tv Worldwide Exchange CNBC July 15, 2019 5:00am-6:00am EDT
nearly a quarter of men say they've shelled out more than $100 the last time they made an impulse buy. over half of people consider themselves to be savers rather than spenders. it is 5:00 a.m. here at cnbc global headquarters, 5:00 p.m. in beijing, china, here's your top five at five a 27-year low. china's economy growing at its slowest pace since 1992, is it the trade war? citi group, goldman sachs, jpmorgan, wells fargo and more it's a big banks earning bona a bonanza. the rally does roll on, the major averages look to open at new all time highs the dow coming off its third record close of the year sosoli
under 27,000 and christmas in july, we're already now a couple of hours into amazon's annual prime day or days. the key take aways that you need to be watching on this monday, july 15th, as "worldwide exchange" begins right now ♪ the boys are back in town ♪ i said the boys are back in town ♪ good morning, good afternoon, good evening, and welcome. i am brian sullivan, and it is nice to be back with you, especially since it looks like more record highs for stocks today. futures are not up a lot, 23 points on the dow, they are in the green nonetheless, all the major average are coming off record highs the s&p 500 trying for its 11th record close of 2019 the bond market, though, i mean,
it's reacting a little bit yields have backed up a bit, but not much around the world right now, a similar trend that we are seeing in the european markets we're seeing mostly green on the screen, not a lot. slight gains here, france down we'll call it flat asia, japan is closed today. don't look for a nikkei trade. really your big story is out of china. i want you to pay attention to something here, the hang seng and the shanghai did finish higher this is interesting. something has happened in china that has not happened in nearly 30 years their economy was close to growing under 6%, second quarter gdp coming in at 6.2%. that might sound good for the rest of the world including us that is a 27-year low for china. let's talk more about what is going on and where it is likely to go with julia wang. julia, good morning, it's kind of funny to say 6.2% growth is a 27-year low. that would sound spectacular to
the united states or to europe, but how worried, if at all, are you about those numbers? >> well, the headline growth numbers are not too long as you said it is a pretty high rate of growth for chinese economy, which is already 11 trillion u.s. dollars in terms of size, and also a middle income economy. but what i think has concerned us in the market a little bit over the past couple of years is the slowdown in some part of the economy and particularly the manufacturing business investment and partly as a result of the trade war, and also policy of deleveraging. we have seen manufacturing investments slowing for a number of years while there was some signs of a cyclical pickup, global trade policy uncertainty has i think dampened that recovery quite a bit so far this year that's really i think the area that concerns us in the market a
little bit they contribute so much productivity growth for the chinese economy, and productivity growth is still one of the most important growth drivers. >> it is never about the number itself it's more about the trend, and the trend is obviously towards slowing. do you think that china's stimulus measures will reverse that and get the economy growing at a faster pace in quarters ahead? >> well, we think that there are some really favorable structural drivers for the economy, so, for example, the fact that the market is very large and companies are still very innovative, compete operator technology and you have a very large consumer sector that's very willing to pay for new products coming to the mark. you have some very favorable structural factors but you also have cyclical headwinds, and i think that it's important for policymakers to clearly signal to the market that they are there to support growth, support businesses and be more open to
businesses if necessary for not only the next couple of quarters, the next couple of years. that's really important to revive business confidence i think that that's doable and there is policy ammunition to do that if that happens, i think it could reset growth in the manufacturing sector to a healthier path. >> do you think that the slowdown is the direct result of the trade fight and the trufaris or is it more reflective of what is an aging chinese demographic? they've got a demographic cliff coming they've got an aging population. you can't be young or grow forever, or is it really the trade fight? >> well, i think that the economy is going through some very big structural transition, and part of that is related to how the demographic is shifting. you used to have a young and growing population now you have a shrinking work force, but you do have better quality labor, so it's very
important for the economies to also upgrade the structure of industries so it can keep providing jobs to better educated workers so the structural transition has been a way for a number of years, and it's not an easy transition to make policymakers are experimenting with a lot of other things on reform it's not an easy process, and i think trade war probably has weighed on business sentiment and weighed on near-term demand, but i think that it is a bigger and more longer term structural transition that we're looking at, and that is, i think, what the manufacturing sector is going through primarily. >> julia wang hsbc joining us from hongening kong. thank you very much. that's china let's turn homeward, and with stocks at record highs, will second quarter earnings season give us the gas to power another leg higher joining us now is mike bell, global market strategist at jpmorgan asset management. it's that time again, every 90
days we do this in the united states are you optimistic about the pace of u.s. corporate earnings or do you think the rally may have gotten ahead of the actual numbers? >> i think the consensus is for q2, the market is expecting year on year contraction for earnings growth the key is going to be the focus on guidance expectations are for a really quite meaningful pickup in earnings growth by the end of the year, and certainly by the end of 2020. if you look at q42020 earnings expectations relative to q1 of 2019 earnings expectations, they're more than 20% higher, and those numbers seem too high to us. it seems pretty unlikely you're going to get that sort of earnings growth. we'll be focused on whether companies are delivering some guidance. >> do you think they will?
i think there's a good chance they will. i think what you're starting to see is companies getting pressured on margins so the slowdown in global trade is spilling over into weaker sales for some companies that have international exposure and combined with that, you're seeing wage growth pickup, so in sectors like tech, for example, you're seeing really quite strong wage growth, close to 6% wage growth coming through that could start to squeeze margins in tech, and we think that the tech sector therefore earnings can come under pressure in terms of q2 and guidance for the coming quarters. be cautious on the tech sector and favor some of the stocks like banks which are reporting this week. >> i'm under the impression that we're at record highs for the u.s. stock market, and yet you're not that optimistic about corporate earnings it seems to me that something is dislocated >> yeah, i mean, it's been fascinating the start of this year
what's happened is the earnings expectations have continued to come down and yet markets have moved higher on the back of expectations of stimulus from the fed. i think from here we sort of had the market pricing in the good news that it looks like the fed is going to provide stimulus, and that we're seeing stimulus come through in china and in europe as well i think that rally has already been priced, that good news around stimulus from here. we need to see the fundamentals getting better we need to see companies saying yes, those earnings expectations, which as i say are pretty lofty are deliverable and we need to see a turn in the economic data as well. so to get excited about the significant further upside from here, i want to see the manufacturing business surveys picking up and i want to see u.s. consumer confidence picking up as well at the moment we're not seeing those signs. it makes sense to be a bit more balanceed and ed and a little br cautious. >> it's a real pleasure, thank you very much for joining us on
"worldwide exchange. when we come become, one of the most well-known technology investors in the world saying google should be investigated for treason. and load up that online shopping cart, wall street's top take aways has amazon kick ing off its fifth prime day. cnbc investigates the rapidly growing and controversial e-cigarette industry, unprecedented access hi tes of one of the compani bendhat craze when "worldwide exchange" returns
♪ and i'm free, free falling >> there's a live look at chicago, 4:12 a.m., if you're an early riser or maybe a late sleeper, good morning. well, this is the story that is likely to get a lot of attention today. billionaire facebook board member and paypal investor peter thiel calling out google and he wants the cia involved >> peter thiel calling for the fbi and cia to investigate what he says are google's trading ties with china. speaking last nights a the national conservative knks confe in washington. how many foreign intelligence agencies have infiltrated its manhattan project for ai
do google's top executive believe they've been infiltrated by chinese intelligence. he says he'd like thorauthoritio ask these questions in a not gentle manner. he didn't offer any evidence google has been infiltrated by china, but he may be referencing google's decision to not renew a project by the pentagon. at the time the company said it would not allow ai projects to be used as military weapons. google came under fire after reports it was looking to launch a censored search engine in china. google has not responded for comment, but as you mentioned it is likely to be a big talker today. >> thank you very much. the pressureon big technology does not end with thiel himself, it may also extend to the company whose board he is on, facebook congress reportedly searching for ways to keep tech companies like a facebook from acting like
a financial institution or issuing their own currency that is key because according to reuters, a proposal is being circulated on capitol hill that could prevent facebook from issuing its hotly discussed libra digital coin separately, the s.e.c. is looking into whether or not libra should fall under its oversight. we're going to hear more about all of this later on when facebook executive david marcus testifies before congress on the libra launch. still on deck, huawei hurting and it may be taking hundreds of americans jobs with it plus, another black eye for boeing as yet another airline canceling flights for the 737 max that may extend into next year "worldwide exchange" back right after this
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a live look there in hong kong, 5:18 p.m. if you're watching there, good evening here are your top three stock stories right now, huawei plans to lay off hundreds of americans as it grapples with a blacklist imposed by the trump administration layoffs are expected to hit research employees in texas, california, and washington state. huawei was added to the blacklist in may over national security concerns. trump administration could still grant waivers allowing some u.s. companies to do business with huawei american airlines has remutual fund the boeing 737 max from its schedule through early
november competitors have already canceled thousands of flights that were supposed to be serviced by that plane boeing has developed a software fix for the planes since the second fatal crash in march but is still awaiting clearance to fly. boeing shares are down 13% in that time. gilead scientists will invest 5.1 billion to raise its stake in galapagos they're partnering to develop treatments for inflammatory diseases and other disorders that deal will include an upfront payment of 4 billion and a $1.1 billion equity investment for gilead they love it that stock is up 15% on that news out of gilead the ceo of gilead will be live on "squawk box" at 8:30 a.m. eastern time today. if you are the parent of a teenager, listen up. tonight on cnbc is an important story. in a special report cnbc goes inside the rapidly growing and controversial world of
e-cigarettes the companies and the industries are booming, expected to hit 9 billion in sales by the end of this year. the u.s. government, though, wrestling with how to restrict a vaping industry to stop teen use. the united kingdom has a much rosier view on vaping. carl quintanilla met a man in london who could be a poster child for the british government's taken e-cigs. >> vaping's just kept me off cigarettes, four years, not a single cigarette. >> not a single cigarette? >> not one it's thanks to vaping to be honest >> his success with vaping is a path the british government would love to have other u u.k. smokers follow, using the same research about e-cigarettes u.s. officials do, the u.k. has come to a radically different conclusion it enthusiastically embraces vaping as a healthier alternative to smoking. >> most of us know that smoking
is bad for our health. >> the government has even produced a striking online vud to make its point. >> i mean, it just is so revolting. >> that obviously is a very short look you can be sure to catch the new documentary, vaporized, america's e-cigarette addiction tonight 10:00 p.m. eastern and pacific right here on cnbc when we come back, better, stronger, faster gentlemen, we can rebuild it we have the technology, we have the capability to build the world's first bionic man how about the $131 billion man. the details coming up on "worldwide exchange. (vo) the ant mindlessly marches on. carrying up to 50 times its body weight. it never questions the tasks at hand.
you're so cute when you get excited... anyways... i've got their app right here, i can troubleshoot. i can schedule a time for them to call me back, it's great! you have our number programmed in? ya i don't even know your phone anymore... excuse me?! what? i don't know your phone number. aw well. he doesn't know our phone number! you have our fax number, obviously... today's xfinity service. simple. easy. awesome. i'll pass. welcome back, 5:24 here on the east coast, and good morning. looks like we -- will the rally continue today we came in futures were up about 50 points. now they're up about 10 on the dow. they're still in the green they're not down we're at this record rally, multiple high closes for the dow. futures right now not giving us the greatest indication of where the markets are going to go. remember, second quarter earnings season really does kick off today, big week for the financials we'll get to more on that in a
minute in the commodity market we're seeing crude oil remain above 60 bucks a barrel right now luckily we escaped most of the storms in the southeast from an oil perspective, but oil still above 60 let's right now get a check on this morning's other top headlines including the threat of more dangerous flooding in the southeast and gulf of mexico because of those storms. nbc's phillip mena is in new york with that and more. >> good morning, president trump is igniting new controversy this morning with a tweet targeting progressive congresswoman. he suggested that they go back and help fix the totally broken and crime infested places from which they came. while he didn't mention anyone by name, he appeared to be referencing four freshman democrats, none of whom are white, and all but one are from the united states. his message was roundly denounced as racist by democrats. coastal communities are under water as tropical depression barry churns over the south.
life-threatening floods are putting millions of people at risk in louisiana and six other states as barry continues to batter the south with torrential rain. over the weekend, the coast guard rescued 12 people who were left stranded in flooded homes. and how is this, the red bull air race was held at hungary's picturesque lake ballantyne 14 stunt pilots maneuvered their way through the pylons at speeds of up to 230 miles per hour while enduring forces up to 12 g's. eight races held around the world, and the pilot with the most points at the end of the series will become the red bull air race world champion. brian, back to you. >> let's put it that way, phillip, they can fly. they can fly >> that's right. >> i've seen it live, it's unbelievable >> it looks impressive just on video there. i can imagine seeing it in person, wow. >> the planes are so much smaller than you'd think that's the thing it's a plane but it's like the
size of a volkswagen beetle. that's what's more amazing thank you very much, take care. coming up, do target and walmart and others for that matter have what it takes to compete with amazon as the fifth annual prime day kicks off treasonous decisions, peter thiel calling out one of tech's biggest stars. and later on, what do ford, boeing, and china's president xi jinping all have in common something, it's random but biteresting, and it's your r ahead. ♪
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. welcome back, and good monday morning three major stories front and center for you and your money. number one, china posting its slowest growth rate in 27 years. we'll take you live to beijing with more. two, billionaire investor peter thiel calling on the fbi and cia to investigate google for what he calls treasonous decisions. and number three, bank earnings are about to kick off in a big way with results from citigroup and others on deck we're digging in on all these big stories for you on this monday, july 15th, right here on "worldwide exchange. ♪ you make my dreams come true, oh yeah ♪ ♪ well, well, you >> welcome back and good morning, thank you for being with us here on cnbc
happy cyber monday wait, that's a different day you're looking live at amazon's website. that's a live shot not a lot happening on that website. prime day kicks off, really it's now two days it's in full swing it's of course their day where they get people like us to talk about why you should go on their website and buy stuff. we're going to have much more on amazon's prime days in a moment. first we've got a news alert just crossing. president trump is reportedly considering ousting commerce secretary wilbur ross. this just crossing now, and it comes after the supreme court threw out a citizenship question from the census in a defeat for the white house. the census bureau falls under the commerce department. some white house officials tell nbc news they expect ross to leave as soon as this summer this is not the first time the president has expressed frustration with ross. their close personal relationship is believed to have let him keep his job we'll get more on this developing story as it rolls out throughout the morning
wilbur ross may be the latest cabinet member to leave washington. will the market rally continue on today? stock futures, i'm off for two weeks and i can't draw a circle. dow futures up nine points now oil, i know about oil. oil prices have continued to rise they're above 60 a barrel still. we escape the worst of the storms from a refining and a production perspective, maybe 4 to 5 million barrels a day offline in the gulf of mexico. that will come back on very soon remember, we are well-supplied still wti crude up 3/10 of 1%. also, bitcoin bouncing back a bit. it's been all over the map, tumbling below 10,000 earlier in the session today. we're back up to that point right now at 10253 look at this run at bitcoin. it's like the ekg of the people on my flight yesterday given the turbulent. we are down a little bit in the last couple of weeks, but still we're hat 10252 right now.
the big story may be not here. it is overseas china hits the skids as only they can the world's second biggest economy growing at its slowest rate in nearly 30 years, but keep in mind, that growth rate is still at 6.2%, something that the united states or europe would love to have joining us now to talk more about this and the macro markets is christina hooper, chief global markets stat gist at invesco. i feel like it's the a-plus student who's now got the a minus, and everybody's freaking out. are you more concerned about the trend? >> well, i'm not too concerned about the trend because i know that china has done so much to essentially push stimulus into its economy, both fiscal and monetary, and they seem committed to enable that to continue >> all right, i'm joining you here on set. i got to get my steps in in the
morning. i had about 16 pounds of sausage over the last two weeks. you've got china stimulating their economy in a big way of course now everybody expects there's 100% chance of a rate cut by our federal reserve in july the markets are sitting at record highs does it all jibe for you it seems like there's so many d disparate things going on. >> so many central banks are getting accommodative or indicating that they're getting accommodati accommodative, and of course that's not just the fed. it's not just the people's bank of china, but now we actually have the ecb looking like it's heading in a far more dovish direction with christine lagarde as the head of it. >> so the whole world is stimulating? >> the whole world is stimulating. the acting director of the imf said he thinks it's a good idea that central banks get more accommodati accommodative. i think this is a trend that is very supportive of risk assets. >> is it a real basis for
growth, or is it literally that sugar rush, that bowl of fruity pebbles and then you're going to crash later on, or can this continue to go on for months and quarters and maybe even years? >> that's the $64,000 question. >> 64 trillion maybe >> it certainly does provide a sugar rush to markets, but when it comes to the economy, it actually can result in more organic growth over time if you just look at the china numbers for june, we saw an improvement, and that really was when china started encouraging banks to be looser in their lending practices. so it actually does filter into the economy in a meaningful way. >> there is a school of thought. there's a group of people out there, you know who they are, that have basically said this fed-induced sugar high is bunk it's dangerous, it can't last, and ultimately everything is going to come crashing down, but they've been saying that for years. how long can we ride that sort
of fed cart if you will? >> well, keep in mind, we're in something of uncharted territory because we really didn't use qe in any meaningful way before the global financial crisis. this was an experimental monetary policy that we took ou because we needed some extraordinary tools. >> yeah, when the global economy was collapsing that was a decade ago, and now nothing's collapsing things are good. >> keep in mind that when we use that, initially we had a very artificial recovery, but at a certain point it became more organic, and so one could argue that with activist central banks, they're really attempting to keep the economy going. they're not doing enough that, you know, they're not doing the kind of stimulus that you would expect during a crcrisis jay powell said as much in his comments last week, that this is an an ounce of prevention rather than a pound of cure. >> prevention of what?
i guess that's my question what does powell see or what do the fed boards see that makes them think we need that, you know, preemptive care, if you will >> they see an economy that could come off the rails because of the trade situation we haven't learned from our textbooks. we are in the midst of a trade war, and it's not just the u.s. versus china it's the u.s. versus the european union we've got japan in a skirmish with south korea we have a trade situation that is worsening, and what that tends to do is it tamps down business investment. we're seeing then the fed specifically called that out in the f oomc minutes. we're seeing it in the u.k. because of brexit. business investment is down. that has a real impact on the economy over time. they're worried about that. >> 6.2% growth for china, i get it it's a 27-year low if we had 6.2% growth, christina, we'd be dancing in
the streets. do we need to be worried about that number? 6 6.2 still sounds pretty good. >> 6.2 sounds pretty good, of course it's all relative we know that the chinese economy has been maturing for years. so we should expect that growth should moderate over time, and again, i really believe that china will do everything it can and needs to in order to win a trade war with the united states, and that means throwing stimulus at its economy. >> winning trade wars is so easy, christina, isn't it? >> and it's fun. >> kristina hooper, great stuff, from invesco all right, what'd you get more for prime day? amazon's fifth annual prime day kicking off this morning as the company looks to recruit thu prime members and further entrench existing ones was but some other major retailers are not letting amazon have all the headlines. joining us is keybanc capital markets managing director covering amazon, target and
more, ed yruma is this going to be a big deal for amazon is there a cyber monday clone at this point where everybody's got sales and people just shop where they want? >> absolutely. this has turned out to be a big deal for retail period obviously amazon started it. others have jumped on the band wagon. this is normally a pretty quiet time for retail. it's neat to see them drive some excitement during what would otherwise be a quiet time. >> if i go to walmart.com and i'm not promoting walmart, but it says the big save on their website, they're going right after amazon is it going to be a net win for amazon >> you know, we think it will be obviously amazon is showcasing not only great deals, they're showcasing their music they've been spending all week showcasing whole foods they've built a big infrastructure around this prime day, and we think it will be very successful for them. >> is there any indication that this drives new consumer spending, ed, or simply, well, i need a pair of jeans in a month so i might as well get it now because it's on sale and it's
kind of a zero sum game. >> we think it does drive new business it creates that spontaneity, that need to buy now and people obviously tend to buy stuff they don't need. ultimately, you know, this is a very quiet time and we think this drives incremental sales across all of retail. >> you've got a $2,100 target on amazon obviously we're optimistic does this matter for amazon? do these 48 hours or so matter to the stock, or is it just part of a longer term, more macro trend? >> i think it's more of a big macro trend, but i think the big fly away with amazon is emphasizing to people it's important to be prime. it's important to stay on the prime program and having something like prime day where you give those members great values is a big component to that >> ed yruma, we appreciate your time it's a big day, we'll let you know thank you for joining us on cnbc. >> coming up, president trump taking new aim at jay powell and
company, what the commander in chief is saying about the fed chief this morning, and later billionaire investor peter thiel bashing google in a big way. why he's calling treason and asking for the fbi ♪ (in dutch) tell him we need this merger. (in dutch) it's happening..! just ok is not ok. especially when it comes to your network. at&t is america's best wireless network according to america's biggest test. now with 5g evolution. the first step to 5g. more for your thing. that's our thing. they have businesses to grow customers to care for lives to get home to they use stamps.com print discounted postage for any letter any package any time right from your computer
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in jellyfish. in clinical trials, prevagen has been shown to improve short-term memory. prevagen. healthier brain. better life. welcome back and good morning. 5:43, the sun rising over new york city. let's hope all the lights stay on today time for this morning's top trending stories all right, what is trending? what are we going to be talking about today? >> before we get to that, my power was out. it was awful, but it was only three hours. >> good news is it was only 90 degrees and humid. >> it happened at 7:00 so it wasn't as hot as it could have been let's start with trending. sony's spider man holding the top spot at the weekend box office it beat out two newcomers. spiderman took in another
$45 million boosting its domestic total to 274million separately, disney's the lion king had a monster debut in china. the hyper realistic remake took in $55 million lion king will debut in the u.s. this weekend and i cannot wait. >> there's no superhero fatigue, spiderman, the avengers all these movies continue to crush it every time. >> apparently not. next monday here in the u.s., we're going to be talking about lion king crushing it. >> donnie glover, beyonce. >> time stamp it as the internet says. beatles fans retre, paul mccartney wrapped up his u.s. tour with a surprise visit from ringo starr. the pair played two songs for fans the last time the two played together at dodgers stadium was 53 years ago. >> that's unbelievable. >> 53 years ago was the last time they played together at dodgers stadium. imagine being in the crowd and being oh, my god
here comes ringo starr. and just in time for prime day, you know you asked the last gets what she was getting you for prime day. >> yes. >> i'm going to get this for you, amazon's ceo jeff bezos has his own action figure. yeah, samples of the toy have been sent to various tech journalists. >> creepy. >> as a walk up to its release the release is extremely realistic and comes with an action figure. shockingly, even though i wanted to get this for you, the figure does not appear to be available on amazon.com. the best part, how buff. >> if you're on the radio, it's a jeff bezos action figure, but it's shockingly and a little creepily realistic there's veins in the arms. >> bulging veins. >> bulging veins >> because he's so muscular. >> you know what you're going to take credit. >> for his bulging veins.
>> bulging veins bezos is his new nickname. >> thank you. in sports if you missed it yesterday, an unbelievable wimbledon final, novak djokovic defeated roger federer in a dramatic fifth set tie breaker the match took nearly five hours to complete, making it the longest in wimbledon history this is djokovic's fifth wimbledon title. it was amazing to watch. on deck, the banks believe it or not, were about to kick off yet another earnings season in just a few hours, but are all the banks about ready to lower their guidance going forward for the year plus, why billionaire investor peter thiel is calling treason on google. that's right, adne whelis,e're sure to grab them, and we're back right after this.
welcome back, and good morning, 5:48 here on the east coast, nice to be back with you. it is time for your executive recap. all the headlines you need in about 60 seconds china reporting a big slowdown, at least for it. the world's second biggest economy growing at 6.2% last quarter. that sounds good for most of the world, but that is china's slowest growth rate in 27 years. big tech under big fire, this time from one of its own. peter thiel calling out google thiel calling for the fbi and cia to investigate what he says are google's seemingly treasonous ties with china american airlines has now removed the boeing 737 max from its schedule through early november, and there is growing concern that that plane may not fly again until next year. also happening now, president trump taking fresh aim at the fed the president says the fed's policy is, quote, antiquated, but the economy still has a lot
of ram to groom to grow. let's talk more about this i don't understand, there's a lot of things i don't understand, but yet if the economy is doing so well, why do we need a rate cut or more than one rate cut >> you know, it's an interesting observati observation. if you look at, for instance, the output gap the difference between actual gdp growth and potential growth back at the -- during the financial crisis, that gap was minus 5.8%, so very, very large gap. it took years and years and years to close it, but now it's been closed, so now the gap is plus 0.8, and it's rising steadily, and yet here is the fed about to conduct, you know, one or maybe several sort of insurance cuts, and the only other times in history that i could tell that this happened was actually the 95 cycle and the 98 cycle and you and i have talked about these cycles in the past those were basically cycle
extenders, right they extended the business cycle. they breathe fresh air into an otherwise kind of maturing market and things kept going and so my default assumption is that this is what's happening again i think the motivation for the rate cuts is mostly on the inflation side, not on the growth side. and i think that's kind of what the rationale is. >> because you said insurance cut. i'm thinking insurance against what do we think the car is going to crash? >> so if you look at the so-called natural rate or the equilibrium rate, which is something the fed has in its model, it looks like that's starting to falter a little bit, and so when you have the neutral rate, right, the rate at which the fed sets its benchmark policy rate, if that rate is starting to kind of ease off and at the same time inflation is running well below the fed's 2% target, you put those two things together and maybe they're like, you know, maybe we should
have -- shouldn't have gone in december in the first place. now maybe we take that december hike back and maybe we do another cut just as a way to better to do something now than to have to chase this later. i do understand the whole premise the fed is in. >> is the stock market dangerously adidicted to fed stimulus, or can it stand on its own? >> i think so but it depends on the interplay of the numerator and denominator of the discounted cash flow model not to sound overly nerdy, but you have earnings growth drive, of course the market in a very big way, but the cost of capital does as well if earnings growth is slowing as it is now, we're just at the beginning of earnings season, and so far we're looking at maybe flat growth after a first quarter, but also flat growth. when that numerator of that formula starts to falter, you need the denominator side to
kind of pick up the slack. that would be through a fed that's cutting but if earnings growth is rising, you know, strongly at let's say 5 or 10%, you don't really need the fed, but it's really the interplay of those two and right now they're kind of balancing each other out right as the s&p is trading at 3,000, but at a fairly lofty multiple of 7.3 times next year's earnings. >> do you think earnings season, which we're going to talk more about with our next guest, do you think earnings season will justify that 17.3 times multiple >> well, so this is the big question the market is betting on a v-shaped recovery for earnings last year earnings grew 22%. it peaked in the third quarter at 25% the first quarter was about 0.6% with the expectation that the second half of this year would be this big boomerang, but so far the second quarter is following in the foot steps of the first quarter, and now even though after one week of earnings, which is not very
much, only 22 companies have reported, but you're already seeing that typical bounce, but it's coming at the expense of the third quarter, which that estimate just got lowered by 100 basis points in one week the risk is this v shape becomes an l or it gets pushed out further as worries about tariffs or whatever starts to weigh on the behaviors of these companies that are reporting, and that v will not quite materialize in the way the market's expecting and if that happens, 17.3, you know, it's not the highest ever, but it is maybe a little bit higher than it should be. >> always a pleasure, we'll see you soon thank you very much. >> thank you of course the federal reserve is going to watch a lot of things, including earnings. and second quarter earnings season as we referenced is about to kick off. we're about to get results from many of the big banks this week, citigroup today, goldman, wells
fargo and pretty much all the banks this week. joining me now, michael rose, there is no group of companies that cares more about bond yields than the banks. bond yields have surprised almost everybody they have come down. are the banks going to surprise us negatively by cutting their growth outlook because of yields >> hey, brian, yeah, i think so. however, i think it's largely expected certainly this is going to be a very challenging earnings season for the banks as management teams outline their plans for a more dovish fed and softer operating backdrop net interest margin and loan growth outlooks will be front and center given the flattening yield curve. expectations have been rationalized coming into the quarter. the question certainly remains if the eps cuts went far enough, more in the camp of they probably haven't. >> financials are an important
part of the overall market so it sounds like you're relatively negative on these banks and bank earnings >> i think in the near-term there's certainly some negatives and positives. we continue to remain equal weight the sector. if you look at the negatives, clearly nim pressure slowing loan growth and capital markets revenue will be under pressure there are counter balancing positives including mortgage banking, credit transferring, very benign, expense discipline is strong and ongoing capital returns also is very strong. these are two counter balance forces certainly if you look at the bank stocks relative to the s&p they do look inexpensive we do think in the near term there is an e problem as part of that equation. >> you said nim, that's not a land where magical rats live, it is net interest margin, nim and it is affected by yield and yield spreads. if things don't change, do you
expect bank tofss to have a mord more difficult time with the numbers from this quarter and the numbers from the fourth quarter? >> yeah, we think so clearly there's been an extended credit cycle for the bapgnks. now we have a double whammy this quarter of market interest rates coming down, so reinvestment rates lower, competitive pressures on the loan growth side, but also at a time where onto liability side deposit costs continue to creep higher due to competition we think in the near term this is going to cause challenges but on a structural basis with a more dovish fed, the outlook for earnings gets more challenging. >> who looks the best? >> yeah, so we're very selective at this point in the cycle you know, i think citi, which we don't follow formally looks among to be the better of the larger banks we prefer some of the regionals. our top picks would include
somebody like zion's signature and regions and then state street among the trust banks but we think you have to be very selective in this type of operating environment. >> always a pleasure, it's a big week you're probably not going to get much sleep but welcome to the club. i am back, and so is your morning rbi and maybe today is a good day to start a company, at least it was way back in the day because a totally random but hopefully interesting on this day june is a 15th, henry ford launched his company in 1903 and 13 years later a guy named bill launched his company by -- bill's last name happened to be boeing, boeing and ford both started on june 15th it begs the question, what are you going to do today? it's also the birthday of the president of china, so happy
66th birthday xi jinping all of that random but hopefully somewhat interesting thanks for watching "worldwide exchange" today. we'll see you tomorrow good morning, earnings season starting this week with reports from the big banks we're going to kick things off with quarterly numbers coming up from citigroup. it is prime day. that is amazon's we're going to say it's a made up holiday expected to generate billions of dollars in sales that's not made up we'll tell you what it means for shareholders and the other big retailers. red flags in china, new data showing the country's economy slowing to the slowest pace since 1992 it's the slowest rate since "basic instinct" topped the box office remember kris-kros, top of the billboard right then it is monday, july 15th, 2019. "squawk box" begins right now ♪ jump, jump, you should know
better, kris cross is not having anything today ♪ >> live from new york where business never sleeps. this is "squawk box. good morning, always a good morning when you kick it off with kris cross. welcome to "squawk box," i'm melissa lee along with andrew ross sorkin. >> you know criss-cross? >> no idea. >> there's a generational as well as a cultural divide perhaps. >> was criss-cross not big in britain? >> not in the frost household. >> fair enough. >> maybe across the u.k., i don't know, but i don't think so. >> we'll jump jump a little later. >> i'd like to see you do that let's take a check on u.s. equity futures, the dow, nasdaq, s&p 500 coming off of record highs. the dow looking for its fourth record close of the year, the s&p 500 trying for its 11th record close the dow looks to add 14 points