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tv   Street Signs  CNBC  June 26, 2017 4:00am-5:01am EDT

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secure a deal of his own. >> what i want is free trade agreement, custom agreement. i'm pretty sure. >> too little too late germany social democrats try to reverse, but they pull further ahead. we speak in a few moments time we're going to give you some updates on this german info
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coming out 124.1, in june against last month's 123.3. we are also looking at current conditions expectations index, 106.8. that's the june against 106.4 last month now, the italian government agreed to wind down two lenders. the deal could cost the state up to 17 billion euros. the government said it would offer additional guarantees to cover potential losses speaking at a press conference, he says it is to avoid disorderly failure of two lenders. >> this crisis reached a level that required rescue intervention to avoid risks to everyone over disorderly failure. this rescue intervention is
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directed as favoring account holders and savers of the two banks and in general in favor of the economy of the territory this is one of the most important territories for our national system and economy for the part of small and medium size businesses which certainly plays a major role and historically relies on these banks. >> you can see shares up 3% after the bank absorbed good assets from lenlders as part of the deal 4.8 billion euros to keep its capital ratio. they say it is fully neutral in terms of the ratio and dividend policy we have spoken to a range of experts about intesa some say they could have approached in a slightly different way, most positive about the latest effort to clean up the financial system.
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>> what the government did this time was really to use money to safeguard the senior bondholders. i think at this stage could have been different choices. >> such as >> it would not have undermined financial stability, i think overall this decision is positive although -- it reduces uncertainty. >> they're slightly caught. they have to exaggerate the significance to get away with state aid. in a sense, they have to talk up potential disaster, otherwise they wouldn't be able to take the action they're taking. thank god we're getting pragmatism here. i can't help but think, when did tim geithner sort out u.s. banks, 2009. taken best part of a decade to do that in 18 months once you get through it, after
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the prices you come out strong. >> it is in the interest of involving the government to take on some of the capital hits in order to clean up the system and give the good assets of a banking system back to the overall private banking system and that's what we've seen today. >> clearly italian taxpayers are on the hook for this is this a blow to rules we have seen instigated across european banking union? >> well, they -- if you look at the press release this morning, great emphasis placed on different aspects of the economy that they're looking to save talking about saving of 2,000 households and jobs of 3 million people this is very much concentrated on a particular area of the
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economy. rather than referring to overall systemic risk which the banking rules apply to what's different, you look at here and what happened in spain, you saw taxpayers weren't involved in the situation, and indeed the bank that took over did actually san tanlder did have some effect on shareholders, given the equity rais raise, it is to protect an important part of italy. >> one of the announcements was the head of bank, ex-head, is one of the people involved in liquidating two smaller banks. is there a problem, a systemic problem in italy's banking sector needs to be addressed and still not being addressed? >> demonstrates lack of imagination as far as bringing old characters back into the game i think hopefully work for
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broader agreement, but there's insularity one of the reasons we saw so little progress in ten years what we hope to see is get momentum to acceleration and plan in place to be replicated going forward. >> thank you very much gemma ak continue from cnbc. germany social democratic party fallen further behind for polls ahead for general election in september democrats opened up a 15 point lead according to survey this weekend they urged party leaders to continue the fight. joining us on the phone from kiel, ralf stegner thank you for joining us >> good morning. >> i just wonder with that poll situation over the weekend, is there any way back for your
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party in september's elections do you think >> well, i think it's not decided at all election not only in germany but other places, sometimes things come different from the polls. last minute tax and things change what we will do and we just opened up the election campaign with our party convention yesterday, so if conservatives think they have one already, that's good for us. and nobody knows how things turn out. we started out anyway with party convention with a strong party program that showed differences, big differences between the conservatives and social democrats and after you see a united party that stands behind our chairman.
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>> you mention whether conservatives had essentially considered the election already over, one of the things that's potentially a problem for you guys is chancellor merkel doesn't want to get involved in campaigning. does that frustrate your efforts? >> well, that worked td system not to talk about political program worked twice for angela merkel not everything that worked twice will work for the third time because you can see in europe we have a crisis there, you can see the difficulties of relationships with the united states with president trump there. people expect their political leaders to tell them what direction will be. therefore i don't think angela merkel will have it as easy as the last two times just to get away with not talking about how the tax system will be, how the
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pension system will be, how she wants to bring europe in a way together to withstand policies that donald trump is advocating. we have a very experienced european leader and we have a very enthusiastic politician was able to i think explain to voters what the social democrats want to do good for our country and good for the future of our country. angela merkel's experience and she was successful but doesn't have many ideas left for the future and i think the election campaign will show that. >> one other question for you, i'm intrigued about german relationships with the united states we have seen they have been quite difficult in the last six months since president trump came to power. if martin schultz was elected chancellor, how would he change that tredirection?
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>> what we shouldn't do is take an anti-american course. i mean, i lived there for three years, we should never forget that the relations of the united states are very important for us, for europe and us too. and they will survive trump presidency differently yet when george bush led the united states and this war against iraq, the right wing government in germany withstood this policy, and angela merkel at that time, leader of the opposition was in washington and said she would go along with george bush. and i think same thing is happening right now. donald trump does a lot of things that are very worrisome for europe, make nationalistic developments in europe stronger. i think martin schultz will withstand that as much as he does that in other crises in terms of, for instance, the
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situation in turkey. angela merkel doesn't say much about that, and i think in germany many voters will expect that german leader would say to donald trump certain moments won't go with us in situation where we have brexit and difficult developments in terms of relations to russia, we have turkey and threat through international terrorism and all that kind of thing, i think social democrats have good chances as record of party of peace and good european records and therefore i think that will play a major role this time. >> mr. stegner, thank you for joining us, the deputy leader of
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the social democratic party of germany. let's look at the european markets. we see positive markets. ftse is up a half percent. also up a half percent in paris. up four-fifths of one percent. in italy, seeing it lift more than one percent if you look at the european sectors, we seafoe food and beverage doing well. banking sector doing incredibly well getting a lift from news out of italy. health care, both of them down negative this morning. we take a quick look at nestle shares, focusing on that sector, looking at the stock in particular almost 4% on the back of the news about taking stake in the company, driving change when it comes to a stake in l'oreal.
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more than 1% of swiss food giant owned by billionaire activist, called on the largest packaged foods market to share business including that stake in l'oreal. gemma, they announce this in a move to investors. what are they calling on nestle to do? >> summarize what they want done, they want three key things one to improve the actual operation. looking to boost or identify a formal profit target around 18 to 20%, remember currently around 15% calling on nestle to reorganize its portfolio more aggressively, optimize assets. divesting 23% stake in l'oreal thirdly, financial engineering looking to optimize what they clearly see as inefficient balance sheet. s three aspects. we see corporate which often
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move slowly compared to aggression of a hedge fund move on the top of their game such as a download while if you look at and lists, they think it is moving the right direction with regards to their portfolio. they want things moving more quickly and more aggressively. >> we have seen historically active investors haven't done well with these. why does down low think they're different? >> they have a unique track record they don't always get exactly what they want, but they generally get some kind of change they have come out with a more aggressive plan, didn't get the merger but got an aggressive operating plan dow and dupont looking at redoing their merger, looking at ways to change it. might not get exactly what they want, but they generally get something close to share price.
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coming up on the show. bank of international settlement says it is time to normalize but how perilous are the risks for central banks. talk pros and cons after this short break. these days families want to be connected 24/7.
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that's why at comcast, we're always working to make our services more reliable. with technology that can update itself. and advanced fiber network infrastructure. new, more reliable equipment for your home.
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and a new culture built around customer service. it all adds up to our most reliable network ever. one that keeps you connected to what matters most. it's time to normalize, that's the message from bank of international settlements in the latest report. central bank watchdog says with improving economic outlook, policy makers should begin unwinding and raising interest rates, despite upbeat assessment, they warn soaring debt levels and low productivity levels are persistent risks. gemma is joining us. james, i want to talk about the dollar looking at the numbers, it is weakening against euro and
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sterling what's your long term outlook? gl probably close to floors on the dollar the fed, we were surprised with that rhetoric from the fed, they upfwr upgraded economic forecast it suggests longer time six months plus we will start to see -- short term probably some weakness cooling off inflation, oil prices, et cetera. they probably have a little wiggle room. policy normalization is important. as long as we don't see too much this summer, probably see another rate hike in september consequently, we'll see strength in the dollar. >> lot of weakness in the vix. you're calling for, bis is calling for, impacts for vix
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>> it is unusual, up 10.02, less than 5% of the time is it this low. you look at futures positioning, it is varied trade, not in long positions, in short positions. you get a fantastic yield shorting the vix, it is in steep. when you hike interest rates, that yield becomes less attractive people start to unwienld four times standard deviation. there have been a couple of incidents recently we have seen the trade nearly unwind. comey testimony we saw a vix spike 46% in a day from 10 to 15%. ultimately, not our core view, remain in a tightening mode. something to watch for and could create disorderly unwind in the
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market. >> that could now be impact on the markets, they suggest could be short term turbulence >> not really a great correlation between valuations and the vix. but in the last two years has been high correlation, suggests low volatility, poor sense of security >> meeting theresa may and david davis a week into negotiations of brexit. do you see on-going political turmoil in the uk as problem for instability? >> to some extent, yes there is this political theater versus reality political theater, expressing hard line, theresa may doing the same it is not off to a great start, behind the scenes there's more pragmatism and deals done than we can see by what's expressed in newspapers. >> thank you very much head of research and investment
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strategy at etf securities and my colleague, gemma actin. thanks so much for that. we have been talking about leader of northern ireland will meet theresa may, they try to finalize confidence and supply agreement. she told sky news she hoped to conclude another deal with the prime minister on power sharing. he told the bbc expects a bumpy ride in negotiations, insists both parties share common interest when it comes to signing a mutual beneficial agreement. they clarify about future writes of eu citizens in the uk >> what we set out to do is create a status almost
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equivalent, they get the same residence rights, unemployment rights, health rights, welfare rights, pension rights, and so on don't get the right to vote. >> joining us to talk mark cahill i want to ask you about european citizen rights do you think people across the uk hailed from the european continent breathe a sigh of relief when they understand what the future holds >> sadly not yet unfortunately we have to see what's coming out of negotiations. need to think about these people to make sure they feel comfortable and certain about their future. >> we heard from the chancellor and prime minister that membership of the single market is no longer on the table, membership of customs union with a few caveats doesn't seem likely do you think a quote, unquote softer brexit is a possibility what makes you think that's the
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case >> we hope for softer brexit hard, soft, smooth brexit is important to us. what we think we need in this country is unemployment. in the last 12 months, we have seen 80,000 bulgarians come to the uk and find work in the uk we're going to need that sort of skills and talent to come to the uk at the moment, we're almost at full employment. >> the deal that's been proposed on european citizen rights in the uk gives opportunity for people arriving between now and as yet undetermined cutoff date to earn rights we talked so much about. do you think in your capacity that that will incentivize more people to come from europe to try to find work between now and the cutoff date? >> not sufficiently. we really would argue for more incentive for people to come to the uk and work here >> what are the concerns is border control, maintaining control of the borders, theresa
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may promised to reduce immigration workers coming to the uk you think that's bad news for the economy. >> i do. we need an economy that's going to prosper, that will create jobs we need to attract and continue to attract people into our country to fill those roles. and up skill we need skills in europe to come across to the uk. >> one of the drivers was control of borders we heard from the chancellor he will prioritize the economy and jobs is that a real seed change in conservative body thinking >> i think we're seeing softening of the hard line they were originally taking, now maybe a softer line and listening to business. business should have a voice in terms of what we need in the business environment by way of people coming over to enjoy these jobs, boost our economy further. >> thank you so much indeed. mark cahill ukmd of man power
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joining us onset a quick break. check out world markets live that runs through the trading day.
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welcome back to "street signs. the gft strikes a deal to wind down two doubled lenlders and protecting senior bondholders. shares of nestle top the european market, after they reveal a $3.5 billion position with demands to reshape the swiss food giant. closer to deal arlene foster returns to london in search of agreement to prop up theresa may's government as brexit minister david davis vows to secure a deal of his own. >> what i want is free trade agreement, customs agreement and so on. >> german business morale his a high and angela merkel conservatives pull further ahead of rival democrats three months before the country goes to the
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vote let's look at this green across the board of european markets. ftse is up three-fifths of 1%. same in germany. up .9%, and ftse, success story of the day, if shareholder, up that's on the back of that news about san pal oh you look at foreign currency markets. euro has fallen back against the dollar, was doing better in the day's trading. dollar strong against a yen. sterling up a tenth percent against u.s. dollar. aussie dollar slightly higher than couple hours ago. japanese air bag maker takata is seeking $1.6 billion in aid from american suppliers and safety systems
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takata shares are now suspended, will be de-listed july 27th according to tokyo stock exchange >> japanese media report this bankruptcy filing came after special board meeting was convened over the weekend. moving forward here, takata seeking $1.6 billion in financial aid from key safety systems. they plan to retain mostly all of takata employees globally and will keep all the manufacturing facilities open in japan the two sides in the process of finalizing the agreement, expect that transaction completed by q 1 of next year to make it clear, two sides saying the rehabilitation process will have no bearing on the driver's ability to get the replacement parts without any charge top management saying in the
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press conference they will step down once the transfer is completed. these bankruptcy filings don't relieve them of liabilities, with more than 60% of the 43 millionaire bags recalled in the u.s. yet to be replaced. the executive publisher of kelly blue book says roughly $2 billion of assets they're unloading won't come close to paying for the recall. >> do the math how long it takes to replace each one, how many there are to replace, it is a multi year process at its best, and realistically, could be twice that long by the time you're through the logistics of contacting owners and getting them in cars it is expensive, timely, likely to go on long after this bankruptcy and require more money than the bankruptcy will supply >> car makers have been shouldering cost of the recalls until now. today, following bankruptcy
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filing they express skepticism that takata has the ability to pay for the recalls. honda saying they're in talks with takata, expect, quote, difficulties they may not be able to recover more than a half trillion yen in recall costs from takata subaru in the process of calculating how much they need to set aside for costs for the current year this is a long time coming with liabilities for takata totalling more than $9 billion recalls for faulty air bags stem back to 2008 inflaters killed at least 16 people, injured more than 180 globally, leading to the largest recall in automotive history. a cyber attack targeting british parliament up to 90 accounts linked to the uk government. a spokesman said they disabled remote access in response and weak passwords were responsible for the security breach.
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newspaper reports that security sources say russian government may be responsible for the attack eu antitrust officials set to hit google with a fine maybe as high as a billion you're owes, accuse the giant of breaching the competition rules. the decision likely to come wednesday according to report from the financial times now, payments industry seeing a surge of competition from tech giants like amazon and apple moving into that sector, with massive customer bases putting pressure on established payment players. has a guest with him that can give insight is that right? >> good morning. yes, that is right i have here with me the head of alley pay. that's the payments arm run by alley about a about a. about to launch in africa. run me through your expansion
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into africa and what the reaction is behind that. >> hi. very nice meeting you. yes, we are making announcement that we are going to launch in south africa to be more specific in africa. it is to enable chinese tourists to purchase tickets more conveniently. >> what's the rationale launching in africa, the potential of that market for alipay >> at the moment, we are still targeting the chinese customers who travel to africa you know, with more than 135 million chinese traveling outside china every year, you know, adventurous part of the chinese, traveling more and more
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to africa. we want to make that experience better for chinese >> how big a business could this be in terms of revenue for the border and financial business? >> we see -- this is the first step we take to enable merchants there and going forward looking to the market more deeper and to see if there's opportunity for us to service the users there as well >> moving over to europe, you have been in europe now a year what kind of growth have you seen how many merchants now accepting alipay as payment for chinese tourists. >> having for around one year, now around 10,000 merchants accept alipay for the physical merchants in europe. i mean, over the world, more than 120,000 merchants accepting alipay now. >> when you look at expansion
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across europe, see more regions, what's the plans for the rest of the year >> we are, yeah, we are left with around 11 countries now in europe, we're expanding to more countries. we see chinese footprint. >> when you look at the product, allow chinese tourists to use it abroad, what about expanding this for local people in europe and actually ride with the likes of apple pay or samsung pay in europe or other parts of the world? >> i don't think those are our rivals, we are quite different we are thinking about, you know, how to move into the user side in europe. the question is where can we create value so the first step we take in europe is on the merchant side
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to educate the market so the market knows what alipay is about, not just the payment platform, more than payment, it is a marketing platform to help merchants better engage with customers. so it is a first step for us to take to educate the market. >> great that was rita lu, talking about the company's expansion, not just here in europe but into new areas as well, in particular south africa back to you in studio. >> thank you so much top republicans want a vote on the democrat health care bill this week, with key republican senators expressing doubt, it is not entirely clear he will get the victory he was hoping for. kelly o'donnell has more >> reporter: the president's prescription. >> i want to see a bill with heart. health care is a very complicated subject. >> reporter: his diagnosis of the acute political challenges around the senate republican health care bill >> you move it this way, this group doesn't like it, move it a
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little over here, a very narrow path honestly nobody can be totally happy. >> reporter: dissatisfaction is palpable as several reluctant republican senators want to pump the brakes. >> i have a hard time believing wisconsin constituents or myself will have enough time to properly evaluate this >> it is hard for me to see the bill passing this week, but that's up to the majority leader. >> right now i am undecided. >> reporter: for senate gop leader mitch mcconnell and the trump white house, it is a tool to get republicans to decide and deliver before fourth of july fireworks go off tweaks and sweeteners to the deal will likely come in the next few days with official cost estimate the overall includes new rules regarding medicaid that are already raising alarm bells. this year under obamacare, 31 states accepted expanded medicaid funding
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for the federal government, 90% of the public insurance plan, for lower income americans chlts in 2020, the senate gop proposal makes states pay a larger share. by 2024, the federal government and states would split medicaid costs. conservatives defend that approach claiming federal money will still be there. >> it is never going to be cut or shrink, it will be eventually growing at a slower rate. >> reporter: if states can't afford to pay more, coverage cuts are inevitable. >> the most vulnerable people in our society and health care providers such as our rural hospitals and nursing homes, most of whom are very dependent on medicaid programs >> that was nbc's kelly o'donnell. they will soon release cost estimate of that senate republican health care plan. health and human services secretary tom price told cnbc
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the bill aims to stabilize what he calls a collapsing health care system. >> the important thing to look at, what this will do is to stabilize the health care market right now we have an individual and small group market in health care that is collapsing before our very eyes, issuers are pulling out, anthem pulling out of wisconsin and indiana next year, if things don't change prices going up, premiums going up, deductibles, insurance cards but no care. coming up, italy central right parties surged in local elections with general election on the cards in under a year, what this means for prime minister and whether berlusconi could launch another come back
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welcome back to "street signs. european central bank revealed which companies benefitted from the 93.7 billion euro fund purchasing program companies have benefitted from that the ecb decision comes as european parliament members criticize the bank for lack of transparency now the ecp will provide information as well. ecb facing renewed presh to your wind policy as they call on central banks to normalize rates. merrill lynch barn be-martin told cnbc he expects to stay dubish in months ahead
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>> we probably need a rollover moment in eurozone economy to consider things like equities which are just not there yet the problem is inflation isn't delivering at his speed, neither is recession looming he has the mandate to go to the government and say we need something drastic. we think high yield bbs continue to be upgraded quicker than people anticipate. that upgrade cycles makes those names eligible talk about bond buying, but there's a world of high yield credits. >> that was barn be-martin talking there. asked him for his take on the path to normalization. >> going to represent normalization, been through extraordinary times with
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negative interest rates. we haven't had that before and had them for a long time that hurts the banking business. looking for normalization of rates. ecb had great impact in stabilizing the economy, lenlder of last resort through the crisis as the economy has come out of recession, it will be time for rates to normalize. >> how much did the ecb do this? >> when? that's a good question should be progressive unwinding, not to spook markets too much. as they see inflation coming back with stronger growth rates, they should progressively start cutting back on purchases. qe and raising rates. >> you mention spooking markets. is this something we're going to see a broad sell off, you recommend when they unwind to get it wrong >> saw the effects of tapering when announced well ahead, and that didn't have impact. now the markets are more ready
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for that discounted quite a bit even then movements certainly would have impact. >> also in terms of the bank, if you were asked by the ecb or spanish government to rescue a bank, is that something you would be willing to do >> i don't think in this day and age that's how things work, it is an open market. we had opportunity to look at this particular bank and it did not fit into our strategy. we're much more focused on leveraging technology to benefit of customers, transforming what banking is for and really in that context it did not fit well we looked at it but decided to pass. >> as the fed begins a rate hike, are you worried about impact on emerging market business >> i think they're more ready than they have been for normalization of rates in the u.s. dollar.
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they're central banks, independent and following through with their own rate hikes. i believe the impact will be there, but nothing extraordinary, nothing the markets are not discounting already. >> that was the carlos vila. center right parties won big in second round of local elections there. one of the large tests ahead of general elections due in under a year conservative party led by berlusconi and leftwing strongholds in central italy this is a major setback for the former prime minister who was reelected leader of democratic party earlier this year. i am happy to say gemma is here with us, and joining us on the phone, marco elser good morning >> good morning. how are you? >> very well seems like a surprise to many that general oh a has fallen to the center right
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is that a surprise to you? >> not really, it was expected actually because of i think the fall back of what happened first offal, i think viewers should be aware of the fact personally i don't think the elections have that much importance voter turnout was extraordinarily low, less than 50%. elections took place yesterday it was amazingly sunny day most people went to the beach and didn't care about these elections. they weren't national elections. there were some regional elections, but they were really not important. voter turnout was less than 50%. the fact that general have a went to buch ee, a man with experience abroad is a good sign certainly for general have a,
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but it is not a sign of -- they got absolutely nowhere knew the work -- didn't bother going out and campaigning for one single mayor or local election they knew the elections turnout would be very low. less than 50%. italians can take their election responsibilities very seriously until recently in italy, it was obligatory to vote if you didn't vote, you were fined. less than 50% turnout is very significant. the results, yes, the central right one, but i don't think read too much into it. i think that would be wrong.
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>> i wonder then should we be watching what's happening with the italian banking sector more closely than what happens with narrow votes >> i think that's an interesting point. what happened over the weekend i think is arguably a template of how restructuring should be done, even though they were done very, very fast. cudos could go off to all of the people involved in the restructuring. the politicians because when the going gets tough, the tough get going. the two banks, declared bankrupt friday and over the weekend offered to buy good assets for one euro take over approximately 1,000 branches from the two banks that
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were going to be disappearing. today at the opening no depos ters have problems with assets and have a run on the bank biggest problem even for a aaa bank, all the depositors one day ask for money, no bank in the world has those assets at hand available. so did a good job as did the government and the minister of finance, of economic activities worked on this very, very hard what's interesting, repercussions on people who invest in the bank, there are two types of investors shareholders were mainly these two banks are located northeast of italy shareholders practically lost everything senior bond holders will get 100 cents on the dollar. subordinated bondholders, if small investors, owners of
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accounts at the banks are going to get reimbursed completely if instead there were other investors, going to get 80% and then eventually another 20% once the italian government takes over the bank activities which includes tens of billions of euros and high performing loans. similar incident happened in 1990 the government money that was put in, they end up getting back 90% of it. the situation is not as bad as some politicians in brussels will have you believe. >> we only have 30 seconds left on the program understand the difference between spain and italy as far as you see it because spain followed the ecb rules, basically to a t, italy has gone for politically ex-paid yant solution when will the situation change
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>> yes humbly i'll tell you, i think that the spanish system is going to come back and bite european central bank and bbba like a scorpion's tale, they totally forgot one important thing in the case of spain, bbba, it is my understanding -- >> marco, i'm sorry, i have to stop you there thank you very much for joining us >> no problem. another time then. >> head portfolio manager. thank you very much. that's it for today's show "worldwide exchange" is up next.
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good morning tech and energy front and center wall street kicks off your week. trading day head. $3.5 billion bid on nestle for the largest packaged food maker. details coming up. live in washington president trump hosts indian prime minister "worldwide exchange" begins now. good morning a warm welcome to "worldwide


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