tv Bloomberg Markets Bloomberg May 24, 2016 12:00pm-2:01pm EDT
scarlet: from bloomberg world headquarters in new york, good afternoon. i am scarlet fu. alix: i am alix steel and here's what we're watching at this hour. on santa does not want to sell itself short. it is rejecting a takeover from bayer, which would've made it the world's biggest seller of seats in farm chemicals. scarlet: john cryan is disappointed that moody's has cut the credit rating. alix: the eurozone finance ministers hope to unlock bailouts for greece. are they tried to drag out the saga? no, it's not 2011. scarlet: let's check in with julie hyman at the markets desk and we are approaching session highs. julie: it is not 2011 in the stock world because we have the
perception that the fed is going to be more aggressive and stocks are going up. it is also a strange world because that perception has not change between yesterday and today. stocks moved kind of sideways yesterday and they are rallying strongly today. major can see, all three averages are pretty much at their highs of the day. the nasdaq has been leading the way because of strength and technology shares today. it is a cyclically led rally today. though sectors most formidable to an economic recovery, so another words, if the us economy is recovering enough so the fed can raise rates, that is the perception driving stocks higher today. making new highs gradually, just a gradual trend upward as it is up by 1.3%. software stocks have been doing well with and technology. microsoft leading the way after upgrading shares to outperform at callan.
traders overreacted to the company's last trading report, but things are not going poorly at microsoft. adobe in electronic arts are also on the rise. been at peace with this perception that when it comes into the market that the fed is going to be more aggressive and banks have tended to do well. between the big money center banks and some of the regional banks, we are seeing in general lift and financials. alix: what about everything else? julie: you would expect to see bond yields higher. that is exactly what has been happening today. the 10 year yield is at 1.88%. you have seen it go in different directions, but it is not happening today. looking at commodities today, oil prices are worth a look. they are on the rise and that 48.58 is the highest since october.
gold prices are going in the opposite direction, trading at a one-month low. this is sort of your classic more risk on scenario that we are seeing play out across asset classes. scarlet: thank you so much and she will be back with us for our mr. stock of the day. alix: mark crumpton has more from the newsroom. remains may hold the answer to what caused that egyptair plane crash. in egyptian official tells the associated press body parts suggests there was an explosion aboard the plane. egypt's state-run news agency demised the report, but other officials believe terrorism is the likely cause. after praising warmer relations between the united states and vietnam, president obama is using the second day of his visit there to promote greater freedom for the citizens. the president said that better
human rights would improve vietnam's economy, stability, and regional power. inetta lynch is fayetteville, north carolina, to celebrate the police department improvements in policy and oversight. it is part of her national community policing tour created in response to a people in ferguson, missouri. the nation seems to be kicking and smoking habit faster than ever before. the rate of smoking among adults in the united states fell two percentage points to 15% last year. the centers for disease control and prevention says the last time there was a drop nearly as to 1993 when1992 the smoking rate fell 1.5%. global news 24 hours a day howard by our 2400 journalists in more than 150 news bureaus around the world, i am mark crumpton. back to you. pricing inr markets a summer rate increase.
the s&p 500 has gained more than 2% in the dollar has barely budged. optimal rate increases are actually rising. alix: you can look at a june rate increased probability of now 38%. july is over 50% and september also nearing 70% as well as december. i want to bring in dan wiener. and you see the markets not really appreciating the fact that the fed could hike in the summer, what do you make of that? worried markets are first that a rate hike hurts stocks. then they realize it the fed raises rates, it means the economy is strong. there is a little bit of bifurcation in terms of what people are doing, but if you look at the numbers, look at what is going on today. we have new home sales really strong. what also is driven by that? truck sales.
auto sales have been strong, but if new home sales are strong, truck sales are going to be strong because who drives those trucks? you have to look at the labor market. it takes a lot more labor to build a new home than it does to renovate an existing home. you have all the sales of new durable goods. this is very, very good data for the economy. last week it was all about the fed. this week, the market is turning around and saying this isn't bad. scarlet: it would appear that the fixed income market is starting to price in a fed rate increase. would you say that currency markets have done it as well? dan: forget all the talk that the dow or the s&p is 4% or so below the high of last year, but on a total return basis, we are within 1.5% of the all-time high. in april, the s&p hit five all-time prize.
as far as i know, dividend still count. you see dividends are doing well right now. people care about dividends, so we are not really off the highs. stock market is staying the economy is still strong. alix: you would buy into the rally's if you believe the economy is strong and that is why the fed is hiking folds. dan: i will look into sectors like the health care sector, the technology sector. for instance, we by managers. to managers on opposite ends of the country both have their largest holdings in eli lilly. it is yielding about 30% more than the market and its price is off 15% from its high last fall. that has got to be a great company. scarlet: there is a chart that we made regarding crude oil because there were early signifiers of concerns to
investors. what we have seen is they are more resilient now than they were back in january. macro conditions seem to have changed quite a bit here when we were talking about the backdrop for more tightening from the federal reserve. from we are very different the place we were with the dollar rebounding a bit and you have the yuan following a touch. do you feel like these trends continue? dan: sure, a weakening dollar makes sense. ing in oil isn oi because the dollar is strong. and may have gotten over extended on the upside, but really what you want to look at is the fact that the oil market is saying, we drop too far. demand is still there. supply has come out.
the fracking companies have all shut down their wells. the demand is still particularly in the u.s. still there. are trade with china is very minimal right now. we worry about china more in terms of what is going on in europe. as far as our investments, we are very focused on the u.s., focused on health care, focused on what we called battleship balance sheet companies. they also have the will and the desire to raise those dividends. we do that using a manager at wellington management. scarlet: when you look at what is taking place in the treasury market, volatility in treasuries as measured by the move index has gone up. today it has come back down a little bit. the two year yield has move significantly. there is a disconnect there. why do you think? dan: you think you would get a little steepening in the yield curve, but you're not seeing
that. last week when the markets were just crazy about the fed, that was four weeks before the fed does that. we saw a move last week from the treasuries where it moved almost 7% in a day. that is enormous. part of the fact is that yields are so low. people think that the treasury investment riskless and they are forgetting that when yields are low, it does not take much to move that thing a big amount. alix: citigroup had a great note saying that bond investors are getting into dividend stocks. it is great the dividend stocks are expensive because bond guys would rather own dividend paying stocks. it means that you can still y out on those names. scarlet: dan wiener, thanks for joining us. isx: coming up, monsanto
why did monsanto reject? jeff: it is no surprise that they would. they are getting a 37% premium and it's an all-cash bid, so it's not bad, but they want more. you reject its do and say we are going to remain in the public company, we love our strategy, etc., or d reject it and try to new wants your rejection? strategicand the true t rationale, but we want more money. let's begin negotiations or see if we can get to a better price or they just reject it and not have negotiations but try to make it clear they are open to a deal down the road. -- orit seems like bayer ma monsanto has the upper hand because they are really doubling down on the fact that this company will merge. does this give monsanto the ability to push them?
jeff: the different possibilities for monsanto have really shrunk. and try to buy syngenta they were try to bring all the advantages that there were two things like that. their words are going to be used against them if they got into a long hostile back-and-forth. monsanto knows that these companies should come together. dow and dupont came together. the only ones that really remain are bayer and monsanto. aree's no sense that bs af going to join in. bayer has some leverage as well because there's no one else pointed come along and offer a one elseessed. -- no is going to come along and offer a better price. alix: it's a price of $145 according to some analysts.
that's a pretty stark difference. scarlet: does bayarer bump up? jeff: i don't see. i could see another two or five dollars, but they are never going to go there. this is a $53 billion bid. adding the debt looks at a $62 billion bid. they could do a couple dollars more a share, but they will never go to $140 fo, . scarlet: how all smart they sweeten the price? jeff: they could selloff. conglomeratet of a and they own some steaks and other companies that they have spun out. they could sell those and put them on the market to see what is out there to sweeten the bid. we have seen other reticent inquiries make their
own acquisitions and that puts bayer to backon off for either add more money. is there any chance that monsanto can go out for smaller pickings? jeff: never say never, but i don't see that. we will see what the statement is from on santa. santo. the board is unanimous in rejecting it, but they're going to leave open the door. it's about getting a better price and having some conversations to figure out who is going to run what. you have got to give them a lot of credit. he was the guy years ago that understood that the needed to be big consolidation. the problem is the country has delivered where they had to miss earnings or take down their forecasts. the shares are down quite a bit.
he feels like you all to do this deal given the great premium i'm going to get. he can run one of the big divisions and maybe run the entire company down the road. scarlet: have picked over is the ag space? jeff: very picked over. ds af is the only one that could go over the size of monsanto and we have zero believe they will get involved. it looked a little bit about dow and dupont, but i do not think they will ever get involved here. scarlet: jeff mccracken, thank you so much. alix: coming up, deutsche bank's chief says he is disappointed that movie cut its credit rating to grades above junk. that is next. ♪
scarlet: this is bloomberg markets. alix: time for the bloomberg business flash, a look at the biggest business stories. volkswagen is back in court in san francisco today. updated theroup judge on settlement talks in the emissions scandal. bw is on track for a tentative deal for owners of half a million bw's. there are questions of how much money each owner will get. scarlet: there is another twist in the sumner redstone legal fro drama. to new trustees have been added to the trust. the former trustees are suing to block the removal. alix: deutsche bank ceo is disappointed by the decision to cut its credit rating. it is now two levels above junk. earlier on bloomberg, peter derby explain the rating cut. >> we have a forward-looking
wew and what we have said is are anticipating as much as a modest loss this year. we are not saying that is our projections, but that is what is incorporated into the rate, so that would be within our expectations and within the stable outlook. scarlet: the ratings firm also cut rates for deutsche bank trust that handles correspondence banking. your business is flash update. scarlet: let's bring in michael moore from london. you heard about the movies and was talking about a modest loss. why is a credit analyst worrying about profitablity for a bank? michael: that was john cryan's counter. capital front, deutsche bank has gotten past its fears
from earlier in the year. they seem to have a stable capital ratio that has moved around a little bit. moody seem to call out a lot of the profitability issues, which historically have been equity holders's concerns. bankss given that deutsche has so much losses from the legal side over the last few years, perhaps that becomes an issue for the creditors. alix: one john cryan says we have enough capital to repay all of our debts four times over, is he mistaken or is this a different kind of accounting thing? ishael: i think part of it that outlook going forward. if you think that the legal issues are not over, which they certainly aren't, but it depends on the scale you are expecting going forward, that could be the divergence there.
john cryan has talked about getting the bank to a spot where it is not having these existential questions where it becomes more of a probability question. he seems to think they have gotten to that point where they should not be getting cut on the creditor side and it should be a question of whether they can boost returns. scarlet: moody is looking at deutsche bank's ability to carry out its turnaround. when it comes to that effort, house deutsche bank different from other big european banks who are also trying to refocus their operations and what they emphasize going forward? michael: they are all similar to some degree, but they are also a little bit different. deutsche bank gets the biggest piece of their revenue and their earnings from investment banking and trading. credit suisse can fall back on wealth management a little bit. barclays can fall back on credit cards.
deutsche bank is a corporate institutional firm so there is less the fall back on. that is why you are seeing them try to stay in some areas while cutting others. any are not going to be not investment bank, whereas the others, you could see them going into something else. alix: the stock in u.s. seems to be going up and not taking a hit on the downgrade. what does this mean for deutsche bank's day-to-day business? michael: i do not think it means a lot. you have seen some of their spreads that blew out back in january and february when there was concern about the ability to pay. those have come back in. unless the market gets spooked why this, i do not think it will have a major impact on their cost of funding or their day-to-day business. alix: good to see you. , euro areaming up
finance ministers convene in brussels today, talking about a $12 billion aid package for greece. we are speaking with a cio for one company that helped greece restructure four years ago. where do they stand now? alix: it is a mystery stock of the day. a new partner is giving the mistry stock wings. it is quite of a jolt after investors got vertigo from a after sharesview crash this year. scarlet: julie hyman will be here but the big reveal. wings? ♪ okay, ready?
this is bloomberg markets. julie hyman has the big reveal on the mysteries.. a new partner is giving our ministry stock wings, a big jolt after verdict you -- vertigo. julie: you are looking at the chart now. a record low on may 18th. now, something giving get wings. -- giving it wings. scarlet: red bull. partnering with red bull. down 82%. a lot of concern that gopro has run out of momentum. today, the stock is higher. they are announcing a multiyear global partnership that includes productromotion, innovation. read -- red bull is going to get a stake in gopro, and then gopro will be the exclusive provider of its point of view technology.
extreme sports events, so presumably gopro will be shooting those event. elsewhere, and some of the stocks we are seeing on the rise today, we have a mixed bag here. accompanied with keepsakes coming out with earnings that estimates. the brothers is rising, homeowner coming out with earnings that beat estimates. and, once again take over speculation, unfounded though it be, on this company sending shares higher. scarlet: let's get our headlines now from bloomberg first word news. mark c.: bernie sanders is looking ahead to the summers democratic national convention
in philadelphia. he told the associate press that i think if they make the right choice and open the doors to working-class people and young people and create the dynamism that the democratic party needs, it will be messy. also saying, tomography is not also nice, quiet, and gentle, but that is worthy democratic party should go. a majority of republicans believe that the likely he presidential nominee, donald trump, should release his tax returns. only 21% say that returns should not be released. they're weighing arguments on whether strict voting id laws in texas discriminates against black and latino voters.
it was ruled that it does, but the majority of the 15 member court agreed to rehear the case. it is unclear when judges will rule. french investigators have invaded the offices of google in paris. one report says that 100 investigators to part in the raid. google says that it complies complyingh law and is fully with authorities to answer questions. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. i am mark crumpton. back to you. you so much. european leaders are once again tried to help greece is faltering economy. they're trying to figure out how to ease the debt burden. today, there are fines that euro toisters may be more willing
compromise. the question is how far away is a compromise and what it lookok like -- might like? way to begin the conversation is give us some perspective. what is different now versus four years ago? >> now, greece does not seem to be to blame. i think what we are seeing now is the seeds were planted in the original agreement in which the imf was asked to provide much more help than they usually provides. ideally, the imf would like to be out of this situation, but germany wants them in as proof of objectivity in the process. have goodth sides
points. at the same time, both sides have a few political realities that make the situation surreal, in a way. part of the discussion is what the gdp could be -- it looks like science fiction, to some extent, but greece needs some of that. alix: when you look at the 10 year yield for greece, the yield has fallen to the lowest level since november. the two-year yield is climbing a little higher. it is interesting because the curve remains a little bit inverted. obviously, the level of an is less than it used to be. i do not think that me people
truly think that greece will default in 2017 or 2019. in many cases, what happens is that people hedge longer exposure by shortening the short end. that is why it gets penalized. with the curve compression, we would expect the curve to rally with the short end coming much more andy log and also coming lower. it is not that they should be trading at the level of portugal, but at least half of what it is now. scarlet: presumably some progress on these negotiations would be the catalyst for that. on debt -- greeing
who has the upper hand now? >> it would likely -- look like the imf, but at the end of the day, the eu has the option of buying out the imf. to some extent, i think the ideal situation would he to show some compromise on the part of the eu. afterant to decide this 2016. if they do not do that and shortcuts and the imf becomes more flexible, that could work out. it is hard to see them become more flexible. my sense is that the eu will give in some. it is only 15-16,000,000,000 euros that the imf has at stake. it may be cheaper for europe to buy them out.
is -- youting thing brought up a good point -- private sector is a fraction of that. to see the curve trading at these levels makes no sense. alix: obviously you see a rally in prices. what is your favorite investment opportunity in greece right now? the absolutey favorite is banks. obviousal, we like for reasons. obviously any rally favors banks that happen to be long bonds. as far as packages, the renewal agreement, the ecb can resume credit lending to banks. that has been estimated to us,
at least to the bottom line. to the percentage of appreciation, week banks -- greek banks. scarlet: if a deal is struck, what flows may they see whether it is to the bonds or the banks? >> the possibility of them using bonds. if that is the case, you will see some real investor demands. at some point in by real moneying institutions, you will have more demand. that is what will make the collapse happen. isx: outside of greece, what the most compelling investment opportunity that you see? >> we deal with international
high-yield and stress. alix: there is a lot of stress out there. >> the one that looks conspicuous -- venezuela. i think it is still incredibly achieved asset out there. asset out there. it is whether the political situation continues or resolved itself -- resolves itself. alix: thank you. good to see you. more.t: we will have much an to greece and professor from harvard will be our guest to be also have breaking news. moody's is considering a potential downgrade on the purchase of monsanto.
made it more likely that we will bring inflation back to target, whatever the income sooner and more sustainably. that is our contribution to the better economic outcome of the british people. to try to sit just otherwise undermines that. alix: meanwhile, a poll shows greater elderly support for staying in the eu. 50 2% of voters over 65 plan to stay in the eu, up from 48% in march. takingse billionaire is on disney. he says the largest entertainment company should not have come to china. launching ais change of theme parks. scarlet: time now for our bloomberg quicktake, where we provide context and background on issues of interest.
we are talking venezuela. subsidized oil and other benefits long brought venezuela independence of broad and support at home. but, collapsing revenue on tops of violent crime has put the late hugo chavez's legacy at risk. won for theon first time in 16 years. they offered a petition drive calling for a revote on th maduro. declining oil prices have hit venezuela hard. currentare 95% of revenue earnings. citizens wait in long lines to find scares household items from toilet paper to deodorant.
meanwhile, signs of hyperinflation are starting to appear. here is the background. chavez was elected president in 1988 and revolutionized the government and politics with anti-u.s. rhetoric. economyed the possibility from producing anything but oil. he won reelection three times. o has struggled for popularity. his critics believe that he has bundled the management of the country and should leave office. those loyal to him say the government is made up of almost a dozen party and has no single plan or leader. for more stories, visit bloomberg.com. ahead on bloomberg markets, investors, don't fret. morgan stanley ceo says that things are looking up. he spoke exclusively to
alix: this is bloomberg markets. i am alix steel. scarlet: i am scarlet fu. we have breaking news. shares of monsanto have been halted from trading. you can take a look. they were up about 1.5% before the announcement came through. again, halted from trading. alix: we learned earlier that they will be poised to reject offer to buyon from bayer. we are still waiting for an initial -- an official announcement that they will reject the bid. onrlet: we will keep our eye that one. for now, we go to abigail doolittle, live from the nasdaq. abigail: we have a broad
rally.bust the biggest boost are the shares of microsoft, up nearly 3%. has ofscow with graded, citing a potential for all this -- office revenue. on the shares from microsoft. it does show that this is a possibility with the stock back above the average suggesting that long-term buyers to some degree are interested in being involved. perhaps we will see the shares trade back up to the top of the range near $56 per share. alix: that is the biggest point boost, what about the best percentage performer? abigail: there is a sector provide -- performing on the top.
stocks.internet-based we are not sure what is driving this. we will be looking into this. lastly, we feel compelled to talk about twitter. one technology stock really bucking the polish trend -- bullish trend. there are the low consensus estimates, and are saying that an advantage for twitter. -- a strategy for twitter. alix: morgan stanley ceo says that despite first-quarter profits falling from the year earlier, they still exceeded analyst estimates and he still feels good about the results. scarlet: he will try to trim expenses.
they have moved out of higher cost cities like shanghai. he was asked on his perspective on china's economy. the chinese economy is intentionally and dollar economy. it is the second-largest in the world. it is growing last year at 6.9%. it is certainly growing at a rate demonstrably faster than the rest of the world. japan has negative growth. germany, 1%. the u.s., 2%. i will take six plus percent any day. china accounts for nearly 35% of global growth. >> how about the unvarnished view on china? there was an interview with bloomberg saying that the debt problem at the banks is far worse than anyone is reporting. upwards of 22% in the chinese banking system will go
nonperforming by the end of the year meaning trillions of dollars and bailouts. and pl arethe likely to rise. the chinese economy is an enormously complicated set of things going on, moving from an export led economy to a domestic demand economy. moving from savings to consumption. all of these changes are not going to happen without some bumps. sure, the mpl's are going up at the banks. no question about that. >> speaking of the challenging environment, you have a 33% joint venture which is the maximum allowed with the brokerage joint venture. consider, given the complexities in this market, , to allow you to
have 100%. or is the joint venture partnership the best way to go? >> sure, over the long run we have lights to own and control around the world. you get the advantage of the local expertise. what would be your expansion or headcount plan for asia? where are you looking to grow? i think asia, as you know, has been on the back foot for the last year or two. with rates rising you will see further liquidity coming out of the markets here. i'm not sure there is accelerated growth relative to what is going on in the u.s.. that said, we are long-term buyers, if you will, of china. we have a tremendous operation here in china, and of course in
hong kong and the region. morgan stanley is here to stay. was an exclusive interview with bloomberg in beijing. we have some breaking news. monsanto has been spotted. their shares were halted from trading. they have come out with a response to the bid from bayer. alix: they are viewing the result as complete and inadequate. they are open to discussing a potential path forward. $121 per share is an opening bid. monsanto now asking for more. scarlet: we will be back with more coverage. ♪
incomplete and financially inadequate. it is open to continued conversation to assess whether the the transaction is in the best interest of shareholders. monsanto is saying it is open to the prospect of more discussions but has not set a timeline for these discussions. it needs reassurances and it does not get that from the current offer from bayer. shares of monsanto holder from trading as we were awaiting this statement but it has now come to us and monsanto shares are still trading about 1.6% higher. alix: jeff mccracken joins us on the phone. we were literally just talking about this an hour ago. what kind of assurances is monsanto referring to? >> i think assurances equal dollars and that means what they will want to some sort of termination fee or some sort of money set aside if the deal falls apart because of regulators.
let's be honest, the obama administration has been -- has not been a big fan of big deals. we have seen some fall apart in the last 1.5 years because of regulatory issues or just general push back from the government. the pfizer deal fell apart because the government changed the tax rules. the halliburton deal fell apart because of antitrust issues. i'm not sure how big the concerns would be but there were concerns that monsanto andbayer would get locked by the eu or the u.s. government. just to reiterate, we are talking about a $62 billion offer from bayer in which they would offer $122 per share in cash which is a 30% premium. alix: it looks like the stock is trading again. it was 1.5% up before the news. however,longer halted is thishe next step --
a sweeten the deal? what does bayer d? >> morgan stanley is working on the monsanto side. the advisors will be talking soon and the big question will be what kind of bomb is bayer willing to do. i'm sure they knew that monsanto was not going to accept the first bid. are they willing to go to $1.30 per share? -- $130 per share? up tore room if they go $128, is the room to go higher? those are the next steps. a sanford bernstein analyst said in a note that an offer below $135 per share would be challenging for monsanto to agree to. alix: the stock has halted again. it was up 1.5% before this news came out.
-- what are the options left for monsanto? we were talking earlier that they need to do something because they have problems of their own. if they reject this deal outright, what are their options? >> there are not a lot. the option is to stand alone and get their business fixed. is the only other company out there big enough to do a monsanto deal. every indication we have rotten close to them is that they are not interested and not willing to take a run at monsanto. you either will have to fix yourself or you have to fix the deal with bayer. scarlet: and the pickings are slim. monsanto had previously wanted to buy syngenta. thank you for joining us. alix: let's go over to the markets desk and julie hyman. julie: i take the blame for
thinking monsanto recently opened. alix: so did i. julie: let's take a look at what's going on in the broader market. there is a significant rally today. all three major averages are hovering near their highs of the session. that out jones is up 221 points and not only is it a steep rally but the breadth of the rally is broad. advance/timeline look like it's the highest it has been since march 11. it isr way to look at using imap. you will see everything here is green and everything here is higher and not just by a little bit. telecom stocks are up the least but technology and financials have been the two groups that have been leading the charge today. we have seen this correlation
between the financials and bond yields moving higher all year. where you look at groups versus one another. you have what has been going on with bond yields and this is the bkx which is banking stocks and they have moved in tandem. upwe see the bond yields go on this increased perception of the fed being more aggressive, financial stocks have been following suit. alix: what about the individual performers? julie: one of the best is chesapeake energy. the company to the secondary offering but it has to do with the debt exchange. it's doing a debt equity exchange and analysts say this is good news for their balance sheet. there have been questions and concerns about the energy debt levels and the health of its balance sheet. the shares moved up 10%. homebuilders are rallying in the wake of new home sales going up. you brothers went up and
will hear about that in a moment and netflix is rising after saying as of september, disney movies will exclusively be streaming on netflix. analysts like this news in the shares are up by 4%, not just disney but the other properties like star wars and pixar movies. alix: thanks very much. monsanto has begun trading. newstock is jumping on the of the letter that was released to bayer. they say the offer is inadequate and the stock is up 1.5%. it is up 2.5% now. scarlet: obviously, investors expect bayer to sweeten the offer but we will keep you updated. the macro economy calls for the fed to raise interest rates. the philly fed resident joined the chorus and says he sees two or three rate increases this
year depending on how the economic data pans out. alix: all the talk is commentary. it has driven a surge in the 10 year yield and according to your next guest, yields will climb higher. he is the chief economist at stephen stanley and says yields tol drop to -- will jump 2.8% which is the second-most errors call. he joins us now. call haske a bond/bear been here for years. >> that's fair enough. alix: why is this the moment? >> i think the fed officials really mean it this time. the economy has improved and has been for a long time and the fed has been patient and the later couple of times because of the market hiccups last summer and again on the winter. i think they have now found they have fallen behind the curve so they are talking about 2-3 rate hikes which is more than what was priced into the market. scarlet: along with that, you see inflation picking up to
2.5%? >> i think the headline could pick up as high as that. we have seen a gradual improvement and energy prices have turned a little higher after hitting bottoms early in the year. the appreciation of the dollar which has been tamping down on prices, a lot of that is behind us. depreciation the dollar happened a year ago and we are seeing gradual increase valuation. i don't think inflation runs away from the fed but i think it will accelerate from here. alix: it seems like the yield curve disagrees. a probably thinks we will get rate hike but the long and says we will see lower growth and lower inflation for the longer term. >> yeah, market participants have been global about the market participation. fromare taking their cue the fed and as the rhetoric has changed, the market started to price and maybe 30% of ability of a move in june. to the extent they will go in
june, that means there's probably more to be priced in. scarlet: where do you think the fed wants to see the probability? >> they would at least like to see it at the d/50. -- at 50/50. the philly fed presidents is on linux -- that unless the data goes in a downturn, he would like to go in june and he would place the odds higher than 50/50. 10 year we see the yield go to 2.8%, what does the decline in prices look like? >> what you have seen over the last two weeks since the fed rhetoric has ratcheted up, it's a steady drip higher in yields and lower in prices. i'm sure there will be episodes where things move pretty rapidly. there ismmer, certainly a tendency for illiquidity and big market moves but it does not have to be a dislocating mode.
we have seen the stock market do well even in the face of a potential rate hike. alix: how you account for the fact that we are the best house on the block? other countries will buy u.s. treasuries no matter what because the yield more than europe or anywhere else. relative toe risk my forecast is even if u.s. fundamentals -- i look at it as an economist and trying to peg what the rate level should the. if i'm right about the fed and wrong about the market, it's probably because of the global situation and the fact that you got overseas buyers piling into our market to get what little yield they can find. scarlet: it's about positioning and relative value. we talk about the different federal officials sounding off. ultimately, what does it matter if fomc voting or nonvoting members say if janet yellen has not commented yet? >> the markets have taken the view that she is the only voice that matters.
i think it was really important that she scheduled a speech a week before the meeting. at the time that speech was announced, olivia: scarlet: scarlet: you're talking about the june 6 meeting. announced,ime it was the market was pricing and no chance of a move so she would not have needed to make that speech if all she wanted to say was that we not going to go in june. the fact that the speech was scheduled tells me she likes the option of closing the case for a rate hike in june if that's the way the fed chooses to go. alix: you have to come back. scarlet: coming up in the next 20 minutes, toll brothers will be out with better than estimated earnings signaling that the market for high-end homes are holding up. music has big plans to disrupt the music streaming industry. we will hear from the companies ceo that previous he led the universal music group. scarlet: what are the biggest
scarlet: this is bloomberg markets. the toll brothers ceo has been frustrated by the decline of his stock rice but today, the stock is having his best day since 2013. let's see what the numbers on the luxury builder show. we will discuss the stock because even with today's bounce back, it's down almost 12% in 2016. over the past year, it has trailed the broader market as well as its peers. the results lessons some investors concerns saying the
luxury market remains strong and construction labor costs are easing. the revenue had plunged during the u.s. housing crisis. it bounced back and then slowed again last year. revenue this past quarter increased 31%. analyst estimate their revenue may recover to gain 30% for the full year. california is a key market for toll brothers. it represented 29% of its revenue this past quarter. homesrchase of chagall helped in that state. the toll brothers city living business which includes new york city helps differentiate the company. the pricing in manhattan is flat . expand one unit nationally. it has diversified beyond the single family home operation. it was 91% but is now less in
the strategy seems to be paying up with a stock gaining about 8%. alix: let's go to the markets ask where julie hyman is checking on other company movers. rally,despite the broad there are some notable declines. the worst-performing stock in the s&p 500 is best buy after the company reported earnings that actually beat estimates. the second-quarter forecast is below estimates and investors are talking about and are disappointed by the chief financial of us administrative officer who came out of retirement to help turn around the company. she is viewed as instrumental in having made some progress. her departure is also one of the reasons why we see the stock selloff. we are also watching cf industries which makes fertilizer. they were hired yesterday. it's falling today and has a number of different downgrades.
bank of america merrill lynch and others are cutting the recommendations. bank of america merrill lynch analyst wrote in a note that the deal exit has added to risk for the company's near-term fundamentals including new capacity that could put pressure on the fertilizer market. we're looking at twitter today because the shares are trading lower and they have announced a number of new rules governing tweets including that you don't have to put a period before the@sign. they are changing that but the stock is reacting to a downgrade from moffitt nathanson from a cell to a neutral. they say the company is becoming less of a must-have as an acquisition because it's too big in terms of its valuation. it is likely to large for a risk reward to make sense as an acquisition target. here's the stock since its ipo. it is down by about 46% going back to november of 2013. today, it is trading at a record
financial troubles. apple is revamping its service. scarlet: why would the former ceo of universal music go into the streaming music is now? let's go to bloomberg radio. carol: thank you so much, cheer music. you're listening to the bloomberg advantage on bloomberg radio. music ceo, tell us why you chose to go with them. >> i had seen over my career at universal the whole streaming phenomenon start and watched all of the streaming companies come on board. cure music, it's curm is the semel -- symbol, it was unique and different in the way they approached the streaming business. and it was companies
pretty cookie-cutter at $9.99 and no one was doing anything different. everybody was basically thinking of it as music streaming and nothing else. started with the idea that social and music had to be together. social plus music equals fun. it was built in the ground up to have the social elements that people would like. also brought in new price points to the market which were great. havef our price points, we three, we will launch at $1.99 which is our lowest price package. with that come you get on-demand streaming, eight songs per day or a month and you get pandora -- like radio with no commercials. cory: how deep is the catalog?
>> it will be about 25 million or so songs. we have deals in place with the three major labels. deal withy, we have a one of the groups that represents the indies which is another 13 million songs. cory: the question is whether things like title -- whether the title or apple music has more exclusive stuff in streaming services. will we be in a time when people will have multiple streaming services? >> you are kind of in the business but no, there is not a chance that that will happen. for the average american family, spending $120 on music for someone, that's a lot of money.
can enterroduct, you the market at $1.99 which is great for the music industry itself. hopefully, we will raise first generation of kids that have paid for music out of the last four or five from the day they began to consume music. it should be great for the industry and its affordable for everybody. it felt like pinterest, the idea of putting on videos and pictures along with music. you're creating kind of a bulletin board of what you like in the world of music and can share them with family and friends. you've determined that that will be compelling for individuals? it grabbed me which is why i am with the company. it's very interesting. you make what we call your curate which are the eight songs that represent you.
you can share them with your friends and they can share there's back. you can send it with a picture or a video and you can send it with a doodle. there is a social aspect to our sharing as well as the music. cory: a lot of the history of or 40 years last 30 has been about changes in formats. in every occasion, you had the industry profiting from the catalog and new artists come later. it does not seem to be the case with streaming. streaming is about 62% catalog. with and at the curdth of the catalog that
is carrying and that outweighs all the new releases. cory: i see so many new artists is thriving and that was not the case when cds started. >> and even later as the cd continued to spiral down and mp3's were spiraling down, you had artists that were not in the top 200 or were not there at all. carol: we have to run but thank you for being with us. scarlet: thank you so much. alix: still ahead, an exclusive interview with the berkeley ceo jeff daily and what he thinks about the chinese economy and how the bank will prepare for the so-called brexit next. ♪
headlines. mark: bernie sanders is requesting a re-canvas in the kentucky presidential primary. he trails hillary clinton by less than one half of 1% of the vote. the senate's campaign says it will ask the kentucky secretary of state to have election officials review electronic voting machines and absentee ballots. both clinton and centers received 27 delegates but one delegate remains to be allocated. bill cosby has been ordered to stand trial in pennsylvania in a felony sexual assault case from 2004. a woman says he drugged and molested her. he says the encounter was consensual. he faces up to 10 years in prison if convicted. he has been free and one million-dollar bail since his december arrest. according to one egyptian official, there are indications an explosion brought down flight 804 last week. a senior forensic officials says
human remains suggest there was a blast on board but he cannot say what caused it. the egypt's state-run news agency denies the report but egyptian officials have said terrorism is the most likely explanation for what happened and not equipment failure. the pakistan internal minister says dna tests will be conducted on the body of the man killed in a u.s. drone strike to determine if he is actually the taliban and chief. pakistan says it's unable to officially confirm the death but and senior kabul taliban officials have already done so. news, 24 hours per day, powered by her 2400 journalists, in more than 150 news bureaus around the world. it has been rough for banks especially in europe. jeff daily came up toward in december and they have that more than 2000 positions. for -- hee'd sat down
set down for an exclusive interview. >> and the global economy, we clearly have to adjust to a drop in commodity prices. i've got a lot of confidence in the chinese ability to manage and i think we may be too pessimistic on the outlook for the global economy. i don't quite see the risk there. i believe the banking industry is so de-risked from where it was before. if there is risk, it's around the amount of trading being done and the most liquid markets by institutions that have very little capital. risk of operational those institutions trading through primary dealers into those liquid markets so it's esoteric but that's a risk we all need to keep our eye on. : but that would not be
systemic. >> it could be systemic. ranicine: it could bring the system down? >> we need to focus on the most liquid markets and the players that are leading the liquidity in those markets and how much capital they have behind their positions and how will the market adjust if one of them it's into trouble. francine: what would it take for investors to re-rate european banking stocks? now have predictability and how the regulators will do with the banks going forward is probably the most important thing. we need to believe that we are at least at the beginning of the end of the regulatory environment for european banks going forward. i think we need to believe we are at the beginning of the end of the conduct issues. whether it's r&b in the united states or ppi in the u k, there needs to be a sense we have a vision to some predictability around the bottom line.
ine:: do you feel regulation is a level playing field? >> i think the regulators have an enormously difficult task of re-regulating the vast complex industry in banking. a goal and aree trying to make it a level playing field between home countries and hose countries and european banks and u.s. banks and asian banks. it's not going to be perfect and it's not perfect today. but i have confidence that the regulators want this to be a level playing field and they will make the course corrections as we go to allow that to happen. francine: we are a month away do you feel there is a discount on barclays because you're in the midst of it? >> for sure, the markets are being impacted by the uncertainty of this vote. it is an historic vote for sure. said, ourirman has
view is that the best thing for our customers and clients in the u.k. is the u.k. votes to stay part of the european union. as we get to that date, the uncertainty will impact the financial market. francine: do you have a contingency plan? >> we manage the bank to do with all contingencies. we are very comfortable with our ability to manage any stress that will come our way. clearly, we hope the u.k. stays in the european union. b toine: is there a plan move bankers? >> we plan for everything. : is there a concern the summer like paris or frankfurt becomes number one in banking in europe? >> the history of london being the world's greatest financial centers is important for the u.k. and for barclays. presenceorward to our
in the financial centers today being new york and london. scarlet: that was the barclays ceo speaking and in -- in an exclusive interview. francine asked him whether barclays is being traded at a discount because of brexit. i would argue that banks as a group are being traded at a discount because of negative interest rates. if you look inside the bloomberg, this is a way of illustrating how badly european banks have underperformed the broader market. this is the ratio of the european bank group versus the stoxx 600. as the line goes down, they are lagging behind the stocks 600. stocks havek declined 32% over the last year. alix: the negative interest rate is helping but also the idea that they have run out of lsu juice and cannot do anymore. the ecb vice president talked
about what else is left for the central bank. >> this policy has limits as we have said. there are several types of considerations. probleminstance is the that there are levels above that were below which leads to a preference for cash and the policy would that not be efficient anymore and it would create other problems. we are still very far away from that. scarlet: a quick correction -- i met to say that european banks lastdeclined 32% over the few months. alix: we have breaking news on a possible deal -- a $15 billion takeover proposal comes to us from a street insider. the stock is up 3.5%
and this is a programmable chip maker. its competitor was bought out by intel a year or two ago. alix: sales are expected to grow next year by 4-6% after the congress or in the company is trying to help sales which is hurting the margins. the future of growth situation is better for the company. scarlet: we will cover this news as it develops. this is bloomberg markets. ♪
and its signing a new agreement with ucla, a 15 year footwear and apparel agreement for all 25 of the university plus men's and women's varsity athletic teams. the agreement starts july 1 of next year. apparently come is the largest apparel dealer in the history of the ncaa so those shares are moving higher by about 3%. it is not all sunshine in retail. is designer shoe warehouse cutting its forecast for the full year after his first-quarter numbers missed estimates. the company lame but challenging retail environment and says it will focus on trying to cut costs and the shares are down 11%. we are also seeing a selloff another shoe related categories. was downgraded at piper jaffray ahead of that company's results. 's is also down. in a different side of retail,
out withcame comparable sales earnings per share and revenue that missed estimates and yet the shares have turned around and are higher by nearly 3%. the company blamed the weak performance on the weather and a one-time legal charge. if you look at auto related retailers and how they are doing, we have seen they are also trading higher along with the autozone shares. thank you so much. shares of best buy are plunging after the electronic retailer forecast currently profit the trailed analyst estimates and announced the departure of its cfo effective after the june annual meeting. alix: is this an example of another struggling retailer or is there more? matt townsend joins us. mccollum whiter the markets care so much? >> she came and currently after the cfo joined and she gave the
turnaround a lot of credibility. experience and faith with analysts and investors and said we will cut $1 billion in cost and they backed up and did it. that has been the best part of this best buy turnaround. off somecosts and sold of their foreign divisions and outs a matter of growing sales. her big role was cutting costs and creating better efficiency. scarlet: does that suggest that test by does not have any more costs to cut? she is not in charge of growth. >> that's one of the concerns. the citigroup analyst downgraded to atock from a buy holden raises concerned of how much the turnaround has legs. it raises doubts about where goes from here. even if the ceo is still in place, the company made a point
of saying the replacement cfo has been here 16 years and has been groomed by sharon. every analyst i talked to about rest by would say without a doubt that we love the cfo and she is doing a great job and she gives total confidence in the turnaround. it was a store within a store concept that was going to be one of their growth drivers. where are they in their actual growth turnaround plans? >> it has been tough because they have done a lot of things to make the store better. storesve samsung and apple stores within the store but the product cycle is going against them for two years now. mobile phones were hot for a while and now people are worried and peoplepeaking are waiting longer to replace them and tablets are on the decline as well as deft -- desk tops. to be able wearables and drones but those are not enough ticket items to make up with a loss in other categories. virtual reality is the new thing
but that is not a marketable big category right now. theyet: and it's not like can sell oculus rift through best buy. thank you so much. hawkish the latest signals from the federal reserve may take some pressure off the bank of canada. of a potential fed rate has cooled the rally in the canadian currency. we go to toronto live. the canadian draw dollar has dropped since last week? >> this is a chart to illustrate it. since last week, the canadian dollar washe u.s. climbing against the loonie by almost 2%. that dampens what has been going on with the loonie trajectory as the price of oil has been lifted for much of the first part of this year. we have seen the loonie attached to that story and getting a bit
higher. for the governor of the bank of canada who has a rate decision tomorrow, this makes his job a little bit easier because he does not have to pull a trigger on perhaps lowering rates to keep the loonie lower for longer. it has been helping the manufacturing side of things that the loony overall has been lower but it has been creeping up. manufacturing gets a big kick theof that and it part of trajectory and the strategy is that manufacturing and non-energy-related trade will help offset what we have seen lost in the economy to the oil price decline. scarlet: the bank of canada rate decision will come to us tomorrow. give us an update on the wildfire in alberta. workers are returning to the oilsands facilities? right, it has been something in stages. the has been lifted now is
last of all mandatory evacuation orders now gone. some of them have been lifted and now they are all gone. what that means for the ones who just had it lifted his for a street officials as well as health officials went in there to take a look at the safety side of things. on the other side, we see suncor and other companies getting ready for the revamping of operations. the fire behavior itself has, down so that has helped the overall picture. suncor remote lysed its operations. mobilized its operations. also shell is ramping up so it's a better picture. alix: thanks very much. scarlet: it's time for the bloomberg business flash. in bed hassch secured the european union approval for its $106 billion takeover of sab miller.
they will offload brands to combine the world to biggest brewers. they will create a 59 billion dollar fund to support south africa. carney of bank of england says it's his job to tell the people of england the risk of leaving the european union. he is denying accusations he has become politically involved and is defending the forecast that a brexit could lead to a recession. >> in the same spirit of goodwill, i would ask you to dismiss something which i feel will be brought up and that's that [indiscernible] you are a former managing director of goldman sachs. i want to give you the opportunity that goldman sachs may have put pressure on you. >> wow. it's not an allegation, just
an opportunity to refute. >> i refute it categorically and them stunned. >> thank you. alix: the vote is scheduled for june 23. scarlet: iheeart media has won its case against unhappy lenders. the judge ruled that they are within their rights to transfer money out of the reach of predators. -- of creditors. the judge agreed with the claim that the move would design to boost profitability. that is the bloomberg business flash. up, is oilg production in danger of collapsing? we will explore that next. ♪
alix: this is bloomberg markets. scarlet: venezuela could be the next catalyst to rock oil markets. plunging oil revenue and high inflation is putting the country's economic prospects it serious risks. alix: is there a danger the oil production could collapse? we had the director of latin american research yesterday area >> venezuela is experiencing worsening economic am a social, and political problems but oil is the government's lifeli. it accounts for 96% of the government's foreign exchange
and the government will do everything in its power to make sure that oil keeps on pumping. that being said, the government is experiencing serious cash flow constraints and problems with service providers and its financing so we are seeing some the klein and production this year that we think will continue. scarlet: do you think it will go to zero? the major disruption in event that would cause production to go to zero would have to be a real political crisis driven by a social explosion, chaos in the streets that leads to a more significant disruption and output but i don't see a scenario where it collapses entirely. even in that scenario, we could see the state run oil company becoming a bargaining chip during negotiations between the countries various stakeholders or you could see in a chaotic or a violent scenario in which there are massive protest and political uncertainty, that the oil company workers stop showing up to work. you could have human capital
issues and potentially strikes that cause a disruption output but that scenario is going to be the catalyst to watch. you mentioned cash flows and there's an article how this is having an effect outside of venezuela. look at coca-cola today saying it cannot produce there because there is not enough cash coming in. the question is, what is the next chip to fall? if the government has the bond payment coming up, will be that the next determinant to show the direction things will go? >> the government has proven to serviceilling its debt. a number of companies locally in venezuela scaling back production. they are facing serious scarcity to keep of the goods
production going and in terms of the debt the government owes them. in terms of international bondholders, the government has continued to prioritize those payments due to concerns about the impact that a default would have on the oil company and the governments of the -- ability to maintain a cash flow. we think the government will continue. to do everything in his power to service that debt there is a lot of payments due, $4.8 billion due in the fourth quarter of this year so that is the bulk of payments. that is next in terms of the debt service schedule but the government will continue to lash imports to meet those commitments. today, we will speak with francesco gazzarelli, global head of macro markets.
scarlet: he writes about helicopter money and discussing whether it's necessary to he says was missed is that to some degree, monetary and fiscal policies are already reinforcing one another maybe not in ways as obvious. it provides more stimulus than is generally recognized. alix: we will talk to him about that. it's kind of already happening. scarlet: look at europe and japan. alix: you can join us at 4:00 p.m. for "what did you miss?" scarlet: this is bloomberg markets. ♪
from bloomberg world headquarters in new york, here is what we are watching this hour. home surge in april -- new sales surge in april. markets flying high today, gains in all 10 s&p sectors with tech leading the charge. rejects bayer's takeover deal. they are open to talks. can a deal get done? markets close in two hours time. the dow up and running with a 200 point game. julie: the strength has been remarkably consistent today. stocks rising out of the gate from a taking another leg higher and then staying there with