detaining another u.s. citizen in shanghai in connection to the probe. joining us from beijing is cnbc's eunice yoon and staying with us in london, gina sanchez, chairwoman and founder of
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comma chantico global. >> we now know that there is another foreign national and u.s. citizen, an american, who has been detained. we don't know the name of this person, however we do know that this person, according to pfizer, eli lilly and glaxosmithkline do not work at those companies. the whole health care industry is very, very jittery. everybody is on edge and want to disassociate themselves as much as possible from an investigation if at all possible for them. the -- you had mentioned also there are -- that we really are seeing a widening investigation. there were two more people at astrazeneca who have been called in for questioning. this is after a local sales representative was taken away. also, the health ministry of china has said that 39 hospital staff would be punished for t e taking bribes from two drug companies. we don't know exactly which companies those are, but however, it really does
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highlight just how broad this investigation is becoming and how jittery people within the health care industry are right now, especially in light of the fact that this investigation is ongoing and someone like andrew witty is going to have to address it in a couple of hours. >> let me get gina into the conversation here. you say it will only have a short-term impact. i want to push you on that. we heard from gsk saying they might lower drug prices. this seems to be some sort of concession to stay in the chinese market. won't that have more of a short-term impact? >> it certainly would. i didn't take that into consideration when writing my notes last night, but i think the immediate impact should be short-term. that doesn't mean that there aren't going to be a number of follow-on effects that can't sort of cause revenue losses down the road, but china is a small part of this, of their revenue stream. and i think the general consensus is that it will have an immediate impact, but probably not have a permanent impact, meaning that over time
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they should be able to repair the revenue stream in china. >> eunice, i want to ask you how big an overhaul this is going to be on the ground there in china for the way the incentive scheme works and the way drugs are dispensed across china. it feels as though so many locals have been punished that the message has gone out there loud and clear to locals in china. >> that's right. and in fact, a lot of people are wondering how this is all going to play out. it does seem as though glaxosmithkline, if it does play its cards right, will be able to overcome this scandal. as your guest just noted, the business itself actually is only about 3% of its overall business. they're looking at china as a future market, as a fast growing market, for the company, but also on top of that, a lot of people that i've been talking to say that at the end of the day, glaxosmithkline's products as well as the products of a lot of foreign branded drugmakers is --
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their reputation is actually very good among chinese consumers. chinese consumers think they're safer, more reliable, that these drugs are better quality than a lot of the generics they see on the market. so if glaxosmithkline is able to really convince the authorities that they're making changes, maybe they have to bring down their prices or change their commercial model, that is a possibility, but at the end of the day, if they're able to stay here, just based on their products alone, they still might be able to survive this scandal and potentially come out -- come out on top. >> thank you very much, for joining us, with the analysis today, jueunice yoon on the grod in china. meredith whitney sounds alarm bells saying it could have after shocks in the minh moouni. we'll discuss it after the break. and the heat map, you see the tone across european markets, we're tracking in the green, up .6%. so around the peaks of the session so far today. i want to make things more secure.
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index. the s&p 500 is coming off slightly, but we could be getting through the 1700 mark today, so worth watching out for. the nasdaq as we look for a lot of the earnings reaction still. a judge will consider a request by detroit's emergency manager, kevin orr, to block lawsuits trying to stop the bankruptcy and begin the proceedings promptly. on tuesday, an appeals court issued a temporary stay of three suits filed by city workers, retirees and pension funds who are concerned the bankruptcy would lead to cuts in retirement benefits. gina sanchez staying with us today. we're all looking at the article by meredith whitney, the banking expert, and she was basically saying that this is going to have after shocks across the muni market. do you agree? >> absolutely. it would set an enormous precedent up until now, you know, many municipals, this is the first, the largest, certainly the largest city and
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the first kind of general obligation bond that we have seen that has been presented for this kind of bankruptcy. and it would set the stage for a cutting of pension benefits that would send shock waves across the municipal market. >> this is the next step, isn't it? on this article by meredith was the fact that there has been so many cuts to services in many of these municipals, and the fact is that has been something that many communities have had to deal with throughout the financial crisis, not being able to have bins collected, upgrades to roads and services. this has been the next wave where the pensions will be hit. >> it is important. i think, you know, my view and my thinking on this is that the sort of amount that -- the pile of assets we have, that growth has really begun to hit a much slower pace. and sort of the demands that
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we're placing on those assets continues to grow at a much higher pace. at some point we're going to have to realize that we're going to have to stop spending as much as we are as a country, as a globe. and that is going -- this kind of reduction in sort of forward pension benefits is necessary, but nobody wants to think about it. >> a write-off of debt is another story entirely. and that seems to be what the like of detroit, perhaps a couple of other areas may require. but if you do that, it just sets the tone for investors not wanting to invest in these areas, it makes it difficult to get the funds. >> absolutely. this will have not only will this affect investors, but this will also fundamentally affect consumers because it will start to make people doubt their pension wealth. if you look at household wealth of the u.s., it is shocking how large the pension segment of that wealth has grown.
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it has grown dramatically meaning u.s. households are far more dependent on pension wealth than they ever have been before. it still doesn't surpass a real estate wealth, but it is quite dramatic. and to imagine that, say, a fifth of your balance sheet might be put at risk in any way, and i do think that actually corporate pensions are probably going to be at risk because they can declare bankruptcy quite a bit easier. when you start to see these kinds of public pensions declare bankruptcy, i think that's going to send a shock wave through consumers, and that's going to affect the economic activity. >> very much appreciate your company here on the program with us today. thank you so much. gina sanchez, chairwoman and founder at chantico global. we have been asking you about your favorite cars this morning. this as we told you about the long lost lotus submarine car from the james bond film "the spy who loved me" discovered in a storage container, now being auctioned off. wouldn't that be nice to open up your garage, a storage container and find this lurking in there.
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been asking what is your favorite bond car. alex tweeted, the amdb-5 from gold finger is the ultimate car, but the amv-8 vantage from living daylights is an overlooked gem as well. jim tweeted his favorite is the astin martin db-5, though seems to be a lot of support for this car. and jeff also tweeted he would go for gold finger's astin martin db-5. keep your responses coming here on "worldwide exchange." get in touch by e-mail at by twitter, @cnbcwex. or direct to me @cnbckaren. still to come on the show, our investors are taking heat of ben bernanke's taper talk. is the great rotation from bonds into stocks under way? we'll ask a jpmorgan fund manager with more than $15 billion of assets. [ male announcer ] come to the golden opportunity sales event and experience the connectivity of the available lexus enform, including the es and rx. ♪
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welcome to "worldwide exchange." if you're just joining us, i'm karen tso. these are your headlines from around the world. european market gets an earnings boost. arm hopes to lead gainers after results beat. the new ceo says he's not concerned about competition from intel. >> it doesn't make much difference to us. we're in pretty much every smartphone being made right now. so we really are not in the business of picking winners. we hope everyone is successful and a lot of competition out there is good. >> apple's third quarter profits dropped sharply but share s ris
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as iphone sales beat forecasts. a weaker flash pmi from hsbc leads to more calls for fresh stimulus support. and a hedge fund under fire. reports say u.s. prosecutors are set to file criminal charges against sac capital over alleged insider trading as soon as this week. if you're just waking up in the states, thanks for join using us on the show. we're looking for a little bit of an early jump out of the gates for the u.s. markets. this would back up the peaks we saw in the dow yesterday. the s&p 500 just coming off some of the highs, but we're still chasing that elusive 1700 mark. we're tracking earnings reaction
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from apple. so far fairly positive across the european space. but we'll wait for wall street to react to the numbers and digest what this is saying about the tech sector as well. across on european markets, we have been positive throughout the session. and we have been holding on some of these numbers. the ftse in particular, .6% on the uk market. xetra dax also ahead. slightly less than the ftse, but half a percent still. the cac .8%. the periphery where we're seeing most of the gains today. the ibex 35 the strongest performer. how do you make money in the markets? here is what the exerts ha s ha been telling us this morning. >> we're long volatility. we think the liquidity debate is the most important debate on the market. >> from here i think shares have
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a great opportunity to perform a lot better. so trying to make money back now. >> what is the best pick in the sector? >> my favorite thing is deutsche telekom and kpm. i like the ugly incumbents because i think they're about to stage a comeback. >> as for down 14% year on year. even if you exclude excess inventory from last year, still down 3% year on year. they're losing market share in the tablet war. we have to read across negative for names, companies that supplied cases and back lights, like catcher and radiant of taiwan and maybe pan asia here in hong kong. investors directed $4 billion into high yield bond funds last week, the largest amount since october 2011 according to the financial times. this is $1.1 billion less treasuries over the same period.
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is t is the great rotation under way? senior portfolio manager of the global income fund joins us. as you look at investing, whether into equity or fixed income products, is there a great rotation still under way? >> i think we're certainly advocates of earning risk and shifting more of our risk budget into equities. when we look at the relative opportunity set we see in equities versus fixed income, we think equities for the next sort of period of time, whether a couple of weeks, couple of months, even looking out 6 to 12 months, will be much more attractive. i think so much money has moved into fixed income in the last couple of years. it barely started the other way. it is just starting. >> you've got a lot of assets under management of you saying that, it seems there is some momentum in the market. for the average invest, you don't want to be left out of that. convince me if there are
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fundamentals out of play. >> if you're going to be invested and i'm thinking as a given you want to be invested, don't want to be sitting on the sidelines in cash. if you put money to work, and for us depending on the mandate is a total return or income focus, it if you try to put money to work and look at income, look at the relative yield of things like high yield, versus the relative yield of the equity markets, and then you look at the ability to have total return in high yield versus equities, we find that this sort of risk yield trade-off much more compelling in equities. >> we have a chart here that you're showing us, you can see the returns from cash and you can compare them right up to the other end of the chart with high yield. there is a massive gap in between. but doesn't that start to close a little bit at some point, if interest rates start to rise down the track. >> it will close. this chart is looking at income. you look at the relative income levels you get from equities and high yields, high yield is the highest. but the gap closed significantly a couple of six, 12 months ago, a couple of percentage points
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and now marginal. you look at yield of equities and look at the ability to generate positive returns, even now we still think that equities are fairly priced. >> how much enthusiasm has there been for high yield. we know it was one of the hot products out there for a while, which drove the yields lower. how many more investors are wading into that? what types of investors are chasing that type of product? >> i think high yield per se, we like to think from a total return perspective, is much like equity. investors looking for a fixed income sort of behavior, ie safety, high yield has got a lot of volatility in it. what is going to be interesting in a rising rate environment, the environment we will be in, is that high yield is going to probably see a little less interest rate sensitivity to it than a treasury bond would. and you've got that nice coupon that will offset some of the negative consequences of a rising interest rate. but it is still a fixed income asset and it has been a very popular trade. now, when we look at the fundamentals of high yields and
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we say is there a catalyst that would cause high yield default rates to go up, we don't see one. so look at the u.s. economy, look at the strength, the balance sheets of the individual companies that were making investments and no real reason to think that is going to change suddenly. but you look at the relative attractiveness of the asset class, the total return gains that we have seen from high yield we think are behind us, not in front of us. >> which makes sense when you look at the credit quality curve and what we see at the cycle at the moment. we'll discuss this a little bit more in a moment. i want to dive into emerging markets first up. emerging markets have largely underperformed against the global equity rush, largely due to fears over the impact of qe tapering. is the sector oversold? you see a comparison there against the s&p 500, up 18% on the u.s. index, but down on the naci. that's a significant gap for investors. if you're managing one proseceio
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versus another, you have them crying on the phone to you. are you getting out of that space or are they don't? >> i don't think they're done. i don't think they'll ever be done. we ask ourselves why do we want to own an asset class. we like the emerging market on a long-term basis, because of the growth in the emerging markets. we think they're going to continue to grow as economies faster than developing markets. that doesn't necessarily mean their equity markets will generate higher returns in any given year, let's say. you have to look at the price you're paying for those equities and the relative rate of growth in those countries. >> those equities are a lot cheaper now. the broader question i have would be do you go into emerging market debt, which is seeing less volatility in recent years, people remain invested in these types of bonds, even though there was money outflows or do you go into equities in the emerging markets because they have come down so far. what is the best way to invest if you like the story? >> i would say what do you want to get out of the asset class.
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emerging market debt we think is an interesting part of the portfolio. we would argue there has been enormous rerating of emerging market in general. what does it mean to be in an emerging market. we like local currency emerging market debt a lot. some dollar bonds we think are probably sort of at levels we would expect them to be. so maybe again potential for appreciation from the securities is maybe not as high as it was in the past. but when we look at emerging market equities, we think there is going to be a lot of very long-term value there. i think we're sort of neutralish overall on our view about them versus other markets. we did think that perhaps they were a bit expensive earlier. as you say they have gotten much, much, much cheaper and sort of hitting points where at some point it is going to be extremely attractive. >> you have a lot of work around emerging markets these days, you can't treat them as one big basket. >> absolutely. >> thank you very much for that. you're staying with us.
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we'll continue the conference a bit. anna lester. president obama looks to reset his economic agenda this week with several major speeches planned. let's get to hampton pearson live in washington with more. what should we be focusing on? >> president obama will speak three times this week about the economy, starting this afternoon in his home state of illinois. he heads to the town of galesburg where he gave his first major address as a newly elected u.s. senator back in 2005, speaking to a small group of donors on monday, the president said he plans to focus squarely on the challenges facing the middle class. this speech comes ahead two of looming deadlines this fall. congress must pass a spending bill by october to keep the u.s. government running, and strike a deal by november to raise the debt ceiling. the partisan bigering in washington is taking its toll on the american people, in the
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latest nbc wall street journal polt, 61% of the u.s. say the u.s. is headed on the wrong track versus 29% who say things are getting better. the president's approval rating has dropped from 53% after last year's election to 45%, but they still like him better than congress, whose approval rating has dropped to 12%, the worst score in the poll's history. president obama has been filling several oppositions in his administration, but reports say he hasn't made a decision on who might replace fed chairman ben bernanke, whose term ends in january. the washington post reported tuesday former economic adviser and treasury secretary larry summers is the front-runner, but the president isn't expected to make an announcement until this fall. there also soon could be another seat to fill at the fed. reports say the white house is considering tapping fed governor sarah bloom raskin to be a deputy treasury secretary. she would replace neil wolin, who is stepping down next month. raskin, a harvard trained
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lawyer, was appointed to the fed in 2010, heavily involved in the fed's working in writing rules to implement the dodd/frank financial reform law among her other accomplishments. karen, back over to you. >> thank you very much for that hampton pearson from washington. u.s. officials say a fire has broken out on a blownout natural gas well in the gulf of mexico. the rig located about 55 miles off the coast of louisiana was evacuated early tuesday when the blowout occurred. it is unclear what caused the well to ignite, and experts are assessing how to shut down the flow of gas. the coast guard says there is no imminent danger. the hercules off hour is the owner of the well and shares in frankfurt today have been tracking a little weaker, down .1%. we go digging for dollars as caterpillar gets set to report second quarter results in two hours time. how much has the slowdown in global commodities hurt cat and the mining equipment rivals. a preview. stay tuned for that.
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these are your headlines today. arm shares soar. they beat second quarter results. the new ceo tells cnbc he's focussed on developing the
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product pipeline. iphone sales topped forecasts. u.s. prosecutors are reportedly set to file criminal charges against sac capital advisers over alleged insider trading. big day on the earnings front in the states as well as europe. caterpillar reports second quarter results at 7:30 a.m. eastern. the dow component is forecast to earn $1.69 a share. both figures down sharply from a year ago. on tuesday, the company said global sales of its heavy equipment fell 8% in the quarter. joining us now is jordan johnson, managing director and senior equity research analyst at axiom capital. let's get into the numbers we saw in the prereleased audited data that came out. it showed there was a slowdown in heavy equipment sales basically everywhere except
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north america. is this a trend you expect to see across the broader mining equipment sector? >> absolutely. i think what people are missing is that we have been in essentially a 14-year mining capex super cycle. from 2000 to 2012, mining has grown 28% compounded, however, if you look at street estimates, from 2012 to 2015, they're estimating it to fall compounded 18%. the last time we saw this type of decline was 1997 to 2000, where global aggregated mining capex fell 11% compounded. because that's so long ago, people forget about what happened during that time frame where you had a significant negative impact to all the global mining capex companies. >> you want to come in here, you look at commodities, negative on your perspective with this with most of the broader sector. so give us your view. >> i think when we look at what is happening in the emerging markets and the slowdown there the trend for lower growth in
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china, it is the end of the super cycle. when you couple that with the view we have, that inflation is really not going to be a big issue for the developed markets for quite some time, it is hard to see what the catalyst for sort of commodity support prices is going to be, whether you're looking at mining sector, or the energy sector, where, again, you have stuff coming online all over the world, particularly in the states. so it is hard to see where the support comes from until you see some of the economies stabilizing and starting to pick up in growth. >> it is also to see how quickly companies have any former pricing power in this type of environment. jordan, give us a view on that. we're seeing so many projects closed and all of the key mining hubs. how on earth can the sector have any ability to keep prices at the current levels, let alone increase them. >> i don't think there is a lot of pricing power. in fact, if you look just yesterday, peabody, a big coal miner in the united states, they're projecting their capex to be down 60% 2012 to 2013 and reduce that number by another
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20%. they're now reducing their capex, expected for 2013 by $100 million. i think this is going to be reciprocated across the sector. again, the real issue is china. and china effectively you've had a significant growth in credit, and effectively with the chinese government has said is they're reducing the credit outstanding. if you look at total social financing in china, in june, you're talking about down 12% month over month, down 47% year over year. and the pmi data that came out, the flash pmi from hsbc was very negative in china. so you're seeing a significant slowing of growth in china, due to a reduction in credit. that's affecting the commodity sectors. we don't think that's reflected in stock prices and valuations at these levels. we think there is further downside. >> which gives us a level of caution. i want to ask you about the tone from some of the big mining companies of late, bhp billiton and rio tinto still investing.
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we had records coming out. if you're exposed to the sector at all, don't you want to be with the ones selling to the big diversified miners rather than the smaller mining companies? isn't that the way to play the trade? >> you do, but we're also negative on iron ore recovery in that sector as well. the key there is we think -- what we think is herculean expansion in iron ore capacity will have very negative repercussions later this year and particularly into next year. we think the expansion by rio, bhp, fortescue, et cetera, will be met with a significant reduction and still demand in china as a result of the reduction in credit. and we think there is significant pressure for iron ore prices right over the hill. >> thank you so much. anne lester is staying with us today. on a programming note, caterpillar ceo doug oberhelman
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will join us on "squawk box" to discuss the latest earnings. boeing tees up for q-2 earnings before the bell amid ongoing safety fears for its dreamliner. phil lebeau will join us with a preview straight after the break. ♪
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[ crows ] now where's the snooze button? welcome back. here is a look at how markets are tracking across europe. we're firm on the board on the back of earnings like easy jet and arm supporting the market. u.s. futures suggesting we'll be off to a green start in the green this morning. backing up some gains we saw for the dow yesterday. also tracking the reaction to apple today on the nasdaq. and let's tell you what's coming up on today's agenda in the states. the july market u.s. pmi report is out. at 10:00 a.m., new home sales forecast to rise 1.7%.
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and also big day in the earnings front, boeing and ford among the big names reporting. let's get out to cnbc's phil lebeau who joins us on the phone from chicago. he's been looking at key earnings. phil. >> really the two things to focus on here, and we'll make this short and sweet, but these are key earnings for ford and for boeing for the second quarter. let's start first with ford. the expectation is for ford to earn 37 -- i have to be honest, the whisper number is people are saying, listen, these guys are going to be closer to 40 or 41, all about north america, huge earnings likely this quarter, maybe earning as much as $2.3 billion in north america due to strong sales in particular with the pickup truck. and then look at boeing, the primary question here is how are they in terms of adjusting their costs and containing their costs. the delivery of the dreamliner means we'll see a better top line number from them, because those will be resumed in the second quarter. despite all the problems and
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questions about the dreamliner, keep in mind they have been increasing their delivery rate as we have gone through the year. they have not interrupted the plans to deliver as many dreamliners as they said, which is at least 60 for this year. that's going to be the primary focus in terms of how are they controlling costs, how are they adjusting costs, when the conference call starts later this morning. >> you've been to every car motor show in the world. what is your favorite car? >> in the world right now? >> yes. >> wow. now you're putting me on the spot. if i could take any car out, somebody said you can drive it for one day, give me a bugatti. give me a bugatti for a weekend, i'm sure i would rack up a few speeding tickets. >> i need a magic wand to fulfill that. thank you very much, phil lebeau from chicago. in light of the upcoming auction of james bond's lotus submarine car, we have been asking what is your favorite car. everyone's bond car has its own
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charl charm, but his favorite is the astin martin db-5. anne lester is staying with us today. give us a takeaway message. >> global equities in general and we still continue to like the u.s. market as you showed earlier. it is outperforming. we think on the back of a strong and sustained u.s. recovery, not strong and in absolute terms, strong in relative terms, we think there is continued growth there and we like european equities as well. >> we were talking about financials in the states. do you have a sector drawing your attention now? >> it has been interesting watching investors focus on yields and certainly went massively in favor and massively out of favor in the last couple of months with the taper tantrum and we're thinking investors are looking for yield. whether the outperformer, i don't know. >> thank you very much for joining us today. anne lester, managing director global head of product at
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jpmorgan asset management solutions group. have a nice day.
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good morning. federal authorities are reportedly preparing to announce criminal charges against sac capital within days. we got earnings all over the place. apple posted better than expected quarterly profits, but its revenue outlook not as optimistic as the street's. still, the shares are trading higher. and the broader markets are once again on the move. s&p has risen nearly 19% this year with 1700 as the bull's next target. it is wednesday, july 24th, 2013, "squawk box" begins right now. ♪
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good morning, everybody. welcome to "squawk box" here on cnbc. i'm becky quick with joe kernen. andrew ross sorkin still on vacation today. we're joined by our chief washington correspondent john harwood. hey, john. good to see you. >> good morning. >> it is a busy day. john's here. >> i thought you were going by carlos danger today. >> i have just plugged your name into the slate pseudonym generator. >> what am i? >> they have an app. >> sandro stealth. >> that's mysterious. we'll play my most interesting man commercials today. >> mine was jose jeopardy. >> whoa. you know,


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