tv Worldwide Exchange CNBC June 5, 2012 4:00am-6:00am EDT
welcome. you are watching "worldwide exchange." >> and these are your headlines from around the world. g-7 leaders holding talks with spain, he top of the agenda, worrying about a run on the indebted nation's banks. >> madrid seeks to reassure markets. the spanish treasury minister says banks do not need a huge amount of aid and calls on europe to act faster still. >> and also calling for more being a for more action, saying leaders need to made decisions now. >> and australia central bank cuts another 25 basis points, it biggest easing sip the global
financial crisis. let's get straight to the breaking news. eu euro season may services sector data, 46, up slightly from the flash. it is necessary the less it lowest reading in two years and all morning we've been getting details on the service sector. slipped to 41.9 reading from about 42 the month before. we've seen other new orders index also posted its lowest reading since 2009. we're now negative by almost 0.4%. 1.2448. so let's see what's happening across asia, too.
hsbc says in china, the nonmanufacturing or service sector pmi should help ease fears of a sharp slowdown in the second largest economy. tracey changs has more on this. >> good morning. well, hsbc service pmi came in different from official data. according to hsbc's private survey, china's nonmanufacture willing sector expanded at its fastest pace in month. but shanghai com poise tposite about 0.2% higher. property plays outperforming the broader market. tokyo also snapped four day losing streak. nikkei 225 tacked more than 1% as investors grabbed big picket bargains ahead of emergency talks between the g-7 and industrialized nations.
elsewhere rose almost 1.5%, biggest gain for almost five months. they welcome the rba 25 basis point cut. tomorrow australia will release first quarter gdp expected to grow about 0.7% on a quarterly basis. kelly, back to you. >> we'll send over to louisa how to get a check of markets this morning. euro has turned negative. >> not seeing that in the equity markets in germany he moment. we're seeing meager gains added. yesterday on the close, we saw pretty even teacstevens split. what we're seeing this morning, cautious gains. xetra dax higher by a quarter of a percentage point. spanish market by 1.2% and the smi higher by right around half a percentage point or so. just showing you what's been
taking place with the spanish banks. in yesterday's session, we saw a real rally. we started to see these gains coming through in the spanish banks. that continued throughout the rest of the session and indeed on the close yesterday, some of those banks higher by as much as 5%, 6%. this morning additional gains being added on. this offer the back of some of the political noises. g-7 holding its conference call later today. let's show you the currency markets, as well. because of course the big surprise really coming from the rba, reserve bank of australia here within the past session where we saw the cutting rates by 25 basis points. shall analysts i've been speaking to anticipating 50 basis points, although it still
was a surprise it to the vast majority of people.to anticipat, although it still was a surprise it to the vast majority of people. euro-dollar relatively unmoved. has to be baked in at some stage. we know europe is weak. some selling taking place. yields of 6.4% almost. >> louisa, appreciate that. want to get a check now of what else is coming up on today's show. we'll be live and hear from the ceo of exxonmobile. and over in australia, the rba cuts rates for the second month in a row, were were investors hoping for a more pronounced
move. we'll head out to zurich in about half an hour. >> and we'll be going to new york where our guest host says that a republican win in the election may be bad for u.s. markets despite what some people think. and also we'll be previewing the trading day ahead on wall street live from washington as markets gear up for the latest read on services activity and earnings from a home builder. >> so much talk about how the housing market is bottoming in the u.s. but it seems as though that might have -- as ever as we continue to learn, that might have been premature. s as we know, global bond yields
especially in the u.s. and uk continue to sink lower. ross westgate is out for the rest of the week so louisa will be here and we'll look at the finance ministers set to hold an emergency conference call today amid growing concerns about spain's banks and the outcome of the greek election on june 17th. according to reuters sources, some officials fear the possibility of a bank run in spain. policymakers also expected to pressure germany to dampen its pro austerity stance. g-7 group also likely to call for concerted action at the 123 g-20 meeting and eu summit.g-20 meeting and eu summit. >> angela merkel announcing last into that she would discuss creating a european institution that would supervise banks. signaling germany is softening its stance on the proposed
banking union which german officials say should only come after a fiscal union in the region. >> translator: the fiscal pact is an initial step but by no means a far reaching step. we'll discuss how systemically banks can be put under european supervision so national interests don't play such a large role. >> the german spanish banking giant is an and giant santander said there is no financial crisis in n. spain and that just a few banks need financial assistance. joining us as our guest host, tim condon, ing. an unbeat tone from spain. what the depth of the banking problem that that country is facing? >> they need a lot of capital.
they need a bank recapitalization and typically when it's a system wide recap, state funds are involved. that's the issue in spain. can the state pie nance the needed recap. markets have intermittently doubted the spanish sovereign's ability to do that. that has caused some problems. now we're in a situation where we've heard some market friendly noises from the eurozone that perhaps a way could be found to channel state funds to spain without -- for the recap without having to go through the troy came i go on, the imf, the ecb and european commission. the commitment to keeping spain and ensuring that recapitalization takes place.
>> sure, but the problem is what exactly are they going to do in this case to keep spain in. do you expect anything substantive to come for this call scheduled among g-7 finance ministers? >> i think it's premature. we'll get perhaps market friendly noises, but i don't think anything of substance is likely to happen today. that i think we'll a wait the leader's summit at the end of the month. that promises to be a more momentous meeting where the issue of perhaps getting around miss merkel's objection to having the esfs lend directly to the banks without having to go through the imf, we could see some progress there. but a lot depends on the need in the spanish banks.
we don't know how much time they have to put that together. so there are unknowns here. >> the banking union that's being proposed, they would be supervising those too big to fail. but for me you need to separate that out from spain and greece, because there are two specific things that have and haven't happened and whether you should mix in euro bonds, as well. >> i take a different approach. it's water under the bridge. it's a question of how you'll finance the npl rz. and there are a lot of ways to skin that cat.
spanish would like to get the money from the money put together for the rescue funds without having on on go to the imf. germans are deeply resistant to this idea for obvious reason. and so there is a negotiation here and i think what we can probably count on as investors is that it will not come to a pannish in spain, that there will be a brinkmanship and they will find a way to recapitalize the spanish banks. >> what you say is precisely my point. that it doesn't seem like germany is softening its instances on a banking supervising body. >> as things stand now, i think what mrs. merkel has said leaves
us far short of being able to count on the center going around the imf and recapitalizing spanish banks. i don't think we should be counting on that as a near term outcome. whether or not this changes after the summit at the end of the month remains to be seen. i frankly doubt it. i think there is a deep felt desire within the ecb and germany that to not take the pressure off to force the crisis countries to undertake the long run. >> tim, you're with us for the rest of the hour, so you can get your e-mail questions through to tim if you want to ask him about something. >> firstname.lastname@example.org. you can also tweet us @cnbcwex. at kelly undersco scoevans or a
bojesen. there's a one in three chance that greece leaves the eurozone and could trigger another sovereign default. a rejection of troica requirements will be the catalyst for a greek exit. julia chatterley joins us live from athens. talking about things that maybe aren't so gorgeous, a one in three chance that greece could be leaving the eurozone, that can't be a big surprise to a lot of people at this stage. >> no, i don't think it's in surprise to the markets. ultimately this idea of directly rejecting the bailout comes from this. it's interesting what s&p said,
they see a 60% probability actually that there's a compromise reached. we need a compromise on the european and greek level, but also in terms of coalition and that's the discussion now, a possible coalition between the pasok party and the syriza party and certainly among the conversations that i've been having close to the pasok party, they definitely believe if they don't get this same level of votes at least in the next election that they got in the last, that party might look to split up, so there's a key reason to find a solution on this. >> and you have bean on the ground there for a couple of weeks you now. so aside from getting a great tan because it's beautiful there, if you can tell us what the mood is like on the ground and what you're hearing from people with regards to who of
these two political parties it may be. >> the overrighting message that i'm getting is that people want a broad coalition. they don't want to go back to what we've had before where a couple of parties dominate entirely. so a prood coalition is what they want. and the personals in the polls, it's still wide open and that's still what i'm hearing. >> jewel kulia, thank you very . we'll check in with you again soon. of course the jubilee celebrations are in full swing here in london. this morning the queen will be traveling through central london making her way to st. paul's came the
cathedral for a thanksgiving service. these are live shots that you're looking at from buckingham palace. of course there was a huge pop concert yesterday. i was told that stevie wonder was there and a bunch of big names. he broke in to happy birthday. cliff richards performing, tom jones, shirley bass city. so a big lineup last night and the festivities will be continuing today. >> i hope the rain holds off. all eyes are on that g-7 call that will take place later. i imagine britain will still be involved. what we want to know is what time will this call take place. who has to wake up early, what different time zones will be involved. e-mail us, tweet u
us, @kelly_evans, at louisa bojesbo bojesen. >> australia have cut the key lending rate, second time in two months. we'll take a look at how the economy is holding up. ing up. [ male announcer ] this is g g g g g g g g g g g g a mobile asset solution to protect and track everything. so every piece of equipment knows where it is, how it's doing or where it goes next. ♪ this is the bell on the cat. [ male announcer ] it's a network of possibilities -- helping you do what you do... even better. ♪
math hugh taylor files this report. >> reporter: the reserve bank can did broadly as the market was expecting, lowering interest rates by 25 basis points. some forecast as much as 50 basis points following last week's weak nonfarm payrolls numbers out of the u.s., most market watchers had been expecting this move. the reserve bank says saw scope for a more accommodated policy given a modest domestic outlook and weak international factors. wayne swan says he welcomes the move and says the rba can do more should economic conditions worsen requiring more stimulus here in australia. the cash rate now sitting at 3.5
are%, but some xiists expect further easing. bank p queensland the first retail bank to pass on the cut to consumers, reducing it variable mortgage rate by 20 basis points. on wednesday here in australia, we're set to get gdp showing a rise of 0.5% quarter on quarter. back to you. >> and more with tim con do tdo. you thought the rba would stay on hold, so do you think the move was warranted? >> yes, i think the rba said it best. they have no inflation pressure. inflation problem is really from imported fuels. that's a trance story issue, not for them to worry about. domestic spending is weak and the international outlook is
negative. and they had room to seize thp about this was excellent central banking. we share the view that the base rate will end the year. the rest of the economy, there isn't inflation fresh of pressure. we have a meeting at the bank of korea on friday, a candidate there to cut. >> also quite a close link with regard to the china slowdown. how do you see that panning out here for the remainder of this ye year. >> the situation in china is complicated. it's different in 2008 when it was clear what was going on. exports had collapsed. trade had seized up. the threat was very, very
distinct and easy to figure out. and now the situation in china is more complicated. i think it's investigating the fine tuning skills. they are on the case. they have clearly switched the rhetoric from tightening to easing. the hope is that the second quarter is the weakest in terms of the gdp growth and that we accelerate in the second half of the year and hit 8% for a full year of growth target. but i think at this point it's a little bit uncertain. and obviously australia's fate is closely tied with what happens in china given the resources link. >> we'll leave it there for now, tim. thanks. >> exxonmobile is putting on a pretty brave face in spite of falling crude prices.
they were asked what the current energy climate means for exxon operations. >> we've seen the effect of the sluggish economy on energy demand in a well supplied market. it's expected that at some point it was correct, but the sluggish demand growth reflected in the recent changes in the price of crude oil in particular. as to what that means about the future, it's very hard to say. but in terms of for our own business, you know, when we make our investments and develop our business plan and we do that with a view that we cannot predict what prices will be, we certainly have little influence upon them, so businesses are built to operate across a widely
fluctuating business. so it will continue to be healthy and we'll continue to be able to fund all our investment programs, certainly no expectations of any long term impact. >> if you can offer visibility in the outlook for capital expenditure, you're not correcting any defereferrals or any projects doing moth balled? >> no, all of our investment programs remain intact. last year we invested a record level, $37 billion. and we expect that level of investing certainly for the next several years. as i indicated, we had to take a long term view and test our projects against a pretty wide variety of market conditions and broad range of pricing because these investments have to remain
robust through some pretty large swings in the price cycle, which has been essentially the history of our industry. >> do you think natural gas prices in the u.s. have found a floor? >> i alleways hazard to guess future prices because i've been proven wrong every time. but i would say if you look at the coast of developing incremental surprise, it's pretty difficult on investments this low. certainly large scale investments. it really a cost/supply question. at this pricing level, they could go down further certainly with further deterioration and demand until the supply overhang is worked off. so i would never say never in terms of prices going down. but in terms of being sufficient to support long term investment
in new and ongoing supplies, that will be difficult at this price. >> all right. that's rex tillerson commenting on his view of natural gas. and just weeks after canceling a trip to the u.s., vladimir putin is in if china for a three day visit. as you can see there, images of that meeting taking place. items claw forestry deal from a new sino investment energy fund. they're working closely to block further sanctions against syria and iran. and mean while, the economic whim in the u kuchlt hasnuk has stopped celebrations of the jubilee. markets remain closed today in the uk as the queen prepares to
travel to st. paul's cathedral just up the road here in central london it for what they call a thanksgiving ceremony. we'll have live pictures of that later in the show. >> it was very sweet because apparently after the concert, the queen then took to the stage with prince charles afterwards, her son and said the only sad thing is that my father is not here because of course prince philip, he was taken to the hospital yesterday a bit unwell. and they said he said to the crowd, but if you you cheer loudly enough, we might be able to have the noise reach him. so crowds everywhere outside our studio here. >> the queen is 86, her husband's 90. that's asking quite a lot. >> these are the streets just outside the studio because this is the path up to the st. paul's cathedral event.
>> composite pmi hitting a three year low in may and service sector has confirmed that it is in contraction. and exxonmobile will continue spending despite sluggish global demand. >> good very morning if or early up out of bed. let's just show you our european markets. a slight building of green on our screens. being led higher by among other things the auto sector. >> and a bit of that fear trade going away. greek election and european
policy meeting later this month. take a quick look at bond yields. here we've seen them come off some of the record lows that we've seen among the flight to quality nations bike germany, ten year now yielding 1.19%, the gilt in the uk, again it that market closed today, but 1.54%. 6.4% for spain still. and italy 5.67. >> conference call taking place, we're speculating about the time, because of course it has to fit with everybody on the conference call. so anyway, but what we're looking at the though, the euro-dollar just a little bit lower now, but not a huge move. and of course the service seg tore pmi data showing quite a bit of weakness in europe. germany is not left out of the weak soup germany is in that, as
well. but our next guest says euro-dollar is unlikely to go much lower than 1.25 unless the greece prices explodes. dan scott joins us. good to see you again. long time no speak. let's talk about the eurozone crisis. he said it's not going to go much below the levels that we're at now unless we see an explosion in greece in terms of the actual market matters. aren't we kind of waiting for the greece election to clarify things for us? >> that definitely is the wiggle tail on the markets. risky assets will continue to trade in a very vol i wiatile w. on the one hand, concern of a meltdown. on the other hand, you have the expectations or the hopes out there for some sort of concerted
policy response. so yesterday was marked by policy response hopes and seems like today is carrying forward on that footing. but then you have renewed bouts, votes, all sorts of other triggers coming out that people might remind people that there is still some risk in mere that things could get worse. so short term we see a lot of volatility and that and he why we still have our tactical arrow on neutral. longer term, 6 to 12 month view, we see corporates are healthy. and so from a credit perspective, that provides opportunities. >> it seems that the guests are divided that either gently getting toes wet or stay completely out of equities. >> we're advising clients to
slowly undo their underweights on equities and we see opportunities, even europe companies that we feel are safe, offer dividend yields, have strong balance sheets. and so from evaluation perspective, are looking very attractive. especially the eurozone actually you see real valuation calls out there. if you you take a look at the uk market, if you take a look at some of the companies in the the uk like vodaphone yielding over 8%, in this environment where you have negative interest rates, pretty much everywhere in the world except for japan, investors are going to have to start looking for some sort of yield and whether that's dividend or in corporate credits or in real estate, they'll have to find ways to preserve their capital and seek growth. >> scott, this is tim here. i have a question on your 1.24
for euro-dollar. is there any scope for concerted quantitative easing by the ecb and were that to occur, can don't you think there's a considerable down side below 1.20 for euro dollar? >> that's where the our currency experts have on their targets and our view is that there might be change in language from the ecb. but overall, we're not expecting to see any policy changes right now. >> and is your view that the euro here looks much more expos exposed. >> mondetary conditions are way too tight. the scope for easing, why wouldn't they all be like the swiss national bank or the rba,
much more accommodative instances. i think we would see currencies broadening weakening and not so much against each other, but again wages, which is where the relief needs to come from. and the competitiveness needs to improve. so we share i think as a house scott's view that there won't be much forthcoming unfortunately which makes for a battle of titans among g 3 fx, which one is the most macho in these very weak economies with these overly strong currencies. >> dan, real estate. i know that you have a couple points on the real estate market and whether or not there's value to be found there. we're speculating whether or not the hard asset market is going to be benefiting from this flight to safety money. >> again, it's a hunt for a yield and we see that there is
some demand pick up especially in the business district areas geographically pretty much across the world, they're very few regions that were underweight. so they're also -- i mean even though the yields are not as attractive as equities, they're can definitely attractive relative to bonds. and again, it's a place where also some of the underlying equities we see opportunities in. it's a hunch for finding yields for our investors. >> dan, lovely seeing you again. dan scott from credit suisse. let me get you up-to-date. bafin, the german banking regulator, is indicating that the banking system seems robust enough, but it cannot detach itself from the environment. let's get out to patricia.
>> very interesting comments also on a possible grexit. say they will not speculate, but german banks are prepared for all possibilities. he also says that the bank's exposure to greece is fairly limited. he also says he cannot rule out that banks actually use the cheap ltro money given twice by the ecb will actually be used to fund loan business, but used for speculative nonloan business. so wherever the money is going, there is no grip on that where banks will -- fulactually warni on any hasty decisions on the banking union. merkel now getting a little bit closer to that but excluding it by just saying that we need a
european surveillance of the you are peuropean banking sector. >> patricia, thank you very much for that. >> and another headline to bring you, reuters is reporting that a milan judge has ordered a former head of unicredit now in italy to stand trial for it alleged tax fraud in a previous role as cheefr of unicredit. we'll get you more details as they come across the wire. >> let's move on, though, and talk about the commodity markets. name lit big moveses that we've had and the price of oil. its effect on crude demand has been outweighing any supply risks from the ongoing feud. shell ceo telling cnbc that while he expects more volatility, he's also confident that supply will be there. >> there will be volatility for a few weeks or months, but i
think in the longer term we have proven that we can supply the market with enough oil and today the market has must have oil, actually more oil than what we need. >> meantime quantus airline has caused a major stir in markets after it skeit expects a 91% dr this year's earnings. qantas below $2 now for quite some time. currently trading at about $1.16. joining us for more is executive chairman at a central for aviation. peter, how much of is and you are price is this to investors? >> i think most of the analysts were caught by surprise even though on reflection it shouldn't have been such a
surprise because the industry has been taeeen dragging. >> should we think about this as the dynamics of australia's airline market or is it telling us something more broadly? >> a bit of the latter, but this is very much a coin of two sides. the other side of the coin is that necessary tick in the past year, in which qantas holds 60% of the market, almost its best year ever domestically. so it's just the international side of the business where the whole structural change is overwhelming a smaller carrier like qantas. >> could we talk about in more detail about the plan they're starting to put in place some the head of qantas has won applaud for only thatting the
unions quite well. do you think they're on track with regards to the turnaround plan? you point out it's the enter national business seeing the pressure. >> yeah, the domestic business is still very solid. longer term is that qantas will never get back to being competitive in the big international markets with the large carriers. so it will have to cut costs, it will have to reduce ports basically and i think also to find a very suitable partner internationally. >> you're reading my mind because i was going to say if my
name were emirates and if i were to call qantas, would they want to talk to me? >> well, going back to what i said at the beginning. this is a very attractive market, the domestic market in australia. only two substantial competitors. and one of those is qantas with 65% market share. emirates operates 75 wide body services to australia every week. now, that means it's a very, very big market for emirates and if you can get hold of the domestic market itself, yes, it will put it in a powerful positioning. >> peter, thank you very much. love t
patricia, let's and you can to you about lufthansa. >> as we were hearing from the guest before, alliances is one part of the story. lufthansa has slimmed down the operations, really going after costs. and now trading at about eight euros a share. not really helping. so they're looking at other options in the business. the possibility here of selling off the i.t. business or the catering service is of course something that they've been putting forward. no exact plans yet, however, we're monitoring it. at the moment the stock not reacting whatsoever. down about almost 2% as we speak. despite fuel costs having come down substantially as of late. >> patricia, thank you very much. now of course just outside, we've got celebrations on the streets. >> it's getting crowded. that's just outside our office.
>> ain't paul's cathedral. >> it's beautiful and looks as though the rain will hold on a little bit today. the queen is traveling lieu central london making her way to st. paul's. this marks the pinl day of cefi celebrations marking 60 years on the throne. >> we're both international people, but i've been really surprised. we both live in london, but i've been so surprised by the popularity of this woman. you can really feel how much the people here love their queen. >> you have to respect anyone who can hold office for 60 years and really not screw it up. and i think there are a lot of other people at other institutions in the uk or across the world who are doing a pretty good job of screwing things up right now and i think by compare ton between that and her diminished role as a political figure it's increased public
welcome back. finance ministers from the g-7 group of nations this morning are expected to hold an emergency conference call on the eurozone crisis. meeting follows various media reports suggesting leaders in europe are attempting to put together a master plan to save the bloc. the idea of a banking union has gained know men tim. angela merkel said she was open to a discussion but germany has been more skeptical about some of the other proposals. the big question is where the cash would come from if these kinds of measures. one idea is using money from
europe's rescue fund to shore up banks. the mechanism due to come in operation next month, but is not currently allowed to lend correctly to financial institutions. and of course it has to be ratified by many of the eu members. and before it can do so, we've only seen at this point about four eu members actually ratify this they think p and even more complicated is that most of the indiana debted members will would be required to contribute. so spain might have to pay more than 70 billion euros. fears about spain's ability to recapitalize troubled banks have mounted. various estimates of just how much money would be required to repair these balance sheets. they're laden with property related debt that in-i continue fall. and there are various estimates
as to the total amount needed to recapitalize spain's banks. and these range from santander saying it's in the range of 40 billion euros to some like ubs who put the figure in the 80 billion to 100 billion range and we've had guests who put it even higher. it's one thing if will this is 2008 and the nation can come to the rescue of troubled banks. it's another thing when the troubled nation needs help itself. >> shell ceo says global al businesses want action now without delay. >> europeans have taken some of the actions, but there is more decisive action needed and we need it fast. they cannot change its whole
constitution overnight, but i think there are enough elements where they can take decisions now helped by the u.s. and china to actually drive certainty back into the financial markets. >> let's get a final thought from tim condon. we continue to get headlines about what g-7 leader municipal up to. why given all of there are markets this week holding unreasonably well? >> i think it's hope springs eternal. last week was so bad and the prospect of something positive coming out of all of these meetings is enough to put a little floor under markets. i would caution against expensive optimism. it's been a series of misplaced hopes for big action to sort of end this crisis once and for
all. there is no quick fix and the disaster will be averted, but i'm skeptical that there is really a short term path out of here. >> the oecd head is being quote order the wires saying there is know reason that spain should be paying 7% interest when it's taking all of the ride decisions and europe will end up stronger than it is today. he's making some good points. >> i agree. supply side reforms countries did grow faster and spain to the extent it pursues this adjustment program, they'll emerge as stronger economies. it's a very arduous path and i
think we're halfway through. >> tim, thank you very much. tim condon from asia ing. >> i'm going to say i think this sounds like a lot of wishful thinking. i can think of a lot of reasons spain should be paying 7% interest rates given the depth of its struggles, but i'm not running the oecd. >> but they're way way ahead of many other places. >> but that should make you worried about the other places. let's look at jubilee images. can i settle down here. there is saint pal's just around the corner. a living breathing intelligence bringing people together to bring new ideas to life. look. it's so simple. [ male announcer ] in here, the right minds from inside and outside the company come together to work on an idea. adding to it from the road, improving it in the cloud all in real time. good idea. ♪ it's the at&t network --
if you're just joining us, welcome to "worldwide exchange." these are your headlines from around the world. a quick check of how markets are fairing ahead of the u.s. open this morning. >> and a lot going on of course, we have the g-7 ministers meeting, a conference call taking place. we've ben spaen speculating whae that will be happening and a lot closer at whether a european banking union could be taking place. >> and composite pmi has hit a three year low in may. experts fear determine agermany
longer immune from the crisis. >> and exxonmobile will keep investing despite lower crude prices and sluggish demand. >> let's get a quig check of how u.s. futures are positioned. red across the board. dow pointed down about 0.1%. same thing for nasdaq and for the s&p 500. uk on holiday but trading in other parts of the world continues. just barely in the red. down 0.05%. xetra dax, the weak performer again down almost 1%.
and this follows its weakness yesterday. meanwhile some of the harder hit regions, swiss market up about 0.08%. >> we saw buying into the spanish banks yesterday and that's continuing this morning. vast majority trading in positive territory.ia up by alm. bbpa almost up buyer a quarter of a percent. so continuing to see a bit p llingness to buy into some of the banking stocks that have been sold off quite substantially here. currency markets, quite a bit of activity taking place this morning, as well, with focus still on the euro-dollar. lower by 0.6%.
an interesting market. broken through technical levels. but ftse traders off for holiday today, so maybe the volumes are slirtly weaker than what usually taking place. you have the aussie dollar flat to slightly higher. some people had been anticipating as much as 50 basis points, but it does seem like australia is if a slightly different position than elsewhere. a guest says they're not looking at inflationary pressures there at all. just a glance at the bond markets. ten year yields 1.81%. so the yield coming down a bit. in spain heading a little higher alongside with italy begin.
>> and in the united states today, the may ism services index will be out at 10:00 a.m. eastern. and that's expected to show a reading of 53 down half a point from april. richard fisher is in scotland speaking at 7:00 a.m. eastern 37 and james bullard will talk about the after math of the housing bubble. and charles evans speaks to the money marketeers. and i just want to mention to people if they're tuning in, we just got retail sales figures from the eurozone, they showed a drop of 1% month on month for april compared with a the forecast. >> and i'm looking at these comments from christine lagarde saying she hopes the eurozone
would become more fiscal and financial union and it strikes me how quickly everybody's kind of changing tact. it wasn't long ago they were up in arms about not having a european union as such. you wanted to see each country supposed to take care of each country's own advice backing problems. if you. >> so the time line clearly been accelerated and we'll bring you much more of that as we get it in. finance ministers are set to hold an emergency conference call today on the eurozone crisis. this amid concerns about spain's banks and the outcome of the greek election onup 17th. according to reuters sources, some officials fear the possibility of a bank run in spain. policymakers also expected to put pressure on germany to dampen it pro austerity stance and work on measures to stimulate growth.
the group also likely to call for concerted action at the summit scheduled later this month. >> angela merkel said she would discuss the possibility of forming a constitution. softening its stance on a proposed banking union which german officials say should only come after a fiscal union in the region. >> fiscal factth pact is an initial step, but by no means a far reaching step. we'll discuss how systemically banks can be put under super vision so national interests don't play such a large role. >> and the chairman of santander says that the country's panniba need just 40 million euros. and there is no financial crisis in spain and that just a few
banks need financial assistance. >> and speaking of spain, the oecd head is stating this morning that europe will end up stronger than it is today with stronger institutions. and he says there is no reason spain should be paying 7% interest when it's taking all the right decisions. >> i think it's taking the conventional right steps bru i think we've learned that the medicine is not fixing the problem. >> but if spain, you could argue if spain is paying 7%, shouldn't elsewhere be paysing 7%, too. i hate to mention what happened with france a couple months ago now.ing 7%, too. i hate to mention what happened with france a couple months ago now. how much of this is just a trade
play. >> and spain's debt to gdp ratio is 40% so he does have a point. >> standard & poor'ss saying there's a one in three chance greece leaves the eurozone over the next couple months. saying there's a one in three chance greece leaves the eurozone over the next couple months. they say rejection of the troica requirements and interruption of external financial support will be the catalyst for a greek exit. the queen traveling through central london making her way to st. paul's cathedral right up the street for a thanksgiving ceremony. the service marks the final day of celebrations of her diamond jubil jubilee. so you can see the live pictures heading in to saut. paul's cathedral. >> i might have to sneak out and
watch it. >> everything was blocked off this morning coming in. >> i was amazed there were no cabs running these last couple days. there are, but people really do take the holiday off. >> let's talk more about greece. we were mentioning, julia, standard and poors s poor's say there's a big chance they could exit the eurozone. no surprise. and we're trying to figure out what's driving europe at the moment. >> certainly the sentiment is
that we're waiting for the election, but spain continues to keep the headlines. here we don't have any poll readings. the blackout began on saturday, but it's not stopped the speculation and people wondering just what kind of coalition we can porm as per about tform. could be a company a igs will of if i of them. potentially we see pasok and syriza forming some kind of coalition. that sentiment boosted potentially by an article where the leader of syria suggested that he realizes that all the votes that they gained are not necessarily people with a leftest tendency. also suggesting if they don't get at least the same amount of votes in the next election, it could mean the party breaks down.
they need the impact on the voting. >> all eyes of course on that g-7 conference call apparently taking place later on today. what we want to know is what time will it take place considering all the different time zones involved, who will have to get up early, who will stay up late. anyway, what do you think. world by the at cnbc.com, at cn @cnbcwex. optionsxpress, where you can trade your favorite products,
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prince will ypd and kate. so they are all heading to st. paul's cathedral. you have to wonder whether ross westgate is in one of those cars. >> that would explain his absence. >> so being an american in london, is it a nice thing to watch? >> it's kind of nice to be somewhere that has such a strong historical tradition. but at the same time, do you wonder about is this it a condition that can afford these kind of celebrations. >> it's been very important for the english people. people have really -- they showed up in masses to support the queen. >> i guess the cause is beside the point. g-7 leaders hold crisis talks with spain on top of theed a jen take as officials reportedly
worry about a run on some of the nation's banks. >> spanish treasury minister says banks do not need a huge amount of aid, but calls on europe to act faster to support spain. >> and worry that germany is no longer immune from the crisis. allison, given we're seeing a somewhat better tone to markets, why do you think people aren't more concerned about some of the looming hurdles that we to cross in order to get the spain situation sorted out? >> feels as if this is an annual event. you're heading into the summer, people get worried about europe
all over again, the u.s. economy seems to have slowed down, questions as to whether or not china can pull us out of the malaise and you always have to get to the crisis point before europe takes another step at addressing the broader issue. so what we saw europe do before is start providing funding and financial support and more easing. but now pressure is being put on germany and maces like that as a requirement might be too extreme and there needs to be more of a compromise there. my feeling is they need to always be on the brink to two niz and we're there again. >> so how do you position for it, what do you you tell clients to do some do you basically say pencil in that we'll go into the
fall, adoes it become a way to invest? >> i was talking with my adviser about what to do with a portfolio and the feeling is if you can weather volatility, sit tight. there might be opportunities to upgrade your portfolio during the course of the summer, but my sense is we'll have a volatile sideways type of market. people will use it as a way of going after obama and so that will be a focus on the negative and increases volatility, but sha that should be a long time opportunity. >> we'll get to more on the implications from the elections in a bit. >> and we are following the events taking place today. the queen having now left the
palace and she heads to sabts pa st. paul's cathedral. >> you can hear the bellses. [ male announcer ] this is the at&t network. a living, breathing intelligence helping business, do more business. in here, opportunities are created and protected. gonna need more wool! demand is instantly recognized and securely acted on across the company. around the world. turning a new trend, into a global phenomenon. it's the at&t network -- securing a world of new opportunities. ♪
welcome back. if you're just joining us, let's get a quick check of u.s. futures. still pointed down 37 s&p 500 by 6, dow by about 30. and nasdaq by about 10. goldman sachs has cut its tracking estimate to 2%. the investment bank cited a smaller than expected rise in nondurable goods inventories. goldman among a slew of badges that recently revised down as we continue to get a fuller picture of data. allison dean joining us. you've been cautious all along here. why isn't the u.s. recovery a self sustaining one?
>> my sense is globally we've had this issue, but also had consumer size way too much leverage. and deleveraging is a multiye process. i don't think it will be consistently 2%. but as people really start to pay down their debt and be more fiscally responsible, it's hard to have growth and we're coming off a significant amount of debt that's really happening globally. so hard to envision strong economic growth when patterns are changing, spending is going down to pay off the debt. >> how much softer do you think the u.s. economy will get? >> that depends on which way the
political tide goes. i think the market is assuming if we have a republican win, the market will do well. but i think there will be significant deficit reduction and if they're doing belt tighten, i think that puts us in a slower economic environment and tax reduction makes a deficit situation worse rather than better and could push us into recession. whereas if congress and the administration worked together to have additional stimulus with belt tightening,ic that would be better for the economy. >> wisconsin voters get to decide whether to recall scott backer after just 17 months on the job. last year, walker parked outrage when he tripped most state workers of their collective bargaining rights which he said was needed to ease their budget
deficit. polls show walker has a small lead over his democratic challenger. walker is just the third u.s. governor to ever face a recall vote. >> so if the market may think republican shwin is better, allison saying it could mean a recession. so is there a sense republicans tend to stay out of the market would actually prefer to see democrats in control here? >> first of all, one correction. i think if you look back statistically, at the margin, the markets have done better with a democrat president than rub. but it's so neck and neck.
i think the markets like congress and president different parties. same party is when it can get out of whack. but i think the market does think that if you have a republican in, there will be more pro business type of policies and that's what we need right now. maybe i'm more in the paul krugman camp which is i think we need more stimulus coming to give people confidence. so there needs to be clarity around policy and that will give corporations more confidence to spend. >> and which is the bigger concern for investor, the fiscal cliff, or should we expect sort of a fudge, should it be the debt ceiling that we might hit early next year. >> i think should be the fiscal. the debt ceiling, that tends to be a big media employ it by congress as a threat, but they elementally reach some resolution. so i think worrying more about what we do fiscally and what we
do longer term is more important. >> all right. allison will stay with us. >> there are reports that the timing of the g-7 call will happen at 11 gmt. that i believe is noon british time. >> it is. >> so 7:00 a.m. eastern. >> so people still having to get up early on the east coast. but coming up, we go picking through the junkyard. demand for junk bonds has dried up. is now the time to buy.
banks. >> and oecd says there is no reason it should pay 7 percentage interest when it's taking the right steps. >> and the service sector confirmed how that it is in conversion as experts are fearing that germany is for longer immune to the crisis. >> and exxonmobile will continue investing despite sluggish demand. a quick check much u.s. futures. we might pull off a higher open this morning because we're only slightly in the red for now. dow jones and nasdaq and s&p 500 all pointed down a single point range. this comes as uk markets are closed for the jeeb lee
celebrations. underperformer yet again xetra dax hnow down 0.8%. and germany service sector activity contracted and activity across the eurozone was a disappointment. >> seeing live pictures here in london of the queen just about to head into st. paul's cathedral for the thanksgiving day ceremony. this is us just around the corner from where the studio is. you can hear the horns and fanfare. we've been looking at live shots throughout the morning. it is a big even here in london. loads of people of a work today
and yet. 60 years she's been everything there's a lot to report on. >> this is a big day for her. arriving and really being honor honored. we'll keep you up-to-date. again the queen just saying hello to her son, prince charles. >> lovely celebration there just up the road. meanwhile eft saw a net outflow of almost $400 million. third straight week the investors have lost appetite. but our next guest says one man's junk is another man's treasure. martin, and also allison still with us, marty, first to you.
you pointed out that we've crossed and interesting threshold. high yield spreads how seven percentage points above treasuries. >> it tells you you that the market is much more pessimistic than the outlook that most strategists have. you have a default rate running well below the historical average of 4.5%. yet risk premium now substantially above the historical average. >> is that a sign that people immediate to pair down their exposure to credit? >> i don't think we're headed for higher defaults. you could see that about we hall into recession in the u.s.
but history is that when you're buying at these kind of levels, and the spread is not only wired in historical average, but substantially wider than you'd ordinarily expect to see given where credit availability, economic indicators, the things that ordinarily drive the spread, it's substantially wider than you'd expect to be and historically you've done well over a 12 month horizon. could be rough sailing between now and then for sure. >> we were at these levels back in january which would have pointed similarly to an outperformance. we did see that maybe in the first quarter, but we've so quickly gotten back to that point. >> that's right. we've been buffeted by the events in europe. it's really the sovereign debt concerns more than the domestic economy, concern about what will happen to the global financial system.
and those are not worries that you can dismiss out of hasn't, bru really for a value investor, these are the types of situations you're looking for. fundamentally you have good value. you're confident in confident of most to pay off, but you have intervening factors. you could have moves by the central banks of the world. and seat see the market come roaring back. projections that mosts have out there are about 3% that will compare with the high school tore cal average of about 4.5%. and if you're looking at the percentage of issues trading into stress levels currently, it would imply significantly higher rates than you could get to by
looking at such things as fundamentals that coverage ratios of companies in the market. >> do you see value in high yields? when you look at the high yield market, are there any sectors or any areas within the risk ratings looking particularly weak or is it the market in general? >> the market in general. the way to do it is package a proper can duct into an etf or market fund. but you really don't have to go down to the lowest quality. the middle range is sufficient in terms of the risk/reward and you'll get enough of a bounce there to make it worthwhile.
>> martin and allison, thank you for your time this morning. and a spokesman for jon corzine is firing back for the trustee. he says he may succor syne for mismanaging the company and creating conditions for it collapse. corzine spokesman says there's no waives for a lawsuit and the report consistent with corzine's testimony to congress highwthat didn't directly intend to misuse customer money. >> dollar general beat forecasts as the discount chain saw sales momentum carry into the early parts of this year. kkr bought dollar general back in 2009. shares fell more than 2% in after hours trade in yesterday's session. and in frankfurt this morning, of course they've been active,
as well. >> let's take a look at today's other top stories. the country is not immune to the eurozone's issues. >> i would argue eden jones is very small for the time being. sometimes you do see a little bit of a reaction when they come through and they make a change. >> we'll see if others follow. >> aussie airline expects to post its first loss since it was privatized 17 years ago. >> double what their international business was losing last year. points to weekening demand. john paulson has bought the famed hollow ranch in aspen from the sawed cancan saudi prince. something like over $100 million. but it went for just about half of that.
>> huge fall in the value of this property. but this is massive amounts of money. >> starbucks has bought a bakery chain for $100 million. are you a big fan of starbuckss food? >> i like the tea. but i always get a little nervous when you see companies moving away from their core business. but we'll give them the benefit of the doubt. >> can i recommend they go to denmark, take a look at some of the bakeries there and then mirror that. >> coming up next, we'll hear from exxon ceo about how the company's strategy as demand wakes and oil prices fall has not potentially changed. >
all in one account. keep watch on the markets. or use our exclusive tools to help find ideas. it's powerful, easy-to-use technology for trading stocks, options, and futures. keep trading whether you're at home, in the office, or on the go. optionsxpress, the broker smart traders deserve. open an account today at optionsxpress.com. here's the sense of the conversation we're having this morning. spain would be better off without the euro. spain has it own economy which can support its debt. all right.
and on bank regulation, the medicine is the problem. at least it's one of them when banks are bigger than country. that is the real problem. what do you think? send in your opinion. email@example.com, @cnbcwex, at kel ly underscore scorscor scos louisa bojesen. >> seeing quite a lot of green across the board in the spanish banks. hearing from the chairman of santander saying they need 40 billion euros in financial capital and that there is no crisis and just a couple banks are in immediain need of financ support. we're seeing quite a buying.
conference. he started by asking what the current energy climate means for operations. >> we've seen the effect of the the sluggish economy i think on energy demand. and that's sluggish demand in the face of a well supplied market. so i think it's expected that the prices will correct. so what it means about the future is hard to say, but if our own miss, when we make our investments and doichl or business plan, we do it with the view that we cannot predict what prices will be. so our businesses are built to operate about in widely fluctuating market conditions of which of course price is one.
so our business will continue to be healthy and we'll continue to be able to fund all our investment programs. certainly we have no expectations of impacts. >> so if you can offer visibility on the outlook for capital expenditures, you're not expecting any deferrals or any projects to be moth balled? >> all of our investment programs remain intact. last year invested a record level. $37 billion. and we expect to invest at those same levels this year and maintain that level of investing certainly for the next several years. we'll test them across a broad range of pricing because they have to remain robust.
it's been essentially the history of our industry. >> do you think natural gas prices in the u.s. have found a floor? >> i always hazard to guess any future direction of prices because i've been proven wrong every time. i would say, though, that if you look at the cost of the incremental supplies of natural gas in the u.s., it's pretty difficult to justify investment for prices this load. at this pricing levels, they could go down further certainly. so i would never say never. but in terms of being sufficient to support long term investment in new and ongoing supplieses,
that will be difficult. >> sticking by the cap ex plans. a lot of dough. still to come, we'll take a look ahead to the trading day in the u.s. and look at whether that ism services index might break what was a weaker bout of news out of europe this morning. trs [ male announcer ] this is corporate caterers, miami, florida.
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eastern time. policymakers expected to pressure germany to dampen its pro austerity stance. >> head of oecd says there's no reason spain should be paying 7% interest on its debt and troubled the two troubled countries have work order labor market flexibility, they've increased retire chlt ament age taking the right steps toward reducing debt burdens.they've ie and taking the right steps toward reducing debt burdens.ma increased retirement age and taking the right steps toward reducing debt burdens. >> u.s. futures slightly in the red. may ism services in-ddex out at 10:00 a.m. richard fisher is in scotland.
st. louis fed president james bullard will talk about the after math of the housing bubble. and charles evans speaking to the nyu at 7:15 p.m. ben bernanke speaking on thursday. and again looking down about a couple of points across the board for u.s. futures. paul, good morning. fwifb all the headlines these where are you telling america's political elite to put their money? >> good morning. so this is a record time of uncertainty. you have to go back to the great depression, you have to go back to 1932 to see will this level uncertainty. so we're telling our clients to be cautious, not a time to be
looking for higher income, higher yield or have expectations of high returns in the equity markets. >> are you recommending cash under the mattress strategy or do you like to the mining sto s stocks? >> a combination of things. we do follow technical disciplines. currently they indicate to us pot to be long only in equities and to be in cash. we like private investments and hard assets specifically in the united states, american real estate. there are student housing, medical iffacilities and self storage we favor. >> you make the point we've come off a 30 year bull market in bonds. do you think the bull market
will potentially resume if the european credit crisis continues? >> maybe short term, but the longer trend is definitely bearish for us. with rates being at 1.5%, they can go lower, but not that much. so at some point in time with the $10 trillion pumped hd by the central banks, take will lead to monetization of debt. short term they could rally, but 12 to 18 month, i'd be concerned. >> what are your thoughts on the dollar? there are those that speculate the euro can only go so low. could be looking at the focus shifting to the u.s. >> we still like the u.s. dollar.
you have a record number of headwinds and uncertainty out there in the global marketplace. we still feel there's going to be a lot of unintended consequences that will occur and when you have uncertainty and you have situations a rise, people still flock, institutions and individuals still flock to the u.s. dollar as a safe haven. so we like the dollar. >> a little bet of good news then maybe for consumers if oil prices continue to fall. but unfortunately offset by everything else going on. paul, thank you. >> and just a reminder that of course today we have the celebrations for the queen's jubilee. you're looking at live pictures now of st. paul's cathedral where a thanksgiving ceremony is taking place. it marks the final day of the queen's diamond jubilee. [ mechanical humming ]
today's top stories, the g-7 holding emergency eurozone talks. australia central bank cut rates to fight some of the global gloom. and ahead of the imf argues the ecb still has room to cut. it's tuesday, june 5th, 2012. "squawk box" begins right now. >> welcome to "squawk box." becky is so assignment today. spain's treasury minister says high borrowing costs means the country is effectively shut out