Skip to main content

tv   Worldwide Exchange  CNBC  July 26, 2013 4:00am-6:01am EDT

4:00 am
watching "worldwide exchange." i'm ross westgate. the headlines today from around the globe, european investors cheer a solid round of earnings as renault helps drive the stock 600 into the green on higher core profits for first half. vivendi lifts the french market after sealing an $8 billion share buyback deal that makes u.s. video game active vision a company again. the nikkei stumble but abenomics forges on. the core cpi biggest jump in five years. top growth continues to profit in the trading boom. the future of sac capital is
4:01 am
in doubt. the hedge fund heads to court today after being charged by the u.s. government of systematic insider trading. all right. we're into the last "worldwide exchange" of the week. one hour into the trading day here in europe. pretty even stevens really on the dow jones 600. yesterday, the ftse was down, what, half a percent, 32 points lower. it tried to crawl a little higher this morning. mit mixed earnings session yesterday. xetra dax down 15 points. ibex continuing outperformance from yesterday, up another third today. and cac reasquarante up two-thi. number of stocks to focus in on. renault lifting core profit despite slumping sales.
4:02 am
a rise in first half earnings after reducing costs. the stock up 2%. lvmh is battling a slowdown in markets including china. results are still posted, though. amazon shares in frankfurt are down about a percent. it posted an expected $7 million loss in the second quarter. sales particularly weak in europe. and it looks like investors approved of anglo american's restructuring plan. pretax profit of almost $2 billion in the first half, stock just up around two-thirds. in focus, active vision buying back most of the controlling stake from vivendi. the total shares, $8.2 billion is what it is going to cost them. active vision is buying 529 shares on a investor group. vivendi will own 12% of the company, makes games like world
4:03 am
of war craft and call of duty as well. when you add into the fact they also solved their controlling stake from morocco as well, giving $37.7 billion, they want to invest somewhere else. on the bond market, a year since draghi said we'll do whatever it takes. look at the peripheral bond yields. below the 7% mark where they were trading for a number of weeks. flirting rate auction coming up and the dollar index at a five-week low this morning. dollar yen is down at two-week lows, 98.63. stronger yen today, not helping the nikkei, down over 3%. more on that in a second. sterling/dollar, trying to bounce back from yesterday's losses, 1.5391. right. so, that's where we stand right now in europe. let's recap that asian session with sixuan is with us in singapore. also over to sherry as well in
4:04 am
korea. but sixuan, with you, first of all. >> thank you, ross. happy friday. without a clear cut lead from wall street, asian markets actually wrapped up the week on a mixed note. the nikkei 225 was the worst performer in the region closing down by 3%. as you just mentioned, japan's june inflation climbed at the fastest pace in five years but a stronger yen and weak earnings dampened the market sentiment. the shanghai composite extended a three-day losing streak, down half a percent today, despite the pboc's comments to maintain prudent monetary policy. hong kong and south korea ended marginally in the green. and australia's asx 200 showed pockets of strength, on hopes that a possible call for a federal election could ease the country's political uncertainties. in china, authorities published a list of companies ordered to reduce overcapacity. among them, paper producers came under some pressure.
4:05 am
chungming paper, down by 1% to 2% in today's session. but some bigentm rallied on hopes they won't benefit from the industry consolidation. and beijing's mini stimulus package will help boost demand. anhui conch gained by about 3%. nikon tumbled nearly 4%. and shipmaker had an operating loss for the june quarter. samsung electronics also lipped nearly 1%, despite posting a record q-2 profit. more on that with sherry in seoul. sherry? >> thanks so much for that. we have been warned of such slowdown in the growth of this smartphone market in recent weeks, right? this time coming directly from samsung electronics itself like you saw on the board there, samsung electronics shares off by a percent today, even after
4:06 am
giving up some 14% since early june on those -- the smartphone-related worries. samsung saying in earnings statement this morning that it is a smartphone market is expected to continue growing, but at a slower pace and i thought it was pretty interesting that samsung said this morning also in the statement that the components business contribution will gradually increase. remember, it does have chips and panels on top of its consumer electronics businesses as well and they did pretty well this past quarter, especially with memory chips and premium displays. but, still, samsung is citing one delayed economic recovery in europe and, two, risks from increased competition from -- for its smartphone and other set products as potential downside risks in terms of moving forward. so all and all, so far, so good. but questions about what now are
4:07 am
dampening investor sentiment here. ross. back to you. >> thanks very much. we'll also look at japanese corporates as well. nomura holdings racking up $662 million in profit in the first quarter. which is better than estimates. shares up more than 50% so far this year. joining us now ben collett, good to see you again. what do you think of the japanese brokerage houses? >> well, you know, nomura is the best one there. they have been doing a lot -- all of the deals in japan of late. the -- on a relative basis, nomura seems to be the better trade. the issue with these things too, nomura is down 4% today, under performance in the topix of 1%. there is a lot worse out there. i think the issue in japan at
4:08 am
the minute is we didn't see the sell-off today. there are a lot of expectations in the price. we have been -- last time we talked, we talked about shorting the autos. if you are short those, and short the brokers and banks which we were talking about, then we're seeing any support today, we think is covering. but from -- to answer the question, the broker outlook, right here, we tend to trade in shorter time frame, one week, two weeks. i think it looks vulnerable. i'm not expecting a lot of volatility in japan. consequently, you know, we're not really sure if there is a great trade there to start buying the stuff here. >> you talked about, you know, you were pushing shorts on the autos and steals and say you're covering those shorts. how much is also dictated by the view of dollar/yen. >> yes, significant amount. i think that's actually the risk to -- that's the risk to even shorting more of these here.
4:09 am
we're telling our clients that haven't put the shorts on in autos, auto parts to cover them and the risk to the nikkei is the dollar/yen. we think the dollar shows signs it is going to start strengthening and strengthening pretty fast. now, we think that's maybe 60, 65% chance, but still a lot of -- we believe there are a lot of investors still holding this in the hope that will happen. consequently we're just closing out our short call. we're certainly not going long here. we're going to see what happens. we have some earnings next week. we do have also the month end coming up and i don't think you should ever underestimate that in a very -- or currently heavily retailed driven market like japan. so we think the chances of some optimistic trading and gains are relatively high, so if you are sitting on profits from many shorts from today, obviously can't today, but on monday morning, you should very much consider just closing those shorts out. >> yeah, and we had sherry talking to us about samsung. what is your view?
4:10 am
>> well, samsung hasn't had a great ton of it but formed a base, around 130,000 level. as you guys pointed out, it is a consumer electronics play. but it has a more integrated chain than apple. we have been looking at samsung as a funding trade for the rest of the market since the decline. we think actually that samsung will gain, again, based on dollar strength. but we're going to be looking to sell this. i think the outlook for this company still represents a little -- probably a little too optimistic. and as far as career goes, a big component of the kospi, again, a lot of currency stuff in there. while we don't think the outlook -- we think growth, the market is right to be pessimistic about growth in smartphones, high end smartphones in particular, where the margin is, so we are, again, you know, not that keen on samsung. certainly not long. we do think it is probably going to go up again if the dollar
4:11 am
moves, the kospi will go up, but generally speaking, over the next month, i don't see much of a catalyst. if it goes up another 5%, we'll be short that. >> we'll come back to you in a second. we'll talk about japan inflation, usually bad for countries but not for japan. the latest data showing consumer prices up the fastest pace in five years last month. core cpi up 4%. good news for the prime minister who wants to end deflation. the pank of japan is aiming to reach 2% deflation in two years. this is the third structural reform that remains a key challenge. >> japan needs impetus, catalyst with which they can change the rock bottom of the regulations, invested and interests. and in order for them to do that, what was most necessary was the amount of political
4:12 am
capital with which they can break the ice and break the regulations. >> and when asked about the possibility of corporate tax cuts in japan, he said the talk is not just about reducing taxes, but also providing incentives for companies to invest to help boost the economy. ben, what is your view? you -- when you came on in may, you said you were going to sell the nikkei. and that was a good call. it went down straightaway. what are you doing now? >> yeah. well, look, i'm not -- the timing actually -- we were surprised by the timing of that. anything can happen and we got quite fortunate with that call. the issue really is what we try to do is anticipate what is already priced into the market. you talk about cpi numbers today, which were positive, which should be good. should be good for the market. but the markets tend to move ahead of the data, because the people in japan that know generally most markets, especially in asia, they know
4:13 am
before the rest of us do. when we see price action like today, which is really long positions exiting, based on good news, what that tells us is the anticipation of more good news down the track is probably pretty low. we think there is a lot of optimism in that. cpi numbers are up. that's great. it also focuses the market on the fact that the monetary good news is out, the monetary policy news out, it is all priced in, that's good. we look at earnings which, of course, is a major driver of the equity market. i know that sounds quite sad, but now without the policy, without any immediate good news in the next month, obviously abe is extra political, he may be able to put some positive policies through in august or september. august and september, you know, there are -- there is possibility a little too much expectation in japan. that's not to say we think it is going to collapse. but if you look at for example
4:14 am
where your risk is or relative risk is, volatility in japan, you can buy some short data nikkei options around 24 volt. but to put that into perspective, the same thing in the u.s. will cost you about 11. we're looking at a spread in volatility. currently that tells us really there is a little pessimism and protection pricing into japan. probably going to be pretty steady. what we think is the right thing to do is to actually buy the cheaper risk. the s&p is still failing, we think, to break significant new highs. so the risk really is that japan does nothing and the u.s. goes down, also, we think the probability is that that happens. so as far as the policy the monetary driver -- monetary policy driver of the market at the moment, we think the next few weeks is out of it. now it is about earnings. we had most of the big boys in the u.s. report about earnings. there have been mixed, but generally quite decent. in japan, we have the pharmaceuticals, which is, again, something that if you're
4:15 am
safe playing in japan, you probably only need. the pharmaceutical numbers in japan aren't that great. that could potentially initiate another leg down. but, again, the risk we think to the japanese market on the macro perspective is more moves in the u.s. you can buy protection in japan, but will cost you a lot more than it will do in the year. we think that's what we're trading now. that's what we're talking about now. >> okay, ben, good to see you. have a great weekend. thank you. ben collett from sunrise breakers hong kong. japanese consumer prices up the fastest pace in five years in june. is this a clear sign the bank of japan is winning the fight against deflation? not so fast is what analysts are saying. find out more on cnbc.com. don't forget, you can follow us on twitter @cnbcworld. sac capital in federal court in manhattan today. they have been charged with systematic insider trading.
4:16 am
steven cohen was not charged, he is present throughout the criminal complaint, which names several times as sac owner. the indictment comes with a companion civil case, seeking forfeiture of any and all assets of sac and its funds and penalties for money laundering. the latest on that story as well with cnbc's mary thompson in the next hour of the program. also still to come today, german elections are just eight weeks away. after the break, we'll have an exclusive interview with one of the candidates, the leader of germany's anti-euro afd party. plus, today marks the one-year anniversary since mario draghi promised to do whatever it takes, he said those comments in london, to preserve the euro. has he? will discuss that at 10:30 cet. spanish banks got a spring in their step. even though it is summer. they return to profitability in the second quarter. we'll break down the earnings from madrid in around half an hour. and amazon's second quarter profits missed .
4:17 am
starbucks sales heated up. leaders are looking to clamp down on corporate tax avoidance as well. we have a panel discussion on that at 11:30. [ kitt ] you know what's impressive? a talking car. but i'll tell you what impresses me. a talking train. this ge locomotive can tell you exactly where it is, what it's carrying, while using less fuel. delivering whatever the world needs, when it needs it. ♪ after all, what's the point of talking if you don't have something important to say? ♪
4:18 am
4:19 am
bit of a dilemma for the
4:20 am
church of england. one day after the archbishop of can't bu canterbury, they invested 1 million pounds in a main player. the church's pension fund hol z holds -- should payday lenders be driven out of business and made illegal? join the conversation on "worldwide exchange." get in touch with us, e-mail, worldwide@cnbc.com, tweet @cnbcwex, or direct to me, @rosswestgate. u.s. federal elections are eight weeks away and germany's political candidates are stepping up their campaigning efforts. annette is tracking it all for us out of frankfurt and joins us now. hi, annette. >> hi, ross, actually i had the chance to meet up with the new face to the political scene
4:21 am
here, the alternative for germany, that already sounds like a little bit of a dutchie thing, but, well, actually the party owner -- not party own, the party founder, i should say, comes very much -- he's a professor in hamburg for economics and his biggest claim is that germany actually and the euro, that is not a thing which goes together too well. so take a listen what his take is on the effect of the euro on germany. >> germany has mostly done fairly well with its own national currency as long as we have the german mark. when we introduced the euro, we became actually the lag arts of europe. the german growth rate was the lowest in the whole eurozone for several years, 1999 to 2007. we have clearly not benefited from the euro. >> well, the alternative for
4:22 am
germany is more or less a single issue party, even though they're not expanding as well on the topics of energy, family and integration. but their biggest claim is and the reason for their foundation is this concern or that they're not agreement with angela merkel's europe policy and their plans for southern europe are not surprising if you listen to what he said before. >> first things first, the southern european countries should leave the euro because they have proved not to be competitive and the alternative for them would be decrease in wages of about 30 percentage points, which is unacceptable, actually, for working class people. so they should leave the euro in order to be able to devalue and a national currency against the euro. >> so, ross, for now, they're not a big force here in the german party scene.
4:23 am
but recent polls suggest their potential electorate is roughly around 20%. so we should probably watch out for them as well during the forth coming election. >> annette, stay there. we'll talk more. joining me in the studio, welcome to you both. as we head towards the election, what chances is there of the current coalition still being in power post? >> you've probably seen the changes in the latest polls, the liberal party is doing a little better than it had been so far. but my baseline call is still the formation of a grand coalition. simply because i expect the social democrats doing a little bit better in the end than what they are currently predicted at. >> if the fdp does better, what if they retain representation in parliament? >> they have to cross the party center. i think this is likely, this is
4:24 am
still a very well organized and well funded party. but it still might not be enough for the current coalition to continue, simply because if the social democrats do a little better in the polls, in the end, say somewhere around 27, 28%, then we might as well end up with angela merkel's solution. >> if we have the grand coalition, what does that do for the politics of germany towards the rest of europe. >> not much of a policy change in the end. i think the key point to keep in mind here is that the dividing line in german politics is not so much between cdu and spd but between parties in general when it comes to eurozone policies. it is more between the experts in the parliamentary group, on the one hand, budget and finance experts that are conservative when it comes to mutualization of putting money on the table. and you have the foreign affairs and european politics experts who are in favor of much more benevolent approach to europe. as we have seen so far, the element of conditionality has
4:25 am
been strong during all these years of crisis management and the budget politicians are essentially in charge in the parliamentary group. >> we keep waiting to get past the german elections so we can see some difference in sort of development with the eurozone. if nothing is going to change, if not a whole lot will change, what will investors do with that? >> well, i think actually that not much will change after the german elections. that's completely correct. especially when it comes to euro policies. the euro policies of angela merkel are virtually a national concern in europe. the claims we heard earlier in your program five minutes ago from this anti-euro party, these economic claims are, of course, ludicrous. germany has done fairly well in the euro. germany has record employment. it has low inflation. it has a balanced budget. and it owes that partly to the euro because the euro had forced germany to reform itself. so with this good economic
4:26 am
situation for germany, voters are content, they will not demand a change in euro policies and as a result, for markets, probably the german election will not mean all that much. >> let me jump in here, it is annette in frankfurt. there is a lot of reports and as well speculation going on, though, that angela merkel will narrow or will be a bit more in favor of stimulus packages after those german elections as well that we -- she might be willing to say, yes, or to push a haircut for certain countries as well. don't you think there is at least a little bit of truth in those speculations? >> well, we have seen over the last 14 months already that the german position is softening bit by bit. that comes in response to the actual progress seen in the periphery, the german priority is more and more to safeguard
4:27 am
the progress rather than to impose extra burdens on the periphery. this process of a gradually softening german position is likely to continue. i do not expect stimulus packages after the german election, but i do expect german initiative to get banking union finally agreed, where germany has been the biggest obstacle so far. and i do expect that some countries if need be will be dpra granted more time. i to ndo not expect a haircut oe debt of any country. >> i'm sure there has been -- to implement the eu commission's proposals, we need treaty changes. will that objection be dropped or not? >> i think this is going to be dropped further down the line. simply because this has been basically a tactic to, you know, keep the discussion common, european level ahead of the 22nd of september elections. once we are through the election
4:28 am
cycle, the german government will acknowledge publicly that treaty changes, just, too long of a process basically to insist on that. and it is absolutely crucial and policymakers in berlin already acknowledge that behind closed doors. it is crucial that we see progress on the banking union front. once we're through the german elections, that is likely to materialize. having said that, we have to keep in mind that we're also looking at upcoming elections in germany, three stage elections, so the windows of opportunity to actually make progress will remain limited through the next year and past the german elections. >> thank you very much. good to see you. annette, we'll catch you later. still to come, today marks the one-year anniversary of draghi's do whatever it takes comment. we'll review the president's actions and what happens next right after this. we used to live with a bear.
4:29 am
4:30 am
[growl]
4:31 am
we'd always have to go everywhere with it. get in the front. we drive. it was so embarrasing that we just wanted to say, well, go away. shoo bear. but we can't really tell bears what to do. moooooommmmmm!!! then one day, it was just gone. mom! [announcer] you are how you sleep. tempur-pedic. headlines from around the globe. european investors cheer a solid round of earnings as renault helps on higher core profits. french market sealed an million share buyback deal that makes activision an independent company again. nikkei stumbles, but
4:32 am
abenomics forges on. the core cpi, biggest jump in five years. nomura continues to profit from the trading boom. and the future of sac capital is in doubt. the hedge fund heads to court today after being charged by the u.s. government of systematic insider trading. all right, we're into the last trading session of the week. european equities pretty flat right now as we wait for the u.s. markets to open up later. ftse up marginally. xetra dax is flat. cac quarante up .8%, lifted by the like of vivendi. bond markets, peripheral bond, we got a 2, 3 billion euro coupon bond coming out later. gilt yields lower, 2.3%. treasury yields below that 2.6% mark at the moment. on the currency markets, dollar
4:33 am
index down at a five-week low. dollar/yen at a two-week low. euro/dollar, steady, consolidating yesterday's gains higher at 132.87. sterling also trying to bounce back a little bit after yesterday's losses. in case you've forgotten, today marks the one year anniversary since mario draghi's famous speech where he said the central bank will do whatever it takes to protect the euro. here is a look at what the ecb president has said and done to deliver on his promise. >> the ecb is ready to do whatever it takes to preserve the euro. the euro is irreversible. it is pointless to bet against the euro. it's pointless paubecause the e will stay. i'll repeat what i said in london the first time, we will do whatever it takes, within our mandate. the euro is irreversible.
4:34 am
we are ready with our omt. as i said before, we stand ready to act with omt. we decided to lower the interest rate by 25 business points. we will address and cope with the consequences if we decide to act. we discussed several forms of forward guidance. the key ecb interest rates to remain at present or lower levels for an extended period of time. it is the first time the council says so. >> the euro crisis will come to a head this autumn. in an interview in a german paper, he called the policies fatal saying they brought time for politicians which is then wasted. he also said that following the german elections, france will pressure the ecb and germany to get support from the omt program. still with us, hawking meeting.
4:35 am
what do you think of the comments? >> i hope he's completely wrong. the dire predictions that all will end in tears in europe were wrong two years ago. they were wrong one year ago and i very much hope they'll be wrong again now. >> you hope or you believe? >> i believe there is never 100% certainty in life, yes. but it is very rare that people commit suicide. the european central bank will not commit suicide by letting the euro founder, one year ago, draghi made that play and the results of his speech, of his commitment are spectacular. we're seeing massive progress in the europe periphery. we are seeing the eurozone economy returning to growth. the eurozone is by and large on track, despite a few problems, of course, remaining. >> have the politicians wasted, though -- >> completely nonsense. that claim is complete nonsense. we do see serious progress in
4:36 am
the eurozone. we do see serious structural reforms in a number of countries. we see significant fiscal progress. the time has not been wasted. if the ecb a year ago had not bought time, then we might have been heading for the rocks, might have been heading for deflation, but now all and all despite serious issues remaining, and the lack of serious french reforms being the biggest issue out there, despite serious issues remaining, all and all the eurozone is on the right track. >> let's talk about the french reforms, because that is what was mentioned. how big a problem, how much more have they got to do? >> first of all, think about a year ago. a year ago just elected, started doing a lot of nonsense, plain economic nonsense, and he was in an inverted -- rewarded for his nonsense for a plunge and a rise
4:37 am
in unemployment. the good news is that this spring he got the message. his initial policies were completely wrong, he has now tried and is trying to change tactics. frances had has a lot to do. we're likely to see a little reformulator this year. and i do expect some cautious further market reforms this year so france is at least no longer going the wrong way. it is edging into the right direction, which is progress. at least the start of it. >> all right. holger, stay there. what grade would you give mario draghi so far? head to our website to vote. and more of his greatest hits are also online, a slate of all of his memorable moments as ecb president so far from november 2011 to his first ever forward guidance statement, which we saw just a short moment ago. elsewhere, lloyd blankfines, a long way ahead for the fed's
4:38 am
stimulus efforts. speaking in sydney, the goldman sachs ceo -- >> are there risks? i'm telling you what i think will happen, but i don't run our business on the basis of what i think and sicertainly try to discipline myself on the basis of not what i hope. we worry as much as anybody else and we have long meetings where we think of low probability, bad events of what might happen. but i think it most likely all works through, but not without anxiety along the way. >> right on to suggest u.s. growth is established, but not great. he also says europe's recovery somewhat behind the u.s. and china is the big wild card because of uncertainty over how the new leadership will manage the economy. holger, the imf said the reversal of fed policy or tapering is a big threat to
4:39 am
europe. there is -- you know, if u.s. bond yields go up, european yields will go with them, i suppose. >> well, if bond yields go up with u.s. yields, which so far they have only modestly, that is not a threat to anybody, period. what we need to see is continued progress in the eurozone periphery, so that spanish and italian bond yields can stay where they are, and i think that is fairly likely. and as to u.s. tapering relative to europe, remember the ecb has not bought any bond for the last 17 months. the fed is still thinking about bond purchases after the middle of next year. so in a way, the ecb has had the much tougher -- the much harder policy, and as a result, despite the fed tapering threat, the euro exchange rate, all and all, is fairly stable. >> yes. that's because investors don't quite know what to do with the competing strands on that. are you comfortable -- are we going to see the omt enacted at
4:40 am
any point or not, do you think? >> i hope that we will not have to see it enacted. if the euro crisis were to escalate dramatically, which is not likely, but which is always possible. in that case, it would happen. more likely is that the mere threat of the omt will deter the speculators against the euro and its members to such an extent that the ecb never actually has to use this option. >> meanwhile, what happens in portugal, portugal is having one major problem, and that's not its politics. the biggest problem for portugal is that spain is its key trading partner. the portuguese strategy of exporting itself out of trouble had the issue that the neighbor spain wasn't buying. but with signs that the spanish economy is about to stabilize, which probably will happen in the third quarter, with signs of
4:41 am
that, the outlook for portugal is in my view improving nicely. the politics in portugal are messy, but the government is holding together, and will likely see the reforms and the austerity through until the success comes, which probably could be about a year from now. >> thank you. chief economist at baronburg bank. any thoughts, e-mail us at worldwide@cnbc.com. we have more comments out from ana, which operates the biggest fleet of dreamliners. found damage to the battery wiring on two 787s during checks, after the devices were identified as the likely cause of a fire on another aircraft in london this month. they said damage was slight, but they have been sent back to honeywell international for inspection. more on japan as well. top three banks are expected to post a combined net profit of around $6 billion for the second quarter. that's more than a 20% increase
4:42 am
from a year earlier. now more from tokyo. >> mitsubishi ufj racked up a $2 billion first quarter net profit. the stock market rally helped reduce impairment on share holdings and the weaker yen boosted overseas profit. they also cut their holdings of japanese government bonds by 20% in the last quarter to a combined $911 billion. they started selling their jgbs after the central bank announced in april it would pursue aggressive monetary easing. japanese banks had been increasing jgb holdings since 2008, with profits for trading accounting for 30% of the combined net profit for the last fiscal year. but the demand for funds had not been spreading much in the domestic economy, to absorb the sharp reduction in their jgb holdings. meanwhile, japan's largest
4:43 am
brokerage firm reported earnings for last quarter today and net income surged to $665 million. the stock market rally helped increase brokerage commissions and fees from share sales. ross, back to you. >> have a good evening and a good weekend. growth may be slowing in china, but not for aia's insurance business. it ran up a 27% gain in the value of new chinese business. a smaller gain in all of asia. aia's first half earnings beat estimate. the stock end higher in hong kong, which brought the broader market loss. on the agenda in asia for monday, japan's earnings parade continues. results from smfg. meanwhile, bank of japan governor holds another meeting with leaders over policy. in india, the prime minister is also due to consult industry
4:44 am
over the sliding rupee and the bloated current account deficit. fatal train crash in spain that left at least 80 people dead has been blamed on excessive speed. the train's driver, who is in hospital recovering from injuries, is under formal investigation following the crash and could be questioned as early as today. officials say the train could have been traveling at nearly twice the legal speed when it went off track as the investigation continues. three days of mourning have been ordered in spain. the prime minister tourd the wreckage near his hometown.
4:45 am
4:46 am
4:47 am
a slew of earnings this week kept investors on their toes. we have been talking to ceos across europe to get the view. >> it was a strong result for us in the second quarter. even given particularly in context of the volatility in the market. >> we need to be sure that we get more people into the workforce that the wealth is more and better spread and the news may be better. >> our long-term will of good chemical growth in asia is well and will happen. however there is a little bit of a slowing down, which from my
4:48 am
point of view is not really bad. >> all you had to do was look out the window to understand that part of agriculture in the big season here in western europe and north america had a tough start. >> we reiterated our guidance for the full year on operating income, which means we're managing to the situation in asia, and at the same time, we're accelerating the pace to the future. spanish banks certainly focus after a slew of earnings this week. a profit more than doubled boosted by recent acquisition. it comes a day after midsized rivals also beat analyst expectations, all benefitting from smaller property writedowns. joining us for more, derrick quinn, bank analyst at nomura international in madrid. thank you very much indeed for joining us. it is hard to talk about the banks without, of course, deciding what is going to happen with their -- more of their profit portfolios.
4:49 am
so, look, where are we on loans and provisions for real estate? >> well, it is not just real estate. provisions for the banks are really being driven by the economic conditions. and real estate, we're seeing an ongoing deterioration in asset quality. i would say as expected, given the ongoing restructuring in that sector. so the banks last year took significant provisions to work against real estate. but we are still seeing a correction in asset prices. despite all the provisions the banks have taken over the last few years in property, they're still continuing to book provisions against that exposure. so it is something that is continuing to weigh on spanish bank profitability. >> and as you say, it is all part of the wider economy. yesterday, investors were taking share that things might be turning a corner, but are they?
4:50 am
>> it is definitely true if you look at the unemployment numbers, the seasonal improvement that you see in the spanish economy from april through the summer having a positive impact on the employment numbers, that's a trend we have seen over the last few years in spain, in strong growth in the number of tourists and, you know, you're seeing that reflected in job creation. although a lot of it looks to be temporary job creation. if you look at the seasonally adjusted numbers, the trend there in unemployment still looks to remain negative. so a little bit concerned, but as we move into the second half of the year, the positive trends we're seeing in employment generation now start to reverse a little bit. >> so what wins out? if we get a slight change of sentiment on the economy, that would change the sentiment on the banks. but still going to go through a deep provisioning, does that get canceled out? >> yeah, i mean, i think it is still a very difficult environment and if we look at --
4:51 am
some of the top ten drivers, it is true spanish -- gdp contraction has shrunken significantly. i think the expectations would be in the second half of the year, gdp remains relatively stable. but a number of the underlying indicators still remain quite neck ti negative for spain and that has negative implications for how long the banks will need to be booking significant provisions. so the unemployment numbers, the need for the spanish government to continue with the deficit reduction programs so they have been given more time, but still a relatively high deficit and environment of low growth, it is going to be quite difficult to reduce that deficit without having negative impacts on the domestic economy. despite the seasonal improvement you're seeing now, this summer, our view would still be that over the next 12 to 18 months, it would be too difficult from the current data to extrapolate we're on a sustainable improving trend. >> yeah, the bank of spain also
4:52 am
asked lenders to reclassify more of their refinance loans as nonperforming loans. is there more of this to come, do you think? are there more loans, which are going to have to be classified as having gone bad? >> yes, the bank of spain along with, i think, european regulators in general want to have a better understanding of the risks on european bank balance sheets, particularly for the spanish that is the case. we know that there will be an asset quality review for the sector leading up to another stress test in the early part of next year. so the level of restructured loans in this case for the spanish banks, we are seeing them having to take maybe more stricter, conservative criteria and reclassify them as nonperforming loans and the extra provisions that then go with that are as we're seeing this quarter despite a quarterly improvement in margins, that's
4:53 am
being absorbed by additional provisions on these restructured loans. >> yes. is there a trading opportunity here? any investment case for any of these spanish banks? >> longer banks have been underperforming, the wider bank index for most of this year, i would say over the last few weeks given the sneneasonal improvement in daja and some improvement in aggregate for the eurozone that spanish banks started to recover. but we still have a negative outlook for spain, certainly in relative terms to the rest of europe. and on that basis, we would still have a cautious view and prefer to remain underweight on spanish banks. >> thank you for that. have a good weekend. i've had reaction -- the state prosecutor ordered that
4:54 am
president mohamed morsi be detained question for questioning over suspected collaboration with the palestinian militant group hamas. keep our eyes on that. back to corporate news, renault shares getting a boost after the french automaker increased profits at its core manufacturing division for first half. the company's ceo said operating margins for the auto division rose to 2.9% from 2.5% previously. fmh is kconfident it can gain market share. the luxury goods maker is battling a slowdown in markets including china. sales rose 8% on strong demand for fashion goods in growth at its duty free ships. stock up nearly 5% in paris. in the u.s., amazon reported a surprise second quarter loss. the second in less than a year. this is higher costs
4:55 am
overshadowed revenue growth. they continue to spend on new technology, distribution centers and content for the kindle. amazon is also grappling with weaker international business. north american sales are up 30%, but international didn't report a profit. sales just up 13%. amazon is also projecting third quarter results below analyst forecasts. the stock down 3% after hours, off nearly 2% in frankfurt. elsewhere, starbucks third quarter profits were up 25%. that topped forecasts. new fruit energy drinks and seasonal frappuccinos helped to drive traffic to u.s. stores, its biggest market. the coffee chain is raising its full year profit outlook. starbucks is benefitting from efforts to expand sales by branching out to things like tea juice and baked goods and linking cafe grocery and loyalty card programs. shares up 6% in after hours.
4:56 am
howard schultz will be on "squawk box," an interview with him at 9:00 a.m. eastern. back to europe, swiss banking giant ubs reached an $885 million settlement with u.s. regulators. this is after the lender was accused of misselling mortgage-backed securities to fannie mae and freddie mac during the housing bubble. ubs will have to pay approximately $450 million to fannie mae and $470 million to freddie mac to settle the case. ubs said it reached an agreement in principle and denied any wrongdoing. something of a dilemma for the church of england. just one day after the archbishop said he'll drive payday lenders out of business, it is revealed that the church itself has a 1 million pound indirect investment in one of the main players wonga. the church's pension fund holes an investment in excel partners that is also one of wonga's biggest investors. so we have been asking, should payday lenders be driven out of
4:57 am
business and made legal? payday lending should be banned immediately, a tweet. another viewer also tweeted from rick, yes, if they're violating usery laws, they should be illegal. credit unions are more appropriate. keep your responses coming here. get in touch with us, e-mail, worldwide@cnbc.com. tweet @cnbcwex, or direct to me @rosswestgate. we'll take a short break. still to come, the race to replace fed chief ben bernanke is on with janet yelin the rumored favorite as backlash grows against larry summers taking the lead. we'll talk about that. second hour of the program continues right after this. ♪ [ agent smith ] i've found software that intrigues me. it appears it's an agent of good.
4:58 am
♪ [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. [ static warbles ]
4:59 am
5:00 am
renauld helps drive the stock 600 into the green, on higher core profits. vivendi up today, sealed an $8 billion share buyback deal, meaning u.s. video game giant activision has become an independent company. the nikkei stumbled but abenomics forges on. the core cpi posting the biggest jump in five years. nomura continuing to profit from the trading boom. and the future of sac capital is in doubt. the hedge fund heads to cord to
5:01 am
the after being charged by the u.s. government of systematic insider trading. all right, just joining us state side, welcome to the start of your global trading day on "worldwide exchange." u.s. equities, the dow is up, the s&p up .2%. right now we're the dow above fair value. facebook stock during up 31% over the session, closing up 29%. the s&p is just about a point below fair value. very flat futures at the moment. it fall follows a fairly flat european session. european equities, the ftse has been flat. today was down around half a percent yesterday, 32 points lower. up 10 points at the moment. xetra dax is pretty flat. the ibex is up .8.
5:02 am
outperforming as it did yesterday on slightly better economic news and cac quarante up .8% as well. number of individual stocks in focus as we plow through the earnings season. renault up here half a percent. it lifted its core profit despite slumping sales in europe. the french carmaker enjoying a rise in first half earnings after reducing costs. the cost is now 5%. the luxury group battling a slowdown in market includesing ch china. results are still pretty good. amazon, we saw what happened after hours in the states, down 1.25 in frankfurt. posting unexpected $7 million loss in the second quarter. sales particularly weak here in europe. and anglo american, up 2.5% today. shareholders approved of the structure plan.
5:03 am
activision blizzard in focus, buying back around 85% of control back from vivendi. they're spending around $8.2 billion doing it. vivendi selling shares, activision and vivendi will own 12% of the company post the deal which makes games like world of war craft and call of duty. they also got rid of their controlling stake earlier this week in meryl, which means they have around $13.7 billion of fresh catch. wh what will they do with it? bond markets, little lower for ten-year treasury yields, 2.57. 2.34 the yield for gilt. on the currency market, the dollar index hit five-week lows. dollar/yen on a two-week low. 98.50, that sort of mark at the moment.
5:04 am
we move it on. there we go. cable, sterling/dollar up. euro/dollar pretty steady. that's where we stand now in european trade, let's recap the final trading session of the week in asia. sixuan has more out of singapore. sixuan? >> thank you, ross. not a pretty finish for asian markets this week. chinese stocks, the shanghai composite lost ground for the third straight session after the pboc chief said he was sticking with the prudent monetary policy, despite slower growth. the government also ordered some heavy industries to eliminate overcapacity. paper producers, steel companies and metal miners came under pressure in today's trade. an even grimmer picture in japan, the nikkei 225 was the standout underperformer, down about 3% on the back of stronger yen, and disappointing earnings. ship equipment maker advantest tumbled after posting a quarterly operating loss.
5:05 am
jfg holdings lower by 8% because the japanese steelmaker missed expectations by a wide margin. yahoo!'s results came in below forecast, sending its shares down more than 4%. earnings news dominated trade in south korea. samsung electronics lost nearly 1%, despite 50% jump in q-2 profit. investors are worried about the slowdown in the smartphone space while samsung warned about declining smartphone selling prices in the coming quarters. kia motors finished in the green after posting an 8% profit growth in the second quarter. back to you, ross. sixuan, thanks for that. james joins us on set. what do you make of the european earnings season so far? >> i suppose top line things have disappointed, only 32% have beaten expectations. early days yet.
5:06 am
but what we're encouraged by is that the revenues quarter on quarter have risen. and -- >> where the beats have been bet, but the revenues -- >> are flat in the united states. and earnings are up .3% on aggregate in the u.s. so far. it may be a better story emerging from europe. >> which is kind of strange. why would that be, do you think? >> i suppose it is in the u.s. expectations have been set quite low in terms of tapering. so post bernanke comments, people downgraded companies such as financials, miners and industrials. and consequently perhaps it was misplaced, that pessimism, so that's where we have seen the majority of beats. perhaps people are just too bearish about europe in terms of the economic story there. that's why we're seeing -- >> you say analysts seem to be overly bearish and utilities, telecoms and financial sectors. does that suggest you're looking
5:07 am
for opportunities to buy in those sectors or not? >> well, you are to be selective, particularly in europe. >> very selective, i would think. >> particularly in europe, for instance. the story of bad loans hasn't gone. we see more misses -- more beats in spanish banks, but if you look at the bad loan story, still highlights they're rising. still continued caution in europe. in the united states if you're selective, there are some financials there where they perhaps met the majority of their loan losses there. and also have an improving housing market. financials is an interesting opportunity there. in the tech space, for instance, in the united states, some of the larger names have missed. and i think just expectations were just too high there. but also there is some interesting stories in the united states, particularly with clout and keating, not necessarily google but those companies involved in building out infrastructure for the -- storage companies. >> it is amazing, facebook's performance after hours. i mean, up 20%, 30% by the time
5:08 am
they close. up 31% during the session. there seems to be huge -- if you're in the tech space and you sort of beat expectations, enormous sort of gain. >> absolutely. always i think when there is big upsides, does provide price support. people were pretty bearish and to be fair, i suppose it's beaten most of our expectations in terms of earnings up, i suppose last year when it floated, had 1 billion of earnings, now 1.8 billion. expectations are 2 billion for the rest of the year. maybe that's a little pest mystmis mystic. >> do you take a judgment on european outperformance or are you doing that or just looking at individual companys? >> so, no, we're looking at just the aggregate outperformance. we think year to date, europe is up 6%, 7%. u.s. is up a lot more.
5:09 am
we see that story closing particularly as there is an improving economic story just starting in europe. and we see particularly right on -- very early days, but on a relative valuation basis, and particularly when you look at whether there is still stimulus, it looks like in the u.s. they're taking stimulus away, where as in europe, we're seeing -- >> are they? >> there is fears of tapering. that's what the market is priced. in europe, still continuing to do stimulus, loan rules have been relaxed. in japan, we're seeing improved stimulus. in the uk, less likely to be qe, still like to be the further stimulus in terms of forward guidance, et cetera. i think that's likely -- we think that's likely to provide support to these markets. >> okay. stick around. plenty more to come from james. senate democrats circulating a letter urging president obama to choose janet yellen to succeed ben bernanke as chairman.
5:10 am
the letter doesn't mention larry summers, the former treasury secretary, thought to be the other leading candidate. some lawmakers are concerned about summer's views of financial regulations, he helped get rid of glass stegele. kind of interesting. janet yellen was always the favorite and then larry summers appeared from nowhere as being -- i'm not quite sure why he suddenly became favorite and now back with janet yellen. >> is he favorite? >> i don't know. i didn't think he was. then a lot of people came out of nowhere, really. >> a lot of polls i've seen is that yellen was definitely the favorite. but -- >> that's what i thought. anyway -- >> i've seen a study with google trends and big uptick. that monitors news flow rather than polls. maybe that's what people are focusing on. >> yeah. how much will it matter on the margin? >> in terms of policy? >> in terms of for investors, yeah. >> yellen is much more of a consensus builder.
5:11 am
and perhaps it will see a more stable view from the fed if she's in charge. and consequently that's perhaps a better thing for u.s. equities in that respect. >> investors will know more of what they have got. >> right. >> that's -- they would expect a sort of continuation of broadly -- >> broadly of bernanke's policies, because he's -- she's consensus builder. i think it is a important to emphasize, the stability in the markets yellen would create. >> james, thank you very much. what is on the agenda in the united states today, the final report in july consumer sentiment is out 9:55 eastern. as for earnings, more than half of the s&p 500 reported. today, look for numbers from auto partsmaker leer, rubbermaid, stanley, black & deck, transcanada and tyco. just had a 3 billion auction out of italy as well this morning. zero coupon offer.
5:12 am
the yield 1.87%, which is lower than the 2.4% we had on june 25th. they sold, i think, the 3 billion they were targeting as well. some of the other stories we're following today, sac capital will be arraigned on criminal charges at 10:00 eastern at a federal court in manhattan. u.s. prosecutors charged the hedge fund with systematic insider trading, while sac founder steven cohen was not charged, he is present throughout the government's criminal complaint and is named several times as sac owner. general elections just eight weeks away. after the break, an exclusive interview with one of the candidates, the leader of the new anti-euro afd party. [ male announcer ] come to the golden opportunity sales event to experience the precision handling
5:13 am
of the lexus performance vehicles, including the gs and all-new is. ♪ this is the pursuit of perfection. otherworldly things. but there are some things i've never seen before. this ge jet engine can understand 5,000 data samples per second. which is good for business. because planes use less fuel, spend less time on the ground and more time in the air. suddenly, faraway places don't seem so...far away. ♪ and experience the connectivity of the available lexus enform, including the es and rx. ♪ this is the pursuit of perfection.
5:14 am
5:15 am
and a recap of the headlines if you're just joining us this morning. vivendi moves to unload most holdings in activision blizzard. japan's nikkei down over 3% as inflation logs the biggest jump in five years. sac capital prepares for an arraignment on criminal fraud charges
5:16 am
. federal german elections just eight weeks away. and the political candidates are stepping up their campaigning efforts. annette is tracking all the movements. she has more out of frankfurt. annet annette? >> i had the chance to catch up with one of the new candidates to the political scene, bernd lucke, the founder of the so-called alternative for germany, which as well as an anti-euro party. so far in the recent polls, they're only approaching a 2% to 4% in voters, but another opinion poll shows that they have an electorate potential of 20%. it is worth to have a listen what this man has to say about what the euro did to germany. >> germany has mostly done fairly well with its own national currency, as long as we have the german mark. when we introduced the euro, we became actually the lag arts of
5:17 am
europe. the german growth rate was the lowest growth rate in the whole eurozone, for several years from 1999 to 2007. we have clearly not benefited from the euro. >> well, this man should know what he talks about. he's a professor for economics in hamburg. and he has a lot of other professors or people from that background as well supporting his party. his vision for the southern european state is not so much a vision which would include the euro. take a listen. >> first things first, the southern european countries should leave the euro because they have proved not to be competitive. and the alternative for them would be decrease in wages of about 30 percentage points, which is unacceptable, actually, for working class people.
5:18 am
so they should leave the euro in order to be able to devalue a nominal -- a national currency against the euro. >> so, of course, his standpoint is rather radical one, and probably not one which will be dominant here in the german debate. but it is interesting that there is a lot of conservatives who are actually sharing his mind -- or his thoughts, but would probably not up for them for the sake of having a steady government, ross. >> annette, thanks for that. the latest on the countdown to the german elections. still to come, more than half of all u.s. employees look for small and medium size businesses. we'll get a view on that. as we go to break, reminder, european equity markets even stevens between advancers and decliners.
5:19 am
5:20 am
5:21 am
lloyd blank fine sees a long way ahead for the fed stimulus effort. speaking in sydney, he said fed policy is likely to be very, very easy for a very long time. >> are there risks? listen, i'm telling you what i think will happen, but i don't run our business on the basis of what i think, and i certainly try to discipline myself not to
5:22 am
run it on the basis of what we hope. contingency plan, we worry as much as everybody else and we have long meetings where we think of low probability, bad events that might happen and what we do about it, but when i think is, it most likely all works through, but not without anxiety along the way. >> meanwhile, blank fine says u.s. growth is established but not great. europe recovery is somewhat behind the u.s. and china is the big wild card because of uncertainty over how the new leadership there will manage the economy. how is all of this impacting smaller business? joining us is joe myer, the ceo of myer capital. good to see you. thank you very much, indeed. >> thank you, ross. >> welcome to london. >> appreciate it. >> he says the u.s. economy is improving, but it is strengthening but not great. is that sort of the base view you go with? >> we're generally bullish. and i think the biggest opportunity for us is in the businesses that we invest in, our small and medium sized
5:23 am
businesses, and i think the opportunity is the more the government can remove the fear of the unknown, the quicker the economy will recover. >> there is a lot of unknown about -- a lot of fear of what happens, the fed is no longer dripping in the junkie's medicine. >> right. >> what is your view? >> i think the market fundamentally will believe that it is going to stay pretty steady right now. i think everybody expects interest rates to dlim s ts to e bit and the fed will drip funds in until it becomes strong. >> does that change your view on making investments or not? if the cost of money goes up a little bit? >> you have to be in stocks. we're 85% invested in stocks right now. we like the small business enterprises, some of our companies are on the payroll processing, financial technologies, those are all businesses that do well in weak economies and strong economies. they generally do much better as the economy improves. so as long as the fed continues to telegraph their move, which i
5:24 am
think they have done fairly well for the next 18 months, we'll be fine. >> how would you describe the investment like, jobs hiring, their desire to take on people? >> again, i think their desire to take on people is challenged by the unknown of what the government might do with regulation, obama care, the health care side is a big unknown right now. and so people are very concerned about bringing on people because they don't know what their cost will be associated with that. and once they figure that out, which will happen in the next 12 months or so, we'll see a lot bigger bum. >> does that mean much more temporary highs than full time highs? >> right, the temporary staffing is a great industry right now. especially in recovery mode because people don't want to hire full times, because there is cost associated with hiring full time versus temporary staff i ing. >> what's the area of the economy you're most interested in, in term of investing.
5:25 am
>> we like financial technology area. payment processing is great. the visas, and all the big payment processing companies, because the banks outsource all of their back end processing, and that's a big theme of ours is anything that has to do with co-oping or back office outsourcing is a significant opportunity right now because people don't are to make the investments if they can just pay for it by the drink, so to speak. >> you see that regardless of what the general environment is like, you think that's a trend that is going to happen. >> the economy and scales are so important. technology is so critical, and you can't get that. if you're a bank, for example, you can't build that economy scale by yourself. that's why the big payment processing companies are doing so very well right now. >> if you look at broader tech, are we overvaluing stuff again? >> we love apple, we have been bullish on apple for a long time. i think, you know -- >> people wonder if we're getting into another bubble with -- >> i don't think so.
5:26 am
we're keen on it. it is leveraging technology. some of the social media companies, we're long on facebook right now. >> happy with last night's results. >> very happy with last night's results. >> still extraordinary to see a stock like that go up. 30% in the session. >> yeah, i think it got -- it got hit pretty hard after it came public and, you know, there is a lot of hype around it. but for a young company, they're stepping up pretty well. >> have you ever invested in any businesses over here or not? >> i really haven't. most of our things we do are startups and turn arounds, we like those. and just finding the small companies that have a lot of great opportunities. >> your views, if we can -- if we get through whatever happens with the fed, once it starts, and if we get clarity on obama care, you're fairly confident those two issues are holding things back. we can get clear sky on that. >> they're the unknowns, right? as long as you have the
5:27 am
unknowns, people are generally hesitant. and remove the unknowns and small and medium businesses will take off. >> good to see you. >> thank you, ross. >> have a good trip. ceo of myer capital. still to come on the program, can global corporations be taxed fairly or will havens and loopholes always exist? we'll talk about that conundrum right after this.
5:28 am
5:29 am
5:30 am
you're watching "worldwide exchange." i'm ross westgate. a recap of the headlines. european investors cheering another solid round of earnings. renault helps drive it into the grin green on higher core profits. vivendi up on the french market, sold an $8 billion worth of shares that makes u.s. video game giant activision an independent company again. nikkei stumbles, but abe nommics forges on. the core cpi biggest jump in five years. nomura continuing to profit in the trading boom. the future of sac capital is in doubt.
5:31 am
the hedge fund heads to court today after being charged by the u.s. government of systematic insider trading. european equities pretty flat today and u.s. futures are likewise. the s&p 500 is a couple points below fair value. similar at the moment, 6 points below for the nasdaq. dow is currently some 11 points below fair value, up a .1 during trade yesterday. the ftse global 300, slim trades. the ftse down half a percent yesterday. up .1. down .1 for the xetra dax. ftse mib up .11. not a bad zero coupon bond auction from italy around 20 minutes or so ago.
5:32 am
and the cac quarante is up two-thirds of 1% as well. a focus on earnings. we had a slew of them this week. speaking to ceos across europe as well to get the view. >> a strong result for us in the second quarter, even given particularly in context of the volatility in the market. >> we need to be sure that we get more people into the workforce, that the wealth is more and better spread. >> good chemical growth in asia is well and will happen, however, there is a little bit of a slowing down, which from my point of view is in tnot really. >> all you had to do is look out the window to see part of the agriculture had a tough start. >> we had reiterated our guidance for the full year on operating income, which means
5:33 am
we're managing to the situation in asia, and at the same time we're accelerating the pace to the future. among u.s. earnings, second quarter loss narrowed due to layoffs and cost cutting moves. the gamemaker continues to struggle as it lost 40% of its active monthly users during the quarter. this was the last set of results where zynga hired dan matrick to replace pincus as ceo. zynga is scrapping plans to build a real money gambling business in the u.s. shares were down 14% in after hours. starbucks caught a profit rose 25%, topping forecasts as new fruit energy drinks and seasonal frappuccinos helped drive traffic to u.s. stores, its biggest market. coffee chain also raised its full year profit outlook. the ceo howard schultz says starbucks is benefitting from
5:34 am
efforts to expand sales by branching out to amongst other things, tea, juice and baked goods and linking its cafe grocery and loyalty card programs. shares are up 6% after hours. up over 7% in frankfurt. and a reminder, mr. schultz will be on "squawk box" today for an exclusive interview, starting at 9:00 eastern. don't miss out on that. also, amazon reported a surprise second quarter loss. its second in less than a year. higher costs overshadowing revenue growth. the online retailer continues to spend on new technology, distribution centers and content for the kindle. amazon has been grappling with a weaker international business. north american sales are up 30%, but international didn't report a profit and sales were up just 13%. the firm is projecting third quarter results below forecasts. the stock is down 3% after hours, down nearly 2 in frankfurt. at the same time, amazon is facing tax obstacles with
5:35 am
international business, especially here in britain. along with starbucks and google, the e-commerce giant caused outrage when it was revealed how little tax the firm paid in britain, despite making billions in sales. the recent g-20 meeting, country leaders vowed to take decisive action on corporate tax receipts, last week the secretary-general of the oecd told cnbc it would make a concerted effort. >> if the guy next door is not doing it, you just move next door. and this is what happened with the individuals. they were moving from one place to the other until there was no place to hide. and now they probably come to the conclusion they're going to pay their taxes. the same thing will happen with the companies. >> joining us is the political director of taxpayers alliance and former editor of conservative home.com and charlie for dover and dill. thank you for joining us. do you think mr. gurria is right? eventually is there going to be nowhere to run? >> look, i don't think there is
5:36 am
anyone suggesting the companies you're talking about have actually broken the law as it stands. what we hear so often is politicians talking, pontificating about companies and the amount of tax they're paying, when actually the same politicians are the ones able to change the law if they don't like that those companies are doing. >> very simple. >> that's exactly what i think we should be doing. what we got is a situation where a number of companies, particularly u.s. headquarter companies have been scheming the uk's tax system and not just the uk, they have been scheming the u.s. tax system because at the don't pay tax there either. >> what do you -- >> within the law, technically, but frankly completely unacceptable. what we're looking at -- >> why? >> what we're looking at is on the industrial scale tax avoidance. these companies need to wake up and smell the coffee and -- >> you're saying it is immoral. >> i'm not saying it is immoral, i'm saying it is unacceptable. they have gone too far.
5:37 am
they know they have gone too far. they paid too little in taxes and they ought to have more corporate social responsibility. >> don't they have an ethical duty to their shareholders to maximize profit? >> so they always say but top executives increase their pay and that's all okay as far as they're concerned. i think what we need to see is we need to see legislative change on international scale, and that is what we're beginning to see. you're seeing it at the g-8, with the g-20, you're seeing it with the oecd and the message to these companies is, you know, this is unacceptable behavior, there is international action by governments across the world. >> i think there are some things that can be done on international level. certainly the oecd was talking about rules about the value of where digital companies are making their value, that's fine. but in the main, these are matters for national government. we want -- i want to see the british government radically simplify the british tax system so people have faith that companies are paying their fair share, no more and no less. but if you go down the route of
5:38 am
too much international on this, you eradicate tax competition which will end up seeing tax rates going up, tax competition between jurisdictions, so there is an element of governments having to make their countries attractive for an investment. >> can you strike that balance between tax competition and tax corporation? >> very much so. what i want to see in the uk is a lower simpler system of taxes, which is hard to avoid. basically a flat tax of 10% with no release. that would secure our tax base, give us a level competitive playing field for foreign and domestic businesses and also keep the revenues which are so badly needed. >> you mentioned fair, this is a phrase, bandied around a lot, fair. no one ever defines what fair is. >> i think in principle i'm in agreement with charlie. a notion of a single proportionate tax, where if you earn double you pay double the amount of tax. i want to see that happen. we had a lot of talk from the government, charlie supports, about tax implication but thankfully very little action.
5:39 am
i want to see action from the government. they have been in office for three years now. >> how do you -- okay. how do you then also get around a tax project? clearly what you also want is companies to -- you want them to invest, want them to invest in the future and growth and in jobs. how do you scheme a tax system where they're paying taxes on profits, but also actually not being disincentivized from the investment that we need? >> that's an important issue. that's why i'm saying that the tax rate should be reduced just 10%. an incredibly low -- incredibly simple system that would be easy for everyone to understand. and i think that's really important. britain is open for business. >> would you tax some other -- would you make it some other metric of business that you attack? >> you tax profits but say, look, you can't have all these reliefs and deductions which are the sort of loopholes that are exploited so shamelessly by some of the companies. >> does that work for you? >> we want to see a system where income is only taxed once and not taxed multiple times through
5:40 am
different taxes, different ways. we produce the report last year that the 2020 tax commission, set out clearly in full, how the government could reform the tax system to make it simpler, to make it more understandable. frankly the more simple the system is, the harder it is for people to avoid paying their fair share. >> are they more likely to want to pay? there is thaualways that -- >> they can't avoid it if the system is so simple. he said for virtually every person in the population, every business, it takes two minutes to fill out the tax system because the system is so simple, so transparent and no one's interest to try avoiding it. >> have we got any chance of reforming our tax code? you've spoken to the chancellor about this. is he sympathetic to it or are these too many other things going on? >> leading the way internationally. >> trying to crack down on tax avoidance, but simplifying tax
5:41 am
code would help. >> and it would help. that's exactly the kind of case i'm making. the problem we have is over the last decade, income tax paid by hard working families basically doubled. corporation tax receipts didn't go up at all. and that's frankly unfair. and that's unsustainable, unacceptable and everyone needs to do their bit and help get us out of the sort of 2008 crash this was still paying the priss for today. >> okay. jonathan, we'll let you go for now. thank you for joining us, the political director of taxpayers alliance. charlie you'll stick around for a little bit more. earlier we told you about the dilemma for the church of england. just one day after the archbishop said he'll drive payday lenders out of business, it is being revealed the church itself has a direct 1 million pound investment in wonga. the church's pension fund holds an investment in excel partner that is one of wonga's biggest
5:42 am
investors. we have been asking should payday lenders be driven out of business or be made illegal. bruce tweeted desperate people go to them. if band, they'll go to illegal lenders and face fiscal damage if they don't pay back on time. where do you stand on payday lenders? >> the interest rates they charged are completely unacceptable. it gets people into massive debt, massive problems and often they are unable to pay. and it gives a lot of stress as well. i think we do need to have a much stronger regulation of it. but the difficulty is, if you talk about a complete ban, the issue is how do you then tackle the problem of loan sharks that are outside the law and counsel say it is up and down this country trying to exploit people. >> what would the simpler thing be to say, limit the amount of interest you can charge? that would be -- that would be the simplest thing? >> i think a cap on the amount of interest you can charge to a level which is fair, maximum level, is something that should be looked at and is attractive.
5:43 am
the other thing is, i think the idea of the church of england is actually a really good one. they should compete with w onga. i don't think we should make too much of the fact that one of the fund managers is invested in wonga. slightly embarrassing for the church of england, but distract from what the archbishop is rightly trying to do. >> thank you for joining us. charlie for dover and deal. keep your responses coming. e-mail us, worldwide@cnbc.com. tweet, @cnbcwex, or direct to me, @rosswestgate. some of the other stories also following today, activision blizzard struck a deal to buy most of the controlling stake in the firm back from vivendi. the world's biggest video game maker will pay $8.2 billion. vivendi is selling the shares for $13.60 each, a 10% discount to activision's closing price on thursday. activision is buying 429 million shares and investor group led by the ceo are buying the rest.
5:44 am
vivendi post the deal will be earning 12% of the company. don't forget, it makes games such as world of war craft and call of duty. both of them up again. today, activision up 12%. vivendi up 2%. halliburton pleaded guilty to destroying evidence related to bp's 2010 gulf oil spill. the company had provided cementing services to help seal the well on the deep water horizon rig. halliburton will pay a maximum $200,000 fine and is making a voluntary $55 million payment to the national fish and wildlife foundation. halliburton stock up half a percent in frankfurt. still to come, sac capital is under fire. if the u.s. government is successful in its insider trading case, it could spell the end not just for hedge fund, but also its founder steven cohen. we'll get the latest right after this.
5:45 am
5:46 am
5:47 am
recap of the headlines. vivendi moves to remove most of its holdings in activision blizzard. nikkei ends lower as inflation logs the biggest jump in five years. and sac capital prepares for an arraignment on criminal fraud charges.
5:48 am
the future of one of the high profile and successful u.s. hedge funds is up in the air today after the government filed criminal insider trading charges against sac capital. let's get more, mary thompson at cnbc u.s. hq. they're still trading at the moment. how under threat are they? >> pretty significant threat. of course, all of that will play out over the next couple of weeks or months, probably, ross. but today sac capital will be arraigned on criminal fraud charges at 10:00 eastern time in federal cart in manhattan. it is unclear yet who will represent the firm at the hearing. u.s. prosecutors have charged the hedge fund with systemic insider trading. sac founder steven cohen wasn't charged, he is present throughout the government's criminal complaint, named several times as sac owner. the indictment comes with a companion civil case, seeking the forfeiture of any and all
5:49 am
assets of sac and its funds as well as penalties for money laundering. the government accuses sac of presiding over a culture for more than a decade where employees skirted the law and were encouraged to use personal contacts for insider tips. >> when so many people from a single hedge fund have engaged in insider trading, it is not a coincidence. it is, instead, the predictable product of substantial and pervasive, institutional fail e failure. >> not personally charged criminally, cohen joins junk bond king mike millkin. the indictment could threaten the future of sac capital, which just months ago had roughly $15 billion in assets. many investors have stuck with cohen despite years of speculation about improper trading at the firm. however, in recent months, they put in about $4 billion in
5:50 am
redemption requests as the government was building its case. many clients and wall street firms that lend money to and trade with sac, though, say they're taking a wait and see approach. sac says the government isn't seeking to freeze any assets and doesn't plan to shut down. in a statement, the firm says it never encouraged, promoted or tolerated insider trading and takes its compliance and management obligations seriously. extra security was posted outside sac's office in stanford, connecticut, yesterday, and the media was kept far away. one employee in the firm's new york office tells reuters, there haven't been any recent signs of internal panic or anxiety. interesting today to hear the arraignment. we'll be there. >> good stuff. thanks for that. mary all day on cnbc following that story. still to come, with earnings season more than half over, start shifting focus to jobs data again next week. we'll get the latest from the bond pits in chicago. see you in a few moments. [ kitt ] you know what's impressive?
5:51 am
a talking car. but i'll tell you what impresses me. a talking train. this ge locomotive can tell you exactly where it is, what it's carrying, while using less fuel. delivering whatever the world needs, when it needs it. ♪ after all, what's the point of talking if you don't have something important to say? ♪
5:52 am
5:53 am
all right, ahead of u.s. open, european equity mixed. down on the associatisession lo. cac quarante is up a third. on the agenda, state side, we have the final report on july consumer sentiment. that's out at 9:55 eastern. as for earnings, more than half of the s&p 500 have now reported results. today, look for numbers from lear, rubbermaid, stanley, black & decker, transcanada and tyco. u.s. futures at the moment, they're just trading below fair value. actually got a little weaker as we have gone through the session. joining us from chicago
5:54 am
mercantile exchange, alan nutman. how do you think we'll finish the week? >> good morning. i'm keeping an eye on the s&p futures, that was a pivot point, a high back in may. that was a high last week that we broke through. that's an important kind of support point on a weekly basis. we're pivoting around that right now. it will be interesting to see how we finish the we can. i'm looki ining at this as a lo profit taking. you're seeing a pause in the market right now. i'm looking for it to go much, much higher. >> nearly half of the s&p reported. but lower than average having better than expected revenue. >> right. the revenue has always been the question the last few quarters. we go through the process where they lower earnings estimates and then we overachieve because they have such a low bar, so that's been the pattern, if you look at it as a whole, the financials blew out earnings and led the way. and, you know, they're
5:55 am
continuing to make a huge amount of money. i'm not going to fight the overall trend. that's been the pattern we have seen over the last few quarters. some of the other things, looking at the action of the market place, if we get back to 1695 here in the s&p, where we stalled out earlier this week, we could see a significant surge, initially, we had a 20 point sell-off, 23 point sell-off, that targets 17, 18, but in the bigger picture, we had 150 point sell-off in the s&p, in the last month, so if we, you know, if that targets 1800, about 7% where we are -- 7% above where we are right now as far as the technical target, looking at the price patterns. >> yeah. it would still be extraordinary gains. we're already up 5% for july. >> yeah, we had a huge recovery here, very quickly, that's why looking at this as a positive market. my catalyst, my potential catalyst is the dollar. and obviously the euro is showing strength as its counterpart there. the euro is back above the 132
5:56 am
level. it can make another attack on 134 and 136. if the dollar, which now is below the midpoint for the last three months, so if the dollar can make another push to the downside that can be the catalyst obviously oversea earnings can increase and exports. these corporations have done so, so well, against a strong dollar, the dollar was at 2 1/2 year highs a couple of months ago. that could provide another potential catalyst. on the upside. another factor to keep an eye on is the vix here in america. we focus on the vix to give us a gauge of pessimism or optimism. looking at it, the vix now at 12 is still 8% above the march lows. and then put it in perspective, 2007 loews were at 9.97. that means that we got more downside in the vix, so more upside in the stock market for my opinion. >> alan, good to see you. have a good day and great weekend whenever it starts for you. >> thank you for having me. >> that's it for "worldwide
5:57 am
exchange." up next, the countdown to the start of trade on "squawk box."
5:58 am
5:59 am
good morning. sac capital will be arraigned today as federal prosecutors swoop in with criminal and civil charges that could, could dismantle the hedge fund giant. activision blizzard buying back most of vivendi stake. and quarterly results from with seattle favorites, starbucks soars while amazon goes lower. it is friday, july 26th, 2013. and "squawk box" begins right now.
6:00 am
good morning, everybody. welcome to "squawk box" here on cnbc. i'm becky quick with joe kernen, andrew ross sorkin is off today. we're at the halfway point for earnings season after last night's flurry of reports. right now, nearly 70% of the companies that have reported have beat expectations. next week the stret wiet will b getting a wave of quarterly results. right now, let's look at the futures. you'll see at least at this point they're indicated a little low, dow futures down by 38 points, s&p futures off by close to 5.5. and as for the ten-year note, this is really the market the street has been watching so closely. yielding 2.583%. closer to 2.6%, that's when the street has been more concerned. crude oil at least at this hour, if you look, you'll see is down by 79 cents. still wti crude is around $105, just under at $104.70 a

110 Views

info Stream Only

Uploaded by TV Archive on