tv Street Signs CNBC October 17, 2017 4:00am-5:00am EDT
hello. welcome to "street signs." i'm carolin roth these are your headlines airbus shares rally as it takes a majority stake in bombardier amid a trade dispute with boeing. a bold move to break up credit suisse. shares move higher as a hedge fund turns activist on the bank, but credit suisse says it remains activist hedge fund
look at the stock this morning, up nicely to the tune of 2%. credit suisse issued this response to cnbc saying while we welcome the views of all our shareholders, our focus is the implementation of our strategy which is well on track karen has been talking about this story all morning long. i want to continue that discussion with her. i'm a bit flabbergasted by this. this is a share holder who holds 0.2% of shares, not a big fish do you think he'll have any success here >> he's an interesting character and has a track record he was trying to educate for higher share prices in other companies, and is involved in gama, he is taking on a bigger fish with credit suisse. when you think about who is also
on the share registgisteregistee harris associates, they are a hedge fund that wants a stronger return, even though they are supporters of thiem, they are quite strong on wanting to see a better number. he might have some natural friends already on the share register perhaps you want to talk about the wall street investment bank and asset management and wealth management division. do you think this is a business that can be split up into different divisions? >> not at all. a couple analyst notes point out that, you know, wealth management on a stand-alone business might make sense, but not in investment banking where returns are low, and not asset management, which in many businesses is not just credit suisse being folded into the
wealth management business so splitting these businesses up and hoping for some of the parts evaluations, to me that doesn't make sense you need the asset management and investment banking arm to feed into the investment management business otherwise a conglomerate like this doesn't get the returns and doesn't attract the clients. i don't think his plan has merit and i don't think he'll he'd the calls coming from rbr. first of all, it doesn't have a huge amount of voting share, and because they are in the middle of their turnaround plan why disrupt that if it's starting to pay off. >> investment banking isan interesting area there was a process where it was a business that wanted to reduce exposure if you look at credit suisse, some still think of it as weak if you look at the equities
division, they think they could have a better business in that area of the markets. i think what happens investment banking may be the key there are coupon payments. it's an interesting story to see who wants what out of this business now i think this morning it's a great story for the media to pick up on, but in terms of investor traction, the sovereign wealth fund, i don't think rbr shareholder will have much success. >> are there ramifications for ubs, you have an activist investor involved on one board, an activist investor involved in a number of other european
companies, it's a different point in time for companies. so they might feel some of the might of this. >> this have in the past, but it's never worked. the focus now is not so much on the banks, everybody knows this is a restructuring story no one will be surprised to see changes need to be made at deutsche bank and credit suisse. the bigger interest and the more exciting turnaround potential is with the consumer stocks, nestle for example. that's where some activists are coming in and that's borne some fruit. karen will continue that discussion in the months to come thank you very much. you're done for the day. >> done here >> uk business minister greg clark welcomed a decision by airbus to buy a stake in bombardier, the deal would come at no cost to airbus and give them an interest in cseries.
bombardier will lose control of the program as it deals with a costly trade dispute with boeing clark said he will continue to work with canada into an attempt to bring the dispute to a swift conclusion for more, head to cnbc.com. this is the big move in the markets overnight. treasury yields traded higher as investors focused on a new name in the race for the fed chair. president trump reportedly met stanford economist john taylor as a potential candidate and was impressed by the outsider who is more hawkish than some other names. cnbc sources confirmed a separate media report that the president will interview janet yellen this thursday about the prospect of staying on a predicted poll shows jerome powell is the favorite with 32%. taylor is second with 21%, and once a front-runner, kevin warsh dropped behind janet yellen and gary cohn has a 6% chance.
joining us now for discussion are john johnson, senior portfolio manager and joumanna bercetche. joumanna, taylor is widely seen as more hawkish what do you think will change at the fed >> look at the two contenders, jerome powell on one side and taylor on the other. john taylor is perceived to be more of a hawkish addition to the committee, he's renowned for his taylor based model of assessing where the right interest rates should be for the economy. that's a scribeprescribed appro, looking at employment, inflation that would suggest now a much higher rate than the current prevailing rate. he has said in the past that it is closer to 4%. the fed has it at 2.75 john taylor, yes, he makes sense
in that he's an economist, he has some experience at dealing with the treasury on an advisory capacity but then he is also a lot more hawkish. whether or not trump wants to go with someone this aggressive on monetary policy is up for debate powell is an existing member of the fed, he has been quite dovish. >> he has said the fed needs to think about the hiking path before going forward again, it's unclear whether or not trump wants to go for that hawkish candidate or the dovish candidate. one of them works in favor of stock markets. >> hopefully we'll have that decision by the end of october that's according to the white house. it's good to have a fixed income expert around the december thk
morni desk this morning. ten-year treasury yield higher overnight. is the market in the mood for -- >> we have strong growth financial conditions have continued to ease, despite the two hikes we have had this year, financial conditions are easier than when we started the year. stocks are up, yields are lower, spreads are tighterment all have continued to ease financial conditions so the fed has not really been successful in tightening financial conditions so the market is, to some extent, possibly underpricing the hikes that we could be in for for the next -- into 2018. whether we get powell, john taylor that will have implications taylor is obviously supporting
deregulations with his -- in line with trump. he is much more hawkish, rules based that would be dollar supportive, which is trump policy so it's a mixed bag. powell is certainly the safer hand, easier choice. he's more gradual rises, but he's not as comfortable with the growth policies and the deregulation >> for all the candidates, the very tough decision will be to continue tightening while inflation is low everyone is looking for inflation. no one seems to be able to find it yellen has chosen to look through it she said this is down to tempered factors, the latest fomc minutes show discord within the fomc whether it is temporary or longer lasting. do you think the fed chair can continue to take the same approach >> most members of the fed believe the phillips curve is still a guide.
i think people have been expecting wages to continue to go up as unemployment goes down. i think there's a level, inflation has historically gone up i think that's a -- there's a level. we need to know what that level of unemployment is 4%, 3.8, but in every cycle, inflation has gone up. >> isn't it different this time? we have different technological factors impacting the work force? >> some of the arguments, you have less impact from unions if you compare it to the '60s, the amazons of this world they were part of the last cycle, 2000, 2007, '89 to 2000, we had a lot of technology. there are multiple other factors that have been mentioned
it wasn't until we hit 5.5% that wages start god ed to go up. 2000, 2007, when we got closer to 5%, wages started to go up. i don't know what that level is that will trigger inflation, but i'm not sure this is different we will have to find that level. it's difficult to find where that level is, but we'll get there, whether it's late their yer later this year or next year. >> what are you telling your clients to put their money where do you see opportunity >> it's a tough market we are working to increase flexibility. we are sorting government bonds in our funds we think we're not compensated for the risk
we have been taking down credit risk, credit has gone from 60% to 20% i think credit is okay, but you should be running much less than you have in the past you should have a mar jgin of safety you need to be more creative there are trades and other ways you can generate attractive return, but you need to find that area. >> get creative, that's the message. thank you both we are going to go for a quick break. still coming up on the show, netflix shares rally to an all-time high after subscriber growth tops forecast we'll bring you details after ick short break staround my friend susie cracks me up. but one laugh,
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range. the education company is still in the process of a digital transition that has faced a number of obstacles over the last 12 months co john fallon told cnbc that the next few year also be tough but is confident the current strategy is best for the long-term. >> it's early days, but we are narrowing guidance to the top end of the range it's the first time in some years that we've been able to do that the actions that we announced at the start of the year are really helping us quite significantly and our biggest market, higher education costs will remain tough for the next few years but strong balance sheet, net debt below 800 million pounds by year-end really investing billion dollars a year in the digital transformation, big growth opportunities coming through as i say, encouraging early days, still a lot of work to do, but the -- >> it's less bad, isn't it that's what i'm looking at here
than you had previously feared why -- just give us a basic point here i'm sure viewers are interested. why lower enrollments in the united states? there's structural issues in the united states, but it's a growing economy. >> it's an interesting phenomen phenomenon if you go back to the gi bill of the 1940s, collegelments are counter cyclical i when employment falls, college enrollment falls and danone has exceeded analysts expectations for the third quarter. danone said the acceleration in underlying sales was led by a strong recovery and demand for infant food formula and watt procedure du water products in china. netflix shares hit a fresh
all time high as the company posted stronger revenue and subscriber growth in the third quarter. arjun joins me again shares up 1.3% in after-hours trade. they're at a record high, up 64% year-to-date what could possibly go wrong for netflix >> i think netflix is really spending a lot of money, they upped the money they'll spend to 8 billion next year. that could be a potential problem if subscriber numbers don't continue to grow at rate they are they added 5.3 million users this quarter, which was very strong beat market expectations, that's helping to offset spending they also announced price rises which are coming into effect which could give them another tick up when it comes to revenue. analysts are not expecting much churn, not expecting to put people off from joining the service. that looks fairly positive of course, it's spending that analyst need to keep an eye out
for, whether that might run out of control, especially in the face of massive competition from amazon, apple jumping into the space as well. >> at this point everyone thinks this is a one-way bet and it worked beautifully for those investors investing from it early on the price hikes, want to talk about that that was mainly directed at the u.s. consumers do you think that this would be something that they would replicate across the rest of the world, the international markets is where they're growing massively. they pretty much penetrated all of the u.s how likely is it the turn won't increase if you see the price hikes going up in international markets. >> slowly, this is not the last price hike from netflix. particularly because they're spending more money. those price hikes are coming into effect in the uk, another one of netflix's strong markets. but they are just scratching the surface on the international markets. they're trying to get into new emerging markets, localize content, bringing out local
language shows in particular markets, germany is one of those with a local language product coming up soon so they are really trying to dig down deep and offer a product to local markets, that's very localized. that's a necessity as amazon is doing a very similar thing i think when those markets begin to mature, you will see price hikes. it's necessary given the original content netflix wants to make. >> 80 original films in 2018 is what they want to make facing huge competition from amazon and others. do you feel that because netflix got this head start when it came to the ott dominance, will they continue to thrive like this or will amazon overtake them? at the end of the day, it comes down to the show, blockbuster show like "house of cards" or "the crown" or whatnot >> it's very much hits driven. netflix has got that first
advantage, but jeff bezos loves spending money on markets. so netflix faces an uphill challenge and they need to continue to make those big hits. >> i can't believe you're still talking to me about "stranger things." i still haven't watched it >> season two on the way >> i'm not a fan when is "the crown" on its way >> december. >> i can't wait. amazing show. shares in kobe steel recovered slightly in today's trading session after they hit a five-year low in monday's trade. the rebound came despite news that the u.s. department of justice entered the investigation into the data falsification scandal at the japanese firm. makiko utsuda has more >> yes nikkei has reported that product quality data was falsified for several decades at some kobedy steel plants in japan. employees involved in the misconduct used the industry term toxite to refer to the
shipping of products that did not meet the standards requested by customers it means special acceptance in japanese and usually refers to customers requesting not up to standard products, but kobe steel sometimes sent such items without consent. the procedures were hand down in what was a manual allowing the practice to continue as managers came and went. so data manipulation may have occurred with the knowledge of plant directors and quality control directors. some shipments came with forced inspection certificates. systematic data falsification took place at least four japanese production sites, the number of affected customers swelled to 500, including toyota, hitachi and japan railway. many are scrambling to test the safety of materials used for their products and are
considering having kobe steel pay for replacement costs. u.s. authorities have requested the firm to submit related documents. the firm is conducting a group-wide probe including interviewing with former senior officials. it says it will complete safety inspections for shipped products in two weeks and a report is to come out in about a month. that's all from the nikkei back to you. >> thank you very much for that. coming up, we get the latest reading of uk inflation, which may get a surprise lift. ahead of that, sterling/dollar is rising to a quarter of a peen rct.
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welcome back to "street signs. i'm carolin roth these are your headlines airbus shares rally as it takes a majority stake in bombardier cseries progra amid a trade dispute with boeing. a bold move to break up credit suisse. shares move higher as a hedge fund turns activist on the bank, but credit suisse says it remains focused on its own turnaround program counting on china.
danone shares touch record highs as the french food group beats sales expectations on solid chinese demand for infant food and water. and pearson rallies in early trade as the education group raises profit forecasts as cost cuts start paying off. we are just looking at some inflation prints coming out of the uk for the month of september. we're looking at cpi up 0.3% month-on-month, 3% year-on-year. bang in line with expectations the highest inflation number since april 2012 sterling falling slightly after the inflation data, it has run up quite a bit, just in the last 20, 30 minutes or so in the run up to this we're currently changing hands, 13 1.3266 uk inflation hitting a five-year
high in september that should keep the boe hike on track a couple factors affected the inflation, such as the ryanair booking disaster which led to higher fares for many customers and potentially higher gas prices 3% is a high number. it doesn't elicit a better from the boe governor to the chancellor, but had we hit 3.1%, a letter may have been sent. obviously it is 1 percentage point higher than what we're seeing versus the target buy the boe. once again, 3%, that's the number we got. let's get some analysis, joining us now is rob wood from bank of america, and joumanna bercetche is still with us let's kick things off with you, rob. does thatpoints,
like the wages data. that's an important component. >> i think november at this point in time is a done deal there is another hike priced in by august of 2018. so the market has went from pricing in nothing to two hikes next year. coming back to inflation data, this one is important. it's the last inflation number that the npc will get before the november meeting. and that's
where is wage growth probably below 2%. yes, it's been better than expected, but we're running 0.2 a quarter this is rate cutting territory, not rate hiking territory. i don't agree with the ammunition point the best way the bank of england can create ammunition is to generate inflation, eliminate spare capacity, make sure the economy grows strongly then it can raise rates in a sustainable way. >> rob, will you stick around. joumanna bercetche, thank you for your input
brexit talks need to move faster, that's the view of theresa may and jean-claude juncker. they issued a joint statement last night calling the two-hour meeting constructive and friendly the leaders met after the latest round of negotiations reached a deadlock philip hammond told cnbc that businesses are waiting to see how the uncertainty surrounding brexit is being resolved >> we always knew there would be uncertainty and we would have to absorb that. right now businesses are waiting to see what the outcome is postponing noncritical investment decisions if they can. all of that is having a short-term impact on the economy. but the fundamentals are strong. deficit is down by three
quarters employment at record level avoided, it could buttrice demand in the economy. we were talking about monetary policy we know that mr. carney can be blind to what's happening on the brexit stage to be honest, not a whole lot is happening because we're at a deadlock i don't think a dinner between juncker and may can unlock that deadlock do you think that papers
expected let's not make that mistake again. let's wait and see how whatever happens does affect the data for what it's worth, i think it's affecting it quite badly. business confidence in the pmis is pretty weak that's construction orders as well that are falling. those suggesting business investment is not doing ter rificalrif ical terrifically now >> and the imf was negative about growth prospects for the uk 1.7% this year, one of the slowest growth rates for the g 10 countries 1.5% next year that's another argument for the boe to be done after this one hike >> it is weak growth would normally be a reason to be one and done or none and done. the issue for the bank of england, they think the economy's speed limit, potential growth has slowed by a lot the way they're talking, it
sounds like they will cut their estimate for potential growth by a lot. 1.7 is too fast for the bank of england. what they're saying with the rate hike, they need frogrowth below 1.7. where they want to slow it to we'll find out in the inflation report it will be a bad hike driven by weak supply and a weak speed limit for the uk that's why it probably mean there's are few if any further rate hikes to go >> rob, thank you very much for that rob wood from bank of america, merrill merrill. madrid hardens its stance nst catalonia. that's coming up in two minutes. don't go away. looking from a fresh perspective can make all the difference. it can provide what we call an unlock: a realization that often reveals a better path forward. at wells fargo, it's our expertise in finding this
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the sky briefly turned orange in parts of britain as debris from wildfires in spain and portugal swept north. also it was the sahara sands that brightened the sky yesterday. form ophelia carried dust and smoke from the sahara into the uk causing this unusual phenomenon the air is expected to clear completely by today. that was an interesting sight yesterday especially in the afternoon. let's look at u.s. futures they're looking mixed today. the dow jones seen up by 5 points the nasdaq up by 2 1/2 the s&p 500 seen under a bit of pressure this is after we saw another record close for the dow, s&p and nasdaq. the major averages rising for the fourth time in five sessions we have plenty on tap when it comes to earnings. goldman sachs, morgan stanley, johnson & johnson and ibm reporting today. when it comes to trade in europe, slightly under water the ibex 35 underperforming. the biggest underperformer is
the ftse mib in italy. the dax is off by 5 points waiting for that indicator at the top of the hour. the dpax dax is down 0.5%. in the fx space, the dollar, that was the big mover yesterday on the back of the two-year treasury yields hitting the highest level since 2008 that was on the back of news of a positive meeting between trump and taylor for fed chairman. yo euro/dollar is at 1.1768 and the pound is up, 11.3276. let's get back to spain. madrid's high court jailed two catalan separatist leads who it claims played central roles in organizing pro independence protests that trapped national
police inside a barcelona building spain's justice minuister said the move was not politically motivated. but catalan president carles puigdemont said it made the two men political prisoners. willem joins us again to discuss this story we have this deadline thursday what's been happening overnight with the two catalan leaders, that shows how heavy handed madrid has been in its approach. that's the argument you will hear from the catalan leadership and that's something that many members of the governing party in madrid say is part of the propaganda of the catalans they are seeking confirmation, looking for an escalation and the lack of clarity from carles puigdemont is part of that he's looking for political masters. so that plays into that narrative when we see these two well known figures being held in
jail overnight the protests they're involved in back in september before the october 1st referendum was about the one of the national police forces in spain trying to investigate how the referendum was organized, they were besieged in this building, three police cars, they were badly trashed. you can see the spanish argument that this is something about rule of law. but that's a narrative they'll continue to press throughout the process. clearly it's selective in who they are targeting we heard from one of the representatives in london that he expects a thirrests followine triggers of article 155. that potentially happening this week >> probably in stages or all at once >> that's up to rajoy. the process is quite complex he has to take his proposal, his government has to take the proposal to the spanish senate there a smaller subcommittee
will examine them, debate them, pass them on to a full senate to vote on them and we'll see what shape it takes, whether it's gradual incremental pressure through finances, a takeover of the spanish local police, a division station there's a range of options probably the last one is the dissolution of catalan parliament and then 54 days before we see elections. bitcoin is a fad that's what robert until hear told cnbc. speaking on "closing bell" he compared it to the metalism craze in the 19th century when both gold and silver were accepted as legal tender our next guest says cryptocurrencies are more than a new asset class, he says they're changing the way people think about the market class phillip, great to have you on the show great to have you in london. we've seen so many controversial
debate about cryptocurrencies, bitcoin. dimon said this is the currency of criminals he loves the technology behind it and blockchain what does it mean for brokerages going forth? what is important to understand is that our industry has to change and you have some brokers that will stay the classical way and some brokers will move blockchain and cryptcryptocurres you need to start by digital marketing. that will allow clients to receive the information they want to see, allow brokerage to attract new clients, to be straightforward and much more automized and allow companies to be more efficient. when i say that, it's important that technology today has a bigger role. ai today has to be implemented
all is linked. digital marketing, bitcoin, cryptocurrencies and automation of the industry to go further, less risk to be able to adapt yourself to new regulations, to allow clients to make more money this is a large market we cannot say clients cannot use that to make more money or to be hands on there for any tools they want to use this is for that, a yes. we'll only invest in highly sophisticated technology, because we believe bitcoin will be the future. >> but thereis lack of clarity when it comes to regulation. many countries, russia, south korea, china which has it banned with this lack of visibility when it comes to regulation of cryptocurrencies, how can you make a play on those new
technologies >> some countries are for and against. it's the bow beginnieginning ofr scale discussion which comes up to regulation that will come if you look at australia and japan, they have atm machines for bitcoins more and more discussion on cryptocurrencies, because today we only talk about bitcoin this is the block chain technology that will be implemented in those markets >> let me ask you about underlying business trends we heard from some of the biggest u.s. banks, they say fixed income trading doesn't look pretty. comps are tough compared to last year, volatility is down how is it affecting you? >> today, as a company based from abu dhabi, the opposite we came two years saying that abu dhabi will be raising debt, growing its market and pushing the financial center of abu
dhabi. this allowed a company like us to be able to attract new kinds of capital, because we were part of that growth it dpen depends on the region if you look at volatility, it's true foreign exchange activity has lowered, but other products have grown you can see on -- first you were talking about bitcoin, we can talk about emerging currencies, if we look at volatility on the euro, the opposite we started the year at 1.06, we are going further. understand you can't comment on what's been happening in qatar, and you have no business interest in that region or in that country i do want to know to what extent that regional crisis has impacted business for you overall? has it had a discernible impact on trading revenue, on financing activity >> first of all, volatility is good for us. it's important that you keep on having volatile markets. so we did see that
on the other side, you have ups and downs, and you can deal with certain individual problems. we've seen the attraction to be involved in abu dhabi's growth and the uae growth has dproen ma grown massively. this is what we've seen in fixed income markets, raising debts, to invest in the uae and abu dhabi's market >> phillip, great to see you staying in the middle east, saudi aramco according to reuters asked to suspend investor relations advisory work on the ipo the reason is not immediately clear. very important news flash here as we have more uncertainty about whether this ipl will go ead. that's it for today's show i'm carolin roth "worldwide exchange" is up next. these birds once affected by oil
throughout history, the one meal when we come together, break bread, share our day and connect as a family. [ bloop, clicking ] and connect, as a family. just, uh one second voice guy. [ bloop ] huh? hey? i paused it. bam, family time. so how is everyone? find your awesome with xfinity xfi and change the way you wifi.
on the hunt for dow 2300 the blue chips close in on another major milestone as more dow components get ready to report. netflix doubling down on content. the big bet the streaming company is making on original programming. and a wall street dog fight. why boeing is blasting rival airbus it's tuesday, october 17, 2017 "worldwide exchange" begins right now. ♪ >> good morning. welcome to "worldwide exchange" on cnbc.