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tv   Worldwide Exchange  CNBC  May 23, 2012 4:00am-6:00am EDT

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. welcome to today's worldwide exchange, i'm ross westgate. >> and these are your headlines from around the world. >> european stocks down sharply in european trade following asia low. >> also, spooking investors, comments from former greek prime minister saying the risk of a euro exit is real, but tells cnbc, there are no preparations underway. plus, the world bank cuts the growth forecast for china and says beijing should pursue policies that allow people to buy more. and the bank of japan's governor says there's no change
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to the powerful easing stance after the worries over the bank's commitments. you're watching "worldwide exchange" bringing you business news from around the globe. so welcome to today's program. we're well into the trading day here in europe and after two days of recovery we are down as you can see on the 600, advances are being outweighed by decliners by more than 9 to 1. this follows gains yesterday of 1.8% for the ftse 100, currently down 1.25, the cac down 1.39%. only one sector really being up, the rest all down, the up is retail, 3.25%, autos, banks financial services are weaker. the world bank cutting growth 8.2% from previously 8.4% and
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the impact on east asia will be to knock that growth down, as well. as far as bond markets are concerned. well, we've got the zero coupon auction today out of germany, two-year, $5 billion going to be launched on that, yield's lower on the ten-year, 1.45% away from the record low, below 1.4%. spanish bond yields, okay, ten-year italian debt yielding 5.75%, back down near that 1.81 record low. got really important bank of oakland minutes coming out in half an hour after a slightly confusing inflation report. that will give us clarity really on who was asking for more quantitative easing and what the ratio was. 8 to 1, 7 to 2. currency markets are concerned, all of that may weigh on sterling a little. people thought there would be a sustained break below that. but it hasn't happened.
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aussie/dollar is weaker today, back towards the six-month lows. this after the china cut growth forecast commodities biggest seller, as well today. aussie dollar plays into that. euro/dollar back below 1.27, 1.2662. dollar/ye dollar/yen, 79.94. also changing the tone on further supportive action by language pledging powerful easing. let's just show you where the nikkei finished today along with the rest of the markets. nikkei down 2%. the rest of the asian markets, losses, but not of the similar magnitude. shanghai composites, bombay down .5%, the s&p in australia down 1%. and the kospi in korea down 1%. kelly? okay, ross.
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i want to bring you headlines we're just getting out on europe's balance of payments. and here's what's happening. as of march, there were big outflows in terms of investment. trade, though, helped keep the current account into the black. that current account surplus was just over about $9 billion in march. but, again, there were outflows from portfolio investment, perhaps not a big surprise is the continent's debt crisis continues to worsen. something like 54 billion euros of outflows, that follows a 16 billion inflow in february. not a huge reaction to the news, but certainly something to keep in mind as we consider what will happen the next couple of days. >> or weeks. >> or weeks until june 17th. >> how do we fill the time between now and june 17th? >> with plenty of discussion about will they, or won't they? every poll, every newspaper story -- >> don't we lose polls too? >> yeah, we'll do our own informal ones. >> yeah. we'll take the pulse. coming up on today's show,
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we'll be zeroing in on japan, speaking to an expert who has a contrarian deal saying there's a lot of value in sectors. >> and we're live in brussels where francois hollande and angela merkel are supposed to discuss issues. and telling cnbc the country's not preparing to leave the euro, but he has admitted that an exit can't be ruled out. and egypt's equity market has seen significant gains in the first three months of the year, but can today's election mean further upside? we'll be live in cairo. are you positioned correctly. we'll head to chicago, the home of the vix for views on balancing your portfolio. have you got any questions? >> i was going to say if you let us know your portfolio is balanced how you're feeling about that. e had mail us worldwide -- >> yes, just right there.
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>> beautiful. this morning the world bank has trimmed the growth for 2012. the bank says china should rely more on fiscal policy to fuel growth. as local reports say china is fast-tracking infrastructure projects to lift the growth rate. joining us now for more, the chief investment strategist and our guest host is julian jessop here onset with us. first to you, this downgrade to 8.2% from 8.4% for china. a big deal? or a reason to worry? >> well, first, i think a small downgrade like that is worthy of a prize for accuracy. the bigger picture is that chinese growth is clearly going to be slower this year than it was last year. the real question is whether or not it's going to pick up in 2013. we don't think it will. our forecast for this year is 8.5%. but with the further slowdown to 7.5% next year.
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and that could be quite worrying for the global economy at a time where the euro zone is likely to be in a deep recession. and the u.s. economy is likely to be fragile. >> at the same time, people were worried that china was growing too quickly, overheating. these concerns predominating within the last couple of months. is there anything that's good news for the chinese economy? >> well, not really. and in fact, the cut in the world bank forecast is probably not sufficient. we have called for an 8% growth forecast this year since we first made it in 2011. but we are actually worried about our own 8% figure. because in the second quarter, the growth will probably slow to 7.5%. it'll decelerate further in q-3. so much negativity. the data came out this week that the terms stopped growing in april mostly because they are contracting because of exports to europe. the prices in europe is already a big drag on china. so, you know, if you want to
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have any good news, well, probably the policy makers would be surprised to the downside and scared by the recent data. and this may shake them off and prompt them to do some fiscal stimulus. it's the only way for them to achieve the target they have. and we are calling for a stimulus within the next two months. >> what form would that take, darius? >> well, we think it'll be something similar to what china did during the lehman crisis but on a smaller scale. they would push back to lend more. recent data suggests a sharp slowdown in bank lending. they need to be ordered to lend. also big deceleration in capital spending because businesses don't have confidence. just like in the lehman crisis, the state-owned enterprises need to be pushed to invest more. and the local governments will have, as well. i think this is the only way to stimulate the economy quickly because other than investments, you know, you cannot count on exports, consumption cannot do much. it's only the government measures pushing aggregate demand on the expenditure side
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through the fiscal easing rather than monetary easing that can bring about a fast turn about in an otherwise slowing economy. >> that's maybe a good plan, though, julian, we had some money data out of china today which suggested even if you increase the loans, people aren't going to take them up. >> well, you can always force people to take up loans. it's one of the advantage china has, a state-controlled economy. there's an awful lot the policy makers can do to prevent a hard landing at least this year why the forecast is looking optimistic. that increases the balances in the economy. you can't keep boosting investment as a share of gdp. it's already around 50%, which is unprecedentedly high. so though you may be able to avoid hard landing in the short-term, you're increasing the risks of a further crash down the line. and i think next year, they will start to back away from this policy of stimulating growth in the short-term except to rebalancing and in the process slower economic growth. >> seems if we hadn't already
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been through this in 2008 that it would be easier for china to pursue these measures now. but potentially not as many arrows left. >> all the easy ones have been done. the projects have been started. the risk, the more you force people to borrow and invest, increasingly those products are less economically viable, less contributing to potential growth and all they're doing is creating the risk of overheating and a bigger crash when it eventually does come. >> darius, what happens with appreciation against the dollarer dollar for the currency? is that finished for the time being? >> you know, risks are increasingly high. for now, we are already five months into the year and .5% down. very few people predicted that. and this is because china needs to protect its exporters in the environment of weak external demand and a pretty strong value
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of effective exchange rate terms. we think that appreciation can resume only if the euro zone situation suddenly improves, which is very unlikely, or if the u.s. dollar declines versus majors, which at this point is very unlikely. for a time being, we are seeing a disappointment to many investors who used to buy chinese assets partly in hopes for continued strong currency appreciation. >> all right, darius, thanks for that. good to see you. >> my pleasure. the yen has strengthened against the dollar after some questioned the commitment to easing. the central bank dropped the word powerful and placed it with appropriate in the latest statement regarding the policy stance. but boj chief says there's no change in the bank's easing stance. that aside, the boj kept the monetary policy steady as expected citing concerns over europe's debt woes. later in the show, whether investors are too focused on the story and could be missing out maybe on some opportunities.
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and greece is not preparing to exit the euro. this fell sharply late yesterday after the former greek premier suggested the risk of greece leaving the euro was real. papademos said he couldn't exclude the possibility. eu leaders meeting in brussels today, eu has agreed to spend 230 million euros on a pilot program that some see as a step toward issuing common euro zone bonds for sovereign debt. let's first get out to sylvia. what are the odds we come out with something on the table with regard to a step forward for euro bonds? >> reporter: well, this is not so easy when you talk euro speak and eu speak. i don't think we're going to get any fast track into euro bonds.
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even spain has come out and said they don't need that -- don't need that right now. but we might have some kind of back door open to the idea of a euro bond somewhere down later down the road. they won't call it euro bond. the germans will never go for that. we have to relabel it. that's what we're all great at. it's probably going to be called stability bond or something along those lines. but more likely, the outcome of the summit is going to be far less than what the markets are expecting. we're going to enhance the fiscal pact with something that angela merkel said last week. we've always talked about adding a second pillar to this, talking about growth as if this had been on the table since the word go and this second pillar will be integrated into this fiscal pact one way or another. there's going to be a growth component in there and another, let's say, admonishing finger in the direction of greece saying, look, we're prepared to give you some help, we're prepared to maybe ease some of the
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conditions, but first of all, we have to be assured that any greek government, any greek government will be abiding to the spirit of the bailout treaties. let's put it that way. i don't think anybody has any illusions anymore that the greeks can stick to the letter of it. >> sylvia, appreciate it. more in a little bit. another focus clearly at this summit is going to be the degree to which there are meetings between greece and other european leaders in the eurozone. what are you expecting to see happen today? >> reporter: you know, i echo what sylvia says. i don't think anybody is expecting anything concrete to come out of this, particularly where greece is concerned. the yoeurobond is irrelevant -- the local media very focused, though, on the political situation. obviously that's the case ahead of the election. but also on the summit today, they're arguing that the new democracy leader has a bit of catching up to do.
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not just because in paris and berlin this week, but also the former finance minister allegedly or did actually meet with francois hollande the french president yesterday. he proposed a six-point plan for renegotiating the bailout deal. that included no more wage cuts, no more pay cuts. what we've got now is the three main leaders of the parties. and we do need to go back to the negotiating table. ultimately that's what i'm hearing from being on the ground here to even if people want to remain in the euro and maybe don't understand what it will mean ultimately to leave the euro, they're passionate about not taking more austerity. and that's what will be discussed later on today. back to you.
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>> julia, really quickly. we heard some sound in the background. there's a gentleman sort of holding up some sort of news sheet. seems as though it's getting a bit rowdy where you are. >> reporter: yeah, he's been around for the last hour. he's actually not protesting against the government or against austerity measures, against journalism and the viewpoint they're taking on this country. that's what he's been saying this morning, he's not happy with the representation of the people in this country. >> oh, my. we hope that doesn't reflect on you too much this morning. julia, thanks for bringing us that report. >> all right. yeah. >> wow. >> julian is still with us. suggesting there will be a breakup of euro. you're holding even more firm l presumably after the events in the last month. how is it going to work? >> there are many different ways it can pan out. i know your viewers want some
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form of certainty. here what i think is most likely to happen. first of all, i think greece will leave the eurozone this year to be followed by other weaker countries in 2013, perhaps portugal and ireland. only at that point there'll be fiscal union between those stronger, more closely related countries that would remain. and that is the point at which we might then have eurobonds. but they will not come in time to save greece. and economically and financially, i think it's impossible for greece to remain within the eurozone with the support that eurobonds might provide because the economy is too uncompetitive. and the only way to restore competitiveness is to leave the euro and devalue the currency. >> they can't default within the euro even if the rest of you said we'll give you ten years to restructure, we'll give you a ten-year debt break. that's not going to work? >> well, that only is a partial solution to half the problem. that solves greece's financing problems, but they've been
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solved already. it doesn't solve the competitiveness problem. it is certainly possible, and this is the solution that some germans might like, a ten-year program of austerity. big cuts and wages and salaries and pensions continuing over many years, effectively a ten-year recession. that's one way to solve the problem. they could go for a big bang approach, take the initial pain that would result from an exit from the euro. within a year or two, they'd be one of the fastest growing economies in europe. >> what do you base that on? >> well, the lack of competitiveness at the moment. the union labor costs in greece are roughly 40% higher than they need to be. the only way to get that down is either have ten years of austerity where labor costs grow 3% or 4% or alternatively to devalue. we also have precedence, argentina decoupling the peso from the dollar. very strong economic growth. and i think greece will follow that road.
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>> we'll have more with julian in just a little bit. first we want to take a look at what's happening in spain. how the government plans to restructure bankia. carol carolyn joins us with the latest in madrid. >> reporter: well, expectations going into the address are very, very high. i want to give you a sense of the sentiment on the ground. there's been a lot of criticism of how the people's party has ha th handled this crisis in bankia. how much capital will need to be injected into bankia. some numbers floated around in the media say it will be 10 billion euros, but this comes on top of 4.7 billion euros already injected by the government last week. that was a debt to equity swap. so will these 15 billion euros be enough? that is the big question. and of course, we want to know more about the future of bankia three years from now.
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will it be restructured and sold off in big chunks? or will it be restructured and relaunched in a smaller size? so very much a lot of focus going into that address, of course. meanwhile, just want to share a very interesting report with you, which is not necessarily new, but interesting nonetheless. el mundo along with other papers reporting that the prime minister is going to ask the ecb to step back in and buy spanish bonds to keep the rising borrowing costs in check. is the ecb going to reactivate the bond-buying program just because mr. rajoy is asking for it? i doubt it. the ecb hasn't been buying any eurobonds for the last ten weeks. >> should the ecb buy more spanish debt? should greece leave the euro? if you want to join the conversation here on worldwide exchange, get in touch with us, contact us by e-mail reach us directly at kelly underscore evans.
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>> plenty more to come. the polls in the first democratic presidential election in 60 years. we'll be in cairo when we come back. ♪ ♪ i can do anything ♪ i can do anything today ♪ i can go anywhere ♪ i can go anywhere today ♪ la la la la la la la [ male announcer ] dow solutions
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well, we'll get out to egypt in a second. just to point out the moves in the currency market this morning.
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that's a fresh four-month low. sterling/dollar down to 1.3713. dollar/swiss franc. the dollar index at a 20-month high as a result. and everything else, apart is down against it. >> and we want to mention again, it's happening with credit default swaps. we're seeing increases in italy. spain also at near or i believe record highs and i'll get more information on that as we continue to take a look at it. but italy is about ten basis points wider at 4.93. spain is over that 500 mark last week, and you can take a look at what's happening for european bond yields. we're seeing a little bit of this safety trade that reflects what ross was just talking about in currencies. german ten-year is 1.45%, italy is higher at 5.78%. and portugal, they're in
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double-digit territory, 12.34%, and spain is over 6%, 6.12%. okay, despite presidential instability, egyptian markets have enjoyed a fair rally in the first three months of 2012. and investors want to know if further upside will happen if the country successfully elects the first democratically elected president in 60 years. in cairo with more. who is expected to come out on top here? and how decisive are we thinking these elections might be? >> reporter: well, this is an historic day, no doubt. again, this is the first opportunity that egyptians have in recent history that they can choose from candidates from different backgrounds and who propose different ideology and different ways of solving the problem. again, 50 million egyptians are eligible to vote in the country, another 500,000 abroad who have already voted. the vote takes place today and tomorrow, started a few hours at
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8:00 a.m. local time and runs until 8:00 p.m. later on today. and another day tomorrow. and if no single candidate gets at least 50% of the vote, there would be a runoff. just to give you an idea of how the newspapers are hailing this day. this is the state-run newspaper and writing here that the people are choosing a president for the first time and it's without a constitution. this has been a source of some of the political risk that has been identified for some of the analysts. and also the military council reassuring voters that they will provide the security in the different polling stations and also saying they will not allow any incidence of fraud to steal the election. people are very enthusiastic in the streets. it's fascinating to be standing here in tahrir square. the scene of so much that shook the world over 15 months ago. ross? >> thanks so much for that. and still to come on the show, bank of england's may minutes are due out any second. we'll have more on that next. [ male announcer ] the inspiring story
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the headlines today, european stocks down sharply in early trade following asia low as hopes fade that eu leaders will agree on the sovereign debt
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crisis. also, spooking investors, comments from papademos. beijing should pursue policies that allow people to buy more. >> and no change to the boj's powerful easing stance. after the yen strengthens on worries over the bank's commitments. bank of england in a minute, 8-1 the vote, 8-1 the vote to not progress with more easing. had reversed his u-turn and done an oval turn, but he hasn't. several members decision to not expand qe was finally balanced
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t. . we will monitor the outlook each month. more stimulus could be awarded. also, a possible further rise in sterling, the recent rise could dampen prices. could lower the risk of growth hurts the capacity. for miles, the outlook was already warranted further qe in may. sterling, well, u.s. sterling's been down anyway. sterling we saw drop against the dollar, but that's because the dollar's been rising this morning. julian jessop with us. what do you make of that? >> i interpret the comments as.gas dovish. i think that's no surprise gechb that the -- all the sun certainties at the time. in particular, the gdp numbers were soft, i think many people in the bank are paying attention to the rather better survey data. but it's a very clear signal
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that the economy remains weak, and in particular, it's a further escalation of the crisis in the eurozone and the bank of england will do more qe. >> the imf touched on this, as well, we need to get credit flowing to small businesses, through the economy. qe doesn't seem to be directly helping that. there's this idea maybe we should be doing more a different type of qe that maybe clears banks, property loans. do something that frees up lending from banks directly to those who need it. >> well, certainly debatable buying just more government bonds is going to make any difference in the scenario i'm talking about where the eurozone crisis is getting worse. the loans are going to be lower anyway. in terms of encouraging people to lend. already the government rather than the bank of england is looking at various measures under the category of credit easing to force the banks to lend. the problem is, there's no demand for that credit and you
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are basically pushing on a string. you can't force people to borrow if they don't want to. so it may be that simply pumping money -- >> mortgage rates rising at the moment, for example, and people pulling out of the mortgage market been a big supporter. they're reducing, jpmorgan was a big buyer of asset backed mortgages and they might be winding those programs down. >> well, to some extent because of the concerns about europe. banks unwilling to lend as much as they were to each other. that's pushing up wholesale money market rates and having a knockdown effect on mortgages. there is something the bank of england can do. it can flood the system with liquidity to make sure even if banks can't borrow from each other, they can continue to borrow from the central bank. i think that will help with the margin, but the uk economy will be hit hard because of the huge trade links. >> and uk retail sales data shows the sharpest drop since january 2010, driven by a drop in auto fuel sales hit by potentially weather-related drop in clothing sales, as well. not adding to what's happening
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with sterling. i think we're going to continue to see -- >> we're below 1.57, sterling slipping deeper. 3 1/2 month low, the euro's against the yen too. european stocks today, well, none of that is helping us, that's pushed us down further, ftse down 1.6%, the cac down 1.7%, as well. let's take a look at bonds. if we take a look first at bunds, they were down 1.4%, italy just below 6%, still 5.78%, spain at 6.14%, we're not at twhat we were earlier this week. germany auctioned a zero percent coupon today. patricia joins us from frankfurt with more on this. >> well, it seems to be fairly solid considering that you don't get anything in return apart from having your money back eventually. and this is exactly what the
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market is buying right now. of course, we'll see the final results later on, but it's very interesting to see the dynamics of the markets because nobody's expecting any kind of return on their investment, but a return off their investment. and that is a total shift if you think about investor strategy or the strategy of investing in general. what i think is interesting to see, what does it actually mean? that germany's able to pull this through. it means the market is believing that only in germany as a safe haven but somehow kind of speculating about euro breakup perhaps. and not only that, if the euro should break up, then germany would actually end up still with a fairly stable currency. that's an interesting one to consider. it would also mean that basically the fear factor is just so dominant with regards to the euro zone, as well, that they are just now buying into the entire thing. i think all in all it's going to be very interesting to see how the market is really reacting in the long-term. because if this is really successful, that means that
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eventually some analysts say we'll have negative yields in the german bond. so all in all as i said, it's going to be very interesting indeed, the market is speculating a little bit of euro breakup here with this kind of demand. and we'll have to see. the spreads, of course, is going to be an issue also for the ecb next week. >> patricia, thanks. that auction we're expecting to see happen in just about an hour's time. and in the meantime, what's going on in japan, several headlines over the last couple of days illustrate the problem for the biggest economy. we have shirakawa talking about the slowdown, europe weighing on the nation, as well. he says it's up to the government, no the necessarily to the bank of japan to decide whether to do more to stem the yen's rise which has made the export sector less competitive. and warns that europe may trigger a negative spiral between continued deflation,
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weakness at home, and the strong yen exacerbating some of their own problems. as we saw on the trade figure separately out this morning, they're still struggling with oil imports after having to shut down a lot of nuclear power after the tsunami last year. take a look at what's happening with japan's debt levels. this country is already not just the third biggest economy, it has one of the heaviest debt loads in the world. as terms of percentage of gdp, starting in 2008, 187% of debt to gdp now looks like peanuts compared to where we've gone. steady increases here to what fitch and downgrading the country yesterday described as it expects to see debt to gdp reaching 239% this year alone. removing options on the table and even so, the ten-year debt in japan continues to do quite well. exports in april failed to correct japan's trade balance. and more on the story. >> thank you, kelly. last month's trade deficit stood
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at $6.5 billion, the largest ever for april. the figure was also larger than economists' forecasts. exports rose nearly 8% from a year ago as car shipments rebounded after post quake output disruptions. but the overall increase was less than expected as exports of steel and plastic declined on reduced demand from china. imports also increased 8% due to higher energy needs. with all of japan's 50 nuclear power plants currently idle, demand is rising for lng to run conventional power plants. looking ahead, japan's trade situation could worsen if the stronger yen persists and the global economy weakness while energy prices remain high. back to you, kelly. >> thank you. as we were saying earlier, the bank of japan's governor says it's up to the government to buy assets. speaking on worldwide exchange last week, the foreign currency czar gave us his take on an intervention that not all agree
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with. >> the intervention would not come at the level of 78 or 79. if it comes down to 72 or 70, then, you know, authorities might intervene. >> the idea that the yen is a safe haven is about the most unsafe safe haven i've ever heard of. this is a country whose fiscal arithmetic makes greece look like switzerland. so the likelihood is that they are going to have to do something, which they have failed to do so far of a meaningful fashion to reduce the value of their currency to keep their economy going. >> okay, joining us now for more is kevin gibson at east spring investments. kevin, you just heard comments there talking about japan as the least safe safe haven anyone's heard of, and you think there could be risk to the upside. >> that is correct, yes. i tend to look at it in two ways. one is firstly is the negatives as described earlier.
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i think are overstated for a number of reasons. and on the other side, i think there's a lot of good things happening in japan, which essentially the markets are overlooking. >> we want to bring julian jessop into this conversation. do you agree that japanese equities look good in this situation? >> well, stepping back a bit. first of all, is japan greece? i think the first answer is no. japan has independent central bank, its own global reserve currency. and above all, japan has huge external assets, the external position is extremely healthy. no difficulty financing a debt from those assets if it needed to. as to whether or not japanese assets are of good value, in the medium term, yes. given the prospect to further strengthening the yen and the effect that would have on the nikkei. >> you see the yen going to 72 or 70 on the dollar? >> that's because of the safe haven demand that does exist. it may well be in five or ten
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years time, it may not be. >> what are the factors in your mind people are overlooking? >> well, specifically on the yen. you've got to put it in the context that the yen has been strengthening for 20, 30 years. i think what is interesting is that the corporate response to that yen. and specifically corporations now are increasing their overseas production quite significantly. so in the last 20, 30 years their production overseas has increased five fold. so back to specific points in terms of valuations are very cheap in our mind. the market trading below book value. 2/3 of companies are trading below book value. you've got a market on a free cash flow yield of in excess of 10%. and the second issue as we see is that the corporate balance sheets are broadly restructured and are in a very strong position. and thirdly, is the corporate
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response in terms of meaningful change in corporate attitudes. and i think the kick start for that was leeman's in 2008. >> there is a time frame question here, which is sort of what julian raised, though. what sort of time frame view do you have to take, though? because in the short-term, there's no reason to stop global equity markets correlating or going weaker. >> yeah, that's true. and again, you know, it's kind of timing markets is a tough one. i think you just got to back the valuation signal and we see that writ large. >> julian, with japan's debt to gdp ratio being so high and with the fitch downgrade yesterday, do you think this is a game-changing moment for jgbs? >> no, particularly looking at the downgrade yesterday, there's nothing that fitch hasn't said that anyone hasn't known for a
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long time. it'll become a crunch point over the next five to ten years with the japanese public finances, but i see no reason why it's going to come in the next year or two. instead the crunch will be in europe. i think japan will look relatively good. and though the public finances are in an awful state, i agree with your other guest, if you look at the finances of the corporate sector, i think that's what gives japan the safe haven status, no the the position of the government itself. >> you specifically like electronics in some of these electronic stocks, yes? >> yes. at least preinvestments, we're value investors, that tends to make us contrarian. economic stocks have been severely de-rated because of the strong yen. but that's where we see a lot of the changes in corporate attitudes, which i mentioned earlier and namely in terms of offshoring in terms of production. but also, as well, in terms of taking advantage of the strong yen in terms of making actions
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overseas. >> all right, kevin gibson of japanese equities at east spring investments, thank you both. >> we like a bit of contrarian thought here. he says he favors using the sm to recapitalize banks, julian, your thoughts on this. he doesn't think another ltro is needed in europe. is he wrong or right? >> well, i'm pretty certain we'll get one whether it makes that much difference is the real question. we've already effectively had two. i think each attempt to surprise the markets and impress them with the same measure is going to be less successful than the first. i do think the ecb will be able to maintain the stability of the financial system in the core economies. so i'm not expecting a complete breakup of the eurozone when the whole thing falls apart. but none of this is helpful to greece. >> do you expect that esm to be in place this summer? >> i think the whole thing will happen quicker than people
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anticipate. all the emergency measures that the governments need to take in the core countries will happen sooner than expected. but the circumstances in which those will happen is precisely a worsening of the crisis where greece and other countries are beginning to leave. >> if your goal here as a politician is closer federation of europe, this crisis has given you the cover you would want? >> oh, yeah. if you're a federalist european and this crisis is -- maybe they built this in as part of their design. you need the crisis to get to where you're going to go otherwise you couldn't sell it otherwise. saying the prices its offering of lse shares 900 pounds, given the net income lse stake selling around 500 million euros. >> all right. still to come on the show, burberry, what they have to say about the fashion performance just ahead.
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what? it's fashion, darling. >> it is, burberry, i'm told it's called.
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burberry, headlines this morning. >> yeah, a number of things this morning. planning to open more stores after posting a 26% drop. >> you look very fashionable. >> that's me walking down that cat walk. you caught me. >> it's very good. very good. >> and then we went out to -- i say we, very grand, i went out to speak to angela erics, the ceo of burberry on results today. she was upbeat about the figures. they came in line with expectations, profit rose by 26%, the headline figure was 376 million pounds, that's how much they made. they have seen continuation of this trend where they're seeing stronger growth in asia than they are in europe. it's managing to hold up well in europe, as well. the stock is down quite heavily and the analysts seem to be at a loss as to why this is happening. the stock has had a good run-up
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recently, even despite the declines of 3.6% year-to-date. the stock is higher by nearly 13%. so in the context of the ftse, for instance, being down year-to-date, that looks pretty strong. oh, there i am again, look. and anyway, so i spoke to angela earlier and started by asking her just in a little bit more detail about the differences they see in growth between europe, asia, and the americas. >> of course you've got certain countries that are softer. italy, korea, but in those markets, flagship cities have significantly outperformed. you've got high net worths in those markets, you've got heavy influx of tourism. so london, paris, beijing, shanghai. >> the luxury retail stocks have had a bit of a wobble recently. how do you think the luxury sector as a whole will perform? >> you know, again, the sector has typically outperformed and any report that i'm currently reading says that it should continue to outperform typical
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gdp growth in most of the high-growth markets around the world the next few years. but again, i think the sector is one thing. i think creating a great brand with a compelling message is another regardless of the sector that you're in. >> so facebook has had a pretty rocky ipo in the past few days. your business has, what? 12 million likes on facebook. does the ipo and the debacle that's gone since affect the way that you think about your presence on facebook? >> not at all. not at all. i mean, again, they are a social media platform, be uh they're doing amazingly innovative things. and we launched our fragrance burberry body on facebook to our friends and you can't underestimate. it's not just one platform. it is the power and the viral nature of every consumer that's on that platform. so the platform is simply a medium to get to the consumer. >> it's interesting comments there from angela about facebook. they have this huge presence on
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facebook. she was basically saying what makes -- what makes it worthwhile being around facebook and the social media for them is the chatter that surround their brand. not necessarily people clicking on ads, it's the profile. >> people saying i like burberry, and talk between each other, amongst the things they see on their burberry presence. >> i was wondering if she'd be willing to pay. if she could keep that chatter going. she is saying that facebook needs to innovate more and they'll pay more. >> sounds like something for them to work on. get to work, guys. >> and we'll take a look at the tech space now. lemova in line with forecast, the world's second biggest pc maker says stronger demand in china helped counter weakness in europe. the earnings come a day after dell reported a bigger than expected drop in fiscal first quarter revenue. she asked him how his company's
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coping amid china's slowing growth and uncertainty in europe. >> -- you also refer back to china, i think we are confident that we will outrule the market and when you talk about china, i think china will still have a long way to go because the financial rate is relatively low. i think with the population in china already number one in the world, with the relatively low penetration rate, and more importantly, with our basically our strength in china, i think in terms of distribution capability, products suitable to the market, we feel we'll do very, very well. i think china is already number one in the market, the upside is high too. china may not be growing looic in the past. i think from a gdp perspective, i think previously stated at 8%, now below 8%, nevertheless, the
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pc market remains very good. >> your global market share has grown 13% you say putting you at world's number two. how do you intend to get to world number one as your goal? >> well, we will continue to outperform. we obviously look at our competitors, but we never take number one as our objective. we'll continue to drive profitability as our growth. number one is great, but at the same time, we have to make sure that it's sustainable and more importantly i think we'll have to be generating benefit to our shareholders. >> now, starting on april 2nd, you had restructured your business into four geographies. being your fiscal first quarter, how is that going? >> well, i think it's doing very well. i think this is obviously a planned change. again, if you really look back at lenovo two years ago, i think we reorganized a couple of years ago rather than two years ago, i think four years ago when we had the financial crisis, that had
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an impact on our financial result. so we are reorganizing into two markets, two markets mature and emerging that give us a lot of efficiency. but over that period, our business nearly grew two times. now, we feel that it will be better organized for us to break it into four regions so you have more local focus and that will drive further growth and that is really the reason. >> thank you very much. >> thank you. here's a quick look at what's on the agenda in asia tomorrow. the latest data on china's factory growth. when hsbc will release the data for may, that's at 4:30 european time. new zealand out with the budget blueprint for 2012 and 2013. on the path back to posting a surplus. don't hear that much these days. and the all-important deflation check on friday. japan will release the april cpi figures. couple of flashes across the wire. hearing reports via dow jones, that the european central bank has set up a working group on
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greece. no comment on the report that european central bank, that is. it would be led reportedly by board member who we heard from the other day. and based on reports they're getting, it has also set up a crisis committee. we're chasing this, trying to get more detail on it. >> yeah, and let's go back to. jessop says they'll be out of debt at the end of this year. how do they stop a bank run happening in spain? >> well, actually i think it may be very difficult to prevent a bank run in spain from happening. two specific points -- >> the fallout -- >> exactly. i think there are two specific contagion points. the first is when greece actually leaves. and i think at that point, the european central bank and the core governments will get together and provide as much support as needed to other economies like spain in order to keep them in whether that means huge bailout programs or big injections of liquidity into the banks. but even if they get through that period, there'll be another
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contagion period maybe a year or so down the line when if as we expect the greek economy is starting to grow much more strongly. it may be the fastest growing economy within europe. at that point, even the policy makers in economies like spain may well say is it worth remaining part of the monetary union? and i think at that point there might be no amount of support from the other members. >> there does come a point if they're no longer in the euro, all the investment being held, once they know greece is out goes in. >> summer vacation. >> yeah. great to have you back on today. thanks so much. julian jessop. we've got plenty more "worldwide exchange" to come. >> jim o'neill will join us on the show. what he thinks is going on with germany as the yield goes off with a 0% coupon coming up. ♪ why do you whisper, green grass? ♪ [ all ] shh! ♪ why tell the trees what ain't so? ♪
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welcome to "worldwide exchange," i'm kelly evans. >> and the headlines around the world. european stocks down sharply in early trade as hopes fade that the eu leaders agree. and comments from papademos says the risk to a euro exit is real, but told cnbc no preparations are underway. policy makers edge closer to another round of qe as retail sales in britain post the lowest in two years. the world forecast cut for china and saying beijing should
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pursue policies that allow people to buy more. you're watching "worldwide exchange," bringing use business news from around the globe. all right. if you're just joining us this morning, let's get a check of how the u.s. market is doing. a familiar picture to what we've seen in the last couple of weeks. red across the board. the dow jones opening up about 60 points lower for the morning, nasdaq would open up down about 10, and the s&p down about 7 points. this comes after europe has been sharply lower in overnight trading. take a look at what the ftse cnbc global trade is doing. things really started to sell off. we're now down about almost .9%, almost 1%, giving back a lot of the gains we've seen over the last couple of days. and we're also seeing a lot of this show up as stress across the currency markets, as well, ross. >> yeah, for once the action today is in the currency markets, kelly, as well. this is the hand that europe's giving over to the united states a little bit later.
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ftse 100 down, the dax, we had gains with that amount yesterday, cac down 1%, ibex down 1.6%. and now even retail is down. very weak retail sales numbers out of the uk, i'll detail that in a second. but basic resources down 3.5%, bank down, as well, world bank downgrading china growth from 8.4% to 8.2%. as far as the bond markets are concerned, we're just starting to see yields back up in the peripheral. italian ten-year still below 6%, 6.12% for spain. we've got this zero coupon 5 billion two-year coming out in germany in just a second. the yields just falling back 1.44%, but still below the record 1.39%, ten-year are on the move again today, getting back toward the record low 1.1%. voted 8 to 1 to keep easing
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program. and a big falloff in retail sales this morning, as well. much weaker than expected. the april weather hindering clothing sales, as well. all of that has dragged sterling down this morning. euro sterling still above 80 as you'll see. but sterling below 127 for the first time since the beginning of march. aussie/dollar .9736, dollar/yen 79.42. we hit 1.2615, but we did breakthrough that, so we're really testing some fresh supports on euro/dollar, kelly. >> all right, ross. let's get a quick look on what's happening in the u.s. new home sales will be out at 10:00 a.m. eastern time, forecast to rise 2%, following about a 4% increase in existing
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home sales yesterday. at 1:00 p.m., the results of a five-year treasury auction. yields will be pretty low on that. and as for earnings, look for numbers before the open from american eagle outfitters, big lots, hormel foods and toll brothers. after the close, we'll hear from pandora and hewlett-packard, also expected to announce job cuts possibly as many as 30,000. >> that's a lot of job cuts. >> it is. >> and we'll talk about it a little bit later, but also i've noticed since mark zuckerberg got married, it's already cost him $3.5 billion. >> facebook shares not doing well. >> you've got to be careful, right? >> all the more reason to proceed cautiously. >> welcome, jim. >> good morning. >> we're going to detail what's happen happened and get your view on everything. greece is not preparing to exit the euro. the single currency fell sharply yesterday after dow jones said the former greek premier suggested the risk of leaving the euro was real and the
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contingency plans were underway. papademos says he couldn't exclude the possibility. >> eu leaders set to discuss the issue. the eu has agreed to spend 230 million euros on a pilot program. some see this as a step toward common issued for sovereign debt. the dow jones is reporting the ecb has set up a working group on greece. sylvia's in brussels and julia's in athens. what are we to make of the headlines? >> reporter: in terms of the ecb, we've talked to the ecb, the official line on such matters as always no comment. a working group on greece, however, it's been an open secret also never 100% confirmed or never openly confirmed by the ecb, but a working group on greece seems to have been in place for some time. but not led by the advisement,
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but the german finance ministry. so different german, not quite the same working group, and certainly not if that's the same we're talking about new. so i think the rumor mill is spinning further. and on the papademos line, whenever anybody, politician or anybody else gives me the sentence, i cannot rule out, i have to be very careful. some alarm bells are ringing. of course you can't rule out. you can't rule out i'm going to be hit by a meteorite in the next few minutes. be uh how real or unreal they are, that's a different matter. in terms of what we can expect from this year's summit, well, maybe expectations were a little too high as often. we're probably going to see some kind of growth compact integrated into this fiscal pact that angela merkel has master minded with other euro zone leaders last year. and she said last week even, and she said it a number of times, well, we always thought about
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integrating growth. and here now, of course, is the time to deliver. maybe we should've delivered on that earlier. but be that as it may, this is something that's going to be integrated, and also, of course, another gesture towards greece or another admonishing thing toward greece saying, okay, we will help you, we might help you, there might be further loosening of the conditions, but you must first of all agree that you sign up to the spirit of the bailouts if not to the letter of it. >> all right. sylvia, thanks for that. last the latest out of brussels. julia, meanwhile, all the greek politicians, political party leaders have been trying to have their own meetings with the rest of the eu political leaders. what's happening in greece today? >> reporter: well, one thing we're focusing on, of course, is the beginning of the bank recapitalizations, and it's one of the things that papademos mentioned yesterday. he does think the pressure on the banks are easing. that's a focus. as you said, the local press here very focused on what discussions are going to take place in brussels later on.
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they're pointing out that the new democracy leader has catching up to do. not just because the leader had meetings in paris and berlin earlier this week, but of course, under the radar yesterday we had the former finance minister meeting with the french president francois hollande discussing a six-point plan for what needs to be renegotiated. no more wage cuts, no more pension cuts, support for youth unemployment, among other things. and what we've got now is the three main leaders of the parties saying enough is enough. we can't go on with the bailout program as it is and it does need renegotiating. the question is, how much leeway european leaders are going to give them. and from what i'm having, the discussions i'm having here on the ground, this is the ultimate point. and 18% want to remain in the euro. they don't really understand the finite details of what leaving the euro is going to mean. the fact they cannot take any more austerity. and i think that's going to be
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at the heart of the discussion particularly from the potential greek leaders when they meet in brussels later on today. for now, it's back to you. >> julia, thanks. >> jim o'neill chairman of goldman sachs asset management. jim, you say that you're starting to think the unthinkable about the euro zone. >> am i? >> right here, you say i'm starting to think the unthinkable. the question is, what more we can expect from european policy makers toward the federation of europe? do you expect the steps we take in eurobonds, the esm launching by this summer? all of this spurred by the crisis, or will it be as our guest this morning was telling us that, no, greece, some of the peripheral countries leave the eurozone? >> well, i think the greek election and its consequences are pretty cathartic moments. i like the piece that john kay has written today about it. beyond the immediate contagion
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issues, once one exits, it breaks this notion of it being a true currency union and some kind of hard currency pack, some kind of tough aversion of what the european monitoring system. a big moment, and they will have to respond really very clearly and very critically -- to make it clear to everybody, nobody else is going to leave. and of course, it would be really difficult to persuade investors to believe that unless they did really dramatic things. and as i'm saying it, i hear in my own mind thinking amongst those issues, that's partly why greece might not leave. but the flip side of it as i joked about in that piece and talked about the past week, you might as well do a random survey of people as to whether they're going to go or not. >> shouldn't actually the survey be put to people. if we're talking about a fundamentally political -- why
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are policymakers effectively trying to take steps without trying to put these issues -- >> overnight with these comments. they're trying to make the greek people realize, i think your reporters hit on it. trying to realize what's at stake here. when i look eed at the vote 2 1 weeks back. people going for the guy that sounds the kindest and going to tell the rest of these guys to clear off. what they didn't seem to realize is the whole slew of highly unpredictable and likely negative consequences. things that don't even get talked about much. what happens about cypress, about the whole turkish greek dispute not being part of it all. >> until investors know -- and you just raised this, until investors know for certain what is going to happen, no one is going to invest a dime in greece. and probably not going to invest
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in the other peripheral countries either. and lack of investment is going to kill those countries even more. and i don't know -- i don't know what the certainty is before you get people to say, okay, finally i'm going to stick some money in. and we're going to crank up the business. >> you know, this is why i've used the phrase about being a cathartic moment. the germans and the french, and i want to come back to this on another angle which is being ignored about germany which i think is quite positive. but the germans and french have got to decide if they want this thing or not. it's not really a sovereign debt crisis. yes, greece has a sovereign debt problem, but it's about the markets having the euro -- and they've got to behave as a true euro group or don't, and if they don't, it's going to fail. >> they've got to say we're going to backstop -- >> they have to go some version towards the united states of
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europe. as many of the skeptics pointed out, particularly once you went beyond -- maybe six countries perfectly were suited to a european monetary union. they introduced it in 17, if you want it to work in a diverse group, you've got to be truly european and they're not being truly european. so the markets have simply throwing it back saying, okay, guys. >> a fixed exchange rate union. is there any historical precedent for this kind of thing working? >> well, your country -- i'm not a great detailed historian, but there are parallels with partly how the united states was created and this is partly why i wanted to raise the issue of germany. in big picture in many ways, what's the german response to the french election is more interesting as big of an issue as this greek thing is. you've got signs of germany making major policy changes. less than two weeks after the finance minister saying publicly
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germany should have higher wages. that is a big change. bunders bank all be it through gritted teeth accepting inflation has to be above 2%. and that looks to me as though it's a response to -- >> that's a enormous psychological change. >> it's a big change. a big fundamental change. it looks to me we're in the early days of germany going into a phase where its growth is going to be driven by domestic demand and not exporting -- >> and then inflation -- and the question is how do investors -- that opportunity for investors -- >> buy or stay in germany. >> that's a worry point for german bunds too that are about to be auctioned off with a 0% coupon. >> good point. >> we'll have more of that with jim o'neill. >> talking about that demand expected to be -- despite that zero coupons pretty strong. germany's auction with a 0% coupon today. the debt agency says it has no plans to set a negative coupon on its bonds, the result of that auction due around 11:40 ct, in
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other words, half an hour from that. just showed you, of course, the extent to which markets have become completely dislocated. offering a bond with zero return. >> that's right, ross. and if you want to join the conversation here on "worldwide exchange," get in touch with us and other guests throughout the morning, e-mail us at or tweet us at cnbcwex. >> don't miss out the opportunity to get a couple of questions to jim, as well, while he's here. jim o'neill says the pboc there has enough tools to stimulate the economy, but for how long? more when we come back. ♪ ♪ i can do anything ♪ i can do anything today ♪ i can go anywhere ♪ i can go anywhere today
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all right. if you're just joining us this morning, these are your headlines. europe, markets, and the euro firmly in the red and ongoing concerns over greece. papademos says the risk of the exit are real, but no preparations are underway. >> and the retail sales fall sharply in april for the uk. all right. speaking of the boe, comments
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just now in a speech. and he is echoing the stance we heard out of the minutes a few minutes ago. charlie bean saying if conditions deteriorate, bank of england may need to resume asset buying. the date to reverse on qe has receded somewhat. and he says it'll be hard to know, by the way, when gilt yields will return to historically normal records. >> getting back down to that record level. jim o'neill is with us. is there any way to stop it at the moment? >> i guess when people don't start believing they're going to be caught, that might be a relevance. of course, the flip side of that, if we did have some shift in further -- further shift in germany, not what we were talking about earlier, but if germany shifted on the esm being used to support banks, that would probably have a big impact on the whole spread game. and, of course, the whole
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eurobond thing. which i can't imagine yet, but that would have a huge impact. >> in fairness, germany wanted closer fiscal integration before the launch of the euro in the first place. >> i think germany continues to play some high-level strategic games here. the basic decisions that ultimately have eurobonds is you don't want to do it -- as merkel said just today, you don't want to do it to open the flood gates to all of thesef guys not to he fiscal discipline. and there's this big complexity about the speed of fiscal tightening versus fiscal discipline. they're not the same thing, but of course, we all get sucked into thinking they're the same thing. >> and what's worrying investors, of course, is not just the impact of the slowdown from europe. we're seeing the slow down on chinese exports, which haven't grown, and trimming the growth forecast to 8.2% from 8.4% for 2012. they need to rely more on fiscal policy and less on state investments to fuel growth. capital economics, a number of
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guests already at cnbc saying we will get more stimulus out of china. the question is if it's investment-led growth again, i mean, how effective is that? they might sort of help out this year, but what happens in 2013? you might make the longer term problem worse? >> it's good you raise that, because i think part of the market's angst in the past few weeks is possibly more about the china thing and the u.s. than europe as i've discussed on here. europe never drives the world anyhow. so what really matters is the european policymakers pulling something to protect the absolute worst and at the margin for the broad trend of global equity markets. i think what's going on in china and what they're up to policy wise and the u.s. are probably more important. >> so it does happen in china. >> on china, i think you raise a great question. part of what's going on there is already big rebalancing. i call it apple versus caterpillar. i still can't get out of my head three works on cap l's q-1 results.
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china consumers are spending. look at what you said in your interview with angela earlier. the chinese consumer is spending. and one of the consequences of that appears to be lower absolute gdp growth. but we sort of want lower chinese industrial production. and as you raise in your question, if they spend more on infrastructure now, what about next year? so i was a touch surprised by this. and i can't imagine them coming up with a package anything like the one we saw in '09. because -- like '08. it wouldn't be appropriate. and i think all of it here is all getting used to chinese growth. but the key is that the kmoo you are is continuing to be a bigger share. the day that's got everybody so stressed, the ip number at 9.3. retail sales was 14.1%. >> one point we made the consumer has a bigger share, it means the rest of the world. the share of that in the rest of the world goes differently,
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doesn't go to commodity. >> the whole china play story is changing. from 40,000 feet, what's really going on all over the place is further global current account balance adjusting. helping involving china, in some ways what we talked about the euro. so china and germany are becoming less like china and germany of the past decade. the u.s. is becoming -- >> and more like the u.s. >> china and the u.s. swapping places a little bit. and germany and italy and france having to swap places. it's all part of the cleansing of the past mess that led up to the '08 crisis really. >> hopefully. and that's one silver lining, i suppose. more with jim o'neill in a little bit. but when it comes to tracking fears, traders don't accept any substitute for the volatility index known as the vix. that's been an indicator of future market index. and our next guest says investors may want to tread cautiously coming up. with the spark cash card from capital one,
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all right. if you're just joining us, welcome back, and let's get a quick check of how u.s. markets are looking this morning before the open. it's red, we've got the s&p pointed down about ten, dow jones opening 85 points lower, and nasdaq 19. >> only about 30 stocks right now out of the 600, dow jones 600 in europe that are up. >> back to the familiar pattern of the last few weeks.
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and after spiking above 25 last week, the cboe volatility index, or vix, fell back to just above 22. what does this portend for equities in the near and long term? joining us is the derivative strategist at mkm partners. and you've had great calls on the vix. first seeing it go up last year and now coming down, and you're saying it could be head ed higher and that means trouble for stocks. >> it does. we look at the volatility cyclement and what we see is this trough phase which we date to mid-december last year, which was the tail end of the august 2011 shock has now reached about 5 1/2 months in duration. historically these phases last about six months, so we're already in the late innings and then with that risk metrics derive from the u.s. option market have obviously elevated in recent weeks. and with that, we've turned very cautious. >> james, though, this comes at a time when a lot of people are
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pointing to other parts of the market saying the risk off move is oversold, overdone, and if anything, we're bracing for potentially a rebound the other way. how do you square that with what you see as warning signs coming out of the volatility market? >> yeah, we really isolate our view to our work on volatility. and what we know is post these trough phases, one spot vix gets in this 20 to 25 range where it's been sustained now for the last seven trading days, that typically proceeds a shock. and a shock in our definition is spot vix at least to 30 possibly as we saw in august 2011 and may of 2010 up to the mid-40s. so i can appreciate that people have other views. i think we're in a period of significant instability as measured by the option market. that for us means positioning defensively and getting along volatility. >> quick question here from our guest host jim o'neill from goldman sachs. >> very interesting to hear
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somebody from a wall perspective. what if anything to change your view about this? >> you know, again, derived from the options market. so if we saw, for example, spot vix come in here back below 20, and if that were sustained, then we would see implied correlation come in, which is broken out to new highs, term structures elevated, that would float lower, and skew also, which is now near multi-year highs would flatten out a bit. so it would lead with implied volatility, but once we saw implied vol move lower and these other market metrics come off, then we would be satisfied that this risk impulse was off. again, that's not our expectation. >> it's not your expectation, james. you've got a sense of sort of timing when we might get to an event? >> well, fortunately, this transition right now happens in an impulse.
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so vix 2250 close yesterday, it could be a matter of days, it could be a couple of weeks. but again, until or if we saw implied volatility vix sustained back down below 20, we would back off. in the meantime, we think, again, you should be positioned defensively. >> all right, derivative strategist at mkm partners, appreciate those views this morning. different look at things. still to come, morgan stanley gets subpoenaed over facebook's ipo. >> analysis coming up. >> see you in a moment.
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all right. welcome to "worldwide exchange." i'm kelly evans. >> and i'm ross westgate. these are the headlines from around the world. european stocks down sharply following asia lower as hopes fade that eu leaders will agree to the block sovereign debt crisis. also spooking investors, comments from former greek prime minister saying the risk of a euro exit is real, but he's told cnbc that no preparations are underway. bank of england policy makers edge closer to another round of qe as retail sales in britain post the biggest drop in more than two years. plus, the world bank cuts its growth forecast for china and says beijing should pursue policies that allow its people just to buy more. you're watching "worldwide
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exchange," bringing you business news from around the globe. all right. if you're just joining us this morning, let's take a quick check at markets. first a look at u.s. futures, back in the red after a couple of down days, dow jones opening about 50 points low, s&p 500 will be down about eight points, largely keying off what's happened in europe. we started out trading this morning relatively flat, but then things started to weaken. the ftse global 300 is down about .9%. a closer look at what's happening across europe. we've got the ftse 100 down 1.8%, the cac 40 is down 1.8%, and the ibex in spain down 1.9%. ross, seeing aggressive moves to the downside. >> yeah, and we got the results of the two-year german bund auction, they sold $2.5 billion. the average yield, get
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this, .07%. that is the lowest ever yield borrowing cost on record for the two-year. despite that, the auction was strongly covered. the bit to cover ratio 1.7, they received 7.4 billion bids, the offer was 5 billion. that tells you quite a lot effectively. strongly covered despite the fact you're getting zippity dip. jim o'neill's quick reaction to that. getting nothing for -- >> zippity dip. >> what are you so afraid of? >> you follow that straight on from the guy you had on about vol, the markets are pulling a higher and higher probability about end game for the euro. otherwise why on earth would you do that? >> we had mark oswald saying this means that money no longer means a proxy for the value of goods. is he going too far?
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>> we're in pretty unprecedented territory when you see this sort of thing going on. and hopefully the -- what i take away from most of my time on here this morning, policy makers are going to get the vix/vol back below 20, looks to me that guy's kind of charting voluntary a vol. >> and while we recap, the european stocks are down 2% in spain, 1.8% on the ftse 100. the dollar index we've seen euro down, sterling down at three-month lows, as well, dollar index at 20-month highs. >> and two-year lows earlier in the session. we'll keep an eye on that as we give you a look at what to expect later on in the trading session. april new home sessions out at 10:00 a.m. of course, existing home sales yesterday rose at the fastest pace in almost two years for data last month.
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jum jim o'neill is still with us. do you like the u.s.? is it the best house in a bad block at this point? >> i think in the developed world, it seems that way. i was just on a big trip in the u.s. last week and came back feeling pretty much the same as before i went. that the u.s. is on the mend. and so long as the contagion from europe can be managed, i think the u.s. is going to be okay. >> i'd like to ask about facebook, as well. a huge story on a lot of retail investors. do you have a facebook account? >> i don't. >> a lot of investors thought it might be a good opportunity. we've seen what's happened over the last couple of days from an asset management point of view. did you expect facebook to be so weak? are you worried for the rest of the world? >> i don't have a big view on it personally. i'd rather not wade into that particular issue. but with all of these things that happen with so much attention on them in advance, you know, it's not surprising, really, you get -- it's the same as any other big high-profile
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thing. in that sense, i'm not sure it's that unique. whether it's reflective of the underlying story, i think we need a bit of time to tell about that. >> and before we let you go, jim, and with all of the uncertainty and getting people buying no return bonds because they're so worried, what is a smart asset management trade. >> you're asking me for it then? at the end of the day, we have to remember that the first quarter we had the most powerful rally in most equity markets in 20 years. so a lot of this is the sell in may and go away stuff. we're so intensely focused through the media on the next five minutes that wood, trees, many markets are still in quite positive territory year-to-date. won't be if it carries on like this for the next few days. but i think linked to what i said earlier, the u.s. and china are what basically drive the world. and as long as that show carries on, i think once we get into the late summer, the markets are going to start rallying again. and one has to have a bit of
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perspective. the european thing is a complete mess. and we require some decisiveness post june 17th. but it's not the only thing that matters in the world. >> jim o'neill, asset management chair with us this morning. >> thanks for having me. >> appreciate your time. dell disappoints with the drop in first quarter profits, so will hewlett-packard suffer the same fate. we'll have analysis at 5:50 a.m. eastern. stay with us. ♪ ♪ why do you whisper, green grass? ♪ [ all ] shh! ♪ why tell the trees what ain't so? ♪ [ male announcer ] dow solutions use vibration reduction technology to help reduce track noise so trains move quieter through urban areas all over the world. together, the elements of science and the human element can solve anything. [ all ] shh! [ male announcer ] solutionism. the new optimism.
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all right. for once, the action today so far if you're waking up in the united states, the dollar index up at 20-month highs. euro/dollar 1.2650. a fresh low of 1.2615. the dollar containing at 79.39, but the aussie/dollar at fresh lows, .9736. euro sterling at 80.45, but sterling has been below 1.57 against the dollar, as well, retail sales, much weaker than we might have expected. the weakest month to month drop since april 2010 as far as that was concerned. and we've just seen in germany, of course, a solid demand for a two-year bund. that is offering nothing, 0.7%
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on the yield. plenty of fear out in these markets. what do the experts we've spoken to on cnbc so far think about these currency levels? listen in. >> euro/swiss has been pegged at 1.20, and i think the market has complacent, in the assumption that they can buy as much euros as they want to hold that bid up. but we all know in the history of central bank intervention, it almost inevitably fails. if we get to a point of eurozone fracture, euro/swiss could tumble. >> you're seeing a range bund currency that is a disappointment to those who used to buy chinese assets. >> slightly debatable if buying government bonds is going to make any difference. in the scenario where the crisis
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is getting worse, the yields are going to be very low anyway. >> difference of opinions there. absolutely clear, greece is going to leave, and then -- >> and bearish on china. >> and ireland and portugal might follow because the stimulus will fade. >> and jim o'neill is much more bullish on china and a little more cautious about the breakup of the eurozone. >> yeah. >> it shows you why there's volatility out in the market right now. >> he makes the point. you may, as well, walk out, walk around the city of london and ask anyone, because the point is no one does know. and that's part of the problem. >> all right. you are watching "worldwide exchange." these are your headlines if you're just joining us this morning. europe markets in the euro are firmly in the red amid ongoing concerns over, yes, greece. the oe policy makers see the case for more qe as retail sales fall sharply in april. and profit at dell falls more than expected following revenue declines across the board.
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massachusetts attorney general has subpoenaed morgan stanley over the bank's role in, yes, facebook's ipo. they are probing whether morgan stanley only informed select clients that one of the analyst cut the estimates before the ipo. morgan stanley tells cnbc it followed the correct procedures, facebook shares were down 9% on tuesday, this following losses on monday, as well. facebook has lost over $19 billion in market value since it began trading last friday. brian shactman has filed this report on facebook's roller coaster ride on the markets. >> reporter: on friday, ceo mark zuckerberg ring nasdaq's opening bell. and then the world stood by for nearly two hours waiting for the
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investing public to weigh in on the initial offering price $38. trading began on an up note starting off above $42. >> apparently nasdaq's system was clogged. >> reporter: but as nasdaq computers choked on the volume causing orders to go unconfirmed, the stock took an about face hitting $38. underwriters such as morgan stanley put in buy orders to stabilize the price helping the stock and its first day trading barely above the offering price. then monday morning, facebook face plants falling 13% in the first hour. by "closing bell," facebook finishes 11% below its ipo price at $34. by tuesday, with analysts raising more questions about revenue for the social network, and investors wondering how much they like owning a piece of the most hyped stock of the century, facebook stayed below the ipo price of $38 closing at $31
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even. brian shactman, cnbc business news. >> and elsewhere -- >> i was just working out. sorry. i was just working out. so since he's gotten married, mark zuckerberg's lost about $3.5 billion of his -- >> are you blaming priscilla? >> i'm just saying -- >> he would be worth so much more? >> they may not be related. i'm saying it's a factor. >> i blame it on -- >> it's an expensive business getting married. >> it might be more expensive now. taking a look now happening elsewhere. lenovo has computed a 73% jump in fiscal year net profit. that's in line with forecast. the world second largest pc maker strong in markets like china helped counter weakness in europe. the earnings come a day after dell reported a bigger than expected drop in fiscal first quarter revenue. >> fiscal profits down 43%. the company says business and public sector customers are holding back on purchases
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echoing comments earlyier. the consumer market has become more challenging. the pc maker is issuing a cautious outlook for the current quarter. shares fell 12% in after hours in frankfurt. right now in frankfurt, down 1.45%. that's what we want, the dell chart. not pretty, down 11.6%. >> ouch. and its rival hewlett-packard reports second quarter results after the "closing bell" in the u.s. forecasters expect it could gain about 91 cents a share on revenues about $30 billion. new ceo meg whitman is expected to outline her restructuring plan which could include job cuts 10% of hp's workforce. joining us now is tech expert and coo of dina link communications. are these long-term shifts happening in the tech space? or is there something specific to these companies to del, for example, that investors should be focused on?
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>> well, the pc's going away, which we're looking in 2017, it'll be more tablets and pcs is a big issue. but the bigger issue with dell over hp is 50% of their businesses in the pc business where hp is 15% because they saw the writing on the wall where they were getting crushed by apple and literally got out of the pc business. long-term, you need to be in servers, need to be in software, need to be in network. and the issue with their earnings is they were down in enterprise. the only upside, they were up 4% in the small to medium size businesses on the cloud and the servers and the software, and that's where they need to live. what i'm worried about here is they're trying to compete with apple waiting for windows 8 to come out with a streak tablet. and i think they're going to get burned like rimm did with the playbook and spiralled down from there. >> larry, is it all about the cloud? is that's what is going to be the difference between winning coming out on top and going the way of rimm as you mentioned?
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>> it's going to be the cloud, it's going to be servers, the small, the medium size businesses that need to continue to update the infrastructure. now, i understand they got a hit on the enterprise because a lot of governments are spending less money, but they're going to have to capitalize on the cloud. waiting on a windows 8 play, i think, is going to hurt them. and the ultra books also relying on. but that's going to continue to go away. i don't see a strategy anymore on the pc side. so they're going to need to -- i think the next couple of quarters are going to be real rocky for dell. >> can they become -- can they really become a one-stop shop for sort of i.t. needs of corporations, larry? >> i'll tell you, ross, i don't think so. i don't think so. they're going to try to do that and they're going to have to do that, but they are really going to have to innovate and disrupt with some other sort of technology or they're going to have problems. i mean, we saw what happened with kodak. that's an extreme example,
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but -- you look at these companies that don't continue to innovate and get beat, and i think dell's in that category, unfortunately. >> what happens to them long-term? >> what happens is -- long-term, i think they're a takeover target. >> and larry, we've just been looking and discussing sort of what happened with facebook. now, when we talk about going into the cloud and social media, those are two very different things, but you take a company like salesforce, there still seems to be a big degree of differentiation in the business mo model for those companies able to move into the online or software or cloud space. >> yeah, absolutely. i mean, the cloud space is really driving it. so it's going to be interesting without going into the cloud how things work out. >> yeah. and we talked about dell. how big are hp's challenges? >> well, i'll tell you, what i'm
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worried about hp, if you're talking about 30,000 employees being laid off, now they have $8 billion in cash, but they have $25 billion in debt. we saw what happened with rimm. last year they laid off 20% of the workforce, spiralled down, yahoo just fired 14% of the workforce, they're starting to spiral down. so hp, though, i think will do a lot better than dell in the enterprise space. once again, they saw the writing on the wall, so they're only on 15% exposure in the pc market. so i see them as having a better chance of turning it around and doing better in the cloud and the enterprise and the software space where i see dell having big challenges in that space. >> i know it was pricey, but was autonomy the right strategic decision? >> well, i mean, we'll find out. we'll find out soon enough. but, you know, it's -- if you're just letting people go and not growing the base, it could be a real problem.
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>> all right, tech expert from new york for us this morning, larry, appreciate it. take a quick look at some of the top stories before we leave you for the decade. jpmorgan met with a commodities future trading commission a day after revealing $2 billion in trading losses. we know that number now could be bigger. the meeting was on may 11th and it was to discuss cross-border issues. jpmorgan has been fighting proposed rules to regulate derivatives which says puts u.s. banks at a disadvantage. the losses involved credit derivatives tied to corporate bonds. and lucas papademos has told cnbc greece is not planning to exit the eurozone. the former greek premier suggested the risk of leaving the euro was real and the plans are underway. he told cnbc he wasn't aware of any countries preparing for a greek exit, but he couldn't exclude the possibility. the full story is where else,
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but as we get ready to hand over to "squawk box" this morning, we're now on the session lows for european stocks, down over 2% for the cac and the ibex, near lows, dax, how is that feeding through to the futures? >> yeah, take a look at what's happening. dow, nasdaq, s&p 500 in the red, as well, 75 points lower on the dow and 9 lower on the s&p. >> and the dollar's got a bump across the board. >> that's the one to watch this morning if there's a silver lining, could be lower oil costs. >> silver lining for you. you're down here in the uk and getting paid in dollars. >> i am long the dollar. i'm happy to say that today. coming up next, "squawk box" and the crew with the countdown of the opening to the market state side. whatever happens, we hope you have a profitable day.
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good morning, more facebook fallout as the shares continue to fall. and now morgan stanley is coming under fire from regulators. euro crisis eu leaders meeting for an informal summit today. and getting a lot of attention. are you going to be ready? and crude realities, oil prices dipping to their lowest levels. i was talking to andrew, had a little problem today with the grids. since last fall, it's wednesday, may 23rd, 2012, "squawk box" begins right now.


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