tv Bloomberg Go Bloomberg August 2, 2016 7:00am-10:01am EDT
japan's government announced a $45 million extra spending as it seeks to prop up the wills largest economy. david: we'll rebounds after falling below $40 a barrel for the first time since april. concerns over the glut send crews into a fair market -- bear market. >> cutting rates to record low in attempt to counter disinflation as a support -- report of sluggish labor markets. welcome to bloomberg in new york city, number 26. stimulus plan for japan since 1990. david: and they expect a different result. i can't quite make them at up. >> you have heard reports that they are going to just give ¥15,000 to low income people.
it is hard to get wrapped around the numbers but what is --eresting to me is the is the market reaction of what mr. corona can do going forward. jon: then the yen is stronger. the bank of japan runs qe at a clip of around $18 billion every few months. that is how small pieces. >> it feels like a drop in the bucket. >> we are going to dig into these stories of the day. the details on this package entering a bear market with ebrahim rubari, -- ari -- ebrahim rahbari. hong kong markets closed because of the storm. the real story was in japan and that was straight off the bat. 1.4%.ope, the dax down
are the leading losers on the stocks in europe. we will debate that throughout the program. a 101 handle on the japanese yen, dollar yen trading at 77, the stronger yen session in the fx market capturing that risk for a moment. the commodity market is fascinating. we moved to $40 a barrel yesterday. back, one full percentage point to $40.61. a big shift in the bond market today. core government bonds, yields frontng high and at the end of japan, yields up seven basis points. out of procter and gamble, earnings first-quarter
coming in at over $16 billion. it is really the sales growth you want to pay attention to you. organic growth coming in about 2%. all the sales go up 1% as core earnings hit mid-single digits for the year. they were down somewhat because of fx profits. alex: great point. everyone is looking for organic growth but there you have it. let's go around the world and check in with our bloomberg team for in-depth coverage of our top stories. in japan, the fiscal plan to boost spending. banksl mckee as central cut interest rates and javier blas in london. running us from tokyo, what are
the details of this fiscal's best fiscal stimulus plan. today, we got details of the ¥28 trillion package that prime minister of a flagged last week. money seems like financing tools such as loans and loan guarantees. ¥7.5 trillion is going to be spent. about ¥4.6 trillion or $45 billion to take place this fiscal year. it will focus on things like infrastructure such as ports and a maglev train system that is being built between tokyo and mccoy at. -- and nagoya. relief. quake and the disaster in the toe the region for a five years ago.
the yen rose against the dollar after the announcement, signaling this is pretty much priced in already and the market was disappointed by the details as they were last week. alex: of course, the selloff as well. what does this mean for actual growth expectations? intelligence puts it at 1/10 of 1% this year. what does the government want to see? >> private economists don't see a big boost in gdp from this that the government sees a 1.3 percentage point increase in gdp. came away anda told reporters that he expects we will have a significant benefit to the economy. corona also gave clues as to what the reviews of his policy would entail by september, saying he does not expect it will be a restriction --
retraction of the stimulus. , you joining us from tokyo have one country trying to make its inflation targets. jon: they've got a little bit more to play with. in michaelring mckee, editor on the central bank decision from the rba. a cut to a record low and space to go even lower. paint a picture of australia. >> we are seeing the same reaction we are seeing in japan, stimulus isn't being greeted positively by investors. the policyto join party, they cut their cash rate by 25 basis points to one half percent today. inflation has been falling and chinese growth has been slowing. australia is a commodity economy and they are trying to keep the dollar down to remain competitive. is not what happened today. the odds rising on the day even
after the australian central bank cuts rates. course, investors don't seem to want to believe. the australia story captures what is happening in china and it captures global this invasion -- -- disinflation. we talked about decision that captures a different dilemma. upside risks to inflation and downside risks to growth. are expecting the committee to response to the growth question and cut rates. dynamic, theame british pound has been rising for most of this week. even though the bank of england is supposed to cut rates. one of the reasons we are seeing these around the world is investors have priced out the but of a fed rate hike -- still, the central bank magic doesn't seem to be holding
anymore. jon: a big week for central-bank decisions. david: also a big week for commodities. oil is a big story, into a bear ofket following a falling briefly below $40 a barrel. how we got here. it wasn't long ago we were thinking about all these rebounds. reason -- the demand repeated have seen gasoline consumption over the last couple of months that has -- and it has continued to go strong in china and india. that was the demand. may, itupply side, in
has disappeared with the wildfires. we have disruptions in nigeria but more oil is coming from iran after the lifting of the sanction. that means they are rebalancing while it continues, not nearly as content as it was at the beginning of the year. we are well into the second half of the year. take us through the rest of 2016 . what can we expect? now is we can see refineries going into maintenance for the winter season. we are going to see a drop in demand from those refineries. they are going to be buying with less crude. that is probably the lowest that we are going to go. year, wed half of the should get the increase in demand from the winter season,
supplies, recovering until the end of the year. don't expect any recovery, probably the 40-50 dollar maximum is going to stay with that. that is the kind of price we're going to see. david: that is javier blas. now we are going to alex to see the movers in the stock market. alex: german banks, commerzbank taking it on the chin here. the company is grabbing its profit target because of a drop in earnings. they stock dropping to its lowest in one month. that dropping full-year part -- and part of that is the negative rates across europe that hurt that consumer and banking divisions, cutting 71 million euros. markets are also hurting revenue as well. it leads us to two other stocks.
they are being dropped from the europe 50 index. date are down 50% year to and now are getting removed from the index. wrapping it up, earnings are trickling out from pharma. before the bell at pfizer, beating estimates for the top and bottom line. they're looking for the new cancer as well as rheumatoid arthritis. we still want to hear more about whether or not pfizer will want to split into two businesses, it's old medicine and new research division, that is down slightly in the free market. outside the world of business, taylor races here. buffett is challenging donald trump to meet him so that you can reveal their tax returns. buffet appeared in omaha with hillary clinton. he ripped from for refusing to
release his taxes. >> i will meet him in omaha or she can pick the place and i will bring my return and believe me, nobody is going to stop us from talking about those returns . meanwhile, trump harshly criticized clinton and bernie sanders's endorsement. so angry when they were talking at him and his people are angry at him and they should be. if he had gone home and relaxed he would have been a hero but he made a deal with the devil. earlier, trump told ohio that he was worried the election may be rate against him. global news 24 hours a day powered by 2600 journalists in 20 -- in 120 countries. governorng up, japan's as a $45 million in extra
jon: news worldwide from new york, this is bloomberg . after reviewing its policy, the bank of japan winds back its record monetary stimulus. unveiled minister has extra spending. from city's headquarters is ebrahim rahbari. great to have you with us on the program. >> this is fiscal stimulus package number 26.
going all the way back to 1990, the first question is, what makes this one any different? >> to be honest with you i don't think we are looking at a breakthrough. expectations are running a normal for the change of the fiscal needle. clearly, the government is trying to respond to that but when you look at the package, the additional spending is relatively moderate so we are not looking at something which we can truly call out of line with some of the past series of budgets. when you take a look at what the market reaction is and you the yenthe selloff and moving higher, what does that say about the market confidence in the stimulus and also mr. .orona -- mr. kuroda theyat is in part because
didn't come forward as many of us expected them to but there is the promise of more to come. there is clearly a sense that this is by far not going to be the last one so the expectation is we will see more of this and perhaps dialing the amount of true fiscal stimulus up over the years to come. david: as far as you can, get into mr. abe's mind. is this as much as he can feel he can do. >> that is a good question because we have been struggling to get ait is so hard serious fiscal stimulus done in japan and it is a mix of two things. not so much what the ready toets are finance, talking about the scarcity of purchases for some time, but perhaps the constraint on what he can get through in
the government. they still have different attitudes of what will be required. our advocatesr -- fiscal policy -- there is an canctation that what really drive growth isn't going to be a series of one-off physical butulate -- stimuli structural reform to set up japan for more sustainable growth. commerzbank in germany cut their forecasts for profit this year. they complained about negative interest rates and this is a story in japan as well. when our central banks and governments realizing they need to support their economies. whether it is in europe or japan, it is hurting them. it is hurting the engines of finance. that doesn't make much sense.
is that going to change? honest, i don't see that trajectory, there for directory to maintain negative policy rates. case for the bank of japan to go slightly more negative last week. the jury is still out on the effectiveness of these policies. their biggest promise has not manifested itself. we haven't seen the long-term interest rates. eurozone or japan or smaller scandinavian countries either. is problem for central banks they don't have those tools available so they will still be looking at a good of interest very closely. it is an open question when it comes to the bank of japan and ecb. both are going to look at their policy options whether they are ready to double down on negative interest rates or find alternatives elsewhere. jon: you are going to be
>> this is bloomberg . oil prices moving higher. two schools of thought. prices will lower oversupply or prices will rise as the market rebalance is. francisco blanch ways in this morning. patternis a seasonal and in our view we are looking for oil to be back in the 50 plus range heading into year end.
we are seeing this as a buying opportunity. obviously the market has moved into a steeper. look at december, 2016, prices were at 22 in a half per barrel or so. then, as soon as we are at maintenance, the market is ,oughly two months ahead consumption for crude oil gets turned into cold. strong, 1.8as very million barrels a day. year, first half of the looking at brexit putting a? that's puttingh, globalion mark on growth. >> still with us is uber him rub
are a. does the economy want? between $40 and $50 is probably where global growth would be at its best. there are two elements that are important. one allows a reasonable amount of activity. it is just the stability that will be a support for the global economy. we are close to the sweet spot here. >> when we do have a declining oil price, what does that due to oil-producing countries? we have a chart that shows saudi reserves and their relationship with the oil price and the worry is as those roll over, the fall constitutes an essence of tightening global economy. you see that as a negative? we have been looking at all
these surpluses over the countries in the past and it is not been is fixed -- not particularly beneficial to growth. we do observe that if we just look at the data and add purchases and balance sheet expenses to market countries in the developed world, there is a reasonable correlation, whether that is high-yield or equities. we have observed some correspondence, not just in oil-producing countries. it is very much china as well. david: talk about india. they benefit from a low oil price. in your projections they are heavily dependent on india. how dependent is that upon that low oil price? >> it certainly would be a support. you can see it for china and japan, so they are a number of countries which we worry about where low oil prices are the stabilizing force.
in the case of india, the oil prices are really just one piece of the puzzle. it had a change of government which brought on a number of reforms, may be slightly underwhelming but a return of confidence in various forms including capital inflows. it is a small part of the india story for us. by global standards, they are respectable. alex: city research director of global economics, john? barrel, $40.57. we look ahead to payrolls friday, this is bloomberg. ♪
and $8.8 billion capital raise and those guys are all lower in the market. earnings reportibnng which was a beat but the stock is slightly lower. it saw strong sales with his new cancer drug and rheumatoid arthritis drug sales. looking at the airlines, lufthansa is one, expecting more cuts in their ticket prices saying that euro airlines are having a tough time due to terrorist attacks in the region. fell over 4%.nue the whole industry is suffering from that overcapacity. european banks, each day we get a new headline, they are dragging the stocks lower. jonathan: they are front and center.
smi is down and credit suisse is one of the biggest losers. commerzbank, deutsche bank, you get the picture. japan, when expectations are up here, you need to deliver above expectations. in the fx market, dollar-yanis under delivering just dollar-yen is under delivering. it's a strong japanese yen. the risk is off across markets as well as the bond market. end of the curve, the two-year note is up seven basis points in japan. in the commodity market, the big story has been crude oil down to $40 per barrel. it's up by 1.35%.
that wraps up your market moves. let's look at some headlines. taylor: the donald trump rhetoric on the campaign trail grew darker. he told a rally in ohio he is afraid the election will be rigged against him. in pennsylvania, he criticized hillary clinton and bernie sanders'endorsement of her. theyu were so angry when were talking about him and as people are angry at him and they should be. if he would have just gone home and relaxed, he would've been a hero. but he made a deal with the devil. she is the devil. campaign andlinton listed warren buffett to challenge donald trump so they could reveal their tax returns. omaha or meet him in any place and i will bring my return and he will bring his. the leave me, nobody will stop us from talking about what's on
those returns. send the word to him if you will. taylor: warren buffett accused donald trump of misleading voters on his business records. ony say u.s. credibility is the line over the transpacific trade deal. litmusng the deal as a test of u.s. seriousness and purpose in asia. both presidential candidates have publicly opposed the agreement. british prime minister teresa may will try to get the economy moving again with the new industrial program. economy -- with the committee on the economy and she was to take advantages of brags it -- of brags it. take advantage of the brags it. brexit. corporate bond market, that gives us our morning must-read. microsoft is darling almost $20
billion to buy a linkedin. this is part of a pattern of mega loans. joining us now is tom keene. this is a big phenomenon with companies going out and borrowing a lot of money. great bloomberg functions that show is clearly. if you are the chief financial officer of art company, you will be shown the door if you don't do this. there is no choice. compression whether looking at the difference in yields or the spot yield is at about 75 basis points. percentage point free lunch from seven months
ago. ceos have to keep their jobs but is changing the capital structure of companies. tom: there is a lot of theory on this. we are supposed to not matter if you are doing equities or doing bonds. no one in the real world believes the theory. david: i don't believe it. tom: there is a tough choice areeen equity and more debt you over leveraging on a lot of debtor is there almost no where you are just putting on a prudent amount? that's the nuance. the debt service costs are going down as the yields go down. it's enticing to leverage up. tom: they mentioned apple in the article and apple has note that and they have now put on debt because that money is a broad and they at on debt and deploy
it to shareholders. is that financial engineering or is that good allocation of capital? the other aspect is the effect of the tax code on these decisions to borrow. microsoft could buy linkedin with cash on hand. their money is overseas, not in the united states. a bipartisan a motion is corporate tax reform. i would focus on these yields which are stunning. when you look at some of these transactions, they are not in dollars. them in swiss francs or doing them in japanese yen for miniscule -- they have negative yields. a 3.5%, 30 year coupon, they bring it down because they are denominated in foreign currency. thick the rubber meets the road on capital allocation.
they essentially have the money burning a hole in their pocket. tom: if we go to the end of the year and we come out of the summer and there is that dash to november, you wonder what the m&a activity will be like? it's money for nothing. it's a dire straits ending. david: i got that. jonathan ferro would never get that. jonathan: i know who mark knopler is, i have seen him play. david: i want to thank tom keene by catches show every morning. back over to john. jonathan: thank you very much. youth is such a burden. investors are shifting their focus to the friday u.s. jobs report, one hundred 80,000 jobs forecast added last month so what will it mean for the fed rate hike?
the senior economist from bnp paribas is joining us. consumptionlly see within gdp is pretty resilient. are you expecting to see payrolls be resilient and strong? >> yes, i think it's a broader trend. the headline gdp number is completely clouded by a swing and inventories which does not matter that much in terms of the real economy and hiring. what matters here is the consumption number you pointed to. -- it really strong and i caught some people off guard and will result in a bit faster pace of hiring that we have seen in terms of the trend. alix: is that robust consumption sustainable for longer-term? >> absolutely not. alix: so a little bit of hiring now but will we give it back later on? >> that is our expectation. in the this comp -- hump
year and we get over this and slow back down to trend get back down to a more normal pace of growth. do the payrolls on friday even matter? you guys have been out front by saying no rate hikes for a long time. how do the numbers on friday factor into the debate? >> it matters a lot. -- it seemsking like i hear this story every time where it's the most important payroll ever or it does not matter. it's never something in between. the is something in between and that's where we are today. we have two more payroll reports before the next fomc meeting and that will set the town. an amount they are trying to balance out and which one tells the right story. the next two months will tell them how much confidence they should have in their outlook and i think it will set the tone for the next meeting. alix: what is the jobs number that has the market re-rating
the risk? what is the number? >> something surprising. alix: over 200? >> probably something like that but the number for the fed is probably lower than that. we heard 150,000 from dudley yesterday. we heard before that 110,000 is the neutral rate. what we are looking for is something much better than that to really re-price market risk. you have a couple of data points to be supportive of that. the gdp number last friday did not help much. it was disappointing on the headline but the underlying trend will be what's important. i don't want to reduce a complex topic to something is 200,000 the new 300,000 anyway? why don't market participants understand that?
is it the fed responsibility to communicate that? >> they are trying. i would like them to communicate more about the data they are looking at. dudley is trying to do that with 150,000. we have gotten this expectation that 300,000 was normal and then we ratcheted that demo that and maybe 200,000 is normal. we need something better than 200 where dudley is saying 150,000 is good enough. i think expectations still need to be reset and they are still too optimistic. is, is itthe question good enough for what? is it good enough for a rate hike? alix: the other part is hourly average earnings so what increase tells us we are at full employment and tells us >> >> they need a hike? themcelerated pace tells
we are ready for a hike. it has not done much since the beginning of the year. if we are at full employment, we need to see continued acceleration in wages but we are not seeing that yet. jonathan: great to have you with us. alix: i have more questions than answers. allie on spies a chunk of new york real estate in one of the biggest deals of 2016. dyer oftalk with colin jones, lying, lasalle, one of the largest commercial real estate companies in the world. does ms. new deal market turnaround for the market question mark this is bloomberg. ♪
coming up, the bnp head of strategy will join us to discuss the new relationship between oil and high-yield. now to power go - jones reported beating estimates early this morning. yer joins us this morning. there was a big announcement from alianza purchasing a part of hudson yards for over $2 billion. is this part of a turnaround and a fairly lackluster commercial real estate market in new york and across the country? >> the real estate market globally has been pretty strong for the past few years. we have seen some softness over givenst six month or so
the market volatility earlier in the year and the contagion effect of brexit around the world. new york activity has been strong and sustained and this deal which is a major institution purchasing for a large sum of money a quality long-term asset, that is the ,weet spot of where investors institutional investors, a looking for real estate globally. stable assets and gateway cities around the world. the last has been flat six month and has picked up in the last 60 days. what caused the pickup? early part of the year saw this volatility in the financial markets which spilled over into confidence in the real estate sector. it took a while for the markets generally to recover from that. activity is down over all in the first half year on year by about 15% globally. still ae is there is strong liquid active trading
market and deals are getting done and there is a huge amount of equity trying to buy quality and a sustained availability of debt for banks and other institutions. it's a good, healthy trading market in the u.s. and globally. david: there was a lot of coverage about what happened post-brexit in england. what is the state of the english real estate market now? >> europe as a whole did very well. the rest of europe has had no contagion effect of what has happened in prison. -- in britain. things are very hesitant in britain. companies are moving ahead cautiously with their plans on taking space. the investment sales market has dropped off by 30%-40% and more in london. the reason is the investors are not quite clear where pricing is compared to nine months ago.
the sense is it may be 10% lower. -- international capital a single opportunity of buying into the british market which is very liquid, very transparent at prices which are slightly off-peak but also with a sterling that is also dropped around 10% from its peak six months ago. international capital, it's an attractive time to buy in the british market but the deals are just beginning to flow again. the u.k.you see any of money going anywhere into europe or the u.s.? some have said that all the money will come here but have you seen that? >> we don't really. if anything, there has been about $10 billion reduction in deal flow into great britain which compares what global market of 600 billion dollars. on a global scale it's quite
small. if anything, the european and asian money still wants to get into great britain but is and being cautious until pricing is set and deals start to flow again. we were responsible for a , theaction last month first since the markets effectively shut down and that was done at a price around oh percent below peak. there is lots of activity continuing. have have, some deals collette but negotiations continue and pricing is a little bit softer and six month ago. david: focusing on the united states, the comptroller of the currency had expressed concern about over lending on the part of banks in this country. we want to play what he set a couple of weeks ago. >> with commercial real estate lending, we are signaling a flashing yellow or caution light. we really think this is an issue of sound risk management. we are saying that some banks
are rapidly increasing their growth in commercial real estate. , it's over 50%. institutionsf our of done so and we are trying to emphasize sound risk management. reportif you read the and i'm sure you have, it's not just that there is a rapid increase in the amount of lending but the terms are becoming more generous. that a risk potentially for commercial real estate in the united states? for bankk it's wise regulators in the u.s. and globally to continue to be very vigilant. it was excessive lending in the real estate sector that caused 2008 to happen. -- first of the moment of all, maturities are happening on the order of $200 million -- $200 billion per year and that's being refinanced through the equitythrough private
and other institutions rather than being refinanced into the aboutarket which is down $18 billion on an annualized basis. the level of debt going into real estate in our view is not excessive. it's way more cautious than the last cycle which is rightly so. the lending terms are loosening a little bit but were tight early in the cycle. there is cautious levels of underwriting. one measure is construction is stillnt lending hard to come by and that has had a beneficial effect in the sense there is not a vast wave of new real estate product being delivered into a market which is nicely balanced between supply and demand. it's justifiable for regulators to be vigilant. there has not been excessive lending and banks are very much more cautious and this cycle than in the last cycle.
still adequate availability of debt for real estate from insurance companies, from the banks themselves and from private equity funds. david: thank you so very much. coming up, buying u.s. treasuries is becoming less attractive to foreign investors. we have the chart to show you white next. this is bloomberg. ♪
up treasuries which is what we have seen. pimco is saying something different. at how much it costs to own a treasury if you are a japanese or european investor with the cost of hedging. -yenhave to head your euro risk and then by the treasury which is like a carry trade. the orange line of the 10 year yield euro head and the blue line is the tenure german bund yield. they are at the same level, under zero when you would temper hedging because the fx market is so one-sided. this advantage might've seen in 2014 and earlier in the year has now eroded. they think now that you have japanese and european investors of 1%g -- paying 6/10 more than they should, that is being eliminated. the carry trade has boosted treasuries in the u.s. whether this is
actual because the fear of united flechette -- of inflation is greater in the u.s. and that makes it cost more. jonathan: the other thing is whether the call of 0% on the 30 is the equivalent of 50,000 in 2007. five years ago, we said the bund the curve would be negative. we should not laugh. alix: and you just don't know how much it costs to hedge. jonathan: coming up, american security ceo michael fish will unveil his blueprint to be successful in private equity. this is bloomberg. ♪
announces a 4.6 trillion yen in new spending is prime and mr. bobby seeks to prop up the economy. afteran: oil rebounds hitting $40 per aral -- per barrel. warren buffett rips into donald trump over his refusal to release tax returns. his attack on a fallen soldier's family and much more. david: welcome to the second hour of "bloomberg ." we are live from bloomberg's headquarters in new york city. a lot of action and european banks today. jonathan: you can look at the swiss and german index which are the biggest losers. is scrapping a full-year target and they are putting the blame on negative rates. alix: and italian banks are still in the spotlight. unicredit says it's considering an $8.8 billion capital raise.
they were looking at $5 billion yesterday. they are trying to get their house in order. but at the expense of investors. david: it puts a lot of pressure on central banks. they are thinking about further accommodate of easing. commerzbank is piling that specifically into earnings. we will discuss the correlation between the high-yield market and oil prices. we will talk with the head of credit strategy at bnp paribas and hear about the huge bond sale from microsoft. let's take a look at these risk off markets. jonathan: you can see how the bank stories are playing into equity stories. the banks will be at the bottom of that index in the bottom of the dax is 1.3%. leading banks are the
loser industry group in the session. and on the year as well. story,ng the japan dollar-yen trays with a one dollar one cent handle. $45 billion of extra spending and fiscal stimulus from japan is not enough to build up more risk appetite in these markets. where we have a snap back his crude oil back in a bear market yesterday, south of $40 per barrel and it snaps back today, up 1.5%. some interesting moves in government bond markets. is bund market in germany higher, about six basis points, potentially pushing back to her positive territory. the big move in japan is at the front end of the curve. the two-year notes are up seven basis points. a real shakeout in the bond market. stimulus or no stimulus? with their- check in
bloomberg team for our top -- let's check in with their bloomberg team. let's start with japan. michael mckee, it it was difficult what exactly is in the stimulus plan. theael: that's normally case with japanese stimulus plans. they call it a $28 billion plan but much new money? i ¥6 trillion. overall, ¥7.5 trillion which is about $74 trillion at exchange rates. they will use the money to address demographic challenges. like daycaregrams to bring more women into the labor force which has been falling. they cannot grow fast and they will add to the infrastructure, primarily high-speed rail and cruise ship ports.
there and some money aside for possible exit affects and target some money for lower income brexit-- for possible effects and target some money for lower income people. the market is not impressed. the yield has gone much higher across the curve. that is a sign that investors don't see this as being enough. action force more fiscal or does it force the bank of japan to do something else? that is the outstanding question after this package was announced. more new issued bonds can the boj by from this? 4.6 billion yen is like 5% of their yearly bond buying. it will help the bank of japan because there is not a lot of bonds left to buy so they will have more supply but they will not have enough. , it'shey move into etf's
a slippery slope and they are reluctant to go there. alix: thank you so much. that's the big news of the day which is a non-move in markets from the stimulus. jonathan: number 26. alix: i did not know that. jonathan: the 26th fiscal plan since 1990. david: and where does it get us? jonathan: they will keep trying. big headlines the oil market with crude down to $40 per barrel for the first time since april and wti is back in a bear market. we go to london. what is driving this? >> the most important element is we have a lot of castling at the moment. the refiners need a lot of gasoline. the u.s. and india and china, they were going to consume that over the china but it has been disappointing. but we has been higher will end the summer with too
much gasoline so now the market is looking toward september and october and there you have a seasonal the client in refinery activity. most of the refiners do maintenance. ofween today and the end september, about 3.5 million barrels per day of refining capacity go off-line for seasonal maintenance. that takes german and italian consumption out of the market for six weeks. that is what is driving the prices down. also the supplied side is strong. how low can crude oil go? if you look at the earnings last week, these guys were not making money. they are not making money at $40 per barrel. does that limit the downside? >> i think it is. capital expenditure has been reduced to the bare minimum
among the big oil companies and it's even lower for the independent energy and production companies. that's one of the reasons why the market is not selling off. that is a big cap to the market and the other one is the market is absolutely short at the moment. that is ofa headline concern, we will have a short covering and that means a rally in the market. i think it could sustain oil prices around $40 per barrel the -- without going below that significantly. jonathan: thank you. there is also a lot of action on the campaign trail. warren buffett stood up at a hillary clinton rally in nebraska and took donald trump to task >> for not revealing his tax returns. >>i will meet him in omaha or or anywhere and i will
bring my return and he will bring his return and we are both under audit and believe me, no one will stop us from talking about donald's returns. send the word to him if you will. david: we will turn to megan murphy for more on this. besides being humorous, this is targeted specifically at donald trump's claim to be a real business and financial leader. is this part of the hillary clinton strategy? >> this is right out of her playbook as to where she can hit him where it hurts and particularly on tax returns and trump toal of donald release them. this is gotten traction with voters who are attracted to a candidate who has a business background. they are trying to systematically break down his business record and record of success. of thebuffett is one most successful businessmen in america and when they see figures like that shifting away at this facade that donald trump
has with voters, that's what they are trying to do is undercut him where he is gaining support particularly among working-class voters and most importantly, people have not made up their minds. david: the tax returns would look quite different between warren buffett and donald trump. donald trump has not been quiet either. he talked about bernie sanders and it's pretty rough stuff. >> you are so angry when they were talking about him and his people are angry at him and they should be. haveey were to just not done anything, go home and relax, he would have been a hero. but he made a deal with the devil. she is the devil. here we have one candidate calling another candidate a devil. we are really reaching to new extremes in this campaign. is there a limit to how far this can go? >> we are entering into uncharted waters where you cannot take your eyes away for a minute. donald trump is speaking this afternoon and we expect him to
hit back hard at the warren buffett comments. whether the devil is inside washington and how it matches of what hillary clinton is thought of, this type of name-calling has been a huge part of his campaign. we will see if he repeats it. the other thing i want to mention about warren buffett, hillary clinton announced her campaign has raised $90 million in the month of july versus donald trump at $36 million. at warren buffett's home last -- they had ahome, fundraiser that was $100,000 a piece. david: thank you so much. toalix for a look at stocks. alix: we are not invited to that. let's look at some of the earnings movers this morning. -- pfizer beat on the top and bottom line but the guidance was a little bit light
in terms of earnings and revenues. cvs raised its full-year estimate even though it did miss its revenue for the quarter. came frome basically a lot of acquisitions rather than organic growth but good enough for investors. is a pharmah care company where watching and earnings missed in the company says it will have higher legal costs on a whistleblower settlement. the outlook is for the third 10-$.25.bout we are rounding out with volkswagen. 80 models have now been banned and south korea. it's only about 83 thousand cars but the market is reacting to the precedent it winds up setting. volkswagen has set aside a must $20 billion for emissions issues but are there more coming? volkswagen cannot seem to get out from under that label? jonathan: coming up, in japan, announces $45 abe
just to push back against the notion, guest after guest has thehere and have said problem is the central banks are going it alone. there is no in a fiscal stimulus. ok, japan can be accused of many things but it cannot be accused of not.trying fiscal measures we are at a crossroads here. while people were happy to give aid a big mandate in the election and the exit polls also showed people looking for in economics re-think. week in the last effort to sit back and review everything and come back in september and see you then. we look at nominal gdp and headline inflation numbers but in a country like japan that is experiencing the prime population for seven straight
years, do they need to change the metrics and look at other data? >> that's a great question and in some ways, that's the shakespearean tragedy of abe and koroda. can two guys undertaking a massive inflationary effort come back against demographic forces that have been at work since decades. the advertisements are all for adult divers. david: you cannot fight the demographic. you need to take some action and there is a fairly modest amount of money and the fiscal stimulus to fight demographics. is the political situation in japan at the point where people are willing to put up with real reform? are said heprimus wants to do that but there has not been much progress. >> if you are going to have a big majority, you want the one that abe has had.
the opposition was banished. if not now, when? mark it's a great question. we are not seeing any emerging political strategies. alix: when do we get that? you have to start somewhere but you have to have some structural change in order to move the market in the next 20 or 30 years. >> one thing they wanted to do with the initial burst of stimulus was to buy time for companies to start investing, buy time for other things to happen. the other things have not really happened. there was almost zero immigration in japan, a declining population let alone a declining workforce. counter toow the that. it's like the u.n., where would we be if there was no stimulus? jonathan: they push the biggest pension fund in the world to invest in equities abroad and it
just deliver the biggest loss since the financial crisis. quite clearly, we're seeing some negative consequences here. fund inest pension japan, for japanese banks, they have to do with negative.rates in a low interest rate environment willptember, the boj rethink its own policies. >> i think we need to wait and see what happens. , is this astion here timeout for a fundamental change in strategy or is it a timeout re they say we've got a new -- once more into the breach, we can make progress. does this matter to the global economy? we are used to japan not growing at this point. we are not expecting 4% growth.
atlong as they are steady zero growth, does it affect the rest of us? >> we are used to japan kind of growth ofater with a 1% or 2% or contraction but we are not used to japan going south in a major way. that is not happened yet and one thing that stimulus programs do is the floor on growth in alix: thank you very much. jonathan: coming up, we go to the fx market with a stronger yen as the new abe stimulus package goes into effect. this is bloomberg. ♪
abe after his 40.$5 billion spending boost . -- $45 billion spending boost. you called it, stronger yen. what is your take away from the package that has been unveiled? the initial announcement of ¥28 trillion had to be put in perspective as to how much of that is new money. it turns out we are talking which13.5 billion out of half of that will be for the government budget. on the whole, it's not enormous but it has to be put in perspective of the fact that we have had quite a substantial
increase in the consumption tax hike. ofn the previous round stimulus was implemented, is sent the economy into a downward spiral. this will not happen but you have both things out there. it's a move in the right direction. it's hard to know whether the quantity and the amount involved is the right amount but it will always be a hit and miss game. all of this is positive for the yen. not talking about significant further quantitative easing but i think dollar-yen goes lower from here. the stronger yen story in today's session, is that a reflection of the market casting its vote on what it sees as a stimulus plan or is it general risk off because the stimulus plan was not big enough to lift global sentiment? a mix of both.
over the past month, there has been a strong element of market building expectations about either a potential, sizable quantitative easing by the bank ofjapan or even the notion the money and this has been taken out of the equation. when these guys say they will of athe impact quantitative easing in september. i think their assessment will argue in favor of doing more in terms of the u.s., morgan stanley has a 5% downside target to the dollar. what about the dollar-yen? how does it relate to the weaker gdp number on friday? it's an important figure
especially given the volatility we have seen. this is just one data point and we don't expect the central bank to make decisions about hikes or cuts based on a single number. the dollarn view on has beenhe dollar overvalued for quite some time. it has stayed that way because other central banks were pushing to keep their currencies weak and is not happening anymore. the dollar started depreciating. this is largely will remain in place. is the market too complacent? yes, in all likelihood it is but even if it shaves off the complacency, this is still not going to be enough to upset the dollar overvaluation. on the whole, we are in
points. dollar-yen is capturing the mood in japan. japanese yen as we await the other side of the trade, the united states. it's coming through now. here is theg number core pce number year on year at 1.6%. that's what the fed looks at. it still below their target but it's in line. read the other jews number is personal spending and income. personal -- the other juicy number is personal spending and income. income is a little bit lighter. the idea is we are spending more but making a little bit less than estimates. that is adding to a pretty benign inflation picture.
s&p futures are not doing that much. the two year yield is staying the same. there is a little bit of selloff in the treasury market. david: it's the same story from last week. jonathan: the earnings story takes us through two the payroll report for friday. alix: how sustainable is that spending picture for consumers in the u.s. and how about support growth? jonathan: the extra element is the political risk. we will hear what key banks are looking at. first of all, why? >> we think there is a lot at stake in the election. both parties are pursuing policies that would be a break from the status quo rather --
whether he betrayed trade protection or stimulus are tax reform. her us the question is not who wins the white house and whether or not the party that wins the white house gets in of gains in congress to facilitate putting policies and practice. we don't see enough evidence from the polls are other models to suggest that is the case. therefore, we don't think policy risk is very meaningful for the macro outlook. jonathan: it's not who wins the white house, it's me that division may be that we may get a divided government and we need to think about the market impact. let's assume we don't get the divided government, what does that mean? one party control of the white house and congress facilitates a lot of these more transformational policies to be put into practice. it's not a given but the risk of that happening are more likely with a donald trump presidency. the republicans are likely to control the house of representatives regardless. that would open the door to
fiscal stimulus and tax reform and trade protectionism. that is ahink minority probability outcome, you shop -- you probably cannot make major strategy shift but there may be hedges to pursue. jonathan: you have been looking at the money market. overweight munis, why? >> as best we can tell, we don't have a lot of details but both the tax reform proposals from clinton and trump are funded by reducing tax expenditures. that is a euphemism for the idea that you will limit deductions and exclusions. the muni tax exemption is be significant. we assume the blueprint followed by the obama presidency and their proposal and the house republicans would put a level of surtax on would be with
companies that would outperform tax exempt munis. how do you capture the policies coming from either side of the aisle? and seemhem are fluid to change. how do you view that it morgan stanley? >> that's absolutely right. there is a lot of detail that is still lacking. take the candidates from what they have said in their platform and on the campaign trail. we have to fill in some of the blanks. as key message is as long the evidence shows that we have a divided government, it's likely these campaign promises look more like promises than policy impact. we will be monitoring this closely in the coming weeks and months. if there is evidence to suggest that donald trump has a higher probability of winning and we have one party control, we will look closely to fill in the back
-- blanks on those policies. until then, and make more sense to work on the assumption that a lot of this is more fear he them in terms of policy changes. probability is a risky game, thank you for being with us. that was very interesting. let's turn to private equity in the year when it largest private equity firms are facing challenges closing any deals, one company has closed 4 of them. american securities specializes in the middle market. the founder and ceo michael fish is with us now. not only are you closing a fair one ofof deals but also the outfits that rates you say you are most consistent in providing returns for your private equity deals. how do you do it? >> planning to be lucky is the most important thing. it helps to be american so we
only buy american headquartered companies. we believe america's a safe place to invest in we focus our time and energy here. david: you are middle market and you are u.s. centric. how do you find the deals that make sense for you? what is the imperfection that you spot that others mess? market.me competitive we try to do one thing which is by the market leading company in a stable and growing demand industry with the existing management. we are about supporting the existing management and be good partners. how has your business changed over the last five years? what has been the big change in your business? >> the biggest thing is private equity is no longer private. the advent of dodd-frank and the combination of asc 820 has every private equity firm required to value their private holdings and
investors report returns on the website. everyone knows how every private equity firm does in the last quarter and the quarter beyond that. it is publicly available. with regulation, we're all registered. you avoid do overpaying when credit is this readily available? it tends to bid up asset prices? how do you avoid overpaying? >> it's hard but there is a subtlety. the federal government has succeeded to control the currency. the fed limits the lending available to private equity deals to six times over. the last 12-18 months if the regulator tells you what you want to do, most regulated institutions will do it so leverage has not gone up. in prior cycles, you might have seen for some companies seven,
8, 10 times. now it's sometimes it's six point five times of the outside so private equity firms have to assess the risk in companies and how much equity they are willing to put in above that. david: besides equity, you have some investments in credit. the credit investing environment? you have had some struggles there. what have you learned from that? not had struggles. we have a separate $2 billion business andbt that's an interesting place to play in the risk return spectrum. with rates as low as you were saying, fixed income returns are hard. the levers loans of private companies, it's not unusual to if you to get even 12% are buying debt that was issued at 100 at $.80. it's an interesting risk reward place to be for fixed income investors and has been good for us. david: thank you so much.
look at the stocks to watch for. alix: you have to look at the european banks. let's kick it up with commerzbank which is hitting a record low. the company is scrapping its full-year target. it's one of the only banks the of third from deccan quantify how much negative interest rates have hurt their income, saying it eroded 151 million euros of income in the first half of the year. commerzbank is joining with deutsche bank warning of a potential higher fee to offset those costs. the negativity spreads to areas like deutsche bank.and credit suisse and ubs deutsche bank and credit suisse stockseted from the euro 50 index. though stocks are down like 50% on the year and they are removed from that index. unicredit, the italian bank in our reports indicate it could consider an $8.8 billion capital raise.
that would be instead of asset sales to help shore up liquidity. a 5 billionking at euro equity raise as well. till stills the tour -- tells the story of italian banks trying to shore up their finances. jonathan: you see this across the european equity markets. down byian footsie is almost two full percentage points. to raise u.s.inue corporate does with microsoft raising nearly $20 billion in the third largest bond sale in 2016. the head of u.s. credit strategy discusses why foreign investors are poised to increase the record share of u.s. corporate debt. that is next from new york, this is bloomberg. ♪
jonathan: "bloomberg this is." coming up later today, the aetna ceo. alix: crude prices may be up over $40 per barrel but still in a bear market, reminiscent of the first quarter when oil prices wrecked the high-yield market. this time, it's different. this is the high-yield index versus the oil price. the white line is the high-yield index in the blue line is the oil price. they tracked each other over the last year and hurt returns for high-yield. ever since the recent run-up, they have diverged. oil prices erode high-yield
or can high-yield stair -- stand on it's on? mark howard is with us, which one is it? the near term, we think there's probably a little pullback in the u.s. high-yield market partly due to oil and growth concerns and the anxieties around european banks. we think it will not be near as severe as what we saw last year. alix: why not? com we learned in thedot c and subprime crisis is these get washed out. high-yield get washed out earlier this year and it was urging of access and a lot of hedging has since come back into that space. alix: the other part maine at transoceaneld but and chesapeake have done debt swaps and capital raises. does that type of market close when you have oil at $40? >> that's a great question. we were going to see a
tightening with regard to equity availability in credit availability if oil stays down for a long time. our view is that this is a temporary pullback and we don't think it will go back to that troughs we saw back in january. the high-yield energy almost decoupled from the rest of fixed income. how will this play out? the rally has been epic in europe. at the same time, the equity of these banks has continued to get hammered. that feed into u.s. high-yield? to me, it looks like a big rapport yield across fixed income. >> that's an important point and helps highlight white fixed income has dealing from the fundamentals. later this week, with the bank of england, we expect to see more qe. the intervention into the fixed income market whether it is in
gilts or other credit instruments destroys the prices even assets not being repurchased. alix: we heard about that in the high-yield market. this -- the junk is ok but the super junk is not. david: then you have investment grade. that's like the microsoft deal fo. how far can this go? these big companies are taking on a lot of debt? >> they are but the investment grade market is really supported by investors globally. the u.s. high-yield market has a global constituency but it's not as global. investors around the world and many nontraditional investors are going into the investment grade asset class as a search for reasonable yield. david: is the yield reasonable anymore? any europe, yes and maybe
japan. in the u.s., we have not gone there yet. it's pushing the yield down on investment grade in the united states? >> everything is relative from fixed income management. alix: the issue is when you have apple borrowing nine times their actual cash -- if they hurt on their ibo., how do they pay that debt? it -- in the top -- ebitah. >> in the tech space, we are seeing the more mature companies take on debt. some of the bbb companies
gearing up, you could see a concern down the road. jonathan: there is a distinction between microsoft and a company like apple borrowing in the debt market. they don't want to bring the cash home from abroad. other companies are borrowing to survive in the market continues to fund them. that takes a full circle back. how much longer will we sit here and see a market that continues to fund companies to survive, not to profit and prosper, but just to survive? the high-yieldof market has always been one where companies don't repay their debt, they refinance it. we don't need a terribly vibrant economy to keep the high-yield market open and prop up companies that maybe cannot repay the debt that can refinance it. of 1% should keep the high-yield market open for
decent credit. the ones that have secular changes like retailers or coal companies, they will go away. the traditional industrial consumer led companies will have good access to credit not just in the bond market but the loan market. alix: a lot of oil companies have been able to refinance. $40 might hurt their cash flow but they don't have to repay for two years. long ago, weat were talking to guests who have said there will be in high-yield and energy because these companies cannot make a profit. what happened to that? i didn't hear about the faults? >> the micro factor is the cost based companies went down. weatherford and halliburton had to give. that improve the economics of production to bring their breakeven cost down. at a macro level, we have seen central banks around the world
squeezing investors into credit. other parts of the food chain that provide other services. alix: i feel like we can talk about this for years but thanks for your perspective. coming up, we will reveal a key measure them as investors concerned about a possible u.s. recession next. this is bloomberg. ♪
consumption help support gdp aside from the fixed asset investment moving lower. i wanted to look at what the future might bring. this compares consumer sentiment . might as consumer expectations it's how you feel in the future. when it moves higher, you feel theer now than you do in future and currently, it has moved higher. it is a at its highest level since 2006. we had that recession in 2008 so the concern is when we hit a peak with that spread, you could be in for potential recession. that's kind of the risk when you look at consumers. examining thebeen fed speak we have been hearing over the last couple of days. we heard from bill dudley yesterday who talked about maybe the market is not pricing inasmuch a chance of an interest
rate increase as it should. monetaryan said the policy is a tough use. this looks at if they are right? what's happening with what's going on in the treasury market? the white line is net long over net short in the treasury market. as you can see, traders and treasuries are much more long and they are short. we are seeing a surge. at the bottom, we have fed fund futures and the probability they will price in an increase by the end of the year. you have seen a little bit of a decrease, below 40% that we will see an increase by the end of the year. this proved bill dudley's point. we are not present in a high probability that we will see in interest-rate hike by the end of the year. are these folks going to get caught out of the trade if the fed does raise rates before the end of the year? david: that is what julie: bill
dudley is worried about. julie:this is the 50% line. david: who did you vote for? jonathan: a i will go forlix is so muchhere nervousness about recession risk in the united states even though the data surprises to the upside. that's something i have not seen before. withlix for al go different reason -- i will go with alix for a different reason. impressed, you figured out a way to make a contango. alix: you said that before 9:00 a.m. we talked a lot on the program yields wouldeasury cause a shakeout in stocks? 2% andd be as little as that proves it.
i will vote for julie, apparently. nimble with the chart, gives up, l davide beau us his outlook for global equities in this market. one story is dollar-yen and the other is banks. for credite low suisse and ub down by over 6%. european banks are getting hammered as well is dollar-yen. we are counting it down onto the market open right here from new york city, this is bloomberg. ♪
stoxx 600 dominated with banks at the bottom of the screen. financials lead in the losses in europe. fx market kicking the sentiment in japan. stimulus plan did not inspire anyone in this market. a stronger yen in this session. crude snaps back. we go above $40 with wti up by one full percentage point and a shakeout in the bond market. to your notes up seven basis points. the momentum switches to equities as we cap you down to the market open. ♪ david: we are just 30 minutes away from the opening bell in new york.
i am here with jonathan ferro and alix steel. there has been a lot of talk about european banks. alix: european banks front and center of all market action. what i found interesting is they are one of the first banks to come out and quantify negative interest rates, 161 million euro impact. jonathan: the message may be as they look to cut rates, set up and break themselves for the brexit. the euro stocks index will not be on that and deutsche bank having other -- hitting another session low. alix: we go around the world to check on all the stock markets. julie hyman here in new york with what is moving in the u.s. mark barton has all things european banks. we begin with julie in the u.s. pharma and farmer -- health care. talking about earnings and talking about potential deals
with humana on the earnings front. beating analysts estimates, the company officially cutting its expenses, the portion of revenue it spends on operations. have aend humana provisional agreement to sell some assets to molina healthcare , to try to get antitrust approval for these -- for the $37 million merger which has come under resistance from the u.s. justice department. they would pay $117 million in cash into separate deals. you can see the aetna shares were up this morning. we are also looking at cvs and pfizer. cvs beating analyst estimates, raising its four-year forecast. it also bought a nursing home drug business and that helped grow revenue at the company. pfizer second-quarter earnings are also be -- also beating estimates. and sales ofp 11%
breast cancer treatment tripled. pfizer shares were trading lower. on to williams, coming out after the close yesterday. williams now charting a course forward after it failed acquisition by energy transfer partners, and the shares are rising 6%. it is going to remain on the same course. it has a high amount of confidence in natural gas and is cutting dividends to fund those future projects and it looks like investors are pleased with that plan. let's go to abigail at the nasdaq. >> starting out as a sparkling morning for the nasdaq. shares of soda stream popping up sharply after a big second quarter beat, with the company posting impressive double-digit year-over-year growth on both the top and bottom line. the ceo said the revenue growth of the reflects strength in sparkling water.
it looks like a lot of people are making their own carbonated beverages at home. i may have to look into this myself. from sparkling water over to steak. texas roadhouse shares are plummeting. 3.7%,sus the estimate of versus company-owned comps at 4.5%, an issue with the franchise owned. there was a small revenue miss, -- the weakness we are seeing in the premarket could reflect expectations being too high. is one, texas roadhouse of the best performers at the nasdaq this year. let's find out what is happening with those european banks. >> stocks falling for the second consecutive day. every industry group barring one is declining. look at the bottom. the banks 3% lower.
bottom of the poll for the year, down by 30% as an industry group in 2016. yesterday, the worst performer on the stress test. low forthe record bankshares. earnings.sted drop in only three lenders are rising. john was telling you how credit suite -- credits reese -- metro, german retailer, biggest drop in four years, down by 8%. third-quarter sales missed estimates because of swings in currency, underlying the urgency of its plan to split into two companies next year. a big piece of data and the u.k., construction pmi at its
lowest level since the crisis and you know why, uncertainty from brexit. a reading of 44 was expected by economists. jonathan: mark barton joining me on bloomberg radio on thursday morning. on bloomberg television, we are looking at the european banking duration with equities getting hammered. low, lossesk record on credit suisse and commerzbank. that stock is down by 9%. joining us today is the head of investment and portfolio strategy at jpmorgan. hit, lendingy gets follows this is not good news is it? were a couple of
idiosyncratic issues that are impacting the markets today. obviously we had the stress test results. the -- there was a sense that the italian banks were going to find a way, but over the last couple of days, on the one hand, you saying it isally not clear that i am going to keep my promise. i may confront the eurozone and confront some of the folks in brussels and be a little more aggressive about potentially pushing for use of my own domestic tax revenues to bail out, bail in, however you want to phrase it. we have had a couple of names taken out of the index, and i think some of the biggest movers
are impacted by the index constitution, and also what is going on with japan. on there reflecting monetary and fiscal stimulus that we are seeing from the bank of japan, indicating that as soon as september, their next meeting, that they will announce either a reversal of negative interest rate policy, or at least say we will not pursue further negative interest rate policy. what that is causing in combination with the fiscal policy which was announced today was a little bit disappointing. what we are seeing is a materials deepening of the curve. japanese banks are really beginning to outperform, and their nominal rates are rising and as a result, real yield is rising and the yen is strengthening. i think some of those dynamics are operating here where
stronger japanese banks become competitors in the global market and some of the european banks may in fact. >> lose that has been the>> -- may in fact lose. alix: when you have the central bank with stimulus that why the parting the bank and can japan break from that? david: whether it is japan or europe, a basic question is, can the economy get going without strong banks? thanks with shares of, is that a critical driver? lisa: it absolutely is because we know one of the big roadblocks or europe has been credit growth. there is clearly credit demand in the more medium-sized local businesses and one of the things that mario draghi has and trying to do is get that credit transition mechanism going, and if it does not look like bank
p&l are going to cooperate, he may have to look for an additional or different solution. jonathan: the big issue for drug he was to get the spreads down, averagewhat you're estimate in germany and in spain. if banks like commerzbank -- they have a message for brussels and frankfurt and they say you are telling us here that this does not help profitability, i'm not going to give you cheap rates if you are going to damage me on the other side. when did they start listening? lisa: i think we are very close to the inflection point. we have been approaching it with all the rhetoric around the world, both from populist politics, as well as policymakers saying it may be the end of the road appear monetary policy -- four pierpont it's our policy and we will -- f or. monetary policy -- for pure
monetary policy. we will need more unified banking, more fiscal union's. s. alix: you are looking at the banking sector worldwide, would you be going long japanese banks and short european banks? lisa: in very broad terms, yes. we like long u.s. banks, they are our favorites both on a yield perspective and a balance sheet equality perspective and on profit growth. what we see happening with japanese banks is very constructive. isnow the commodity market reacting to the lack of inflation in japan, but our view is that ultimately what is going on can be very constructive for the overall japanese markets. david: so good to have you with
us on the program. lisa is staying with us. for an update on news outside the business world, we go to taylor rig's. taylor: donald trump campaign rhetoric has turned darker. he says he is afraid the election may be rigged against him and he criticized harshly hillary clinton and bernie sanders' endorsement of her. >> he was so angry when they were talking about him and his people are angry at him and they should be. if he would have just gone home and go to sleep, he would have been a hero. he made a deal with the devil. taylor: meanwhile, clinton campaigns with billionaire warren buffett who slammed donald trump for not releasing his tax return and misleading voters about his business record. live pictures of president obama meeting with the prime minister of singapore only a day after he warned the u.s. credibility is on the line.
both presidential candidates have publicly opposed the transpacific partnership. in brazil, a congressional committee will decide whether to recommend impeachment proceedings against the president. she was forced to step down temporarily in may. resilient financial markets have rallied. aides say the senate has the two thirds majority needed to defeat the current president and permanently install a new one. global news 24 hours a day. alix: coming up, oil is climbing after dropping into a bear market. the concerns about too much supply be overblown? reporting earnings that beat estimates, but investors are not completely happy, sending shares down. we dig deeper into those numbers. ♪
david: breaking news now, ford motors just reported vehicle sales and something of a mixed bag. light vehiclein a sales, although they are up in vans and trucks sales are up as well. we will spend some time sorting through that so we have a better sense for you. alix: stocks moving lower on that breaking news. the other big thing is happening -- that is happening is oil versus stock. we saw a pretty tight correlation between oil prices and the s&p. oil prices went lower, the s&p ended up selling off. now we are seeing a pretty sticky divergence. oil prices lower, u.s. stocks
near record highs. which one pays first? joins us now. is this correlation for good or will we see some kind of re-rating? lisa: we think this decoupling is healthy for the market. our sense is that what is going on in the oil market is inventory related. nature,ry technical in stunned -- kind of stumbling blocks across the whole supply chain where we have a lot of gasoline and refined inventories and that is causing the temporary blip. if you look at other commodities and you look at other leading indicators of global growth, whether it is the leading indicator index itself, the -- global pm eyes, we are looking at what is going on probably in emerging markets, all of those 2016s suggest that between
and 2017, it gets stronger and that what is going on in oil is somewhat temporary. what gives us that conviction is the capital spending budgets. we just came through second-quarter earnings. we know that most of the companies are reiterating those capital spending cuts or accelerating some of those cuts. that starts getting baked in the cake and you know the supply is going to decline, particularly in the united states. alix: should we be buying energy right now? lisa: we like the oil for the yields. alix: a little bit of risk and you'll play. jonathan: calling it a bubble on the bond market. the question i have been trying to explore is, if you have a bubble in this perceived safest asset on the planet, what does that mean for the rest of the market? lisa: what it means is that from
our perspective, it is the single biggest thing. i know everybody is focused on the bed and fed policy. the single biggest factor is going to be inflation. if inflation moves up gradually and we are starting to see that, you will see a gradual selloff in the bond market, and that will be great for u.s. stocks in particular because stocks are hedged against inflation. we will start seeing the fed comment hard and the bond market sells off, that will be very bad for all capital market assets. jonathan: the problem is that the bond market is not wait for the fed, it just snaps back. -- market does not wait for the fed, it just snaps back. we have seen that in treasuries. there is nervousness. the bond market does not do gradual. it is a series of aggressive
scatbacks. -- snap backs. lisa: we are focusing on positioning, it has been very long in the bond market and very long among client segments like hedge funds which typically are much more risk seeking players in the markets. for them to be this negative and this defensive suggests that we could get into a big selloff in the bond market that has momentum and a lot of negative characteristics. oil, we like japan banks, looking for a selloff in bond markets. thank you so much, lisa. great to see you. coming up, pfizer beating earnings, but the stock selling off. we will dig into why. ♪
david: this is bloomberg . pfizer earnings beat estimates last quarter with help from its growing line of cancer and arthritis drugs. while revenue was up, there was a downturn, sending shares down in the premarket. joining us for more is drew armstrong, when bert news health care reporter, take us through this complicated story because overall, it sounded good but the shares are down. for: this is a shot diseases like pneumonia and it is one of pfizer's big blockbusters. it had really strong sales in the last few quarters and all of a sudden, there has been a major downturn in the second order. the attribute this to saying there was pent up demand when they got some approval and we are just seeing the effects. be that as it may, when you're talking about several hundred billion dollars worth of sales, that is significant. analysts are pretty good at getting into these -- into what
prescription trends are going to be. there is a ton of data out there. surprises are not typically comment, so it is catching some people off guard. david: so the exceeded what analysts thought with the breast-cancer drug as well as an arthritis drug. drew: these are two of their big new products that are going to be the future of the company. those things are going like gangbusters, doing really well and helping to make up for some of that surprise fall off. is balancinghis out, it is just a bit of a surprise for some folks. the twoe split up of companies, investors want to see the old medicines going to one, the research go into another. drew: the company said they will make a decision by the end of the year. they have gotten increasingly quiet about what is going to potentially going on and it will be a major topic in about an hour.
the company said less and less about it. people are downgrading the likelihood that this will go ahead and happen. after the failed deal with ashes and ago, it feels less likely at the company -- failed to deal with astrazeneca, it feels less likely that the company will -- they want to give investors visibility into the two parts of the business. i think the company is really assessing whether or not they make sense as to individual corporate entities. david: what about their guidance for the rest of the year? are they taking them down or up? we will probably have people closely watching what is going to happen. that will come up a lot on the call. these other drugs that we talk drug, the breast cancer these are expected to become major blockbusters in the next few years. the real question for pfizer is
-- people are going to be asking more than anything about the split question and trying to get a definitive answer because they want to know what i am investing in. david: when is the call? drew: 10:30 eastern time. drew armstrong, bloomberg self-report or. jonathan: thank you very much. coming up, the market open is four minutes away. dow futures down by 12 points. s&p 500 futures up by three. banks in europe leading the losses and deutsche bank at a record low. this is bloomberg. ♪
over in europe, almost every single industry group in the red, that european banks leading the losses with commerzbank and deutsche bank getting hammered. brian munich rings the bell in new york city. switch up the board to other asset classes. dollar yen, a stronger japanese yen capturing the fallout from the worst kept secret in fiscal history in japan, a stimulus plan. yields are up across the curve, and across core government bond markets. four basis points on the 10 year. that is the fallout cross asset. let's strip some of that back and get to julie hyman. g.m. just came out with its july u.s. auto sales. they fell by 1.9%.
the second automaker to report sales coming in below estimates. forward earlier also reporting numbers that missed estimates, so that company has been falling as well. analysts had been estimating a decline of only half of 1%, so ford and gm are lower. let's broaden out and take a look at the major averages, we are seeing a decline across the board. all major averages heading south as investors look to japan and the stimulus that was viewed by some as not as robust as anticipated. as for earnings reports, we have a lot in the medical industry. both pharmaceutical, health insurers etc. at the coming out with estimates that beat -- with earnings that
beat estimates. aetna out with earnings that beat estimates. you can see the shares just up about 4/10 of 1%. they did not see across-the-board gains. cbs help coming out with earnings that beat estimates as well. the company has been making some acquisitions that added to its numbers revenue. pfizer also beating estimates. the company is not raising its full-year forecast, so that perhaps is what is responsible for the decline in the shares. we also have tenet healthcare on the hospital side. shares are down a surprisingly small amount considering the second order earnings missed estimates. it looks like that is no longer the case. jonathan: no real drama in the
united states. you want a little bit of drama, go to europe and look at the banks index. the stoxx 600 bank index down 30%, capturing what is happening in switzerland with deutsche bank. credit suisse down, commerzbank hammered. commerzbank stock down by 8%. joining us to discuss is jpmorgan global market strategist. equities getting hammered, how can you expect these guys to finance the european economy and do anything to stimulate the when yout a time getting hammered by monetary policy, regulation? david: the real question that we should be asking is, how far is the ecb really -- willing to
push on this string before they identify what you just pointed out. it is difficult to grow an economy that credit is not being created and banks are not lending. maybe the air incentivizing, but they are undermining the profitability which is pushing in the opposite direction. jonathan: the conversations we have, these are smart people. they know what is happening, so what is the real story? they acknowledge the negative consequences. david: i think it would extend, we need to keep in mind that europe is over banked. there are entirely too many financial institutions, so maybe they are trying to play a survival of the fittest campaign and see who can stick around in these situations. out of japan, we are seeing more of a fiscal orientation and we would not be surprised to see that out of the u.k. with the
brexit and maybe even a dashed even an extension of fiscal policy in the u.s. alix: at some point, europe is going to grow again and draghi is going to do something that will work again. is other school of thought there is too much risk, but then you are betting against central-bank action. aew: as a -- david: as long-term investor, i'm trying to look were value is being created. the selloff we have seen, not every bank is trading at the ua should which is necessarily appropriate given these long-term earnings prospects. there is opportunity, but -- some of thosefor higher-quality institutions which may be catching the brunt of the ecb actions in the selloff of these equity markets? we are interested in names that have the potential to be around for a long time. david: how do you identify
those? is it the ballot -- balance sheet or the book? david: i would start with a balance sheet and think about their geographic footprint. europe is a collection of different economies and despite a european union, sovereignty is still a big issue and these are different cultures in different countries. we are much more comfortable and despite the getting hit very hard, we are much more comfortable playing the core given the uncertainty around italian banks right now. that situation feels like it could get out of hand. david: what besides germany? david: that opens -- the netherlands, luxembourg. the periphery, you are betting on the ecb if you played as peripheral banks and you are betting that rates stay low. in the worldheme is this sort of potential bond bubble in the market. you can really see that in japan over the last four days.
despite the state of the two year yield, you have also seen stocks sell off and that raises the question, what happens when these bond bubbles go belly up? example,pan is a good but a unique example. they have not seen a ton of growth were inflation over the past decade. i'm not sure that is the policy roadmap that i would use for thinking about a rising rate environment. what is apparent is we look at e u.s. equity market, things that are very expensive are the defenses. low policy names and as interest rates begin to rise and a lot of that is dependent on inflation. as you begin to see yields rise, you will see those areas where people sought refuge over the past few years will begin to selloff and feel the effects of rising rates on these bond proxies. jonathan: what is the government response?
we talk about them wanting inflation, but in many ways, it is the last thing they want because when a country with 200% debt to gdp finally gets the inflation they have been chasing, they have to finance that debt which is much high-yield. david: it is a very fascinating dynamic. times, we are obsessed with inflation and if you look at inflation expectations, they really reflect the present and we have been in this low growth, low inflation environment and people have been incorrectly extrapolating that were -- forward and saying we will have low inflation forever. the way you have inflation is too much money chasing too few goods. a little bit of wage growth we have seen in the u.s. portends higher inflation into the end of this year. in europe, you will not see wage
growth yet. lending, butg bank they are pushing on a string with extend -- with regard to policy. david: the point you and jonathan make is very powerful. as maturities go out farther and farther, we have 30 year bonds and 40 year bonds. if you get inflation and you are holding one of those bonds, you're in tough shape. you will get paid in much cheaper dollars. how do you protect against that as an investor? you see yields going out for longer tenors and buying a real problem down the road there is inflation. david: the magnitude of inflation is important to keep in mind. i'm not suggesting the u.s. is going to be seeing inflation of 5%, but we will continue to watch it creep upwards to maybe 3%. the labor -- the way you protect buynst that is you inflation protected securities.
i think there are ways to play this. you can barbell that approach with equity exposure. some of the slick local names -- some of the cyclical names -- that is something that we have not seen for the past couple of quarters. alix: you mention what the wipeout may be in some of those dividends. what kind of sector rotation what we play now in anticipation? david: i released a paper called the valuation in balance. if you exclude energy, because values are distorted, relative to defenses, cyclical look cheap by three quarters of a standard deviation relative to the long-term average. things like consumer discretionary, technology, if you don't want to go that far, i think health care is going to be a good investment, not only because we expect health care costs to continue rising, but you have a tax break on medical devices. that has been a tailwind in the
with mark barton and vonnie quinn. what is the top of the agenda? a big day for bond and equity investors. stubbs, jpmorgan global market strategist, looking ahead and a perfumeting that cost $1000. that is the focus of bloomberg pursuits. alix: we will check in on some movers with julie hyman. s&p down slightly, this is the first today losing streak for the s&p in weeks. julie: still a small move. energy shares are higher today as we see oil prices bouncing back, but that is not helping the overall average. the company coming out with second-quarter earnings that missed analyst estimates and saw
margins we can in the u.s. green's business. that income down to $.48 from $.62 a year earlier and sales also falling below estimates. emerson electric making a couple of deals. on the one hand, selling its network talent -- that deal valued at $4 billion, and in the company also is selling another is this to a japanese company. you can see the shares are down 3.5%. 3 -- third-quarter sales -- the company talking about challenging conditions and also, we have been watching the cruise lines. royal caribbean leading some declines, down 2.8% even after its second-quarter earnings beat estimates. revenue rose 2%, a smaller --anced than estimated smaller advance than estimated.
-- ahead of guidance, but only by 10 basis points, so that is something that he found concerning. world caribbean is pulling down the other cruise lines as well. alix: let's get the bloombergs abigail doolittle live from the nasdaq. aboutsdaq also down by 2/10 of 1%. >> the nasdaq is actually snapping a five-day winning streak. stay tuned as for what is moving. buffalo wild wings stocks down about 2% on a downgraded maxim group. stephen anderson has taken his rating to a halt, he says there is a 21% run up on the news that activist investor took a 5.1% stake back in july. and somea 13% shortage investors are happy by this. tumbling on the open, integrated device technology ishaqi --
start -- sharply lower -- below estimates really reflecting one of its customers taking some of its products internally. quinn bolton believes this is an overreaction. popping nicelyis . some investors see this as a positive incremental revenue. david: we will go back to those auto sales numbers. fiat chrysler numbers just came out. july sales were still up, but .hort of what was estimated and gm and ford were down, now we have fiat chrysler up about 3/10 of a percent, but less than estimated. >> it looks like july was not a
very good month for anybody because we also have nissan and everybody has missed the estimate that analysts thought they were going to hit. gm and ford were supposed to be down, that they were down much more than what was expected. the sun was up, that they were supposed to be up 3%, and they were only up 1%. we had some big sales in the month. gm had big cashback back offers on almost everything chevrolet cells. it was not a good month. of the big lot players already reporting, and it is not looking like it was a good month at all. the breakdown that i have seen so far is ford in the mix to not look too good either. they are down in suvs and light trucks. some of the higher valued items. >> they did well in trucks, but not suvs and that has been what is carrying these companies for quite a while, particularly
crossover suvs. it did not look like consumers could get enough of them and it looks like the market is slowing down a bit. it is hitting us midyear that it is not quite shaping up the way it was last year. david: is it out of the question to match that record from last year? goodu will need a very second half in order for the industry to beat last year's record. thing for autong stocks is that you are seeing fleet sales up by 5%. you are seeing incentives start to cure -- creep up and they are still not hitting the numbers they had last year. that is where it starts getting more worrisome for the car companies. david: this is unit sales, not profitability. the profitability story may be different, right?
-- historically, these are high numbers and the plants are still running at good rates, so the car companies are still making good money. it is unit sales that we are talking about slipping a bit, profitability pretty much intact for everybody. david: thank you so much. alix: coming up, warren buffett does not hold back on donald trump, saying the candidate recent actions were the final straw for him. ♪
candidly against donald trump, saying his swipe at the parents of a war hero was the final straw. our families have not sacrifice anything and donald trump has not sacrifice anything. how in the world can you stand up to a couple of parents who lost a son and talk about sacrificing when you were building a bunch of buildings. i asked donald trump have you no sense of decency -- i ask donald trump, have you no sense of decency? david: this was quite an extraordinary event over the parents of a captain in the army who died in iraq. it is all donald trump's making. >> the debate over this is whether this is a real turning point in the campaign. it is something we have seen play out for days since philadelphia when they stood up and spoke about their son, a
muslim american soldier who was killed and the impact that had on their lives and how offensive they found that out from rhetoric when he talks about the wall, when he talks about barring muslims from the country and the sacrifices their own family have made that is no difference from the sacrifices hundreds of thousands of families in america have made. this is really the talking point that came out of philadelphia, not the clintons speech, not the historic speech michelle obama made, but this has framed it in a perspective that is different and calls into question the issue that people grapple with with donald trump. is he confident? can he actually handle this job? does he have the temperament? does he have the empathy for americans and what they have done? -- a major issue for him. meantime, on the
campaign trail, he said that he felt the election was being rigged. aboutsed real questions the legitimacy of the election, preparing himself for disappointment. >> i don't think he was preparing himself for disappointed that disappointment, but what he was trying to do was inject this theme of a rigged election and get the thought to the people, do not let this system still your vote and trying to weave that message into people's minds that this is your only chance to do something that is open, that is not going to be influenced by the establishment. whether or not it will be effective or not is a different question. it is really difficult to phrase that in a way to make people question, weight is our democracy safe? if you inject that into people's minds, his voters are already
tremendously since -- suspicious of washington and the establishment. whether or not this will carry with voters who are generally unhappy with her economic status, but may not go so far as questioning the fundamental democracy that we have. alix: we have markets on the move. the dow is off by 41 points. very much risk off with european equity losing out, led by european lenders. dollar yen is stronger. that wraps up bloomberg . thank you very much. bloomberg markets is up next.
♪ sherry: we are going to take you from new york to washington and japan in the next hour. here is the we are watching. announcesnister of a $45 million in net for spending. the yen -- the yen surging to a three-week high, that is the plan working? mark: oil closes in a bear market, touching below $40 briefly for the first time since april. don't abandon hope, we hear from buy ahead of a rebound to $50 a barrel. sherry: billionaire investor warren buffett ripping into donald trump over his refusal to release tax returns, his business bankruptcies and his