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tv   Street Signs  CNBC  January 27, 2017 4:00am-5:01am EST

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happy friday. welcome to "street signs." i'm nancy hungerford. these are your headlines. a tasty deal. tesco and booker surge to the stop of the stoxx 600 after the uk's largest supermarket agrees to buy the food wholesale group for 3.7 billion pounds. ubs shares fall after it suffers significant outflows in its wealth management business but the bank's ceo, sergio ermotti tells cnbc he sees improved client confidence. >> we are realistic because we
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have data points pointing at clients and investors being more optimists and ready to be constructive about the situation. they are really looking for concrete actions by the new administration in the u.s. bt's head of continental europe steps down amid via italian accounting scandal but the company's ceo says the situation is under control. time to raise a glass as lvmh posts record full-year profit and sales lifting the stock towards all-time highs spurring gains throughout the sector. good morning. welcome to "street signs" on the last trading day of the week. enough earnings optimism this morning but that's not enough to lift the overall stoxx 600. we are looking at a bit of weakness across the overall heat map today. the broader index lower by 0.3%.
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yesterday the dow jones hit yet another record high stateside. the s&p 500 and the nasdaq pairing off their own intraday record highs. in europe, investors are digesting a fresh round of earnings and m&a activity. let's see how that is carrying out into the individual bourses. the ftse 100 the outperformer, just barely in positive territory. tesco is the real performer there. elsewhere the xetra dax is lower by 0.2%. the french cac 40 falling closely behind by 0.3%. italian main market lower by 0.4%. how these moves are playing out in the sectors, let's give you a shot. a fair amount of red across sectors except retail getting a boost. that in part due to the tesco deal for booker. that lifting beverage higher by
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0.2%. travel and leisure higher by 0.4%. lufthansa shares are on the rise after a broker resources. overall that sector basically flat. just clinging in positive territory. so let's tell you more about the deal of the day. shares in tesco and booker are leading the pack in europe after britain's biggest supermarket announced a merger with the uk's largest cash and carry wholesale supplier. the merger values booker at 3.7 billion pounds. tesco said the deal would result in booker shareholders owning about 16% of the combined group. dave lewis said the deal is completely on strategy. he said discussions on the booker acquisition began a year ago and that richard cousins was not supportive of the deal. cousins surprised investors when
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he stepped down earlier this month with no explanation provided. investors are cheering the deal this morning. let's give you a check on shares of bt. third quarter earnings and revenue came in line with estimates but were overshadowed by a profit warning earlier this week after the company revealed an accounting scandal in the italian division. revenue rose 32%. according to people familiar with the batter, corrado sciolla will leave the company in the wake of the accounting scandal in italy. on tuesday bt posted its biggest one-day fall after going public in the 1980s. the italian accounting scandal rocked the firm costing 530 million pounds with bt under investigation in italy and facing two lawsuits from u.s.
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shareholders. separately bt has warned of slowing demand from the uk, the public sector and international corporates since the brexit vote. nonetheless it committed to raising dividends this year and next. but questions remain around gavin paterson's leadership and pay package after he received 5.4 million pounds in total compensation in 2016 alone. so much to go through this morning. let's bring in guy petty. guy, good morning to you. thank you for joining us. what a week for bt. the negative headlines surrounding this company, spooking investors. the big question is have we seen the worst of it when we talk share price reaction? >> in our view we have got to the worst of it. i think there's three things that happened this yeweek.
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firstly you have italy, which is a one-off event priced in. secondly you had the warnings in the uk public sector in the corporate businesses. that is slightly more fundamental. there could still be slight changes to that expectation going forward. but given the cuts this week, they're probably relatively small. on the positive side, the fixed line and the eu business continue to do well. so, we've probably got a few things to continue to pull a move, but the real downside in our view is now largely baked into the share price. >> on italy specifically, you're calling it a one-off incident. by the case itself is still lingering with question marks surrounding where we go next, the leadership involved. how detrimental do you think this factor alone could be? >> i think to accompany the pride its corporate governance, this is a big negative event. and it will take a long time to recover that. we're suggesting there seems to
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be country specific things going on in italy, that so far have not been seen to be anywhere else. and therefore it's a little bit more compartmentalized. yes, credibility has been broken. it will take a long time to restore that. you've already seen or already mentioned there will be certain management changes and probably pressures for other things going forward as well to try and improve investor confidence and sentiment. in reality bt has to deliver and solve some other issues, namely it is still negotiating over the open-reach solution, it needs more definition in its pension and needs to get through the next set of champions league auctions. clearing those three hurdles will give investors more visible in the midterm. >> on the open-reach case when will investors get a clear solution on this one? and are the risks to the down side already factored in? >> there's a lot of uncertainty. i think bt put out comments to
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say they can get this voluntary agreement with offcom. that would be constructive. sooner the better. every day without the agreement highlights they still remain distant. but the key thing is to get a solution there so we can work out what it is and move forward. you can argue that 2016 share price reaction to b it was also quite negative. a lot of that was pricing in open reach an pension issues. >> guy, on the champions league issue, we understand it's going to be another competitive bargain going on for this one to claim the rights. is there a risk that bt loses the rights? what will they have to pay to secure them? >> our assumption is they'll have to pay about 25% more to keep the rights, but also sky might be more galvanized to do something. so there is a risk that they do lose them. that would be -- even though in the short-term that would enhance the profitabilities and cash flows if they lost the
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rights, if the long-term it would put a dent into their pay tv strategy. it's very important for the next three to five-year outlook that they secure those rights. >> do you think the fox sky bid, does that thing that anything for this auction? does that move them along when you talk about sky being galvanized to try to get them? >> it gives sky flexibility. probably doesn't change the strategy but they don't have to be so share price aware. bear in mind the share price is effectively under offer. so it remains a big fox issue. it is slightly less relevant for sky. but in reality, you know, the fundamentals of what sky wants to do in europe and over the champions league shouldn't have changed very much. >> guy, thank you very much for joining us. that is guy petty, head of european telecom research at mcquarry. let's give you a check of shares of ubs which suffered cross border outflows of 7.4
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swiss francs. the bank beat net profit forecasts and reported a near 50% rise in pre-tax earnings just in the fourth quarter. let's get out to carolin in zurich and has been following the results closely. a more upbeat, optimistic tone from ubs this morning. yet investors don't seem convinced. what do you think is going on here? >> shares are down probably for a couple reasons. this stock, like many other banking stocks, had a good run thanks to the trump rally. but also if you think about this, ubs is trying to morph into a wealth manager. it is one of the biggest wealth managers in the world and lessened exposure to investment banking. yet in the first quarter it's the investment banking that delivered the beat and not the wealth management so there's a sense of disappointment that margin in wealth management and
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the outflow picture is still bleak. there is one major exception. that is wealth management americas given the trump optimism we've seen a pick up in activity there. let's listen to sergio motto. >> we continue to see good momentum in our u.s. businesses. we had good results, so that underlines the benefits of our diversified footprint. there has been a bit of positive momentum building into the fourth quarter, but, you know, i'm happy with the solid results. >> how much of this is down to the trump rally? in the u.s. we saw u.s. peers benefiting from that but you have a slightly different product in regional mix. you are geared towards asia and equities, not towards the u.s. and debt. how does this effect you? >> it's true on a relative weighting we are smaller in the u.s. but we have been also making good investments in the u.s. in
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the last few years. you saw, again, good momentum and not only in our wealth management businesses but also if you look at our equities, the results were very good. so clearly the positive momentum post the elections has translated into more activity in the u.s. in the rest of the world i would say the situation was more muted. >> for the last was seems like five or seven years, whenever i spoke to you you have been cautious about the outlook. for the first time now, this, to me is surprising, you're more optimistic. again, is this about the trump effect or is this about more political visibility overall? >> well, look, i'll try to always take out my own emotions from this kind of assessment. i look at facts. so i would describe our past statements more realistic. today we are realistic because we have data points pointing at clients and investors being more
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optimists and ready to be constructive about the situation. still they are really looking for concrete actions by the new administration in the u.s. to go into investing in the markets, but what i think is much more important is also potentially invest in their underlying businesses, which will really boost the economy. >> so you done think this is quite the turning point yet when it comes to client confidence, which has been incredibly low over the past couple years, not just affecting your bank but hitting the industry. >> there's positive sentiment, the catalyst was clearly the new u.s. administration. probably there was also a desire, human desire to think positively after so many years and quarters of gloomy environments. so we need to see if this is sustainable. there is a good momentum.
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again, we need to see facts and consistency in delivering those structural reforms. that was sergio ermotti the ceo of ubs. in a recent note by deutsche bank analysts they remain cautious on wealth managers. why? they expect the recovery and transaction margins to remain muted. they have preference for fixed income capital market exposure by the likes of barclays. >> did you get any more indication on the litigation questions? i know there was an additional provision for litigation, but ubs is trying to put this specific question mark behind them. how are they doing in those attempts? >> litigation has always been an issue for ubs. they settled some of the high profile cases like the libor case. we have got credit suisse,
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deutsche bank now settling with the department of justice in the u.s. ubs still needs to do that. however the total tally for ubs is expected to be a lot lower. this quarter, for example, they only set aside 170 million swiss francs. the total tally for litigation provisions in the u.s. is 3.1 billion swiss francs, compared to ubs. we are still waiting for that issue, we are still waiting for french authorities on tax matters. i asked sergio ermotti about that this morning. he didn't have much more clarity on that. ceos of banks are quiet on that type of thing because they can't talk about litigation issues. hopefully this will be settled for ubs in 2017.
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>> thank you, carolin. stay warm and happy birthday. elsewhere, if you're looking for another reason to celebrate, coming up we will be talking about the year of the rooster. that's right. asia is getting ready to celebrate the chinese new year. we're asking what's in store on the geopolitical front and investors. get in touch with the show, streetsignseurope@cnbc or find me directly @nancycnbc. did you know, 90% of the world's largest supercomputers run on intel? that means you can take a universe of data - in your case literally - and turn it into medical discoveries, diagnostic breakthroughs... ...proof that black holes collapse into one singularity. i don't know what that is. but yes. innovation runs on supercomputers... ...and supercomputers run on intel. you are super smart. and super busy. ♪
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ooh! ufo! false alarm, eyelash!
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. good morning. welcome back to "street signs." lvmh posted record full-year earnings and revenues. the top and bottom line numbers outpaced expectations in 2016 with a diverse geographic mix of
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gains thanks to strong sales in europe and the u.s. combined. this along with a pick up in mainland china. the group's ceo tempered enthusiasm warning low stocks of louis vitton and hennessey cognac could weaken growth next year and political uncertainty could weigh on the second half. banco de sabadell's second half earnings slumped by 51% year on year after high court costs. net profit hit 63.5 million euros. the spanish lender said it will give a strategic update on february 7th. shares lower by 1.6%. the ceo of intessa intesa sanpaolo is considering a joint venture with allianz. intesa is said to feel free to
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look at options to grow provided they don't hurt the bank's capital strength. more than 100 italian mps have questioned the deal in parliament asking the government what steps it plans to take to prevent a foreign takeover. joining me is james andrews. james, good morning. >> good morning. >> thank you for joining us. we were going to the break talking about chinese new year kicking off this weekend. what does the chinese new year have in store for european equities? >> for european equities, in the short-term the numbers look good. fundamentals in europe are positive. however i am nervous about the overall political backdrop, and the italian banking situation, which is obviously a loud that looms. >> you're not the only one nervous about the italian banki political back drop.
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do you think if we get a reform candidate, we could see some upside? >> certainly. the nervousness is around this populous movement, brexit, trump. that, i guess s wheshgguess, is nervous now stems from and we're concerned about growth and in terms of the banking crisis in italy, the knock-on effect that could have, italy is the third largest issuer of debt in the world. the retail exposure to italian banks is the real concern here. driver of italian gdp has been domestic consumption. the italian retail investor holds about a third of overall italian banking debt. it holds a half of the subordinated debt out there in italian banks. under the new rules, they'll have to take the first hit before we can see state aid come in an support banking.
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therefore there's got to be a concern about their growth and therefore the contagion elsewhere across. >> and a bit of concern on what that means for retail investors who hold the debt, how that will play out into italy's own elections. is that a risk investors have yet to take in? >> certainly. if we think of drivers of this populous movement it has been the impact on the middle and lower incomes not seeing a benefit to this great recovery that's allegedly happened post financial crisis and we've seen in markets. certainly a domestic consumer hit strongly by this impairment in italian debt. >> you talk about the fears around populism. yet the poster child of populism in the united states, now president donald trump has been linked to this increase in stocks, the dow 20,000. do you think this increase in animal spirits as they talk
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about it, will spill over to europe? will we see more of that? what does that mean for investors right here? >> obviously in terms of optimism, we are seeing a consumer price rise in europe grow at their fastest level in three years in december. so, there is inflationary pick up. there is positive sentiment. and expect germany inflation numbers to come out next week. that could well touch 2%. so, yes, there's a lot of positive momentum at the moment. i guess the negative is the uncertainty that surrounds banking and, indeed, politics in europe, whereas the europe they're out the other side of the elections. they're out the other side of the banking crisis. their banks are well funded. everything is positive from a banking side. obviously what we're hearing from trump is this stimulus that he's looking to bring through. lowering taxes, increasing
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spend, america first. >> it's interesting on the inflation debate because some voices will say don't worry about it, including ecb president mario draghi, they're looking for a more sustained uptick in prices. how should one protect their portfolio against inflation risks? >> this is a key theme. it will be a key them in the uk, we've seen that massive fall in sterling which will see a cost push inflation. therefore we certainly are bringing inflation protection with it into portfolios, looking at infrastructure assets that have that rpi linkage, looking at bonds, there's a fair bit of inflation priced into uk links, but in the u.s. the break even rate is still below the 2% target that we have in place from the fed. certainly from a uk perspective, we're looking at real assets with rpi link cash flows as well
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as the index bond angle. >> would you avoid companies that are more exposed to input inflation in the uk? i spoke to two business leaders yesterday, one being the unilever ceo, and both say we will have to increase prices if sterling continues to deprecate. what do you think? >> we saw that last year with unilever and tesco. the marmite-gate, if you will. that real impact of the inflationary environment, the cost base that unilever has that import cost increase pushing up against tesco saying they're trying to take market share. they're trying to lower prices, they're trying to protect their market share and their place within consumers. knowing they can't pass that
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price rise on. i think that's the key issue here. how much are we going to, as uk consumers, be able to wear in terms of cost increases, wage expectations, looking at no more than 2% rises, yet unilever they mentioned 16%, 17% increases in uk costs. >> started off at 10%. yesterday they were on the defense saying this is a reality we face. don't blame us for marmite-gate. that was the message. james andrews, thank you for joining us. stay with us. we have to take a quick break. you can check out our world markets live blog. it runs throughout the european trading day. you can also get in touch with us on twitter, i'm @nancycnbc.
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good morning. welcome back to "street signs." i'm nancy hungerford. these are your headlines. a tasty deal. tesco and booker surge to the top of the stoxx 600 after the uk's largest supermarket agrees to buy the food wholesale group for 3.7 billion pounds. ubs shares fall after it suffers significant outflows in its wealth management business but the bank's ceo, sergio ermotti, tells cnbc he sees improved client confidence. >> we are realistic because we have data points pointing at clients and investors being more optimists and ready to be
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constructive about the situation. they are really looking for concrete actions by the new administration in the u.s. bt's head of continental europe steps down amid via italian accounting scandal but the company's ceo says the situation is under control. time to raise a glass as lvmh posts record full-year profit and sales lifting the stock towards all-time highs spurring gains across the sector. good morning. welcome back to "street signs." happy friday. a happy chinese new year to all of you celebrating this weekend. let's give you a look at how u.s. markets are set to open after another record high for the dow jones industrial average on wall street yesterday. green arrows again, implied open by 18 points. the s&p higher by 2 points.
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the nasdaq called lower by about 4 points. earnings in focus again after the busiest earnings day of the year. on the data front investors will hone in on that first estimate for fourth quarter gdp expected to come in at 2.2%. we'll look for reaction on that one, particularly in the dollar. right here in europe a check on the markets in the last trading day of the week. red arrows. the ftse 100 lower by 0.1%, this despite strength in tesco. the xetra dax lower by 0.2%. french cac 40 lower by a half percent. italy's ftse mib trailing by 0.8%. let's give you a closer look of the fx curve. watching dollar strength again overnight. whether or not that carries over to the session, higher against the japanese yen. the euro moving higher against the greenback.
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0.1%. sterling taking a breather after touching that 1.26 level. a big deal for uk prime minister theresa may meeting with u.s. president donald trump. we'll watch for that action throughout the day. elsewhere let's turn to the election season in france. francois fillon has defended his wife's work as "real." this after french authorities opened a claim that she was paid french funds while holding a fake job. >> her work is real. i will prove this naturally with the prosecution. it's plain to see behind this the real question is how to fight the winner of the conservative primaries. >> joining us now for reaction on the ground is claire fournier. good morning to you. >> good morning. >> listening to francois fillon on the defense over this matter. i have to wonder in the
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post-truth world we're all living in, even if he's successful in his defense, is the claim already out there? is it already damaging his perception in voters eyes? >> it is damaging. it is a blow to his image. if you look at a poll released this morning, out of the people that were asked do you find mr. fillon honest, 67% said no. so that is devastating for his image, because he was styling himself as the candidate tough on public spending. so this penelope-gate as we call it in france is damaging for him. even though she was doing real work, she he stated again last night -- sorry, the fact he was hiring his wife, and it wasn't really clear and transparent is really damaging to him and to
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avo avoid further revelations, he also said he hired two of his sons while in senate. it's a bad time for francois fillon, and last night he said i will renounce presidential candidate if i'm charged with wrongdoing in that matter. >> if it doesn't get to that level, if he remains the candidate what does it mean for his rivals? some were saying marine le pen, it could benefit here what about the socialists? we have the socialist primary, second round run-off. do you think they're sitting back saying this could help us. >> you would think it would help the national front, wouldn't you? but marine le pen is facing the same sort of accusations regarding her parliamentary assistant in the european parliament. so, we have not heard a lot of the national front about this
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penelope-gate here. as far as emanuel macron, he can present himself as a liberal, a clean candidate with integrity, and so far no affair has come out about macron. fillon is still in the three-way race with marine le pen and macron, but it could benefit his opponents. >> claire, we'll await the results of the second round of the socialist primary. we'll be back with you on monday. thank you. have a great weekend. the dutch justice minister has resigned in a rou over a compensation deal that prosecutors made with a convicted drug trafficker in 2001. the minister's departure is seen as a blow to prime minister's center right liberal party. they are trailing in the polls ahead of the country's general election in march. barclays is preparing to make dublin its eu headquarters
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post-brexit. speaking to cnbc in davos, jess staley said the bank's commitment to london remains. >> we'll have to make an adjustment to the brexit move but it will be an adjustment manageable for barclays and will not threaten the center of london or london as a center of finance for europe it will not threaten the activities of barclays in london. we're a british bank, committed to the united kingdom. we'll be fine. >> ford europe has posted a record fill-year pretax profit of $1.2 billion. however the group warned that 2017 earnings in europe would be lower mainly due to higher costs associated with product launches and the weaker sterling. i had the chance to speak to jim farley and asked if the automaker was concerned about a potentially weaker consumer environment due to brexit.
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>> the biggest result, biggest impact is definite lafinitely t currency. we see many brands with pricing, we're seeing in technology, apple and microsoft and others have taken pricing, over time there could be a scenario where customers see higher prices. that's not good for business, consumer demand. the biggest driver for us is that currency. >> when you talk about the currency impacts, are you concerned by theresa may's recent plans to take the uk out of the single market? do you want to see some sort of special carve out for the automobile industry? >> well, the industry -- the auto industry is so critical for uk and e ushg trade. there's 12 million jobs linked to our industry. for ford, uk is the largest market. we have been market leader here for many years, 40 years, in
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commercial commercial vehicles 50 years. we have 50,000 jobs in the uk. we have a different footprint here where we're exporting a lot of engines to europe. actually all the engines to europe which get re-importeded. we are encouraged by the prime minister's statements around zero tariff environment, especially for auto. that would be critical and it's our highest priority. >> if the european leaders sit around and say you can't have that, if you want more control over immigration, would you look at starting to close some of those engine factories in the uk? >> this will be a long process. it will take many years. you know, we're optimistic. this is a critical industry for both the eu and the uk. it's critical for ford. we've had very good discussions, encouraging discussions with all leaders in the eu as well as
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here in the uk. and we think that the government's position as far as euro tariff environment is the right position for the industry. you know, no one knows how this will play out. but we think that the industry is so critical for europe. >> i also asked whether ford had increased prices following the vote to leave the eu and whether they expected more increases to come. >> ford moved last fall to increase our prices as we saw sterling deteriorate. it was a very modest increase, but we are the market leader. but we, since then, have seen every manufacturer also increase prices. like we've seen on food, you know, technology. since then, you know, we've had, you know, really modest price increases. the market has been much stronger. so far we don't -- i dent really
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see any further pressure, because there's such a competitive market here. it's great for customers. customers are continuing to see great opportunities to buy vehicles. the market continues to be really strong. so there has been some pricing in the market but it hasn't slowed the market to date. >> uk prime minister theresa may praised donald trump's victory as defying the pundits and polls. she made a speech to republican lawmakers at a retreat in philadelphia ahead of her joint press conference with president trump due to take place today. andrea mitchell has more on what to expect. >> reporter: britain's new prime minister, theresa may, her first official visit to the u.s., addressing republicans today before meeting president trump tomorrow. both leaders elected on a populist wave.
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>> because of that great victory you have won, america can be stronger, greater and more confident in the years ahead. >> reporter: may is here on a mission hoping mr. trump can be an economic ally. after brexit, and britain's divorce from europe, she needs a trade deal with the u.s. >> i predicted brexit. remember i predicted. everybody said what does trump know? >> reporter: but there are differences to smooth over like the president's comments on wednesday about torture and waterboarding. >> do i feel it works? absolutely, i feel it works. >> we do not sanction torture. >> reporter: then there's mr. trump's praise for vladimir putin, leading to this pointed warning. >> with president putin, my advice is to engage but beware. >> reporter: britain's prime minister still hoping she and president trump can forge that special relationship like fdr and churchill, clinton and blair, and most famously reagan and thatcher. >> we in britain think you are a wonderful president. >> you are a very tough act to
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follow. >> reporter: thatcher and reagan natural allies. their relationship so special it was parodied on british tv. >> so long honey bun. what a fine-looking woman. >> reporter: now may the first woman since thatcher to hold that post, hoping donald trump can be her reagan. >> that better future is within reach. together we can build it. >> white house press secretary sean spicer suggested a 20% tax on imports from mexico could help fund a wall on the border. this after president trump signed an executive order to begin preparations on the project. >> if you tax that 50%, $50 billion at 20% of imports, which is a practice that 160 other countries do, right now our country's policy is to tax
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exports, let imports flow freely in. by doing it that way, we can easily pay for the wall through that mechanism alone. if you think about what a tax -- a border tax on imports from countries like mexico that we have a huge trade deficit does, that will provide -- >> hours after floating the idea, spicer pulled several reporters aside to clarify his comments. he said his remarks on the 20% border tax were not intended to be the roll out of a new policy. however the peso traded lower on the suggestions. the move was compounded when enrique pena nieto announced he would no longer be traveling to the u.s. to meet with president trump. lindsey graham tweeted any policy proposal which drives up costs of corona, tequila or m g margaritas is a bad idea.
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coming up, will the year of the roster turn into a game of chicken between the world's most powerful countries? we'll look ahead to the chinese new year later after this short break.
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shares in google's parent company alphabet traded lower in extended hours trade after the company's quarterly earnings missed analyst estimates. revenue topped expectations led by youtube and mobile search but higher costs weighed on margins. the effective tax rate for the quarter jumped from 5% to 22%. microsoft shares rose in after hours after quarterly earnings that topped expectations with the cloud business front and center. josh lipton has more.
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$14 billion. that was one big number in microsoft's latest report. and that is the company's annualized revenue now for its commercial cloud business, and that is a jump from the last time it reported results. kirk matern says that number shows the commercial cloud business is showing strong growth and he also points to its profitability with gross margins for that business of 48%. that is a slight deceleration from the previous quarter when they came in at 49% and a bit below at least what some analysts had expected. still he said that shows the company is growing and profitable. street had been looking for 79 cents on revenue of $25 billion. a few other key metrics in the report, office 365 commercial revenue growth, 47%. and revenue for azur,
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microsoft's answer to aws, increasing 93%. revenue in that more personal commuting division down 5% to 11.8 billion. wind ows oem revenue increased 5%. intel shares are flat in extended trade despite delivering a slight earnings beat. revenue for the quarter came in at $16.4 billion. above the $15.8 billion analysts had been expecting. the chipmaker's results were given a boost by strong performances by its client computing and internet of things. china's premiere has urged angela merkel to play a leading role alongside his country in stabilizing international markets. in a phone call with the chancellor, li warned that international, political and economic scenes are facing several uncertain factors.
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li added that germany and china should continue to defend free trade and market liberalization amid increased protectionist rhetoric from the united states. and as we said earlier in the show, we are about to enter the year of the roster. the first since 2005. with the dow just breaching the 20,000 mark, what could the rooster mean for market returns? the dow has had a largely positive correlation with the roster, averaging a return of over 5% over the last three. 1981 was the last negative rooster year for the dow with 1993 coming in as the best with an 18% gain. some of the rooster's best characteristics include being trustworthy and punctual. some of the less attractive are vanity and selfishness. it's not just the year of the rooster, it's the fire rooster. look out for those specific traits, which i believe also
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include a strong sense of timekeeping. let's bring in the chairman of china services at ts lombard, jonathan, good morning. >> good morning. >> pleasure to have you here as we kick off the chinese new year. many have been watching the chicken game going on between the united states and china. in this new year, who wins out ultimately? >> i think china does. it may be ultimately, but china is setting itself up as, if you like, the reassuring power. you just mentioned li's call with merkel. certainly with xi jinping at davos. china is saying we'll stand for free trade, globalization on our terms. as lee put it yesterday, we're a stable force in an unstable world. >> how does this play out in terms of the rhetoric we're hearing from donald trump? some are wondering whether or
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not the united states will declare china a currency manipulator. yes, we're told they're manipulating but to prop up the currency. certainly the white house does not want to see a weaker currency. >> yeah. trump is about four years out of date on this. it's an easy thing to say. i don't take the currency manipulation side that seriously. even if trump told the treasury to find china a currency manipulator, it doesn't qualify for most of the criteria which the u.s. treasury laid down. more serious probably is not the economic side, but the possibility of some kind of strategic action by the u.s. air and naval power in the south china sea or to the north. this would force china to react. >> how likely do you think that is? >> there's probably a 50/50, 40/60 chance of it? there's been reports from washington that the transition team before the inauguration was considering sending a second
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aircraft carrier group to the north of the asian sea, off of japan, stepping up missile deployment in south korea, sending more troops there. the trouble is over the last six months to a year, the u.s. has been losing ground in east asia. a lot of southeast asian countries which were under the u.s. umbrella in the past are siding up with china, south korea is in the middle of a political crisis and north korea unpredictable. >> certainly so many uncertainties hanging over the region this year. let's talk about another area of economic consequence. we heard from wilbur ross talking about steel dumping. will this occur once again? will we talk about trade retaliation on this front? >> steel is interesting, there are high u.s. duties on steel. only a small slice of steel exports go to the u.s. so you could have a headline war
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about steel without it having that much effect. more serious is if you have an across the board tariff raised on chinese goods going into the u.s. china could react in quite a number of ways. first of all by making life much more difficult for u.s. companies operating within china this would also disrupt the whole supply chain for companies like apple. and china can -- it's got quite a few weapons there. i don't think the currency is likely to be a really -- a real playing ground. it will more be on reciprocal tariffs. >> jonathan, thank you very much for joining us. sad to say we have to take this break. that's it for today's show. i'm nancy hungerford. "worldwide exchange" is coming up next.
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good morning. riding the rally. the bulls battle to the finish the week strong after the dow sets new all-time highs. >> the tale of tech. shares of google parent alphabet tumbling. and president trump and british prime minister theresa may will be meeting at the white house today. it's january 27, 2017, and "worldwide exchange" begins right now. ♪ good morning. happy friday. welcome to "worldwide exchange" on cnbc. i'm sara eisen along

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