tv Worldwide Exchange CNBC October 10, 2012 4:00am-6:00am EDT
welcome to today's "worldwide exchange." i'm ross westgate. >> i'm kelly evans. these are your headlines from around the world. >> talking about mixed demand in china. >> it's delideadline day for ea. germany is opposing the deal. >> lack of action from europe could risk pushing the global economy back into recession.
>> you're watching "worldwide exchange," bringing you big news from around the globe. welcome. "worldwide exchange" exchange. it's hump day. >> yes, it is. although it's been a shorter week for me. doesn't quite work that day. i guess i'm already over the hump. >> plenty coming up on today's program. >> indeed. let's take a look at where we'll be going around the world. >> won't attend imf meetings there as tensions between the two countries intensify. the u.s. government suing the nation's biggest mortgage lender. we'll take a look at how the global industry is faring. then it's off to paris. the stricken car maker is downgraded by moody's a day
after demonstrators stage protests. we'll have details from the french capital. and we'll head to new york where there's an appetite for young, profits that is, up nearly a quarter from a year earlier. we'll take a look on a big day for earnings on wall street. and a big week that's coming up. joining us now onset, though, bob mckey. bob, you're here with us, chief economist from independent strategy. i guess let's just begin by talking a little bit about some of these headlines that we're hearing from the imf regarding financial stability. obvious, i guess, to sort of draw attention to this issue, but in your mind, is there still lingering risk out there from the lack of reform, i guess, in some areas of the industry? >> i think what the global stability report is showing -- it's the third report the imf brings out at this semiannual meeting. everybody looks at the growth figures from the world economic outlook. this one is in many ways the most important because it tells us how far we've got out of the
mess of the banking collapse, how far that's progressed. the aim of regulators is to get banks to increase their capital, reduce their leverage, and at the same time, the aim of politicians is to get banks to lend more to the real economy to corporates and households. and there's a conflict there and the imf is exposing that in this report. >> absolutely. and perhaps anywhere more than the uk. you have schemes like funding for lending which basically are saying to companies -- saying to banks if you're involved in this, you don't have the hold capital. >> that's a countercyclical policy where as you remember, when the boom started, what we got was leveraging recognizing and regulators allowing that to happen and now we're trying to recover from a deep recession, we've had regulators trying to increase capital. this policy, which it's been announced, suggests a little opposite policy suggesting that
perhaps banks can lend without having to raise more capital. the global stability report from the imf says that in order to get leverage ratios down to where regulators want them, banks are going to have to treat their balance sheets by anything up to three trilliwo trillion e. >> that is a huge sum. and reminds us a lot of what is happening not quick enough is deleveraging. but the problem with deleveraging is as you sell assets, you put downward pressure on assets can start this negative feedback loop. so tell us, please, how can you do what the imf is calling for without sort of undermining growth? >> there are a bits of blue sky in this cloud. if you look at how much the leveraging is being done now in balance sheets, they found that 95% of it is being done not by cutting back on loans and assets
and selling those off, but mainly by raising capital. if banks can raise capital, which they have successfully done, even in the eurozone to some extent, then the leverage ratio comes down because of that, not because of shrinking the assets. that's one plus. the other thing i noticed that the imf report concentrates on financial fragmentation within the eurozone. it's the core banks, the core european banks are lending more, they're in reasonable shape. it's peripheral banks who are in a deep trouble and are shrinking. but there are signs that perhaps that could reverse. we've been looking at an independent strategy, looking at the various criteria, and the last month there's a sign that that fragmentation is beginning to turn around, and the imf makes some projections that it could improve over the next couple years. >> what's behind that? >> the main reason is not necessarily a good one, is that the balances are coming down because the per riff call countries have shrunk their
economies so much, they're now having net exports and net trade, so the result is it looks as though they're improving but really it's because of their contraction. going forward, it will really depend on whether growth returns to the european zone. >> and going forward, we'd like to see that growth happen in a healthier way. bob sticks around for us. but first, let's check in on markets. >> thanks for that, kelly. just now into the trade daniel craig here in europe. stocks down around half to three quarters a percent across the ftse, dax, and cac yesterday. another day of some slim losses. the foot seay is down .2. no major direction moves either way. as far as bond yields are concerned today, higher than we were yesterday. we were yielding around 5.7, somewhere around there.
5.8% is where we stand. on the currency markets, euro/dollar this time of year, 129s, 50s. lower again today at 121/27. aussie dollar had climbed back around 102. getting to that low 1.60 mark. so on a 24-hour basis, we haven't changed a lot. euro/dollar is weaker. that's where we stand right now. joining us from singapore, li sixuan. >> most are in red today. the shanghai composite was the only bright spot gaining .2 of a percent. a number of geothermal stocks were lit up after beijing will
accelerate the development of that energy source. auto makers also did very well, boosted by supportive policies. the hsi ended in the red, but only marginally. we saw some weakness in a number of telco majors, but vtes rebounded up 6% after days of losses, despite news it was excluded from the canadian government network project. the nikkei dipped to a two-month low by 2%. concerns over corporate profitability continued to undermine sentiment. auto makers also extended their losses on weak september sales in china. textiles took a beating. the kospi today with samsung electronics which tumbled 3.4%. steel makers and financials also lost ground ahead of tomorrow's bok meeting. the aussie market pulled back from a high by big banks and
industrials slower by .3 of a percent. ross, back to you. >> okay, sixuan, thanks for that. it says merging giants. they may not be. defense giants bae and eads have until the end of the day to decide whether they can get together or scrap plans. they'll be locked in talks to the last minute with hints that germany is ready to block a deal, and a spokesman has already confirmed there will be no announcement. william hague spoke about it. >> we've got a good record in recent years in having defense projects, such as the typhoon aircraft with other european countries. but the relationship with the united states, our strategic relationship and technological relationship with the united states is indispensable to us.
so, of course, it is necessary for us to be able to continue in both those directions simultaneously. and that's a very important consideration. any such merger of this kind. >> and joining us for more is the director at chatham hasram. they came out against the deal. so that was from a shareholder's point of view. what about from a uk defense point of view? are there political risks in allowing this to go ahead? >> the biggest political risk was referenced somewhat by the foreign secretary there in your clip. if there are large stake holdings as part of the agreement between the french and german governments, anything over 9%, it's going to look very difficult to justify the very special sharing technology relationship that the bae systems has in that market. if b.a. systems loses some of
its privileged access, from a shareholder perspective that's bad news. so really they cannot afford to let that political deal muck up the u.s. market. the civilian benefits are huge for b.a. systems. they can't afford to lose the u.s. >> one of the aspects which i find rather ironic, is it reduces their reliance on the u.s. market. the attraction for eads is that it gets them into the u.s. defense market. slightly contradict each other. >> i think you're look at not just balance of markets but balance of type of market from the eads standpoint. they want to be able to smooth out the unpredictabilities of the civilian aerospace market and not be able to get to just the u.s., but also the asia and middle east, could be a big plus and b.a. systems can bring them
some of that. they want to hold on to the defense market in the u.s., but they want to gain access to that civilian market, have their engineers plug much more into the civilian business that air bus can bring them across the world. >> you talk about the strategic importance of the uk government. how likely are the french or german governments to want to reduce their influence? >> i think what's interesting is where we are right now, it looks like the uk wants to deal enough and i think b.a. systems wants to deal enough given the bad profile for the defense markets in the short term. they seem to be striking enough of a deal to let the french feel that they can have a share holding. they think they can get past the u.s. with various safeguards. the germans are the ones to watch out for here. they don't have a large defense budget. they can't kind of use that to leverage their position in the company. they don't have the headquarters. they are the defense headquarters.
eads will be head quartered in france. and the germans are worried they're getting squeezed out of this deal. >> it's a way the progress is getting europe into one unit that can compete with american defense manufacturers. and yet also trying to preserve their position, as far as the british are concerned, on u.s. technology. can you square the circle where europe can have a big competitive unit against the americans and yet still share american technology? >> i think whatever happens, you've got to look after several years, b.a. systems still remains the sixth roughly in the u.s. defense market. it's not broken into that top, top tier. and with u.s. defense markets about to come down, as cuts are made, you know, b.a. systems probably will not fare any better than any other company. may come out a little worse. from their point of view this is a good time i think to hedge. there is the capacity providing the defense business stays in the uk for the kind of security
arrangements that are already in place, proxy board rules, etc., that i think would allow even a state shareholdered joined up company to have reasonably good access to the u.s. market. >> just before i let you go, what do you think is going to happen? do you think we get an extension today? do you think we get no deal? get an extension and cobble some together after six months? >> my best guess is obviously the companies cannot let this stretch out much longer. it depends on what they're trying to digest from yesterday. if the german chancellor is asking for some formal head quarter structure, they have to think about that. if the french are being given a nod to have 9%, maybe a space to go up by 1% or 2% beyond that, the company will have to think will this affect the u.s. market? so i think they need two or three days to work it out so my guess is they'll probably ask for one week extension, maybe two at the most, but not more
than that. >> all right, thanks for joining us. moving on now, the imf today issued a sober warning ahead of this week's key meetings in tokyo. its latest financial stability report says continued paralysis from eurozone policymakers could trigger another global recession. it also says systemic risks have risen over the past six months and threatened to hurt the world's already fragile financial markets. carrie, this report pointing to the risk from potentially upwards of $2 trillion of deleveraging here. there's risks from i guess the banking sector and then there's also the political risk that you're seeing firsthand there in tokyo today. >> that's right. this is a downward revision in what the imf calls its global financial stability report saying the risks have increased over the last six months despite all the negotiations and discussions that have been under way this the eurozone, which is
the primary focus of this annual meeting. the annual meeting is going to kick off in earnest tomorrow. it has been sort of a soft open the last two days in particular. but olivier blanchard, instrumental in putting this report together, he outlined the political risks out there, especially at a time when you have the facility like the esm, but governments unwilling to tap them. here's what he had to say. >> it is essential the markets do not regard it as a pure virtual phenomenon, in the sense that they say well nobody's going to ask for it because of political reasons or even when some countries decide to ask for it because they need it, those who have to agree for the money to be used in this way, the greater countries do not agree. this is something which would be detrimental for market confidence. >> i apologize, the financial counselor of the imf.
i also asked him, who is formally with the spanish central bank, about the warning the fund has given to countries like the u.s. and japan, who have been benefiting from their safe haven status and the capital inflows coming in to their bond markets, keeping interest rates low. the argument surrounding japan is that most of the debt is held by domestic institutions, so there's less of a risk despite the well-known fact that the debt to gdp ratio is notoriously high. but here's what he had to say on that front. >> it's fundamental that japan euro area crisis shows, once you lose faith in the sovereign, then if you're buying a lot of sovereign bonds, you could be in trouble. and we don't think that this is
an immediate risk for japan, but this is something that we want to warn about. >> there will be a series of rounds of bilateral meetings scheduled on thursday here in tokyo with tim geithner coming into town from india. he was praising the reforms that that nation has made, but a lot of discussion but not a lot of leeway so far on what to do. >> i want to ask you quickly about this news. they potentially speculated over the i don't think speculation with japan. what are you hearing? >> well, a spokesman from the imf told me this morning that they were told that the central bank governor would not be attending for scheduling conflict, and this was known to them two days ago. and a world bank spokesman told me just a while ago that the finance minister is no longer attending. there was concern that maybe government officials would not attend because private bankers scheduled to tend some of the
fringe meetings that are held around the annual meetings had pulled out. but i've been talking to a number of economists and government officials about this pullout, and they say that what kind of -- they ask -- the chinese ask themselves what kind of message does it send to the international community at a time when countries like china are demanding a greater choice in these institutions, especially with the reforms under way at the imf that would probably give china more say in the decision making process of these key institutions. >> carrie, thanks very much for that. just want to ask bob if you agree. >> it certainly shows that the chinese consider their national interests in these walks between japan and china. it was more important than getting their say at the imf. clearly the imf is not so important in their minds, and this issue that has been erupted
over the question is an indication of the tensions which exist in asia. >> there's potentially a rather amount of resource. >> the whole of the south china sea. whether there is in this specific area which has erupted recently is a different matter. but even so, what it indicates is that those interests are more important, the regional and national interests of the chinese government, than international organizations, which they might have a greater say. >> to domestic politics are more important to them. okay, bob stick around. more to come from you. plenty more to come on today's "worldwide exchange." the first batch of third quarter earnings -- >> they come out of the u.s. already some warning signs about china, at least on the industrial side. we'll have plenty more detail next. bob...
oh, hey alex. just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race.
young brand's third quarter profits topped 23%. the fast-food giant saw a rebound in its u.s. sales thanks to new menu items at taco bell like the cantina bowl. growth in china over here is slowing. same store sales rose 6%, compared with the typical double digit gains in the region. up three and a half percent this morning in frankfurt trade.
the aluminum maker reported better than expected results, sales, though, fell 9%, and alcoa is cutting its global demand forecast for this year, citing the slowdown in china, which the ceo discussed on cnbc's "closing bell" yesterday. >> i'm relatively optimistic on china. the chinese leadership understands that the economy is slowing down. they've put a program in place, which is starting now. it's probably going to take to the end of the fourth quarter to have this visibly in the economic activity, but other than that, i'm pretty optimistic. >> let's take a quick look at how alcoa shares are responding, down 1.3%. this raises a question, is he still optimistic? but shares are lower. what's your impression? >> i think alcoa is usually kicking off on the season, and although it's really a resource
type company and the wider framework of banking is still to come, but it's interesting, the 9% fall in sales. it's an indication of both the contraction we're seeing in growth for the global economy, which is expressed in those figures, and the only way companies continue to meet expectations, which we have to say are pretty low now, to beat expectations is not going to be too difficult. to beat expectations is still being done by trying to squeeze that margin up, keep costs down, and i'm concerned that if we see more figures on the revenue line here like we've seen with alcoa, that it's not going to be a very good quarter. >> what do you make of the consumer story? there are people in china eating the doritos locos taco that i apparently love. they have normally had double digit gains. is that developing consumer
based story in china still intact? >> a suspension, in a way. it's a very long-term thing. there's an argument, which is being presented, that you can sit as a middle income economy for a very long time before your consumer sector really expands to the level which people coming from the outside foreign manufacturers can take advantage of. china has reached that level, there's this efficiently large middle class now to begin to consume, as it were, nontraditional products, take aways and the rest of it. this is at the bottom of the takeaway chain, in my view, the products produced by this company. >> you've got to get with the program. >> my experience in the u.s. is if i'm going down the mouth, it's not the first place i'm going to. >> if products like the doritos locos taco, even the mcrib at mcdonald's suggests an area of
novelty. >> you know them all, don't you? >> the mcrib? i'm all over the fast-food sector. >> is that good for you? >> that's why you should start investing in chinese health care companies if this is the way that things are going. in any case, bob will stay with us for a few more minutes. >> i think we already know bob's view on the fast-food chain. still to come, asian banks have fared better than their european peers. can that trend continue? >> we'll discuss that after the break.
stocks are down again, the third day running this week, but pretty flat really. the ftse 100 off .2 a percent. the ibex down marginally. we had losses between half and three quarters of a percent yesterday. >> take a quick look at the bond space. the same kind of thing, the huge moves. we are seeing yields move higher for spain, italy, and the uk, interestingly enough. 5.88% there is the level for spain. it is by the day inching closer to that 6% level. italy, 5.12%. bundes are still sitting in the one to mid 2s. >> apart from euro dollar, which is lower. it was above 1.29 yesterday. not the biggest moves. elsewhere, pretty much where we were, as i say. now, the eurozone needs a banking union to overcome sovereign risks. that's what the ecb governing
council member said in japan today. he is also the governor of the bank of france, says the region needs to decide on a framework by the start of 2013, although he's admitted it might take a little bit longer to decide on the details of that framework. cyrus is managing director for asia pacific at idc financial insights and joins us for more. what are the implications if we do manage to get sort of a single banking framework in the eurozone? >> well, i mean, there is already a single banking parameter within the eurozone. if you look at the basel 2 and the basel 3, that originated out of the european conglomerate eu, and it was rolled out to the rest of the world, including the u.s. and asia. that framework that he was referring to, the governor was referring to is nothing but try and sort out your market risk. try and sort out of your credit
risk and simultaneously start looking at the i.t. risk. so we've had that confinement for a while, and dare i say some of the banks have been a little sloppy with regards to adapting it. now given the impetus from the inp, world bank, everybody is going to be compelled into that framework. so yeah, it's here. >> before the financial crisis struck, we actually had come to believe in the notion of a eurozone bank. and then we discovered there's no such thing as a eurozone bank. we discovered there were irish banks, spanish banks, german banks. can we actually create the notion of a eurozone bank that is backed by the entire eurozone as opposed to just one country? >> my answer is absolutely impossible. given the disparity between the eurozone region, given the
disparity between one country to the other, given the humongous amount of debt that some have accumulated and some have very cleverly circumvented, given the amount of stringent monetary policies that exist within germany and up to a certain extent in france, the answer would be why would i risk our capital adequacy to be part of one. i see that far from happening. >> i'll get bob's view on this as well. that would suggest we cannot separate the eurozone banks from sovereign debt then. >> no, we can't. unfortunately they are tied by the hip. >> i think the intention presumably of the plans that the euroleaders have got for next year and sometime onwards is to try and break that connection between the two by coming up with a eurozone banking system which provides perhaps
harmonization to deposit insurance so the customers are covered and also a resolution mechanism to deal with the banks that get into trouble and not just have to be bailed out as the irish banks were by their own government, but can actually be supported and perhaps restructured by a eurozone mechanism so that everybody pitches in, that way people have confidence. one bank in spain has the same level of stability as a bank in germany. is that practical possibility under the mechanism in 2013, cyrus? >> well, i seriously think from a framework perspective, it is very, very possible. you see again, what the european union has decided to do -- and the way the european banking commissioner has come about creating that road map, it's more about creating a universal framework, as bob mentioned, and each one of them would be governed and monitored accordingly. so i don't think they're creating a super bank or a super
regional bank. what they're doing is making sure that everybody's accountable. now, the first thing they'll have to fix is the existing capital crunch. once they overcome this hurdle, then they'll move to the next point, which is the entire road map of creating the framework to monitor. once they've done that, what are the penalties? what are some of the measures that they will inculcate within that road map so that if i am greece and i'm the incumbent -- turkey wants to be a part of that action, what will i part off as a penalty if a bank or a certain country is unable to sort of comply with that framework? i think that is possible. 2013, no way. ambitious. >> yeah, 2013 does sound a little bit ambitious. i just want to pivot, cyrus, and ask you real quickly about the imf talking about the risks. financial stability issues that it's raising again, $2 trillion
worth of deleveraging? does that sound about right in your view? >> yeah, it does, actually. and it's a hefty number. but you see -- i mean, what they've done, what the imf has done is taken the two culprits, if i can call them that, the u.s. and europe. most of the deleveraging will happen there. fortunately in asia, it would be a relatively smaller impact. sure, they'll get hit. sure, it's applicable to them, too. but yeah, the $2 trillion would stimulate the economy as the imf expects it to do so. unfortunate, but a big number. >> all right, cyrus is managing director for asia pacific. thanks very much for your time today. we'll stay with banks. the fsa, the regulator for the uk, is trying to relax the liquidity rules for banks. they have told banks they don't have to hold any extra capital against new loans they make that
qualify for the funding for lending scheme, which was launched a couple months ago. the report also says basel three cap rules are being eased and britain's biggest banks are no longer being required to achieve and maintain a cool capital ratio of 10%. what do you make of that story, bob? >> well, before the crisis and the banking collapse, we had huge leverage ratios and regulators did little or nothing about trying to control that, so there was a pro-cyclical policy, in fact. now since the crisis, we've had regulators trying to raise capital ratios and get leveraged out. a pro cyclical policy as well because we're in a depression. this is trying to reverse that and saying we're in an environment where banks need to lend. it's a very, very small area. it's only on new loans and the funding scheme. it's not across the board. >> if this is happening at the same time that those implementations are starting to happen, does it matter? is that a significant counter to what the individual countries
may be trying to achieve? >> i think it's a contradiction between what basel 3 is trying to achieve the next three years and what the rural economies particularly in europe need. >> which is what andy said -- >> it's an interesting conversation. >> we started off on the wrong point because the good times banks boosting, and in the bad times they are able to relax. but we have got to get to the right capital levels to begin with. >> it's a bit like the inflation theme. maybe a little bit of inflation isn't so harmful to us all. suddenly we don't need an inflation target that's too strict. going to have a little bit of inflation. >> just looking at the bank of england's record, i don't think we have a strict inflation -- not strict in the sense we feel we have to meet it. >> the governor is telling us before he retires that we don't
have to meet it. >> that's because he hasn't. right? >> yes. >> any thoughts or comments in any of this, we'd love to hear from you. you can e-mail us or tweet us. moving on, though, toyota has issued a recall involving over seven million vehicles worldwide. huge. here are the details live from tokyo. >> toyota says its decision was made due to possible malfunctioning of power window switches. no accidents, injuries, or deaths have been reported as a result of the defect so far. toyota will recall about 2.4 million cars in the u.s. 1.4 million in china. nearly 1.4 million in europe. it's the biggest single recall since ford motor pulled back 7.9 million cars in 1996. the cars recalled outside of
japan include certain models of the yaris, corolla, matrix, camry and six others produced between 2005 and 2010. in japan, nearly 500,000 cars produced between 2006 and 2008 have been recalled. the september sales in china fell 41%. japanese car brands have suffered an outbreak of anti-japan sentiment in china amid a territorial row between the two countries. back to you, kelly. >> thanks very much for that. now let's take a quick look at what's on the agenda in asia tomorrow. we'll continue our coverage of the imf world bank meetings live on the ground in tokyo. we'll hear from the imf chief and world bank group president. this bank of korea will issue its latest decision. meanwhile, apple has a
pretty loyal customer base, maybe none more so than with teenagers. in its recent semiannual survey, 40% of teens own an iphone. around 44% own a tablet with the ipad making up nearly three quarters of those devices. 43% would more likely to go with apple if it starts smelling a smaller ipad, which it's expected to do sometime this autumn. are they spending their own money buying ipads? >> it doesn't matter. >> they say if they choose to buy, is this their money? i very much doubt in the vast majority of cases that it's the teenagers spending their cash to buy ipads. >> i bet they are in some cases. but i wonder if it matters. because fundamentally, if this product is desirable, so if 40% have one or want one versus 20% in this same survey a year ago, is that telling us all we need to know about apple or is it a sign of saturation?
>> we're about to have a whole new range of pads coming out shortly. thanksgiving in the u.s. is apparently the day to get your present. all the seven-inch ones are coming out. apple is a little behind this. the rivals are coming out with seven-inch ones. the thing about it in my own family is now we can pass on our old ones to the kids and they can use the old ones, and that i think is -- so saturation is dealt with that way. >> teenagers, come on. their parents are buying it, right? i'm just wondering how much validity is in that report when the cash is being handed out by the parents. >> i was amazed that 44%, according to the survey, of teenagers own a tablet. that to me sounds like a huge number. i would have put it in the teens. meaning the ownership rate in the teens for the teens. but what do i know? >> children's toys are not bought by children. the parents have to be persuaded. the children badly need them and the children will tell them.
>> we also need an adult survey to see if parents are as much onboard with this. >> i think the key thing is have they got those because that's what the children ask for. do the parents say this is what i'm buying. you know i mean? >> yeah. >> okay, anyway, what do you think about the teen's brand loyalty to apple? what does it say to the future of companies like samsung? send us your thoughts. we just did the e-mails and the tweets. >> if you can't remember that, then google it. or you can reach us directly. there you go. stick around, stoill to come, find out what has employees so angry. we'll be live in paris.
>> it's all about transforming the company and adapting peugeot to the reality of the american market. peugeot announced a few weeks ago that it's going to cut its work force by 8,000 people, mainly in france with one of its most important factors next to paris. but a front government wants peugeot to reconsider its plan, reduce the number of job cuts, the french industry minister is going to meet the management of peugeot on the main trade unions on october 25th to discuss the restructuring plan. yesterday, angry workers expressed their anger and drove the attention from the press, the media attention. at first the governments say they would not authorize this restructuring plan, but after a commission looked at the situation, concluded that peugeot had no other option than
adjusting the production facilities in europe. according to moody's, it's going to be a big challenge. that's the reason why this morning moody's downgraded its rating for peugeot to ba-2 to ba-3 and kept a negative outlook for the company. the stock is trading lower this morning, 0.7% lower. it's not a significant reaction. this downgrade is not a big surprise. somehow it could help the management of peugeot to convince that the situation is serious in europe that the company is facing the contraction of the market, especially in france and needs to implement this restructuring plan. that's reason why probably this market reaction isn't quite limited the date. >> the government role is going to be absolutely key. sticking with the jobs market, wall street has cut
about 1,200 jobs since january. a report says the securities industries bonus pool is also expected to decline for the second year running. that reflects continued cutbacks by big banks as they struggle with weak trading volume in a tough company. >> a lot of uncertainty out there and wall street is trying to adjust to that. slow economic recovery in this country. uncertainty in europe. chinese economy slowing down. regulatory reform starting to be implemented, anticipating even more. uncertainty still with the election season. >> new york's securities industry is on pace to earn $15 billion in profits this year. the sector accounted for 14% of new york state's tax revenue in fiscal 2011. still the findings of that survey contrast with the results of a survey by efinancialqueries.com. hedge fund and asset management
employees are among the most optimistic. bob, are they delusional? >> if they're going to do it on the basis of hedge fund performance, they probably are. of course, we're talking about the big investment banks here. i suppose that we'll have to see what the share of computation is to total revenues, which is i think the measure that tells you -- and the banks are trying to get that ratio down. the banks that succeed in getting the ratio down are better placed. so the pressure is on employee compensation, including the bonuses, in order to keep banks profitable. there isn't much lending growth. >> what about hedge fund, though? especially as talent migrates out of banks, perhaps towards these funds, that just haven't put in the numbers so far this year for the most part. >> no, they haven't. so if professionals in investment banks think that they can opt to go to the hedge fund industry, they're not going to
find necessarily that they'll get their return or reward that they would have expected perhaps in the past. it's been a tough year for hedge funds, too. >> it just seem like in general, pay levels, compensation bonus levels are going to have downward pressure, perhaps for quite some time. >> i think we could -- i still think that the banks are in a position as the comptroller was saying there -- he called it transition. i think they're still in depression and it's going to take probably several years. >> it does make you wonder about a new york state or here in london where while that may be sort of right sizing the industry relative to its share of the economy, it still will put pressure on tax revenue, and the economy more broadly. >> i think still got a lot more mergers to come in this sector. we're seeing a restarting again of mergers, little ones here and there and i think we're going to see a lot more of that, not in the u.s. so much but in europe in particular. >> yes. which regulator will be
approving those measures, i wonder. i just wanted to actually, how much more cleansing have we got to go for irish banks, spanish banks, italian banks? >> well, we know exactly how much if you take ireland because they fixed the figure for a target down to 122% of their loan deposit ratio. they started at 190% when the crisis began. they're around about 150 now. they're 2/3 of the way of deleveraging. >> a lot depends on the poverty markets. spain and ireland particularly about whether we've actually taken enough on the chin for this. >> the property market bust and therefore banks bust, which is spain and ireland. ireland's probably skrjust abou reached the bottom. spain hasn't reached the bottom.
according to the latest oliver wiman stress test, there's about 20% to go for spanish banks losses on the property market. so there's still more pressure upon those areas. the other banks face the problem really which we've just discussed earlier as raised in the financial stability report. they have to raise their capital ratios and so they've got a problem there. where i think the mergers are likely to come. >> growth then -- who's generating growth with the banks system like this in europe? >> the only places generating some growth is the u.s., which we know has got a gdb growth still above trend, but certainly around 2%. germany has a little bit of growth. the core of europe has a little bit. outside of europe and the u.s.
it's asia that has growth. there the banking system is not the issue. all the historical studies show that once you have a financial collapse like we've had, and this was a humongous one, it takes up to seven years before banks can restructure and they're in a position to help so. if the crisis started, if you like, in 2007, we've still got a few years to go before we can say that the banking sector is actually going to be a contribution towards improving global growth. >> well, good to see you. thanks so much for joining us. we've still got a whole hour of "worldwide exchange" to go. we're watching bae systems to the end of the day to decide on a merger or scrap plans for their tie-up. reports that the two firms will be locked in talks until the very last minute there. are hints that germany's ready to block the deal. a spokesman has already confirmed there will be no announcement this morning. speaking early to cnbc, william
hague spoke about what's important. >> had a good record in recent years, such as the typhoon aircraft with other european countries. the relationship with the united states, our strategic relationship and technological relationship with the united states is indispensable to us. so it is necessary for us to be able to continue in both those directions simultaneously and that's a very important consideration. any such merger of this kind. >> chevron, meanwhile, says its third quarter earnings will be substantially lower. the oil company says production in the gulf of mexico was hit by hurricane isaac and the storm knocked out its refinery in mississippi. chevron says the fire at its refinery in richmond, california, also hurt production, as the processing unit at that facility will be down until the end of the year. chevron will report full reports on november 2nd. you see shares under pressure in frankfurt trade this morning down 1.7%.
also taking a look at fedex, which plans to sharply cut costs at its struggling express business. just last month, fedex lowered its 2013 outlook, blaming a shift by consumers to ship items by sea rather than air because of higher jet fuel prices. ceo fred smith says fedex could see the benefits of these latest efforts next year and still plans to increase the company's dividends, perhaps keeping a floor under fedex shares which are down just .6 of a percent. still to come on the show, is appetite from china waning? earnings reports show slowing growth and nature is taking its toll. >> stay tuned. bob... oh, hey alex. just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad
welcome to "worldwide exchange." i'm kelly evans. >> and i'm ross westgate. >> europe follows asia lower. aluminum giant alcoa warning of slowing demand from china as it reports third quarter numbers. >> young brands says it will open stores in china after posting a more than 20% jump in profit. >> it's deadline day for eads and bae. there will be no announcement until later in the day. the imf has warned that lack of action from europe could risk pushing the global economy back into recession.
>> you're watching "worldwide exchange," bringing you business news from around the globe. u.s. markets looking to break a string of down days. the dow down for two, maybe three. the nasdaq, s&p, which i believe are both down for three days now, perhaps going to continue that streak. although the s&p is just barely higher for the day. markets, broadly speak, are roughly unchanged. there's not a ton of activity emanating out of asia and europe, although asia in particular, we did see weakness. the nikkei, a two-month low. you can take a look at what's happening with the cnbc ftse global 300, which is down .2 of a percent. europe, as we take a look, they are in the red for the most part. dax up a tenth of a percent. the ibex down .3 of a percent. so the moves today, whether it's
in stocks across the bond space are not huge. >> let's show you as far as the bond markets are concerned there, kelly. you'll see yields in spain are slightly higher from where we were yesterday. 5.86%. italian yields a little bit higher than they were. 1.75%, although these are showing you that they're a little bit lower. currency markets, the only cross road that's a little bit weaker from this time yesterday is euro/dollar. the rest of these pretty similar. aussie/dollar still over the 1.02 mark. pretty much as you were. let's recap what's going on in asia today. sixuan? >> most lost ground following a
negative hangover from wall street. the number of geothermal stocks surged after beijing will accelerate the development of that energy source. auto makers also did well. strength capped los losses on the hang seng. we saw some weakness in telco measures. it was excluded from the canadian government project. elsewhere the nikkei slipped to a two-month low. auto makers also extended their losing streak on weak september sales. toyota issued a recall involving over seven million cars worldwide. toyota says the cars, including certain yaris and corolla model may have malfunctioning power
window switches. samsung electronics dropped more than 3%. the australian market pulled back from a 14-month high dragdown by big banks. ross, back to you. >> sixuan, thank you. let's recap earnings news now. alcoa posted a third quarter net loss due to the cost of settling a long-standing legal battle with a bahrain firm over bribery allegations. the aluminum maker reported better than expected results even as sales fell 9%. alcoa is cutting its global demand forecast for 2012, citing the slowdown in china. >> i'm relatively optimistic on china. actually, the chinese dealership understands that the economy is slowing down. they've put a program in place, which is starting now. it's probably going to take to the end of the fourth quarter to have this visibly. but other than that, i'm pretty
optimistic. >> alcoa shares are underperforming the market there in germany. >> young brand's forecast was up the 23%. they saw a rebound in many brands. growth in china is still slowing. the same store sales up 6%. the company has typically posted double digit gains. >> i do think we need to get you a doritos locos taco. i do hear good things. the oil company says production in the gulf of mexico was hit by hurricane isaac and the storm knocked out its refinery in
mississippi. chevron says the refinery in richmond, california, also hurt production. the company reports full results on november 2nd. the shares are down 1.8% in frankfurt trade this morning. helping us to make sense of all of this, stuart richardson, he joins us in studio. good morning, stuart. which of these to you is most telling, and we're just getting into the swing of things here for the third quarter. already what are we learning? >> i think what we're learning is that global growth is slowing down. this has been apart for several quarters now. i think the problem for companies around the world, not just in the u.s., is the corporate profit margin is coming off a very high level. big, easy cost cuts that we can in the cycle. without revenue growth, we're seeing earnings expectations slightly down year on year. i think looking forward, this is where we'll potentially see a surprise for the market, so although the downgrades have been quite rapid in the last three or four months, no one has
been touching aggressively 2013, so this is what we're looking for, the guidance for 2013. >> and you think there's room to fall? >> big room to fall. >> how much room? >> at the moment, looking for about 11% growth in the u.s. if you're looking at nominal growth, about 4%. then you're looking for a lot of margin expansion, which i think is going to be tough to achieve next year. this is all before we take into account the fiscal cliff, where who knows what may happen. we would be pencilling in this 5% growth for next year, as opposed to 11%. i think there's a long way for it to come down. >> as we come in here, we're relatively high sort of levels for markets but we seem to have adopted a neutral gear. is that fair to say going into this earnings season? >> i think for several months now, we've had this sort of tug of war between central banks stimulus versus fundamentals. clearly for august and september, the central banks won. markets were going higher.
in some ways, you could say it's a pause for refreshment, the markets have gone sideways since qe-3. or you could say the fact that they've gone unlimited, what more can they do now? what surprise can they give the markets? maybe all of this -- >> you've got to counter that, though, with a traditional -- at some point before the end of the year, there's a little bit of -- everybody likes higher asset prices. >> correct. a little sideways action the last three to four weeks now. if we break above that range -- and you have to believe the year end rally trade is probably on. if we start to break down from here and the earnings pitch is lower, the central bank stimulus is not helping. the problems in europe continue to bubble away. then if the markets go down even on into qe-3 -- >> are there any reports of bell weathers that you're going to be looking at? i know there's the whole piece,
but i just wonder if there are one or two names in particular that you look at. >> everybody watches apple. i think we'll have to be keeping an eye on cyclical names. there's little the fiscal side can do to help and the monetary policy may or may not be priced in. we saw fedex before the earnings announcement. intel. so there's a lot of warning signs that the cyclical names are leading the way. we saw the transportation index significantly underperform. >> by the time they've told us there's a problem, it's usually reflected in shares to some extent. how much further downside might there be? >> everyone of course always has that potential. what everyone's trying to look at in their forecast is for a soft landing around the world for the u.s. to continue growing, europe to muddle through, and there's lots of
risk on all of those fronts, so if we see one of those risks materialize, i think expectations remain far too high. >> and into that, we have the election and whether any lame-duck session can stop this fiscal cliff, which is how are you supposed to invest around that wild card? >> i think a lot of people are saying we just don't know. >> that's an interesting point. so we have seen quite low volumes, which some contributed to the columbus day holiday this week, but do you think it has to do more with people on the sidelines through the election? >> not just now, but the last two years volume has been trending low the whole time. people clearly saying we don't know what's going to be happening for the next year. also we've seen central bank policy move asset prices higher, arguably above fair value, why would investors chase a market which is overvalued on that basis? >> nowhere else to go. >> that's what the feds want to achieve. >> they've had some success with
that, it would seem. stuart richardson, thank you very much for your time. >> thanks very much. >> got a teak bill auction out of it. 279 versus 225. the 12-month average yield, 1.94%. so yields for italy, while they were coming down still in september on those auctions have just nudged up a little bit. >> kind of reflects the action we were already seeing in the markets this morning. while we digest those results, let's take a quick look at what's on the agenda today in the u.s. we'll get the august wholesale trade report at 10:00 a.m. eastern. that's expected to rise half a percent. at 2:00, it's federal budget statement for september and the fed's latest beige book report. also fed governor speaking about financial regulation at 4:30 p.m. 15 minutes after that, we'll hear from richard fisher speaking at the kato institute
about lessons learned from the debt crisis. and in one corner fighting in the red trunks, it's paul ryan. in the other, wearing the blue, it's joe biden. and when the bell rings, these gentlemen will come out debating. we are just two days away from the next major event of the u.s. election season. the vice presidential debate in kentucky. you can catch all the action right here on cnbc. our own coverage will begin thursday at 8:00 p.m. eastern. ross, i cannot wait. i am so bummed, it's going to be hard to watch it over here because it will be so late, or early our time. >> do vp debates actually matter? >> they can, and i think in this case, when -- >> i'm not saying it won't be a good watch. i'm just wondering whether a it has any impact. >> i think traditionally do they have a lot of impact. maybe, does this one have the potential to be impactful? absolutely. >> it will be covered. a crucial deadline today. more as soon as we come back.
bae. >> could risk pushing the global economy back into recession. >> bae systems and eads have until the end of the day to decide on a merger. they will be locked into talks until the last minute. an eads spokesman has already confirmed there will be no announcement this morning. as far as the two companies are trading, bae systems is down about a third of a percent. they could have asked for an extension. that might be sort of the favorite route this morning of one to two weeks. meanwhile, microsoft's board is cutting steve ballmer's
annual salary. microsoft stock -- there we go. apologies about that. meanwhile, walmart is holding its annual analyst meeting today near its headquarters. the retailer is expected to brief them on numerous topics, including expansion of its smaller store format and providing profits overseas. investors will also be listening for comments on the bribery allegations at its walmart to mexico unit. the company has also been confronting walkouts in eight cities but the numbers have been relatively small. kelly. >> thanks for that, ross. apple has a pretty loyal customer base, perhaps none stronger than in teenagers. 40% of teens own and iphone. 44% own a tablet with the ipad make up three quarters of those devices. kids who plan to buy a new tablet, 43% say they'd be more
likely to go with apple if it starts selling a smaller ipad and it's expected to do so sometime this fall. tell us what you think about the loyalty to apple. is it a sign perhaps of saturation? what's it mean for competitors? you can e-mail us here or tweet us. you can also reach us directly. ross? >> still to come on the show, the imf makes its feelings clear on the eurozone. we'll have more details when we come back. we use this board to compare car insurance rates side by side so you get the same coverage, often for less. that's one smart board. what else does it do, reverse gravity? [ laughs ] [ laughs ] [ whooshing ] tell me about it.
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welcome back. you're watching "worldwide exchange." let's take a quick check of u.s. futures. could be a third day, in some cases a fourth day, of losses, as the dow jones is looking to shed about 15 points at the open. s&p and nasdaq also pointed fractionally lower. >> as far as european stocks are concerned, it's been a lower session. dax down ten points with the cac also down a quarter of a point as well. the ibex currently down three
quarters. >> take a look at what's happening over there, because the ten-year for spain, 5.88% it was touching earlier. now 5.85%. italy has receded a bit. 5.11% is the yield over there. this follows an italian auction of shorter-term three-month tea bills. bundes and yields benefiting this morning. 1.49%. guilts are up, actually. 1.76%. while eurozone ministers concluded their meetings with little, they failed to agree on how a banking union should work. spain's finance minister said only bold action would appease those doubting the euro. this comes as they're failing to agree to some of the measures needed perhaps to get that action in place to save the
euro. >> bold action if you agree to ask for bold action. >> right. and of course, we're seeing this morning spain sort of reiterating that it would prefer to go it alone with yields. >> yeah. you know, i think they have that referendum in catalonia. they want to get beyond that before they get into any program. >> absolutely. >> talking about catalonia, the spanish parliament has voted to block a move for independent state by the region. lawmakers from the ruling people's party have rejected a motion brought by the catalonia party for referendum on the issue. the move marks the late nest a series of showdowns between one of spain's most indebted regions, and the central government in madrid. this is all about the pressures that are being put on the internal political dynamics of spain. >> a reminder, too, not only the political dynamics, but should it now face issues with regards to the funding that it raises from some of these member states to redistribute to others is
running into problems there. and it's just one additional issue that may catch the attention of ratings firms here. >> you have more of an understanding of that in the federal system. what does the central government take from the states. >> in the u.s., very few -- for example, very few people in north dakota would necessarily think of themselves as having their wealth redistributed to those in california or pick a struggling state. there's still not that state by state identification with what we're seeing perhaps in spain, where there is more of that fragmentation and that sense of i want to protect what is mine, and what is mine is catalonia and not spain. the imf though today also issuing a somber warning ahead of this week's key meetings in tokyo. its latest financial stability report says continued paralysis could trigger another global recession. carrie has been following the story. >> this is a downward revision in what the imf calls its global
stability financial report, saying the risks have increased over the last six months, despite all the negotiations that have been under way in the eurozone, which is the primary focus of this annual meeting. the annual meeting is going to kick off in earnest tomorrow. it has been sort of a soft open of the last two days in particular, but the financial counselor to the imf and instrumental in putting this report together, he outlined the political risks out there, especially at a time when you have a facility like the esm, but governments unwilling to tap them. here's what he had to say. >> it is essential that markets do not regard it as a pure virtual phenomenon. in the sense that they say no one is going to ask for it because of political reasons, or even when some countries decide to ask for it because they need it, those who have to agree for the money to be used in this way, the greater countries do not agree. this is something which would be detrimental for market
confidence. >> i apologize, jose -- the financial counselor of the imf. olivier blanchard downgrading the economic outlook for 2012 and 2013. i also asked him, formally with the spanish central bank, about the warning the fund has given to countries like the u.s. and japan, who have been benefiting from their safe haven status and the capital inflows coming in to their bond markets, keeping interest rates low. the argument surrounding japan is that most of the debt is held by domestic institutions, so there's less of a ricsk, despit the fact that the debt to gop ratio is notoriously high. here's what he had to say on that front. >> it's fundamental that japan puts in place a strategy for fiscal consolidation, which over the median term ensures the sustainability of private finances, because as the crisis shows, once you lose faith in
the sovereign, then if you're buying a lot of sovereign bonds, you could be in trouble, and we don't think that this is an immediate risk for japan, but this is something that we want to warn about. >> yeah. when does massive outstanding debt become an issue? when you can't control your currency. >> exactly. >> exactly. we'll take a short break. still to come on "worldwide exchange," will they or won't they? we'll bring you up to date on the bae eads latest merger discussions. >> what's ahead for peugeot amid protests and downgrades. stay with us.
welcome back to world world. i'm kelly evans. >> and i'm ross westgate. >> europe following asia lower. alcoa warning of slowing demand from china as it reports third quarter numbers. >> it's a different story for young brands, after posting a more than 20% jump in profit. >> and it's deadline day for eads and bae. eads says there will be no announcement later in the day. >> the imf has warned that lack of action from europe could risk pushing the global economy back into recession. >> you're watching "worldwide exchange," bringing you business news from around the globe.
a quick look at u.s. futures. dow jones industrial average is now looking to shed about 25 points at the open. the nasdaq and s&p 500 also pointed lower. earlier, they were sitting roughly flat, but we have seen a negative trading environment as we move from asia into europe, and the nikkei, for example, among the indexes sitting at almost two-month lows. the dax down roughly .4 of a percent. the ibex shedding almost 1% this morning. the euro/dollar is weaker. we'll keep an eye on the reasons for these losses, picking up over the last half an hour to last 60 minutes or so. >> yeah. meanwhile, plenty of discussion already on cnbc already today. here's a reminder of what some of the experts have already told us on the channel. >> it has definitely been pretty strong. it's rallied 4% against the
dollar across the year. i think it will come in for demand. it is a currency that is pretty stable. we'll sea the seam of diversification. >> longer term credit i think remains interesting and attractive. it's time to take some profit, get ready for the next. >> i like senior loans as well. comes in the same, but it's higher up in the capital structure. >> long-term, i think you've got to be in good ethics. >> some fire power, get into high yield u.s. >> i thought you were going to make fun of the jargon that we hear so much, all the dry powder on the sidelines just waiting to
be deployed. >> create the dry powder, though, right? >> yes. i will say to the point he was making, talk about an asset class that has seen extraordinary inflows, and yet people feel more likely than not that we're towards the beginning rather than the end of this a whole boom in that market. >> which is people saying -- >> they're already talking about frothy examples on the market. you feel as though it's not as if that rally has yet run its course. so in any case -- >> mergers. >> these two being defense giants. bae and eads have until the end of the day to decide on a merger or skrab plans. they will be locked in talks until just about the last minute.crap plans.
they will be locked in talks until just about the last minute. speaking earlier to cnbc, william hague had this to say. >> we've got a good record in recent years in having defense projects such as the typhoon aircraft with other european countries. but the relationship with the united states, our strategic relationship and technological relationship with the united states is indispensable to us so it is necessary for us to be able to continue in both those directions simultaneously and that's a very important consideration. any such merger of this kind. >> take quick look at though shares are trading lower this morning. 1.3% for bae. eads shedding about a tenth of a percent. edmund is joining us onset for more. welcome. >> thank you. >> we're seeing shares trading lower this morning. does that to you reflect the
fact that this deal may not happen? >> yeah, what we've seen today is the bae shares are coming down slightly. the kind of merger ratio has now falling to 62.5. so the mood is that it's not going to happen at the moment. we still expect an announcement before 5:00. >> an announcement that for an extension? >> an extension. i think that's what the whole market expects now. an extension has to go through to get the markets happy. i would issue an extension or to say that the deal is falling apart. >> how long of an extension can they get away with? >> i would expect a week. we're expecting a week to two weeks. >> then the question is whether that is actually enough time for all the different vested parties here to work out what they are happy with? you know, can the french government get away with a 9%, 10% holding that won't impact
doing business in the united states? will the germans be able to not have much control? there's so many moving parts. >> yeah. there's so many different parties here. and you've got the u.s., which we still think is one of the keyer elements here. the u.s. have their agreements. >> do you think this should go through? i thought it was a big statement from investco. they found it very hard to find any metric in which they recommended this deal in. other words, they're dead set against it. >> they put themselves in a position where they set everything against it, but they didn't write it off. bae still has to get 75% agreement on this if it's going to go through. they said all these things have to be agreed before we become more positive. so they've certainly names a lot of elements which have to be answered before they're going to make a claim to kind of agree to it. >> why does this deal make sense
for investors, say for bae investors? >> it offers that cyclical upside. and we're seeing huge commercial aircraft orders coming through. great backlog there and it's supported bay good new program. so for them, it offers a really good attractive growth. it kind of counteracts over the defense spending that's being crushed downgoing forward. >> what about from the eads point of view then? >> it goes back to their vision 2020 view. they want to expose themselves -- increasing exposure to the u.s. they want that defense exposure, which will kind of reduce the volatility of their earnings in the cycle. at the moment it's boom, but that's not to say that will be the case in the next ten, 12 years. >> invesco has talked about bae superior cash generation. they're very worried about what happens to the dividend aspect of that. we know dividend income has been hugely important for investors of all shapes and sizes.
>> absolutely. it's one of the key elements of why you'd want to own bae systems at the moment. you've got a defense environment, which is being squeezed. limited international opportunities. so the good reason is you've got nice free cash flow and a dividend yield which is covered. so what they said in the statement, they said well, the dividend is growing and they've come to an agreement, but it's only a short-term agreement. they don't say what the long-term strategy is going to be. >> going for growth at the expense of other things is maybe not what shareholders want. >> yeah, it's not your bae system shareholders. that's who owned bae systems at the moment. so you're changing the whole rationale of why you'd want to own the combined density. >> when you start to make those changes, then they're not necessarily sure that they want bae in their portfolio for those reasons, because they're looking to rotate them to other companies who can provide that certainty.
>> one of the interesting athings is they said they want to diversify themselves. you don't want to company to do it for you. so they were saying we might like defense today. might not like it tomorrow. we don't want the company to change its strategy. >> clock is ticking. >> when push comes to shove, if we get the extension today, which is maybe the most likely thing, off in a couple weeks. do you think we'll have a deal agreed or not? what's your instinct? >> instinct says no at the moment. everything we're reading at the moment, from germany, from france, from what the uk government said, from some of the conservative mps have said, and especially what's going on in the u.s., we think it's probably unlikely. >> all right. edmund, thanks for that. and then what happens to the stock prices? eads might be bound actually. >> there's the potential for that. that was a play before. is it going to rebound or have people lost confidence in management? so that's another element to it. >> thank you.
welcome back to the program. these are your headlines. alcoa warning of slowing demand from china as it reports third quarter numbers. >> it's deadline day for eads and bae. >> and the imf warns that lack of action from europe could push the global economy back into recession. moody's has downgraded peugeot's rating, citing challenges in its restructuring program. this comes a day after workers clashed with police at the paris motor show. this as they protested against cuts at the car maker. stephane is in paris with more. we know why they need to do it. i guess the question is whether this government needs to take that onboard as well. >> looks like the french government doesn't want the take into account the new reality of the cost sector, not only in france but also in europe. the french industry minister asked peugeot to reconsider its
restructuring plan and to minimize the impact in terms of job cuts in france. if you remember a few weeks ago, peugeot announced that it was going to cut 8,000 jobs in france and shut down one of its major factories in the country. yesterday, some angry workers took the opportunity of the motor show in paris to catch the media attention, to express their opposition to the restructuring plan. the next step will be a meeting between the french industry minister, the management of peugeot, and the main trade unions on october 25th to discuss the restructuring plan of peugeot. as a result of the downgrade that you were mentioning this morning, downgrade from moody's, 38 basis points wider half an hour ago. that's 825 basis points. it's a record level.
that could push the unit of peugeot bank into the junk territory and it wouldn't be able then to raise cash for its final units. so that's one potential consequence of this downgrade this morning. ba-3, the new rating at moody's. over to you, ross. meanwhile, toyota has issued another massive global recall. this time it involves over seven million vehicles worldwide. the good news is no accidents, injuries, or deaths have been reported because this is the defect today, it is because of windows, apparently. electric windows. the auto maker -- this does affect you in the united states, two and a half million cars in the united states. toyota is going to recall. it's going to be 1.4 million in china. nearly 1.4 million in europe. it is the biggest single recall since ford pulled back almost nine million vehicles in 1996. the re. >> caller:s a day after the firm reported that its september
sales in china fell 49% on the year. suffering as a result of anti-japanese sentiment in china, a territorial row between the two countries. over two million cars going to be recoiled. recoiled? recalled. >> there might be some dogs recoiling given that this issue largely affects window controls. you may want to make sure that they're safe when they're riding along. >> i'm presuming they're getting stuck rather than -- going up and down. but obviously a lot better than the accelerator problem than they had -- that was nearly ten million, the accelerator problem. >> it's remarkable because this recall, as mentioned, the biggest since a nine million vehicle recall that ford did back in 1996. so it's still going to be an expensive one for the company. >> stick around. still to come on the program, alcoa kicked off earnings season on a mostly positive note, but we'll take a look at what the results may say about the rest
of corporate america next. bob... oh, hey alex. just picking up some, brochures, posters copies of my acceptance speech. great! it's always good to have a backup plan, in case i get hit by a meteor. wow, your hair looks great. didn't realize they did photoshop here. hey, good call on those mugs. can't let 'em see what you're drinking. you know, i'm glad we're both running a nice, clean race. no need to get nasty. here's your "honk if you had an affair with taylor" yard sign. looks good. [ male announcer ] fedex office. ow save 50% on banners.
let's remind you where we stand on european stocks right now. the ibex down .8 of 1%. the ftse as well down around a third of a percent as well. >> follows losses in the asia session as well. let's take a look at the agenda in the u.s. wholesale trade expected at 10:00 a.m. at 2:00, the federal budget statement for september. and the fed's latest beige book. the fed governor will speak about financial regulation at 4:30, followed by dallas fed president richard fisher speaking at the kato institute about lessons learned from europe's debt crisis.
u.s. futures are pointed lower, looking to shed doubt 25 points at the hope for the dow. nasdaq and s&p going to key off a string of losses, at least based on where they're currently positioned. a long-standing legal battle with the bahrain firm over bribery allegations. the aluminum maker reported better than expected results even as sales fell below 9%. citing the slowdown in china, which the ceo discussed on cnbc's "closing bell" yesterday. >> i'm relatively optimistic on china, actually. the chinese dealership understands that the economy is slowing down. they put a program in place that's going to start now. it's probably going to take to the end of the fourth quarter to have this visibly in economic
activity, but other than that, i'm pretty optimistic. >> alcoa shares were lower this morning by better than 1%. as you can see right now, better than 2%, 2.2 as markets broadly continue to weaken this morning. at taco bell, doritos locos taco. same store sales were up 6% but the company typically has posted double digit gains. shares with up 4%, really bucking the activity we're seeing across the rest of the market. joining us now, the stocks correspondent over at reuters. good morning. i guess it might seem like alcoa and yum are setting different standards, but they are not
faring quite as well, the consumer holding up, perhaps there's some consistency. what's your take so far on what we've learned? >> china is the big worry. across the board. we're starting to see since china is such a large trade parter in with europe, that it's starting to ripple across the globe a little bit. so depending on how china can sort of stem that slowing with their stimulus packages, but at the same time, they also have their elections coming up, so it remains to be seen how aggressive that the new regime, if there is one, is going to be. >> just to take a look too at earnings season, we're starting to get into it. we've got a lot of bank earnings coming up. are we already seeing profit margins start to change? >> actually, the area that we're seeing most affected by the china slowdown is tech. they've actually -- a lot of those have come down quite a bit. they do have a huge exposure over there. they're going to be the ones that probably are going to be hit the hardest. >> and we also look at -- i
mean, everybody in the cyclical business, because we look at what fedex told us a week or so ago, and alcoa, and other warnings as well overnight. it seems to me if you're in a cyclical business, then things are -- we've gone past the best point, things are turning down. >> the big multi-national obviously had a large exposure to everything globally. any slowdown like we're seeing is going to affect them first. at the same time, they are kind of couching expectations a little bit, too, so it remains to be seen if they're going to be able to play that game a little bit, where they reduce expectation and come in better than expected. >> in the next couple days, where are you focused? what companies are going to be key for gauging market sentiment? >> in the next few days, it come downs to the big multi-nationals. alcoa is setting the tone a little bit here, but it is a little early to extrapolate the
entire earnings season just from them. >> we get the beige book today. a bit of wholesale trade out. do you get the sense that we're in sort of a neutral mode here as we sort of now get into the earnings season? >> yeah. that seems to be what people are waiting for. trying to kind of see exactly how these companies have been able to deal with this slowdown that everybody pretty much knows has happened. on the one hand, through the slowdown, companies have cut so much that at this point, in the topline revenue starts to sag, how much can they still deal with that? >> it will be interesting to contrast the micro, macro. we've seen earnings season overshadowed by what's been happening on the macro front. i guess here the real question will be whether that trend continues, and it sounds like it's going to take companies coming out here and saying
something more significant than what we've heard with regard to the 2013 outlook. any particular examples that strike you of this looking into 2013 and getting more clarity on the earnings front? >> well, we've already seen companies like caterpillar forecast as far out as 2015. 2013 is definitely more what people are looking at. any outlooks, people are gearing more on those as opposed to what's coming in this quarter. >> as is so often the case. thank you so much, chuck, for calling in this morning. and just a programming note. in one corner fighting in the red trunks, it will be paul ryan in. the other, wearing blue -- >> i hope they're not actually wearing trunks. >> in the blue, joe biden. these gentlemen will come out debating. we are two days away from the next major event of the u.s. election season, the vice presidential debate. it will happen in kentucky. our own coverage begins thursday night at 8:00 p.m. eastern.
>> i was asked this question about how much vice presidential debates actually matter. >> i maintain that this one could matter. >> there's no evidence that -- >> it doesn't seem to be that much of a game changer but i think joe biden will try to recapture some of the momentum that obama lost. >> that's overpreparation. that can stunt your performance. you need to keep it fresh. that's it for "worldwide exchange." going to keep it fresh on "squawk box," which is coming up next. >> we'll see you back here tomorrow. have a great day.
good morning. today's top stories, alcoa officially opening earning season, they beat expectations. meantime, fast-food giant yum raises its outlook. speaking of china, the country's spr central banker is pulling out of an imf meeting. the latest twist in the fight these two are having. here at home, the dow is now about 700 points off its all-time high. it's october 10th, 2012. "squawk box" begins right now.