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tv   On the Move  Bloomberg  July 21, 2014 3:00am-4:01am EDT

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cairo. due in the egyptian capital to broker a cease-fire. the death toll now stands at more than 500 palestinians and 20 israelis killed in almost two weeks of fighting. >> thank you. chief executive phil clark is stepping down after four decades at tesco. he leaves a company struggling to battle the discounters. more on the trials and tribulations of tesco and the hopes for a new leader, dave lewis. back to you. >> thank you very much indeed. openingby the initial onry in europe, a vol spike friday, seems to come back down and little bit. people remain largely cautious.
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find out how the story is developing. jonathan ferro at the touchscreen. dip to actually buy. the ftse 100, on the week, still eked out a gain. pretty much dead flat. the dax down by .1%. cac 40 pretty much dead flat. look at how u.k. supermarkets react because we got a profit warning for the first half. this, of course, geopolitics is always a concern. russian equities, look out for that. down almost 20% this year. one man that caught that rectally was john from deutsche bank. guy johnson will be speaking to him. and heed the may rebound is looking for the micex to be
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down 10% on the year. this one is about sterling, just shy of 1.71. a big week for this trade. u.s. cpi out tomorrow. for three months, the figure has climbed higher. janet yellen calls it noise. if it goes any higher, the noise is going to get louder and she might have to listen. on the other side of the trade, it is about the pound and u.k. gdp friday. has not of england given any indication of when we are going to get the first rate hike. did anyone put up their hand and say, it is time to hike? >> we will wait and see, but it is certainly a possibility. we look forward to that number later on this week. more immediately, calls for tougher sanctions on russia as world leaders say they are almost certain that russia supplied separatists in ukraine with weaponry that shot down flight mh17.
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ryan chilcote was one of the few journalists who spoke to the ukrainian prime minister following the crash. he joins us now for more on that interview. here for perspective is jerry fowler, the head of global equity strategy at bnp paribas. >> we have countries like britain, the netherlands, the dutch wishing very hard for sanctions. all of the western european leaders calling putin, many of them speaking together. it looks like we might have something of a united front this time around. the question i would be asking myself now is what are the sanctions likely to be? thehey come on tuesday, talk right now is the last time they introduced sanctions last week at the european union, they said they would sanction more individuals and more companies and come up with that list by
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the end of the month. the brits one that lists to happen on tuesday. who is going to be on it? will there be more individuals that would not have been there because of what happened with flight 17? is there anything that president putin can do to avert more sanctions now? he had an address last night on the presidential website. he said that there must be an international investigation and that security must be guaranteed. he said that the exclusively-it limited negotiations going forward must be used to solve this crisis. the fighting needs to come to an end. there is still fighting on the ground. people wonder if he is being genuine or disingenuous. prospect ofhas the really pushing the russian market and russian companies. serious.ounds pretty it is serious.
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geopolitical tension is rising. yet i look to the markets last week, every day i check in and i am looking at the market reaction that does not seem to compute with what we have got from ryan. why the disconnect? >> a lot of the geopolitical risks we are seeing globally are still very isolated in their region. mh17 isticular one with potentially an addition to risk premium for europe. we may well have seen that they can over the last few months. u.s. equities have responded by underperforming by about 5% in the last couple of months. some of this is coming through much more slowly than single day events in terms of escalations rising and risk rhenium rising across europe. globally, i do not think this situation has any implications just yet. globaloes not slow the economy down. it barely budge is the needle in terms of what we are looking at. >> at this stage.
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geopolitical tensions are always difficult to forecast, but it that way.r >> does this strike you as odd? >> i do not think it does. at the moment, this is still a very region-specific topic. it is not something that has global implications. >> what would it take from the eu leaders when they gather tomorrow? it sounds like they want to come up with more -- we could get .ome more u.s. sanctions what would it take to change the dynamic? >> the big story on this topic is whether the sanctions are strong enough and harsh enough for the russians to do something . that has direct economic implications. sanctions into russia have significant implications in russia and the surrounding region. those do not necessarily spill out unless there is more retaliation. >> people are concerned that the
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deflationary story is exacerbated. could this be the risk that tips us into that scenario. and would that be big enough to move the needle? i am looking for the point at which that starts to happen. broader geopolitical and other emerging market risks are having an impact. when you look at the flow of funds around the world, there is still a lack of motivation to put money to work in emerging markets. the money that people are saving in looking to invest in pension funds and building up is still coming in due to developed markets. particularly in europe, one of our favorite regions, which is keeping the euro high. while the euro is high, you are going to experience this inflationary pressures -- disinflationary pressures. they will not react with a purchase program unless there is short ofonary
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expectations. in the meantime, it is this slow, steady recovery. >> good to see you. you will be back with us. ryan will be with us throughout the morning. we will be back in a couple of minutes talking tesco. ♪
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>> good morning. welcome back. i am guy johnson here in london. it all covered. let's focus on a couple of
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stocks we are watching this morning. tesco and sainsbury's. tesco announcing that dave lewis is replacing their chief executive and that sales and profit are below expectations. ie there is no recovery still coming through. let's find out what is going on with caroline hyde. some people have been suggesting that clark was going to have to go. he may had been given a little bit more time, but the last shareholders meeting was a brutal affair. >> it certainly was. the reason was because sales were continuing to fall. chief executive of tesco for 3.5 years and he eventually hand over the reins in october. he has been at tesco for four decades, finally agreeing to leave, handing over the reins to dave lewis of unilever, a man he worked closely with. and ther of dove soaps
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like, a company negotiating with tesco. clearly, investors wanted to see a change of the guard. they wanted fresh perspective, is what they are calling this morning, coming out of tesco. up to bes was lined taking over. we knew he was one of the favorites. use to be at tesco and took over the likes of dixons. other names on the list were internal candidates such as tim mason. clearly, they wanted an outsider, a breath of fresh air to help turn this company around. only are we having use of a new chief executive, we have news of a sales warning. sales are not living up to expectations. october is when we also get that first half sales update coming from tesco as well. >> interesting to see how the flows are this morning on the ftse.
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>> you are right. clearly, investors are jumping that dave lewis, a and, will guide tesco higher, will be able to invest as they have been doing. this is a company that is piling in billions of pounds to try to improve the stores, exiting certain international markets like the united states and japan, was still making inroads into china and the like. they want to see a continuation of the turnaround starting to work, wanting sales to start to increase again. this is a company with more than 60 billion pounds worth of sales a year. they need to start grabbing that market share from the at the bottom and the top. tesco needs to react to that. they are hoping that dave lewis can enact that change. shares driving higher, but they are slightly worried about the retail environment in the u.k. food prices have been on the
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downward trajectory. is that going to be hurting sainsbury, morrison's going forward? >> thank you very much indeed. is head of global equity and derivatives strategy at bnp paribas. caroline just talking about what is happening to tesco. you we could have some inflation at the moment. that could be good news. a central bank could be one of the first to raise rates in this economic cycle. put the u.k. in perspective for me for the rest of the world. you still see the global economic growth story on track. we talked about geopolitics this morning. some central banks are going to be raising rates. the spread between those and the ecb is going to look bigger and bigger. >> there also divergences and policy -- in policy.
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the u.k. is expected to be one of the first of the big economies to raise rates. investorsulti-asset nowadays are looking at risk factor. i would say that in doing so, you need to assess the gaps. while the u.k. has potentially the best-performing economy in the detent, there is still a large gap. it is still possible the growth could continue to be strong without causing deflationary pressure. this year.e rises i do not know the meeting specifically. >> what i am fascinated by at the moment is this relationship between risk and central-bank policy. it seems to be the only factor that is out there in terms of determining investments. that it is suggest going to be gradual.
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you believe the rate hike in the u.s. will be gradual and in the maybeone, it will be precisely nonexistent. in that environment, how much longer to i cross my fingers and continue to believe that equities go higher? >> when you look at the outward gap in the u.s., the business cycle suggests we could have a growing economy for another two or three years before eventual rate hikes suppress the investment. we have not really seen investment picked up yet. what we are moving from is a central banking policy around the world that is being more led by government. in the u.s., there is more of trying toerms reallocate money from wealthy back towards people. >> we could use the tax code to do that in the states. a 35% tax rate
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for corporate, which is higher than anywhere in the world. a complete rewrite of the tax code, which is widely expected at some point, i think it would be very likely to include a reduction or a holiday for repatriation of foreign profits. all the repatriated money last buy backused to dividends. it was a bit of a failure in terms of being a stimulus. what they could do this time is what the ecb has done europe, provide funds into the system but make it a requirement that the money is used in a certain way. used for capex over twofollowing 12 months or lower employment wages. there may be more incentives to kickstart money in the u.s. .> that sounds great
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that sound something that may raise the potential growth rate of the united states and something i would want to talk about. the problem is, as we learned last year, the taper tantrum. markets really struggle in these transition periods. we really feel like we are in a transition period at the moment. we are going from the market with incredibly chief -- incredibly cheap money to the tax code lowering unemployment. getting from a to b sounds really simple. you make it sound simple, but it is not. >> the chinese government suggest you can do it well for a few decades before causes problems. let's say there is a bound of confidence they can potentially work with over the next couple of years. it appears to me that the bias is for accelerating growth. there are reasons why -- around that. ,ost investors carry strategies
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risk management strategies. it is important to have a view on each of those. we have favorite trades in each of those areas. out. just balance it if i have a distribution curve and i am trying to figure out how fat details are at this point, how fat are the tales? what they are well truncated by a man -- an amount of loose policy. >> monetary policy and that transition is difficult to manage peer and how fat good those tales become? >> i think the fact that the policy is on the way means that they have room to reintroduce it. is the point of trying to remove some policy stimulus now while the data is improving. if the data deteriorates, they have room to accelerate. it is not so much that the market will leave the policy, it is that the policy will leave the market. if you look at the distributions
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in all asset class volatility curves, the at -- the market has priced out the worst of the negative deflationary risks even though they do not yet believe it is going to free up the upside. are connected and the comes.d moment sometimes >> i do not believe that is coming in the next couple of years. >> that is jerry fowler. let's move on. let's turn to dubai. their biggest publicly-traded builder continued to drop after an investment company failed to reach investors over the weekend. this stock has had a great run of late. let's find out what is going on. what does this morning bring for this stock? >> good morning. yes, it shows that investors today are still unsure about what to make of the announcement that came over the weekend here.
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said ity, the company is considering several strategic options for its investments. that came after the stock market suspended the share last week, on thursday. the company responded to reports saying they are in talks with the outgoing ceo about buying at least half of his stake at share.5 to 6 dollars a that was higher than the market price. say basically that the outgoing ceo is the biggest shareholder in the company and he owns about 29% while the state controls about 19% of the company. a lot of investors were looking for a confirmation from the deal but theis
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company said it is considering several options. the fact that the borst went as far as suspending the shares ticked off so many people that the regulator will be a lot more stringent about disclosure. a lot of criticism for dubai in the past month or so that disclosures were not adequate from the companies. that dubai wanted to send a different message. >> ok. thank you very much indeed. joining us from our dubai bureau. we are going to take a break. stay with us. we will be back in a couple of minutes. we will see you then. ♪
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>> good morning. welcome back. you are watching "on the move." we are right here in london. 30 minutes into the trading day and how are things shaping up? we are about 20 minutes into the trading day, to be honest. 25 minutes. european indices are lower. cities are fighting for a bigger piece of the wealth held in the outlying countries. julius barr reported earnings this morning. we got to hear from its ceo. manus cranny has the details.
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suissey dougan of credit could deliver -- at julius bar is doing deals. bank lumi have done a new deal. the cost of integrating the business, the merrill lynch business they bought, the cost of that is coming down. that is giving a nice boost to the markets this morning. margins of the merrill bankers are coming into line. when i asked boris about execution risk come i he seemed execution risk, he seemed upbeat. >> i think it is going a lot better. today, i cannot speak to words of any more operations. we have a substantial number of people on both sides that have come together and are working very well in almost perfect harmony.
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>> topline, dealmaking with the bank, assets rising, profits rising, margins moving higher. russian business is on hold for the moment. >> thank you very much indeed. see you in a moment. ♪ .
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>> welcome back. you are watching "on the move." i am guy johnson. the markets, 30 minutes into the trading week. you are seeing rising in a critical yields. we will get more details. with the stocks. >> one stop on the move is north. it is tepco. the ceo plans to leave. what is that worth to the market? 10e market has gone up 4 million pounds.
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is worthn is saying it every penny. a surprise for a lot of people leading up to the announcement. they said the market has gone higher. sbury, morrison are the two biggest decliners on the ftse. what we have from tesco is a warning. a very simple one. if tesco is suffering, what is happening to sainsbury and morrison? >> thank you. let us talk about the top headlines. a criminal investigation into alleged manipulation for a benchmark. this is according to a person familiar with the matter. an investigation could be as soon as this week. authorities haven't been investigating if the trade is rigged, $3 billion.
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u.k. said it was looking into the matter in june 2013. u.s. security council is thecting concern over escalation in gaza. the palestinian death toll is said to have risen past the 500 mark. has squads military infiltrating. facesent vladimir putin growing international pressure to respond to europe/ukrainian claims that the malaysian flight was downed by the russian military. the u.s. secretary of state john caray said yesterday on "meet the press." chris there is a stacking up of evidence that russia needs to help account for. we are not drawing the final conclusion here but that is a lot that points to the need of russia to be responsible. >> staying with that story, eu
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ministers meet tomorrow and sanctions could be on the agenda. and in the wake of the malaysian air tragedy, writing and chilcote -- a ryan chilcote chilcote sat- ryan down for an interview. >> this is not our war. [no audio] the what is happening in world. member -- a permanent of the united securities counsel constantly violating international law. it was russia. russia who send their
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troops to crimea. it was russia who grabbed the land of independent country. stilla russia who supplies weapons to these russian alleged terrorists. it is a russia that finances of them. >> do you think it will be a turning point in this conflict? >> let me end. this is not just the war between ukraine and russia. it is a crime against humanity. realizing we need to stop this mess. look, first of all, i want to convey my deep condolences to the families who lost their beloved. tragedy, this is not a local conflict. it is a worldwide problem.
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it needs to be fixed and resolved. >> what do you think about the idea of a cease-fire? we already had it 15 days ago and it was not successful. ukrainian military stopped shooted everyels time and every minute. done, russia be must withdraw their agents. russia must stop the supply of lethal weapons. russia must stop financial support of these rebels. russian president is to condemn this terrorist. ukraine andh the russian forces, we are to restore control over the border. and ready to invite anyone from
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the international community. first, we needed to ds glade the situation and make real steps. >> is it fair to say that you think that maybe is the time to take it to this separatists? not a cease-fire but go on the offensive? >> it is fair to say it is high time for russia stop supporting terrorist. if they stop the support, and implication of this will be very simple but effective one. they will stop the shooting. they will not have shells, bullets, tanks, and missile systems. nowyan chilcote joins us for more on that conversation he had had over the past you days. back from the ukraine, the situation continues to develop.
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he talks about stopping bullets from flying. what is happening in the area? on recoverings bodies which is grizzly. bodies have been gathered now. they are sitting in refrigerator well hearts right next to the crash site and they have not been identified. the plan and it is strange it is taken so long is too good to the --lcars to go through a city the plan it is strange it has taken so long and it is to get the railcars for a city. the idea is they will be identified in a ukrainian controlled city. the outrage from world leaders and the leaders of the country that lost people in this tragedy is massive. commentslook at the
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from the prime minister of the netherlands, he is appalled. minister isan prime making pretty serious comments saying the crashing site is -- and to have the pro-russian looking over the site is having criminals looking over a crime scene. >> editorial after editorial i have read over the weekend talking about the fact it could be a galvanizing story for the europeans to get them on board with the u.s. led sanctions. is that what we get this week, tomorrow? >> we had the russian president come out with a statement saying going forward, diplomatic negotiations should be used exclusively to solve this crime -- conflict. he said the international investigators must be guaranteed. the german chancellor and the
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australians and the dutch, he has been constantly on the phone. the question is is it an and is he being genuine? and are they not going to go ahead with sanctions? enoughquestion is, is it it is he being genuine? on theunds like they are same page. maybe not a huge step. many saying they can learn which individuals and companies will be sanctioned as opposed to the end of the month and maybe more serious approach in that sanctions list that what we were seeing. and that maybe we will see a ban on eu weapons sales which will be difficult for france. really hoping. there is a moment of we might do that to the u.s. introducing sanctions and they have a way of coming out and announcing their own sanctions.
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but, you never know. it is 28 countries. >> you have a country like the netherlands sitting there. huge losses, very personal, very painful. it will be tough for the germans and italians to turn around -- >> the prime minister of the netherlands, it is a big business partner of russia and one the most pragmatic and engaged politicians when it comes to russia. the year before last as an was attendedm, it by the german chancellor and the netherlands prime minister and the fact he is so upset right now. you are right, it will be very difficult for president ho llande. they need the money and they do not want to rename the contract was >> will watch the coverage. you will be there for us to make sure we are up to speed. the storytinue with
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we have been watching over the past few days. the headlines. more than 500 palestinians and 20 israelis have been killed in two weeks of fighting. u.s. secretary of john kerry traveled to cairo for a cease-fire. elliott, bring us up to speed. , those casualty figures are headlining and a number of incidents today at various points. some areas in the south have been close as well as the as really forces described as that theyy are saying terror squads 2 entered from northern gaza. one was hit in an air strike and soldiers engaged and killed. there are some reports of israeli council tease but we do
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not have specifics just yet. fierce fighting continues to go on between the israelis armed forces. >> let us talk about what john kerry is going to do and what his presence is going to mean. talking to the egyptians, critical at this stage. they are one of the lead countries in negotiating some sort of cease-fire. about his agenda and the likely outcomes we will see. his agenda is clear that he is coming to cairo and jerusalem tomorrow showing how serious the united states is taking this current round of fighting between israel and militants. reward terrorism. there cannot be a precondition demand that will be met. we supported the egyptian initiative joined in by israel and others to have an immediate cease-fire.
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we are working on the cease-fire very, very hard. >> the u.s. is defending israel's right to defend itself. the u.n.echoed by secretary-general. -- u.n.a secretary-general was in qatar to talk about a cease fire. he appear left empty-handed. not clear that trip was worthwhile. you have to remember that hamas thathe muslim brotherhood has been crushed by the egyptian president no longer are friends with the egyptians. probably their best allies. the qataris have a history. americans ago to people. guy? >> thank you very much indeed. elliott gotkine.
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we are going to get your investment perspective. how do you trade around these stories? a will get the view of goldman sachs asset manager. stay with us. ♪
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>> good morning and welcome back to "on the move." i am guy johnson. tougher sanctions on russia. world leaders are almost certain russia supplied the weapons that shut down malaysian flight 17. let's talk about that story. we have katie koch.
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she is at goldman sachs. good morning. we want to talk by international. we are in a world where geopolitical risk is clearly dominating the news. what is happening in the ukraine and what is happening in the middle east. the big stories with potential ramifications. i look at the market reaction and yes,, it has spiked a little bit. markets moved a little bit. around the your head differences between geopolitical risk and the enormity of it and the market reaction? >> i very much agree we are looking at a market that is exceptionally rich in risk. offsetting that is there've been pretty good macro news coming
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out of the mini major economies especially the u.s. what we are doing for clients is trying to make sure we have diversification going and their against thathedge risk. your first line of defense will be broad diversification. for example, good macro reasons you will not want to on government bonds in the u.s.. it makes sense for clients to have exposure to those access. say is wething i was have a strategic allocation to commodities. it turns out there'll lots of finite resources. they can operate as a good hedge. >> you divers fight your portfolio. in a world when we are trying to understand -- how banks will be playing in the next 12 months. what a janet yellen said last week, will it change anything? >> her testimony was
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appropriately balance. she gave herself a maximum room. she is quite worried about there being a false dawn in the recovery. on one hand is a lot about the jobs data and unemployment has fallen to 6%. you have nonfarm payrolls are being added on at 230,000 jobs a month. very strong. you do not see a lot pickup in wages. some added has been our time rather than full-time. back, something the jobs data is positive. if we couple it with retail sales and car sales and general confidence in the u.s., we think we are in a phase of robust it expansion. we think rates will rise in the middle of next year. >> everybody is saying the rates will rise in the middle of next atr a u.k. will see hikes
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the end of the year. do you think the reality is starting to have -- is it fully priced in yet? more you look at markets, are dovish than what the fed is doing. lot on start to rise, a investors will be caught out. we aretfolios, the way positioned is to be underweight. drawnmore of that will be and overweight risk assets. we think it is the right positioning to have into this environment. >> if i look back over the last six months or year, the kind of experiences we have had, you had the crushing realization the story is not what you thought it was. how does that work over the six months? ,s we get to the realization the anesthetic applied to the market over the past few years,
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as we come out of that, looking around us -- how difficult is that going to be? a level of volatility still on the floor. equity markets even with the geopolitical risk seems to be ignoring it. -- and normality returns, how different does the world look? disruptive. also, there are asset classes in second be ok in the transition and i think equities are one of them. there are other parts of the world where we do see better valuations. we are overweight and those asset markets. >> that was janet yellen, not me. u.s. equities, nobody said they equities.ed european >> they have a once again and that has surprised many people. there's a good reason.
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we do not think it will be driven by multiple expansion. while we are early in the earnings season, you have seen good numbers coming out of the u.s. reporting, 80% of fortune 500 companies have seen a expansion. from a valuation perspective, we are more positive on europe. some of our portfolios would be more overweight. >> has a be easy to take? >> europe has underperformed. we spent time with our clients. the valuation will come for roof. >> you can convince them? us. think they trust where we see good value in the market. they have concerns about valuation and the u.s. and they are looking to diverse affiant their exposure. in europe, we see good companies and so do our clients.
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>> thank you very much. katie koch joining us from goldman sachs. international. we'll take a break. we will be back. ♪
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welcome back.g, let us talk about companies on the move. [indiscernible] that is according to a bloomberg
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survey. they were fined billions of dollars. they will report results tomorrow morning. rupert murdoch's 21st century to use as anales offer for time warner. that is for people familiar with the matter. the assets could be valued around 10 billion euros. one company has agreed to sell for $3 billion. it will sell the assets to american group hk steel. it has been looking to sell since last year. we will show you what is happening with the markets. equities, we are trading a little low. around 31%. 0.5%. bonds are interesting.
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you have yields higher. we will continue to monitor the stories and bring you up to speed with what you know. that is it for "on the move." " will be back with "the pulse. ♪
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>> they waged the war. they supplied care were. they were -- they supplied terrorists. the ultimate goal of russian is not to have ukraine on the map. >> ukraine's prime minister tells us russia almost certainly supplied separatists with the weaponry that shot down mh 17. this is a call for tougher sanctions to him -- to be impose on moscow. israel expense is ground assault. it escalates as the death toll rises past the 500 mark. in a company


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