tv Street Signs CNBC March 9, 2016 4:00am-5:01am EST
hi, everybody. welcome. you're now watching "street signs." i'm louisa bojesen. >> and i'm nancy hulgrave. these are your headlines. >> european stocks in the green following a rough session stateside. in china, the shanghai composite breaks a six-day winning streak. tackling challenges head on. china's vice finance minister tells cnbc in an exclusive interview that beijing must get its message across to the mark. >> the premier gave very, very clear instruction to chinese
officials that it must enhance the communication with the people. prudential's special dividend delights investors. the ceo is pleased to return the cash to shareholders. >> we had a dividend policy of raising our dividend by 5%. want to make sure we can do that across the cycle. we had pulled forward some earnings in the u.k. those earnings belong to the shareholders, so we distributed them out. volkswagen shifts into reverse following reports investigators in the u.s. are widening their proep into the emissions scandal. hi, everybody. good morning. >> welcome back, louisa. >> thank you very much. nice to be back. nice to see our european markets pretty solid, pretty stable ahead of the ecb tomorrow. that's going to be the big thing
to watch out for. we're looking at our stoxx europe 600 just a little higher at the moment. a lot of people just sitting tight. we had a lot of volatility following on from this weakest trade figures seen in february for china. very weak trade figures with exports tumbling the most in more than six years. imports off by almost 14% in china as well. we've seen a lot of weakness there. some thought we would see this filtering through more today, but we haven't seen that. a little bit of it felt on the ftse 100. flat to a little higher. listen, let's check in on these markets in asia and talk more about some of the details that we need to know. sri joins us from singapore. disappointment out of china. i have to say, the shenzhen and the shanghai composite not trading off all that much compared to what they could
have. >> yeah, it was commodities that did it. so renewed decline across the complex. it's also the legacy effects of the very admittedly down beat trade data we got for the month of february yesterday. that's still cycling through market sentiment and infecting the tone out here. shanghai composite up by 1.4%. stronger yen hurting the exporters on the nikkei. 17,000 still proving elusive. there were some pockets of strength out here. strangely enough, and i find this a little anomalous, the australian market held up quite well, up by 1% at the settlement. an element of bargain hunting in the market. also, leadership from the financials. profitability remains quite challenging in the current environment for a lot of these aussie corporates. that's going to keep the australian benchmark raised.
overall, it was a value risk off day. i think a lot of people are not going to be inclined to put on big trades as we get closer to the ecb meeting tomorrow. that's how we stand. meanwhile, as we await that ecb decision, china continues to be on the main front of investors here. speaking exclusively to cnbc in a rare interview, china's vice finance minister says that addressing financial risk is a high priority for beijing. well, let's cross out to eunice yun who has been speaking exclusively to the vice finance minister. still a lot of concerns over communication, exactly what is to be taken from the debt picture over in china. what's the key takeaway from your interview? >> well, the chinese vice finance minister really wanted to send a message to investors worldwide and join the growing group of chinese officials who are trying to reassure investors
that china shouldn't be a source of anxiety for the global markets. he was saying that the officials here have control and are able to manage the economic slowdown here. in fact, as you were talking about, he said that the economic growth target for this year is going to be in a range of 6.5% to 7% and that the leaders were going to do their utmost to make sure that china reached that target not only for this year but for the next five years as part of their economic development plan. at the same time, he also wanted to point out that investors should understand that the leadership here is well aware of the needs of economic reforms. as evidence of that, he pointed out the recent efforts the government has made to try to slim down some of the industrial overcapacity. finally, he was also talking quite stridently about how the senior leaders here have gotten a directive from up top to make
sure that they communicate better with the outside world. this is what he had to say. >> the premier gave very, very clear instruction to chinese officials that it must enhance the communication with people. >> we also discussed some of the biggest risks that the economy faces and more specifically about rising debt. this country by many estimates has total debt to gdp at around 250%. he argued with me about that number, saying that it's still all up for debate. but i also pointed out that most emerging market economies that
have seen this level of debt run-up have ended up facing big trouble, namely either as a banking crisis or a tremendous slowdown. this was his reaction. >> we must be strengthening our policy against the system call, regional, and systemic risk. we must very closely watch the market, particularly the financial sector and also the total debt. >> the minister was also very quick to point out that government debt was at 40% of gdp. he said this would include the national debt as well as the local level debt and the government finances were quite
solid. and that was one of the reasons why he said the leadership here decided that they did have enough room to lift the fiscal deficit to 3% for 2016 versus 2.4% in 2015. he said that fiscal stimulus is still one route for them to continue to support the economy here. louisa? >> eunice, great interview. there are some analysts who think that china now struggling a bit with economic transparency and it's become more difficult for them to lay out their multiyear plans compared to what they've been able to do in the past. did you get any sense of this? >> well, i think that this is what the concerns and criticism that the chinese government faces over their lack of transparency, or at least perceived lack of transparency, is what the vice finance minister as well as many other chinese officials are now trying to combat. he was talking about how he
understood the spillover effect, he called it, of china's decisions on the global economy and that was one of the lessons that they learned. there has been just such a drum beat from other senior leaders from other countries. he said at the g-20 a lot of this was discussed and it was quite clear. he said many leaders here recognized and understood that china needed to step up and communicate better with with the outside world. hep said that w he said that was one of the reasons why he wanted to have the sit-down conversation with us and he hopes to see more face-to-face meetings between chinese officials and the media. >> eunice, thank you very much. as always, you can get in touch, e-mail the show. the address is email@example.com. or also twitter. >> you can find us directly. i'm @nancycnbc.
>> and i'm @louisa bojesen. china is still undergoing structural changes. so it must be difficult when you're dealing with such an incredibly large country undergoing these massive switches. >> and the switch to a more consumption-led society. a lot of questions over that 6.5% growth figure. but a great interview. delighted to have it on the show this morning. still so much more coming up on the show. we've been talking about the central banks, whether negative interest rates are the right medicine. louisa, at the end of the day, all you need is love. the man known as the fifth beatle has passed away sadly at 90 years old. we'll look back at some of his top accomplishments there. known as the fifth beatle, he was. we'll be back in a few minutes.
welcome back to "street signs." let's look at one of our top earnings stories this morning at prudential, which has announced a 22% prize in full-year operating profits. that comes to just over 4 billion pounds on rev news of 41 billion pounds and the company also hiking the dividend. shares are trading higher this morning, up by about 1%. the london -- in a first on interview on "squawk box" just a bit earlier, we asked the ceo ant his outlook on china. >> china and asia in general are misread by the west. first off, the data people use
is gdp, which is too high level for the middle class. we're not trying to buy the market. we're not investing in all of china. we're just doing business with middle class consumers. >> for more on the results, let's bring in our next guest. the european insurance sector strategist at rbc. thank you for joining us. we just heard the ceo there really define concerns over asia, china specifically. they had a good quarter just recently, but what's the outlook in this crucial market? you have highlighted some concerns over reliance on business from hong kong. when we look elsewhere in asia, what's your view for prudential? >> sure. it's an exciting time to be looking at prudential. its first full-year set of results. the company is an opportunity as well because it's the u.k.'s biggest insurance company. very diverse business. they've been talking a lot about asia. i think what's been going on in asia and what's been driving that is it's been the chinese coming over to hong kong, and
hong kong has been driving the whole of the asian business. while that's been good, the market has perceived it as a very much one-off trade. they're unsure how long that's going to be sustained. >> and specifically in asia, prudential reported a strong performance in its asset management area. this has been an increasingly competitive area. more european banks trying to get a piece of that pie. should that be a concern for prudential going forward? >> i think we should take a step back and say these are a great set of results. we were going for 14% growth in profits and they've come in at 22%. the market is really quite pleased by that. what you've got going on in prudential is a very diverse business, so they have the strength. the strength in asia is quite unique across the european insurance companies. these markets, i mean, you can say they are competitive, but you compare them to the west, the u.s. and the u.k., and they're not that competitive.
overall, we've seen strong numbers from prudential today. it's been hong kong driving the growth and the likes of malaysia and singapore. they're not as strong as they normally are. if you strip out the performance of hong kong, asian sales are down 4% year on year. of course, the currency is weakening as well. that's been a concern to the market. longer term, the growth story in prudential is very, very strong. >> how about the u.k. though? they've been kind of pulling slightly back from the u.k. they pulled back from the u.k. annuity market back in january, saying it would be harder to generate returns. >> the history of prudential is in the u.k. that's where we know the business from. we see a very strong opportunity for prudential to pick up responsibility for some of the pension schemes.
we think that's a big growth opportunity for them. it's interesting the numbers today because as i said, the numbers are well ahead of what we expected, but if you were to strip out the one off and what's been going on in the u.k., they've done some specific things in the u.k. in the second half of last year, which we didn't expect. if you strip those out, the numbers are simply in line. those numbers from the u.k. are strong today. >> back to your asia point, you are seeing extraordinary growth there. the ceo i noted on squawk earlier was talking about how you have to recall they're doing business primarily with middle class consumers in asia, that there are still people who have money who are coming on board and using prudential. he described it like a risk-off trade. do you think it's a risk-off trade for the longer term? >> i think in longer term, the opportunity in asia is huge. we have to remember it's fundamentally different to the west. there's various reasons for that. of course, the economies in asia
are set to grow faster than they have in the west. the penetration of insurance products is simply lower. also, you've got to remember customers over there have -- consumers have a gap. it's a social security net that doesn't exist in asia. prudential with its health and protection products can fill that gap for consumers. although there's been some headwinds with the currency and whatnot, longer term the story is very strong. >> if we could broaden out your view to the insurance sector as a whole here, we talk a lot about the impact of negative interest rates, a low-interest rate environment on the banks here. insurance firms not immune to this environment. as we get closer to the ecb decision, a lot of expectations going further into negative rate territory. what is the impact total for the insurers here? >> we've been very bullish on the insurance sector right back from 2011. we changed our view back in december of last year. we're expecting the sector to underperform in 2016. some of that is due to interest rates, but we always have to
remember it's not short-term interest rates. it's not the base rate that's going to affect insurance companies. it's always much longer term. we're looking at 10 to 15 years out. it is a head wind for insurance companies. more notably in continental europe, that's when you're offering guarantees and hoping to make a return. if interest rates are that much lower than the return you're guaranteeing, it's simply difficult to make that money. >> okay. gordon, thank you very much. european insurance sector strategist at rbc capital markets. >> let's look at volkswagen shares. the company is falling under pressure this morning after reports that the u.s. justice department has issued a subpoena to widen its probe into the diesel emissions scandal. this time the authorities are using a bank fraud law to investigate possible tax violations at the embattled automaker. here we have just another development, another law that the justice department is using
to look into potential fraud over at volkswagen. really, this does not come as good news in a week that's seen additional legal headaches stack up for volkswagen. this will not be good news, especially at a time when volkswagen is trying to come to a settlement over that potential $46 billion fee they pay for environmental regulations. >> france has opened an investigation as well into aggravated fraud. you've got them being under fire from a whole bunch of different angles. >> and we always knew there would be this extensive legal problem, but the real issue here is they have yet to come to an agreement on the technical fix and the recall process in the united states. until they do that, they really cannot come to any settlements in the u.s. specifically. >> no, definitely.
now, inditex has reported a 20% rise to 2.9 billion euros. that's in line with forecasts. the parent company of the high-street label xara among other companies proposed a dividend of 60 cents per share. it's expecting to expand its online presence across all european market, and it'll be in turkey as well over the course of 2016. these are strong numbers. a nice jump from 5% we were seeing in 2014. how do you read them? >> i read them as obviously very, very strong numbers, especially considering what we saw the second half, august to end of january. lots of clothing retailers had profit warnings due to the weather. it was too warm between, say, october and december. but this is the strength of
inditex. they produce in relatively small batches, so they must have seen that the weather hadn't turned cold, so they must have sold more clothes, more appropriate to warmer weather. that's something many other retailers can't do. >> i'm assuming they're doing the same thing now. here the u.k., we're having a massive cold spell. it's really, really cold. they put the coats out again even though it's march. >> i don't think they're doing that. now it's really time for spring and summer and the cold spell is ending i hope this week. >> they are the world's biggest retailer. more than 7,000 stores now. they're present in approximately 88 countries as of the end of last year. they're continuing this expansion as well. what are some of the issues for them that are headwind issues? are we looking at raw material prices being an issue, as we have seen quite a bit of fluctuation there? >> indeed. obviously raw material prices are priced in u.s. dollars. the dollar was really strong last year. you can see that in the margins. they weren't as strong as some
analysts expected. so that's a big issue. obviously the strength of the euro could also be a negative. they produce 65% of their clothes in euro-linked countries. so morocco. they only set 45% of their clothes in europe. so there is a mismatch. we might see more pressure on margins in 2016, but what remains true is that their sales growth is so impressive. since 2001, it was the ipo. they've never had a down year. >> we've got inditex giving good news on the fast fashion segment. but i want to talk about the luxury, high end. a lot of attention towards burberry yesterday on this mystery 5% stake. we don't know who the actual investor is. fueling speculation of a potential takeover. given the trouble they've had, what would a takeover target --
what are they looking for? >> well, first of all, we might be making too much out of nothing. yesterday's announcement, the mystery buyer could be a thousand small buyers and not a large, major trade or private equity buyer. assuming there's somebody out there who wants to buy burberry, i guess it has to be a cost-cutting story. if you want to move production from the u.k. to asia, you lose the iconic britishness of the brand, for example. so it's a lot of consideration. it might happen. it might not happen. it might simply be the sector had depreciated so much in the past few months that some, you know, normal institutional buyers are looking at burberry or prada, for example. >> and we should look at the chart for burberry, if we can. you mentioned there's a possibility we are making too
much of it. the stock off in the neighborhood of about 2% this morning. we did get a 6% pop yesterday. a bit of a mystery. burberry off now about 2.2%. thank you so much for joining us. well, let's shift focus a bit and take a look at telecom italia. driven by comments from italian and french leaders. they're saying they could be looking to cooperate in certain sectors like telecoms in order to create major companies which are competitive within europe. a mixed report from deutsche post with fourth quarter record operating income. they posted revenues below expectations. in terms of shareholder payout, they proposed an unchanged dividend of 85 cents a share and announced a share buyback program as well. speaking to us earlier, the ceo
said he was optimistic about 2016. >> we will see a modest growth for this year. many indicators are in the right direction. consumers are still spending money. we had a very strong fourth quarter which shows that consumers are continuing. we see growth around the world. i'm more optimistic we'll see a comparable number. i think it's a more negative mood than really necessary. >> volatility in eon shares continue this morning after posting its second consecutive record annual loss. this was largely due to write downs in its power plants, which are scheduled to be spun off this year. the energy trading and power units which will ipo this year announced a bigger than expected loss of 7 billion euros in 2015. eon warned deteriorating market conditions could soon be reflected in its dividend. adecco posted fourth quarter profits of 185 million euros,
missing expectations, sending shares lower today. the staffing giant announcing revenues of 5.6 billion euros and dividend of 2.4 swiss francs per share. and casino's 2015 operating profit dropped largely due to domestic price cuts and weakness in brazil, which we've been following for quite some time. nevertheless, the french supermarket giant still confirmed its 2016 profit and cash flow guidance. as you can see there, shares off just about 1.3%. and g4s has been hovering around the bottom of the stoxx 600 after reporting a drop in pretax profits. they announced plans to sell off more of its businesses over the next two years after a 65 million pound one-off charge on burdensome u.k. government contracts.
now, very exciting. we have pictures of a solar eclipse that swept its way across indonesia and the pacific. look at that. millions of people gathering to watch the moment when the moon shadow completely blocks the light from the sun. some onlookers, including tourists who traveled thousands and thousands of miles to watch this, were left disappointed because clouds meant they were unable to experience the eclipse fully. it is pretty phenomenal. did you know that actually they used to believe that the sun was being eaten. so in vietnam, for example, they thought that a giant frog was devouring the sun. >> yeah, makes sense. >> old myth. you had vikings blaming wolves for eating the sun. in china, they said a dragon was eating the sun. in korea, the sun was stolen by dogs. >> depends which animal you find friendlier. >> but every year it happens between two and five times. >> got to get out the special
glasses. those poor travelers. >> have you seen it ever live? >> i haven't. have you? >> yeah, but i didn't have the glasses. we were kids. you were pretending not to look at it. anyway, for more on the scientific significance of the solar eclipse, head to cnbc.com. a lot of you writing in with your favorite beatles songs. kiba says "a day in the life." john says, my favorite song was "and i love her." >> i don't even know that one. ♪ earth hour is about empowering people making a difference to change climate change with passion and excitement earth hour is about inspiring climate action celebrating a global movement and impact ♪ join us at earthhour.org
production on the month, it was up 0.3% as well. that was forecast to climb by 0.5% in january. so that is just shy of some forecasts. on a year, that industrial production number coming in bang in line with forecasts at 0.2%. overall, this has been a sector analysts continue to watch as they try to figure out the bank of england time line. sterling dollar moving slightly higher against the green back. we saw some sterling weakness after we heard the bank of england comments from governor carney yesterday talking about potential risks of that eu referendum. >> i forget what terms he used. he was talking about risk coming from abroad as well. cocktail of risks. that was the quote. >> he doesn't want to take a stance one way or the other. when we look at the o.n.s. figures, if we look at the contributors, electricity and gas, water and waste were the
main contributors to that industrial data. not altogether as bad when we saw a little slip in the previous month. on the year, just in line with forecasts for industrial production. >> european stocks in the green. crude turns positive following a rough session state side in china. the shanghai composite breaks a six-day winning streak. and facing challenges head on. china's vice minister tells cnbc in an exclusive interview that beijing must get its message across to the market. >> the premier gave very, very clear instruction to chinese officials that it must enhance the communication with people. prudential's special dividend delights investors. the chief executive tells cnbc he's pleased to return the cash to shareholders. >> we had a dividend policy of raising our dividend by 5%. want to make sure we can do that across the cycle. we had pulled forward some earnings in anticipation of
solvency in the u.k. volkswagen shifts into reverse following reports investigators in the u.s. are widening their probe into the emissions scandal. yes, let's take a look at the u.s. futures. we're still hours away from the u.s. market open, but the implied open a couple points to the upside potentially from the states here in europe. we're also looking at green across the screens with most of our european markets trading in positive territory as well as seen here. just some of the outliers that are seeing a little bit of red out there. higher from half a percent to just over 1%. >> a bit of a mixed picture in asia, continuing to digest that data. the nikkei 225 off about 0.8%. the shanghai composite also lower by 1.4%. even in asia, investors continue
to keep their eye on the ecb. in austin trail yarks the main index moving higher by about 1% and the hang seng coming in relatively flat, just barely in negative territory. >> shares in takata fell sharply following news the company has enlisted restructuring lawyers in the wake of an air bag recall. shares in sharp have also pared earlier losses on reports that its main lenders are prepared to lower interest rates on loans as part of the foxcon deal. >> that's right. also a big focus on the commodities on the miners here and the latest development is with the metals extending losses. the alliance could see the brazilian miner take up to 15% stake. however, ubs is just among some analysts casting doubt, saying they didn't believe vale would
be able to buy the shares up. off almost 3%. let's get another look at the ftse 350 mining index. we had seen quite a strong relief rally here when we look back to the january 20th lows. a big progression upwards of around 70% before yesterday's movement. overall, this index is off about 46% as you can see there. nevertheless, we're getting a pop today with miners up about 1% so far in the session. well, joining us now for more on the sector is a mining analyst at invest tech. we've heard so many mixed messages when it comes to miners. we continue to watch the volatility in the commodity space when it comes to metal prices. there was some optimism we had seen iron ore in particular hit a bottom here. then we got a note from goldman sachs, other analysts suggesting fundamentals have not changed. do you agree? >> precisely. we were saying the same thing ourselves. we put out a note earlier this year suggesting that what we need is a prolonged period of
disincentive pricing. that's pricing low enough that the largest incumbents can survive, they can make money, but the peripheral players cannot make sufficient funds to continue in business. now, they've been hanging on by their fingernails. the ceo of rio tinto has said they continue to hang on. we expect a long period. we're talking about six years of depressed prices in order to create a balance in the market such that you don't get the sort of volatility we're seeing now. >> and do you have a specific price level in mind when we will see that response? right now we see iron ore at about 55.22. what's the level you're targeting? >> down to low 40s. we're expecting low 40s by the end of this year, into next year, and staying within the 40s for several years. what we're seeing now is a spike that we think, as some of you commentators have said, isn't
driven by fundamentals. it's driven a lot by speculative activity. to reference that a bit more, if you look at the trading in iron ore futures, their busiest contract used to be 1 million a day. yesterday was 7 million a day. there's a lot more activity taking place on the trading component. >> are companies going to be raising more cash? >> that's what usually happens when the ducks start quacking. we've seen that in the gold industry to some extent. gold has had a boom as well during this period, which is quite unusual, given what the other commodities did. some gold equities are raising cash. i think, though, investors outside of gold will be somewhat skeptical about a company coming and looking for cash now. what they have been doing is using the opportunity to buy back some debt. >> you talk about rio tinto and how they're getting ready for tougher times. i mean, is that just a rio
specific story? do you think that all of these companies at the moment are factoring a potential bumpy couple years ahead? >> all of them have, particularly this year. it's taken that few years for the realization to gradually sink in and for the companies to start admitting we're hitting tough times and things aren't going to get better sooner. hearing a lot more from companies, rather than talking about when things turn around, when prices go up, talking more on survival and how they can get through a protect the low pricing period. >> what's your view, talking specific companies, on a potential tie-up with vale and ford. however, others casting doubt they have the cash, the capital to bring this union together. what do you think? >> precisely. the tie-up can happen. as you know, vale produces a very high-quality product.
it doesn't get what it believes is a fair value. you combine the two and you end up with an intermediate product. it's perfect. the trouble is vale doesn't have the funds to buy 15%. >> hunter, thank you very much for being with us this morning. now, bernie sanders has upset the democratic presidential race, beating hillary clinton in michigan. polls earlier in the week had clinton leading by over 20% in the industrial state, which has been hit hard by manufacturing declines. clinton did, however, take the victory in mississippi to maintain her overall delegate lead. speaking before he was made the projected winner,e sanders thanked the state for upsetting the pundits and the polls. >> i just wanted to take this opportunity to thank the people of michigan who kind of repudiated the polls that had us 20, 25 points down a few days ago, who repudiated the pundits
who said that bernie sanders was not going anywhere. >> and in the gop race, front runner donald trump won mississippi, michigan, and hawaii, while ted cruz is the projected winner in idaho. now, it continues a pattern of trump taking the open primaries by appealing to democrats while cruz appears more popular with the gop only voters. speaking from florida, trump addressed recent criticism about whether he is, quote, presidential enough. >> i can b more presidential than anybody. i can be more presidential if i want to be. i can be more presidential than anybody. when i have 16 people coming at me from 16 different angles, you don't want to be so presidential. you have to win. you have to beat them back, right. but i would say more presidential, and i've said this a couple times, more presidential than anybody other than the great abe lincoln. he was very presidential. >> let's get back out to nbc's tracie potts, who joins us from washington, d.c.
trey saci tracie, i want to get to the democratic side. it was a symbolic upset for hillary clinton in michigan. when you actually look at the delegate count, does it make a difference? >> reporter: when you add up the delegates she's further ahead than she was before because she won mississippi and she won a significant number of delegates in michigan. this wasn't a huge win. it was about 2%. so since those delegates are split between the two, she picked up a significant number. the bottom line, she's still way ahead in the delegate count. but it was an important victory for bernie sanders for a couple reasons. number one, it was completely unexpected. not just by the media, not just by the polls that were just dead wrong. but also by the sanders campaign. they were not expecting to win this one based on our folks on the inside and their reaction when those results started coming in. and what it says is it answers the question that we had been wandering about bernie sanders after he lost south carolina so badly, after he lost nevada,
which had this large latino population. the question being, can he win a large state with a large african-american or latino population. he has now answered that question. yes, he can. he didn't take the majority, but he took a little over 30% of the african-american vote in michigan. that's what helped put him over the top along with a lot of those rural counties that he won. he's clearly the big story of the day, along with donald trump, who you just heard there, winning three out of four republican contests. >> tracie, good to see you as usual. thank you very much. tracie potts live out of washington. keep your tweets coming through. keep your e-mails coming through as well. firstname.lastname@example.org. we're on twitter. @louisa bojesen. >> and @nancycnbc. >> a lot of you writing in today both with your comments on china, on the markets. we're also getting comments on your favorite beatles song after the fifth beatle, the so-called fifth beatle, passed away.
linda says "love me do." so many other great tunes. >> so many different eras. >> anthony says, people fail to see that chinese people are natural savers and not spenders. no government handouts in a consumer-led economy. that's a good point. it's funny to compare who's saving. the germans also. massive savers. >> that's true. and the problems sometimes savings creates as well. >> precisely. listen, market volatility has taken its toll on citigroup. shares of the bank dropping into the close after the cfo warned investment banking revenues would continue to erode. wilfred is at cnbc's headquarters. so a tough first quarter is what we're hearing with regards to citi. >> absolutely right. good morning to you both. just when we thought the u.s. banks had put the worst behind them with jamie dimon a few weeks ago stepping into the market and propping up the shares.
they've recovered nicely across the sector since then. the so-called jamie dimon bottom. another nugget of bad news for the banks yesterday coming from, as you said, citigroup. they had an investor day yesterday. the cfo warning that investment banking revenues in particular might fall by as much as a quarter this coming first quarter. down 25%. he also was cautious on the nontrading parts of the business too, although it was the investment banking part that bore the brunt of it. the warning comes a month before the u.s. banks start to report first quarter earnings. they kick off in the middle of april. it just serves to remind us that despite the recovery in share prices, there are still a lot of profitability issues for them to face. i would add, though, perhaps not quite as many issues as the european banking sector is facing. we just have to look at the financial times article today that highlights the gulf that's opened up between the top five u.s. investment banks and the
top five european investment banks in terms of revenue. globally, this sector under pressure. but the added aspects of regulation and negative interest rates in europe, meaning the pressure even higher over your side of the pond than it is this side. >> thanks for that, wilfred. also on this side of the pond, we've been talking about the very sad passing of the fifth beatle this morning. i'm sure something you've been paying attention to. we're curious you, what's your favorite beatles song? >> i'm afraid, hands down, it's "hey jude." it's been replaying in my head over and over. i also like "live and let die" although that wasn't originally a beatles song. >> the boring can be the best sometimes. >> i like "eleanor rigby." the minor scale. >> absolute classics. >> wilfred, lovely seeing you as always. thank you very much. keep your e-mails, your tweets
beatles' drummer ringo starr, saying he will be missed. he also worked with shirley bassey and jerry and the pacemakers. he was very known, especially very key in the early hits like "love me do," "please please me." initially, the beatles were turned away by deca records. he then, mr. martin, was introduced to the band. he signed them on to emi, and the rest is history. apparently he wasn't very impressed by the band's musical abilities initially, but he did like their wit. that was one of the reasons why he signed them. >> personalities ruled. he was also known for tweaking a lot of the songs to bring out peppier pace. >> he was the one who put the strings on yesterday because paul mccartney didn't want that. he had to convince him. and he apparently played the piccolo trumpet as well on "eleanor rigby."
>> hence why you like it so much. all the details that count there. meanwhile, let's move on and give you a look at how u.s. markets are set to open. we did have the dow and s&p 500 breaking that five-day win streak. once again, highly correlated to the movement we saw in oil prices with wti dipping about 4% yesterday. of course, no surprise the energy sector among the worst performers. we're set for a bit of a rebound with the dow jones called higher by about 81 points and the s&p 500 called up by ten. meanwhile, blackrock ceo says stocks could go up another 5% to 10%. they also believe there's an opportunity to buy junk bonds. this comes amid the market's pessimistic view on high-yield corporate debt. speaking at an investment conference in new york, the well-known strategist also argued that gold is currently mispriced. he said the ecb's likely
expansion of qe this week means money will pour into the precious metal. >> looking ahead to tomorrow's ecb meeting, analysts seem to be converging around consensus on the deposit rate. a cut to the deposit rate, that is. they all expect the central bank to cut by another ten basis points. you have groups like credit suisse expecting a greater cut of 20 basis points. david owen joins us. you also think they could cut by 20. >> i think 20. for banks which have to have reserve requirements, obviously you wouldn't penalize them. you could take the rate for that back to zero and have minus 50 applied to anything excess. it's important to recognize where these excess deposits lie. what you'd be doing, in fact, is
penalizing banks particularly in the core not the peripheral. that's a very important point that often gets missed. >> you made the point that back in december we actually saw five different new measures announced. although, we were all very focused on the deposit rate. you also talk about quantity over quality. what is quality in this particular case? >> well, i think also in terms of speeding up the bond buying, you know, announcing another cut in the rate, the forward guidance is also important. this is the first time the ecb will put into print their 2018 forecast. the reinvestment point is also important. it goes over most people's heads. most people don't focus on it. but the bank of england said they were going to continue reinvesting until the rate got to around 2%. they could do something very similar to the bank of england, make it clear they be reinvesting their portfolios for a long time to come. that would reinforce the message that policiesing remain
accommodating for an extended period of time. >> when you look at the ecb tool box, you're saying they could take a play out of the fed playbook. what would be the impact here? >> well, they've been trying to short mature in their purchases. you can see this every time the ecb releases the monthly bond buying. it's more about duration risk in particular. what we'd argue is that they should extend out the purchases in terms of maturity and go back over ten years. >> and the warnings really seem to be stacking up, even as we get closer to the ecb decision on the real impact of negative interest rates. the detrimental impact, especially when it comes to financial firms. do you think the ecb is taking notice? is it really hurting their appetite for negative interest rates? >> well, for banks, it's not really having an impact per se.
for the financial system overall, it's leading to problems. insurance company pension funds have real issues in this environment. this will continue. i think the general view of the ecb is this is a price worth paying if we can get the eurozone economy recovering. i will also add, this is not regime changing. you need something more than this. you need a fiscal response. you need germany in particular to step up to the plate. that's really not going to happen. so the ecb is continuing to have to do the work itself. >> i feel like i don't understand any of this. in terms of the more we move into negative deposit rates, you end up putting a tax on banks' reserves, which then works against the whole point of quantitative easing. >> well, the way it's working, for example, every time the bank goes to the market and buys a bund, that ends up at the bank as a deposit. you're not taxing the savers of deutsche bank directly.
what you're doing is taxing those reserves of deutsche, which they're keeping on deposit at their central bank. what you're trying to do is get that money working in the real economy. every time, every month the ecb is buying bonds with the central bank, you've seen these excess reserves ending up. >> but it's not filtering into the real economy though? we're now finding -- i was reading some research, that banks are preferring to sit on that -- the negative rates and they're happy to take that loss, then they're raising mortgage rates elsewhere. >> well, in switzerland, for example, mortgage rates have risen slightly in the interest rate world. but the general costs in the eurozone have come down, and
it's partly due to kwauntyti qu easing but also negative rates. it is having an impact, positive impact been. >> okay. david, thank you very much. david owen joining us, chief european economist at jeffries. and the bank of canada getting in on the great central bank watch. they're widely expected to keep its interest rate unchanged at 0.5%. this according to a wsj poll of 11 primary dealers. a majority of those polled also believe the central bank will hold at the rate for the remainder of 2016. that's it for today's show. >> just want to say terrible weather out of the uae apparently. just check if you're flying in and out. we'll see you tomorrow.
a very good morning to you. u.s. futures pointing to a positive open as wall street markets the seventh anniversary of the bull market today. but at least one investor is raising a red flag. we'll tell you what he's worried about straight ahead. happening now, oil prices rising. is a bottom finally in place? chevron ceo making a call. and decision 2016. donald trump adds delegates to his win column while bernie sanders turns in a major upset in michigan. it's wednesday, march 9th, 2016. "worldwide exchange" begins right now. good morning