tv Street Signs CNBC January 14, 2016 4:00am-5:01am EST
merry christmas. >> and what luxury crisis. burberry reports positive prices as they beat with a weaker euro and jewelry sales helping to limit the damage. >> everything is now, woquote, under control. this is after multiple gun and bomb attacks killed six people in front of a shopping mall in jakarta. five terrorists including one foreigner are dead. adding it's too soon to know if there's any isis involvement. a starbucks and burger king were also targeted with one starbucks having it's windows blown out. they have called for an unscheduled cabinet meeting to discuss it. starbucks released a statement saying the company is deeply
saddened by the event and it's monitoring developments closely. >> it's been a very rough start to the year. i spoke to the president of marsh global risk and specialties which put together the annual risk report ahead of the meeting in davos next week. he told me to expect social unrest to grow. >> in the last couple of years geo politics has risen relative to economic risk. you see that in the events of the world with geopolitical issues. >> what do you think business leaders are thinking at the moment? we're heading into the week with davos of course. what's going to be on the agenda for all of these leaders. >> businesses are are concerned. you see this wide range of risk and it leads you to pulling back on developments and do you have the right amount of diversification in the supply
chain and is the strategy still right in this environment. businesses pulling back and maybe focussing more on where they are today. >> how about the risk of migrations or the risks associated with migration. is this high of on the agenda? >> sure and it's concern for business community too. you think about migration having an impact on political fragmentation in europe and that spilling over into challenges for the economic sphere. that's not good for business so i think businesses should be working together with governments to create a more fluid challenge and address it head on. >> we're a little more than one hour into the trading session. the stocks europe 600 is down by 2.7%. we're close to three month lows.
this is in response to heavy selling we saw in the u.s. and asian trading session. a lot of nervousness around the oil price. we'll get to that in a second. i want to show you the indices one by one. the dax off by 2.36%. the ftse 100 doing better off. we have the likes of tess coe and burberry out performing but i want to show you what the u.s. markets did in the overnight session as well. that's where some of the sell offs started once again in response to nervousness around the earnings season but also oil prices. s&p 500 falling and the nasdaq comp seeing it's worst day falling 3.4%. by and large these u.s. markets are at their lowest levels in roughly four months. quick peek at oil prices. this is where all the panic selling stems from.
wti crude at 30.64 and brent crude back above the crucial 30 handle. we're off by 0.5%. the report didn't help but also the prospect of iranian sanctions being lifted. a choppy session with the nikkei dropping below the psychological 17,000 mark to close down 2.7%. let's get out to eunice in beijing. we saw pretty poor machinery orders. >> we did. not only that but overall you can see that in the asia pacific that the markets were taking their queue from wall street and were concerned about not only oil but japan was also hit by the strengthening yen. in china we had concern from investors about dipping below the 3,000 level. there was quite a bit of fretting. people also talking about the direction and there's also
several reports here of bank employees telling the local press that they are having internal unofficial restrictions on selling u.s. dollars to individuals to the tune of about $1,000 per transaction per person. the government though did come out and denied those reports and said that there haven't been any changes to the overall restrictions here of 50,000 u.s. dollars per individual per year. now later in the day in china we did see a rally and that made it a stand out compared to the rest of the asia pacific markets. the chinese markets rallied because late in the day, about 100 companies, large shareholders of companies pledged that they would not reduce the share holdings for the next six months and in addition to that several hundred
more companies pledge that not only will they not reduce their share holdings they would also increase their slots of shares. so that was having a positive impact on the market in addition to that, the authorities said, yeah, to investors that they were going to keep the ipo process, the approval process quite steady and the pace would be slower. we did see a rally because several of the large shareholders are in those companies, guys. >> thank you so much for that. now if you think the market volatility stemming from china is setting the scene for years to come you're not alone. they told cnbc this is a year of adjustment. for more head to our website and take a look at comments there. now back to today's agenda, the
bank of england is expected to keep interest rates on hold when monetary policy members meet later this afternoon. the collapse in oil prices as well as persistent chinese economic worries lead economists to push back their rate hike forecasts. this time to november now. julia is outside of the bank of england and people aren't particularly following the bank of england maybe from abroad. bring us up to date on what's going on from within the bank of england now and whether or not we expect anything from them tod today. >> well, i can tell you we're not expecting any kind of rate move. what we're expecting is the dovishness to continue on into this meeting. why? there's a number of elements. remember oil prices they're off 20% since the last meeting. the markets have concerns by china. that's another factor. despite the job gains that we have seen in the u.s. we've also seen a bit of softness feeding into the wages so there's a number of elements here
including the harder data like industrial production that i think will allow the bank of england to remain sitting on their hands taking stock and not necessarily having to do anything. if we look at the snapshot, if you remember from the last bank of england meeting the vote was 8- 8-1. the question is today does he decide to abandon his calls for a rate hike here and join the others. we've got the inflation report and then we get super thursday. perhaps he'll wait for that. in the interim this is just a meeting waiting to see just how dovish they are. how dovish are they about the external environments and the concerns that a lot of the central bankers are focussing on. then of course there's the markets. sterling at a 5 year low versus the dollar and one year low versus the euro. that lifting the inflationary pressure but if you go back two years sterling is still up 10% versus the euro so there's still
a drag i think from sterling weakness for the bank of england to consider here. the market is also very dovish. first hike in 2017 now despite what analysts are saying. gu guys. >> thank you. i'll see that starting at 11:55 cet. let's talk to adam cole. as julia pointed out, adam, do you think we might be getting a 9-0 vote today? >> there's an outside chance of that, yes. that really for me is the only major uncertainty going into this meeting. i remember we're only three weeks away from the february meet chg brings ning which brin conference et cetera. any material changes probably wait for the february meeting rather than this meeting and we think passes relatively uneventfully. >> sterling is trading now close
to 5.5 years low. do you think that's justified? do you think the selling is too intense? do you take a look at what the market is pricing in? maybe the first hike to come only in 2017. >> we think that's too dovish. realistically there's still a serious prospect of a rate hike this year and the market has taken most of that risk out. the other problem i think for sterling is not just the domestic policy story but we find ourselves very much back in a world of risk on and risk off markets and risk off markets which we are quite clearly in at the moment tend to be negative for sterling so sterling is not just suffering from the interest rate dynamic but the broader dynamic of market selling risk which is negative for our currency. >> but then at the same time, adam, good morning, the pound falling so much. that's great news with regards to helping to bring inflation back up toward the 2% target. >> sterling has been around
fairly valued for sometime. we see smaller deviations in one direction than the other. i don't think it's instrumental. the focus should be the domestic news flow and for me the balance of risk is still that that argues for the rate debate opening up through the course of this year rather than next year. >> do you think there is a chance that we could be moving toward a new reality with the bank of england members. that we'll be looking at it better longer than the more bearish forecasts when we can be looking at a hike? >> i think the market is there already but if anything it pushed the process too far. it will be positive for rate sentiment and negative for rates. over the course of the last month or couple of months. the question is how far the markets should be prepared to push that and to have the first rate hike discounted in the spring of next year which is where we now find ourselves is probably pushing that process too far and on balance the risks
from here are that we go somewhere from pricing in a more open rate debate through the course of this year. >> adam, i want to switch over to the canadian dollar. the biggest casualty of the oil price in yesterday's trading session falling to the lowest since april of 2013. do you think we'll see a rate cut as early as next week? and how do you trade it. >> it's a very close call for next week. at the moment we think they probably won't but we wouldn't deny it's close to a 50/50 call next week. and it's become such a clear play on the price of crude. not just because it is canada directly but it's become the leverage play on crude prices from here. and i think if the markets do move to put a higher probability on a rate cut at next week's meetings. we'll go on to make new highs in dollar counter from here. >> adam, thank you so much.
global head of fx strategy at rbc capital markets. >> all right. well as said, be sure to tune in for decision time. that takes place from 12:55 cet today. i think i said 11:55 local time here in london. we'll bring you the bank of england's latest rate decision. now, back to one of the more important stories. if you thought you just won 1.6 billion u.s. dollars. we have bad news for you. your prize money has just decreased to only a half a billion. california lottery officials revealed at least three winning tickets were sold including in florida and in tennessee. so the news that one winner bought their ticket in chino hills lead people there to swarm the 711 store where the purchase was made. lots of hopefuls there. the shop itself will bag a $1
million bonus. >> i'd still take half a billion. even if it's not 1.3 or 1.5. half a billion is just fine. >> any day. any day. listen get involved. e-mail the show. you can find us at the address at street signs firstname.lastname@example.org. it's on screen for you now. we see the e-mails when they pop up and you can find both of us on twitter as well. >> yeah, do tell us what you would do. one viewer has written in and said he would buy gold. >> really. >> go for it. be my guest. be right ahead. >> still coming up on the show, we'll get the latest from the attacks in indonesia's capital jakarta which claimed the lives of six people. >> also tesco with a better than expected christmas period so could it be the turn around in the super markets fortunes. and jp morgan reports before the
hi, everybody. welcome back. you're still watching street signs this morning. shares in fiat chrysler have been suspended after a 7.9% drop. that's just happened. they were lower this morning initially but just having seen shares suspended. >> a cheery trading update from tesco. the super market posted the first increase in sales in over four years. take a look at the shares. up by 4.64%. lower prices helped forecasts over the christmas period suggesting the ceo dave lewis turn around plan is making head way. tesco expects to meet full year profit expectations. we all thought it would be a
terrible christmas for the retailers all because of the warm weather and it wasn't so bad for many of them. >> sainsbury. >> they're all doing better than expected. >> when you look at the third quarter underlining sales figures still down but not so good when you look at the third quarter as a whole and then issues of market share and things like that. but retailers coming after it and the market share losses so ye yeah. asos rising 22% after a disappointing 2014. the british online fashion retailer has been moving more quickly to change it's prices in line. retail gross margins coming under pressure due to higher investment and lower prices. do you know what asos stands
for? it stands for as seen on screen. >> didn't know that. home retail group expects full year profits before tax to fall at the bottom end of the expected range. this as argos posted disappointing 18 week sales down 2.2%. meanwhile, australia's west farmers is in advanced talks to buy chain homebase for 340 million pounds. the biggest story, not so much the numbers and the earnings but whether they'll make another go for home retail buzz the first offer that was rejected they have got until february 2nd to make another offer or to walk away. interesting comments coming from the ceo this morning. he says i do not know what their next move will be but he's excited about argos future whether as an independent business or part of someone else. so seems like he's open to selling them if it's at the right price. >> precisely. has to be at the right price. the initial offer was worth
around 1.1 billion pounds or there about. they're holding out some say the shareholders closer to 1.6 billion pounds which would be equivalent to 200 pounds per share. the other thing is that sainsbury could shut around 200 stores as part of the proposed take over. there's a number of things they're trying to get right in this entire puzzle of potentially buying them. >> moving on, an unseasonably warm winter weighing into the second week of january. it's maintaining a profit outlook for a modest decline because of unfavorable currency swings. shares under pressure on the back of that a little bit lower this morning in trade. >> shall we talk chocolate. >> always. >> it's never too early or too late. >> always. >> let's do it then. 2015 group sales at lindt grew
by 8%. that's less than they were expected. they cited a string of tail winds including high raw material prices. and weak consumer sentiment. despite this it effects 2015's operating profit margin to be at least at last year's levels. shares down some 4% in trade. >> and reported like for like sales of minus 0.3% in the fourth quarter. the french super market group confirmed the profit outlook for the second half of 2015 guiding for significantly higher in france than in the year before. it's interesting again also to see the shifts between what is going on with retailers in europe versus retailers in asia or the european groups with exposure to asia because that's not going rough now although we're still seeing growth in luxury goods you're still seeing the slow down coming through. >> you are. absolutely. but casino is quite interesting because that recent report from muddy waters complaining about
accounting irregularities and saying they're shorting that stock. in fact, casino still down some 47% over the last year or so. now sales falling 4% in the third quarter as the swiss luxury company suffered from a slow down in china and lower tourist numbers in europe. the sales job was not as bad as analysts had feared. however with the weak euro and jewelry sales helping to limit the damage. shares up by 2.5%. >> now we were just talking about asia and some of the goods, luxury goods. well, what luxury crisis. burberry reporting positive results in the third quarter despite the challenging trading environment. comparable sales were unchanged and rose by 3% if you exclude data from hong kong and when looking at burberry shares this morning higher in trade. up by 2.25% or so. joining us live is the managing director and portfolio manager of the luxury brands fund.
very good to see you. i remember when we used to speak 15 years ago. long time ago. >> good morning to both of you. good to see you. absolutely. >> talk to us a little bit about what's going on from within luxury retail because we hear about this slow down taking place, an asia lead slow down as well. is luxury still growing as a sector. >> i think it's still growing. the good thing is expectations are extremely low but burberry beat expectations. it should come as a relief that it's not a disaster quarter. >> what is the difference between the haves and the have notes at the moment? what's the determining factor for whether a retailer is succeeding or not. >> i think chinese consumers are
important and make up 30%. we're seeing hong kong and macau extremely weak but areas like japan and europe where they benefit from better currencies are doing well. >> let's talk about the elephant in the room then. china as you mentioned very important when it comes to tourist flows is there any visibility as to when they could actually recover? >> it's a good question. what we're seeing at the moment is that hong kong and macau remain weak for the reason i mentioned but very good news both is that both reported improving trends in china and this is probably a good piece panicking on the china story. >> you say the market is panicking. does that tell us that or tell your investors that they have been buying the luxury stocks? that sentiment is too negative.
>> absolutely. i think china has its issues but i think the best times to actually pick up luxury stocks if you're long-term investors is actually to start to buy luxury stocks when people panic on china. we don't buy into the story of china and if you look at the numbers china will still grow 5 or 6% and that's higher than most of the emerging market and most of the developed countries. >> how about some of the current trends like dividend or capex trends as well? as i understand they're moving more toward digital. >> absolutely. what is important is not only about emotions and sentiment but also about numbers. the luxury industry is extremely sound financially so the financial me tricks are extremely good. many companies are net cash and
no debt and the pay out ratio is between 30 and 50% which is quite low. the dividend yield creeped up to above 2% which is not a lot but comparing that we are in zero interest rate environment, that is a welcome thing. you get paid while you wait. we had short-term head winds. we had a very sad event in paris. probably a bit of an impact on certain companies. probably also in line and was actually not a bad number and going more into digital. >> thank you. >> good to talk to you. thank you. >> following the broader market lower despite reporting a 48%
jump. they're now focussing on rail equipment after selling it's energy unit to ge next year. they're slashing jobs in the next year. last may ge said it planned to create jobs after the bench government voiced concerns over the impact of the deal on possible lay offs. >> george writes in this morning and says chino hills is only 18 miles from where i reside. i didn't get lucky. >> maybe next time. >> we're both on twitter we'll leave you with a look at our european markets.
>> the global sell off wipes out over $3 trillion in market value in 2016. european stocks trading in the red as oil hits a fresh 12 year low. >> at least six people killed after a string of explosions rock a shopping mall in the indonesian capital jakarta. five militants are dead. >> heavy discounting helps britain's largest retailer have a very merry christmas. dave lewis championing it's customer focus. >> and burberry reports positive results while they beat forecast with a weaker euro and jewelry sales helping to limit the damage. the dow jones up by 6 points and the nasdaq off by 4 points.
so pretty choppy opening calls there for the u.s. markets after a very ugly day yesterday. the dow off 2.2%. the s&p 500 falling. the nasdaq down 3.4%. the worst day for the nasdaq in 20 weeks and for the u.s. markets we're at the lowest level since the end of september. a lot of nervousness around the earnings season but also around oil of course. let me show you what the european markets are doing and they're not fairing any better. the xetra dax off by 2.34%. we're close to the session lows here in the ftse 100 maybe out performing in part because of tesco as you heard in the headlines and burberry with small gains on better than expected numbers but a lot of selling and a lot of nervousness in these markets particularly about oil. now the u.s. ten year treasury note, the yield falling below 2.1% in yesterday's trading session and this is now the lowest since october. no surprise given all the risk aversion that we're seeing and we saw a very strong demand
picture for the ten year auction. last but not least let's get to the culprit of all the selling. at least yesterday brent prices falling below $30 barrel. now they're back above that level. the fact that they showed more rise in invin tors that didn't help along with the fact that we're looking at the lifting of the sanctions for iran early next week. wti crude still higher than brent this morning at 3070 up by 0.72%. >> now statoil forked out $540 million for 11.9% stake in the company lundin. the move boosts it to important oil fields off the coast of norway. the transaction represented good value with the share price down by 33% since last june. >> and everything is now, quote, under control according to
indonesia's chief security minister after multiple gun and bomb attacks killed at least six people in front of a shopping mall in central jakarta earlier. five terrorists including one foreigner are dead adding that it's too soon to know if there's any isis involvement. a starbucks and burger king were also targeted with one starbucks cafe having the windows blown out. the president has called for an unscheduled cabinet meeting to discuss the situation. let's talk more about these latest unfortunate events. joining us on the phone is bob, he is the managing director. good morning, good to have you with us. first of all, just from where you are, what is the latest that we know and what are the ramifications going to be? >> well, as far as we know it was a series of grenade attacks and there was an exchange of gunfire.
now as far as how closely affiliated these groups are with middle east terrorists that will still be determined but there will clearly be aprehenprehensi asia and around the region you might find similar groups planning and plotting the same style of attacks in the coming weeks or months so people that watch this closely as to what the indonesian economy discovers regarding the affiliation and the number and whether these are fighters that came back from the middle east and are starting to organize in jakarta. >> you make an important point in a note you sent out this morning where you talk about the last big terror attack were the july 2009 bombings and that this round of attacks will be seen in a different light. why? >> well, after the bombing, what basically happened was the indonesian military and police
cracked down, the sense was these are one off. but if you're looking at this from the point of view where it's old al qaeda affiliates, the question is how many of them are there. what are their plans? so there's a greater uncertainty as to what may be coming next. >> what will the response be for the government? does the government actually have a handle on how many people, how many muslims are traveling to the middle east for jihad training? >> no, the short answer is no. estimates range from a few dozen up to 700. and they have really no way of
knowing right now how many there are. so in the next few weeks, the intelligence will concentrate on that. they'll try to find out and they'll try to find the roots in and outside of indonesia. they'll try to find where these fighters gather and then try to get the sense of how the network operates. so the indonesian -- we have to give the indonesians credit. they were able to put al qaeda down in 2002 largely even though some aspects survive. so there is a certain, i would say, on my part confidence that they will crack down because there is no interest. the largest muslim organization in indonesia said fighters should not be joining the fighting in the middle east. so i think for now, my early gut senses once we have a grip on how many people are involved in this it's going to turn out to be a manageable problem. now the risk is, you know, even if you just have a few extreme
fighters even a manageable problem can still result in it. that's what people will be watching not only in jakarta but other cities in southeast asia. because period definitely philippines singapore and malaysia will be looking closely at this. >> thank you for your insights. really appreciate it. >> now officials they say that markets they have calmed following the attacks in jakarta. at the same time indonesia central bank cut it's benchmark interest rate by 25 basis points to 7.25% earlier today and it also hinted at further easing in a bid to sure up the country's ailing economy. let's switch gears and talk about the fx markets. he is the head of cee mea, fx and rate strategist at citi. so focused on the middle east and asia as well. talk to us a little bit about some of the big repositioning that we have seen in the markets here within the first couple of
weeks of 2016 and how difficult it's making trade not just in emerging market currencies but in currencies in general. >> well, it's been a huge change of mind set in the markets i have to say. this is coming from the late december when many thought the markets were going into a period of calm. we started to see it and that obviously brought the market into this sudden pace of pressure and the dollar yen higher which continues, actually. so i mean, it's been a very shaky start of the year for fx risk and it's -- it's a risk picture here. it's not only coming from china. it has the fact that commodities
are still coming down. the market meeting from this slow down in commodities now is not only supply driven. >> yeah. >> it will be too simplistic to believe this is only supply dri driven. we're talking about concerns with demand pressure and this is hitting the equities now. >> how much further weakness do you anticipate to see off the back of the attacks earlier today? >> i think the markets are becoming more used to geopolitical gyrations. we saw the bombing in turkey and now the blastings in indonesia. i don't think that we'll become the major catalyst in the market now but of course that adds to the complexity on trading emerging markets or emerging market assets in general. >> geopolitics is one big story. the other is obviously oil prices. do you still want to be a seller of all the oil producers and
buyer of oil importers? >> i think that our position is to be still very cautious. i know that it feels exhausted. i know it feels too short and we are looking to chicago futures it looks like the whole world is very short oil now and the sentiment is very bearish but you cannot, as i said before, you condition ignore the signals coming from the pressure and of course the coming supply is still on the energy side knowing that you don't supply the markets already in february and march as limited as it can be but it will hit the market so it's still very difficult. oppositions are still cautious here and currencies like the ruble or even in g-10, these currencies might still have a little bit of weakness in store until we stabilize in terms of energy commodities. >> thank you so much for that. head of fx and rates strategy at citi. now we finally have a winner or
at least three winners. that's right. at least three people will split a $1.6 billion after striking lucky in america's powerball lottery. let's get out to jennifer who joins us now from china hills california where i guess one of the winners is from. >> that's right. good morning. from here. it's about oh, 2:00 in the morning here in southern california and we're here in chino hills about an hour's drive outside of los angeles where the lucky ticket was purchased here at this store behind me. the store gets $1 million as a bonus and the store owner was here and really dozens and dozens. we'd say more than 100 people flooded this marking lot when the news came down just about six hours ago. that a jackpot ticket was purchased right here. then the news came that there was another winner in florida
and another winner in tennessee. there was a total of three lucky tickets drawn for this $1.5 billion jackpot. we thought this was going to be the first time we actually had a billionaire but since it split into three it's a little bit less but it's still a heck of a lot of money. a lot of excitement where people showed up just to be a part of it. i don't think anyone really expected the winner to show up with the ticket to celebrate and get that ticket certified and the person does have a year to come forward and claim the money at which point they will no longer be anonymous but it is very exciting overnight here in chino hills where, you know, we're just waiting to see who the lucky winner or winners is and that's all we've heard about the last week or so is people going out and getting their tickets and a lot of office pools. it could be a group or one lucky person. we'll have to wait and see.
>> the bubble has popped for a lot of people. >> only half a billion. >> tennessee or chino hills. >> i know. >> a couple of you saying you live close by but you weren't lucky. but maybe next time. friends reunited at last. fans will be delighted to know the cast are getting back together for a special program on nbc. it's been almost 12 years since their final episode aired. rachel, ross, monica, chandler, phoebe, joey, they'll be joining forces for a two hour tribute to director james burrows but it will be tricky to get everyone in the same room at the same time so they're looking at different options. maybe down the line options and things like that if they can't get everybody together but cult series for sure. >> who didn't grow up with friends or din watch it?
>> welcome back. iranian state tv aired footage of the sailors seized earlier in the week. it also showed a sailor apologizing for intruding into the waters. the americans were later released unharmed according to a senior official. iran acknowledged they didn't enter waters on purpose. at least three people were killed when an avalanche struck a group of skiers in france. it included two teenagers and a ukrainian adult skier. the teacher had lead a school group into the slope that had been then closed due to the risk
of avalanches that's according to a regional government official. all other students have been accounted for and are safe. >> and the united nations special envoy for syria said that syria peace talks are scheduled to start as planned in less than two weeks. high level diplomats met ahead of the un peace talks. they were essential in order to move forward adding that there are issues still that necessitated the early consultations. >> and u.s. customs and border protection officers in texas intercepted over 2,000 pounds of what appeared to be marijuana hidden in a shipment of fresh carrots. almost 3,000 carrot shaped packages carrying an estimated street value of under $500,000. the case is under investigation by agents with homeland security
investigations. >> now shares in go pro tumbled over 25% in after hours trade as the company announced a 7% work force production and weaker earnings outlook and revenue guidance for the fourth quarter. as goldman sachs points out this is the 2nd time in three months they have cut their revenue guidance. why? in part because they have to cut selling prices. their product, the latest one here, the camera, that didn't do well at all and they're also facing more competition from chinese competitors. now cutting 7% of the work force, is that going to be enough? goldman sachs and a host of other brokers they have come out with new price targets for the firm, jpmorgan slashing the price target in half. 21 dollars versus a previous price target of $45. this is a big, big drop and goldman sachs lowering it's 12 month price target from $15 to previously $29. but guys even these price targets may be a little bit too
optimistic because as you can see in the after hours trade we're now at roughly $11 a share. that's more than a 50% drop from what we saw the ipo price at at $24 and the 2014 ipo. goldman sachs saying we remain on the sidelines in the near term as it appears unlikely that this will be the last estimate cut given the relatively small amount of inventory reduction. a longer term catalyst that could include the potential drone launch in the first half of 2016. >> goldman sachs is reportedly planning to cut jobs from its sales and fixed income work force. it suggests the wall street bank will be shedding 10% of those businesses or 250 jobs. double the annual cut of 5%. goldman is set to release fourth quarter earnings next wednesday. shares are down by 12% over the past three months. >> jp morgan, also set to kick off the fourth quarter earnings season for u.s. banks today. kayla takes a look at what we
can expect. >> thanks were supposed to be one of the bright spots in the market but they're going to need to get through what hooks to be a dismal fourth quarter of earnings before they turn around. analysts are expected revenue growth of around 2% but a sharper rise in profits thanks to massive cost cutting that is still on going. the street actually sees bank of america improving the most over last year but sees wells fargo business model as being able to best stand up to recent head winds. some of those are too big to ignore. first the steep decline in oil prices. banks clektdively have more than $100 billion worth of debt related to the energy sector. most of it is high fwrad but they're having to set aside more money in case of potential losses. second, higher interest rates will mean the banks earn slightly more money on some loans they're underwriting but there's a worry that credit quality has peaked. the number of companies and consumers defaulting on their
debts is at or near an all time low. experts say it can only go up from here and that's a problem as debt is getting more expensive. in the past, volatile markets like energy and interest rates would have spurred more trading activity but executives like jp morgan's cfo have said a seasonal slump in trading activity that plagued recent years will also be present in the fourth quarter. we will hear from jp morgan up first of the major wall street banks. for now, back to you. >> all right. we want to bring you breaking news relating to the italian bank. shares in the company rising more than 4% after the eu commission is saying they're ready to discuss new bad bank projects with italy. let's get back to the u.s. bank earnings picture. joining us live from tampa is the vice president of equity research financial sector analyst. thank you for getting up early for us. how bad is the earnings season going to be for u.s. banks for the fourth quarter? >> actually it's not going to be
that bad at all. i think that if you separate the 6 biggest banks in the country from the other 6,000 banks you'll find that the biggest banks have a different product mix. in other words they do more capital markets activity like trading, investment banking, asset management. all three of those businesses are going to look pretty bad when we see the fourth quarter results plus there's going to be special charges bank of america is going to have a huge amount of special charges in the quarter. but if you take a look at the core of what a bank does which is to take in deposits and make loans and try to get an improved spread at doing that the vast majority of banks will see lending increased for them. margins remain stable and costs come down. we'll see scary numbers i guess over the next three or four days as we get will you the big banks but once we get through the regional banks the numbers stay good. >> we're seeing them hovering at
12 year lows and everyone is talking about the weakness in the energy space. the banks collectively have more than $1 billion of debt related to the energy sector. who is going to be hit the hardest? >> again, it's the big banks. in other words if you take a look at the average regional bank in the united states, less than 2% of its portfolio is invested in energy loans of any type whatsoever although there are special situations where capital one where they have a lot of energy loans but in general regional banks are not very much effected by it. the big banks are hit in two to three fashions. they're doing less underwriting of these loans which hurts revenues. number two there's an increase in loan losses related to these loans and number three there's less trading of energy futures and products because of a decline in price. so again there's a definite separation between what you'll
see in the biggest banks in the country versus all of the rest. >> it's louisa. we talk about here in europe about whether or not the european banks should be merging in order to be able to compete on the investment banking side of things with u.s. counter parts. do you think we're going to see more consolidation along these lines here through the next year? >> well, you know i'm not very knowledgeable about europe but in the united states you'll see a huge wave of mergers in banking in 2016 and i think the fed finally let down, if you will, the barriers when they allowed bbnt to make the three acquisitions they made in a bank to make an acquisition that it was looking at so i think that right now, obviously the biggest banks can't do this, again, big separation between the two but the regional banks are going to be buying each other and i would expect to see 2016 being one of the biggest years in bank mergers that we have seen in the
last decade. >> and just coming back to your point on the difference between the big banks and the weakness expected from within them and the regional banks and the strength seen there, no bright spots in any of the big banks at all? state side? >> well, certainly if we can get by the quarter 2016 will be relatively good for them. i'll say it that way. and think about it. we've had these huge merger announcements all through 2015 and because the mergers are so big, they take 12 to 18, maybe 24 months to be concluded. so while the merger announcements have been made no one has collected any money on them. in 2016 these big banks are going to collect a lot of money on the investment banking side of the business from the mergers. you know, we have had this huge labor number i guess a week ago and essentially that means there will be more activity in the marketplace. the money supply of the united
states continues to grow. at a relatively slow rate. and that means more trading as we go through this. so, you know, unless one wants to really project a significant recession in 2016, these big banks that hook so bad in the fourth quarter will look good in the first quarter. >> thank you so much for that. he also says citi is deeply under valued. vice president of equity research. a quick look at u.s. futures. we are expecting to see some degree of stabilization in today's trading session. the dow jones seen up by 30 points. that's it for today's show. >> we'll see you for a special rate decision taking place here at noon london time. see you then. serena williams. hi watson. you are a fierce competitor. i've heard that. i have analysed your biggest matches. oh really? when down a point, you serve an ace 5.8 times more than other top players. you sound like a coach. i am not.
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