tv Bloomberg Markets Bloomberg May 26, 2016 12:00pm-2:01pm EDT
scarlet: good thursday afternoon. alix: here is what we're watching at this hour. oil had $50 a barrel for the first time this year. investors are still looking at data for food on whether a fed hike is coming. scarlet: and donald trump has hit the magic number. he has the delegates needed to clinch the nomination for president. alix: is apple considering diving deeper into media? we'll look at a report that apple is considering a time warner bid. scarlet: first, we are halfway through the trading day. we need to check in with julie hyman. julie: we had a two day gain but now, it has faded away. we have a positive going on
after the biggest two-day rally in three months. you can see the dow and the s&p are lower but not by very much. take a look at the volume here. this is the volume by sector. in particular, we see a volume drop in health care of more than 30%. the trading volume is lower as we get closer to the holiday weekend. that is the caveat. that said, when you look at the stocks, they had a big couple of updates with a financial gain, today we are seeing that melt away. we are seeing bond yields come down. they had been moving in tandem. berkshire hathaway are some of the big declines we are seeing and we have more declines trickling in with the jewelry retailer, sickness coming out
with first-quarter sales that missed estimates and they cut their first year forecast. some people are saying they are a buy at this point. below is coming in forecast and abercrombie & fitch is tumbling. there is dwindling traffic abroad. interesting here that something that is affecting tiffany's is also affecting abercrombie. alix: on the other side, some retailers are helping to support the market. julie: it seems like it is more on the dollar store side of the situation. dollar tree is doing well after the company said that traffic was up and the average ticket is up. it's earnings beat estimates. pbh, an interesting situation. we heard from these department stores that it poorly and yet pbh, which makes calvin klein
and tommy hilfiger, that company raised the full-year profit forecast with first-quarter earnings that beat estimates. they are doing pretty well and taking shares and growing internationally. that is according to some analysts. costo coming out with earnings that beat estimates. dollar general is following with the rival dollar tree in eating estimates. it is never monolithic when you are talking about the terrible us sector, there are bright spots. scarlet: pbh, a little bit concerning. let's check in on the first word news. mark: donald trump has hit the magic number. according to the associated press, he has the number of delegates needed to clinch the nomination. is has 1238, one more than
needed. he was put over the top i a small number of unbound delegates who told the ap they would support him. have aelection officials delegate -- bernie sanders hillary clinton picked up 27 delegates but one delegate is yet to be awarded from the sixth congressional district. the kansas began at 9:00 a.m. local time and results are expected by midafternoon. a refugee boat has overturned off libya's coast, 20 bodies have been discovered so far. 88 people have been rescued. it is one of 20 search-and-rescue locations. 1000 people have been rescued. nasa hit a snag while releasing air into an experimental inflatable room at the space station. the inflation process could
resume as early as tomorrow depending on what engineers learn. it will swell four times in volume. nasa paid bigelow aerospace $17.8 million to test the inflatable habitat concept at the space station. global news, 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. thank you. hedge fund faces a day of3 inflatable habitat concept at the space station. global news, 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. scarlet: thank you. hedge fund faces a day of reckoning. high hedge fund fees are not sustainable, james is the latest high-profile money-management calling out the industry. the industry is in the first stage of a washout. alix: a lot of weinstein echoed that statement yesterday. >> i think there will be a weeding out of hedge funds. there has been incredible growth in a short amount of time. 1000 shut down in
2015. that is the most since the financial crisis. alix: we want to bring in john brynjolfsson. he is a co-portfolio manager and joins us now from chicago. great to see you. ?o you agree that we are going to see a lot more closures weeding out of the hedge funds? john: absolutely. there is a trend where the large funds are gathering assets, large money managers like black black rock, for example, clients are using etf mourad war, and there is space sitting on a small segment for entrepreneurial individuals, talent to start up vehicles, perhaps not with the full registration and more on a
garage type of situation. that is because with dodd-frank, some of the money-management opportunities have been opened up to create a bit more competition. it doesn't really change the macro landscape, so to speak. the rich are getting richer, so to speak. scarlet: with that in mind, is the hedge fund model broken? or is this a cyclical downturn? and 20 is another word for active management. how much active management do you want and how much passive management? what you have decided on active management, with you have relatively conservatively invested active mutual fund with an aggressively
managed hedge fund with higher fees, the active management portion is what is important. and the fees are more a question of how much risk and how large position sizes is that active manager taking? alix: some of the rhetoric out there is that the reason why hedge funds have struggled so much in the macro environment is because he were in the same trade over the last few years while we had this break -- this big bowl run-up in stocks. and now that it isn't working, you have nowhere else to go. what do you say to that overall criticism of the hedge fund industry? john: almost all of the active management depends upon security selection or identifying opportunities. ever since 2009 when the fed started qe, as mohammed has been writing about, there is only one
game in town. and that is the fed. theo the extent that it is fed, it increases the number of opportunities to do something idiosyncratic or different. into a: you have turned family office. talk about the process that led to that decision? seeingentors have been that struggle as of late, i wonder if they will go down that path? john: icon and a lot of people, thought that the fed money printing at the bank of england and bank of china -- around the globe, it would trigger a commodity rally and trigger inflation. i got a little impatient for-five years down the road waiting for that to happen. maybe i was a little too early, we are starting now to see signs of inflation and we finally have
seen a bottoming out in commodities. crude oil has doubled over the last 90 days so there is some indication that the five-year trend of disinflation and deflation and falling commodity prices might be turning. alix: i hear a lot from the analyst community that oil has moved too far, too fast. there are so many longs in oil right now that a washout could be dangerous. what is your forecast for oil over the next 6-12 months? john: i am still bearish on oil. that is not a view that has played out in the last week. when you look at the inventory levels, it even though they came down today, they are eye-popping. i have been watching oil inventory for 20 years and they have always been between 300,000-400,000 barrels. now, they are at 540,000 barrels of crude stored in inventory.
that is crude which is weighing on the system. it is a symptom of too much oil production and not a lot of oil demand, which is bearish. alix: are you looking at $26 again? what's your call? john: down from here. i had a call of 15 a few months ago which hasn't come to play. it doesn't look like we will have a complete washout but there are headwinds. there are producers who can make small profits at current levels. other producers are being taken out. downward sidethe of oil prices, i would say. scarlet: overall, you see in scarlet: overall, you see in balance, not just geographically of oil prices, i would say. scarlet: overall, you see in balance, not just geographically that in different industry sectors. how do you position for all of this when the path of least resistance is higher for risky assets? john: part of it is getting down
to security selection, and in the case of the venture capital and private equity, finding teams of people who are doing something a little different, a little better. there are opportunities in the technology space and stantec. ritual reality. and online. technology boom is accelerating, and it is changing the way the world works. it is tough for a lot of sectors. employment is challenged when you have the minimum wage going up and fast food stores replacing people with robots, so to speak. that speaks to some it bounces but it also speaks to opportunity. alix: what are the opportunities? you saw what happened at the lending club over the last couple of weeks and now there is issue of regulatory overhang with that group. those stocks were struggling. what is your call on that group? john?
john: i'm working with a company called open-door trading. it is a small company that has been working with the treasury and the fed and the players in the treasury market to make those treasuries more liquid. and that is an example of where technology can innovate and make things work better. there is some opportunity to earn some fees as well. scarlet: all right. john brynjolfsson, thank you so much. he is joining us from chicago. alix: coming up, the mystery stock of the day. today's mystery stock is firmly in the black, not the orange, but the odds are not ever in the favor. ok, hunger games for sure. scarlet: i thought it was netflix but i don't think they
alix: you are watching "bloomberg markets." scarlet: let's head to the markets desk, julie has a big reveal on the mystery stock. this stock is in the black, not the orange. it needs more to feed its hunger and beyond. she is convinced it has something to do with hunger games? julie: there is one company that is behind "orange is the new black" and "hunger games." lions gate. they came out with earnings. you can see here, the big drop
came back in february after the last earnings report after the company came out and with third-quarter estimates that missed estimates. they didn't provide a forecast for the full year. that brings us to today and the stock is outperforming in today's session after coming out with earnings that beat estimates and the company did provide a view for the full year. even though part of it is below estimates, the forecast is a little bit below what they were expecting, the strength of the past quarter is driving the stock higher. it has more to do with tv the and it does film. take a look at the bloomberg. this is what comes to us from bloomberg intelligence. you are looking at motion picture revenue versus tv revenue. motion pictures is still much larger proportion, however, if you look at the growth rate, you will see that tv has skyrocketed
in terms of the growth. the international licensing in particular for "orange is the new black" is what drove this higher. we have heard murmurings about lions gate in talks with starz. tv appears to be where the growth is for the company. films are hit and miss. "hunger didn't need 17 games." scarlet: i didn't see any of them, actually. alix: i know. let's move over to commodities. oil monster rally is an indication across different asset classes. i'm taking a look at the high yield index. this is the high yield energy bond index. the red line is what constitutes the stress, below it is better. it is a 10% line with 1000 basis
points. take a look at what happened to oil with $26 a barrel. unbelievable. it has come down to about 900 basis points. 9%. no longer considered distressed. that is a huge move in a short amount of time. scarlet: in a span of three months. these are the head winds that are causing hedge funds indigestion, because they are trying to get ahead or at least not fall behind. alix: you would have had a 30% gain on your books. scarlet: when you take a look at the overall stock market, this is a ratio of the energy stocks. that initial white line. the s&p 500. is so as that was rising, we saw energy companies underperform. when the line goes down they are lagging behind. as of late, they have been outperforming the s&p 500 in the second half of this month.
when you look at some of the names that have performed, let's pull this up. this is the bottom of the s&p 500 so far this year, you have 38 members in the s&p 500 energy index and the only one to decline is bolero. some of the other providers are lesser performing names. alix: exxon, big oil and the refiners are not doing as well. it is an interesting breakdown. still ahead on "bloomberg markets," switching gears to politics. some say he has the toughest job in america. ♪
one of the hardest jobs in america. the chairman of the rnc. scarlet: this is the cover story of the latest bloomberg business week. the author josh green joins us now. he is kind of like a foil to donald trump. josh: if you were a reality tv show producer, and you are casting somebody to be before oil to donald trump, everything he has worked to build over the last five years, donald trump has come through like a wrecking ball. he has broken down his efforts to moderate and broaden the appeal of the republican party. alix: the cover, where he is sitting at his desk with his head in his hands, is that an accurate description of your interview with him? josh: i believe that it is. i have long interviews in the peas with both him and donald trump, and each of them has their own vision of where they
think the republican party should go. reince priebus' vision of where the party should go was to moderate the party. i tracked voters, millennials and women. donald trump has a nativist, populist brand that smashes political correctness and could do great damage to the future of the republican party. scarlet: i know you said he is a sweet man but he seems tense at different parts of the interview. josh: he did flip out on me in the interview. i asked him, again and again, if you have a candidate to insists barack obama wasn't born in the united states, who has called hispanics racist and drug dealers, how can you possibly hope to attract hispanics, young people, and that was the question he had a difficult time answering. alix: what was the general take away from that answer? scarlet: --
josh: the take away was that he didn't like that question. but reince priebus does and says that they have been working hard to reach out to my nordic divinities. he thinks donald trump will perform better with hispanic and black voters than mitt romney did. not a prediction i would make but we will see. scarlet: you also took readers inside a private meeting between donald trump and paul ryan. josh: the big issue in republican politics right now is, can donald trump unite the party? the big holdout has been paul ryan. he thinks he will do great damage to the conservative movement. they had a famous summit on may nobodyody leaked and talked. i had a source in the room and describe to our readers donald trump dressing down paul ryan for foolishly trying to cut entitlements while democrats are offering more.
essentially saying, i am donald trump and i will put my stamp on the party. the republican party is now what i say it is. alix: josh green, thank you very much. scarlet: there is the cover. alix: i love that picture. up, bill gross has a message for janet yellen. alix: we have an exclusive interview with the bond king coming up next. ♪ okay, ready?
scarlet: this is "bloomberg markets." trump and house speaker paul ryan spoke by phone last night, they are trying to break a weeks long impasse over the presidential endorsement. next it was a productive phone call. our staffs have been beating. we had a productive phone call, i will leave it at that. mark: two members of donald trump's team say they believe that an endorsement is imminent. donald trump says the conversation was arranged days ago. hillary clinton leads donald trump by seven percentage points among middle income voters. that is according to the latest online poll from bloomberg politics. family incomes of $30,000-70 $5,000 back mrs. clinton over donald trump.
french police have detained a man thought to have links to extremists. the french media say the man was believed to have a nice and teargas bomb. it took place about a block from the deal. attacks by extremists have left france on edge. at the g7 summit, japan's prime minister is warning of the risk of a 2008 lehman brothers style shock to the economy. he said economy prices fell 55% between 2014 at the start of this year. if there is aat major shock to japan's economy, he would delay -- global news, 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. thank you. financial markets got better
than expected date of this week showing the economy might be recovering faster than anticipated with. bill gross has some ideas. he manages the janis unconstrained fund. he spoke exclusively to erik schatzker yesterday at the bloomberg fixed income event in california. erik schatzker asked him when he thinks the fed will hike. bill: i think they move in june. and i think that is because the second quarter is looking like a 3% had with quarter. it will come back from the first quarter and jobs will be adequate, in terms of growth. the dollar has gone down instead , it is close to its peak. for all those reasons and
economic statistics, this is their time. i think janet yellen is more dovish than some of the governors but there are governors that i think are beginning to understand what we just talked about, in terms of the effect of low interest rates on the savings pool. erik: and the dallas fed is arguing the same thing. that's the fed, sooner rather than later, has to make a move. those are the arguments in favor. une.avor of a hike in j what arguments do find persuasive against a hike in june? bill: it is a question of trying to answer what the appropriate neutral industry is. some would argue that where we are now, close to zero, and where other central banks are, is an appropriate rate in a
situation where aggregate demand and global demand is insufficient. it has really been a position -- erik: and that holds water with you? bill: it does. there are two sides to this. there is no doubt that the global economy and u.s. economy needed the low interest rates in order to elevate asset prices and to trickle down into the real economy and create jobs. but there is evidence that now, it is becoming tired. and ultimately, financial institutions like insurance companies and banks and pension funds and small savers, they are bearing the brunt of policy going forward. it is two-sided. it is not an easy answer. that is why they move gradually. but they have to move upward. about the impact
outside the united states and the feedback that comes with it? a few months ago, the fed was worried about global risks and just now, we find out that the chinese are interested in knowing when and what the fed is going to do. because they are concerned about the impact on the u.s.. bill: sure. one of the problems is the high level -- it would be a simple thing for the dollar to go up for emerging-market currencies to go down and four exports to the more productive. that is a simple thing. lasthe fact that over the 5-10 years, they have borrowed a lot of money in a dollar-denominated debt. so it works in reverse.
another day deeper in debt. if it is dollar denominated the dollar increases, it will crash. erik: how sensitive is janet yellen and the rest of the committee to those issues? because, people wonder. perhaps with good reason. whether the dog is wagging its tail or the tail is wagging the dog. bill: over the past several quarters, they have taken it out. it does indicate some sensitivity to currency. the fed has mandated inflation and domestic growth. but as we have seen with the lehman brothers, financial conditions, meaning the stock market, to be open and honest,
and global economic growth have taken on an importance that it never had before. erik: stock prices in recent days indicate a growing level of confidence that the fed can pull off a hike without provoking a spot in risk assets. what i ask myself whether the market primed for 15 months for the fed to move and when it did in december, stocks and credit sold out finally for two months. why wouldn't that happen again? bill: it would. and if it happens, and i think it will in june, they will temper the potential tantrum. with language that suggests that not only gradual but maybe the next one would be in december. they have had many governors being open about 2-3. i think that is an exaggeration but if they are going to be to
then june and december might -- w the markets to scarlet: that was the exclusive interview with bill gross. this i like to use function, it shows what markets are actually looking at in terms of rate hikes. the green line is what the policy curve is today, and the yellow line is what it was on the market low of february 11. that goes to show how much markets have related to pricing in more rate hikes. nonetheless, in six months, we see the 60 basis points with the implied policy rate and in three years, i see it over 1%. that is a big re-rating. that is exactly what the fed is trying to do. have the three rated at enough to do something in july.
scarlet: the top green line, you wonder if that is what the fed wants to see or if they want steeper. alix: probably steeper. scarlet: when we look at data that emphasizes -- we have to ec su function on the bloomberg. the actual number that comes out is a surprise. the reaction in s&p 500, meaning this is another way of looking at it. i will make this chart bigger. they pretty much do show a correlation there. it is another way to highlight the data that is coming in. it is and what the actual level is, it is where economists and
investors are positioned for it ahead of time. alix: was interesting is that we are not that much above the zero level with the white line, but the amount it has increased in it a couple of weeks is stark. so we are not all the way up but that is a big re-rating of expectations. scarlet: a good point. maybe we can zoom in on what happened in a 2016, since january, the white line has shot straight up, especially since may 12. it has come off the bottom since april. alix: the global head of deutsche bank will be joining us at 4:00 p.m. today and he thinks the fed should not be raising rates anytime soon. this is "bloomberg markets." ♪
scarlet: you are watching bloomberg. alix: this is your global business report. scarlet: what kind of returns can you expect from the market? this is a bloomberg exclusive. alix: and uber is expanding in africa. it will begin accepting cash payments in south africa with a new option to track writers concerned about credit card fraud. scarlet: vladimir putin, the man and the myth. bill gross, fund manager of
janus capital had cautious words about the investment environment. he spoke exclusively to erik schatzker at the fixed income event in california. his thesis -- get used to lower returns. janusour objective with and the unconstrained fund is a 3.5% return. much better than the stock market so far. so i think that is a realistic objective, but it has to be done recognizing that the credit and the yields and the yield curves and the stock pes are artificially elevated. everyone is uncertain. europe, british consumers remained resilient.
spending was up the most in a most a year and it helped to offset scarlet: falling export and business investments. scarlet:scarlet: a french drugmaker has cleared a hurdle getting a drug approved in the u.s.. an fda advisory unit says it should be approved for sale. ng to grow ini africa. they will start operating in the capital and tanzania within a month. a already operate in kenya. they will experiment with a cash payment option. alix: time for a bloomberg picked take when we give context and background on issues of interest. today's topic is vladimir putin. george w. bush claimed in 2001 that he got a sense of putin's soul. here is a more practical assessment. >> it is the year 2000 and
vladimir has become the president of russia. after a decade of post-soviet humiliation, he starts reasserting his country on the world stage. the timing is convenient. oil prices are soaring and it boosts living standards across the country. eight years later, putin has to leave the presidency because of term limits and does a stint as prime minister. why 2012, he becomes president again. now, following international sanctions provoked by russia's intervention in ukraine and a collapse in the price of oil, living prices are falling and it is putting his appeal to the test. this is the situation. putin is all about strength. and is the strength of his image that has helped retain his leadership. you can see this whether it is performing in martial arts, having his pet labrador sniff
angela merkel, who isn't the biggest fan of dogs. in fact, one of the only times he has shown its softness was at his presidential victory rally in 2012. and here comes the argument. putin is being tested by an economy that is tanking. russia is facing the longest recession in decades. gdp fallen by 3.7%. meanwhile, he is holding on to the former kgb tough man image at home. abroad, he has tried playing more of a diplomat. after did -- after starting a bombing campaign in ukraine, he is working with the u.s. to reach a settlement. the question is now, how will putin be remembered? for his diplomatic flexibility or as the unyielding ruler whose military adventurism hurt russia
concerning the carlyle group financial services. has resigned.zy that is according to people who are familiar with the knowledge. scarlet: he is a half-brother -- the carlyle spokesperson refused to comment. the company itself did not respond to phone messages. he ledor perspective, the carlyle investment group with bankunited and boston financial holdings. there you go. he has resigned. scarlet: let's go to abigail doolittle, live at the nasdaq. she is looking at extreme movers. abigail: that is true. we have -- pharmaceuticals plunging. this is according to black smith
kline, they will not be testing a drug that they will be using together. they did boost the full year, the low end of retail is holding up. we have strength in costco holding up nicely. e do have stern agee's. they did say it was a welcome development. we do see shares hitting up against resistance. the stock is strong today. this suggests that buyers have their work cut out if they want to see cosco trade higher.
scarlet: a break about a proposed deal like this. shareholders are still haunted. >> time warner management and shareholders have -- haunted is a great word. apple has been dipping its toe in the content business for the last 10 years. with music and video investments. if they want to take a big leap into the deep end of the pool, it requires them to make a big acquisition. that is why investors speculate
that whenever a collection of media assets comes up for sale, you always think about apple. have been making small steps into the content business. they are huge player in the music business that it makes sense that if, in fact, they , they to get into content have plenty of cash to do it. it leaves them with only a big acquisition if they want the content. paul: one of the thing apple investors have been talking about is taking the place of the phone. it is something we have been talking about for a few years. is there a way for them to get into the tv business. they don't hold the cards here. the parties that hold the part -- that hold the cards here are the owners and they understand
apple has to get behind everybody else who wants to bid on the content. if they thinkder they could use the same playbook but the internet content business has changed the way they approach the offers. paul: that is exactly right. the content owners did learn a lesson from the music industry 10-15 years ago. what we have seen is that studios are licensing their content on a nonexclusive basis. i don't need an apple to distribute my content. apple, with its huge size, would be a great partner for somebody who has mutually beneficiary terms. alix: so if time warner wasn't it, is there another company that apple should be looking at? paul: there are only a handful
out there. there has been a lot of consolidation but viacom is somebody who is in a state of flux. who knows how the ownership of that company will develop over the next year. so there are a handful of players out there. there are smaller players like lions gate. if you are apple and you are thinking about making a larger investment in the content or media space, it would be my guess. scarlet: thinking big with apple. paul sweeney, thank you. -- willming up, the ceo be sitting down with the latest effort on his effort to reform fx trading. ♪ . .
alix: from bloomberg world headquarters in new york, here is what we are watching -- as investors in the u.s. markets get ready for a long holiday weekend, those in china may be poised for a dramatic move. scarlet: eli lilly is stepping beits rnd game, but they may facing an uphill battle as drug launches are tougher than ever. alibaba being investigated by the sec. what is raising red flags for u.s. regulators? first, we want to head to the markets desk julie hyman has been tracking the moves. a pretty narrow point range here. the moves or the lack thereof as we have a positive after the two-day gain. all the major averages are lower ,ust a bit and this point range
if you look at the intraday moves, as it has flirted with sees and losses, you will the second smallest point range we have seen thus far this year. you have a tight throughout the session, the smallest point range was on april 2. it looks like the second smallest unless there is a dramatic change to the chart today. 14% below the 20 day moving average. the map split between green and red. as we talked about more defensive groups that are doing a little better with utilities, telecoms, financials and energy leading some of the declines today. i was looking at the index point movers and we have some on both sides with facebook and microsoft pulling back.
alix: we have weaker eco-data out today. want to seeoing to investment in the u.s. economy and that was pretty weak. julie: when everyone watches the takesach economic report on more importance. especially when you see the trend missing for three straight months. bondee this decline and deals pulling back after the recent rise we have seen in bond deal. you can look at the interest rate futures and factors in the probability. afterseeing that big rise of fed minutes, we see more a sideways move in those interest-rate futures. not anymore optimism more pessimism that the fed is going
to raise rates. we wanted to check on the u.s. dollar and as you would expect, we see a little weakness versus a basket of currencies. scarlet: thank you, julie hyman. alix: let's check in on the bloomberg first word news with mark crumpton in our newsroom. mark: michigan governor rick snyder is calling to a halt to a ministry to the investigations into how to state agencies handled the flint drinking water crisis. the michigan attorney general says the investigations could have what he called a chilling effect on the criminal probes and might lead to obstruction of justice. the u.s. coast guard says to jets that collided off the north carolina coast had four survivors at have been taken to the hospital. it happened east of the states outer banks. a spokesperson says a commercial fishing ship pulled before weree out of the sea and
taken to a hospital in norfolk, virginia. billionaire businessman donald trump has reached the number of delegates needed to clinch the republican presidential nomination. he was put on top by small number of unbound delegates who told ap they would support him. mr. trump is the only remaining republican candidate left in the race. the nomination this summer in cleveland. in paris, right police used tear gas to rake up violent protest fordisperse crowds challenging labor laws. police made 16 arrests and estimated between 18000 and 19,000 people took part in the protest. global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world. i'm mark crumpton, back to you. scarlet: thank you so much. data this morning shows jobless claims falling for a second
straight week. by fed chairents janet yellen to determine if the economy is ready for a rate increase. alix: paul hickey is the founder of bespoke investment group. i asked if recovery has matured. i think it is a late stage economy, but that does not necessarily mean weak markets. you can have late stage economies go on for several years and we see concerns in certain sectors and industrials have continued to show weakness, but they show some signs of a rebound. is showing anity increased propensity to spend. this week's new home sales data, some of it may have been an anomaly, but some of it was very strong. incredibly bearish and
people were saying to buy gold. we have had a tremendous rally in europe over the last couple of days. isn't this the breakout? guest: it is all about sentiment. last week, the fed minutes came out and they said june is a possibility. when does the fed come out and say a meeting is off table? think we have such a rut alternating between gains and losses and you get to a time when no one thinks the market can go higher and that is exactly when the market does go higher. the s&p 500ted to -- will it react favorably or unfavorably? we need a rate hike to send the signal the economy is doing well. add a right now, if you june rate hike, you could add a negative reaction. i think july would be much more palatable for the market.
take a broader step back. the fed hiked rates in december. looking at a rate hike after a long pause, the market runs into turmoil. if you told most people let six months later the market would be flat versus when the fed hiked rates, i think most would sign up for that. something really weird is happening in the one point $3 trillion junk on market. biggest junk-bond market has experienced broader elite flows as the broader market has seen relatively little turbulence. scarlet: joining us on this is lisa abramowicz. what is behind all of this? lisa: first, disclaimer -- people don't know who is putting what into what. looking at the fact that you have seen such incredible inflows and outflows and looking
at the activity in the underlying market gives some clues of what might actually be going on. one major theory is dealers are increasingly using ats, their erstwhile inventories of corporate debt. they can say to their clients a lot of people want to buy bonds. we will take your money and i will buy etf shares and i will redeem the shares for the underlying bonds, a sort of in-kind redemption and take those bonds and sell them to the investors. a risk-free transaction for the bank in that case or virtually risk-free. less than holding the bonds them selves. what should they do before? the crisis, there were huge inventories of riskier debt on their books. they would use these to
facilitate trading. if someone set i have a billion dollars of bonds i need to get rid of quickly, the bank would say i would buy them for cheap and then hold them on my books until i can opportunistically sell them. then they would sell them when the opportunity did arise. of the withholding rules, a lot of these regulations made it not profitable for these banks to have bigger inventories of risky debts and you see them decline. so all of this activity has not changed the actual price. like there'ss something more at work than just deteriorating sentiment. you see record-breaking withdrawals that do not have correlations to the returns. it does make one think what is going on here? is more than a reversal in sentiment.
scarlet: is there something like this as a risk causing more turmoil in the broader market? lisa: i think that's a good question. i think there is one big concern that the more hacks that we come up with to make it easier to get in and out of the market that is not trading all that much, the more the market will be ill-equipped to handle some massive reversal. if it is not, if you have fast-moving market than those bonds have to be liquidated, it could be another story. all of these new systems that have come up are untested. and you so much, lisa abramowicz. to gad f on the go. up, chineseing
alix: you are watching scarlet: bloomberg markets. i'm alix steel. scarlet:i'm scarlet fu. let's head to julie hyman for a check on some individual movers. julie: let's take a look at what is going on with gold prices. we see a continued pullback in the price of gold. we see sentiment turning we seet more bearish as the forecast for the federal reserve to raise rates more times than people were expecting. -- is the latest example
bullion will be at $1150 announced by the end of the year and the fed will raise rates twice and the dollar will rise as a result in that will put pressure on gold prices. inversely dollar move and that has given gold a boost so far this year. has -- gold prices have moved up as the dollar has moved down. one of the cool things you can look at is the commodity price forecast. this is a measure of sentiment. sentiment is bearish in terms of the sentence -- the sentiment we are getting from commodity analysts. alix: thank you so much. scarlet: investors should brace for a selloff in chinese stocks as investors shut down for a holiday weekend. says chinanalyst
shares would fall below 7500. basis did on an intraday in mid february. tom joins us on the phone from arizona. the shanghait composite, you have been looking at 10% of where we are now. looking at about 10% from the current market level. , one istwo projections 25, 22 is the deeper projection. if you will recall, we recorded .he peak some time ago at the high, we projected below 3200 and once we accomplish that, we saw a rally and forecast that rally and saw a rally off the february low. we are confident it will hit me five or 22 and we will fill that
rejection. happenconcerned it could rapidly and it could unfold. one thing we always look at is that over long weekends, whether it's holidays in one market, there could be announcements and things that could occur and i'm thinking over the weekend when the markets closed next monday, we could see an unfolding of the price in the chinese markets. we see severe vulnerability, 10%. it could spill over into u.s. markets. that is what we are looking at. after being positive on the year, we turned somewhat negative and said the bottom 490% of the stocks, we look for
a sharp correction and the that as werojected expected the chinese market to declined 10%. and it did. that is what we are looking for now and we are concerned could affect u.s. market. scarlet: i also wanted to bring up hong kong shares. you have been looking at that. it turned negative in april. tom: off the high we recorded in peakwhich occurred at the that was recorded back then, that was a major top. we projected a downside that we would see somewhere below 7500. we turned positive on that market and we looked or a rally, but now we see risk.
we don't see as much risk to a new low as we do in the shanghai composite. low and we arehe looking for 76, 72. alix: does this happen tomorrow or is this a next week scenario? it couldthinking happen next monday or even as early as tomorrow in china, but i don't know if it is going to spill over right away with the u.s. market. we could see the u.s. market make a new closing high. alix: we have to it there. thank you very much. this is bloomberg markets. ♪
against the backdrop of the china economic slowdown. localt: for more on how leaders are weighing on investments, we join our radio colleagues, carol massar and cory johnson. carol: i'm just introducing our next guest, our senior portfolio manager -- $125 billion in management -- in assets under management. is that going to be a catalyst all for the financial market? we can say it is informative but we don't think it's a major driver. investors are looking for greater clarity, particularly in monetary policy. we have election outcomes they will be sensitive to and the more fed specific data, looking at numbers next week. cory: there's a presidential election in the u.s.. is that one of them?
guest: that is one of them but even before that, the june referendum in the u k, the brexit. those are two very specific items. certainly now that we are through, earnings season is getting a sense of what we are looking at it we see quite a bit of dispersion of results within economic sectors and industries. we expect the desire for information to continue to play out and investors are anxious. arol: we will be carrying speech tomorrow on bloomberg. what do we need to year as investors? timing is impeccable. .n for the long holiday weekend getting a greater sense of the sensitivity she has had -- the concerns of her being dovish and
acknowledging some of the international events and implications of those events, but also, quite clearly, there has been an increase in the dialogue as far as fed speakers. : you are being kind. they are going on the sunday talk shows right now. guest: it is a free-for-all -- cory: we have never seen this before. guest: you go back to december and there's a negative reaction to the first policy hike expectations. cory: it took a week or so. guest: that's right. the summary of economic projections, that they were going to be more aggressive, i think they were going out of the way for what is likely a june or july increase.
we are somewhat indifferent, whether it is june or july. it is much more -- cory: it's like the binary choice from your actual as opposed to what it actually was? guest: i think so. we are interested in the reaction in the currency markets. it's interesting while we did see the markets, to the first move, you saw the dollar retrace a fair amount of its previous year and a half advance. carol: how significant is it that we had today's of rallies and some of the market analysis said it was because investors are getting upbeat the fed was confident enough to raise rates? for so long, investors wanted to keep rates low because it was encouraging in terms of all of
the free money out there. what do you make of the change in market psychology that investors are saying the fed is confident enough to raise rates sooner rather than later? guest: it really does point to feeling in theic markets right now, embracing positive implications of a rate increase. we saw mutual funds and etf's of about $4 billion. not spill overd as far as the capital coming to the markets. find fascinating is just highlighting that schism between bearish and bullish -- look at the sectors leading performance on a year to date raises and you have defensive injure sensitive like telecoms and utilities. inflationary more sensitive energy and materials. and energiesies
are the top two performing groups on the s&p 500. thank you so much. the senior portfolio manager at u.s. bank with about $125 billion in assets under management. still ahead, canada pass against banks are being profit estimates despite slowing economic growth and growing provisions for impaired energy loans. ♪ okay, ready?
bloomberg first word news. mark crumpton joins us with details. mark: a key player in the impeachment of bill clinton is being demoted from yale university for a legibly mishandling sexual assault claims against the football team. kenneth starr has lost his title as baylor's president. baylor is also planning to fire its coach. as an appointed independent counsel, he spent five years investigating president clinton, culminating with the monica lewinsky scandal and the president's impeachment in 1998. two members of donald trump's team say an endorsement by house speaker paul ryan is imminent. ryan spoke with the likely nominee by phone last night. ryan is said to want to end the impasse and repair the split in the republican party. this comes as the associated press reports trump has reached the number of delegates needed to clinch the nomination. the republican-controlled house
has moved to fund the fight against the zika virus but lawmakers left town for the memorial day recess with no visible progress toward a compromise. the senate measure combines $1.1 billion to fight the cap with broader spending bills for transportation, housing, and veterans needs. clashes between iraqi government forces and islamic state outside the city of falluja continue. it is fourth day of a large operation to drive them out of the stronghold near baghdad. militants have held the city for more than two years. the iraqi prime minister says pull back oned to the protest so they can focus on military operation. global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world. i'm mark crumpton. back to you. of the fiver
biggest banks in canada have reported second-quarter results and a major concern going in was provision for credit losses linked to the energy industry. alix: however, canadian banks have largely proven their doubters wrong once again. we are joined by pamela ritchie who joins us from toronto. how did they do that? pamela: diversification is the answer. toronto dominion bank is the second-largest lender in canada coming in with profits that are reliable in terms of beating or meeting estimates. they did not disappoint. the profit grew by 10% and they beat expectations. they did raise their provisions for credit losses but that is less than what some of the estimates had been.
rbc raised their provisions by 12%. the bank of montreal raised credit provisions but not by as much, so all of them are concerned about the credit side of things and they have raised divisions but they are not as high as some people thought they would be. loans thate their had soured sore through the quarter, but the banks bringing in profit still in line or within a penny. a couple of dividend races as rbc touched on the wildfires and how that will affect the banks portfolio. they said $1.3 billion worth of mortgages have been even out in the fort mcmurray area. they are assessing how that is
going to work out. td says that will be a q3 event. seen something we have with banks in europe as they are starting to cut job losses in the u.s. are they dealing with the same kind of cost-cutting? pamela: absolutely. that has been the trend globally and the bank of montreal coming out saying they are cutting 4% of their workforce across the board as they move to use technology and move to a more mobile bank. they say they are going to save roughly as much as they will be spending on severance packages. scarlet: thank you so much, pamela ritchie, joining us from toronto. planning tolly is come back from millions of dollars in losses with a broad pipeline treating everything from cancer to diabetes.
but they are facing an uphill battle when it comes to research and development. talk about what is going on here. havehad a foul time but turned things around since then. guest: they had six major launches in the last three years and a good set of drugs in the pipeline. validated targets -- >> what does that mean? guest: something proven to work. stuff that they know works. alix: eli lilly spend money to bring drugs to market because they knew there was a proven market, but now it means more competition in the market they are in? scarlet: that sounds about right but you captured it. guest: they have had less failed
trials and they are getting good drugs on the market, but they are entering into areas where they will have to fight it out with a lot of people. think there will be some tough launches in the future. these pvm's have and insurance companies being much more careful than in the past. they have a bigger toolbox. they are much more willing to cover one companies drug in return for a discount and refused to cover another drug war make it more expensive to access it. when it is a competitive drug class, they have more to do that kind of thing. what is next that they can actually do? do they have to look into acquisitions? to execute well
when they actually get the drugs on the market. it's a little bit of luck and they have not a clinical trial, they are trying to get a drug on the market for alzheimer's, which has been incredibly tough. they moved the goalposts for that particular drug, so it might be acquisitions and continuing to double down on that strategy. scarlet: the back story here is if you have a validated target, other drugmakers have done just that and analysts have been very bullish. when the estimates came in, it was nothing close to what they had anticipated. there were cholesterol drugs from amgen and they were expected to be blocked dusters. they are good at lowering cholesterol, but there are so many restrictions from payers because they are scared of these
drugs getting to millions of people that would balloon their cost. a huge wave of restrictions in place, the sales have an disappointed -- disappointing. scarlet: even though these are proven medications? guest: definitely. they are proven but have high costs. alix: thank you so much. scarlet: coming up, alibaba being investigated by the sec. we will look at the division of the e-commerce giant ray -- raising huge flags for regulators. ♪
markets. i'm scarlet fu. alix: and i'm alix steel. julie hyman has a look at today's big ipo. this is the largest corporate ipo this year, excluding any kind of spin off, shares are up 7% on the first day of trading. 44 point 4 million shares priced $4.9 billion -- it's going little higher today. it is a food distribution company and it was taken private 2007 at the peak of the buyout room. those terms not selling shares in the ipo. if you look at the timing, we have seen companies that have come public perform relatively well. the a look at this --
russell 2000 is in blue versus a bloomberg index, so as you can see, since these ipos have been relatively small, there has been out performance there. it looks like u.s. food is coming public at a good time. looking at how its competitors have been doing -- looking at sysco, both of them have been higher as well. when you look at the environment, in terms of other types of ipos, mgm properties was larger in size. since it was a real estate investment trust, that's why we are not talking about it as a corporate ipo in the same way. on a corporate basis, the largest we have seen thus
rally. when you compare it to the past 12 months, they had a big surge relative to the s&p 500 and is pulling away. costco sales missed analyst estimates, dragged lower by a stronger u.s. dollar and following gasoline and food prices. gasoline sales were unchanged last quarter. when you back out fx and gas, it gained about 3%. that number still shy of analyst estimates of about 4%. cosco plans to add between 20 and 30 stores per year. the company's capital spending is at its highest in two decades. could fall is cosco behind in its e-commerce efforts. where would they expand? cosco is dominant on the west coast and has room to expand where its competitors are stronger. bj stronghold is in the northeast. ultimately, costco is all about its members. this quarter, it met the market. executive members made up one third of the membership ace. cosco added 33,000 executive cardholders per week. they also see an impact on earnings from an increase in the minimum wage and says the card should be getting to its customers soon. alix: and other stock we are
watching today is alibaba. the stock paring its losses. beingcommerce giant is investigated by the sec over its accounting practices and whether they violate u.s. federal law. scarlet: regulators are looking at data from the single day promotion, their biggest shopping day and how it consolidates result from affiliated companies. our guest is an analyst at morningstar who covers alibaba. you have said in the past that there have been concerns about alibaba's accounting among investors. i think some short sellers have questioned whether alibaba might be hiding shady accounting practices in these companies and making it as a result, its own results look better. filing, ie annual have walked away a little more
comforted that the company is not doing anything wrong. aboutave some disclosure their affiliates and it's ofually not that big a part the overall consolidated results and i think the market should have a lot to worry about here. these of film and center of postedba owns 47% a net loss of $94 million in 2015. at the same time, they recorded a loss on the books that said the e-commerce company reported $128 million in gains on investments. it had a loss, recorded a loss on the books and said there was a gain on investment in the company. how does that make any sense? stake iney own a 47% the logistics company. had to do with
other affiliate that were there. properly isrecorded the way we are looking at it. if you look at the percentage of what it represented, the total group posted a loss of 600 ilion last year. percentage, so this idea the company might be hiding a tremendous amount of losses, i don't think that holds water. the other interesting angle is the logistic companies that it is with in this affiliate are going to be publicly listed. will be something we see over the next couple of months. argument that they are hiding massive accounting losses just does not hold a lot of water and i think there might be a buying opportunity with the
company giving more details next month at investor day. scarlet: other analysts have said alibaba has a track record of trying to prove its financial clarity. he says the company is trying to be more transparent. do you see evidence of that? guest: absolutely. having the numbers, that gives about going into these lesser-known businesses. including the logistics affiliates. even theictures and cloud which is about a breakeven profitability. clarity over gets the smaller but potentially meaningful businesses, it could be a positive catalyst for the stock. alix: what is your forecast?
is worth ahink it look at these levels. scarlet: thank you. time now for the bloomberg business flash, a look at some of the big stories in the news right now. alix: the head of the private equity firms financial services has resigned. he's the half other of former french president nicolas sarkozy . he joined carlyle from ubs. they raised to investment funds under his leadership. the later one got a billion dollars. he will continue as a senior advisor to the firm. scarlet: gogo has a performer from a -- has an offer from a major airline to provide domestic wi-fi. there is no guarantee a deal will get done. gogo says it is canceling a $525 million junk-bond offering.
they had planned to use it to refinance debt. tell u.s. foods holdings after raising a billion dollars in the biggest corporate initial public offering of the year. they sold 44 .4 million shares for $23 apiece, in the top half of the range. u.s. food has a market value of $4.5 billion. that is your business flash update. alix: coming up, china is friend.from foe to why they want to temper volatility when the fed moves. ♪
dakota, where donald trump will be giving a speech on energy. he will be meeting the press before that, so we will bring you there when that happens. the ap says trump has clinched the republican nomination. scarlet: china is trying to avoid a market tantrum. alix: yesterday, the chief global economist at s&p global ratings explained how the fed plans to manage expectations. sett: the fed's job is to monetary policy. it sounds like they are in the boat of all the other fed watchers in the world. scarlet: having said that, the fed has alluded to chinese development or global development, so pretty so they are mindful of the ramifications of what they do. guest: that's one way to think about any of the fed policy moves. is there a feedback loop that
would come back because of the fed's action? that's an indirect mechanism. for the central bank to define that with any sort of confidence and any sort of policy decision, that is a long bow to draw. scarlet: this is the dollar versus the yuan. what you see here is leveraged valuation -- this is the dollar, obviously. the currency goes down and we saw china take some steps today to lower their band. what kind of steps can china realistically take two smooth whatever transition comes their way? movingchina is at last toward a more extensive
mechanism. the volatility we have seen, although people make a big deal about it is not that big. it probably has moved 5% against the dollar which in the grand scheme is not that big. they have to stick to their knitting and continue with the reform process and make sure domestic markets are developing in such a way that they can absorb the consequences. good communication would help but i don't think china is going to be able to get through this process, maybe frequently stirring up nerves in the international markets. ♪
from bloomberg world headquarters in new york, here is what we are watching this hour. our central banks like the wizard of oz and is the curtain about to be pulled back on them? bill gross says that they may be upon them. we will talk to the man leading the charge of higher standards in fx trading after banks were hit with $9 billion in fines last year alone. is set to get a majors these -- major speech on energy policy. markets close in about two hours. let's head to the markets desk where julie hyman has a look at the latest. mixed come ae this tight range for the session.