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tv   Bloomberg Markets  Bloomberg  January 26, 2016 10:00am-11:01am EST

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♪ from bloomberg world headquarters, good morning. i am matt miller. an hour into the trading day, u.s. markets are mostly higher. but there was carnage in asia pay the shanghai composite plunged more than 6%. so our fears of a china contagion coming to an end? aig will return $25 billion to shareholders. his this move enough to silence criticism? apple said to report earnings after the bell. down 13% the past year. can apple regain momentum and keep iphone sales growing? desk head to the markets where ramy inocencio has the
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latest on data. are looking at the consumer confidence index to come in for january. -- 96.1 is the expected number. in december, it wasn't optic from november. consumer spending makes up about 70% of the economy. this is an important number. americans have been optimistic. the job market improving as well as cheap fuel. oil and gas helping the pocket book. i want to point out that the university of michigan came out with its preliminary number with a 93.3. that was its highest reading in the last seven months. they say americans expect
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cometion to calm -- to in around 94. number,it for that let's look at what is happening on the markets. dive into my bloomberg terminal with the imap. this is the s&p 10 sectors in health. nine are in the green, let it of rising oil. energy up 1.4%. consumer staples at 1.2%. utility at 1.2%. let's look at the markets. markets earlier were in the red, but they switched into the green. those are rising. nymex crude, 1%. positive territory around the 6:00 a.m. mark. for the most part, holding on to
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gains into the start of trading. matt: one of the reasons for the in the markets pay the consumer confidence number eight -- the consumer gain into number a 98.1. what do we see throughout the commodities sector? ramy: it looks like things are on the rise. o, if you want to go into my bloomberg terminal, aside from have greenine, you across the board. brent crude up 1.7%. that.k we just had nymex gas rising for most of the day.
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1.2%.about matt: thank you. consumer confidence up. not the strong gains we saw earlier. let's check in with bloomberg first word news. vonnie quinn has more. vonnie: islamic state set up operations command to plan more terror attacks according to the europol. it says the islamic state wants to carry out similar to the attacks in paris. a meeting today highlighted the little-known relationship between the vatican and iran. iran's president had a 40 minute meeting with the pope. he asked the pope to pray for him. greek prime minister to tsipras needs to -- prime minister
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tsipras needs to convince authorities that he is carrying out with this promises. we are waiting to see if he will fix the greek pension system and market.he labor another snow day for federal d.c. s in washington, air travel is slowly getting back to normal. more than 2500 flights canceled or delayed yesterday, fewer than the last two days. the economic impact of the blizzard on the east coast -- two moody's economics -- economists say it will be less than the impact on the $16 trillion economy. global news 24 hours a day powered by our 2400 journalists
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around the world. i am vonnie quinn. thanks. the shanghai composite tumbling to its lowest level in 13 months. but our investor fears of china fading? casewould seem to be the as european stocks turned around and our stocks are mostly up. what is behind this turn of events? is it a breakdown of the correlation? let's bring the number one forecaster, enrique diaz-alvarez from london. we also have michael mcdonough. gentlemen, thank you for joining us. let me ask you what you think about what we saw? commoditiesto turning around? enrique: the chinese stock that muchs not play
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of an economic role in percentage of chinese wealth or the investment decisions of chinese corporations. what we have seen is an excessive impact in world financial markets. hopefully, we will see the first steps in breaking down the correlation. yesterday, we talked about other correlations. but every time it seems i would wake up to see asian markets down at 4:00 a.m., i knew there would be read on the screen in europe and in the u.s. michael: what the chinese equity for theoes is no tell fundamentals in china. i think people finally made that realization. just because china is down does not mean we should pass. >> chinese stock markets a week
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proxy. >> exactly. markets with this selloff in the equity market, it is that occurs corporations use this to raise capital and cash. you do not really see this in china. -- matt: how is the economy? when you look at the underlying economy in china, do you have the fear that the market seems to have been showing or is it a slowdown you expected? it is a slowdown that was universally expected. it is not getting any worse than the chinese government had been telegraphing. we are witnessing a move away from excess investment and consumption. medium-term, the
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ainese economy will have better split between investment and consumption. that is a good thing. consumption ofof retail sales is better than the proxies. yuan were you want to see it? does it need to be devalued further? enrique: the announcement there would be packed and undisclosed basket towards the u.s. dollar, to the extent we expect the u.s. dollar to continue to appreciate , we expect a mild depreciation of the wrong versus the dollar -- of the yuan versus the dollar. by chinese authorities will not
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have trouble keeping the yuan basket stable. matt: what do you think? to a lot of people who do not want the chinese to devalue their currency. on the other hand, free market want thiss must currency to be allowed to flow. michael: the problem of they are facing is do they want to manage crawling depreciation or allow the market to set the rate? the instances where they have allow the market to set the rate, you have seen rapid depreciation which has caused selling. that is a more viable reason than the equity market. if they let the markets that the rate, you could have rapid depreciation. but if you have more control, you have criticism they are trying to control the currency. matt: when they have let the
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yuan devalue drastically, it affected the market negatively globally. michael: there is a potential connection. if the government allows the market to set the rate and you get a substantial depreciation, they could be doing that as a stimulated policy. so you depreciate, make the sectors more competitive. maybe the government know something you do not know. but the real risk is there are a lot of people who see the yuan depreciating and try to get their money out of china. dogs a tailwagging the scenario. matt: what do you see at the end of the year for the yuan? we see depreciation on the order of 2% to 3% versus the u.s. dollar because we expect mostto strengthen against
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currencies. and the yuan is linked to a basket. but we should not underestimate the ability of chinese authorities to control -- to implement stealth capital just thethrough not administrative authorities to stop or diminish the outsource of capital from china to a point where they can be managed without burning reserves. matt: interesting. capital controls and stealth is even better. and we get diaz-alvarez from ebury partners. and michael mcdonough joining us. thank you for your time. wheree you're wondering betty liu is, she is at the new york stock exchange. she will sit down with peter hancock, ceo of aig. willater, hank greenberg
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also join her. an action-packed day for the stock, the company, the capital structure. stay with us on "bloomberg markets." ♪
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morning.d i am matt miller in for betty liu. it is time for the bloomberg business flash. the housing market is still on a roll paid in november, home prices rose 5.8% in 20 u.s. cities, the fastest pace in a year-and-a-half according to the case shiller index. prices in michigan up more than
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11%. chicago had the smallest increase at 2%. dupont forecasting lower-than-expected earnings. it is dealing with weak demand for agricultural product at a strong dollar that hurts overseas sales. ohiohird-largest bank in has agreed to buy firstmerit. 367 branches in ohio, michigan, wisconsin, and illinois. that is your business flash. another big corporate story is aig. the ceo peter hancock outlined his vision for the insurer this morning amid pressure from carl icahn to split up or so assets. the key action is the selloff of an ipo. speaking earlier, he signaled
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--t the best teachers divestitures, they may not stop there. peter: there are no sacred cows. with this create more value in the hands of some more other than ourselves. matt: we will hear more from peter hancock later this hour when he sits down with betty liu at the new york stock exchange. right now, i am joined by sonali basak here on set. this hancockhis is caving to carl icahn? sonali: icahn was the earning potential his job. he had to say something. he promised asset sales since ant year, but now we have accelerated pace. he said nine modular businesses, , re of which are core to aig
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-- areabs someday, maybe for grabs someday, maybe. icahn is the only activist investor threatening hancock? he only has about 50% stake. sonali: john paulson also rallied behind icahn. he sent three letters, the first in october. matt: i am sure you are familiar with the holdings function on the terminal to show you who is control of the company. if you go into holdings and click on carl icahn's stake, it is interesting to note the graphic. carl icahn's building stake in green. the price of aig in white. it looks like an investment in which icahn has lost a lot of
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money. the market,ared to aig has not done as poorly. took a stake,n and lots of things have happened. said we are hancock getting out of a a lot of these hedge funds and reallocating funds. they have a huge stake in a chinese insurer. they say this might be one of the things they may run down. that.so they may sell what also are we looking at as far as possible moves to appease shareholders? sonali: the big thing announced is 25 billion dollars worth of capital returned to shareholders. let's put this into perspective. last year, they returned $12 billion. so it kind of evens out to what
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they did last year. matt: is that an off? -- is that enough? we will hear from hancock and others -- hank greenberg most notably. what do you expect? heali: this is the insurer built. a lot has changed since the crisis. and a lot of the books they are taking, there is a $3.6 billion reserve surcharge. that means that businesses before 2005 and 2014 are hurting them now. we will see what he will say about these businesses. matt: sonali gaza, she covers aig for bloomberg news. , she covers aig for numbered news.
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betty liu will sit down with ceo peter hancock at the new york stock exchange. ♪
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matt: welcome back to "bloomberg markets." i am matt miller, filling in for betty liu as she gets together with peter hancock on the new york stock exchange. ramy inocencio has a check on company movers. ramy: i'm looking at earnings that beat investments. -- that beat estimates. 3m had its biggest jump since october of 2014. its earnings share came in at $1.66. than $7 billion. facingpany did say it is strong foreign currency headwinds, but they are pushing
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back with some restructuring and more efficient business models. they are reaffirming their bts eight dollars to $8.45 a share. lockheed martin down 3%. its third-quarter estimates -- its third-quarter earnings beat estimates. they say they expect that sales of about $49.5 billion. $49.8e estimate was about billion. matt: we will stick on lockheed martin. julie johnsson joins us from chicago. is doing a deal in which it unloads its i.t. business and receives $1.8 billion. 50.5% of the
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company. how does that work? those this is one of deals that makes your head explode. it is a tax-free transaction known as a reverse morris trust. lockheed is technically merging the business into assets. . this helps lockheed as it pays off debts from its acquisition from last year. matt: so in a sense, they are being paid to buy leidos. because lockheed shareholders will run the company, right? julie: no. they are not taking over leidos. someand leidos are merging assets into a separate entity that lockheed shareholders will own. lockheed is offloading the i.t. business, not taking over leidos. matt: what is lucky focused on after it offloads the? ffloads that?
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julie: lockheed is sticking to its meeting, focusing on its and defense businesses manufacturing. it has the f-35, which is getting out the door in bigger numbers. the largestes him provider of u.s. military helicopters. lockheed had previously not played in that space. so largest fighter provider to the government, largest aircraft provider. sikorsky at-35 and helicopters. when we come back, betty liu at the new york stock exchange. ♪
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from midtown manhattan, you are watching bloomberg television. let's look at first word news. a new shows donald trump
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dominating the field of republican presidential candidates. 41% of the republican voters surveyed backed donald trump and senator ted cruz is at 19%. candidatesidential george pataki says he is endorsing marco rubio. bernie sanders is disputing critics who say his reform plans are not workable. he took part last night and a town hall before the democratic presidential caucus. his plan will be back for a single-payer medical coverage. it is time for us to have the courage to take on the insurance companies and take on the drug companies and provide health care to all people at an affordable cost. the iowa caucuses are only seven days from now. president obama has been the use
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of solitary confinement for juvenile in federal prison. the president says solitary confinement can lead to devastating lasting psychological consequences. he says the change would affect about 10,000 inmates. southern california officials have issued a message and vietnamese as they hunt for the escaped inmates. it's believed to the men both -- belong to vietnamese gangs. hidingy gang members are the inmates in or on the run after breaking out of an orange county jail friday. walmart and several global will deliverrs about 175 truckloads of bottled water to flint, michigan. publice dealing with the health emergency caused by lead tainted water. said thisies have will include 6.5 million bottles of water in terms of donations through december for at least 12,000 schoolchildren.
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local news 24 hours a day, powered by air 24 hundred journalists in 150 newspapers around the world. to 2016 left start tom farley waiting for companies to warm up to ipos and again. in order to draw them back, he is trying to create a better and more efficient marketplace for investors with the help of a new partner. standing by at the new york stock exchange with tom farley. betty: thank you so much. i am with tom and ari. what does this mean for the new york stock exchange? designated market maker works with our list of companies and offers to buy and sell their stocks at all times even during times.e
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the designated market maker make sure every single day come our stocks have orderly opens and closes. the good news is barclays is selling and the wonderful people there are going with the transaction. a firm that'sg committed to customer service and committed to having world-class technology in these markets which are admittedly very complicated. and more's more automated so what happens to these guys here? where do they go? >> that's the wonder of this place, it's the only place in the entire world worried have the pre-blend of humans and technology. we have turned the technology could also have human judgment not just on the opening close but when there is a moment of disruption for a list of company stocks. we get many of the largest ipos, the top 20 in the last 20 years. betty: i think that is a big question on people's minds.
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what happens to the park traders and the people on the floor? >> everybody knows that the barclays team ran the classiest operation on the floor. that same team is moving over and joining gts. it will be business as usual but they will have access to our sophisticated technology. it will be the best of both worlds. human judgment of floor trading transparent and sophisticated technology and that's a replace market. betty: do you need the human judgment in volatile moments of trade like when we had a huge selloff and people are exiting out of the markets, is that why you need that? trades in many markets, at least 30 in the u.s. alone. what we think is unique about the nyse is is the only market where there is a person was a pilot in command of that security and responsible for orderly trading in that security.
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it's the only market like that kind ofyou merge that transparency with good technology especially during times of stress like august 24, the action has been tumultuous, i think that's pretty valuable. how ready are you for more volatility in the market? >> we are ready. we hadgo back to 2008, one euro volatility so that was the ultimate stress test for our system and our market. last week was tumultuous but the industrywide. wednesday, there was 12.5 billion shares traded which is double the annual average from last year. i look at the entire system, not just the new york stock exchange. we're in a robust place. betty: are you sure we will not czrash?her flash >> there has been a lot of
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improvement since the flash crash with more coordination among exchanges and more resiliency of the information processors. since you asked about human judgment, i will give you an example. on the day of the flash crash, many stocks traded at one penny but there was only place that did not happen and it was right here. they humans look at that and say i don't care what the system is telling me, that makes no sense. >> talk about the deal itself. do you expect any kind of hold up? will this >> be smooth question mark we think the transition will be very smooth. this is a very experienced staff. they were part of other specialist units before it was put together with barclays. we look forward to working with them and barclays to make this smooth. betty: you talked about high-frequency trades and you talked about increased transparency. you welcomed regulators into this environment.
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where are you with that? >> the industry is transforming before our eyes. it is becoming a big data, big technology business. we need firms like gts on the floor who are specialists in applying responsible technology and innovation. it's the technology that will be for the market structure tomorrow and that has served the new york stock exchange and their investors. betty: what kind of regulations do you foresee? are you working for further regulations? absolutely, everybody wants the same thing, investor confidence. you get that by applying smart, thoughtful, responsible and data-driven regulations that will increase transparency and price discovery. it's everybody's responsibility, every actor in the industry, the exchanges, the market-making firms, all investors, to work with regulators so we continue to have the best market in the world. other technologies
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are you looking to put into the new york stock exchange? constantly investing in technology and began a project a year ago to build a matching engine using the most efficient technology. we are reaching the finishing touches on that an expect to rolled out our first symbols in the month of february. s last week on you talked about the ipo market and we have had no ipos yet this year. when will we warm up and it starts moving again? tell you.i could i am an optimist. optimist but am in i urge caution because if you look historically when volatility goes up, i is go down and the volatility is high. the volatility with his high last week as it was back in august. the market has been slow and the
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fourth quarter was the slowest in a decade. this year andne there are great companies in the pipeline waiting to ipo. institutional investors are ready to ingest those ipos, we should see a number of great companies but it won't be in the immediate future. betty: did you get any skiing in in davos? i wish you hadn't asked me that. i did and i don't want my board to hear that. i was able to make it out over the weekend and it was gorgeous. betty: thank you so much. matt: i would do mostly skiing in davos. thank you very much. betty will be back in a few moments with her interview, said down with the aig ceo. will join us and you don't want to miss that live a from the new york stock exchange. stay with us. ♪
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back.welcome it's time for the bloomberg business/, look at the biggest is the stories. billionaire john paulson will use his personal fortune to backstop his fed should -- his hedge fund firm. they have cut assets by more than half and he is using his own money as additional collateral for the firm's credit line from hsbc. president obama want to make it easier for small business is to offer retirement plans to their workers. his proposal would allow for small firms to join together to form retirement plans that woodward reduce administrative costs and compliance issues. congress would have to agree to any plan.
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named leslie berlin, chief marketing officer who was previously senior vice president of digital partnerships at american express. the appointment comes after the social media company lost four members of its executive leadership team over the weekend. that is your latest of business flash. let's look at u.s. markets. apple.big story today is bell, it's the highly anticipated holiday earnings assi announcement. earlier in the1% stock is back in the green. it's been on a slide in the last month of analysts have cut projections to negative growth for the first time. most people think this is priced in. see a possibility of a
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bearish head and shoulders pattern. wall says the pattern is active if apple is below the neck line at $100. at about 100 it fails. below 100, fly and the wall says the stock could drop below $70. matt: thanks very. appleget more insight on and the concern about slowing iphone sales growth. iphones are key for apple which makes up 66% of the company's revenue. what do we need to see from apple to prove it can still innovate and grow? now is the executive editor of global technology, tom giles. is sales growth slowing? >> it is slowing and we have seen reports of cut orders and their suppliers all taking a dive in their stock.
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there is a lot of concern about whether this iphone market is saturated. has an iphone, everyone who wants one, as already bought it. we have to wait until september until there is a new iteration to see if it will reinvigorate the growth engine. matt: iphone makes up the lion share of apple profit. we used to pay apple for all sorts of stuff like buying music on itunes. i'm assuming no one does that anymore. awayan they diversified from this or they let it become the big cash cow and get used to it? just a bigy would be phone company but that's not what apple wants in the long-term. they are putting a lot of time and energy into new initiatives. we have seen the smart phone making an impact and we saw swiss watchmaker's decline -- i mean the smart watch. we saw the swiss march -- watchmakers decline for the
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first time in years as a result of the apple watch. it's definitely making an impact. i'm not sure the watch is the game changer that apple needs like when it came out with this raft of new products after steve jobs came back to the company. people are looking for more news on applecart. that is not going to happen for several years. they want to see some movement on apple tv. as we reported, they have had trouble getting the agreements they need and getting the entertainment industry to sign on to some kind of big revolutionary apple tv product. matt: it's a beautiful product. i've got the new one. i am looking for content that is not there yet. the entertainment industry is concerned about becoming the music industry. they don't want apple to decide how to price the movies. matt: when i take a look at the
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analysts, i can see that they are very optimistic. looking at the bloomberg terminal, this is the anr screen. you see the climbing greenline which is more and more analysts boosting apple stock to a buy. 85% of the analysts say you should buy it. the right line as they share price and it has come off 13% in the past 12 months and the yellow line is the price target. while analysts are increasing ns arebuy recommendatio pulling down their aspirations case. >> we will he listening to every word out of tim cook's mouth later today about how apple mystic they are for 2016. we will see whether there has been too much bearishness on the stock or of its come down to four whether it will keep going. anything they say about demand
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into 2016 and their outlook on china, any hint on developments on apple tv, they're not optimistic about it but they could blow us away. at some point in the not-too-distant future, you want to hear apple start talking about the car. a realeal and will it be growth driver for them? matt: thank you so much for joining us. 250 point right now. we are in a rally that is not going apple with it did apple stock is only up slightly. still ahead, aig, we have spoken about the company all morning and up next, we would hear from the ceo, the man at the top, pure hancock joins us from the new york stock exchange with betty liu to give us his vision for the future. ♪
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matt: welcome back. of aig are rising, up 1.6%, as the ceo outlined his insurerrated form the -- to reform the insurer. returning $25 billion to shareholders and starting an ipo for its mortgage insurance division and slashing expenses -- for more, let's go to betty liu is standing up with peter hancock. betty: that's right, thank you. we are with peter hancock, great to see you. do you believe that what you outlined this morning will silence the critics of aig and carl icahn? >> what we laid out is over the next two years to make this company more focused and profitable and returned $25
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billion to shareholders. that is speaking to all of our shareholders and our policyholders and regulators and stakeholders. i'm sure we will not satisfy all of them but we need to deliver a sustainable franchise if we are going to make the right decisions of trading long-term. betty: why not pick up the company? aig is much more focused company that was before the financial crisis. we have gotten down to the essence of what can deliver value to our clients. our business is absorbing the risks of our clients and managing them. to manage those risks, we need to use diversification. it is critical and if we were to break up the company, you would lose up to $10 billion of diversification benefits at a minimum in the eyes of the rating agencies. betty: >> is it tax assets? >> no, its risk diversification.
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you have a property-casualty business which has uncertainties balanced by the stable cash flows of the life business. from a tax perspective, that's a further reason why splitting the company would be expensive. with lose approximately $1.3 billion per year in foreign tax credits if we split life in retirement from property and casualty. it's an annual cost that we would incur. if splitting them was to influence our growth, that cost so the tax0 of that benefit is roughly 10 times the cost of being a siffy. the diversification issue is a much greater issue. say that theould diversification has not worked a return on equity and it lags your peers. how is this new design you unveiled going to bring you back
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to double-digit returns and equity? we haveis disclosure, helped people understand out return on equity by dividing it between our operating businesses and the legacy businesses. more than a quarter of the company's capital is dedicated to legacy activities. things have a cumulative over decades that we're in the business of existing either through sales or gradual run off. between three and 5%. then it's much more competitive and we have plans to make it more competitive soap for comparisons are more competitive looking at the aggregate numbers. >> how is the hedge fund right now? part of thertant folio and we are reducing it. it's not an efficient use of capital so we will diminish our allocation to hedge funds. ofs about $11 billion out
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$400 billion so it's a modest allocation but it has been disappointing over the last couple of years. we will stay in a more focused group of hedge funds as part of our strategy. if you look at our plan to return $25 billion of capital to shareholders over the next two years, part of that is reducing our allocation to hedge funds. about $2 billion is by d risking the asset side of our balance sheet. otherscarl icahn and want you to focus on property and casualty which is not perform that well. how can you create confidence that that unit in a time of lower rates? >> an important part of the plan is to break the property/casualty and life in retirement business into more modular business units. at least nine to start with and more later. we will reveal the return on -- level that label
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and some are performing well in others have work to do. demonstrating the pieces that need work in demonstrating a combination of cost initiatives on othernarrow focus sectors, we will deliver the margin improvement necessary over the last two years -- over the next two years. betty: thank you for joining us at the new york stock exchange. matt: thanks very much. up, you heard from the current ceo and later we will get some thoughts from the past aig chief executive, the legendary hank greenberg joins us on bloomberg markets at 3:30 p.m. ♪
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♪ bend me shape me, any way you want me as long as you love me, it's alright bend me shape me, any way you want me
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you've got the power, to turn on the light shape the best sleep of your life. sleep number beds with sleepiq technology adjust any way you want it. the bed that moves you. only at a sleep number store. it's 11:00 a.m. in new york, 4:00 p.m. in london and midnight in hong kong, welcome to the european close. mark barton joins us live from
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london as we wrap up trading in the next hour. good to see you, the fortunes of europe and stocks once again are tied to the gyrating oil price as investors shrugged off a slump in chinese equities. the european close start right now. matt: we will take you from new york to london to paris and madrid in the next hour. a jekyll and hyde day in european stock markets. this is the stoxx 600 intraday chart. we fell 2% in the first 30 minutes and we spent most of the day clawing back those losses. we registered gains early afternoon. as you

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