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tv   Street Signs  CNBC  August 1, 2016 4:00am-5:01am EDT

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good morning everybody. you're watching street signs. >> i'm louisa boy as. soaring to the top of the stock 600 after the world's oldest bank reveals its third bailout plan in as many years. >> the news comes as stress tests show monty did he pos ki is the only major bank with a -- heineken shares sinking as currency weighs on the dutch brewer.
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weakness in certain markets should be offset elsewhere. >> we perform well in volume revenue and prove its. i would say the downside is our sub sued performance in africa and the middle east. that's largely balanced by good performance in europe, americas and asia. our meeting of the minds, uber and rival reportedly agree a tie-up in china will be a combined company at $35 billion. hi everybody. good morning. good morning, nancy. >> good morning. >> good morning days a. >> the market on july final manufacturing pmi a reading of 52 is hitting the wires right now. 51.9 was a flash estimate given a while back. 52.8 was the final reading for june. we're looking at the final manufacturing output pmi data
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53.9 which is a little above the flash data that had been published. 53.6 and the manufacturing output prices pmi. 49.9, which is a tad higher than the flash reading as well. it does seem that we're seeing the eurozone factory growth slowing for the month of july. still in expansion territory when looking at the final manufacturing pmi data and above the flash reading. >> of course, what we see here month after month a divergence between north and south. before the show started, we got german manufacturing activity, which was relatively steady. even it dipped slightly from the previous month. then italy brings in the slowest rate since january of 2015. >> absolutely. absolutely. the beginning of a fresh week, fresh month for trading as well. >> that's right. finally we get the stress tests here. >> i know. not sure what we learned in terms of market positioning and what we're seeing this morning. we'll talk about the italian
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banks in particular. the ftse 100 little higher by .4 of a percentage point. glancing back at the performances that we were seeing for the month of july, it was a slightly mixed month out there. but we saw in general, european equity markets performing quite well. the ftse for the month of july x higher -- the dax up by more than 6%. rallying ahead there. most markets, i'd say, glancing at the list, up somewhere in region of 2% to 3%. >> when you look at the s&p 500 and the dow jones. keeping in mind what happened at the end of june with the brexit fallout there. a rebound in july. although doubters among them wondering if the gains can hold. >> just saying the dax up 6% for the months of july starting fresh this week with a slight gain up by .8 of a percentage point. european markets, in general, most of them this morning seeing a fair bit of green out there. we were called just slightly
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higher on the open. the u.s. gdp -- growing less than expected. today we saw some of it already redone on friday of course. a big focus on the stress test. investors went into the weekend nervous seeing what the results would be. here we are. a collective sigh of relief in moody's among groups saying the european banking stress tests show a welcome improvement in the health of the sector. eu financials were broadly resilient to the scenarios outlined bit european banking authority. out of the 51 banks tested, 43 maintained a ratio above the crucial 8% level. no surprise here, the worst performer in the testing was italy's monty did he pos ki. worst case scenario, that bank would end up with a negative
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tier one capital ratio. hours before it hit, they unveiled plans for a third recapitalization plan in as many years. let's get to julia standing by in rome taking a close look at these results. they say third time is a charm. will that be the case in this case? >> reporter: that's the ultimate question, nancy. as you -- good morning. the stress tests weren't a surprise talking about a negative capital level under the adverse scenario doesn't make sense. in three years time capital entirely obliterated for this bank. clearly something had to be done. the good news as you pointed out, we saw an 11th hour deal announced, a 5 billion euro equity rate conditional vote. conditional on the whole chunk of the nonperforming loans being
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shifted off balance sheets, secure advertised and bonds issued to investors, the italian government and the fund. this is where the question starts. if you're talking about the at atlantaay fund. putting money into the weaker. there have been questions asked about whether it makes sense to make the strongest banks that much weaker to support the weaker ones without doing something systemic about the banking sector here in italy. as you pointed out, this will be third time lucky. investors have been burned in the past. why would they want to get involved in monty did he pass ki. how do they know this will be it for the final time. there are a number of elements that need tying down. even though you have the consortium like jpmorgan, maybe other banks involved we spoke to
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one of the ceos of the banks and said this could be the cornerstone of the beginning of the recovery in the italian banking sector. guys, i guess that's the hope. >> it peers to be the hope when you look at shares trading higher. a bit of a different story for uni-credit moving lower. it was suspended from trading. what's going on there, jules. >> the unofficial level pass mark, was around 7% of tier 1 capital. this is your core tier 1 equity. they came in at 7.12. so right on the cusp as far as uni-credit. stress tests done by credit suites, they said they still think uni-credit needs to raise between 4 and 9 billion euros.
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you have analysts -- they barely scrape an unofficial pass mark here. when you look at the performance of the bank, uni-credit is one where we're still a bit cautious. one more point, guys. this is one of the key inputs to the at lan day fund. one of the stronger banks in italy funding this effective bailout for the weaker banks and here today is under pressure. back to you. >> julia, plenty of questions there. you will have a very important guest you'll put the questions to. exactly what political implications the latest situation around the banks have and you don't want to miss that interview. tune in to "squawk box" tomorrow at 7:00 a.m. because julia is speaking with the italian prime minister. they'll be talking about the italian referendum, brexit and plenty of more. >> load more stuff. i love rome.
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>> when were you last in rome? >> i was in rome about a month ago, a little over a month ago. very nice. >> i need to go again. bankers fully loaded cet ratio fell by 8% in the stress tests. earlier today, we spoke with the ceo, victor lass i can't who said it's the weak link in the otherwise resilient italian banking system. giulio -- at s&p global market. alex dryden is a global market strategist at jpmorgan. julian, start with you and the results from the latest stress tests. we've been talking about this this morning and whether or not it shows us anything we didn't know about the european banks at this point and especially the italian banks. when looking at monty dei
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passchi, is that going to be enough, 5 billion euros? >> hi, good morning. i think as the plan is outlined, it's all conditional on those bad loans being shifted off balance sheets and being under wrint by a large extent to the government. when that happens, i think you will find that they have relatively high coverage of the remaining bad loans. but what is the crux of the matter for me is that this bank has not proven in the past that it had very tight underwriting standards. it's profitability is -- its profitability is very low. not profitable at the moment. once we have this plan of shifting the nonperforming notes outside of the balance sheelt, i think the next step is running off the bank or dismantling it or and selling it other larger banks to consolidate the italian market. >> do you fear contagion from
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italy and especially if we start questioning again, were there other southern or per i have riff countries going to be doing with -- do we have issues in spain or portugal or do you think it's contained in a different way now than what it was just a couple of months back or a couple of years back? >> it's difficult to see contagion now. i think the spanish banking sector is undermanned. the largest players are now in good shape. portugal, there's been a resolution, which has been hard for creditors. i think the italian problem looks converted to italy at this point. >> let's bring you in here, ale ex. the italian banks getting a boost on this plan. others are calling into question that it's fragile. what's your view? >> i think european banks are in a more stable position than a
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few years ago. that's -- if you look at the cost of getting cdss against european banks, they're up -- they're much lower than the height of the eurozone debt crisis. when i'm looking at the share prices, it's not the stress test and fragility i'm concerned about. it's more about their profitability. in my mind, european banks are stuck in this sort of triangle of trouble with where they've got regulation over-banking and negative interest rates. it makes it hard as an investor to justify being in european bank. however, they're in a much more stable position than where they were with profitability i have concerns over. >> when you talk about the profitability concerns, it raises the issues of the banks continuing to have to cut costs. how far can they go here? >> they've been cutting to the -- on bottom line for a considerable period of time. regulation keeps the cost pressures in place. there was a study done a couple
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of years ago that looked at the cost, how much a mid-sized european bank needs to invest to be up to speed with the -- they need 200 full-time employees in order to up to speed with bass i will free alone. that's a big undertaking needed to meet regulatory costs. you have negative interest rates eroding deposits as well. >> precise ln ithat points, i was speaking to the chairman of the eba about why it is they haven't been testing the european banks for a potentially even greater negative scenario. he said there are other tests being done by the ecb and this is what we're focusing on. do you think the shift from worrying about the capital and whether they're capitalizing enough and shifting to nonperforming loans, is that the correct thing to focus on now for the banks?
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>> i join what my colleague has said there. profitability is paramount for banks and we continue to see pressures in profitability. it's no surprise that we see a cost cutting plans being announced on top of previous cost cutting plans. these stress tests are showing that capital ratios are going into the right direction. however, one has to remember that the aggregate capital loss that the ebs tested is 340 basis points. last week a bank announced 50 basis points negative surprise on the 21 capital ratios. shares gone down 10%. shareholders would, i think, be relieved about capital ratios once we sure that after several rounds of adverse scenarios, the capital ratios are much higher than 8, 9 or 10%. we're not there yet. after a couple of years of decent profitability, we should get there. then we can really focus on
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profitability and future earnings from banks. >> julian, what's your view on uni-credit? we have seen the shares suspended this morning and as julia was pointing out, duress if the capital scraped below that level. should investors be worried about this one? >> i don't think they should be worried about solvency or liquidity position. there's been a lot of expectations that uni-credit needs higher capital buffer and the tests are confirming it. i think the markets is reacting off the equity raising plan and pricing it down slightly to compensate for the -- >> thank you for bringing us up to date. alex strategist at asset management stays with us. we are getting breaking news
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of an earthquake of 6.1 quake that has hit in the south indian ocean. that's about 1,258 miles east of mauer ishs. it's ten kilometers. the mag nude of 6.1 in the south indian ocean, about 1,250 miles off the port in mauer ishs. >> we're going to be talking about how to position your portfolios, what type of strategy you should be adopting. we have phenomenal steps via alex about what central banks have been up to. e-mail the show. street signs europe@cnbc.com. it's on the screen and find us at twitter. you can tweet us directly. >> i'm at nancy cnbc and i'm at louisa boyer son. >> uber does a deal in china.
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we have the details after this break. an exclusive interview with jamie diamond. you can find that at 1900 cet. it's on the screen and find us
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welcome back to street signs. i'm louisa. this is nancy. >> i'm nancy. heading out to yash and check out markets there. singapore. >> hi there. it was about the china data today. the pmi data set is the rebalancing story in china large. we saw old economy manufacturing the industrial complex. services new economy that the chinese economy is transitioning towards consumer led growth expanding. i have always like to look at
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the forward looking indicators, especially new export orders. wasn't a pretty picture there. that speaks to overseas external demand especially with brexit in mind remaining quite sluggish. herein lies the problem for a lot of asian export oriented economies. the employment indicators edged up. you got to imagine that there are going to be more job losses on the table given the fact that manufacturing is under pressure. mainland equities are typically agnostic about the data series. however, the markets have been under pressure over the past week or so because of fears of more regulation, especially a crackdown on wealth management products. the small caps are under pressure and also, let's also remind ourselves that there are new issuances, new ipos in the pipeline. the fear is that going to bleed activity and interest away from the main board equities. that's what they're trying to price in. ladies, back to you. >> thank you for that one. >> meanwhile, there's a deal to
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acquire ride sharing rival uber's chinese business with the emergent at this worth $35 billion according to cnbc sources. let's bring in argen car pull who joins us with now. they're saying uber is throwing in the towel and giving up in china. really thrks as a tactical smart move. >> they've been moving $2 billion in china over the past two years. as the company moves towards an ipo, it needs to tighten up that business and prove that it's a sustainable company. that's one of the key reasons -- another factor why the deal went through, uber is facing a number of regulatory hurdles across the world and in key european markets in the u.s. it needs to double down and focus and resolve the issues and makes sure it grabs a large share in those markets. >> how long does it take before it comes to fruition, before
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they really feel it on the bottom line? they said back in february they were losing more than a billion dollars per year in china from their current chinese operations, uber, that is. >> yeah, exactly. travis has told us in previous interviews that some parts of china would see profitability fairly soon. that's proving tougher. there are certain markets in which uber is seeing profitability. overall, it needs to find a way to make sure that it can make this business really look solid. if it is going for an ipo, the public market investors will see where the 62.5 number valuation number is all about. >> when you look at the stake that uber will have in didi, you're talking about $7 billion. >> 3x return there. seems like a pretty smart move. >> alex, what do you think of this? >> i think it's a great opportunity for them to get into an exciting market like china. they're going the same way as a number of others in the china
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market. this is the way that i've been telling long-term investors to play china? a positive light. it might be the second biggest economy in the world. but on a gdp per capita basis, gdp broken down per person, it's just as rich as the dominican republic. you can see the scopes of growth in the middle class. when the growth starts to come through, what are they going to start to use, the western comforts, iphones and tvs and start using things like uber more and more often. that's where i see -- >> the overriding message, the foreign tech firms, foreign firms in general can't go it alone. >> china is a difficult market to break because of the legislation that surrounds it. i do believe the terms that have tried to tap into it and gain exposure, there's a long-term payoff for people's portfolio in playing china in a positive light. >> a lot of uber driving the last couple of days. full disclosure. they were asking charge 2.1
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times the normal rate. >> and they try to get you on the -- >> a bit awkward. >> it makes for a good reality show if they had a camera inside. >> that would be great. >> love connection in the uber pool. >> how much do i share? what are you doing? i don't know if i want to tell you what i'm doing. how much do i disclose while i'm stuck with this person? do we exchange texts? >> thank you very much. argen, one of our own from cnbc. heineken missing revenue expectations for the first half and sales in the african division dented numbers along with increasing currency headwinds. we spoke to the ceo earlier and asked him how the surge in the sector is likely to impact his business. >> the deal is a very big deal obviously. we compete on a market by market basis. if you look at the market by
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market, nothing really changed. what really changed is the ownership of s.a.b. and the fact that it is now abi who will operate their business in africa and we will see how that pans out. but we are the second largest brewery in the world. we have the heineken brand, which is the most international brand, beer brand in the world. we have our own policy. we have a very large geographic coverage. we have above average presence in the premium segment. those are all strength which makes us believe than we will continue to happily grow as an independent company. >> net profit of porsche ahead of the first bump falling over 40%. the result reflects a decline in earnings at volkswagen which is still struggling with the effect from the emission scandal. the company has kept profit guidance for the year after a mere 300 million year loss in 2015. in the third quarter, long
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min reported a drop in sales volume compared to the same period of last year. the company has reaffirmed its platinum sales guidance for 2016. alex is still with us. jpmorgan asset management. i want you to share, please, al alex, the stance you provided us with the top -- since the -- top central banks have cut interest rates between them 672 times. that works out as an interest rate cut every free trading day. they've combined that with $24 trillion worth of asset purchasing. >> 50 central banks, they have cut rates 672 times between them. >> unbelievable. >> which leads you then to say, if we hit further headwinds at the moment, what's -- >> i think one. things i've been saying to investors is post brexit, the
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central banks have been given the mandate to get behind the steering wheel again and they'll be driving the bus in the second half of the year. cutting interest rates more. that number will move higher before the end of the year. in short, this search for yield going on since the start -- well, the last couple of years is going to continue to intensify for the next six months. definitely entering into a period of heightened monetary policy. >> thank you, alex, for joining us this morning. global market strategy at jpmorgan asset management. we've got to take a quick break. check out world markets live. what's that? it's our blog that runs throughout the trading day. loads more to come on street signs. you can find us online. we're both on twitter. @nancy cnbc or @louisa borj senn.
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welcome back to street signs. i'm nancy hung ford. >> i'm louisa bojesen. >> monte dei paschi shares soaring to the top of the stock 600 after the banks reveals a third bailout plan. >> stress tests shows that monte dei paschi is the only bank with a negative rating. heineken shares sinking as currency headwinds way on the dutch brewer. >> this as the ceo tells the cnbc that weakness in certain markets should be offset elsewhere. >> we perform well in volume revenue and profits. the downside is our subdued performance in africa and the middle east, that's largely balanced by good performance in europe, americas and asia. >> and the meeting of minds. uber and rifle didi a tie-up in china that will be a combined
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company valued at $35 billion. hi everybody. welcome back to street signs. we're just grabbing the uk pmi state a hitting on the wires right now. falling to 48.2 for the month of july. it's the lowest since february of 2013. the output component falling to 47.8 in july from 53.6 in june. this is very weak reading. it's shrinking, the manufacturing data at the fastest pace in over three years after the brexit vote. >> that's right. the trend we saw was even worse than many had eggs pekted was the message there. this will factor into the bank of england decision-making process. some say still too early to read into the data. but nevertheless -- >> we've seen softness on the
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service sector as well. both the service an the manufacturing data been holding up a little bit more than the service sector. the new orders component, the biggest monthly drop in 18 years. the lowest level since february of 2013. moving on. >> let's give you a look at u.s. markets. it was a busy week of earnings that sent the s&p and dow at record highs. they did not close at a fresh record. nevertheless, they were in positive territory. tech being the outstanding winner last week. the gains are expected to continue and keep in mind, the disappointing gdp data that hit on friday. once again, bad news being perceived as good news as a lot of investors placing their bets off the table for fed rate hike this year. although we got messages from fed presidents over the weekend saying, look, don't read too much into one data piece. it could be revised lower. a lot of job strength in the payroll report. we'll see about the continuing
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trend later this week when we get the newest read on the jobs on friday. it's hard to believe, august already. >> let's give you a check on where we're trading here in europe. holding in positive territory. a bit of relief after the stress test that kept a lot of investors on -- the ftse 100. .3 of a percent. the french cac 40 and -- in positive territory. >> shares in trading sharply higher after -- it passed a trillion euros. the ceo at a mund i is with us. welcome. good morning. >> talk me through the highlights from this reporting round first half and second quarter results. >> this first semester was very good semester for amundi. we hich-- that means we reach i
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advance of -- it was done exclusively by -- when we set up the objective. it was to be done two third value acquisition and one-third value gold. >> where is that tailwind coming from? what's helped you? >> good level of activities is linked to the solid at this of business model which is very diversified. by countries, we are present in more than 30 countries in europe, in asia. better so by -- activities management, asset management. all the perceived we've created are producing the effect now. >> you mentioned the international activities there
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reading more than 90% of -- in the first half coming from international ak tichlts. this comes at a time when many are concerned about pressures in europe, geopolitical pressures particularly after the brexit vote. how challenging is that making your job? >> firstly, we are not real i will affected by the brexit because we have a presence in the uk. one that 50 people managing the -- fixed income and the equity. but we don't distribute any fund in the uk. our international strategy is in europe and asia. during the first semester, you mentioned that more than 90% were coming outside france. but asia was the main driver of this. we have a lot of potential for the -- in each country of -- in each country of asia. >> are you concerned about increased competition in your sector? a lot of the banks trying to
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step up their game in asset management in this low rate environment? >> i think low interest rate is challenging for financial services in the district. it will -- because it will make pressure on margins. as we are -- one of the most competitive cost-based in the world, the cost-based in amundi is less than ten business points. we have a competitive edge to face this. [ inaudible ] >> how long should investment horizons be at the moment? when looking at the traditional links that have fallen apart between various asset classes and when looking at everything the central banks have done and continue to do, does it change our scope of how we think of investing? >> yes, i think so. the context of low interest rate
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has -- short term monetary firms and so on. but also all liquid assets. i think that the -- to catch -- is to go to like private debt, like private equity real estate, where you capture the liquidity premium. >> on real estate, you're seeing strength in that area. is that a trend you expect to continue? snimt we are developing very strongly in real estate. we are not presently not concerned by the fund in the uk. it's a p p -- feeds to the need of most of individual customers because it provides a decent return and also quite a safety on the long-term on the value.
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>> do you think europe is going to outperform? are you seeing signs that we could be looking in medium term to longer term, is europe going to be the out-performer or are we still? a situation we're dealing with growth issues maybe in the u.s. and in asia? >> of course europe is facing many challenges. i will say that the main challenge of europe is called institutional. having that in mind that europe, especially -- is a very competitive area. the surplus of gdp of the eurozone is 4.6% of the gdp. i think that europe is a lot of competitive advantages. but yes to address the question of institutional and political
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situation. >> thank you for bringing us that perspective. that's the ceo at amundi. hillary clinton has accused russian intelligence services of hacking into democratic computers. she drew a -- she said he's shown a troubling willingness to back up putin. while the white house has not commented on the hack due to an ongoing fbi investigation. meanwhile, donald trump is facing criticism over his own comments about the russian leader saying that he doesn't believe president putin would make a military move into ukraine. the republican nominee back tracks when it was pointed out that russia had already annexed the crimea peninsula saying putin was only there, kweet, in a certain way. dominating headlines is the ongoing war of words between trump and of the parents of a muslim u.s. soldier killed in iraq. an opinion piece published in
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the "washington post," the soldier's mother wrote, donald trump doesn't know what the word sacrifice means. trump sparked outrage after saying the mother had nothing to say and insinuated she may not have been allowed to speak. let get out to edward lawrence standing by in washington. edward, time and time again, however controversial donald trump's words are, it keeps him in the headlines. is that what he's going for, or has it gone too far this time? >> nancy, that's the question that everybody asks each time he says something. has he gone too far? we have 98 days until the november election. this is the final homestretch. both candidates are trying to increase the pressure. donald trump is, as you said, defending comments that he made about the family of an american soldier who died in the suicide bombing in iraq. that soldier was muslim. the khans spoke at the democratic national convention as you said criticizing donald trump for his stance on muslims and also for donald trump's
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sacrifices. trump fired back. among the comments saying that the mother of khan, the captain in the u.s. army was not allowed to speak at the democratic national convention. over the weekend she said that wasn't true. she said that she became too emotional when she saw the picture of her son up on the screen. again, donald trump would love to focus on the issues that he sees is wrong with the country and the u.s. donald trump and his vice presidential candidate, michael pence saying that captain khan is an american hero. the statement goes on to say that they appreciate his sacrifice and the family should be proud of their son, trying, again, to turn the comments towards terrorism and what donald trump calls his radical islam problem here. hillary clinton isn't backing down, she's saying donald trump is dangerous for the u.s. and dangerous for the democracy in the west. now, both candidates will be practicing or trying to convince
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voters at campaign events in the midwest. nancy, louisa? >> we're looking forward to the debates between hillary clinton and donald trump. some controversy, though, over the exact date they will be held. tell us more about that one. >> big controversy. this is another way donald trump is trying to change the debate. he is accusing the democrats of rigging the system saying that the democrats got two of the three debates held during an nfl football game. in the u.s., nfl football games have huge audiences. so donald trump believes that the democrats are trying to hide the debates. again, two of the three of the debates that have been scheduled are scheduled during a competing with those nfl football games. the democrats, hillary clinton, says these debates have been scheduled for almost a year now. still, donald trump trying to turn the debate and say that this is rigging by the democrats. >> all right. thank you for bringing us that report. that is edward lawrence of nbc news in washington. that's a tough one, louisa, being the sports fan you are.
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or the debates. >> nfl all the way. >> that was an interesting piece in "the new york times" a while back called something like, why americans know so little about politics but so much about football. now, read into what you want in trms of the title. but the point was that people, doesn't have to be americans. people in general, that we -- if we don't have any direct say in what our government does and we switch off, we focus on innings where we feel we have a direct say. the argument was, if you have a conversation in the u.s. or elsewhere, it could be that the people are very like i want the coach to do this and the players to do this. >> which team are you on? it's very competitive. >> excited. almost game season on the nfl. anyway, caution ahead. lower for longer seems to be the theme. find out why one fed member was being coy on the prospect of a rate hike in 2016. we'll tell you more after this short break.
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good morning. welcome back to street signs. we want to bring you additional flashes coming out on uber, the deal in china. we told you that uber's main china rival, didi will be buying the china business. uber to hold 5.9% stake in didi. the uber ceo will join the didi board. in fact, ceo travis clan i can on a post on we chat was talking about how crucial the merger is for both companies to succeed in that market. they've been in a subsidy war to beat each other. they're saying enough is enough. legislation coming out of china saying you can no longer pay the drivers below cost. that was a big impetus as well. didi says that uber china will keep its brand and operational
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independence. that's quite interesting given that in some ways this is a merger that uber china will keep its brand. here we have didi confirming the deal. meanwhile, back to europe. the earnings keep coming. very dan at that saying earnings fell in the first quarter. the natural resources company was affected by a fall in zinc out put. trigger rights issue of 3 billion euros in the next couple of months -- industrial gas firm reported a slight drop in net profit in the first half from a year ago. the qatar investment authority is going to take a 25% stake in st. petersburg airport. the german company expects to gain between 30 and 40 million euros from that sale. frap ort says it will hit the
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earnings forecast ziemt iag to 20% saying it -- shares in aig lost a quarter of their value since britain voted to leave the eu. a fall in the pound after the brexit vote is making british companies more attractive to foreign buyers. britain is delaying a decision on whether to go ahead with construction of its first nuclear plant in over a decade. the decision cast doubts on whether eds hinckley point project in the southwest of england will get a green light. the government needs to consider carefully the project before taking a decision in the fall. bank a, ratio fell in the stress tests. we spoke to victor mass i can't who told us that it's the weak link in the otherwise resilient italian banking system. >> there is the monte dei paschi story. for all the other banks were in
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a safe area. it's a single situation, not a general situation. having said that, it's obvious that there is a massive amount of nonperforming loans that have to be taken because of the crisis of the minus 10% gdp. this is takable through the single action about with exception of mps. >> caution watts name of the monetary policy game from william dudley overnight. speaking at a conference in bali, the new york fed president wouldn't rule out a rate hike this year if the u.s. economy improved significantly. count into that, they warned that lackluster global growth is limiting the fed's policy options. >> it depends in part on the stance of u.s. monetary policy relative to the stance of monetary policies abroad. the economic outlook abroad
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deteriorates and this causes foreign countries to pursue a more accommodating set of -- the dollar would likely depreciate all other things equal. relatively lower interest rates abroad compared to u.s. interest rates. in this case, the u.s. may need to adjust its own monetary policy path. the stronger dollar could result in an undesired tightening of u.s. financial conditions. >> meanwhile, sterling turned negative in today's session after fresh data show the uk manufacturing sector shrinking the most in over three years in july. it also showed the biggest monthly drop in manufacturing activity in 18 years. joining us now for perspective is richard, head of over at citi. richard, busy day to have you on the set talking with central bank's divergent policy. when you look at the data
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minutes ago here, is there any chance that the boe does not -- >> right now when we look at what's priced into the market, a rate cut is universally priced, whether it's banks or the futures market. so to a severyn extent, cutting 25 basis points almost seems a done deal at this stage. where the debate for sterling rests on, where does the bank of england go from there? obviously, if it was one cut that would solve the uk's problems, that's not a big deal going forward. the markets debate in terms of asset purchases, are there going to be lending scenarios to promote uk growth going forward. what does that mean for the exchange rate? >> also, is it too early to tell what the real effects from brexit is going to be, where this positions the bank going forward, how do they look into their crystal ball --
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>> we're far from that being triggered. but we do begin to see the impacts in terms of sentiment data. that's what the pmi, the leading indicators are telling us. at least in the short term, there will be a hit to growth into q4. this could have a longer tale anticipated by the -- that sets up the debate for end of '16, beginning of '17. part of the monetary policy is to off-set shocks. to a certain extent you have to react to the changes in incoming data. >> avoid a recession. >> precisely. how disappointing is the bank of japan stimulus package was and do you think there will be morecing into the yen into september if we were to get more stimulus? >> that's a very good question.
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>> certain lending scenarios. really saying we're going to wait until september, evaluate in september and see what comes down from fiscal policy and adjust monetary policy based on that. that keeps enough skin in the game to keep people looking at yen. but ultimately, it's a lot of what ifs between now and september. to a large extent, the market is not going to trade it very seriously going in until we see what goes down this week for fiscal and what could be the reaction. >> there's the issue of how much can it control -- if you're looking at a fed delaying a rate hike against the greenback, and once again, if we get some risk much sentiment picking up. >> that's correct. the stimulus coming on the fiscal side, generally the new spending tends to be one quarter to one-third of the total
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announced package. that's very consistent with last stimulus that we picked up before. so the fx market has real concerns as to exactly what are we getting and is it going to be enough to reverse the investment environment for japan? >> only the name -- i'll leave the name anonymous. someone writes in where do you see cable by the end of the year? >> our view on it, the long-term drivers for sterling, it's going to come down to essentially unfunded deficits as well as how much investment actually comes in. our directional views that we like is 125 by the end of this quarter, 120 by the end of the year. that's predicated on the u.s. recovery and remaining. but also seeing a tale to this incoming economic weakness in the uk. >> all right. just a quick one. how are you positioning the dollar? >> for the dollar, going into this relatively flat. if we look at what the market is forecasts, it's 175 which is almost exactly the six-month moving average. that tells you that the market isn't expecting this to shift
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the fed's dial one way or the other. with a big surprise, we might change our view afterwards. we don't see it a dominant driver. >> thank you very much, richard coe chin owes. head of the european -- at citi. if you want to be nonanonymous. let me know. i'm happy to mention your name next time. the top stories. moody's is saying that the banking stress test show a well come improvement in the health of the sector. eu financials were resilient to the severe scenarios outlined by the european banking authorities and out of the 51 banks tested, they maintain the quality ratio above 8%. heineken missed revenue expectations for the first half as -- along with increasing currency headwinds. we spoke to heineken ceo just a bit earlier on "squawk box" and asked how the surge in the drink sector is likely to impact his
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business. >> the deal abi, sab is a big deal obviously. we compete on a market by market basis and if you look at the market by market, nothing really changed. what really changed is the ownership of sab and the fact that it is now abi who will operate their business in africa and we will see how that will pan oupt. but we are the second largest brewery in the world. we have the heineken brand, which is the most international brand, beer brand in the world. we have our own policy. we have a very large geographic coverage. we have above average presence in the premium segment. those are all strengths which makes us believe that we will continue to happily grow as an independent company. >> well, uber's ceo will be joining the didi's board after the ride sharing rivals announced didi will buy uber's china business. the merged entity will be worth
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$35 billion according to cnbc sources. china will take a 20% stake in the new business. glancing at the u.s. futures, we're setting ourselves up for the u.s. trading day some 4 1/2 hours from now. the implied open, we're being called a little bit higher as seen on the right-hand side of your screen. that's cof course coming fr another weak of solid gains. >> nasdaq was up 6.5%. sadly, that's it for today's show. imt i'm nancy. i'm louisa bojesen. worldwide exchange is up next.
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good morning. breaking overnight, uber set to merge china business with didi in a deal. we have the details straight ahead. we'll talk about gold man coming up. plus scores and more. jimmy walker holds on to win the pga championship taking home his first major title. monday, august 1st, 2016. worldwide exchange begins right now. good morning. welcome to worldwide

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