tv Whatd You Miss Bloomberg August 2, 2016 4:00pm-5:01pm EDT
u.s. stocks closing lower. ow with the longest losing streak in a year. we breakdown earnings and minutes. slide, why shares didn't the stress test, calm investors? >> a rebound you do not want to miss. >> we begin with market minutes. the longest losing streak since 2015, the seventh straight session of losses. it is the worst day for u.s. stocks in almost a month. we seem to have broken down a little bit. at one point down almost 1%.
it's hard to believe that is the worst move since brexit. there are three groups that weighed on the market. red on financials -- financials. stress tests, post-brexit, all that good stuff. today, a lot hurt of stuff on the consumer i end. index. the automobiles a got crushed in the move, and the volume was double the 30 day average, so are a lot of big losses there. july sales looking weak. joe: some interesting things and
government bond markets. look at the japan ten-year bond. if you love buying 10 year yields when they were yielding .29%.ive poin it is quite a move. a sell off across u.s., germany, long-term bonds. area where people are buying government bonds is australia, the yield on the 10 year hit a record low last night. that was after the reserve bank of australia cut rates. you can see yields continue to tumble. currencies, another day, another policy disappointment. thenew spending part of did not meet
expectations. their riskre seeing of the boe underwhelming market on thursday. you mentioned the australian race cut. the rba cut rates to a record low. there is that leg lower, but then recouped its losses. very interesting turn around there. we have the cell often oil , down overbelow $40 20% from recent highs. anxiety seeping into markets possibly? one asset class that did do well, gold, not surprisingly on a day when everything was down. nothing too huge, less than 1%.
scarlet: those are today's market minutes. let's take a deep dive into the bloomberg. start off by looking at the s&p again. this time surpassing estimates for the end of the year. it does not happen that often. it is a follow-up to a few weeks back. now the s&p has officially gone over where strategist estimate the index will into the year -- end the year. end atpect the s&p to 2146. this is a group of people almost always bullish basically saying there is not a lot of room for stocks to move. it is likely they would change their call if it stays
above it. >> as they usually do. there is a bit of a lag in there. there are no bear market calls here. scarlet: i'm taking a look at j.p. morgan and the 10 year yield diverging. financials are the worst performer this year, down 2% due to the prospect of higher interest rates being pushed out further. chart points out that j.p. morgan has not broken out yet. that yellow-goal line is the trend line for j.p. morgan, but appears immune to the lower rates. the blue line is the 10 year yield. it has come up a little bit. there is that divergence. see if it continues to
move in opposition to the 10 year yield. pce,i want to look at core the fed's preferred measure of inflation, trying to get to 2%. we got that today. core pc number is 1.6%, basically where it has been for a while. however, if you take what it has done this year and annualized index,rease in the price the six month annualized change is 1.9%, so a fairly big difference. that is an argument that the inflation data is picking up faster than perhaps the headline year over year change is showing, so you want to be mindful of the fact that inflation may be firming and we might hit 2% faster than markets expect. chart showed ar
couple of them well above the 2% target. services has been outstripping it for a while. they are all going up. number depending on how you look at them that still rise. >> there are different components that contribute to inflation. joe: absolutely. for more on today's market and analysis from corporate earnings and the economy and how everything is being digested, let's bring in mike reagan. we had an incredible run post-brexit, what it you seeing? what are people attribute in this too? wasne thing i noticed today this tight range we have been in. to describe that is the realized volatility of the market, how much it is moving on
any given day. one ofly had dropped to the lowest levels for the s&p 500 it has ever hit. it is the type of graph that goes up and down. for whatever reason, we are due to more volatility to pick up. otherwise, if you look at the news flow today, anecdotally there was a lot more negative news than positive. the yen strengthening, oil ,ropping below $40 a barrel below a 200 day moving average. joe: here is that volatility chart. >> if you look at the big spikes, one is near brexit, 2011 when the u.s. credit rating was downgraded, the financial crisis is obvious, but i'm interested in the areas in between, irregular but still somewhat of
a rhythm to it. you can see how low it got. it is a natural rebound and volatility. joe: this is not the vix. >> this is what has happened in the last 15 days. scarlet: this is history. we have ther a fact same notes. i got a note about the steepness in the vix curve. you're looking at the green line , you're live data for the vix, so it is pretty steep normally, but what we make of that? is there something we can pull away from volatility? >> people do not expect calm markets to last a long time. volatility,k about you are talking about drops. about someworried
significant drops in the future. about 20 -- fix is the vix is about 20. scarlet: we really don't have any central-bank catalyst for a while. central banks are the only game in town. earnings season for the most itt were through the bulk of , we need to get those consumer companies to report. trading plust unexpected events in the summer that make for a volatile next couple of weeks. rightly or wrongly, people get nervous about august. it is traditionally one of the weaker performance months. over the past 4-5 years, there have been some brutal drawdowns in august.
last summer around the chinese devaluation, 2011 credit rating downgrade, but there were some noticeable drawdowns for other years. ofume can get light as a lot people are on vacation. a lot of people nervous about august. thing notable about that selloff is a lot of risk parity strategies did not hold up well. even on a day like today and we saw stocks not working and treasuries not working, everything selling off. our people worried about a repeat if you have a portfolio levered into lawns and equities and they both selloff, you could have a real bloodbath? >> whenever volatility gets this low, the exposure to stocks and bonds is pretty high. pretty high, so there is this concern in a shock
prime minister. that he does not appear to have basic knowledge inund critical issues europe, in the middle east, in asia, means that he is woefully unprepared to do this job. sayingtrump responded, president obama and hillary clinton single-handedly destabilize the middle east, handed iraq, libya, and syria to isis. he also accused them of sending america's best jobs overseas to appease their global interest. of the dnc has resigned in the wake of that e-mail hack that in bears the party on the eve of the presidential nominating convention, according to the ap, citing three democratic strategist familiar with the decision. debbie wasserman schultz has
already resigned due to the hacking scandal. the pentagon is prepared to improve work on a new nuclear armed missile. the defense department will open competition between three military contractors likely to rekindle debate over whether the u.s. can afford to modernize its nuclear weapons. a weather system that has caused six deaths in the dominican has been designated as tropical storm beryl, threatening to bring rain, flooding, and high wind to mexico, belize, and honduras. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. >> "what'd you miss?" stages ofin the early recovery in emerging-market growth. improvement in russia and brazil , helping to shape a turnaround.
thank you for coming. it feels like the conversation has been about money going from europe to the u.s. and into emerging markets. what you make of that? >> we had tremendous inflows in july. we areson for that is looking for other central banks to stimulate, boj, boe. we had a disappointment on most of these fronts, but the fed is the most crucial of the global central banks. fed is leading to inflows in emerging markets. scarlet: operating earnings for , which$.98 versus $.92 has been lowered over the past month by eight cents.
$.98 versus $1.39 a year ago. the big headline is the board will buy back additional shares, up to $3 billion worth. aig has won praise for is returning cash to shareholders. that can be a challenge especially as the ceo is trying to exit various businesses in various countries to concentrate on key markets. we will continue to monitor this. 2/10 of aig shares up 1% following the earnings beat on the bottom line. >> i was going to follow up on this point here. should this money be going into these emerging markets?
mathematically you get a bounce in emerging-market growth next year. it is driven by a couple of countries only, and a special case in some of them. in particular, brazil and russia had deep recessions and are policyg combined with ball improvements. at this moment, yes, growth is improving, but not broad-based. for it to become broad-based, you would need a continuation of what you are seeing. there are many risks, including commodity prices. yes, mathematically higher growth, but it does not mean it is all clear for emerging markets. the big stories in the u.s. this year is the possible election of donald
trump. what would that mean for emerging markets? he has a different view of world trade, trading with china, the wto potentially, what does that mean for emerging market investing? >> the general macro environment he would create would be a poor one because risk aversion would rise due to the uncertainty of those many proposals and which of them would make it through or not. we also would look at a strong dollar environment, partially because he might reinforce reinforce repatriation into the u.s. specifically, measures are possible that would attack emerging markets more directly. mexico and china are the two mentioned and would make sense from the point of view that the u.s. is running a trade deficits
with both. if he is serious about trying to adjust trade flows, those two countries would be on the top of his list. about howou talked there are special cases within the different markets, brazil, russia, venezuela. the thing with china is there is a big risk out there. is that the biggest risk for emerging markets, and if so, how well can emerging markets recover without a strong china? keep it to the donald trump angle, if he were to start it wouldar with china, be a global recessionary event. it would undermine the global economy seriously. you are right. china is the single biggest risk from an emerging market specific context. believeshink anyone china is soft, china will have a
benign outcome and can reduce leverage and away not impacting growth for the emerging-market asset classes more broadly. everybody is frustrated in terms of timing it, so people have forgotten about it, but it will come back. a note morgan out with saying under a donald trump presidency, you have to rethink the framework in which you think about emerging markets, the less about the fed and flows and more specifically the exposure to the u.s. toyou agree that you have rip up the traditional framework for examining emerging markets and think about these specific linkages? almost all emerging markets would get hit hard. mexico is ahat country-specific issue brought up in the campaign and for sure that would be an asset
australia is the largest producer of iron ore. it limits the impact of a rate cut and improves australian trade. has been going up for years with occasional breaks because of domestic inflation or global financial pressers, but this time he expects prices to remain fairly robust. we should ignore the rba completely and watch the iron ore. scarlet: it does not have that much control ultimately. joe: i want to go back to something i talked about at the beginning of the show, increase in longer-term bond yields. yearis a chart of 10 yields for japan, germany, and the u.s. allcan see the increase and three, the white lion's japan, the most romantic move. u.s. is on aor the
separate axis. the trend is the same on both. i think people should watch this, especially as we have the selloff in equities, government debt, and more talk of fiscal stimulus. yields are incredibly low. scarlet: is it a pause or inflection point? joe: we will see. oliver: i want to use a function for bond issues. billion,, almost $20 tons of demand for it, perhaps -- this is new issue analysis, a really cool function. the green line is microsoft yield curve, and the purple line is government. you can see that even though microsoft is lower than all its peers, aaa bond rating, still so in demand.
to first wordt news. donald trump proposing a plan to rebuild the u.s. infrastructure that cause in his words at least double the amount that hillary clinton has floated. asked how much he would spend, he said "i would say at least double her numbers and you're going to really need more than that." , 270 $5nton's plan billion over five years, calls for setting up a national infrastructure bank to fund large-scale projects. voters have more confidence in mrs. clinton to handle foreign-policy issues than mr.
trump. a new poll shows 59% of registered voters trust mrs. clinton on the issue compared to 36% for mr. trump. candidatest both equally to handle terrorism. new york city police commissioner bill bratton is resigning, staying on the job until september. and is thee served only person to serve in that capacity in new york and los angeles. he reportedly plans to take a job in the private sector. he will be seceded by james o'neill, the nypd's top chief. as an obama and vice president biden rio olympics. the white house says john kerry will lead the u.s. delegation to the games, the highest level american official in attendance. the u.s. delegation will include mark spitz, the winner of nine olympic gold medals.
this is bloomberg. ♪ global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. back to you. let's get a recap of today's action, s&p posting first back to back the kleins 6/10 of greg said, down 1%. declines since brexit, down 6/10 of 1%. industrials falling for a seventh straight day, the longest losing streak in a year. we are keeping a night on aig. second-quarter earnings per share beating estimates and has added $3 billion to its stock buyback plan. aig up 3% in after-hours. that is what happened in
the u.s. in europe, not a pretty day for the banks, lenders tumbling showedince stress tests all would have sufficient capital, so why do an investor still lack faith in the banks? they keep dumping these banks. everybody knows they are one of the worst-performing asset classes anywhere this year. the stress tests said most of them have sufficient capital, why aren't investors convinced? at all theook assumptions, none of them included negative interest rates, which were not even in the scenario, but they are reality. pass-fail, so these tests do not have a lot of credibility. don't they
include these scenarios for real situations? >> these tests take a long time , so by the time they came up with all the assumptions and picked a point for data and banks to start reporting, negative interest rates were not a reality in europe. they are now. there is a massive lag. scarlet: how should investors interpret or utilize these results? they provide some value, even if they are pointing out scenarios that don't reflect reality. >> the greatest value is that it freaks the banks out. capital ina bunch of advance, so even if they don't do well they can say our situation has fundamentally changed. this time they could not do that because there was not demand in
the market. joe: what would change the scenario? you say this is about lack of confidence of bank profitability in europe, so how do we get there? expanding the economy, concerted fiscal action out of europe to create an environment in which banking is profitable again? the case.solutely negative interest rates have been a disaster everywhere they have been implemented. we need to see more growth, and a half that, more fiscal policy. to members of the german government, there is not a lot of sympathy for that argument. likely than unilateral fiscal stimulus, we will have helicopter money. is a bank at bank the center of all this banking anxiety. what do leaders in germany when they look at deutsche bank's market cap, what do they see as the problem there or the proper
response? >> sentiment and confidence are the biggest problem. one of the biggest lessons came out of italy, where they put forward a rescue for nps. we have these rules, but no one wants to follow them. i have a chart that illustrates how cheap european banks are relative to the broader market. this is the p/e ratio of the euro stocks bank index. below are the line goes, the more european banks are cheap relative to the stocks overall. we were talking to benjamin siegal, saying there are opportunities within some of the smaller banks, even though they look like a value traps. oliver: what sort of risk do you want to take on to get that
rebound opportunity? when you look at the banking reakor, how does it b down? >> valuations are lower than they were in the depths of the global crisis, so they are cheap. they get split up along country lines, italian banks are risky. in core countries, germany is one of them, not all german banks are healthy, but in countries where you see more growth, it is less risky to pick up on some of these equities. joe: talk to us more about it early, the failure of supervisory mechanisms, what to dohe government need and how can they do it in the framework of the rules they have
set up? isitaly's biggest problem they are all sinking under nonperforming loans. they need to get rid of these nonperforming loans. dave, up with a solution for one but that solution can't be replicated across the sector in part because one piece of it, to have this fund by up the nonperforming loans will be out of money, so there are concerns about the other a tying banks. scarlet: what can the european banking authorities learned from what the u.s. did rescuing the banks after the financial crisis? are there any parallels there? >> there are a ton of parallels. in the u.s., you did not have massive bail lands, except for lehman brothers. , except for lehman
brothers. going to have to have to be something that replicates the capital markets, that is the key for europe. union, a capital markets you need one asset class that can withstand anything in terms eurobonds, but there's a long way to go to get there. oliver: lessons between countries, when you -- it has e can take a cue from european markets and people the two so, why are closely intertwined if it is such a regional problem? >> there is a ton of volatility in general. banks and european banks are in a fundamentally different position. u.s. cleaned up its balance
sheets earlier than the europeans did, so i would take that with a grain of salt, u.s. banks tend to replicate the performance of european banks, there is little fundamentally linking them. thing, ise euro bonds that something we might see? >> the germans are dead set against it, and they are not the only ones, so we will have to see a lot of crises before that decision is made. oliver: thank you very much. up, we will hear on the impact of obamacare and efforts to win justice department approval for the humana merger. this is bloomberg. ♪
scarlet: i am scarlet fu. it is time for the bloomberg business flash. aig will buy back $3 billion of shares after second-quarter profit climbed 6% ranks to asset sales. $.98, sixprofit was cents better than the consensus estimate. the ceo has been selling assets and cutting jobs to boost margins. aig had posted three quarters of losses through the first quarter. instagram taking a page from snapchat. it has a new feature that let's people share photos and videos that vanished. uses can add annotations like snapchat. it is called stories two. starbucks recalling stainless steel straws after three reports of children suffering mouth
lacerations while using them. says 2.5 million were sold in the u.s. and more than 300,000 sold in canada. the straws have a rich that keeps them attached to beverage lids. that is the bloomberg business flash. oliver: "what'd you miss?" the latestut with earnings, beating estimates. with the latest earnings, beating estimates. $300 million in losses from the affordable care act. also announcing the sale of assets to get regulators to approve the merger. eeo joined bloomberg markets from hartford, connecticut. the secondsaw in quarter of the year was a $200 million loss in the public exchanges. that set off alarm bells in the company and we began to look at what was going on. we found a high level of specialty pharmacy use and an
attraction of people who need specialty pharmacy. these folks need this care and it is important they get it, so we are not diminishing the importance of people getting their drugs them about what we found is the mechanism of risk adjustment in the exchanges is not going to appropriately reflect that, therefore reflecting these losses. a we look forward, we see total loss of $320 million in a year where we thought we would break even on the exchanges, so we have stopped our expansion markets, five markets we were going to add in 2017 and are evaluating all 15 markets to determine what markets we will stay in and which markets we will leave. weighinger if you're getting out of the marketplace entirely? >> we never make blanket decisions. we will have to look at this market by market, product by
product, exchanged by exchange. we want to continue to contribute, but we can't put our balance sheet at risk by having this thing explode on us next year. it is up 300% in losses this year. we cannot have that happen again next year. >> does this decision have anything to do with the lawsuit by the doj and the merger? howhe only relationship is we look at our balance sheet going forward. the transaction is not closed. we have certain things we are counting on, but that is a balance sheet discussion. this is about being able to sustain the business going forward. was announced last month and you said you could settle this thing tomorrow. is that still your attitude? are you still looking to settle this with the doj or fight it in court? >> we will be meeting with the judge shortly. this is now in front of the court.
there are two main themes to this discussion. does medicare advantage compete with medicare traditional. in the congressional record, congressmen and senators talked about whether or not there was going to be a cannibalization of traditional medicare by medicare advantage. in our case, the doj has said these are two completely separate markets and do not compete. if we were to put those two markets together, we would not require any investor teachers at all, so that will be our first presentation to the judge. the next will be that if you don't believe that is an appropriate market, here we have a complete remedy, which we announced today, for all the plus some where we think there are more markets needed to support the ongoing competitor we would create in the vesting these markets. the company of
four other big insurers, is it and they just to you, do you think if you're case is heard in concert with the anthem-cigna case? >> i think this argument that five big insurers going to three is a populist argument. health care happens locally. that is where competition happens. , it'smpetitors rarely usually a blue cross blue shield plan. it is really about the local market area. cigna deal is a different argument. >> you are talking about how this will be a merger that plays out at the local level. have may be consumers who a hard time thinking that when i think about health care at the local level, a bigger company will not necessarily make that
health care better or work more easily. 10% market share with the two companies together nationally. that means there is 90% of the people who will choose some other product. we are not dominating anyone market. we had moody's investors service saying that there is a reasonable probability that this will go through. what is your sense of the timetable here? when you look at the timetable, wind you see this happening? >> we expect this will happen before the end of the year. etna's ceo.as a scarlet: aig shares rising in late trading. this is bloomberg. ♪
scarlet: i am scarlet fu. "what'd you miss?" as theof aig are gaining company beat estimates and announced a $3 billion stock buyback. with aig, the question is can peter hanson are hold onto his job? clock overs a big his head. or maybe i should say a big hammer over his head for the last six months or more. with this quarter, it seems like they have answered some key questions. think of all the metrics he announced back in january that he was going to hit. a return on equity was one of the most important ones.
this time in this quarter, they showed a significant improvement. that's why the shares are up. say it answers the question whether aig needs to split up or peter hancock needs plus inut it is a big his argument that he is doing the job and the right man for aig. we talk almost every day about the challenge that low interest rates posed to banks, but it also puts stress on insurers. that is essentially how they make money. to what extent does the low interest rate environment put a cap on how profitable aig can be? >> they are certainly hoping that it would not be this low for this long, so that is a next her headwind. i was talking with some aig executives around this report, japan. worry about
they are watching that situation closely and where rates are headed. they would like to have seen interest rates in the u.s. rise, and were saying that delayed further out, but that is a headwind as well as briggs it. that also has to play out. exit. brigg that also has to play out. cleaning up their portfolio is more of their focus right now. oliver: this $3 billion buyback announced with the earning the stock ise, moving because investors like the share dilution, but do they have the cash on hand to do that? they certainly seemed to be moving in that direction. earlier this year, they sold
their broker-dealer network. they are looking at different assets they have. has said he will not sell anything just to sell anything. ,hey are reducing their costs giving them more cash to return to shareholders, so that is key. he has carl icons representative board.n paulson on the he has to keep those guys happy. this is what he is delivering for them. scarlet: thank you so much. peter hancock tomorrow morning. coming up, what you need to know to gear up for tomorrow's trading day, next. this is bloomberg. ♪
scarlet: i am scarlet fu. japan atdata out of 10:00 p.m. eastern time tonight. joe: i will be looking at the adp employment change at 8:15 a.m. eastern time. this is a private sector survey of adp kleins that sometimes to thepredictive value nonfarm payrolls report that comes out friday. scarlet: it is like the drumroll leading up to the report. on holdi have stories to find out what happens. , everybody has been paying attention to it. tesla earnings tomorrow at 4:00 p.m., maybe some insight on the deal with solar city.