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tv   Whatd You Miss  Bloomberg  October 29, 2015 4:00pm-5:01pm EDT

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ringing] october stock rally stalling -- emerging-market stocks heading for their biggest drop of the month while commodities from copper to gold sink. joe: the question is "what'd you miss?" the race to raise rates -- is a hike needed more urgently in the united states and overseas? joe: and more on the central bank front -- the central bank in japan meets in just a few hours. alix: the end of an era in china , which is ending its controversial one child policy. how this huge changes moving the markets. but we begin with the markets. we were down, giving back some of yesterday's late rally following yesterday's no decision. , nothing happened but we did see an increase in short and long-term rates. i think the fact that talks are
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holding their gains from yesterday -- i think janet yellen is popping champagne. she has signaled december is on the table and the market believes it. it's not a bad outcome. the chatter was did the rally have to do with stocks and uppite the -- an oil holding the commodity. something to watch going forward. let's take a deep dive into my bloomberg terminal and look at northeast natural gas. gas at two dollars? how about $.98. that's an unbelievable level. has been maxed out and it has been a slow and steady grind lower. is horrible for all the producers in the appalachian basin. andspread between this
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henry have is key for these guys and $.98 is terrible. and just go outside and walk around. it's almost 70 degrees outside. is basicallyuisse pricing and that there won't be a winter this year. alix: nonetheless, it has an impact on the price. joe: i want to take a dive into my terminal 2 talk about gdp. it was mediocre. everyone expected it, but the underlying trends in the economy are not bad. green line's personal consumption expenditures. that's still over 3%. investment in is residential. that's over 6%. .till a solid number these are drivers of the economy, those tailwinds are not
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really going away just yet. that inventories and trade could balance out, but some core things to do with the economy are not that bad. back things out altogether, gdp is 3%, so not that bad. i know that linkedin numbers are coming in. right now, this looks like a huge need if we are comparing like with like. the consensus estimate is $.45, so i want to say we might need to dig a little deeper, but that would be a big feet on the bottom line. analysts were looking for $756 million. linkedin talking about its third-quarter premium subscriptions and how that group for the last quarter. fourth-quarter revenue will be 845 to $850 million.
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whats at the higher end of analysts were looking for, anticipating $846 million. alix: i am looking at starbucks and looks like it made $.43 a share. that's pretty much hang in line with estimates. but it's not revenue came in slightly higher. so there you go. in terms of content sales, which is what these companies live and die by, globally, it was up about 8%. estimates for global were supposed to be about 6.9%, so a huge beat on those comps globally. it's also raising the full-year guidance, seeing about $1.89 per share. going to open 900 stores in china and the asia-pacific. so arevenue was up 110%,
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big opportunity for these guys. it's all about how many stores you are actually opening, but the stock is down by about 3.5% as i look at comps sales in china and asia, that is where it kind of disappointed. banking on it but not delivering on comp sales. flipside, it is the most actively traded company stock in after-hours trade. much shortser how were going into that trade. is a manager at black rock and joins us from san francisco. as we look at the earnings reports, our profit margin's rolling over? russ: i don't think margins can go any higher.
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it is possible they can levitate higher. nonmaterial firms, low wage growth -- it looks like it is starting to roll. the walmart numbers are important and tomorrow, we want to focus on the eci. one of the things that has benefited corporate america is that we have not seen much wage growth. accelerate,ting to good for the economy but it will put some downward pressure on the record high margins. moment where we start to see wage growth? people are thinking it's always around one or and doesn't happen, but is it for real this time? russ: it's reasonable to assume if you have a decent labor market, you will see some upward pressure, but we have cried wolf for many years now and it is worth reminding ourselves that this phenomenon of sluggish wage
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growth for middle income families, this goes back decades. this is not an artifice of the financial crisis. they will take up a bit from these low levels we have had in the last five years. when companies are looking at this as a tail risk, what about the dollar? how does the stronger dollar pass through these companies? this is a great question and one thing i'm surprised by is the last week has been defined by big rally in the dollar. we had the ecb come out and that pushed the dollar higher and the fed statement yesterday. despite that, stocks have rallied. if you think about the headwinds that have inhibited earnings growth, it has been that strong dollar. if the dollar rally reasserts itself, that may be positive for european stocks but it is not clear that it's positive for
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american companies. one thing we have noticed is the lack of companies for guidance. compared with the consensus or the usual number of companies coming out with guidance in september, it was a huge drop-off. did that lack of visibility give investors reason to push stocks higher when they did eat this time around? one of the things that has distinguished this quarter is you are seeing differentiation based on the stock. you seen than 10% of companies with three standard deviation moves and and earnings announcement. of what weltiple have seen over the last several years. so we are going to an environment where customers are being praised or punished pending on the numbers. joe: i want to talk a little bit
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about folio construction. although everyone knows on the are hardly yielding anything, there's a negative correlation with the stock and are serving as a hedge to portfolios. last week, we talked to a fund skeptical that over the long term this idea will work. that data is based on a 35 year time of declining real yields and low levels of correlation with lawns outperforming cash, then this is challenged if that starts to go into reverse. so to place government bonds in strategic allocations is open to interpretation. joe: how confident are you that stocks bonds -- stocks, bonds and construction will work to overturn volatility? russ: we should be home about
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our ability to forecast anything. if you want to predict we're going to see the secular decline in rates, you want to be cautious. the counter argument is i still believe a low for long environment does not mean rates won't backup. are going to be in a sub 3% environment for a long time. go back to a simple question. what is the sharp close for investors? it was the fed but today, it's a concern about a slow economy and headwinds from an emerging market. in that can't but -- in that, text, for as long as people hasy about growth, the fed told us they are going to be gentle, so i think growth will be the dominant concern for the next two or three quarters. alix: lots more coming up with russ koesterich of black rock.
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coming up, a bullish bet on a south korea? we will explain why that might make sense, next. ♪
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alix: i'm alix steel. "what'd you miss?" let's get to mark crumpton. mark: president obama says he hopes he can work with new house speaker paul ryan. the president called him yesterday and wish them well. the retiring speaker, john boehner, spoke to his colleagues today, receiving a standing ovation. he says he leaves congress with no burden and no regrets. u.s. secretary of state, john kerry, has been in talks in the
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anna today aimed at ending the syrian war. the meeting included russia and for the first time, it ran. war hasan the civil killed more than a quarter million people. a military judge says a guantanamo bay detainee cannot fire his lead defense attorney. the ruling was made in cuba. he is one of five men accused of aiding the attack. he says in the attorney would have significantly delayed the trial. airport is open again. 15 people were taken to the hospital and one person suffered burns that were not life-threatening. the 767 was taxiing for departure to venezuela when a fire broke out in an engine. the national transportation safety board is sending a team to the airport to investigate.
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that is your first word news. back to you. alix: we are back with russ koesterich, the global chief investment strategist at black rock, the world's largest money manager. let's get an idea of what areas in the world you do like. japaneseverweight stocks. but your big thesis here? there are a couple of arguments for japan. so far, the japanese market is up about 8% or 9%. what we think will continue to power that market forward are three things. cheap valuations compared to other developed markets, accommodative monetary policy, and a pronounced effort by japanese companies to take advantage of low rates to buy back stock. that has done two things. one is power per share earnings growth and another is raise the air flow equity. it seems like japanese
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companies are not deploying the cash in japan. it seems like they are spending a lot of that money overseas. companies might be making a lot of money, but they are not using it to invest. what kind of pastas that give you? fair that is a completely question, but we see the same problem in the u.s. they're buying each other and not by -- but what they are not doing is investing in the long-term. that's a reasonable concern, but i would not limited to japan. joe: you like south korea. what do you see happening there? russ: one of the most frequent questions we get is is it time to get back into emerging markets? i think the answer is it depends. this is an increasingly heterogeneous asset class in the outlook for china is different than the outlook for brazil.
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where we see better opportunities today are in asia. .orea is an interesting case the market is cheap and we think you can see some domestic growth and it does look relatively attractive. scarlet: would you even consider korea and emerging market? would not be considered a developed market? russ: that senator sting question and the definitions get a bed blurry. we have to rethink the whole category and focus on sectors and things rather than getting caught up in developed market or emerging market. china, souths of korea is china's third-largest training -- trading partner. what kind of risk can you expect there? russ: china is definitely a risk. including places like taiwan. our thesis on china is that china will continue to slow.
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they are trying to engineer a multi-year shift away from consumption to investment. to continue to decelerate but we don't think there's going to be a hard landing. part of the reason for that is china still has tools at their disposal, both fiscal and monetary to mitigate that slow down. how you have talked about you don't think you should view emerging markets as a homogenous asset class, but some of these have really gotten slammed, whether it's brazil, turkey or malaysia. what to you want to see in those countries before you say those look attractive? question.'s a great there are one of two ways that could go. one way is that price simply get so compelling. even countries such as the one you named are cheap relative to developed markets because
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developed markets are getting more expensive. they are not as cheap on an absolute basis of we had -- as we have seen. so one way to get more constructive is to wait and see if prices go down even further. i think the challenge is, you have some countries like india, mexico, and to some degree, china that have embraced reform, but others have not. you want to see some evidence of longer-term reform to turn those economies around. scarlet: you also like high-yield. as it is so much more exposed to the energy sector, does that make it more or less attractive as an asset class? i think it depends what else you own any portfolio. even the selloff we've seen in the pat year, the yield that is available is attractive even
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when you take account for the volatility. you have to recognize this is a more volatile part of the fixed income space. you also need to recognize that with that credit risk is a higher correlation to equity. so going back to our talk about the world of treasuries, in those instances, you may be better off with more of a duration position as a -- as a hedge. talking to you. thank you so much. always a pleasure to get your take. up, does the u.k. you a rate hike more urgently than the u.s.? we will discuss. and we want to check on the shares of linkedin and starbucks -- linkedin raising its forecast and starbucks first quarter forecast missed estimates as well as comps sales in asia. we will be right back. ♪
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scarlet: i'm scarlet fu. "what'd you miss?" we have the three shards -- three charts that show you why the u.k. need to raise rates. joe: this is a fascinating topic because you expect the fed to go first and clear the way, but more nor people are talking about the people that the boe might have to move first. one interesting thing is how much stronger at the u.k. participation rate is. we all know how the u.s. participation rate is at multi-decade lows. they are hitting new highs in the u.k., so to the extent that represents anything cyclical, the u.k. has a lot less of it
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and thus more pressure on inflation and wages. on the labor front, it has the go-ahead. maybe on the inflation front. but they are both vying with a 0% inflation reality. prices for services and goods, both countries are seeing negative growth. but it is lower in the u.s. than the u.k. becomesw the question productivity. we have seen productivity and wages not move in tandem for decades. to the u.k.'s productivity, the hypothesis is their story has been so much weaker that when productivity snaps back, it will be that much more for osha's which could lead to higher inflation down the road. that could be a much faster track. governor carney, the
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at the bank of england was hired in a very high profile way. conceivable he could do his whole five years and never do a rate hike, which would be pretty amazing. you wonder if he has an itchy finger or not. scarlet: one thing everyone remembers, especially since the financial crisis began, anyone who did raise interest rates, ecb undereden or the jean-claude tree shea, they had to cut rates again. you don't want to have to do that. place ifis a lonely you are the only one hiking. if you look at the work function for the u.k., you don't see a 50% chance of a rate hike until july of 2016, way after the probability. if you recall early last year, mark carney said the rate
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hike might come sooner than the market expected and the market totally slapped him down. he wanted to prime the market for a rate hike and now the market does not think a rate hike is coming anytime soon. and what is the impact on the currency? you could see the impact on the sterling and that's not necessarily what you want to see at this stage of the rate hike cycle. scarlet: the federal reserve reminded us yesterday, whatever it does has an impact on the rest of the world. the u.k.'s role is a lot smaller, meaning they don't have to worry about the implications overseas. what kind of ripple effect it would have the way janet yellen had to. i think they would like to go in december and clear the way for everyone.
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i think with the ecb easing or possibly easing in december, and if the fed doesn't move, i don't think the boe wants to be the first out of the gate. that seems kind of dicey. in december, you could have an ecb that's easing and a fat hiking at exactly right at the same time. joe: it could be a really fun month. scarlet: we are going to be busy for sure. we have much more coming up. china has ended its one child policy. you can now have two kids there. we will discuss the implications of that, next. ♪
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scarlet: i'm scarlet fu. "what'd you miss?" let's get to mark crumpton. want the jobnot initially, but now paul ryan says he is realistic about partisanship in washington. in his first address as speaker, betold his colleagues, let's frank, houses broken. but he added we are not settling scores, we are wiping the slate clean. in his farewell address, john boehner called the house the great embodiment of the american dream. britain's defense ministry says the navy has rescued 500 41 people this week as it carries out operations in the
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mediterranean sea. the ministry says personnel aboard the ship cared for refugees before transferring them to a norwegian support vessel. they've rescued almost 7000 asylum-seekers since may. , passes remain impassable due to flooding. residents today are attempting to navigate knee-deep floodwaters. the floods are expect that -- the rains are expected to continue to saturday. a florida man is waiting to hear if the stand your ground law can be used in defense or a movie shoot he -- shooting theater. -- for a movie shooting in a movie theater. that is your first word news. back to you. scarlet: let's get a quick recap on how u.s. market closed after staying calm for most of the day. we rallied toward our highs of
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the session and say little changed. equities didn't do much in terms of losing ground. they held on to most of their gains yesterday. treasuries extended their losses and in the after our trade, big losses for solar city. they have had it increased investment in rooftop production panels and the stock is tumbling down 17%. starbucks off by 3% after same-store sales in china missed estimates. its forecast also coming in lighter than anticipated. finally, linkedin is the big winner of the after-hours session, up by more than 10% after its earnings per share blew away estimates. linkedin also reported -- i should say gave in annual sales forecast higher than what analysts were looking for. alix: i want to take a deep dive
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into my terminal now to something really affecting the oil market. it is mine valley water levels. this is a max chart of the water levels that basically goes through germany and transports products to places like france and sweden. it is now at a record low at about half a meter. this is significant because we see a buildup of cargo in ,msterdam and rotterdam distorting the oil market, making it look like we have more product than demand. but if you cannot get it down the river, you cannot transport it. joe: definitely one of the best/nerdiest charts we have had. alix: a huge deal in the oil market. scarlet: a central bank lollapalooza -- last week, the -- and the boj tonight here's a shot before the announcement.
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both left higher after shinzo all day was elected in 2012. to the extent that sentiment has a bearing on how much people spend, this would suggest more stimulus might be needed. joe: that is a great chart and shows a complete reversal of what we have seen. one of the big stories today was the official end of china's one child policy. this is the new zealand dollar versus the u.s. dollar. when theee this jump announcement happened. why did it jump? new zealand is a big exporter of dairy products to china and dairy is a huge part of new zealand's economy. demographics are slow moving, so you would not expect this to have an impact right away. but maybe in the margins, theoretically there will be more
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babies and more consumption of new zealand dairy. a fascinating picture. chinese moms don't trust the locally made infant powder. what is the bigger economic impact as china and its one child policy? is an economist at citigroup's global markets. what is your take on the end of this policy? obviously we won't see the effects tomorrow. ebrahim: china's huge story for the world economy. that's one reason we are concerned about the trajectory china takes. there are many other policy measures taking up our mind space. when it comes to this policy, over time it will have a beneficial effect on the growth rate. china is going through its own demographic decline right now but i would be strongly skeptical that it will be a meaningful boost over the next
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couple of years. but long-term, one of the oldstories, could china get before it gets rich? could this change effect that or is it too little, too late? know moreeople who about this than i do say it is coming way too late. there are a number of people that suggest enforcement has tightened in some places while the policy has been gradually loosening. so i am not totally convinced this would be a big positive. scarlet: you can see the chinese birth rate has been declining, so will allowing two children bring an end to a trend that has been decades in the making? we have this x .5% growth forecast from the government, does that include what they see as the intended and if it's of the two child policy? aware,: as you are well the official growth numbers in china are somewhat tainted.
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most of them are fixed. 6.5 percent number is probably fictional. extent itent -- the is achievable, they better get a boost from somewhere and if demographics can contribute, all the better. alix: there was an interesting chart comparing china and japan in their population age and asked the question is china going to be like japan? that has created this longer-term economic malays that japan cannot seem to kick its way out of. of the: that's one biggest questions in the world economy right now. over the last few months, some of the questions we have been facing is not whether china is like japan but is it like japan in the 70's and 80's or japan in the 90's? japan had a decline in growth but it still did ok. of looking atay
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this demographic story is looking at dependency ratios -- ,ctive workers to old people how many active workers are supporting retirees? this chart shows china, south korea, japan, it is all worsening. is demographics just destiny? is her way to thrive and grow when you see this deteriorating dependency ratio? ebrahim: we are definitely seeing an inflection point. at the same time, we see a number of other developer that -- a number of developments. technology is a big factor. i'm not convinced demographics are destiny. so my answer is probably not. in the five year plan, china says it plans to spend more on big data and internet.
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can these sectors employ large swaths of the population the way the industrial sector did in years past? ebrahim: we still have to see the evidence. technology can be very powerful createjust does not that. alix: part of doubling down as they end up spending a lot of money. the fiscal balance came out today and went under the radar. it is quite lower, coming in at a deficit of 690 billion yuan. they are also spending that much more plus a boost to monetary policy. ebrahim: i think it is actually a good thing they are spending more. one thing we have been criticizing is policy has not
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been responsive enough, particularly fiscal policy. that onceging society you take into account everything, it's higher than we thought not so long ago. so fiscal policy has to compensate. alix: ebrahim rahbari is sticking with us. coming up, are the global forecasts to optimistic? we will discuss, next. ♪
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scarlet: i'm scarlet fu. "what'd you miss?" time for a look at some of the biggest business stories in the news. , thecast -- starbucks
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world's biggest coffee shop operator, expects 44 to $.45 earnings a share. the stock is trading down more than 2.5% in after-hours. on the flipside, linkedin expecting its here in sales to beat analyst estimates. the company says revenue will be 2.98 million dollars. its shares are popping in after-hours trading. it off: first solar says at nearly quadrupled. a solar farm in california. net income increased by $3.38 a share. that is your bill -- your bloomberg business flash. we are back with ebrahim rahbari . what does the global growth
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picture look like? there have been so many different scares since we recovered. the latest coming from china. we can't really him down a number. it is the latest, but probably not the last. the global economy has been at its weakest in the first half of the year. maybe the market exchange rate is around 2.5%. like in the last three years, it is quite a bit short of what it has seen. joe: you are at the world bank meeting in lima recently. emerging markets and developed markets. thathere a differentiation people were excited about that were not getting as much attention in the media? say thati would not
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there was excitement about anything. there was excitement maybe a there is but differentiation. challenging.very if you look at eastern europe, it has been doing well economically. joe: places like india and mexico, people are throwing in the towel there. ebrahim: expectations adjusted maybe a year ago, but even those laces are not exactly exceeding expectations. alix: can you make a distinction between margin markets actually versus those that are actually holding up like eastern europe? one of the most important stories right now is markets in crisis or recent crisis. there are commodity exporters
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and both countries have really big balance sheet. a lot of leverage as a percentage of gdp? ebrahim: exactly. does tend to be either in asia or latin america. those doing somewhat at her, eastern europe comes up. for those countries that are highly leveraged, do things get worse before they get better? ebrahim: you mentioned the growth forecast. of developed markets, we should expect things to take quite a while before they improve. joe: what is not priced in? it's not like the old don't know it's a complete flaming fire. researchyour economic pointed out? ebrahim: people are giving
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policymakers the benefit of the doubt. the understanding that china is to some extent is not collapsing and the fed maybe won't hike until this week and the ecb is doing more, it has then enough for investors to be somewhat sanguine. does that mean no one really cares about the fed hike mark is that not actually what is important? ebrahim: the first hike doesn't matter that much. market hasport from been there is a big role for the central bank to be supportive. but whether they go in december or march is not a big deal? up seeing we ended the bottom or do we see a huge leg up and dollar strength? hasn't been a good correlation with exports. risk?t a hidden
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ebrahim: you see quite a bit of adjustment -- countries in the worst position tend to do that. there's a lot more scope for weakness and they only have exchange rates as policy or adjustment. so i would expect weakness to return. alix: great stuff. is sticking with us. the bank of japan meeting is tonight and we're going to get his take on possible further stimulus from the central bank and whether it is working. ♪
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scarlet: i'm scarlet fu. "what'd you miss?"
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tonight marks the most anticipated bank of japan policy announcement since last year. ebrahim rahbari is our guest right now. which one is a bigger constraint -- his willingness or capacity to do so? ebrahim: i think for right now, he is at pains to stress they have lots of scope to expand policy, so it is a choice. scarlet: his willingness? do you expect a halloween surprise? ebrahim: i do not expect a surprise, but it's a question of when, not if. sometime before the next spring negotiation they will have two respond. last few years, we have seen incredible weakness from the yen. from less than 80, to about $1.21 to the dollar. in this environment, does yen weakening help to boost trade?
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it actuallysay doesn't do very much. the weakening of the currency is a minimal effect on the trade. where do you come down on that? ebrahim: somewhere in the middle, unhelpfully, if you like. we see these policies being pursued with some payoff both on the inflation side and on relativity. in cases like japan where we see these big depreciation, these effects are short lasting. the mothereryone and uses the yen for their carry trade. is that a good thing for the bank of japan? are there unintended consequences we have not taken stock of yet? certainlyhere are some concerns in the most important concerns right now are higher inflation due to the
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exchange rate pushes up prices and there have and concerns that the prices of household goods are going up. but weaker exchange has been part of that story and the only shot at success they have is if it also leads to a weaker yen. alix: you have a weaker yen and an aggressive monetary policy. we continue to see so much direct investment going to other parts of asia. do these policies were to stimulate the domestic economy when it seems like direct foreign investment says otherwise? ebrahim: they have not worked as well as policymakers hope. japanese stock prices have done pretty well. alix: and corporate profits. ebrahim: corporate profits are up but overall, it is in line with what we have seen elsewhere. monetary policy has come up short against the expectation.
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mean?hat does work japan has an incredibly low unemployment rate. great but it has a high standard of living by any standard you want to measure. so what does it mean? what does it look like? ebrahim: the first aim is to overcome deflation or the deflationary mindset. growth has been an objective, so it above the 0.5 scarlet: [inaudible] ebrahim: equity prices have responded fairly favorably, but there is no longer this feeling that he's in a point to transform monetary policy. stressve tried to
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industrial production isn't everything that matters in modern-day japan and we have been saying it is the service sector in japan that has to shape up. thank you so much for being here and talking through all these topics with us. ebrahim rahbari from citigroup. we will be right back. ♪
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scarlet: i'm scarlet fu. "what'd you miss?" while we were talking, valiant shares went off a cliff. stock isee how the performing in extended trading. men on the latest trade because that shows the movement. that is the big drop-off in the
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stock is down dramatically in after-hours trade. alix: this was on the news some insurers will be reviewing some of their specialty pharmacies. that is on top of the news that terminatingpts is its contract with fillet or. fillet door. the snowball is rolling. one bad thing, another bad thing and now you have pharmacies looking into this saying i don't know if i want to do business with these guys. headline risk is a big problem. the employment cost index is out at eight: 30 a.m. tomorrow. that's another way to measure the much-needed signs of wage growth that the fed on notice. other data out tomorrow --
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personal income, core pce, i is some milwaukee, chicago pmi -- a huge day for data. exxon, exxon, exxon -- loo >> bonsoir.
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respect toall due jeb bush, we would critique you, but our french workweek is just about over. >> oui, oui. ♪ the music is as funny as anything. mark: we just flew from colorado becau


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