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tv   Street Signs  CNBC  April 12, 2016 4:00am-5:01am EDT

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very good to see you. this is "street signs." i'm steve cedric. these are your headlines. luxury lows hitting the bottom of the stoxx europe 600 amid weakness in the home french market, dragging down european peers. italian banks getting a bad bank boost as italy forms a 5 billion euro rescue fund. and less is more for the japanese investment bank, cutting jobs and closing some operations in europe in a big blow to its global ambitions.
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plus, the tale of two steel groups. alcoa falls after hours as earnings disappoint. very nice to see you. luxury stocks are leading the way lower. lvmh setting the negative tone after it missed the street with first quarter sales. the luxury group saw demands slow in its home french market. this on the back of the terrorist attacks, of course. its performance in hong kong was also weak. overall, they recorded first quarter sales of 8.6 billion euros, below consensus estimates. prada is another catalyst for the sector's move down. new shop openings will be offset with selective closures this year after reporting a large unexpected drop in full-year profits on friday. the chairman says the problems for the market in terms of the world's economic situation are,
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quote, quite clear for everybody. well, let's get a view on this. head of luxury goods joins us from exane bnp paribas. i think we've got lvmh somewhere in the region of 17 times forward. are they fully discounted for those concerns we have in the global luxury market? >> i think we're clearly facing a new normal because of the transition from the chinese demand wave that the luxury goods sector has experienced over the past ten years. at the moment, we have two negatives combining. on the one hand, less of a structural opportunity to continue to drive growth using the same formula of higher prices and a global macroeconomic picture, which is relatively weak.
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this is a cyclical sector and one that's benefitted from this structural development in china. >> luca, for me, this pivot from the manufacturing, from the export story of china should play beautifully into the hands of the luxury goods makers that saw that catalyst that led them higher previously on the back of chinese demand. if we're seeing a pivot, a meaningful pivot to the consumer, to the services side, surely this sector gets an uptick. >> well, there's clearly not an issue of chinese demand and chinese appetite for luxury goods companies. what i think is missing at the moment is the fact that these companies, and this is confirmed by both prada and the actions taken by lvmh in recent years, don't necessarily need many new stores, especially for larger brands. this we have pointed out in recent research. so my view is that the luxury
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sector and the largest companies within it need to adjust to a new normal. if we had growth of between 7% or 8% in the past five or six years, my view is that we're going to go to 2% to 5% in the next three to five years. you need to adjust your cost profile. >> when i look at the luxury car make pers, i see a really decent rebound in the old boring flat market of europe as well. is there any chance luxury is having a bit of resurgence in europe and possibly u.s. on the back of slightly better growth parameters than the rest of the world? >> possibly so. i think this is to be taken into account. for sure it will look at what was going on in the world just a few weeks ago. there was a strong focus on
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developed markets and domestic consumers in america and europe. it's a rebalancing act that the major luxury brand goods are carrying out. >> in terms of the individual names, we talked a lot ant lvmh, but obviously you have names which are tightly held like hermez. what do you like in the sector, and what are you most worried about? >> i think short term, luxury is going to be most under pressure. there's still a problem of inventory overhang in the watches category, which is going to weigh heavy on top line growth, we expect. lvmm -- lvmh is a bit of an
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excepti exception. we also believe the self-help stories, namely gucci, could bring joy for investors down the road. although, this could take a few quarters to materialize. >> very nice to hear from you today, sir. thank you very much for your analysis on the sector. perhaps not on the luxury end, but they sell some label goods. asos, what do you think of the valuations? if they can increase their margins, as they've been doing this time around, and they can increase their sales as aggressively as they have, maybe i need to take a step back and say, hang the valuations. i know they traded at 50 times forward. better news for the online retailer. asos with an 18% rise in first-half profits. the group says it's on track to hit its sales guidance for the full year.
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they recorded 21.2 million pounds in six months to february 9th. look at the shares. they've had a really, really big rally. my question is the valuation of some of these stocks, when you can pick up a top-tier european retailer for 20 times, and i i'm -- this one is 50 timings. a lot of that growth perhaps baked into the share price. let's move on to another story. the german ifo is 106.7 in march. that's beat consensus by a smidgen. the current conditions index, very key here, 113.8 in march. forecast was 112.6. so better there on that front. the ifo expectations index to 100 versus a consensus of 99.5.
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we have economist commentary with it. industry is profiting from buoyant consumer sentiment. did we miss that? quite impressive there. ecb decision has no impact on the german economy. that, to me, sounds highly political. let's leave that one hanging there. we have another story. pain in the steel sector. thousands of german steel workers took to the streets across the country yesterday to protest uncertainty in the industry. 45,000 workers took part in demonstrations in berlin and the southwestern state, denouncing the oversupply of the metal, especially cheap imports from you know where, china. workers have also demanded greater protection if the steel
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business is merged. sir, thank you very much for joining us. i don't know where you want to start. we can start off, if you like, about the ecb actions. what do you think, sir, about what the ecb is or isn't doing to benefit or actually create problems for the german economy? >> well, let me put things a little bit in perspective, if i may. european economic recovery is under way. those economies that underwent structural reforms like spain or ireland are reducing their unemployment. so you see the structural effect is also factoring in, and it's not all about demand. the ecb has been providing an
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expansionary stance and increased that. this is not doing very much or not having a great effect any longer. it's structural reforms that are very much needed. >> that is something, to his credit, mr. draghi has said time and time again. he said they'll do whatever it takes on monetary policy. but we need fiscal reform, structural reform as well. who are the culprits? who isn't pulling their weight on structural and economic reforms in europe? >> well, the division of labor is quite clear. monetary policy can provide some short-term bridge towards the future, enabling fiscal policymakers and policymakers for the member states to conduct structural reforms. opening up product markets, bringing their labor markets in order, trying to get away from the dual labor market situation you have in some countries,
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looking at employment protection, et cetera. so it's a fiscal policymaker. it's the governments that should be in charge of the structural reforms, not the ecb. >> in terms of the german economy, when i look at a country as successful as getting unemployment down as germany, then i see the ifo talking about consumer sentiment driving strength, does the ecb at the moment have the wrong set of economic policies for the german economy rather than the broader european economy? >> well, i think the ecb is responsible to take a european view on the euro area as a whole. it's not responsible for individual economies. of course, for the german economy, the expansionary stance would not be needed to display strong growth. what carries the strong growth
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performance of germany during the last years is the strong labor market. we have reformed our labor markets -- germany has reformed the labor markets to become more flexible. that has helped gh eed germany german labor market through the crisis. this of course is the backbone for private consumption and strong domestic demand. our weakness, germany's weakness is investment demand. here the predenies for making germany a more attractive place for business investment. >> germany, like a lot of other countries, in the mid '90s would have 25% levels of capital reinvestment. they've fallen into the teens. is it supply or investment or demand for investment? i suppose this gets to the heart of the question we have about the banks and what their role is.
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>> well, i think it's the attractiveness of germany as a place to invest. so it's a supply side issue. if you steadily increase the labor market regulation, of course if you're a potential investor, you might think twice before putting your euros into germany. i think that's exactly the place to look at making germany more attractive for business. then of course domestic demand will increase as well. >> finally, if i can just get you to comment about him having concerns about the ecb and the rise of the afd. do you share those concerns, sir? >> i didn't get the question, sorry. >> very concerned about the ecb monetary policies leading to the rise of the right wing. do you share those concerns? >> as an independent council, we can criticize the german government, but we can also have
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a critical position towards the ecb. we have voiced for several months we would rather see the ecb slowed down on its pace of expansionary monetary poll circumstances not on speeding it up. >> real pleasure speaking to you. thank you for finding the time to speak to cnbc today. right. let's have a look at the equity markets. it's not looking good. i can tell you that line at the top is green and half of the next one, which means 85% of stocks at the moment are in the red. the euro stoxx 600 down 0.6%. for once, the commodity players are at the top. very often they lead us lower.
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on the downside, the likes of sainsbury. it's like a reverse world. what was interesting elsewhere was the nikkei. a bit of a rally. closed 1.1% higher. the yen retreated from 17-month highs. a terrific guest on "squawk box" today who was saying a lot of the selling over the last seven weeks in the japanese market has come from overseas sellers, from sovereign wealth funds. he's beginning to see just the first embryonic signs of some of that selling abating and perhaps turning around a little bit. so is there something going on there? i'll leave that for you to work out. anyway, it comes on the back of comments from the japanese finance minister, suggesting he isn't intervening to stem the currency strength. but of course there are questions about when the japanese do get involved as
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welt. it's something i know sri has a view on. do you want to expand more on that? >> yeah, not so young anymore. look at all the gray hairs. the currency is so central to what's going on in the nikkei right now. we got a temporary stay of execution, if you will. as you quite rightly pointed out, the yen did back away very modestly from the 17-month highs that we have seen against u.s. dollar. sop a little bit of breathing space for the very embattled export sector. we wrapped up 1.1% gain at the close on the nikkei. 16,000 is proving very, very stubborn nut to crack on the upside in terms of resistance levels. i continue to believe that it's down to the u.s. fed, it's down to the implications for the u.s. dollar as well. short-term weakness in the dollar is persisting. that does mean the path of least resistance for the japanese yen is higher. so much is riding on what
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happens with the boj on april 28th. let's face it. they have exhausted a lot of their arsenal. i think what is left, steve, and what is going to be interesting is what they do if they do do it on the equity side. equity purchases, including etfs, around 3 trillion yen a year. are they going to upsize that? hsbc are calling for 13 trillion yen in terms of equity purchases. is that going to do the trick in getting inflation back to 2%? one can only wonder. i'll leave you on that sobering note. back to you. >> thanks very much, indeed. thanks, everyone, who's getting involved. slightly concerned and surprised to see me on "street signs." saying hope you're getting overtime pay. absolutely, yeah. slaid writing in, telling me i should get laser eye surgery. don't you know it. we have the ifo data. it looked positive as well. is that creating a headache or
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good news for those in the euro-dollar pair as well? easy money, lots of money. 80 billion euros a month being bought by the ecb. is it good news? is it going to be negative? it's hard for those who are trying to get the euro down. 114.55. we'll be back after a short break on "street signs."
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can you hear the bell ringing still? it's the start of the earnings season we heard the bell for. it's alcoa who traditionally kicks it off. i know we have a lot of banks later in the week. alcoa shares under a bit of pressure in germany, having dropped nearly 5% in after hours trading. weaker than expected quarterly sales. alcoa pointed to weak commodity prices, a stronger dollar, and plant closures as contributing to earnings falling shorterer
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sus last year. well, we had an exclusive interview with the chairman and ceo. he told cnbc how the upcoming split of the company should help performance. >> if you look at this quarter, you really see profits are up in all of the iconic segments. it's the name we've given to the value company we would soon launch. at the same time, you also see on the upstream side the two segments holding up and are profitable, in spite of the very strong pressure on the market. secondly, on the rev side, we are growing and cutting at the same time. we're growing, as you mentioned, in aero as well as auto. both look good. at the same time, we're cutting on the upstream side capacity that's low profitability or no profitability. >> arcelormittal announce a
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buyback plan. its rating was lifted from hold to buy. let's look at commodities as well. gold trading 1261. you can't get too far away from the brent wti pricing. when you look at these two, i know you know this by now, but different expire ris. you have a disparity in prices. it does look well supported at 40 bucks. a lot of people questioning whether 40 is forming a decent new bottom for the price. i know some congressmmmentators "squawk box" were talking about the need to get to $40 to $50 a barrel and get it out of this april 17th meeting this weekend. you've got opec and non-opec
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producers trying to find some form of accord on a freeze, not a cut. that's going to be tough if the likes of the irans, libyans, and the united states do not play ball. now, talking of the united states, matt has been talking to one of the most influential men in u.s. oil. that's john watson. what did he have to say? >> hi there, steve. we're here at the lng conference in perth in western australia. we are basically tracking a whole variety of comments out of people here at the conference. a number of lng and also major oil producers. talking about a variety of things, including that price, the weakening oil price resulting in weakening lng prices. chevron, which has some significant businesses here in australia, says it's about 40% more expensive than when they do
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business in the united states and mexico. you were talking about that opec meeting coming up at the weekend. i spoke to john watson, the chairman and ceo over at chevron about that, asked whether or not he thought that might help put a floor under prices or inflate prices. also, moody's cut the credit rating on chevron just at the end of last week, saying that they expect oil prices to be lower for longer. so i asked him about that as well. take a listen. >> prices are a function of supply and demand. you can get short-term movements that are a function of sentiment, but ultimately, it comes down to supply and demand. what we've seen is a withdrawal of capital from the business. we are in a resource business that declines over time without capital. so new projects have been slowed down, but also a lot of short-cycle spending, the shale oil developments in the u.s., what we call in-fill drilling in the u.s., that has slowed down measurably. we're starting to see a supply
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response to bring balance. a wild card is what will opec do and what will the other nations do. that can affect prices. so you'll see speculation around that in the short run and ultimately in those meetings. it's going to come down to supply and demand, and i think markets will come into better balance. in terms of financial structures, we have one of the best credit ratings in the business. the adjustment to our rating was not unexpected, but we remain one of the best credits in the business. there is real strain on the sector. in the u.s., you're seeing some of the smaller companies that are are under significant stress. so this is a challenging time. but my company has a strong credit rating. it will retain that strong credit rating. we'll be able to manage through this downturn by finishing the projects we have under construction so that our spending comes down.
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then with the growing revenue from the production from those projects, we'll get into a better balance. the rating agencies understand that. >> john watson, the ceo and chairman at chevron there. steve, that's day one of lng 18. we'll be back here tomorrow. see you then. >> well done, matt. thanks for that. let's move on top another story. a tough story. i remember i went to the old lehman's offices just after nimura taking on a whole host of their european equities businesses. they took on the actual building. then they moved to a swanky new site down by the river in london. i guess that was pretty much the high water mark of their business. nomura is reportedly cutting 500 to 600 jobs in the region as it struggles to stem losses in its overseas operations. we got a lot more on this now.
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>> nomura snapped up lehman and did a lot of restructuring. the company's profits in the brokerage business have been dragged down. the firm had forecast a $460 million profit from its business overseas in fiscal 2015, but as of the third quarter, it had accumulated a loss of the same size. nomura had a total of around 2,500 employees in the americas and 3,400 in europe. this time cuts will likely affect a large range of workers, includie ining analysts as well staff members. investors are becoming more cautious as they worry over the
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slowing chinese economy. from the beginning of the year, rival brokerage security shares have fall an little over 10% while nomura has plunged around 30%, which underlies just how investors work overseas. today's business of slashing jobs seemed to cheer them up a little bit, sharing climbing 7%. >> excellent work. thank you very much. coming up on "street signs," you want a bit of punch and judy, walkouts? it's the british parliament. find out what happened when the u.k. prime minister david cameron finally faced the music at the house of commons over his tax affairs. all that and plenty more on cnbc's "street signs" after this break.
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a very warm welcome to "street signs." i'm steve cedric. these are your headlines. luxury lows, lvmh hits the
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bottom of the stoxx 600 on the back of disappointing first quarter sales. it's dragging down various european peers. italian banks raising gains now. they've gone into negative territory after getting an early boost originally from a 5 billion euro bad plan. less is more for nomura. the japanese investment bank cutting jobs and closing some operations in europe in a big blow to its global ambitions. we have alcoa. it's a tale of two steel companies. alcoa falling after hours as earnings zlt. me meanwhile arcelormittal is rallying on a rating improvement from goldman sachs. tepid inflationary data already today out of germany. you know you have some important data -- you aware of this in the states? you have producer prices coming up on wednesday.
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consumer price on tuesday. ahead of that, the u.k. number for you. u.k. march cpi, drum roll, please, up 0.4%. that's better than expected. we were only expecting 0.3. these are our lowly expectations. it's coming up 0.4%. on the year, now 0.5%. again, beating expectations. the pound is having a rally. this is a rare day for the pound, given all the brexit concerns, creating volatility in sterling. you can only dream of yields like that if you're in germany. what are the german government bonds trading?
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0.10. you get execution risk over brexit. you get risks over the problems in the broader economy. inflation data much better. seeing a bit of an uptick on cable on sterling versus the u.s. dollar. okay. april is off the table. no need to worry about it. april off the table according to the dalts fed president rob kaplan, who says it's too soon for a rate hike in the united states. kaplan argued there was not enough clarity on the economy and jobs growth in the first quarter to warrant an april move. but he added he was very open minded about tightening policy in june. our very own steve liesman is going to sit down for an exclusive interview with rob kaplan coming up at 14:00
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central european time. meanwhile, a number of other fed presidents are giving lectures later today. the philadelphia fed president patrick harker, san francisco fed president john williams, and richmond fed president jeffrey lacker all due to speak. do you want some pant mine? you never have to look much further than the u.k. parliament. 2010, david cameron said i want an end to punch and judy politics. he faced mps for the first time since admitting to benefitting from his late father's offshore fund. in a raw us can session, he made a statement on his tax affairs. >> there have been some deeply untrue and profound allegations against my father. this investment fund was set up overseas in the first place
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because it was going to be trading predominantly in dollar securities. it made sense to be set up inside one of the main centers of dollar trading. there are thousands of these investment funds, and many millions of people in britain who own shares, many of whom hold them through investment funds or unit trusts. such funds including those listed outside the u.k. are included in the pension funds of local government. most of britain's largest companies and indeed even some trade unions. >> u.k. viewers will probably know who this is. dennis skinner. our international viewers won't have heard of this gentleman. he's been in parliament for a long, long time. i think it's 1970. he's been thrown out of parliament and slapped on the wrist many times for saying some pretty interesting things. the first time in 1984, he accused margaret thatcher of bribing judges. 1992, he referred to the minister of agriculture as a little squirt of a minister and a wart.
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but this is dennis skinner. he's been iconic, not necessarily the center right's favorite mp. anyway, he was kicked out again yesterday for calling the prime minister dodgy dave. skinner was given the opportunity to withdraw his comment. he stuck to his guns. >> very simple. withdraw. this man has done more -- i still refer to him as dodgy dave. do what you like. [ shouting ] >> everyone else slightly confused at why the british electorates don't like british politics. anyway, hijinx there from dennis
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skinner. i'm sure it's not like that with you meps as opposed to the billme british parliamentarians. where do we go next on this whole panama debate? i can't help thinking we look upon avoidance and look upon it in the same way as our rhetoric on evasion. but it's perfectly legal. isn't it time you and the rest of the meps do something about that? >> yes, and that's what we should do now. we should first of all actually blacklist tax havens out there. panama is one example. secondly, we need to ensure where profits are made by multinational corporations are also where they pay their tacks. millions of pounds of euro or kroner are now escaping our societies. it costs public services and it also put a bigger tax burden on the people who are left, ordinary people who go to work.
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so we need real tax justice, and we need to ensure these multinational corporations and rich people pay tax where they should do it. >> there i was for the g-8 conference in 2013, and i listened to the communique from mr. cameron. i thought we were getting progress on this. then i speak to the boss of the oecd, who's trying to push forward on other initiatives. things are happening, but they're just not happening quickly enough. >> no, things are happening. there'ses this 15-point action plan endorsed by g-20 that was a big step forward. now the european union, for example, last year we concluded an agreement with switzerland to end bank secrecy next year. so things are happening. you're right, the pace is too slow. we need to do more, and we need to have better and more efficient regulation and more transparency, not least what is going on out there. >> because there's a real danger here. this will move from a debate
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amongst the media and politicians, amongst themselves. this could move to a dissatisfied electorate getting even more dissatisfied. that's why we're seeing more extremism across europe. it may be about immigration as well. it may be about a lot of social and economic issues, but it's also about dissatisfaction with the ruling class. unless we sort this out, there's going to be more extremism, isn't there? >> yeah, exactly. this is a provocation for normal people that have a hard time these years. they have went through a financial crisis, also a social crisis and some lost their job. now they see that this tax evasion, tax avoidance in massive scale is taking place in secrecy around the world with the biggest corporations, some of the biggest corporations but also rich people, some corrupted politicians, some business leaders. it's really something we need to do something about now.
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we have the tools now. oecd has developed the tools. we should start implementing. >> just my final question. i'm not accusing him of doing anything wrong, but he was the prime minister of a country that prized itself on secrecy, on being the home for a lot of companies that we just don't know where the beneficial owners are as well. as head of the commission -- and i'm 100% not accusing him of doing anything illegal, do you ever think there will be the kind of appetite for wholesale reform we need from meps? >> well, one could argue that exactly the reason he's now head of the commission, tremendous pressure was put on him. the pressure is big and the commission has to deliver. there will be new legislation coming up on country by country reporting publicly. something like that is very
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important as well. i think the pressure is huge. i think he has to deliver because his country were for many, many years known as one of these countries that help evading tax. >> nice speaking to you. first time i've spoken to you, sir. it's been a real pleasure. head of delegation for the danish social democrats. you want to have a look at the u.s. futures, everybody? i think i do president. nikkei was up, europe is down. well, look at the u.s. the futures on the s&p look up, if these are right. the dow down and the nasdaq down as well. a split market at the start of trade. you're amidst the earnings season now. you're putting on your final bets ahead of earnings season. my goodness me, after alcoa, we already knew how it was going to be. 7% to 10% lower on your earnings front. have a look at your misses on revenue. that's one thing i've been looking at more. it's more accurate. is it all going to be about the dollar? is it all going to be about the oils and what that's going to do
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to the banking sector? anyway, that's the u.s. futures. european markets look like this. we have the ftse, which is an interesting trading range. really struggling to break up above 6200. coming back from those yesterday's highs. the xetra dax not responding to the better ifo figures. of course, concerns about a couple companies this week. s.a.p., alcoa. the ftse mib, 17,552. italian banks, i can tell you, have wiped out their initial gains. it's a mix, actually. actually, it's very volatile. we wrote this read when they were up. then we changed it when they were down. now, as you can see, they're up again as well. the story is that the country's announced plans to form a bank
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rescue fund. they've been talking about it for a long time. the strongest banks will create a 5 billion euro backstop dubbed atlas. 5 brake lig this is to bail out the weaker lenders. my issue is with the size of it. i know it's a start, so that's good. but it's to address a 360 billion euro of nonperforming loans on the books of italy's financial sector. you can say on one side, this is great news. we finally have this backstop called atlas or whatever you want to call it. but the fact of the matter is, we're six years away from the peak crisis, so to speak. when i was in milan and rome talking about this and the high 7% yields in the ten-year, we're six years on. let's move on to a different story. italy's prime minister will
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today become the first major leader to visit iran following the lifting of sanctions. trade is set to top the agenda with a number of business deals expected to be signed during the tour. for those who wanted more progress, are they seeing enough? are there still questions? of course, iran still at loggerheads with saudi oil as well. let's get answers. we've talked earlier on "squawk box" about the pace of progress, the reproachment between the west and iran. how's it going from your point of view? >> reporter: that's right. from the iranian point of view, we're hearing it's moving too slowly. they don't feel like iran's banking system is being opened up quickly enough. so there's a lot of complaints coming out of iran that in post-sanctions era, things haven't fallen into place as quickly and as well as they should, but it's a slow process. it's a long time for these sanctions to get removed, for
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iran to come back into the banking section. they also need to get the world's confidence. iran is a predictably unpredictable place. you're not quite sure what'll happen from day to day here, so they need to build up confidence with foreign businesses. i think with this big italian visit, a delegation of 120 people, it's a step in the right direction. it shows that people are confident in doing business here, even though it's early days. there's a lot of money to be made here. as you mentioned earlier, coming here to boost bilateral economic cooperation. oil and gas is the big thing in iran, but the italians are looking at tourism, automotive, hotel, all things that iran want to greatly expand. so this could be a good visit for both sides. steve? >> pleasure. thank you very much. i love your quote there. iran predictably unpredictable. nice work.
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also predictably unpredictable, brazil. the impeachment of dilma rousseff has begun with claims she manipulated government accounts. the motion will move to the lower house of congress, where a vote is expected on sunday. elsewhere, u.s. health officials have sent a stark warning about the threat posed by the zika virus. they say the mosquito is now in around 30 states. the united states is very, very concerned about the increase in violence in syria ahead of thursday's peace talks in geneva. state department spokesperson mark toner said the vast majority of violations have been on part of the regime. that's the assad regime. elsewhere, the united states is urging ukraine's parliament to swiftly approve a new cabinet, which is committed to implementing reforms. the comments follow the resignation of the prime
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minister. we're going to take a short break. plenty more from street streete. plus, a preview of the u.s. trading day with wilt.
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facebook is kicking off its annual developer conference today. wilfred frost, who puts a selfie or two on facebook, joins us with a look at what we can expect. >> steve, i actually don't put a selfie or two on facebook because i'm not on facebook. but i'm on instagram. i put a selfie or two or five on that. >> i'm sure they all show you looking wonderful. go on. >> well, i'm not so sure about that. anyway, more than 1 billion people do use facebook daily, and the social media giant wants to gain even more engaged customers. ceo mark zuckerberg will take the stage today to talk about big plans rolling out this year. analysts are expecting a few areas of focus, including a so-called chat bot.
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this is a robot you communicate with on the messenger app. zuckerberg took to the air waves last we're, debuting features to make it easier for users to find and share clips. the final area to watch, virtual reality. it's all about the virtual reality content that they create. so a lot of eyes will be on facebook today. also, some fed speakers coming out. we have three fed speakers and the nfib small business sentiment survey. that'll be one to watch in terms of earnings. csx, the railroad operator, is coming out. of course, earnings a big, big focus for markets. we lost steam yesterday during the session, ending up fractionally down. at the moment, futures are bang-on flat. that's despite alcoa being down 4% in premarket following earnings yesterday, which i know you've already discussed in detail. >> all right, my friend. nice to speak to you. good to see you doing well over in the states. >> great to see you, steve. >> all right.
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tesla is going to record 2700 model x cars in the united states that were built before march 26th. the company cited problems with the third row of seats, which could fold forward in an accident. the electric carmaker said it discovered the problem after the failure of a european strength test. this is the group's first recall of the model x since the car entered the market in september 2015. talking of cars, sales in china reversed the slump we saw in february. they rose in the most recent set of data by 8.8% in march. the strong figures mark the beginning of a big week for chinese data, including growth figures due on friday. let's get to the ceo of harvest usa. simon, talking of china just excites so many opinions from mr. bass and others as well. the opportunities in china, are they obvious to you at the moment, or do we need to steer
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clear? >> no, there are certainly opportunities in the second largest economy in the world. i think you have to also just be very careful. you have to go and sort of look for those opportunities and dig deep. you can't just scratch the surface. there's certainly opportunities in a sort of dynamic economy like china. >> you mentioned the big numbers. china is full of big numbers. 11 trillion economy. i'm looking a the a piece ubs are putting out today, talking about the total nonfinancial sector debt standing at close to 260% debt to gdp. they're talking about corporate debt now 150% of the gdp as well in terms of the total debt parameters. should i be really worried about these kind of numbers expanding and hurting the good companies as well? >> there are certainly headwinds. when you realize what's been happening in china with the exchanges there, there's been a moratorium on ipo. most of the companies that are
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sort of leveraging the debt markets really only have one option. that's issue debt in order to grow your businesses. these are concerns, obviously, for overall china, overall china's economy. the concern, i think, is a little bit blown out of proportion. china still has major opportunity sets to handle this. part of the reform package that's been focused on in the most recent five-year plan that came out a couple months ago really does focus on the reform of the soes, which are the most efficient state-owned enterprises. if china can accelerate those reforms quickly, i think china still has an opportunity to defer any sort of critical, you know, problems with regard to debt defaults. >> yeah, you said got to dig deep, due our due diligence and look for those nuggets. can you give our viewers a few clues? >> i'm more focused on the offshore china bond market,
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which i believe represents major opportunities for fixed income investors. it's a better way to go in and get some exposure initially. it tends to have lower volatility. the offshore bond market is a wonderful bond market. it's mostly u.s. dollar denominated. our china bond fund in the united states focuses on higher quality credits, minimum bbb rated quality. we average 5.5% to 6% yield with very limited currency exposure. i think that's the way most investors looking for income should approach china initially. >> what about the old way that people used to look into the china market, which was find a european company that's got bigger exposure and invest that way as well?
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are there u.s. international, european, perhaps japanese plays that give us the exposure without having to trade the mainland or indeed the hong kong market? >> there certainly are derivative ways to get that exposure. most of the exposure initially before china began to open up its capital markets was sort of through that route. the problem is essentially then you have other concerns in terms of headwinds facing developed markets as well. if you're playing it through europe, europe is going through its own cyclical headwinds with regard to slower growth. also kind of contending with what the fed in the yaunited states is doing with the interest rates. that really is the tail that wags the dog of the global economy. the entire world seems to react to it negatively.
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there are consequences and potential risks to going that route. i do believe if you want china exposure and if you think about what the indices right now is thinking about, include iing jpmorgan basically now talking about including china mainland bonds and offshore bonds potentially into their emerging market debt index, i think there really are opportunities to go directly in. i believe you have to go in through a managed sort of process, a mutual fund that has active management. in these inefficient markets, that really is the way to play that asset class. just to give you a brief example, my fund, which has been out for three years, just received its three-year morning star rating -- five-star, morning star rating, which is a nice third party objective affirmation of the strategy.
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>> simon, brilliant. you got the advertisement in as well. i'm pleased for that. we'll speak to you again soon. the swiss franc hitting a high. what does that do for pressure? we'll discuss on cnbc programming throughout the rest of the day. "worldwide exchange" is up next.
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(music plays from one way or another )♪♪ ♪ i'm gonna find y♪ i'm gonna getcha ♪ ♪ getcha getcha getcha ♪ one way or another ♪ ♪ i'm gonna win ya ♪ i'm gonna getcha ♪ ♪ getcha getcha getcha ♪ one way or another ♪ ♪ i'm gonna see ya ♪ (inhales cigarette)
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good morning. ready to act. breaking overnight, japan's finance minister says his country can take steps against the strong yen if needed. earnings alert. alcoa shares under pressure after weak aluminum prices hit results. and the race for the white house. new this morning, an nbc poll shows trump and clinton holding sizable leads in the next big primary state of new york. it's tuesday, april 12th, 2016. "worldwide exchange" begins right now. good morning and welcome to "worldwide exchange" on cnbc. i'm sara eisen.


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