Skip to main content

tv   Street Signs  CNBC  October 27, 2016 4:00am-5:01am EDT

4:00 am
welcome, you're watching "street signs." i'm louisa bojesen. >> i'm carolin roth. these are your headlines. abb sinks to the bottom of the stoxx 600 after the swiss industrial giant sees a sharp drop in orders, blaming brexit for the tough trading environment. we'll speak to the ceo in just a couple of minutes. the banking boom fades. shares in deutsche bank and barclays come off season highs, despite both lenders benefiting from a comeback in investment banking. divided divergence. two of telecoms biggest players take a different path, telefonica cuts its payout while bt heads higher.
4:01 am
the ceo of bt told us why. >> we need to balance the use of our cash to ensure investors get a good return, look after our pension fund, which is a significant challenge, but also invest in the future. a brand boost for vw. sales at porsche and skoda help drive volkswagen to a beat in q3 with minimal impact from legal provisions. good morning, everybody. it's thursday. >> good morning. >> good morning. >> lots going on today. >> lots. almost the end of the week. trading higher on most european equity markets at the moment. up a half percent, a couple of the smaller markets not quite there yet. but hanging on to gains of a half percent. chinese industrial profit growth slowing overnight.
4:02 am
data coming through from asia. we'll talk more about asia. before that, let's show you the sectors. we have the european sectors being held higher by food and beverages, healthcare pulling up the most. a lot of the focus on the banks. and on what we've heard this morning in terms of announcements. deutsche bank really surprising. posting a third quarter profit, fighting this $14 billion doj demand for misselling mortgage backed securities before the financial crisis and hiking legal provisions because of that. a lot of people thought they would post a loss and they haven't. we'll talk more deutsche bank on the show. barclays hanging on to gains, up a percentage point. third quarter pretext profits, they've seen a boom in bond trading. let's continue with earnings. different picture for abb this
4:03 am
morning. look at the shares. abb third quarter earnings missed analysts estimates as uncertainty surrounding brexit and u.s. elections has increased hesitation among conglomerates. they had a 14% decline in orders, despite net profits beating expectations. shares are off by 6.5%. the swiss robotics firm announced that nokia's cfo would join the company in the same capacity next year. i'm glad once again we're joined by the co at abb. always a pleasure speaking with you. looks like a tough quarter for you. how difficult is the environment at this point in time? >> look, if you take the third quarter results of abb, we've been able to continue our margin region that we have delivered for eight consecutive quarters in a tough environment. the market environment was characterized by a massive dampening effect of brexit in
4:04 am
europe. the run up to elections in the u.s., and for our power grids division, there was a special effect leading up to capital market state, a lot of uncertainty, customers were hesitant to place orders. >> the brexit effect will not go away, very soon we'll have a decision on the u.s. presidential election. now we have more clarity on what's happening with the power grids division. you're keeping it. any visibility as to whether revenues and orders will bounce back? >> that's the ambition to grow again in abb. if you look at the current sentiment, as you rightly state, the brexit effect will be there. the u.s., we will have probably certainty of -- we'll have certainty soon. in regarding the power grids division, the page has turned in the book. we know what we're doing with the business. the business is really yielding tremendous transformation results. we are up 170 basis points in
4:05 am
margin. now we need to get growth back in. increased customer confidence and certainty. i'm cautiously optimistic we will go in the right direction again. >> good morning. in terms of the orders, i'm looking at the figures, base orders down by 6%. total orders down 13%. large orders in all divisions down across the board representing 11%. total orders 17%. any areas of brightness that you see when looking geographically at the moment? i note divergence when looking at emea where india stands out. >> india is definitely a success story. abb has a strong position there. the movement towards renewables in india are strongly supported by us. we have more than 50% of the solar base powered up by abb technology. looking at industrial automation, india wants to drive the made in india program strongly.
4:06 am
our automation ordering can help. altogether, combined with the strong infrastructure, india wants to go electric on vehicles in 2013, there's a bright future and great performance of rnd. >> you have been simplifying the structure of the business for quite some time now. focused on robots, transportation systems, electricity networks, turbines. do you feel you are where you need to be on a decision to keep the power grids unit? >> look what we have done with our third stage of next level, we have completed the transformation of our market orientation of our businesses. we have now four businesses, which each is one or two in the respective markets in the world. they're much better lined up with the market segments. clearly lined up against competition. it's a strong value proposition. i was out seeing customers after the capital markets day. the reaction was unanimously
4:07 am
positive. everybody supports what is coming. with that simplified structure we're in the shape that we can say the homework is done, now we focus externally. get going on growth. >> you have a new cfo, change in senior management, eric elswig is leaving after decades at the firm. you will be working with the cfo of nokia. why that change now? is that a direct result of the difficult environment? >> no, it's a direct result of the transformation of abb. we're moving towards a stronger position in digitalization of industry. we end up using new business models, bringing in more software based activities. he brings a fantastic set of experiences there, transforming a company in a digitalized industry. his experience will be very, very valuable as a team. and i look very much forward
4:08 am
with him to work with him. eric and i have worked together for more than a decade. he served abb more than 30 years. so we mutually have come to the conclusion it's time to bring in a successor. eric met with the successor. it's a friendly transition period. eric will be until the end of the first quarter be our cfo. then he will head off to his new professional endeavors. >> it must be a shareholder in abb given the decline in the share price, off 6%. your shares have not done much the last couple of years. they've seen outperformance this year, but languishing around the 20 frfra nshnc share mark. what can you do to boost shareholder returns? >> look, if you look at the share price, development over the last couple of years, i would agree with you that this
4:09 am
was not an exciting movement. however when you look at the performance year to date, we are the best performing stock until yesterday, today we have a damp dampening. we will do all efforts to get performance on the top line in the quarters to come. our shareholders have had an attractive run this year including the dividend yield of close to 4%. it's our ambition to get the share price further up. we have the execution engine in place, taking out the costs. anything we can do on the cost, abb is delivering. we have another quarter of margin increase and steady cash flow increase. you're right, we need to put growth in the engine. the macro environment will not be easier, but with our new aligned businesses, strong push on digital, the ability we just launched as a digital platform i'm confident we will get the
4:10 am
growth momentum going. >> thank you very much for that. we got some flashes coming through from the norwegian central bank. they are leaving rates unchanged at a half percent. back in september they did tell us they would keep it at these levels. we are seeing a reaction with the norwegian krona strengthening on the back of this nonmove. the economy has been showing signs of recovery when looking broad based across norway. we had a two we're slyear slump. that's having an impact. norwegian central bank, no change. there. >> just like the riksbank, kept rates unchanged this morning. we saw some weakening in the krona. barclays beat expectations thanks to a marked improvement in the lender's investment banking programs.
4:11 am
the british bank said it would close i non-core unit in 2017, reiterating costs remained under control despite a 600 million pound fine for misselling ppi. deutsche bank posted a surprise 278 million areas eurot in the third quarter. germany's largest lender said negative attention around negotiations with the u.s. department of justice had overshadowed progress on restructuring the bank. deutsche bank did add uncertainty around becomes could impact the business, possibly forcing the lender to take impairments on assets. gildas is with us. this is good news. a lot of people were anticipating a massive loss from deutsche bank and they surprised everybody with profits. >> the proof is in the pudding. q3 has been a strong quarter. they generated profits to the
4:12 am
tune of what they've done in the first six months of 2016. and it's also the story that is reaping some profits. >> the litigation story is not going anywhere for the time being. it seems that that's what is hanging over peoples heads in terms of whether or not you buy into deutsche bank or not. the $14 billion fine they're fighting, it's almost as much as the entire market value of deutsche bank. it's a massive fine. >> it's a massive fine. it's not a fine, it's from the department of justice. that's an unfortunate sequence of events at the end of september for deutsche bank when they went to new york to negotiate, and on the way back they just have been told that a number had leaked into the press, and this number, and the new number had to be confirmed
4:13 am
by deutsche bank investor relations. the discussions are still ongoing. it will take a couple of weeks or months. now the deadline the 8th of november or the end of the year, current sentiment in the u.s. is tied. we may have to wait until q1 next year. in the meantime deutsche bank will continue. >> which doesn't help with uncertainty. a story making the rounds in the last couple days surrounding creative uses of bonuses, no longer cash bonuses, that eats into the profits and earnings, but maybe staff bonuses in cocoa, shares in the non-core unit, does that help morale? what is the risk that great talents will be leaving the firm? >> interesting question. it's key for an investment bank
4:14 am
to keep its staff. and any change to what has been agreed to with the staff over previous years would impact moral. you have 2.4 billion euros of deferred bonuses, so potentially to be paid into cash, and some other banks have chosen to pay. they are paying the staff in the way with actual equity stakes in portfolios of ceos at the time. and maybe the european banks need to take note and actually think about the way of paying its staff. >> you have to wonder whether staff moral at credit suisse is better than at deutsche bank at this point. when do you buy a stock like
4:15 am
deutsche bank? deutsche bank doesn't pay dividends. why would i want to buy any of the german banks now if some of the swiss banks are paying dividends? >> yes, why would you? definitely in the current uncertainty around the sentiment with the doj that could trigger another problem with the bank. you need to look at the book value of the equity, which is in this quarter is hitting the book value. you look at the stock, it went down to 9 euros, rebounded to 13. yes, potentially it has capacity to go up. but you have this spectrum of capital later on. when you speak to the company, they continue to deliver the strategy on a plan. for us, when we look at the
4:16 am
balance sheet, the constraint for deutsche bank is not so much the equity ratio weighted by the risk assets, but more the leverage ratio. when you look at leverage ratio, the best way to strengthen it is to tier 1s, to the staff or into the market. the issue they face here is the complexity of the product that ne is there. >> gildas surrey, thank you very much. the first reading of uk gdp for the third quarter is due out today. it will give investors a snatch shot of how the british economy is faring in the wake of the brexit vote. the consensus is for the uk economy to have grown 0.3% in the three months to september. slower rate than in the previous quarter where we saw 0.7% for print. >> 0.7, 0.4, all over the place.
4:17 am
brexit putting a spin in the works. e-mail the show, get involved. nice to hear from you always. streetsigns@cn streetsignseurope@cnbc or -- >> @carolincnbc. >> or @louisabojesen. samsung apologizes to investors for the note 7 fiasco. we'll dial in with more details after this.
4:18 am
4:19 am
let's continue with earnings. it's so busy today. basf reported profit ahead of schedule after third quarter earnings in the farming and pesticide divisions beat expectations by a wider than expected margin. they saw ebit in the oil and gas
4:20 am
business fall 48%, above a consensus figure of 114 million euros. basf cautioned that last week's explosion which led to it closing 24 production sites would impact full-year earnings but stopped short of changing its guidance. shares up by 0.6%. vw has raised its full-year guidance as net profits game in at almost 2.5 billion euros with an increase in deliveries beasting numbers. brands like skoda, bentley, porsche managing to improve operating profits, though increased sales and exchange rate effects. the german carmaker said addition the provisions for the diesel emissions scandal amounted to 400 million euros. telefonica is cutting its dividend. the spanish telecoms giant has been looking at cost cutting measures following the block sale of its uk unit 02. they posted revenue of 13 billion euros for the third quarter ahead of the forecast
4:21 am
with ebita at over 4 billion euros. bt posted a 1% rise in second quarter earnings boosted in high demand for fiber connections and a rise in prices. they also raised dividend by 10% and main tatained the full-year outlook. gavin paterson spoke to cnbc about expanding the company's content production. >> we're happy with sports at the moment. it's working for us. we don't close the door in terms of other options going forward. >> the head of fund research at bruin dolphin joins us now. it seems like many companies in the u.s. seem to be beating very low expectations once again. >> yeah. i think as is sort of a familiar pattern, we see earnings downgrades into the reporting season, and then a positive surprise.
4:22 am
i think the surprises have been pretty good relative to recent surprises. we can feel more optimistic about earnings. clearly there's been a drag in aggregate as a result of energy and commodity-type names, but we could be moving into positive territory now year on year. >> is it enough to drive equities higher, sustainably towards the end of the year? will we be seeing that christmas rally? it seems when you look at market valuations we're looking topee, but also in the bond markets. >> it's a fair question but a tricky one to answer. not a lot of time left between now and year end. i would err on the side of caution. earnings have been decent. but there is disquiet in the bond market. bond yields are moving higher, not in least on fed intentions, but inflationary pressures coming through. high bond yields not a great environment for equities to
4:23 am
outperform given falling bond yields have been a tailwind in the past. what happens once the fed starts hiking rates? >> that's a very -- another very good question. but i would suspect at this stage that they would be communicating dovishly about their intentions moving into 2017. at the turn of last year we had the federal reserve telling us that they wanted to make four interest rate hikes this year. so far they have not made any. we suspect they'll make one. they're only communicating between one and two hikes next year. already the markets are desensitized to a fed second rate hike because they're not expecting much more in the following months. so i don't think markets need to get too rattled because already we are expecting shallow interest rate policy thereafter. >> some people say on the show europe could outperform in terms of equities, others say the u.s.
4:24 am
will continue its strength. you are overweight u.s.? >> that's right. there's a valuation argument in europe. a margin story certainly more prospects for margin expansion. but nevertheless, there are enough risks out there, whether it's the italian referendum, the uncertainty about the ecb can do getting a cohesive response about quantitative easing program, uncertainties there, brexit issues, french elections, german elections. never a period of quiet in european politics, i recognize that. looking at the u.s., we see big chunks of the index continuing to do extremely well. the big disruptive companies, even though they trade on rich val w
4:25 am
valuations. >> you are not worried about the dollar strength biting a chunk out of u.s. company profits? >> i think i am concerned about that. i guess it is to what extent you think the dollar can go on a surge. the question is about recent dollar strength and can that continue? we will see that into and the surrounding rate hike. to come back to the fact of the fed communicating dovishly, and the rest of the globe's growth not looking bad relative to the u.s. versus last year, i didn't think the dollar need go on this surge after the fed makes its move. so dollar strength shouldn't be that much of a headwind for earnings as we move into next year. >> finally, as we're waiting for the third quarter print for uk gdp, how do you feel about uk assets? not many buyers for gilt and sterling. uk seeing buyers because of the depreciation of the sterling, but at some point that will have a negative impact on equities,
4:26 am
won't it? >> i think will at some stage. the story is sterling weakness. that will be the clear driving force for uk stock market performance. at the moment the government seems to be communicating loudly that creating and forming their own independent immigration pollipoll i policy is the line in the sand. that's business -- that's not business friendly at this stage. i deon't see a great tailwind fr sterling. >> thank you very much. we'll be right back. we have to take a short break. we'll be back with the breaking uk gdp data. check out world markets live, our blog that runs throughout the european trading day. lots of live stuff on there. see you in two.
4:27 am
4:28 am
4:29 am
welcome to "street signs." i'm carolin roth. >> i'm louisa bojesen. your headlines -- abb sinks to the bottom of the stoxx 600 after the swiss industrial giant sees a sharp drop in orders, blaming brexit for the tough trading environment. the banking boom fades. shares in deutsche bank and barkleys come off season highs, despite both lenders benefiting from a comeback in investment banking. divided divergence. two of telecoms biggest players take a different path, telefonica cuts its payout while bt heads higher. the co of bt told us why. >> we need to balance the use of our cash to insure that investors get a fair return, pay down debt, we look after our pension fund, which is a significant challenge. but also invest in the future. and the brand boost for vw. sales at porsche and skoda help drive volkswagen to a beat in q3 with minimal impact from legal provisions.
4:30 am
hi everybody. welcome back. you're still watching "street signs." just sitting tight, waiting for uk gdp. growing a half percent in the third quarter. we were expecting 0.3%. this is stronger than what analysts were looking for. last time we saw a print of 0.7%. they're talking about the services sector output of 0.8%, quarter on quarter. that is stronger than anticipated as well. industrial output looking nice. industrial output, sorry, looking weaker. quite a bit weaker.
4:31 am
and the construction figures as well. >> that is down 1.4%. the biggest drop since the third quarter of 2012. the service sector has been quite resilient, a lot better than people had expected. in july we saw a print of 0.4%, telling you that the services sector which accounts for the biggest part of the uk economy is incredibly robust, but construction is flailing and so is industrial output, down 0.4 hrs 0.4% in the quarter. want to look at the market reaction. sterling/dollar has been surging, even a couple minutes before the date came out. 1.2259. up by 0.1% on the day. ryes to a one-week high from 1.2240 after the uk data. >> year on year, preliminary third quarter gdp, 0.3%.
4:32 am
looking for closer to 2%. a solid beat despite the brexit referendum. >> makes you wonder, did brexit happen? at the same time we know article 50 has not been triggered yet. yes, we have a deadline in place, end of march. the real pain will come in the next two years, but the immediate aftermath of brexit has seen a resilient uk economy. >> some saying we will first feed that through in a year's time once companies get to grips with what it means what a triggering of article 50 means, getting that underway. >> the decline in the pound/sterling. we've seen this drop, at some point even now, already it is feeding through into higher consumer prices, higher inflation. that will dent the consumer in the christmas season. >> definitely. the bank of england looking with a half high at the weakness of
4:33 am
sterling. let's talk more about what's taking place in the u.s. susan cramer joins us. baroness, thanks for joining us. >> thank you. >> looking at uk gdp growing by a stronger than anticipated half percent quarter on quarter for the third quarter. is there a risk we maybe are overplaying the fears with regards to a brexit and might we weather the storm better than what critics anticipate? >> i mean, like anyone, i hope we weather the storm well. but the underlying concerns remain there. antidotally companies are working on two tracks. a lot are taking a big advantage, as they should, on the drop of the pound, and the inflationary impact on the drop of the pound is not coming through. we don't ex thpect that come
4:34 am
through until next year. retailers are vulnerable because they import what they get. they had hedges in place for a period of time. most of those don't expire until after the christmas season. we expect some exporters age to take advantage of immediate benefits to the sharp drop in the pound.porters had hedges in place. i'm worried about the long-term view. right now we're in the european union, we can trade as freely as we could. let's take full advantage of it and a full advantage of a week pound. then they're making decisions over the longer term. that's why things like construction figures, the industrial production figures, which are down sharply, are really sort of worrying warnings in the wind if you'd like. antidotally, a lot of companies are saying we're doing really well now. long-term investment, we're either holding off or going to divert our investment to another
4:35 am
location. that is really serious. >> baroness, you're involved in the financial sector in the city here in london. tim fehren urging the hard brexit. what do you think is the most important thing that has to happen to ensure stability through the brexit process? >> i think financial services are crucial to us. it's not just london, that industry spreads across the whole country. it's about 12% of gdp. it provides a huge part of the revenues we use to finance our hospitals, our police. it's absolutely key to the economy. so, protecting that sector from dissipating is absolutely crucial. unfortunately every part of the industry tends to have a different bead.
4:36 am
for a lot of people it's making sure they can have the members of the european community they need to keep that tip top quality and skills in their companies. for others it's passporting, so they can be in the uk and list services across the eu, or european entities that need to passport into the uk. that's crucial for large sectors. so -- and i would say, if you were going to pick two things, those are key. if you talk with the fin tech sector, it's crucial. for them the e-commerce directive is critical. we have issues where we have to go out and fight. a lot of second best arrangements. people say we can have arrangements with places like new york, singapore, they are a
4:37 am
weak shadow of what we currently have. >> want to bring you comments from mr. hammond, he said the fundamentals of the economy are strong. the economy will need to adjust to a new relationship with the eu and is well placed to deal with the challenges. what happens, though, once the uk loses access to the single market because theresa may's priority is limiting immigratio immigration. >> i think i take your point. the chancellor has to take a positive look at it. if he said something negative, we would be in a crash situation, wouldn't we? i think he -- he's right, we have done many things. i was part of a coalition government that the liberal democrats were part of where we restructured a lot of the fundamentals of the uk economy. that's paying off today. but we are a trading nation. we have to have access to our most important single market, whether you're talking about
4:38 am
financial services or about manufactured goods. sometimes there's a rather glib assumption in the uk. you hear it from brexiteers that says they need us more than we need them. they will give us everything we want. we can schedule the responsibilities but we get all the benefits. that's rather unrealistic negotiating position. we're concerned that the government gets real. >> the heathrow expansion, would you give theresa may credit for making a fairly quick decision on that matter this week? that tells the world we are open for business, i'm quite quick when it comes to hinkley point and the heathrow airway? >> i live under the flight path of the heathrow airway. it sounds superficially quite good. it's fallen so many times because when you actually dig into it -- it's everything from
4:39 am
cost and impact but it's also inefficient way to manage airspace. it starts to fall to pieces. i think people locally are frustrated. we have a government that's now going for this sort of very hard destructive form of brexit, as a sock to the business community it's essentially ignoring people living in southwest under the flight path. if we get a third runway it would include many more people than just people in southwest london living under noise, significant air pollution, impossible traffic congestion. frankly, many air travelers finding out rather unhappily that they're having to bear the cost of a very expensive way to expand aviation. >> baroness, we have to leave it here. thank you very much for your time. baroness susan kramer. want to get out to gemma acton who joins us from central london with more reaction to the
4:40 am
better than expected gdp print for the third quarter. g gemma? >> we had a better than expected number, but what was not expected and the clear weak point was the construction figure. so here i am on a construction site trying to understand up close and personal what is happening. earlier today on cnbc, during the "squawk box" program, we spoke to the senior uk economist ross walker from the royal bank of scotland. they described their forecast for the construction sector as bearish. they expect a negative 1.2%. it's coming up negative 1.4%. even worse than some of the bearish expectations. >> gemma, thank you very much for that. let's get an fx perspective with the director of g 10 fx strategist from bank of america merrill lynch. seeing a bit of a rally in pound/sterling.
4:41 am
>> one of the more perplexing stories is the resilience of uk data. doesn't come as a surprise to us. we always thought the data would be a slow burn deterioration. we're focusing on the personal consumption side. the market is short sterling. we appreciate that. we still have a bearish view on the pound going into 2017. the data may give the pound a lift. the market and investor sentiment remains bearish. we will be driven by the political news flow heading into the official triggering of article 50. >> where are we in the selloff? we had a guest on from nomura yesterday, he said we're two-thirds in. some say we've actually hit the bottom. where do you stand? >> we have had three previous idiosyncratic prices in sterling. about two-thirds is about right, about where we are. if we continue the trajectory we're on, we could project down
4:42 am
to 1.05. that's not an official view, that's the pace at which steriling is falling. certainly the risks are to the downside. we have the triggering of article 50, the negotiations to come, we think there will be significant slippages in economic growth. >> mark carney making comments eyeing the weakness in staeerli what do you think we'll hear from the bank of england next week? >> he talked about the substantial fall in the pound. we know g 10 bankers talk about sharp and disorderly moves. it's interesting that we are seeing more concern. we expect no change in rates next week. we think the inflation profiles will probably have to rise in line with the pound decline. ultimately it will all depend on where the economy is. the bank of england looks through five years of inflation through the financial crisis and kept rates competitivement. >> do you think we could have
4:43 am
another five years of that? how high will inflation go before they feel they have to act? >> if the economy continues to grow, we have flat quarter on quarter growth like we see in q1, the bank of england probably will be the -- the risk will be that the bank of england will have tocompetitive. >> we're two weeks away from the u.s. election. the strength in the dollar right now, is it fed expectations, or an expected clinton win? >> i think it's a reduction of the political risk premium here. we found the polls have widened in favor of clinton, albeit, the latest one showing a slight narrowing. that allows the market to become more confident for a december rate hike which we expect to be delivered. the next two weeks will be driven by election talk. once we get that out of the way, the focus will shift back to the macro data.
4:44 am
>> we saw a spike in u.s. yields in yesterday's trading session. the levels are 1.8%. that doesn't seem commensurate with a rise in interest rates or the gdp numbers expected on friday. why the disconnect? >> there's a definite pinch of salt taken with all the comments coming out from the fed. you have yellen who continues to down play rate hike expectations, urging the market to look through point to point rate hikes, looking at the curve. markets are reluctant to aggressively price in rate hikes given the nature of the dovishness coming out. >> thank you. >> thank you. in an effort to reach out to minority voters, republican nominee donald trump called for a "21st century update to the glass-steagall banking legislation. a 1933 law that required the separation of commercial and investment banking.
4:45 am
some argue that the law's repeal helped to cause the '08 financial crisis. speaking in north carolina trump offered no further details on his banking reform plans other than stating he would prioritize helping african-american businesses receive loans. >> with under two weeks until election day, both presidential candidates are devoting their energies to crucial swing states like florida, nevada, new hampshire and ohio. a new poll places hillary clinton 8 points ahead of her rival in the traditional battleground of new hampshire. out west in nevada, or what did trump said? nevada, nevada? >> nevada, wasn't he? >> i don't remember. i say nevada. >> me, too. >> out west in nevada, the two candidates are tied with 45% support of likely voters in a two-way match-up. coming up on "street signs," a surprise for deutsche bank. we'll take a closer look at that. what's causing the boost in profits after the break. ♪
4:46 am
4:47 am
this is the new comfort food. and it starts with foster farms simply raised chicken. california grown with no antibiotics ever. let's get comfortable with our food again.
4:48 am
welcome back to the show. let's show you u.s. futures. s&p 500 set to fall fractionally. the dow jones set to add two points, less than one point now. it's just changed. the nasdaq off by five points. we are expecting slight negative start to the trading session, this after we saw the s&p off yesterday, off by 0.2%. the dow jones led by better than expected earnings of boeing. the nasdaq had a 2.5% fall in apple. in europe, heavy earnings day. that's dominated by barclays and deutsche bank both seemingly better than expected. not helping the indices too much at this point. we've been flip-flopping for a point. the xetra dax off by a third of a percent. the ftse 100 down by a similar
4:49 am
percentage. may have to do with the fact that sterling has just appreciated on the back of the slightly better than expected gdp for the third quarter. 0.5%. that leads usually to the inverse reaction in the equity markets. want to show you where we are at right now. we're just off the session highs, 1.2233, down by 0.1 %. dollar strength is still the story of the day. close to eight-month highs given the expectations for a fed rate hike in december. we have seen a bit of dollar softness in the last two trading days. we have been propped up, too by the rise in yields. speaking of yields, here's how we're looking this morning. the ten-year not on the charts, but want to show you what the uk gilt yield is doing, 1.227%, the highest level since the brexit vote. a roughly four-month high. deutsche bank shares have
4:50 am
been trading higher after the bank posted a surprise 278 million euro profit in the third quarter riding a wave of bond trading that supported earnings across wall street banks. deutsche bank saying the negative attention around the negotiations with the u.s. department of justice overshadows restructuring on the bank. annette is in frankfurt. good news for deutsche bank. a lot of people were anticipating a loss. we didn't see that. >> that's completely true. that's what we haveeen hearing from wall street lenders as well. that the debt rating was going very well. if you know that deutsche bank is big in that business, you could have anticipated a little bit that the results would actually not be as bad as some people would have thought. so the strategy, which is more
4:51 am
important for the lender, i'm joined by the professor of the house of finance here at the university in frankfurt. thank you very much for joining us. >> pleasure. >> let us talk about the strategy for deutsche. the bank is in restructuring mode, currently the earnings look quite okay. what's the vision for the lgts? >> that long-term? >> that's the question that interests all of us. the results are reassuring, that this one-off event has not yet grown, has not become more important or worse, the concerns of the doj settlement in particular. nothing new on that front which is good news. other than that, this profit number doesn't tell us much about where the strategy is going. i think the real problem for deutsche and all other institutions in the german financial system is how do they become profitable again? what is the vision for this?
4:52 am
i think markets, investors are waiting for some explanation, for some vision that gives them trust and confidence that that can happen. >> one of the big messages out of the lender is to shrink the bank, to make it leaner again. would you say that's the answer? >> i think shrinking will not be the answer. i think shrinking will happen, but this is not enough. what we want to have is a vision where this new structure could go. to give an example, will investment banking still be a core activity of an integrated german model universal bank or separated out into, let's say two entities, which allow different focuses, different capitalization and so forth. >> there are some rumors that they're splitting the retail bank and holding, from a whole sale or funning perspective, that's not so attractive, is it? >> well, i think what it really
4:53 am
does, it assigns profitability to those areas where profitability really exists. we have seen for many years across subsization of activities, we want -- as an investor, we want this disappearing and we can properly assess individual activities by themselves. >> so, you would say it's a net positive if they were to split? >> absolutely. this is the way where it would be much easier for investors to assess the different merits of certain activities, and therefore some activities may grow, others may shrink. shrinking will not be across the board but focused. >> let us talk again about the doj settlement. so many expectations on that settlement to happen bore the u.s. election. now looks unlikely, doesn't it? >> i think it will not happen soon. for obvious reasons. the settlement result. on the other hand, what i take as a piece of information from
4:54 am
this -- from today's presentation of the quarterly result is that at least there is no clear evidence that, of course, the auditors would have pushed to bring into the numbers that this settlement will be very much far away from the number that has been mentioned earlier. >> thank you so much for your time and your knowledge. i think the big elephant in the room for the bank is still the settlement with the doj, but that's just the short-term elephant, so to say. the longer term perspective, people are waiting for a strategy. look at cost income ratio, it's far too high. other areas of the bank. it is in restructuring mode. the big question is whether john cryan will have enough time to tackle all these problems. back to you. >> i guess patience is running out. thank you very much for that. let's stick with the banks. barclays third quarter profits rebounding to 1.7 billion pounds to beat expectations. this thanks to marked improvement in the lender's i investment banking business which saw profits rocket by 40%.
4:55 am
the bank said it was on track to close non-core unit in 2017, reiterating that costs remained under control despite a fresh 600 million pound fine for mis-selling ppi. and basf reported group profit ahead of schedule after third quarter earnings in the oil and farming divisions beat expectations. the german chemicals group saw ebit in oil and gas business fall to 194 million euros above a consensus figure of 114 million euros. basf cautioned that last week's explosion which led to it closing 24 production sites would impact full-year earnings but stopped short of changing its guidance. tesla recorded a surprise quarterly profit, beating on the top and bottom line. phil lebeau has more. >> reporter: shares of tesla getting a pop after the bell following third quarter earnings that were much better than expected from the electric automaker. tesla beating the street on the
4:56 am
top and bottom line earning 71 cents a share on a non-gaap basis. the estimate on wall street was for a loss of 54 cents a share. revenue also stronger than expected coming in at $2.29 billion. the street was expecting revenue of just under $2 billion. two key points in the earnings release from tesla. first, it's maintaining its guidance that it expects to deliver 80,000 vehicles this year. that was one key metric people were focusing on. the other one, tesla's liquidity. they ended the second quarter with $3.2 billion of cash on hand. it ends the third quarter down $100 million from that mark with $3.1 billion in cash on hand. tesla moving higher after hours following a third quarter earnings report better than expected. phil lebeau, cnbc business news, chicago. and in after hours trade, tesla higher by almost 4.5%.
4:57 am
speaking of the u.s., let's glance at the u.s. futures. see how we're setting ourselves up for trade. just slightly lower. would have seen a weaker close on earnings yesterday on the s&p and nasdaq. the dow lifted a bit by boeing. u.s. durable goods, jobless claims and pending home sales, watch for them today. >> that's leading up to the big gdp number tomorrow. forecast is for 2.5%. that would be a nice bounce back from the second quarter. >> very nice. very solid. that's it for today's show. i'm louisa bojesen. >> i'm carolin roth. "worldwide exchange" is up next. see you tomorrow. ♪
4:58 am
4:59 am
5:00 am
this is the new comfort food. and it starts with foster farms simply raised chicken. california grown with no antibiotics ever. let's get comfortable with our food again. good morning. earnings alert. deutsche bank posts a surprise profit and said it is working hard on resolving issues with the u.s. justice department. breaking news, uk gdp, the first full snapshot of how the british economy is faring post brexit. and the cubs beat the indians to even up the world series at one game apiece. it's thursday, october 27, 2016. "worldwide exchange" begins now. ♪ >> good morning. warm welcome to "worldwide exchange" on cnbc.


info Stream Only

Uploaded by TV Archive on