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tv   Bloomberg Markets  Bloomberg  May 23, 2016 3:00pm-4:01pm EDT

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thiss what we're watching hour. hovering in aocks holding pattern. higher borrowing costs may come sooner than expected. shery: then the fight for control of sumner redstone's media empire heating up. challenging the billion s on ther, the latest ongoing court battle, coming up. david: more on the rumor started to fly that apple's next iphone. will it have a bigger impact than expected? shery: we are one hour from the close of trading. .ulie hyman has the latest are we seeing a little more direction now?
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seeing as little direction as we were at 10 a.m. when you and i talked. if you look at the major averages, there's a little bit of an opera ois. the s&p 500 is up 90 been .2 -- is up not even .2. breaking the losing streak on basis that the s&p 500 has been on as investors try to figure out what the fed is going to do next. materials have been solidly in the lead all day, up 1.5% as utilities and telecom are now the laggards in today's session. wereof the big gains seeing, two of the three or material stocks. that explains part of what is going on there. because of the new tax inversion rules from the united states, they try to work out some kind of format were it would work but they could not come to an agreement.
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monsanto come over getting the details of the bid, $122 a share. even though there doesn't seem to be a lot of confidence the deal will go through, the shares were still up. advisorof trip presenting at a jpmorgan conference in saying the next ilya dollar opportunity for the company could be in attractions, not necessarily hotels but other types of entertainment that the site is going to review. the talk of interest rate hikes continuing to play out. julie: we're seeing a little bit of a bump in the two-year yield. the 10 year is unchanged, falling earlier in the day. the two-year appears to be more reflective of the perception that the fed may be more aggressive with raising rates. to 10 year less sensitive
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that and across the yield curve there has been support from buyers around the globe. they are still higher than in other places. today it's like stock, little change. 32% beinging at priced in for the june meeting , 6% where was cry before the federal reserve minutes were released last week. a dramatic change from where it has been recently. david: let's get a check of the headlines, mark crumpton has those from the newsroom. mark: donald trump has met with senator bob corker here in new york city. speaking to reporters following that meeting, senator corp. or says he has no knowledge of
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whether he's being considered as mr. trump's running mate or for a cabinet position in a trump administration. the tennessee republican is chairman of the senate foreign relations committee. wisconsin governor scott walker is facing some serious debt following his failed white house it. 900 thousand dollars according to the latest filings. he's been an average of $90,000 a day during his campaign. the race inut of september. the supreme court has left intact a judge drawn voting map in virginia that might help democrats dig up a seat in the house of representatives. the unanimous ruling said the state republican congressional delegate could not continue an appeal seeking to reinstate an earlier map drawn by the virginia legislature. ,n austria, the far right party mail-in votes provided the margin of victory for the independent backed by the green party. the freedom party candidate
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attempted to capitalize on public concerns with immigration. global news 24 hours a day, powered by our 2400 journalists in more than 100 80 news bureaus around the world. let's get back to stocks and the outlook for the rest of the year. the average earnings rise has been small, just over 3%. the most pronounced misses have been financial and tech companies. shery: there were positive surprises and the biggest came .cross in energy and materials our first guest says the overall outlook for equities this year has been dimmed by weaker earnings quality. thank you so much for coming in. despite the weakness, we're seeing strong buybacks. >> there are couple of interesting things at play here
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particularly with the buyback outlook in the u.s.. although the amount of authorizations was down on a year-over-year basis, the actual number of completed buybacks was up as far as shares were on arned about 30% year-over-year basis. companies are buying back more stock at a lower average price that in q1. things, oneg at two of which is the deterioration of earnings quality. 2007argest gap since q4 of , which is a negative as far as earnings quality is concerned. on the flipside we have some s, relative topic gdp accounting and buybacks continuing to be strong. concerned, --is concerned,he capx is
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if you look at the contribution to the s&p, is down almost 5%. that is largely because of energy. energy,ook outside of some of the more consumer focused set or certainly doing a little better. retail has been week that outside of that we've seen strength in other subsectors such as media and autos. even though the outlook for autos is slowing there was some strength in q1 that contributed to the positive surprise. shery: what is difficult for investors trying to hedge, we're now seeing equity and oil correlations falling from recent highs. what is that telling us? >> is one of the interesting topics on the derivative side and on the broader asset allocation front even if you look at the correlation between equities and oil it reached
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almost 60% a few months ago. now were down to 20% on the three-month rolling basis. if you think about oil in the 30's, that's a level where there is potential for systemic risk as in lenders are at risk and other parts of the economy also at risk. now we have fed expectations increasing. there is a link between inflation expectations and oil. it means raising inflation expectations. shery: and you think oil will climb above 50? >> oil is due for a slight pullback but we've -- the real risk is the fact that oil could increase as we start having continued disruptions and supply and potentially a decline in the stock of oil. so much worryere
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about credit market in high yield. what is your outlook when it comes to the credit market going? over? >> we are a little more cautious. one thing we focused on, we've almost quarter of the spread is contributed by energy firms. shery: fed officials continuing to talk up a rate hike. how important are the fed comments this week for the market? >> we've seen a completely hawkish shift in the past few weeks with bit officials. we had williams reasserting the growth.t he sees 2% some things were interesting coming out of the fed.
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if we get 1.1%, which we expect in q1 after this week's revision, gdp will have to grow 2.3% for the rest of the year. i think that is quite strong. is zero hikesn for 2016 and 2017. but i think the fed wants to build risk premium back in the market and they are doing a pretty good job of that. david: what will you be listening for when janet yellen speaks at the end of the week? what are you wanting to hear from her? from's going to be away monetary policy. it's completely biographical. the reason she set up another press appearance on the six is and payrolls. one of the interesting things is we saw payroll growth slowed to about 200,000 on a year-to-date basis, 200,000 jobs added per
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month. and payroll tends to follow after deterioration in earnings and that's what we are seeing right now. we think payroll growth will likely continue to slow back toward trend throughout the year and thus the fed will not need to hike. i'm looking at consumer sentiment because it's one of the things that could show the impact of inflation on the consumer. from their lows of early february, gas prices are up about 30%. we've seen used inventories of to the largest extent since the financial crisis. used-car prices have deteriorated relative to new car prices. this is one of the tale tell signs that the u.s. economy will slow. have ae u.s. gdp
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positive surprise? largely from increase in inventories. shery: thank you so much for joining us. beyerscoming up next, bid for months and so. that is next. ♪
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shery: it's time for the bloomberg -- bloomberg business flash. brazil central bank is expected to scratch goldman sachs and
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hsbc from its list of authorized currency dealers according to two people close to the subject. they also say the cuts could come by the end of this month. dealers are ranked by performance through the year and both banks are sent to write lowest on list of 14 institutions. david: sec investigating from 2013ank according to people of knowledge of the matter. they are asking if the bank delayed reporting losses on government-backed mortgage bonds over an extended time. deutsche bank is cooperating with the investigation. berkshire hathaway says dairy queen is joining the iced coffee craze. it's the biggest beverage launch ever for dairy queen. david: a federal appeals court
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has reinstated the case on libor. bank of america and citigroup ormonde the defendant. the move overturns a 2013 ruling -- that is fail to the business flash update. billions offered 62 dollars to buy monsanto. the offer represents a 37% premium over onset -- my tentacles closing price -- over month santos closing price. the ceo try to calm investor concerns that his company is stretching its finances. >> in the first year after closing the transaction already, we've seen double digits, earnings-per-share increases and the ability to pay a higher dividend to our shareholders. starting from the second year, this will be a double-digit
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over and above the current standalone. in terms of return on capital, , we will beird year earning the cost of capital and the premium thereafter. a rapidly value creating proposition we have. >> what i would like to know is how do you hold 42 billion euros of debt to the policies of mario draghi and other central bankers? you have the gift of free money. what happens to this transaction if interest rates go up? all, were looking at a well blended financing structure. generateability to
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free cash flows and the ability to also d lever. that is a coreng element of prudent financial policy and you may have seen the statement of standard & poor's and assessing what the financial structure and balance sheet of bayer is going to look like going forward. we are very pleased because it is an indication that were going to have a very solid investment great rating going forward and gives us a chance to obtain an excellent business profile for rating purposes. shery: if monsanto rejection offer, do you have the capacity to increase the offer? >> will totally convinced about the attractiveness of our offer here if you look at the fact that it's a 37% premium over and of mayhe share price as 9, that's a strong testimony to the value of the position for shareholders. the also in line with
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transactions juice on the past and were fully convinced it is a highly effective offer for them to consider. >> what are you going to name the company? >> it is too early to speculate about what the name of the company is going to be, but let me tell you that bayer's name and reputation stand for innovation and the utmost level of responsibility for societal needs. that is what we're going to leverage on going forward. >> have you discussed the deal with any major regulators? the private nature of the discussions until now, we have done our work with our
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internal and sternal expertise haveve at the table but we at this point not involved regulators. that will be one of the next steps going over. still ahead, how to trade apple like a high-yield bond. that's when we come back. ♪
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it's time for options insight with julie hyman. kelly joining me is kevin . we are talking about stocks not doing that much, but the biggest ticking up a little bit. lately we've been watching the curve, that's been the subject of discussion because it seems to imply that volatility will take up.
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the fix is only a 30 day indicator. everybody knows what is being priced in right now, potential rate hike from the hit fed -- from the fed. investors are nervous about how that's going to play out from october through january. last week in the face of muted markets, especially on friday, you look at today in the market was up earlier in the morning of order percent. we thought spike about four or 5% which is indicative that people are starting to get a little nervous, they think 15 is a bottom level but it will hit at least 21 by january. julie: i remember at the beginning of earnings season you were saying stocks are less all herbal during earnings season that there tends to be full support. is that factoring into this uptick in volatility and expected volatility?
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kevin: in january we had extreme levels of volatility. corporations could not really talk. what saved us was earnings season. that could be what's going to happen in the fall as well. you go back to when you had the companies come out and give guidance because expectations are so low on corporate earnings. we had peak earnings back to 2014. easy for companies to be, especially now that the dollar has gotten can suitably weaker over the past six months. julie: apple is the stock we have been watching over the past couple of we. today there was a report that maybe iphone seven orders would be higher than anticipated. to're looking ahead september. pegged to the
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announcement. you kind of get the summer doldrums when it happens because right now there is not a bunch of news. this is the major event happening. thele will start buying stock in september when the phone is released, holly -- holiday sales, it's a refresh cycle. up until then all the news is baked into the stock. if net nothing happens with the stock, you will make 4% alone just taking the options premium. we've seen the stock run-up considerably over the last few weeks. everybody knows the story when it comes to apple. they have a dividend, but the problem is they don't really new product to invigorate that growth that people want to see. this is a great way to play the stock going into the next announcement of the new on, and you get paid to do it. julie: do you think the stock will have significant upside?
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kevin: this is a way to turn it into a nice corporate bond. they pegged all of their hopes on china. tim cook has consistently said there will be 500 million citizens over there in the middle class but the chinese government doesn't like it because it is an encryption machine. julie: thank you so much, kevin kelly of recon capital. stay with us, we have much more bloomberg markets coming up. shery: by a common cbs in the spotlight. we will tell you about sumner redstone's most recent saga when bloomberg markets returns. ♪
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shery: you're watching bloomberg markets. david: it's time for a check of the headlines.
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mark crumpton has that from the newsroom. mark: the fbi's investigation of hillary clinton's use of right the e-mail server ball secretary an end. is nearing experts say the investigation will likely conclude with mrs. clinton being questioned. the fbi standard practice is to interview the person or persons at the center of up row. the race for the white house -- at the center of a probe. the race is shaping up to be a contest between the two most disliked candidates in decades. a 60% trump has -- unfavorable rating and mrs. clinton is at 63% -- 53%. highestld have the unfavorable ratings in 30 years. the supreme court is making it easier for federal workers to file employment discrimination lawsuits after waiting their jobs over intolerable conditions. the justices ruled 7-1 that
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workers who bring so-called constructive discharge claims have 45 days from the time they resigned to begin the process. the court rejected the government's position that the clock should start once the alleged abuse occurs. for drug kingpin el said he may -- he try to plead guilty in the u.s. but says he won't become a government witness or testify against others. his extradition was approved last week but the appeals process could delay it for years. global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world. i mark crumpton. most eroticf the stories out of hollywood has taken another turn. theer redstone removed
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viacom ceo from the trust that wi manages holdings when he dies. lucas, let's make sure we are up to speed on this. there are so many twists and turns i want to make sure we didn't miss anything. seems to change every hour, starting friday night when the news first came out that sumner had removed him. there's a new story pretty much every hour or two. the latest is that felipe and both sued their longtime friend as well as other members because they believe they have unlawfully been removed from the trust that takes control of national amusements which then controls by common cbs in the event that sumner redstone dies or is deemed incapacitated.
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over one of the larger media empires in the world. we just entered the surreal moment where he's been at sumner redstone's cipher three decades and seems to be repeated pitted against his longtime friend and boss. argues that sumner is not of his right mind and is being manipulated by his daughter. shery: what is the likelihood that he will succeed with the suit? point.ard to say at this the main contention they will make, sumner redstone was recently involved in a suit against an ex-girlfriend who said that he was not confident when he removed her as his health care agent. that suit has gone away for the most part but why a column's viacom's argument will be that there's a high level of competency required to make a decision with regard to trust her contract on your own health care.
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that is the argument they will be making. whether they will find a receptive audience, we'll have to wait and see. it looks like his daughter has been in the outer orbit for a long time but she has been brought back in, it seems. how big a deal is that? >> if you believe it, she is the one who is pulling the strings here. she has helped engineer the situation so that she is the benefactor. for a long time she and her father were not close. her father since some damaging things about her in the press. everyone has said she has gotten much closer to him and spends a lot more time in his house and it times has been present while other people visited because she wanted to see what was going on. is justd say that this the natural course of father and daughter getting closer together. others suspect she has some old
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terrier motives, namely control over those companies. shery: what does it mean for viacom shareholders? they have been suffering for quite a while now. >> on one hand and just as another dose of uncertainty that they didn't need. and it brings up other questions, what will happen with proposed sale of paramount. this is something they have been exploring. according to the statements today he says he is opposed to this. and what will it mean for the leadership of fire, if it's decided that he is of sound mind in making these decisions. you have to imagine that he's not going to sit by and watch his ceo continued to fight against him. so there are more questions than answers at this point. thank you so much for joining us there from los angeles.
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a 22% increase from the original bid. will they ever share the same roof after the $75 million investment? paul sweeney joins us now. let's are with this investment. paul: a private individual made the investment in the company. it's widely perceived to be a investmentt type of on behalf of the management of tribune to make their position stronger as they fight off this unwanted advance by the net. -- by gannett. shery: they're calling it clearly inadequate. why is that? >> this is a stock that had a high of $25 a year and a half ago. it got down to just under six dollars per share several months ago. this is a newspaper business which is in a secular decline and has been for 15 plus years.
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i think the stock reflected that. investors have been selling the stock over the last year and a half. your comes gannett and they think they can make a business out of it. on thet a big number table relative to where the stock was before and then raised it to $15. that is well below the $25 week for the stock when it became public but well above the six dollars where was trading a few months ago. clearly they knew they had a compelling valuation and a compelling cost synergy story to play out as opposed to what tribune is saying which is they have revenue opportunities they think they can bring to the table that no one else has been able to do in the newspaper business. a lot of these publishing companies in general are trying to figure out how to manage the transition from analog business
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to a digital presence. what they're doing is training analog advertising dollars for digital pennies and that is not a good business. that results in its secular decline in circulation and advertising revenue. i don't think the market feels like there is a solution for the newspaper industry other than just battening down the hatches what the new york times has done. they have sold everything that's not nailed down and they will ride it out until they can develop their digital business. tribune is probably in the same ballpark but we have not seen any success stories to speak of where newspaper company's success would have been able to manage that transition. journal isreet probably for a but there are very few examples. next, we are up tracking apple's supply cycle.
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to recaptureough customer attention? ♪
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shery: time for the bloomberg business flash. ares capital is buying american capital in a deal valued at $3.4 billion. aries is a public -- publicly traded lender. the deal does not include american capital mortgage management, is being sold separately for $562 million.
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general electric is taking part in diversifying its economy away from crude. they are collaborating on $1 billion in spending by 2017. it will be followed by potential to billion dollar project in water, aviation, and digital industries. a spate of terra tax combined to lower fuel prices to prompt european airlines to cut fares. europe's biggest discount carrier says that income will increase about 13% in the 12 .onths through march 2017 that follows the 43% surge the previous fiscal year. updateyour business last . markets close in 30 minutes time. abigail doolittle is live at the nasdaq. it seems the nasdaq is giving up
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some of its earlier gains. abigail: you're right about that , but it's the only one of the three major u.s. averages to be trading in the green all day long. it is modest gain but snapping a nine day streak of 1% or greater inter-day moves. so little less volatility here for the nasdaq than last week in the week four. one of the top performers are shares of solar city. one competitor to the first-quarter earnings xhosa -- so solar city shares could be -- they are starting to test solar equipment in hawaii on a deal announced about a year ago. it's been a rough year for the shares of solar city, down more than 50%, but of more than 200% from the ipo back in 2012 with its positioning in the trading range suggesting it is
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precariously positioned to continue trading higher office recent strength. the biggest booth for the nasdaq are shares of apple. the stock is gaining by more than 1% on top of last week 5% gain. it was down from highs back in april on iphones, today driving the stock higher is a report its apple has asked suppliers to prepare for production of 78 million iphone seven units as opposed to the estimate of 65 million units. of course setting off the near term sentiment ship for the upside was last week's announcement of a roughly $1 billion stake in apple by berkshire hathaway. it's pretty amazing, just a few weeks ago everything we were hearing about apple was negative, concerns around the
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iphone, and now we're hearing positive reports. but this sort of volatility in opinion is pretty fitting for the last year. in a range between buyers and sellers. right now the buyers appear to buyers appear to be in control in the near term, trying to take the stock that near the top of the range so perhaps the near-term bullish shift in sentiment can continue to take the stock slightly higher in the near-term. let's talk more about apple. were joined by an analyst, walter, thank you for joining us. what does this say about apple? the fact that they posted their first-quarter revenue dropping more it -- more than in a decade. now the stock could be seeing a rebound and maybe some upside. >> after last quarter, the
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reported what they were looking for for this order, there were some concerns about when they could return revenue. previously there was an expectation they can do it this fiscal year. now the stock appears to have discounted the hope for return to revenue growth. they will rely heavily on this new product that hopefully they will announce in september. an uptick in expectations for how many people by iphones. are we at a point where someone is going to wait for that second iteration? should i get a new iphone this year or next year? a greatech media does job. the company sometimes cautions about listening to the tech media so much because they are not always right on these things. a positive tot is
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hear about what's going to happen next euro the year after that because it could cause some hesitation. already just anticipation of the iphone seven you have seen the upgrade rate pull in. will provide another update tomorrow but people hold onto their phones if they expect something better is about to come out. phoneuld hold onto your for another year and not drop it or break the screen or run out of memory, then sure, wait until next year. but the key thing will be how good is this year's model, is it going to bring the race back up to help apple deliver some revenue growth, because it really need some help. technology, how significant is the upgrade? can it rekindle growth for apple? >> hopefully they will come up with something to rekindle growth this year. if you going to get excited screen next year,
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were talking about two years of revenue decline. to a certain extent the stock is discounting a return to growth this year. the stock will pull back in if we have to talk about how the so mucheen will make it better over a year from now as opposed to delivering something now. david: colleagues have been thatting on apple music services are not of to par. they're trying to reinvent and do a thing more with them. hardware, focus on expectations there'll be more iphones soul. is that still where the bread and butter is? >> it all comes back to the iphone. services are more important in keeping with your iphone. right now the services segment is only generating 12% of
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revenue. it's a huge success, bigger than mac, ipad. or toportance of services continue to get you to upgrade the iphone every two or three years. shery: thank you so much for joining us, walter. coming up, at the close of hereng just minutes away, are the major averages trading right now. the dow is unchanged, the s&p 500, markets not seeing much momentum. they been fluctuating all morning. the nasdaq giving up earlier gains as well. we will be back in just two minutes. ♪
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markets close in about 10 minutes time. julie hyman has the market check. julie: i will take a short-term
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look today and then look longer term not much is happening today overall in the market. by ms. lower than the 20 day average. -- volume is lower. stocks are not moving very much, the dow slightly higher and the other averages slightly lower. the nasdaq pretty much unchanged. it's now one year since the s&p 500 made its record close. that was may 21 of last year. since then stocks are down about 4%. we made a few attempts to get back to that record and it has not quite materialized. longestone of the standing runs without a new record for the s&p 500. days which ties the street back in 1995. days duringwas 361 a bull market.
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i went back and crunched some of the numbers to see index point wise what were the biggest gains and losses. , we have apple which is not had a very strong past year. kindergarten falling along with oil prices and gilead sciences also participating in a pullback we saw in biotech. on the plus side, we had which had quite a run and facebook as well as alphabet . that more than counterbalance by some of those declines we have seen. david: forget value stocks, hedge funds are buying back into the same stop that calls select pain at the start of the year. a fifth consecutive quarter. shery: our reporter joins us with more on this. addwould hedge funds
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momentum if they did so poorly earlier in the year? it's the worst since august 2009. so why would hedge funds get back into this? trade these are stocks that hedge funds really like. shares like amazon and facebook, they see them sell off a little bit and they say the priceless even better now, i will just add to my position. rotation been a slight isinst technology, momentum loosely defined as the stocks that did the best over the past 12 months. that will shift around a little bit. one example is health care. there are a few more health-care names that are now considered momentum stocks. among the top 15 holdings of hedge funds. shery: what about mutual funds, or they adding to these stocks?
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>> non-hedge fund asset managers have pulled back a little bit from momentum. on the flipside eight added to their value positions while head fun managers have moved away from value. part of the reason might be hedge fund managers are usually judged against the benchmark where is hedge funds are not. take a littlen more risk adding to these names that were sold off earlier in the year. there is crowding in the space. >> there are analyst out there saying there should be some worry about this. jpmorgan is one of them. at the same time you have analysts that say usually we can rely on some of these popular names to do well. so definitely some different chatter going on out there. his style a lot better, it has risen this month about 1.5%. obviously that is the huge
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improvement from selling all 6% earlier this year. whether it lasts, that will be the big question. shery: thank you so much for joining us. here are the major averages less than four minutes until the close of trade today. not a lot of direction in the equities market. the nasdaq down .07%. ♪
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>> were moments away from the closing bell.
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scarlet: u.s. stocks lower this afternoon. oil falling for a fourth day. the question is "what'd you miss?" been israeli spearing sing the worst recession in decades as international reserves are at a 13 year low. must the commodity that everyone knows about but nobody wants to buy. >> stocks down nearly 20% this year. we look into the luxury homebuilder. scarlet: we begin with our market minute. like trading marking today's session but the s&p 500 down and the


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