tv Street Signs CNBC May 16, 2016 4:00am-5:01am EDT
and nobody puts britain in the corner. donald trump says the u.k. would not be at the back of the cue for a u.s. trade deal if it quits the eu. hi, good morning, everybody. how are you. >> how was your weekend? >> it was amazing. >> you come to work on monday feeling like spring or summer, wherever you are. and then, of course, many of you aren't trading today because a number of markets are closed. so just glancing at the markets open, we have most of them trading in negative territory at the moment. again, i said a whole bunch of markets are closed, germany, france, switzerland, austria, denmark, norway. so some of you lucky out there in having a little bit of an
extended weekend. but we are trading lower. by and large, it is down to what we have seen out of china with the data turning a bit more negative. >> just as we got the good data out of the u.s., we'll get into that in a minute. but also specifics on the move this morning is volkswagon, we are hearing that the norway sovereign wealth fund is planning to sue wvolkswagon in the coming weeks. the fund previously said the automaker scandal contributed to a loss in the second quarter. when asked for comment, the sovereign wealth fund said we have been advised by our lawyers the company's claims gives rise to german law. it is our ability to safeguard
the fund's holding in volkswagen. previously they said from other threats in shareholder lawsuits, they see no basis for this. volkswagen is not commenting. we have heard from the investment bank saying they wanted changes made to governance. that's a key difference we see here, specifically the dominance of the government. >> you have been covering this for ages, the vw story and have linked it to headquarters numerous times for press conferences. but watching from an outer's perspective, you have to wonder if there are more of these cases e merging in europe. it's a bid of a surprise, a bit of a surprise that a sovereign wealth fund would step in and do that. >> as a major investment here, when you look at the investors,
it's not and huge surprise in the sense that they want to get on board with the other shareholder losses pending there, i would say, but you can't take away all the other lawsuits that are there. when you talk about the provisions volkswagen set aside, 16 billion euros, that's everything they can estimate as the time. so that's huge when you talk to the u.s. claims. when i talked to the ceo, he said this is everything we know today. that doesn't necessarily take into account something like this, a shareholder lawsuit of this magnitude. >> we'll continue to watch it. you might have to go out and cover a couple more press conferences. yeah. and telecom italia shares are trading higher after tripling the cost-cutting targets to $1.6 billion euros. this after the telecom giant reported weaker than expected first quarter earnings. and shell is considering a $40 billion spinoff of its
non-core assets according to th telegraph. the firm's cfo simon henry said last week, the float is very much on the agenda. the oil major is trying to reduce the $70 billion debt pile following the takeover of bg group earlier this year. we'll talk oil later this year. and philips is looking to sell a 20% stake of their lighting division in an ipo of shares. finally, we have been expecting this. the company said they were selling 37.5 million shares at the average price of 694 euros. h&m is reporting a 5% increase in april but that was below forecasting for a 9% rise.
they blamed the cold weather in several of the key markets for part of the performance. shares opened by lower than 1.5%. they are off by 1.3%. this follows a big week for retailers in the u.s. at the end of the week we got april retail sales actually rising by their highest level in the year. that helped to elate fears of jcpenney and kohl's and other retails seeing a drop in sales. we're trying to make difference to the data we're getting. stacey, it's interesting, the start of last week the bad news coming from macy's, the disappointing earnings and we got a surprise to the upside with overall sales. how do you explain this? >> you look at whether it was jcpenney, kohl's or macy's, the
stocks lost between 15% to 20%. then we got the retail number the best in ten months or so. if you look at the composition of the retail numbers, people are eating out, people are shopping online, department stores are crumbling, which is in line with the numbers that we saw. so people are shopping differently. and again, we have talked about this so many times that they are spending on experience. >> and a lot of strength in auto sales as well, a continuing trend we see. but you do make the point that it is not just down to amazon when we talk about the move online that continues to dent brick and mortar sales. >> h&m, blame the weather or amazon, but there's more to it. i think that you look at a lot of companies like gap that has a profession problem. or you look at kohl's, they are chasing at leisure, beauty and li
lingerie. when everybody goes after the same thing, growth will hit a wall. >> but you can't ignore the strength of amazon. i was talking to somebody yesterday who said they buy christmas presents in bulk on amazon. same thing that you used to do at costco. >> you cannot underestimate the power of amazon. you can order as much as up. if you are a member of prime, which 25% of households are in the u.s., it comes to your home and you can return it, no problem. also, if you think about most of the growth in retail is happening online. and amazon gets 50 cents for every dollar of that spending. so that is massive. >> so what happens if we do so a slowdown globally, we're looking at the chinese data, on any given day we are speculating at looking at slower growth the next couple of year, does that impact all the different sectors in retail? >> i think it does eventually. and if we are really seeing sort
of the trend in retail from the numbers that just came out, it affects everybody overall. but again, amazon is gaining share of a slower growth overall sector. >> so what happens then? are we talking about some closures here? store closures, strictly going to more online retailers, how does this play out? >> i think you will see square footage of stores go away, especially in the u.s. where we are overstored. you are talking about h&m, they are talking about doubling their store base when this is happening. you have to ask, is that realistic? >> do you think a rate hike is back on the table more so now than before the retail sales figures given the importance of the consumer for the american economy? >> sure, that is obviously the debate here. every piece of good news we get, oh, no, a fed hike on the table. next this week maybe home depot, tjx, all the safe guys that have
done so well, maybe they don't do so well like the rest of the space. so it is give and take here and changes daily. >> overall, who are the best positioned here? i mean, who are the top players? >> well, tjx, ross stores, we'll hear from them this week. and that will be very crucial. because if those slow down, that is really the only sector that is still going from a comp perspective and square footage. if that slows or goes negative, you'll have big question marks in the consumer space. >> and the higher end retailers in the states compared to the middle ground? >> high-end is tough because you just talked about the chinese and hong kong numbers over the weekend, 40% for a lot of these brands come from that chinese consumer. so that can't be good. >> stacy, thank you. >> sorry for the bad news. >> happy monday to you, too. stacey is president at sw retail
adviso advisors. you can follow us on @streetsignscnbc. it is nice to hear from you. coming up, we have an oil chat. >> we are chatting they news data as well. >> fx panel around a half hour's time. >> great panel. today is the day to get your answers in. >> get those questions in. and coming up on "street signs," we'll tell you that vladimir putin is peeved over a song? find out more.
signs." china's retail sales, data output, all are disappointing from april. sri is joining us with the latest data. we saw a bit of a blip and now we are questioning whether it was a bleep or whether the downward trend will continue. >> well, the interesting thing is the chinese market needs more growth, but how much more stimulus? especially when you have a situation and potentially more policy support could fuel speculation in commodity products, in investment products, and that could a aggrevate the market. they were preoccupied the regulatory speculation.
we could see them crack down on fund-raising, et cetera. but beijing crushed the reports. so there's a rally toward the close on the shanghai composite. the nikkei continues to be at the whims and fancies. we started the day off with a firmer dollar across the board. firmer dollar against the japanese yen as well. that was constructed for japanese equities. and maybe there was an element of profit-taking here because we saw the paradigm reverse. there's also the market questioning the durability of the profitability numbers and the forecasts that are coming out, a lot of them are bleak because of the yen functions that corporate japan has made. so relatively stable at the close, but we were higher earlier on in the session up by more than 1%. so really not a great deal of conviction. it remains to be seen where the growth expectations are. we have more than one eye on what is happening in the u.s.
with the earnings season, with the dollar, with treasury yields and ultimately what the fed does as well. ladies, back to you now. >> thank you for that, sri. as you mentioned the dollar is still holding on to the gains after the yen and the strong retail sales on friday. we'll get back to data points out of china. this as chinese regulators ordered banks to clear hurdles slowing lending to private firms. this is coming from sources cited to reuters. and april revealed a sharp drop off in activity. joining us now is freya from lumbard street research. thank you for joining us. i want to go specifically to loan growth because some might say, look, this is a good correction given the debt fears we have had of late. what do you think? >> so we just did a big report last week on looking at both debt and productivity at the same time. maybe we can get onto the productivity side. but it does appear that there is a very serious problem within
china. now what we saw in q1 was that there was this big jump up in loan growth and that kind of brought the armageddon guys out of the woodwork again. we are not quite at that stage, not in the armageddon group mainly because the government in china does still have the space to go into the rest of the economy and clear things up. but there's a lot to clean up. so what we found on our sector analysis was that some of these sectors such as mining, the metal bashing and in the private sector real estate have evergreening rates above 50% as in the outflow of the financial obligations on the debt side. interest in principal repayment, they are completely incapable of sustaining that from the perspective of operating cash flow and the inflow of equity. even for the sectors with the cash flow on their balance sheet. so this is really -- our chief economist sent me an e-mail in
response to this saying what is the difference between evergreening and a ponzi scheme moment? and it was a bit of a rhetorical question and i was tired after putting the report out so i did not bother putting out what that is, but china is facing serious issues on the debt side and need to deal with that if we're going to see this transition to consumer-led growth. >> so why is it, though, that we think that stimulus in the more traditional way necessarily won't be helping china? like old school stimulus? >> so what we saw in q1 was exactly that, old school stimulus. when we look at the private sector that we see today, it's very weak in china. yet we saw on our own data annualized rates of jumping up to 7% from 3% to 4% last year. so there was a big fiscal and monetary status. to answer your question, the reason why this is a problem in the shorter term over the next year is that they are tightening
capital control and pumping the system full of liquidity. that's not just a sustainable situation. from the fiscal side it's a different story. they'll have to have space for the government to clear the rest of the economy. >> but when you talk about the evergreening of debt, you're talking about relying on new debts to service the old debt here. you have already mentioned miners are the worst offenders when it comes to this problem. looking at where quantity prices are today, we have had an uptick but still near relative lows here. what does that say about the ability to continue to borrow? >> well, i think there are two points to make here and i'm torn which way to go. if we stay on the commodity side, what we're seeing within china is the rolling ball of money that is captive within china has now moved into the commodities market and that is explaining the uptick that we have seen in commodities prices. so this is not really a sustainable uptick from that perspective as it is driven by the captive liquidity that doesn't have any outlet. but in terms of the
sustainability, in a sense, they can continue to just keep the zombie companies going. and that is why, actually, i think i'm more worried about a threat of japanification as i am about the debt level. >> on that point, should they let companies fail? by the way, it's very big of the west to look at china and say we need to let companies fail. we didn't do that initially. it took us a while. >> in some cases it took us a while and is slightly hypocrite call, but hopefully they learn from our mistakes because it is critical for china. if we look at the primary sector, that employs about 30% of our total employees and produces only 9% of the value additive. so this is a very unproductive sector, that's mainly mining. over the profit squeeze that china has been experiencing since 2011 is underneath that
facade of the labor market that is holding up, there's been a flow out of the primary sector to be displaced by even the beginnings of kind of the supply side reform that is have to take place there. and that has crushed productivity growth in that sector. that is absolutely key for the demand side revolution that china needs to undertake. without the productivity growth, we just won't see the returns that china needs in order for them to see this demand in consumer and consumption-led growth. >> thank you for being with us this morning. crude prices have been trading higher on the back of a rare bullish call coming from none other than goldman sachs. the investment bank says the market has moved from the state of oversupply to a deficit. goldman has been a long-time bear on oil. it's previously warned of another price crunch due to overflowing storage and believes that major supply disruption in markets like nigeria, evevenezu
and china will affect this. and moody's cuts saudi arabia's rating. this is the first time they have downgraded the state following fitch. and haley is here to talk about what is going on. how can you cut spending and on the other hand sustain growth in jobs? >> it's been a bit of a yikes moment for the kingdom, especially after all the weeks i've been out there covering the really good press surrounding the 2030 vision and the transportation strategy and all this stuff. and now the big question on whether this company will continue to borrow in international debt markets because they took the $10 billion loan last month that was quite successful. a lot of interest in terms of getting into saudi arabia from the international funds certainly from hedge funds. we have seen so many foreigners coming into the kingdom with a
lot of excitement on getting involved. but the bigger question remains on what the oil prices will do to impact this country. >> given the timing of the moody's decision to come just after the announcement of the 2030 vision here, does that suggest that they are not impressed by this vision or do they need more time to evaluate how it will filter through and whether or not it will work? >> i think it's about the time factor. that's the biggest outstanding question for everybody. there's a lot of optimism as we say in saudi arabia and certainly in the gulf itself. any movement is good movement, but how quickly they can get this down. moody's report said we are impressed but it is going to be about the timeframe in terms of how we can get this moving. >> do we believe in the deputy crown prince's -- the structures that were recently laid out. the whole re-doing of basically how saudi operates? >> it is interesting because as someone who has spent a lot of time in the region and a lot of time in saudi arabia itself,
it's incredible to see the movement we have seen. and there's definitely a will to change and get things done by the types of people he's putting into these positions and the movement and the restructuring of the ministries and all these things. so it's a massive amount of change in the movement inside the kingdom that lends itself to the idea that they are going to get these things done, but at the end of the day you have to remember this is not just about making a snap decision. that a lot of to things have to go down the food chain to make things count. >> the big question in my mind when i saw the development from moody's is does it affect the country's ability to borrow. they have been borrowing at enormous rates, what do you think? >> the general consensus is that it is not that big of a deal. at the end of the day, it's the biggest market in the region and certainly untapped over the last 100 years, so it is a very exciting moment for them in spite of the fact that ratings agencies are still putting dark clouds on the horizon. the saudis don't seem to be listening and full steaming ahead. >> hadley, thank you for that. we'll get more on the oil
perspective later in the show. meanwhile, we'll bring you up to speed with other top news moving this morning. the islamic state has claimed responsibility for the attack on a gas plant near baghdad on sunday that killed at least 11 people. a spokesman for the iraqi government said three of the facilities' gas storages were set on fire before response teams were able to bring the situation under control. protests in venezuela broke out after the president declared a 60-day emergency to combat the country's emergency crisis. the leftist leader believes there are plots from within venezuela and the united states to topple him. and an explosive device caused the crowd to be dispersed
during the last game at manchester. it turned out to be a fake training device. well, coming up here on the show, nobody puts britain in the corner. we'll explain why donald trump has cheered up the brexit campaigners just up after this. you're watching "street signs" on this monday. feet yo get your e-mails through and the fx panel. see you in a minute.
pushing crude higher while shares in europe feel a chair from weaker why nechinese data. and vw is sued by norway. and sharnobody puts britain the corner. donald trump says the u.k. would not be at the back of the cue for the u.s. trade deal if it quits the eu. it's funny, isn't it, some say nobody else should get involve in the brexit talk here and what business do other world leaders have in this. and others say it is precisely their business because we'll be doing deals with them. >> look, every question i get, my counterparts around the
world, other world leaders, it has to do with brexit. >> mark carney is coming under fire for that statement. >> look, he says it is my responsibility. and the markets are continuing to watch but we have a bit of a break when it comes to major markets across europe on the holiday. that would be germany, you're looking at norway as well and switzerland closed for a holiday today. but this is the picture across europe with the ftse 100 off by .40%. the spanish market is off by 1.2%. weakness the french and italian markets there as well. denmark, switzerland, germany and norway are the markets closed today. the s&p is 3 points higher, 8 points higher for the dow jones
and the nasdaq higher by about 2 points. we saw softness despite strong numbers on friday. but investors are keeping an eye to the oil price as well. we did see strong gains in the u.s. on a weekly basis on friday. and then today getting the bullish call from goldman sachs talking about finally we are seeing the wti crude up 1.9% and brent higher in the neighborhood of 2%. the big question remains l the gains hold? on that we want to bring in rita from energy aspects, do you think this holds? >> i do think it holds. we have been saying for a few weeks, in fact months now, the rebalancing product has started. goldman came out today, better
late than never. the rebalancing started in february. on top of that you have algeria and the canadian wildfires. record amounts of 3.2 million barrels per day. yes, there's some volatility along the way. you can always get the week-long exits, but the secular trend is definitely higher. >> amrita, good to see you this morning. i'm looking at the volatility in the oil price and wonder if we should be more concerned of nigeria given that production is at a 20-year low now. you have the military attacks and the attacks directly on the pipeline, should this be more at the top of the agenda? >> i do think so. the latest counter in nigeria is the production is a million barrels per day. usually they produce about 2.2 million. so that is a record low.
and now there are threats from the unions that look at the security needing to improve, and if it doesn't they will pull their workers. this should be at the top of the agenda because it is not about the low oil prices but about the geopolitical backdrop and how the government is dealing with them. and clearly this is a huge risk to the market. >> i also want to ask you, amrita, about the increase in oil and gas bankruptcicies. i was looking at data by reuters, more than 60 last week. so they are arguing with the recovery in oil prices towards $50 per barrel that it seems for a lot of the smaller players in oil and gas that it is too little, too late. >> it is. and also because remember these guys have never had positive cash flow, even during the $100 era. so banks are a lot more stricter with them. of course, they are struggling to raise money. our argument has always been that yes prices when they do recover the shares will come back. i will argue it's closer to $60
before shares come back. but the recovery is just not going to be as sharp as a lot of people are expecting. because the capital that is going into the market now is being choosy. they are saying, look, you need so shore up your balance sheet first rather that drilling everywhere. >> what are you views on the dollar because last week we saw the dollar continue the bull run and oil trading on good gains for the week. so are analysts and traders looking more at the fundamentals or if we do get a bullish supply from the fed, a hawkish surprise, the stronger dollar could keep oil in check? >> i think you can get some volatility around the dollar move, like you said, if the fed changes course, maybe you get some kind of shorter investing relation she coming back. the more the outages last, you are going to get a complete decoupling between the dollar and oil. >> and finally, before we go, i just want to get your view on
the saudi situation. we were just talking a bit a few minutes ago about the moody's downgrade coming in this morning. i'm curious because one thing we have been talking about is the pending ipo of saudi aramco and how that can raise revenues for the government, but this is expected to face several challenges. what is your expectation on this listing? >> i think people are really underestimating how challenging this is going to be. it's a huge company. remember the evaluation at the moment is somewhere around $2 trillion. but once you work through the fact that the reserves are still owned by the government, this is going to be a minority shareholder state. also the dividends at the moment going entirely into the government. so there are a lot of to complications and the gas reserves are nearly not as valuable as the oil reserves. so when you do the evaluation again, it's a lot smaller. i do think that is why investor appetite hasn't been particularly good on the ipo. it's also going to be a long process. you need a lot of structural ability. you need to have a lot of institutional structures in place before the ipo can take
place. >> amrita, thank you for being with us. the chief oil analyst at energy aspects. i never thought i would be linking the two together, but boris johnson likened the goals of the european union to those of adolph hitler sparking controversy. the pro-brexit campaigner said both wanted to undermine europe on one authority. meanwhile, mark carney insists he's not overstepping the market of politics by weighing in on the brexit debate. the governor of england says his remarks were carefully referenced on friday. carney denied being linked too closely to the treasury. >> we are absolutely independent. it is an independent committee and we are not linked to the bigger questions about the longer-term economic impact of
being in or out. what we're doing is we're identifying risks around leave and we're taking steps as an institution to mitigate those risks. and donald trump has said that if he wins the presidential race, britain leaving the european union wouldn't impact any potential trade deals between the uk and the u.s. it appears in the morgan interview on iptv, he said he would treat everybody fair regardless of the eu membership. >> with me they will be treated fantastically well. i'm going to treat everybody fairly but it wouldn't make any difference to me whether they were in the eu or not. >> we wouldn't be back in the q trade. >> you certainly wouldn't be back in the q, that i can tell you. >> a very different message from donald trump over current president obama. i talked to the current
president supporting brexit and he thought britain would be better outside the eu, which was interesting. u.s. politicians are playing close attention to the brexit debate. >> they are. coming at it from a foreign policy perspective, i think that's the real interesting part. you know, are the allies going to shift as well? are you going to see closer ties between the u.s. and germany, for example, versus the u.s. and the uk? they have pretty good ties regardless, but that is going to change who your allies are when looking at the world map? >> a lot of of the leadership states are up for grabs. >> yeah. meanwhile, the race for the white house is on at a heated stage as we know. and donald trump also is taking aim now at "the new york times" after a front page article in the newspaper alleged that the presumptive gop nominee displayed, quote, unsettled workplace conduct towards women over the past 30 years.
well, taking to twitter, trump tweeted, quote, the failing new york times wrote yet another hit piece on me. all are impressed with how nicely i have treated women. they found nothing. a joke. well, joining us now for more is nbc's edward lawrence who is standing by in washington. edward, a tit and tat between trump and "the new york times" over this piece on women. but i've got to ask you, do you think it hurts his campaign? >> well, it hasn't hurt his campaign up to now. he has taken to twitter and attacked individuals and now going to the news media. in follow-up tweets he says he gave "the new york times" names of women he's helped out. and those names didn't make the piece. now, about six hours ago he tweeted again, against a washington post article that came out yesterday, that article listed five people he was considering as vice presidential nominees. now his tweet, donald trump says, those nominees are simply not true. that he's not considering the
names that were leased in "the washington post." so he seems to be taking to twitter and going after the news media whereas up to now in the primary he's been going after specific people in the candidate's folks running against him. >> and edward, we have seen trump criticize the media over his taxes. there seems to be confusion over when if he'll release the tax returns. what do we know today? >> at the moment, donald trump is under an audit. it goes back several years. an irs audit. donald trump wants to release his taxes but wants to release them when the audit is complete. no telling when that audit is going to be complete. he hopes, donald trump says, he hopes it's before the election. now there's nothing in the law that says he can't release his taxes while he's under an audit. this is something donald trump is choosing to do. and at the moment that's where we stand. sort of a standoff. he says he wants to do it after the audit is complete. >> all right, edward. thank you for bringing us up to
speed. edward lawrence for nbc news in washington. meanwhile, mark zuckerberg will meet with prominent conservatives to discuss allegations the social network left political stories out of its trending list. the invitees include glenn beck and dana farino. they said viewers are not allowed nor advised to discriminate against sources. the sun on sunday revealed that beyonce's new sports brand ivy was made in a sweat shop, some making 30 pounds per day. top shop claims to empower women through sports responded saying the company is working very closely with suppliers and their factories. still to come here on "street signs," taking a bite out of the chinese market as apple's ceo touches down in beijing. we'll go live to the chinese capital for the full story. right after this short break.
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esurance. backed by allstate. click or call. hi, everybody. welcome back to "street signs." warren buffett is backing dan gilbert in a bid for yahoo!. buffett is reportedly helping to finance the bid as the auction for yahoo!'s businesses has now moved into the second round. cnbc spoke to the former yahoo! president susan decker at the end of april. she's a director on berkshire's board. take a listen to what she said about the potential buyer. >> yeah, i hope that the next owner can do something to revitalize the spirit of the core things that media he very, very unique and can create a
distinction in consumers minds about why they love yahoo! still. it would be helpful if it was private or part of a much larger corporation to achieve that. >> of course, buffett does stand up against competition if they decide to make the bid for yahoo!'s core assets. verizon is the top bidder. also daily mail is in the running as well. here's a view on daily mail's shares here in london trading lower off 2%. as we said, the newspaper group had also said it was considering a bid for yahoo!. and we'll talk about google that reportedly is facing a record $3 billion anti-trust fine from the commission. the search giant has given up attempts to settle a case dating back to 2010 in which it's accused of promoting its shopping service above others in internet searches. the fine is expected to be announced as early as next month. alphabet shares up around 32.5% over the last 12 months. >> not bad. online retail giant amazon
will expand offerings even farther when launching multiple lines of private labeled brands in the coming weeks. this according to reports by the wall street journal. the new lines are expected to include household brands like baby food, vitamins and spices with names like happy belly, wickedly prime and mama bear. amazon will only offer the labels to its prime subscribers according to the report. >> happy belly? >> happy belly, that's a good one. apple's ceo tim cook landed in beijing on the back of a $1 billion invest in the the chinese ride sharing app. eunice eun is in beijing, we talked about this story last week, it's a big entry point for apple. >> reporter: oh, definitely. for apple it could mean a lot of different things including possibly getting into the car business itself. for now what we are hearing and confirming is that tim cook is definitely in beijing.
he's been on a charm offensive. today he visited one of apple's main stores in downtown beijing and he was accompanied by the president of the ride hailing app company in which apple invested $1 billion, didi chuxing. he as well as the president took a didi taxi to the store. and when they were at the store, they had attended a roundtable of app developers including the founder of china's version of groupon, and apple's ceo also was talking a lot about the importance of the app economy and app developers here for apple as well as the importance of the government's role in developing the internet. now, tim cook's visit has been widely expected here because the company has been coming under pressure seeing a lot of challenges as of late. not only is the economy here slowing down and you're seeing a
much more bigger competition within the smartphone business, but they are facing regulatory issues. the regulators clamped down on apple's itunes as well as ibooks recently. and the company lost a trademark dispute over the word iphone. so there's a lot of expectation about tim cook's visit that he's going to try to resolve a lot of the issues some far the chinese media has been reporting that tim cook is going to be meeting very high-level government officials as well as internet companies on this trip. guys? >> eunice, thank you very much for that. sorry, i had a bit of a cough there. hay fever season, et cetera. let's glance at what is going on in currencies. we have a euro dollar around 1.13 still. the dollar, 1.08. jack lew urged the g7 nations to avoid the excepty currencies in devaluations. lew warned it could start a
chain reaction into shrinking global pie. david bloom is with us, global head of foreign exchange strategy at hsbc. and jeffrey is here from ubs, you have been on a couple times together. david, we'll start with you and just start with whether or not we're going to see any changes to global intervention given the warnings out of g7. >> i don't really think so. as we have argued, the one that could break ranks is japan because obviously they are up happy with the yen. the forecast is still 115, but it's not a popularity contest here, it's a battle. and the japanese authorities are battling against the market. so it's been well behaved. and we've given peace a chance. and i don't see that changing for a while. >> your research note, david, is
full of the risk on, rest oisk . tech last week as an example, strong retail sales in the u.s. yet we risk off the dollar is stronger, the yield is lower and equities are lower. that's the risk off world. and in the risk off world, everything is correlated or equities and bonds are inversely correlated. and you look at the local stories and as endless as important as they are, there's a big local picture are. you risk on or risk off? that's the first question to ask yourself now in the markets. >> let's bring jeffrey you in, are you risk off or risk on at this moment? >> i was just talking to our clients that are less reclined
to this. not so much as disputing the fundamentals of the market. every few weeks or two or three months they just see a new risk up ahead and that kind of tells them maybe it's not the best time to go into markets. especially the political risk in what is going on in the uk. that is up prohibiting investment right now. >> we have seen the recent dollar strength against the yen. that is good news for japanese equities. do you agree with david when he says, look, the target is 115? >> i agree with him on the overall direction right now. we are less aggressive at this point looking at 110 over 12 months but it clearly depends on the policy outlook. we'll look at how it is coming in the surveys and profitability outlook. i think as david mentioned, let's give it a chance and they are quite weary of the
international exceptions at this point. >> you can keep your tweets and e-mails coming through with your questions, you always do. and people are writing in. we have seen the euro dollar go from 111 a year ago down to 106. we are shy of 115, 113, something like that. we have inpatient economist who is write in to say does the euro dollar parody still hold a chance? >> no, not a chance. and i heard that some of my esteemed colleagues in other banks only this weekend have been throwing in the towel one after the other, suddenly recognizing that actually the euro is here to stay and the euro is not going through parody. it was one of five forecasting a competition, 95, 90, 85, 80, let's see who can be the lowest. now we'll see who is the most embarrassed. basically the dollar ball run is over. it's been over for a long time. and the euro is back where it should be around 110, 115. and as the year progresses, it
will eat up some gains towards 120 by the end of the year. >> but until the fed possibly hikes? >> the fed is going to hike great but i don't feel the fed anymore. last year i was under the table, turn the hat on, squared of the fed and now you're telling me maybe they will raise rates in november? october? year end, quarter point, should a currency between 25% rise? no. so the currency should be under normalization. >> maybe you don't fear the fed but do you fare brexit, because many people say that will weigh in on the euro. >> if the uk decides to lead, then it changes things quite dramatically, as has been said by many people including ourselves. but from the opinion polls, for
the moment, that is not the core scenario we have. and as the uk economy improves later this year, you know, we're starting to look at the rate rises last year. so the cable forecast is 160. 160. some of them might be having a bit of a wobble when i say that, but the forastor the end of the year is 160. >> let's bring in geoffrey in on that one, how are you positioning? >> we are thinking the move back to 155 or 160 over 12 months is achievable. and it's contingent on several scenarios surrounding the referendum at this point. but i agree that's probably one of the underpricings in the market right now in regard to the political market you have to place on the eurozone integration or the lack of in the event of the adverse referendum. we'll cross that bridge when we get there. for now we are still looking at
the uk's domestic ranks. a few people are wondering if domestic momentum is so weak such as after the vote in itself will be respective. we need to look into the proportionary stimulus. but as things stand right now, they can stay the course. the next move is still a rate hike. >> what is a non-railroad trade? >> a risk on, risk off trade. >> you think you have and australian dollar trade and find out the world goes risk off and they sell aussie. find the peers that can exclude risk on, risk off. if you wanted to sell australia, think about buying canada against it because then it doesn't matter what happens to commodity prices or what matters to china or the s&p. you have two local currencies, one against the other. one of them we like is canada
and sell aussie. do you like brazil in you like mexico? if you have a dollar mixed trade, you have a risk on, risk off trade. think about it, do i want a risk on, risk off trade? if the answer is questiyes, fan. if you don't want global, how do you trade away from risk on, risk off if you want to? >> geoffrey, some of your favorite trades? >> i'm the same way as david. so we need to add to that. but again, the risk on, risk off, participation and inclination is putting a trade on respect to whether you're risk on or risk off. that is plaguing the markets right now and across the board on the framework. that is something to look into as well. >> what is your preferred currency at the moment? >> what do you mean disagreeing?
if we're agreeing, this is a golden ticket for your viewers. why spoil it? everything we have agreed on will have to be wrong. >> sadly, that's all the time we have. thank you very much, geoffrey yu, and david, it's been a pleasure. we'll show you the u.s. futures. we are four-and-a-half hours from the u.s. market open. here in europe, keeping in mind the slighter lower trade given it's a holiday for many of you out there. we'll see you tomorrow. have a lovely day.
good morning. a new call on crude. long-time bear goldman sachs is changing its tune on the commodities. the details straight ahead. new this morning, apple ceo tim cook arrives in china on which many are calling a charmed offensive. a live report from beijing coming up. your money, your vote. donald trump weighs into the brexit debate. we'll tell you what the presidential nominee means for the uk and u.s. relations with britain if he's elected. you're watching "worldwide exchange" on cnbc.