tv Street Signs CNBC September 14, 2016 4:00am-5:01am EDT
good morning, everybody. you're watching "street signs." i'm louisa bojesen. i'm carolin roth. >> top end products, bottom end of the market, europe's biggest luxury markets sink. bayer closes in with a deal with monsanto edging up its deal towards the $130 a share mark that monsanto that been hoping for. the uk government is on the cusp of approving the hinkley point power plant deal.
and jean-claude juncker says brexit will not take a toll on further integration. >> translator: allow me to state here and today that we respect and at the same time regret the uk decision but the european union as such is not at risk. good morning, everybody. welcome in. you're watching "street signs." good morning. >> good morning, how are you? >> superment. >> did you survive the hottest day of september in 50 years? >> so hot. >> really hot. >> today is another scorcher. >> is it? >> yeah, us northerners, i guess i count as a northerner. >> i guess so. >> anything above 10 degrees you start to overheat. >> especially in september. no overheating on the
markets. we are flat, a couple points higher now. we crawled up ahead of the market open and hanging on to slight gains. this is mirrored in our main european equity markets and trade. looking at a pretty flat to slightly mixed morning session so far. we've only been open for an hour. the ftse up 0.2%. you have the ftse mib rebounding a bit. >> crude is bouncing back after yesterday's big weakness. basic resources leading us to the 1.8%, also because of the pop higher in gold prices. banks, household goods and telecoms underperforming. a lot of news in the luxury space. bad news for some of the companies there. in terms of the ten-year bond yields, they've been ticking
higher. that was the steepening that we saw in yesterday's training session. once again, the ten-year german yield at 0.060. and the ten-year treasury yield at its highest level since early june. the bund yield the highest since july. that's been spooking investors around the world and why we've been seeing the selloff across the world in equities. >> people speculating more in equities because of that. hermes shares trading at the bottom of the stock 600 after the company warned they will no longer provide precise annual sales growth because of uncertain trading conditions. this as the french luxury goods house posted a 13% rise in first half net profits. they say they're maintaining their guidance for 2016.
>> and richemont said it sees no letup in conditions that led to a drop in sales 13%. richemont said slumping demand and inventory buy back in macau also negatively influenced results. every time richemont cominges o with a trading statement it's bearish. for the last two, three years it's been tough for this company to revive sales, specifically because of the crackdown in luxury and hong kong because of lower sales in hong kong and china. one analyst out there, john cox, he says the guidance is not as bad as it looks. he believes the margin has already bottomed in the second half of the year. he admits there's lots of ifs and buts but that consensus
could rise once the dust settles on a volatile trading day today. quite a down day for many luxury stocks. the top left hand side, hermes off more than 7%. they had an 8% guidance they're scrapping for next year. analysts putting out commentary saying if they're scrapping it it's because they know they couldn't reach it and they will normalize in this new environment, this new environment with regards to spending from asia or different type of more cautious environment. and whether it's something that the entire industry will have to get to. >> the problem for the luxury players is there's no visibility. we don't know about the weakness, we thought the bottom had been hit a while ago. many analysts saying the bottom is this, maybe the third quarter of this year, but who knows. >> i think it's interesting,
when you check out your friends or people you talk to and meet t seems that the new modern is kind of trading down in -- in terms of brands. but that it's more modern to go technical cashmer he, where it' cool to wear a black no name, no labeled shirt. there's a trend shift going on as well. >> i'm clearly behind the curve on that. >> maybe just the upper parts. the uk government is likely to be giving the go-ahead to the hinkley point nuclear power plant this week. the 18 billion pound project is being funded by the chinese along with the french energy giant, edf, which spent $2.5 billion pounds on the project. it suspected to power 5.8
million homes. jean-claude juncker defended the european union saying brexit does not put the bloc at risk. he said the region was not social enough and that the next year was crucial to deliver a better europe. >> translator: allow me to state here and today that we respect and at the same time regret the uk decision, but the european union as such is not at risk. >> want to bring in the chief market strategist, do you agree that brexit does not put the eu at risk? >> i don't think it puts the eu at risk but they have a lot of work to do. it's clear that the brexit vote is a precedent that i think they don't want set across the other members of the eu. it's going to be very enticing to other members of the eu when
looking at the deal that the uk is trying to negotiate if they think that means maybe there's an opportunity here for us. i think juncker has a lot of work in terms of building that cohesiveness. will it ultimately be the end of the eu? i doubt it. i think he has a long road ahead. >> if you look at what's happened just over the course of this summer, we had brexit. looking at the break joapple ru doesn't exactly scream buy europe, invest in europe, trust europe. >> it's a good point. from an equity investor's perspective you have to be careful because you have to understand what's priced into the market. across some of the global equity mandates that we have at natixis, we often find europe to be attractive mostly on a valuation basis. a lot of it is priced in. i would completely agree with you the macro does not scream buy europe, but there are places in the european market where
most of the bad news looks discounted. so in some of our portfolios we found europe to be an interesting place to be. >> our first guest on the show yesterday was saying valuations say buy europe. he was favoring europe at the moment despite these headlines. >> that's where we would be. there's parts of the market that we think are sort of absurdly cheap. some parts of the financials, particularly the banks look cheap. the problem is that the earnings visibility is not great. if you look at it from an income statement perspective, it may be a longer road. if you look at it from a balance sheet perspective, some of these things are trading at an enormous discount as opposed to book value, the leverage has come down. in many cases, the price earning ratios have come down. but people should be valuing these businesses up because they're higher quality businesses. the quality is the income statement, not the balance sheet. >> i note that you think that the impact of brexit on the
markets, in the longer term it could tip the uk into recession. i was speaking to somebody who operates in construction abroad and in the uk last week, he was saying the uk's problem is not economic, it's not about the markets, it's a political problem we have now. it's about figuring out, you know, your relationship with the negotiators of how brexit potentially will work. and that's the real issue. >> i think it's a great point. the reality is from an outsider's perspective, looking at it from the u.s., what we see is a negotiation that lookser protracted. it is not clear that there's a lot of area for come promipromi. it seems to me the area of free people versus the market doesn't indicate the eu is bending soon. how those political negotiations unfold strike me as the environment that these
businesses have to make their profits in. i think it's -- while i don't think it's purely recessionary, i think it represents a wet blanket over the top of the uk economy. that's why we were not forecasting necessarily a recession but something that might push it close to that. >> david, you're staying with us. get involved. find us on twitter. good morning to hamid watching us in toronto. he said it was hot in toronto as well. >> a global phenomenon. you can find us on e-mail, on twitter as well. >> still coming up on the show, because we will go for a quick break. fertilizer, sunlight, plenty of water, monsanto's seed is finally set to germinate. don't go away.
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good morning. welcome back. you're still watching "street signs." the bank of japan will keep its controversial negative interest rate policy and could possibly lower rates further. we were talking about this yesterday. we have more on what's going on on asian markets. i know we're somewhere in the region of six-week lows. >> yes, that's right. if you look at the aggregate gauge, the msdi index, let's pick up on your point about japan. the bank stocks got creamed today after that report that boj may push rates deeper into negative territory. herein lies the challenge. the flatter yield curve has not helped.
the banks post negative rates, so the challenge for the bank of japan is to engineer certain policy setting to create yield curves ste s steepening for the. here we stand in these markets waiting for the bank of japan and the fed to deliver. both of these meetings pretty much coincide. there's some interesting two-way volatility in dollar/yen. we seem to be holding the line just below 1.03. it is confusing at the moment in terms of expectations. everything and yet nothing is on the table. there's the risk that the bank of japan may elect to sit on their hands and put the ball in the court of the mof for reform. all in all, a weak session. a lot of caution in the markets. we are back to that parlor game of second guessing the fed and boj, ladies. back to you. >> thank you very much.
a dangerous time apparently for investors. that's the view from the famed investor paul singer. he joined other big names in the investment community on stage at the delivering alpha conference co-hosted by cnbc. warning of a bubble in monday markets, he said market participants are facg risks they have not seen before due to the actions of the global central banks. >> eight years of ever-declining rates and ever increasing radicalism in other monetary policies have not created a sustainable accelerating uptick in growth what they have done is created a tremendous increase in hidden risk. risk that investors don't exactly know or have faced about
the holdings. i think it's a dangerous time in the global economy and global financial markets. >> a hedge fund giant warns of a dangerous situation in the bond market addres the world faces $ billion in debt. he says they're focusing a dilemma because there's only so much you can squeeze out of a debt cycle. addressing the fed specifically, he said it would be wrong to raise rates. >> at this stage, there's no doubt you can slow the economy. the world economy, tightening will work. when you look at the inflation pressures, this is a global thing. you look at the demographics, all of those things means the risks are so much more on the down side. the fed is putting too much emphases on the business cycle.
not enough on the long-term debt cycle. and i don't think they'll be paying enough attention to how markets react. let's bring in david lafferty. how dangerous is it when you look at the equity and debt markets? >> the high quality sovereign debt market looks dangerous. the major global bond indexes have sub 1% yields and have durations over 8%. it doesn't take very much of a backup at all to destroy years worth of potential income. with that mix between duration and the low yields out there. while our forecast is not rates will back up significantly it's a risk you have to be careful with because of the magnitude of the pain, not the probability of the pain. >> we have seen this steepening
of the curve in the u.s. specifically but also to germany in the last couple of days because of disappointment over what the ecb didn't do, what the fed might or might not do. how do you trade equities based on that if you know another bond shock could be around the corner? >> that's a dangerous game to play. what i'd like to see the fed do is maybe step back a bit. i think the equity markets are trading too much off of what the fed is saying. the reality is that for most equity investors, they should care about what the long-term prospects for the global economy is. that should be reflected in central bank policy, but we need to look at profitability, growth, what the balance sheet is doing. i don't think it's healthy for equity investors to pin long-term views on equities with what the fed may or may not do, which always is completely up in the air. >> a 25 basis point increase or even a 50 basis point increase
over the course of a couple months won't make that much of a difference. hasn't a lot of that been factored in, that that's coming? we can't stay at zero forever and ever. >> i would argue you can think about it the other way, which is while i certainly wouldn't advocate for the fed or any central bank at this point in the cycle to be aggressively tightening, i think it sends a negative message, the more extraordinary the policy, the more severe the policy, it doesn't make consumers want to spend and ceos want to invest. i would love to see the fed, maybe not other central banks, but it would be helpful for equities if the fed raised rates and said we're not raising aggressively, but it shows confidence in the global economy and in the u.s. economy. i think that could have ironically maybe a positive effect on equities. maybe not in the initial days, we'll go risk off for a day or two, but markets will digest that and the message, the more
positive message would boost equities. >> maybe the balance between confidence and stability that you want that stability before you start playing with confidence. the other point also is we talk about the potential for danger in the markets. yet a lot of people are still making money. people are in there. they're investing. you're still seeing massive inflows into emerging markets. we'll talk about that in a bit. emerging market equity funds, they could be the worst hit by changes coming from the fed moves. >> i think there's an irony that in emerging markets we have been a fan. they were cheap at the end of last year, as a pure mean reversion they are up this year, we like em maybe not as much address ssix months a year ago. >> david, thank you for being
here during our heat wave. david lafferty. china resources beer holding is reportedly considering a $6 billion bid to buy sabmiller central and european assets, this according to bloomberg which says the sales process will kick off next month. monsanto accepted bayer's sweetened offer of almost $130 per share in principle according to dow jones sources. the board will meet today to seal the tie up. the takeover would create the world's biggest agricultural supplier. dr. brian mcgee is an engagement manager, and he is with us. welcome to the show. thanks for being with us. this deal has been a long time in the making. back in may, $122 wasn't enough. $125 wasn't enough, 127.50, now 130. it looks like it's happening but
the breakup fee also up to $3 billion. there's the chance that regulators may step in and say look, guys, you will be too big. >> i think that's a possibility. i don't think it will be terminal. i suspect it will be concessions rather than a direct block to the deal. bayer's willingness to put that amount of money on the table says they are in a similar position with respect to that. you make a point about how long this has been coming. that's been a key element of getting investors and people in the market to accept this play from bayer. >> and also monsanto as a takeover target as opposed to the aggressor, the big american gmo aggressor, and tables have turned. >> monsanto probably never expected to be in that position, and bayer may see something special in monsanto in the r & d pipeline. my suspicion is that's the play
that you get category leadership which is critical in crop science and bolster that r & d pipeline. >> some analysts on this show have argued that bayer's healthcare pipeline could suffer because they won't focus as much on that. they don't have debt to drive forward, is there a big risk for bayer going forward when it comes to pharma? >> it's an interesting point. it probably stops them pursuing major acquisition targets near-term. the debt wouldn't worry me that much. i think when you're at bayer's scale you almost reached a size where you have the best of both worlds. you can focus on crop science, equally you can focus heavily on pharmaceuticals. >> we have three major giants in the science, we have dow dupont, bayer and monsanto. now different will the industry
be? are we done in terms of consolidation? will we see more pricing power on the part of these giants? >> depends on what back-end strategy from these players ends up being. i think bayer is making a shrewd move into this, establishing category leadership, and using the r & d engine that monsanto has to push into a higher price space. i think the element of the firing up the r & d space, bringing products to the market, but equally continued investment in scale, just i think it will be interesting to see. it's a long-term play, a demographic trend. >> i think the political scrutiny that potentially could
come from the whole gmo adoption or further gmo adoption in europe, that's something we might be watching. >> i think so. i think the gmo stuff has been overblown and this signals a big european player making a push in the space, rebranding monsanto to make it more palatable. >> excellent. dr. mcgee, thank you very much for being with us. we need to head to break. check out world markets live. it's our blog. it runs throughout the european trading day. you can also find us on twitttwitter. we'll be talki ing emerging markets after the break. and reunited three decades later for a tour that sold out in three minutes.
welcome. you're watching "street signs." >> top-end products but bottom end of the market. europe's biggest luxury names slip after richemont has a slip in profits. and bayer closing in on a deal with money sasanto. the uk is on the cusp of approving the hinckley power point deal. the green light could come as soon as this week. and jean-claude juncker defending the state of the european union saying brexit will not take a toll on further integration. >> translator: allow me to state here and today that we respect and at the same time regret the uk decision. but the european union as such is not at risk.
good morning, everyone. if you're just tuning in, let's look at our european equity markets. and they are in the green. that's for the first time in four days. we are higher to the tune of 0.3% for the dax, the ftse 100 pushing ahead by a half percent. we broke one-month lows and today we're higher by basic resources in part because of the rebound after that steep fall in yesterday's trading session. we have some uk labor market data withstanding the brexit shock. the number of people at work rising by show,000, which means the unemployment rate is 74 -- the enemployment rate is 7 4.4%. it is line with forecast out
there according to a reuters poll. it basically means the labor market, we took that initial shock of that referendum vote to remove the country from the european union. >> however what we're seeing is that uk average weekly earnings up 2.3% in the three months ending in july. that's higher than the 2.1%, july alone, 2.2%. that's a bit of a slowdown it seems. >> yeah. the wage growth and the earnings growth. that's the one thing that a lot of people are looking at, especially when trying to project inflation forecasts and measures that we watch so cautious cautiously. >> still outpacing inflation, that's good news for the consumer. now that inflation is seen ticking up because of the fall in sterling that margin can be eroded. >> absolutely. let's put the uk jobless rate aside for a moment and talk more
about emerging markets. the selloff has continued in emerging markets. the em index fell for the fourth straight day. the price in oil weighed. and volatility is also seeing a bit of a spike. we have the global ahead of emerging markets from ubs. good morning, banu. the emerging market index may have fallen for four days, but interim emerging market funds, $24 billion over the past 10 weeks, which is the highest on record. money is still flowing into emerging markets regardless at the moment. >> it's been a strong ride for em equities this year, and about time. it's been four years of dismal performance. what's interesting is the bumming bu bummibulk of the money is coming from
passive funds. some people think i will get exposed to em because i've never been exposed, and i don't care about individual shares which is a pity because the large cap don't compare well with developed markets. there's not a case for passive outperformance of em. this year it's been an equity ride. it has been because the fixed income markets have been on a tear. there's some good companies in em but the question is can we extrapolate and expect the same performance from em in the next 6 to 12 months? that's a real struggle. >> you're saying don't be a passive investor for the next six months, three years? >> the passive investor works when you have fixed income markets doing extremely well. that takes commodity prices going up. remember, what's happened this year, not just have u.s. collapsed, but credit has come
in supporting em equities. b both of these margins are changing. >> there a scenario where equities, credit and fixed income could outperform even though the fed hikes rates? that doesn't seem to be the expectation on the part of many analysts. >> you can have that if you have growth. the biggest challenge is even if u.s. improves, the relationship between trade and growth has become much weaker compared to the pre-crisis era. in the pre-crisis, if the u.s. is growing at 3%, emerging markets are growing at 6%. toad if the u.s. is growing at 2%, the meernemerging markets a growing at 3%. so, yes, it's possible. and you don't believe that
fundamentals in the emerging markets have improved since the last takeover attempt. >> they have improved in some cases, the external numbers have lesser external deficits, and growth has stopped declining. i think that's as far as we can go. growth has 23409 impronot impro. every time you see a bottom, you want a nice rise, that's not coming through and for good reason because leverage in em, especially in china but also outside is high. >> if and when the fed hikes, will it make a difference if it's a dovish hike we get versus a more hawkish hike? >> i think the market will, as it always does, will look back at the last hike and say if it's going to be a dovish hike, we won't bother with the 15-day selloff and they will try to buy emerging markets. what has happened is a
fundamental reassessment of the terminal rate. it's not just about september or december. that's where the debate now rests. will the fed assess terminal rates higher certainly to what the market is pricing. the market is pricing at negative 50, negative 80 basis points. even the most dovish member of the fed would say it's closer to zero. so there is a chance em assets get repriced when the fed hikes. >> thank you. we'll have to leave it here. quick look at the currency markets. we say that drop in the dollar yesterday. today we are seeing the you'eur dollar unchanged on the day, but quite a bit of weakening on the japanese yen on the expectation of further stimulus from the boj, getting deeper into negative territories. 103.17, the pound at 1.3207.
a slight uptick on the back of the jobs data. the s&p 500 seen up by 8 points, the dow jones up by 72, the nasdaq higher by about 23 points after it closed near session lows, very heavy volume in yesterday's trading session. the dow off by 1.4%, the s&p off by 1.5%. >> volume coming back. u.s. stock markets logging their third consecutive 1% move since june kicking investors back into gear after a slow summer. blackstone's steve schwartzman saying many money managers remain in a holding pattern. >> most of the businesses we're in, we don't have to invest like liquid managers. if we don't see anything attractive, it's sort of like playing basketball without a shot clock. you don't shoot. you just wait for an easy shot. if you keep passing the ball around, nobody drops it,
eventually they get bored and you get a layup. that's our style of investing. aivist investor carl icahn urging those in the market not to become complacent as he feels the scene is set for another leg down. >> i think there are tremendous risks. but anyone that will tell you it will go down tomorrow, next week, even next month or next year, it's sort of a guessing game. but you can look at the environment and i think it's very dangerous. in other words, you walk on a ledge, you might make it to the end. but you fall off that ledge, you will see trouble. i think that could well be. >> democratic presidential nominee hillary clinton will resume campaigning thursday, that's after taking three days off to rest and recover from pneumonia. clinton said monday she had ignored a doctor's order to
arrest before nearly collapsing over the weekend. president obama taking clinton's place on the campaign trail on tuesday, stumping from the democratic nominee in the swing state of pennsylvania. the president touted clinton's endurance and took aim at trump's lack of transparency. >> he calls himself a business guy, but america's got a lot of businessmen and women who succeed without hiding tax returns, leaving a trail of lawsuits, workers who didn't get paid. people feeling like they got cheated. >> "newsweek" is promoting an article on donald trump set to be released later this morning that appears to suggest ties between the trump organization and foreign powers would create a national security nightmare. rachel maddow obtained a portion of the release including one
section that reads if trump moves into the white house and his family continues to vooef benefit from the company during or after his presidency almost every foreign policy decision he makes will raise serious conflicts of interests and ethical quagmires. tracie potts is in washington, d.c. what kind of smoking gun are we expecting here? >> it's not clear. we'll find out. democrats have made an issue of the fact that they think donald trump would be dangerous to national security. the issue we're following today are these medical records for both candidates. donald trump has said that he will reveal results of his latest physical on the fv show "dr. oz" today but it's not clear how much detail we'll get and how much history we'll get. medical experts said you need to know what medical issues these 68-year-old and 70-year-old candidates have dealt with previously to know if they can deal with the stress, including national security, the stress of
being president of the united states. he's also expected to reveal his economic plan today. it's something that trump said will be fully paid for by savings in the budget. that may be a buzzword or code word for budget cuts, and also for growth projections that he's expecting. we'll hear more about that today. he's been talking about child care deductions and how his plan is different from what he says is no plan from hillary clinton. we heard a lot about that in the last 24 hours on the campaign trail as clinton is still sidelined with this pneumonia sending out bill clinton and president obama and tweeting but doing it from behind closed doors. >> the new york attorney general also opening a probe of the trump foundation as well. an initial inquiry into the donald j. trump foundation to assure the charity is complying with state laws governing non-profits. >> right. the trump foundation got into a bit of hot water for giving a
$25,000 donation to the florida attorney general at the time that her office was considering whether or not to investigate the trump organization. they decided not to investigate and she got this $25 thoish,000 donation. were they related? trump says no. now new york wants to look at that. >> tracie potts joining us live out of washington. thank you very much. coming up, why digital native also cause central banks to get creative. we'll talk about the way technology is transforming consumption and creating headaches for digital native is? stay tuned. you'll find out more. and now just feel if it's cold. yeah. cool.
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audience and other customers, that we are sorry. we deeply regret any situation where a customer got a product they did not request. >> that was the wells fargo ceo, john stumpf apologizing for the bank's alleged practices. they were fined $185 million for opening unauthorized bank accounts in order to fulfill sales targets. bank shares fell by more than 3% in yesterday's trade. cnbc asked mr. stumpf if he got a call from the oracle of omaha. >> warren, he would be very important, if i knew he back ed you, i would personally feel better telling people to own the stock. >> again, i won't talk about any conversation with any one investor. i'm talking to a lot of constituents and working hard to
lead our company through this. >> u.s. treasury secretary jack lew condemned the bank's conduct and used the scandal to highlight the purpose of financial regulation. >> what i've seen from what they've done is bad behavior, they were correct to take action against it. how that flows through in terms of next consequences will depend on the facts of the case. i can tell you that there's a lot of talk in washington these days about rolling back dodd-frank, about rolling back the law, changing the law that created the agency that took action against this, this ought to be a moment where people stop and remember how dangerous the system is when you don't have the proper protections in place. this is something that our watchdogs found. if they weren't there, they would still be going on. >> the woes facing wells fargo have cost the lender its winning position as the biggest bank by market cap in the u.s. jpmorgan surpassed the lender to steal the number one spot.
wells fargo shares down b around 6% since the troles first came out. just want to bring you the latest breaking news on ryanair. it is reigning its full year traffic forecast to 117 million customers with a net profit guidance in the range of 1.375 billion to 1.425 billion. that's the latest on ryanair. let's talk technology. the launch of apple's ios 10 software has been billed as the company's biggest release yet. some users have already run into glitches. josh lipton has more. >> reporter: iphone users, at least those with an iphone 5 or late rr are downloading ios 10. more messages including stickers and animations, all new design for apple music which has 17 million subscribers, and apple opening up siri to developers,
so you can ask siri to make a payment using square cash or send a message to a friend using what'sapp. that new feature does help apple keep up with the competition. amazon, alphabet, microsoft have all introduced their own voice assistants as well. there was an initial issue with some users complaining that installing the new software was rendering their devices useless. apple telling me that issue impacted a small number of users, and has already been resolved. beyond the software, of course, consumers are also waiting for that new hardware. t mobile saying preorders for the iphone 7 and 7 plus shattered records. sprint saying preorders increased nearly four times. apple stock did move higher in today's trade. bernstein's to says carriers ar running aggressive promotions, but still that news is called positive and encouraging.
technology has greatly changed consumption trends, but this is just the start, that's according to hsbc. according to new research from the bank, the rise of digital natives will further transform consumption and could have a huge impact on inflation and central bank policy. very interesting report. we'll be discussing that with james pomeroy and arjun. james, define for us what is a digital native? is it the same as a centennial or millennium? >> it's slightly different to millennium. so basically someone who has grown up with technology. for the sake of this report we have taken people who have done their entire second year education in a country where internet usage is high. if you're in the uk or u.s., that's pretty much anyone born since about 1990. those people are also millenniums today. someone born today is also a
digital native. millennium is a subset of digital natives, all people highly adept to using technology and use these technologies than the average person in the population. >> we have on the screen for you the account for roughly 9% of the world's population. that is set to rise. why will that be a headache for global central banks? if you think about the way we consume things, the more we consume online, the more digital consumption, we're thinking about a world with great price information. it's easy for us to compare the price of a flight, a book, cd. companies find it hard to raise prices. if that world, if price information is high, prices can't go up, that micro decision, when you take that out to the macro level, inflation gets constrained. there's a downward pressure on prices. so it becomes hard for central banks to hit that target. >> come on in here.
is it my generation's fault that draghi can't hit his 2% inflation target? >> not entirely. you think about what uber has done for taxis, and what amazon has done to the price of books, what the kindle has done for the price of books. all of these technologies, as people use it more and more they become a bigger share of the overall consumption bucket. >> they are also driving consumption. there are more gadgets to buy, more stuff to do. when you think back to what we did 20, 30 years ago maybe we bought one cd a month, comic books. now there's so much to buy on the app store and whatnot. that will drive volumes even if it brings down inflation. >> of course. in this world, you're a growth shift away from inflation and volumes. people are better off. i don't think anyone who gets an uber is disappointed that their taxi is costing them half the price that it would otherwise.
actually in this world it's low inflation, it's good. it's good news to the consumer. they are happy. the consumer does well and growth should hold up. >> is this necessarily negative for wages then when you look at the price now that you're paying for an uber verses what you would have done in the past for a mini cab service? >> it depends. you have automation, various new technologies that put downward pressures on wages, and therefore you could say wages get constrained. prices are not going up f wages are not going up, you don't necessarily win. on the other side, you could say all of these technologies breed productivity, and if that happens wages could go up. maybe virtual reality coming through. that could lead to a pick up in investment in productivity and wages alongside of it. so really we don't know. >> i point out digital natives
account for the world9% of the d world's population today. how do you play it? you could say measure also change, there will be shifts, but how do you play it? do we think policymakers will start thinking gdp is not a valid measure of growth is. >> it's an interesting discussion. when you think about economic impact, we say how would you monitor it? the case is interesting. we take the iphone. the first iphone came back in 2007, 2008. didn't have 3g. it was still $600, one unit of consumption. we compare that to today, a completely different beast. it's probably the same thing with economic data but the improvement has been in the virt c virtual quality. >> how much of gdp is
technology? >> reasonably small share at the moment. the best way to get a sense is on retail sales. retail sales, even in the uk or u.s. is only about 10%, 12% at the moment. so the scope for growth there is enormous. >> isn't there just very few companies benefitting from this rise in the digital consumer? just the facebooks, googles, the snapchats of this world? other than that, the rest might just be missing out. that may lead to lower investment by firms. is that too farfetched? >> i don't think so. it's one bearish case, that you endp with a firm that's poweul and amazon becoming the retailer or uber becoming the taxi company then pricing power returns. that's one potential down the line that we could have. i'm a reasonably optimistic person, i would like to think technology will develop and continue. take for example the facebook example, a few years ago myspace was the special network. that's been overtaken by
facebook who is to say that won't happen over the next ten years and we see new companies who do things better? that could inspire investment for companies to improve and win this battle on the digital front. >> one argument critics make is some of this technology is only accessible for wealthy people. one point, you make in your report is income inequality could widen. how do you see that? >> on the income inequality side f we see greater automation in labor markets, that takes the middle ground. some jobs would be hard to o automate. on the other end of the scale you have a job not worth o automating, and you have a squeeze on labor, and then you have a skilled labor force where growth can go up. you get a widening income
inequality. that may be a problem for governments. when it comes to access, the big rise of cheap smartphones. if you look across most of the emerging world, the emerging access to smartphones is growing quickly because governments are putting in the correct infrastructure. they're skipping a step. we're not getting fixed broadband lines, so people in parts of india and africa are having access to 4g. >> rising inequality because of technology, and you're getting rising inequality because of quantitative easing. >> that's a lot of inequality. thank you very much. really interesting report. arjun, thank you very much. let's look at some of the top stories making the rounds here. the uk's unemployment rate for the three months to july hitting 4.9% in line with reuters
forecast. it came in slightly lower 4.7%, down from 5.1% in june. that's according to ons data. monsanto accepted day's new offer of $130 per share. the board will meet today to seal the tieup. the takeover would create the world's biggest agricultural supplier. >> the uk government is likely to give the good ahead to the hinkley point power plant this week. and a quick look at u.s. futures. we expect a slight rise at the open, bouncing back from yesterday's weakness. that's it for today's show. >> i'm louisa bojesen. >> i'm carolyn roth. worldwide exchange is coming up next. people get anxious and my office gets flooded with calls. so many things can go wrong. it's my worst nightmare. every second that power is out, my city's at risk.
good morning. global market jitters from pail singer to carl icahn. we'll tell you what's keeping some of the world's most powerful investors up at night. wells fargo ceo telling cnbc he's accountable for alleged abusive accounting practices at the bank, but john stumpf is not ready to resign. and colin powell calls donald trump a national disgrace. and hackers say they have more to release. "worldwide exchange" begin