tv Bloomberg Best Bloomberg August 7, 2016 6:00am-7:01am EDT
♪ angie: coming up, the stories that shaped the week in business around the world. the bank of england setting a post brexit direction while japan fires another fiscal arrow. >> the shakespearean tragedy of abe. >> the u.s. issues its july jobs number. what message will send the feds? >> what is not holding up is business investment. >> and all eyes on earnings this week, with companies releasing a fresh batch of reports. >> a great quarter across the
board. >> it is reshaping the earnings mix. >> and as bond yields drop, are safe havens turning into risky business? >> they are starting to buy things that central banks may not have bought, and that is bonds. angie: it is all ahead on "bloomberg best." angie: hello, welcome. i am angie lau. this is "bloomberg best," the weekly review of the most important business news and interviews from bloomberg television around the world. angie: looking at top headlines, starting with monday's merger uniting two of the largest , companies. ♪ >> a big new deal in china today, the ridesharing company didi has agreed to buy uber's chinese subsidiary.
it is a stock deal worth about $7 billion. tell us about how this will work. >> based on the announcement, our understanding is that didi will acquire uber china and form a new entity valued at $35 billion and both will become minority shareholders, and also the founders will -- they will sit on each other's boards. this is a culmination of a battle that has been lasting for more than a year. >> this outcome is something that is a win-win for both companies. didi is worth more today because of the deal and also uber shares are worth more because of the deal. angie: solar city falling, the price lower than what was initially offered in the biggest deal to date.
tesla goes through a lot of cash and solar city needs cash flow. is this a wise decision for them to get together? >> there was a big question on the call this morning from analysts, just how elon musk will fund all of it for big companies. elon musk laid out his master plan last week, it is calling for a grand business requiring money over a long period of time. both companies are burning cash. that is a question he has not answered, how he will get it all done when both companies are burning cash and have big plans. angie: japan's economic stimulus plan will increase spending this year. >> they are calling it a 28 trillion yen stimulus package, but it is not. the markets are disappointing.
about $74 billion will be spent to address demographic challenges, like trying to get more women in the labor force, infrastructure high-speed rail , and cruises ship support. a lot of the money will go to small businesses and brexit relief. >> in a country like japan, do we need to change the metrics and look at other figures and data points for this economy? >> in some ways, that is the shakespearean tragedy of abe. can two guys undertaking a massive reflation effort combat the demographic forces that have been at work for decades? people are looking for economics re-think. they are at a crossroads. >> earnings from standard chartered, let's start with hpsc. -- hsbc.
let's talk about the buyback as far as the session from today is concerned. >> that is the big thing that investors appreciated from the bank today. they have been concerned about the capital generation and return of this institution as it faces headwinds that we talked about, the low interest rates squeezing down on their profitability whether they are , able to come up fast enough. and today, announcing that they will be selling the brazil unit, and that will allow them to carry out the buyback they -- buyback which investors are cheering this afternoon. >> this is an aging story, so are we now starting to see some ray of light coming out of the big restructuring of that bank? >> both banks reporting 45% drops in earnings on the year
on year basis for the half-year and that is really negative. but hopefully, we are turning the cycles for these institutions as they are cutting costs and generating capital from disposing of loans. standard chartered, operationally, they are doing the best they can in a difficult world. >> posting a second quarter profit, but with a number of factors clouding, can the french bank reach their targets? what is behind this for the big -- the beat for the big in three france? >> many investors saying that this is encouraging. the reason for loans are improving. actually, they are keeping up and they are delivering, quarter after quarter. ♪
>> the bank of england cut rates, they expanded qe by 60 billion pounds, the majority of -- they intend to buy corporate bonds. the majority of it at this point expects a rate cut by the end of the year and they voted 9-0 to cut the rates. >> too much, too little, or about right? >> about right or a little too little. i give them a lot of credit, they did a multifaceted policy, they did the rate cuts that they needed to do. at the margin they are a little , too optimistic, assuming too much benefit from what they have done. if they think they will not end up in a recession, but they did get it broadly right. >> the bank of england continues to stand ready to take whatever action is needed to achieve its objectives for monetary stability, as the u.k. adjusts
to a new reality and moves forward to seize new opportunities outside the european union. >> why was there and a society -- there a necessity for the boe to do this, because obviously they needed a sledgehammer? >> the economic outlook tests cheerier rated and there is uncertainty about the death and duration of the slowdown coming following brexit, the case is that this could be a mild recession type environment, so it makes sense to act as quickly as possible. >> we can now cross over to julie hyman in washington, d.c. >> 255,000, the addition of payrolls in july. 217,000 of those in the private sector. 4.9% for the unemployment rate, higher than estimated.
averagely earnings also -- average hourly earnings also increasing. >> it is a solid report, the kind of report i hoped for when i was working at the white house. a kick up in part-time for economic reasons is a bit of a concern but given that the work , week went up, that is less of a concern. and the only weakness was in mining, which is not surprising. >> lastly, some disappointing gdp numbers. that is a trend in the u.s. how can you account for the jobs growth on the one hand, and this in the other? >> the job numbers and last week's gdp numbers tell us that the household is fine. now we have strong job creation, higher wages, more hours worked, so the consumption side of the economy is holding up. what is not holding up is business investment, and we have had an increase in inventory.
so this is about the corporate sector, this is about risk being taken and the household risk up here. >> still to come, is that a -- the fed president says, do not rule out a september rate hike. bill gross tells us why he is staying away from his favorite assets. plus we will sort through more , of the week's earnings reports. oil dips into bear territory. advice and analysis ahead. this is bloomberg. ♪
been growing steadily larger is preparing to share assets. they unveiled their plan and a tv exclusive. ♪ >> one of china's most takeover hungry groups is scaling back. they are now focused on getting leaner. >> in a year that is turning out to be a banner year for chinese acquisitions and deals, they are going against the tide. many deals announced by groups since 2010 and we are really looking at them unwind on that. they are saying that disposals are up for grabs. we have not had details as to what or when but they said that , we will be getting more details before 2017. the ceo said this is all about getting that investment grade rating, going from being a buyer
of assets to becoming a seller. >> on the consolidated balance sheets, we have about 40 billion in rmb assets that can be sold, which will be available. if market conditions are good, we can sell. >> there are rumors that perhaps you would dispose of a steelmaker? >> there are many ways to dispose of assets. some are simply selling assets, reducing stakes is also sales. >> the australian central-bank bringing rates to an all-time low. policymakers are hoping to counter disinflation and underemployment. give me a sense of where they -- of what they have left to do? disinflation is not really going anywhere. >> it has fallen below the target and if they are focusing on the underlying measure, it is 1.5% year on year. they have cut interest rates again today and they cut in may.
and to try to stimulate the inflation, but as you say, we have underemployment so we need more growth for it to happen. we do not think that they will cut again this year. they think this will be enough for the moment. the rhetoric will now shift to watching for the impact of the basis points on the economy and how much affect it will have on inflation. and looking further out, the question is, will they have to cut more? >> oil trading, $40 a barrel this morning and it fell into a bear market this morning. when you look at the price of oil, the market was meant to stabilize, or supply and demand meant to be more stable by the end of the year. now we are back in oversupply. >> what is going on is quite seasonal. if you look at what happened last year, between the settlement of the july contract
in late june and the settlement of the the september contract in late august, we lost on wti. we are close to $49 a barrel. the high point on the demand season, now we are settling around $38. >> you are confident this is a seasonal pattern. in fact, in our view we are looking at oil to be back in the $50 plus range by the end of the year. so we view this as a buying opportunity. >> bitcoin tumbling at the -- moment, the largest exchange happening at the moment, they say that they are being hacked. what else do we know at this point? >> a lot of jitters this money. -- jitters, this morning. the announced that there was a security breach and we have seen
prices come down a lot. 13% of bitcoin down over the last few days. the exchange has confirmed that some clients have had their bitcoin stolen. the exchange said that the u.s. dollar deposits are not impacted, so really it is only if you kept it at the exchange that you were impacted. china dominates that coin, so over 90% is traded in the chinese yuan. it is a big player in the bitcoin community. this is a pretty big hack. >> shares surging in italian trading today, samsung wants to buy the auto parts division of the company. it is valued at $3 billion, so why does fiat want to sell the business? why is samsung interested?
>> it is quite clear, they have an obsession on making the targets, one of the most important targets being from going to $5 billion in debt to $4 billion cash. selling the auto parts business would help a lot if you sell it , for $3 billion, then you get really close to the target. why samsung is interested? it is all about tech companies and car companies coming together. we heard that they are critically interested in a unit of the lighting business and the connectivity business. it looks like they both have an interest in this field. -- in this deal. >> india's upper house approving the creation of a national sales tax, a decade after it was first proposed.
many say this is a game changer. >> this is extremely significant. we have seen the parliament approved unanimously yesterday. this is conference of reform. -- this is a comprehensive economic reform. from a political standpoint, this is a big win for the prime minister and the government. an important and clear hurdle has been hurdle. >> how is the business community reacting so far? >> they have been delighted. this is something we have been talking about, that india has been waiting for for a very long time. there are two outstanding issues, the date and the way. -- and the rate. ♪
earnings reports with companies celebrating beats and lamenting misses. >> pfizer earnings beat estimates with help from the growing line of arthritis drugs, while revenue was up, there was a downturn in sales. take us through the complicated story because overall, it sounded good, but sales are down. >> it is for older people, it is a big blockbuster for pfizer. it had really strong sales in the last few quarters and all of a sudden there is a major downturn in the second quarter. they are a tribute in this to pent-up demand in the u.s. be that as it may, when you are talking about several hundred million dollars of sales, this is significant. it is a big miss from where
analysts are. it is catching some people off guard this morning. >> i actually -- $838 million, just below the estimates. the adjusted operating profit, that comes in at $344 million, so that is ahead of the operating profit for the one-time items. so we have the revenue on the block, that is a beat. so the immediate question, the impact of terror, the impact of what is happening in france and turkey, are you sure that you can hold on to the outset as confidently in the face of a tough trading environment? anyt is a fair point, and europe and turkey, we have had some tragic incidents and
something unfortunately, we have had to deal with in our industry. but people continued to travel. our two biggest markets, the u.s. and china, we had our -- had a lot of growth. we have upped our dividend by 9%. so the balance across brands and geographies demonstrate our strengths. >> insurance giant aetna with their latest results, beating estimates with profit and revenue. humana also says they will sell some assets. they have an agreement to sell some assets to malign a health care. do you think that is enough to appease the doj? >> if you look at the complaint there are 364 markets that they , say are noncompetitive. we have added almost 100 more markets to make sure that
whatever competitor results with the company, working in the medical space, that they are a sustainable competitor over the long run and become number six in the region as a result of this. >> aig is gaining extended trade after announcing a $3 billion stock buyback. ceo peter hancock has been selling assets and is slashing jobs to boost margins after three straight quarter losses. investors joined this year, after arguing the insurer was too big to succeed. >> where was it that he's -- that you succeeded the most? we have operations all over the world, and we are focusing on 15 core markets. as we do that, we have been able to reduce costs, which led to an improvement.
there has been tremendous growth in our private client business, double-digit growth. and that is in an area where the risk expertise is very valuable. with the mix of business we have today, it is better with the earnings then it was one year ago. so when i look at where we are growing and where we are cutting back, it is reshaping the earnings mix to a more sustainable mix. >> reporting its worst profits since 2004. -- it is ugly, but it has been tied to world growth. >> it matched world estimates, cut to $.45. they changed their dividend policy in february to reflect this downturn.
it was a boring result, unfortunately. >> when you are the new co and you see these figures, do you have to change strategy, do you need to be more aggressive, how do you take it forward? >> today is more about the man than the numbers. >> it is about two elements. one is about the assets, we have a lot of options. and also about preferments. we want compelling returns in the long term. we have clear targets for the coming years. we have very direct targets and we have very clear cost-saving targets 2017, and we are on track. >> time warner's second-quarter earnings topping estimates. they also announced a 10% stake
in hulu, making a stronger competitor for netflix and take us into his mind, what is he thinking? >>'s business is tied to the big cable bundle. he gets paid a lot of money by the cable networks and he gets a lot of revenue from that side of the business, but he needs to recognize that consumer behavior is changing people are consuming , content in different ways. i finally said they need to hedge their that and put chips on the table in putting a stake in hulu, because it continues to grow and they need to have a seat at that table. >> investors shrugging off a big quarterly miss from tesla, the battery maker posting a loss in their shares, much wider than what was estimated. sales rose from a year ago, but also missed on estimates. they say that they are still on
track to deliver 50,000 cars in the second half of the fiscal year. >> this is a company that if you are really invested in it, it is for the long-term, and for me, i look at the fundamentals anyway and i do not think that a miss or 2 will really shake the confidence of the people that believe in the long-term vision that elon musk laid out. theres important is that are 18 months before the model threes start getting delivered. everybody acknowledges, that is going to be the tipping point. if you believe in elon musk, that is where you are looking to maintain your bullishness. the issue is credibility and i think that the earnings reports are in opportunity to become more transparent and build credibility in the company as they go to work relaunching, and that is an opportunity that they
are missing. ♪ >> shares of square popping as much as 10%, but they are also reporting a loss in shares. they had an adjusted revenue of $170 million and the increased $170 million and the increased the yearly outlook. >> the numbers were pretty good across the board, a very good quarter for square. they were able to beat estimates. use of some of their ancillary businesses, the data and software line, jumped a considerable amount as well. that is important to analysts and investors because they see that as the future driver of growth for this company. >> i think we had a great quarter across the board, whether it was our top line growth -- we are going to continue to grow at a rapid pace.
we did $12.5 billion in gpd this quarter. combining that with the big profitability milestone is what goes hand-in-hand with that growth. we are showing we can grow, but with profitable characteristics. >> corporate earnings offer a snapshot of market conditions. coming up, more perspective on the big picture of global economics and finance. dallas fed president robert kaplan, brian moynihan, and bill gross all shared their insights on bloomberg television this week. we will revisit those conversations and dig deeper into the bond market. this is bloomberg. ♪
>> this is a movement. this is a movement. there's never been anything like this. >> the trump campaign out with its latest financing numbers , the group saying it raised $80 million in july. connect with wall street or can he go it alone? >> it's funny, people talk about wall street and i would say wall street doesn't exist. what exists now are financial services firms. most of the traditional firms are all now banks. banks and other financial institutions.
there's a lot of people in the private equity world that are supporting donald trump. a lot of finance people understand his view of the economy. it was a huge month come up from 50 million last month to 80 million this month. 64 million of the 80 million was in small dollar contributions. this just goes to show what we've been saying all along. there's a lot of ground support out there. >> from money in politics to monetary policy, friday's u.s. jobs report gave the federal reserve fresh data to consider in plotting out a rate path. earlier in the week, bloomberg television discussed the road ahead with dallas fed president robert kaplan. >> the market seems to be increasingly pessimistic about the likelihood of as many rate cuts as possibly the fed has been signaling.
are they being overly complacent? >> are they being overly complacent? i think time will tell. our next meeting with the fed is not until september. we will have more data releases between now and then. it is too soon to jump to definitive conclusion. we will have to see as the economy unfolds. >> given the uncertainty building up to the november election, is it right that most market watchers now, about 20%, are now factoring in any kind of rate hike in september? is it right that it is really unlikely in september given the volatility leading up to the november election? >> i think september is very much on the table. we will have to see how events unfold.
it is too soon to jump to conclusion on that. one of the things i've learned as a central banker, you have to be patient. we have time to make a judgment between now and the remaining. -- september meeting. i want to take it vantage of that time. >> the health of italian banks continues to be a topic of debate. this week, the head of italy's largest bank spoke candidly about the challenges facing the sector and some possible solutions. tom: i think most people in american finance are baffled by the lack of synergy and mergers of italian and another national banks in europe. when will we see a modern mergers discussion among european banks?
>> to work on synergies between european banks, you have to talk about the possibility to reduce costs between different banks in different countries. it is difficult to have synergies between banks of different countries. otherwise, we have to sell the story of increasing revenues. it is difficult to say you can raise revenues between spanish and german banks. it can happen only in line with weakness. banking, asset management, but not between big players in europe. tom: are there too many banks in europe? are there too many banks in italy? >> yes, absolutely. in my view, there are too many banks. there can be consolidation within the countries. within the countries, you can exploit synergies. if you want to make a merger, you have to create value for
shareholders. synergies are really cost synergies. we will see a lot of consolidation within countries in italy, also in spain and other countries. >> let's stay on the subject of banking. minutes after the bank of england announced a rate cut on thursday, bank of america's ceo spoke exclusively on bloomberg about the impact of financial uncertainty in britain and europe after brexit. >> let's start with the bank of england. david: how does this affect bank of america and its business in europe? brian: in europe, we have a business dealing with large companies and investors -- if you go to the heart of it, you have an economy which is bigger
than california but not a lot bigger in the context of the world. it needs help and governor carney and monetary committee is trying to help it continue to grow with a surprise from brexit causing concern about whether it can. david: let's talk about brexit. more broadly, for both england and europe, what do you see right now at the effects of brexit? ryan: it was a surprise it went that way. the bookies and everybody had a going another way. people are still adjusting to that. from personal disappointment to, now we have to figure out what's going to happen. volumes went through the roof. no one knows what the rules will be. we are trying to keep everybody calmed down. this is a bit unprecedented.
angie: you are watching "bloomberg best." i'm angie lau. in the past month, bond yields have touched all-time lows. the trend touched off plenty of discussions this week on bloomberg television. what is causing yields to bottom out and how should investors react? even bond king bill gross says he is staying away from sovereign debt. he explained his position in an interview with scarlet fu. scarlet: you don't believe in pricing, you've given up on
markets. with years of central-bank distortion behind us, how do you go about determining the value of real assets versus financial assets? bill: it is difficult and your point is correct. the markets have been financial ized and they have been pushed higher in terms of pricing and lower in terms of yields. it usually doesn't pay to fight the fed or to fight central banks. when we get to the point of negative interest rates or low levels that we have now, you should at least begin to think the other way. so, what do you buy? you don't buy what the central banks are buying, that's bonds. you start to buy things they haven't bought. they haven't bought a lot of gold. they bought some. they haven't bought real estate. you want to begin to look at the other side of the stream, so to
speak, in order to find something that is relatively cheap as opposed to exorbitantly expensive. ultimately, i would say that because yields are negative in many countries and even in the u.s., relatively low, a bond investor should because just -- should be cautious. in japan, for example, in the past week, and investor has lost eight or nine years of income in the space of a 25 basis point increase. it's a very dangerous time if we start moving the other direction. scarlet: do you blame janet yellen and the other central bankers of the world for this mispricing of assets? financial assets and the intangible assets and all of the other distortions we are seeing in the economy? bill: i do. they follow the old models. the taylor rule and phillips curve models that are 20, 30, 40 years ancient.
i think ultimately they fail to , realize that low interest rates have produced and in balance in the real economy -- an inbalance in the real economy. if they stay as low as they are now, these business models will be destroyed at the perimeter and ultimately affect the real economy in terms of investment going forward. we have seen that for the past several years but i don't think the fed has recognized it. >> how sustainable is this? profits are declining, you have growth slowing, stimulus efforts that are not working and are running out of steam -- how long can this last? at the same time, it is hard to see what could reverse it. the only thing people point to is inflation or at some country decides not to pay back their debt or forgive it or create
some engineering that creates a technical problem. >> looking at the decline in yields, just looking at it, it is dramatic. >> it is dramatic. should countries, the global sovereign yields index -- is that right? should the average yield be 0.5 percentage points? you have a place like spain, struggling to get their government -- they have a government, which could borrow at 1%. 1%? that's amazing. does it make sense ecologically? no. but it has not made sense for a long time and it has kept going. angie: now to the u.s. bond market where volatility appears to be vanishing. check out this chart. a measure of expected price showings in treasuries have dropped to the lowest since 2014. >> when you look at the rate complex on a global basis,
certainly the u.s. has higher rates than anyone else out there. that's what is making it a floor. it's about what is the relative value out there in the financials services complex? where does the u.s. fit? at a 150 yield come i don't think it's incredibly attractive. the fed does want to move. the question is, not if, but when. they have the bias to raise rates. mark: how worried are you about the distortions that are taking place as a result of ultra-loose monetary policy worldwide? >> the crowding out effect by the fed and its counterparties to central banks is significant. they are buying most of the assets that are out there, which is really distorting yields to
record lows, which is creating another issue as well. credit spreads are incredibly tight because of that. not only do you have low interest rates, but you have low credit spreads. as this unwinds, that could be a significant problem for central banks in the world. betty: there is a question hanging over the markets as japanese bonds face the worst week. why have investors turned on the market? >> let's start with a pivot. i love this quote out of tokyo today. the selling is insane because the market is worried about this end to boj easing. how far will it go? we were down to almost -.3 -- a
lot of bonds lower around the world. look across the yield spectrum come across the yield curve in japan. the pink yield curve, look how that moved right up. why has it happened? has the boj reached its limits? there are fewer bonds to buy. last week, the boj did not increase its bond buying. they left their negative key rate unchanged. this is all piling on the markets. jon: gilt yields across the board -- what does this mean for your business? record low yields across the curve and a flat curve as well? >> the issue in the context of
banking -- we take the positives and make loans, 900 billion of those. when you have a floor, it becomes less valuable. it would be easier -- that doesn't mean you aren't hitting the returns. it would be easier if rates were higher. we pay nothing to the customer other than provide great services to them and we pay nothing if rates are higher. if rates go up 100 basis points , our company make $7.5 billion more in the next 12 months. we don't sit around and wait for that, though. ♪
matt: i have a new function for bloomberg terminal users that just went live this week. if you type in any equity, i've got "tesla" typed up here, you can type "ki" after that equity for the key insights, or a quick view of the most important little tidbits of the company. >> there are about 30,000 functions on the bloomberg and we always enjoy showing you our favorites on bloomberg television and maybe they will become your favorites, too. here is another function you will find useful. quic will take you to our quick takes. this week, it will take you to our quick take on the zika virus.
>> this is the main mosquito that carries zika. developing a zika vaccine could take years. right now, officials can only control mosquitoes. the zika virus was first identified in uganda in 1947, and was thought to only cause moderate flulike symptoms. by november, brazil had seen a 20 fold increase in babies born with abnormally small heads. the spread of zika from brazil to other countries has been rapid. in july, officials identified the first cases of local mosquito borne zika transmission in the u.s.
the virus moves to new areas when the mosquitoes hitch a ride on travelers or cargo or, more often, when patients affected in one place go to a new territory and are bit by mosquitoes there. it can also be transmitted by sexual contact. for those who do get sick, the illness is not usually severe and last about a week. some zika affected countries are also seeing an increase in a nerve disorder that can cause paralysis. right now, the main way to stop zika is to use traditional methods to stop mosquitoes. the other is to use genetically modified bugs. the brazilian government is looking at a program where genetically modified mosquitoes kill the female bugs. opponents fear unknown consequences.
the technology is in its infancy. ultimately, authorities will need better weapons against the bugs. angie: that was just one of the many quick takes you can find on the bloomberg. you can also find them at bloomberg.com. along with all the other business news and analysis, 24 hours a day. thank you for watching. this is bloomberg. ♪
♪ >> from our studios in new york city, this is "charlie rose." charlie: we begin this evening with a zika virus story. the government issued a warning for pregnant women to stay clear of a miami, florida neighborhood. the mosquitoes carrying the virus have infected at least 15 florida residents. meanwhile, federal funding for zika is in danger of running out this month. joining us from washington, till they want the most important thing for us to know and understand, right now, about