tv Street Signs CNBC May 3, 2018 4:00am-5:00am EDT
welcome to "street signs." i'm joumanna bercetche these are your headlines an own-goal for adidas shares in the german sports wear firm slip after rebook sales disappoint, but kasper rorsted says the company is making strides in china and north america. >> we grew adidas in america 23% in a market where most of our competitors don't grow so you're seeing in north america and china, we are growing the market and gaining market share u.s. treasury secretary steven mnuchin arrives in
beijing for tough trade talks. chinese state media says the country will not be bullied as u.s. president trump tweets it's time to level the playing field. if you're a day trader get out of the stock says tesla's ceo elon musk as he lashes out at investors at an earnings call sending shares lower after the carmaker posts another quarterly loss. and xiaomi outlines plans to raise $10 billion with a listing on the hang seng adidas shares are under pressure even though there was strong sales growth in china and north america. the company confirmed its 2018
outlook, however weakness in its reebok brand continued falling 3% speaking to us earlier, ceo kasper rorsted said progress was being made at the brand. >> north america is growing, europe is growing. two countries in asia are not growing. our primary objective was to get regoiebok to profitability. the most important part is that we start making money again on reebok that's what our turnaround plan is about >> in other corporate news, glencore expects trading profit at the upper end of its forecast range after posting first quarter output in line with expectations the mining company says production is in line across all commodities. and logitech shares are jumping after reporting its best ever fiscal year sales growth in the gaming and video
collaboration units helped boost sales for the period by 16%. logitech also confirmed its fiscal year 2019 outlook and hinted it could raise its growth margin target in the future. spotify plunged in extended trading after reporting its first quarterly earnings as a public company they disappointed investors because they cannot turn free listeners into paying subscribers at a faster pace the swedish company said paid subscriptions for the second quarter would be between 79 million and 83 million first quarter revenue also missed analyst expectations. and tesla shares fell in extended trade after elon musk dismissed analyst questions during a first quarter earnings call the stock had been flat after the numbers but lost $2 billion in market cap following the robust call.
i'm happy to say arjun kharpal joins us can you break down yesterday's earnings call? >> we had elon musk talking to investors in what was a bizarre call in that he addressed some concerns from the investors who are actually, you know, what's happening with your numbers. he was dismissive of those questions, saying those questions are boring let's listen in to what he had to say there >> we have no interest in satisfying the desires of day traders. couldn't careless. people are concerned about that, they should not buy our stock. i'm not here to convince you to buy our stock. do not buy it if svolatility is scary. there you go >> analysts may have been scratching their heads over the terminology musk used, particularly when he talked about the "fluffer bot."
>> machines are not good at picking up pieces of fluff human hands are way better at doing that and so a super complicated machine, using a vision system to try to put a piece of fluff on the battery pack, one question asked was do we need that we tested a car with and a car without, so there was no change in the noise volume in the cabin. so we actually had a part that was unnecessary that was breaking down because fluffer bot would frequently fail to pick up the fluff. >> let's talk about this before we get on to mr. musk's behavior on the analyst call, i want to talk about the numbers i read a good headline saying tesla earnings show record revenues but also record losses as well. breaking that down
revenues are still up quite significantly from a year ago, 3.2 billion, versus 3.7 billion, but then a loss of 3.35 a share versus 3.48 a share of expectations bottom line is this is a company that is still burning through cash they spent about $1 billion in cash the first quarter what is the business model here? how long can they keep burning cash for before people and investors finally see results? >> what those numbers tell you, revenues are up because tesla is seeing demand. elon musk said tesla had the highest numbers for the model x and model s than ever before the ason they're burning through much sh is they can't nail the production of these cars, particularly around the model 3. that's their mass market car 35,000 starting price. that's one analysts see as being
key to the future of tesla it goes from beyond being a niche product to a product that can be accessible to other consumers as well and drive the growth of the business the business model here is trying to sell the cars. the problem it what is trying to meet demand. that's a problem tesla always had. analysts in the past have given the benefit of the doubt to elon musk, he continued to promise and promise. even though some of those promises have been delayed, some have eventually happened you're seeing a more mixed bag on tesla a lot of bearish sentiment towards tesla. those who are really into the story believe this is a long-term story. >> isn't there a lot of key risk in this in the sense it's very much about elon musk, his personality, his pr, and earnings calls like yesterday are not helping his case when he's lashing out at analysts for asking so-called stupid questions, how are people going to believe him
where will the credibility come from given that these are fair questions for analysts to be asking >> it doesn't help his case at all. you see the massive valuation on the company is about the future potential. anyone you speak to says tesla, who is in favor of the tesla story, tesla is ahead of the electric vehicle game. it's making vehicles that people want to buy. from a technological point of view, it has the software down the driverless cars and the rest of it. that's the story over the long-term. that's the promise of this company. the question is whether elon musk can execute on that the expectations are so high for this company perhaps more than any technology company right now. the expectations of a future growth story here are so high that there's huge room for disappointment >> it's a very interesting point that you raise about the production targets also his own salary and his own remuneration is closely linked
to how much they end up producing, the market cap of the company and he's shooting himself in the foot by lashing out at analysts. what next? what will be the next hurdle for people who are involved in this stock to overcome? when will we get the next update on production? will they release numbers on a monthly basis going forward to get more realtime information or do we have to be subjected to these types of analysts calls? >> the next focus is this current quarter we're in and any indication around how production is going in this quarter tesla eventually wants to get to 5,000 model 3s per week in terms of production. that's key in this quarter, by mid-april it was 2,270. so still quite far off target. and elon musk has guided that q3 and q4 will be profitable. it's wait and see. we know in the past some guidance tesla and elon musk offered has been a bit gray.
>> perhaps they need a new person to handle the pr and analyst calls in the future. head to cnbc.com to find out more about elon musk's bizarre earnings call. i'm happy to say joining us around the desk is patrick spencer, managing director and vice chairman of equities from baird. do you have a view on tesla? >> we can't talk about specific stocks, but certainly, i think the whole trend towards much more environmentally friendly cars, auto is the big problem. and there's a huge demand. so the capital, i don't think, will ever be a problem >> bigger picture is that this comes on the back of a strong earnings season as far as the u.s. are concerned, specifically fangs. a lot of focus on fangs for multiple reasons, idiosyncratic but also broader in the sector these technology companies are delivering results they're producing revenues and the bottom line with the exception of tesla now
how are you thinking about the tech sector in the u.s. here >> we still like them. we think they'll do well but not as well as other sectors given where we are in the late stages of a bull market. but as you quite rightly point out, there's been fantastic earnings 30% plus so they're delivering what's expected and written on the tin. i think they had a phenomenal run. and a lot of people are overweight these growth stocks it's hardly surprising you're seeing some profit taking. i think they'll do well, continue to do well on the back of that growth but i think there are more interesting areas-like the value stocks, growth stocks now that we're nine years into a global recovery what types of sectors are you looking at there are people moving away out of cyclicals into some of these -- >> no, funny enough. i've been on a trip to the fafr east far east, people are still
centered in the growth stock, momentum stocks. that's where the best performance has been usually in an environment where interest rates are rising, and it's late cycle, the value stocks do much better. so for that reason we're overweight financials. we're overweight the oil stocks. some of the material stocks. but also we do like, because they've been under pressure recently, is the consumer discretionary stocks >> that's interesting. both of those, consumer discretionary stocks have been the worst performing stocks this year they have not been loved at all by investors i would like to hear your thoughts on that financials are interesting as well everyone thought financials would be intriguing in the u.s., but they've been lackluster against other stocks you mentioned. oil has had a good year because of the rebound in oil. at least as far as financials are concerned, you talked about rising interest rates. that would be a good thing, but then the curve is flattening
consumer discretionary, financials, what's your pitch there? >> consumer discretionary, most of these companies have january year end we have not seen a lot of them report a lot of consumer staple stocks affected the consumer discretionaries. a lot of consumer staple stocks reported okay numbers last week. a lot of these stocks are off nearly 20% this year that's more around rising interest rates so i think the consumer discretionary group has been affected so they should return. the u.s. economy is in still very good shape. so is the consumer we would expect those to recover quite nicely this year in terms of financials, once again, like the f.a.n.g. stocks, they've had a great -- they were up. some of these stocks were up 50% from last year a bit of profit taking as you rightly say, the capital positions of the banks are in fantastic shapes the valuations are great
these are like consumer staples with high dividends. they're like utilities with rising rates natural interest margins, net interest margins should go up. i think banks are great. especially regional banks. not so much the monsters >> we'll get into that more and how sensitive those financials are to interest rates. stay with us, patrick. that's patrick spencer vice chairman of equities at baird. chinese smartphone maker xiaomi filed an ipo in hong kong the listing is expected to raise $10 billion, making it the biggest chinese tech ipo since alibaba there 2014 xiaomi made the announcement alongside results which showed revenues soared to 114.6 billion yuan, but posted a net loss of
44 billion yuan. speaking to cnbc earlier this year, xiaomi's head of international talked about the market >> this is the first time the total market size dropped, but our market share grows very significantly. so i think our key is to keep bringing the better performance product to the consumer and sell at an affordable, attractive price to the consumer. that's our key business model. we will not change that. if you have thoughts on tech stocks or tesla, get involved in the conversation tweet us @streetsignscnbc or tweet me directly. > coming up, the fed opts to ho rates in may and signals a jump in june more analysis on the fed decision after this break.
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. welcome back let's check in on markets. asian equities have not had a good session ahead of the upcoming china/u.s. trade talks. some of that was dampened by reports that the trump administration is considering executive action to restrict chinese companies abilities to sell telecoms equipment in the u.s. that's dampened the mood in asia that dampening of mood is continuing to the european session. stoxx 600 is trading down 0.3% let's get into individual european markets here. you can see that again the picture across all of the majors is negative this morning being led down by the cac 40 which is coming up to the anniversary of one year of mr. macron in terms of data that you want to watch out for, we'll get the pmi services number out of the uk in about ten minutes time that's a key number to watch because the most recent spate of data has been disappointing in
the uk that services number should give us direction on how things are shaping up xetra dax as well. we have big numbers coming out of europe. the hicp, the inflation estimates come out at 10:00. and their inflation numbers are expected to dip on headline and core as well switching to sectors let's see where some leadership is coming from technology, no price there, in line with what we see in the u.s. the past couple of sessions up a quarter percentage point. oil and gas up 0.2%. yet again, at the back of the pack, we have telecoms that has been a dreary performance the last couple of sessions. down almost 1% also some of the interest rate-sensitive stocks, insurance and real estate down 0.7%, 0.6%. i should tell you that we also had norges bank announcement about 20 minutes ago they have not made decisions on the monetary policy side they kept the key rate at half a
percent. in the past they had guided the expectation on the first rate hike to come towards the latter part of the year today they're saying they have not changed that guidance. as expected, they got a few questions about oil, given the importance of oil to that economy. they said oil prices have risen and are higher than assumed, but futures prices have also risen slightly that continued to suggest that oil prices will eventually decline in the coming months so their outlook on oil is somewhat in line with the curve at this point. expecting it to drop a bit the main news yesterday was that the federal reserve held rates, but issued a more optimistic view on inflation the fed language said overall inflation has moved close to the 2% target. investors took that as a sign that the central bank will push
on with further rate hikes sending the u.s. two-year yield past the highest level since 2008 steve liesman has more. >> reporter: the federal reserve keeping interest rates unchanged at its main meeting and signaling further rate hikes in the months ahead but it did not suggest quicker pace for those rate hikes it also acknowledged that inflation had moved up towards its 2% target, but again did not seem concerned about it. in fact, it went out of its way to remind investors that the 2% inflation target is symmetric, mentioning that twice in the statement what does symmetric mean it's seen as a code word to markets that because inflation ran so long below the 2% target, the fed will not quicken the pace of hikes if for a time inflation runs above that target so the result in the statement was that markets raised the probability of a 25 basis point rate hike at the june meeting to a near certain 97% it kept unchanged at a pretty high 68% probability the chance
of another hike in september and it lowered a bit to 35% from 39% the probability of a rate hike in december because the fed did not seem so clear about that third hike. now markets are less clear some bond yields fell as well. on the economy, the federal reserve said very much what it had said in the last meeting, that economic activity is rising moderately, that job gains are strong unemployment rate is low, and that business investment is growing strongly household spending was seen to have moderated and the risks appear between lower growth and higher growth to be roughly balanced is it two or three more rate hikes from here? definitely one more, probably two more, the fed, investors and markets have seven more months of unemployment, growth and inflation data to find out if it's three more. steve liesman, cnbc business news patrick spencer from baird is still with us on the show
picking up on those comments about the fed. people are getting nervous about the trajectory of interest rates here this is a question that i've been asking a lot. what equities need to see in order to rally from here looking at something you've written. you said since the january/february correction, there's been six instances where down side volume beat upside volume by 9/1. you need two sessions for upside to beat down side. what is the catalyst we had a stellar earnings season, corporate buybacks is up the my is doing we the economy is doing well. why are people not buying into this >> i think people think it's as good as it gets. i think the tariffs are very important. that's an uncertainty that needs to get sorted out.
if you look at what the economy has been doing, the first quarter was softer than was expect the people are saying that may be as good as it gets. there's 40 basis points between 10-year and 2-year, that's why the fed might want to run the economy hot in terms of its overall concerns, the fed doesn't want to invert the yield curve. it basically doesn't want to hurt the banks it's supposed to regulate i think once you get a clear picture on the economy, and interest rates, which i think steve was just saying they will be flat -- pretty benign, you will never go back to the policy mistakes of the '70s where you got sharper interest rates and inflation. >> there's no inflation to begin with >> exactly so what you'll get is benign interest rates i think you will see earnings
which basically motivates the market that will movement market later in the year. >> one thing i want to ask is whether you've seen from the clients you speak to a change in behavior we had the scare in january and february now people are more cognizant of downside risks are you seeing that demand to own downside protection in terms of buying s&p puts, in terms of positioning differently, how does the skew between upside and down side look now >> that's a great question a lot of clients that we still speak to along the growth storeh stocks none of the clients, not many i speak to are positioned in the aforementioned value stocks. staple stocks. the utility stocks the reits. i think say, for instance, you did get a scare later in the year where everybody felt that the fed was behind the curve, you would see a big rotation out of that momentum back into the
staples, back into the reits but for the moment, we have not seen that. most people are basically risk-on, and long momentum >> patrick, we have to leave it there. thank you very much for joining us patrick spencer, vice chairman of equities at baird. coming up, steve mnuchin heads to china for crunch trade talks. more when we return. - i love my grandma. - anncr: as you grow older, your brain naturally begins to change which may cause trouble with recall. - learning from him is great... when i can keep up! - anncr: thankfully, prevagen helps your brain and improves memory. - dad's got all the answers. - anncr: prevagen is now the number-one-selling brain health supplement in drug stores nationwide. - she outsmarts me every single time. - checkmate! you wanna play again? - anncr: prevagen. healthier brain. better life.
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welcome to "street signs." i'm joumanna bercetche steve mnuchin arrives in beijing for tough trade talks. president trump tweets its time to level the playing fields. an own-goal for adidas shares in the german sports wear firm slip after rebook sales disappoint, but kasper rorsted says the company is making strides in china and north america. >> we grew adidas in america 23% in a market where most of our competitors don't grow or have negative growth. so you're seeing in north america and china, we are
growing the market and gaining market share if you're a day trader get out of the stock says tesla's ceo elon musk as he lashes out at investors during an earnings call sending shares lower after the carmaker posts another quarterly loss. and xiaomi outlines plans to raise $10 billion with a listing on the hang seng so we have just got more uk data it's been a big week for uk data we got the services pmi number that came in at 52.8 for april that was below, again, below consensus of 53.5. another miss in uk data. still higher than the march number, but then again march was impacted some what by the weather and the beast from the east this is the second lowest
reading since september 2016 we have seen the currency drop a bit, but not significantly it has dropped a tad this raises questions about how much momentum there is in uk growth here especially after those weak gdp numbers we got out pointing to 0.1% growth for the quarter. now, on that topic, let's look at other foreign exchange pairs as well. the theme going into the fed was one of dollar strength we've seen a giveback there as far as the greenback is concerned, and rebound in euro/dollar and in cable before those numbers came out euro/dollar is about 0.4% higher we got to lows not seen since the end of december earlier on in the session dollar/yen is a bit weaker in line with that dollar weakness of the day but pretty lackluster moves. let's switch to european
markets. here the mood is somber. but most of the major indices are trading down a quarter percentage point the ftse is hovering around flat we will more coming out from earnings season, and let's actually get into some of those and talk about some sectors. we don't have that up, but one of the main sectors outperforming today is technology in line with the market moves of the last few days, and to the down side telecoms let's look at asian markets. in asia we were talking about the upcoming meeting between china and the u.s. on trade talks. but then again the u.s. have also announced they're considering extra action on chinese companies and their ability to sell telecoms equipment in the u.s we have not seen a very positive reaction in hang seng, down 1.3% shanghai kind of a different picture, up 0.6% but overall, chinese equities have rebounded in the last couple of weeks as there's been
somewhat of a softening of tone between the two sides. let's switch to u.s. futures we had another big earnings day coming out of the u.s. in the session yesterday. all eyes were on tesla also spotify both some what disappointing, but tesla more so on the actual earnings release you can see both indices today are pointed to open pretty much flat, nothing major either side. >> u.s. treasury secretary steven mnuchin has arrived in beijing for talks with his chinese counterpart on trade he's among a delegation of officials meeting to discuss the major issues that placed the world's two largest economies at loggerheads. on their arrival, president trump tweeted our great financial team is in china trying to negotiate a level playing field. ahead of the meeting, chinese state media sent a strong message to the u.s an editorial in the global times said washington must not expect
china to simply give in to u.s. demand saying washington had better not expect that its trade war schtick will force beijing to take whatever the u.s. delegation offers. the dialogue must be held on an equal footing and the u.s. delegation has to come with sincerity. a second editorial says the talks can go well if the u.s. wants to listen as well as talk but china will stand up to u.s. bullying as necessary and as a champ ion of globalization, free trade and multi lateralism it will have strong support from the international community. the li the trump administration has pressured u.s. companies not to sell chinese made phones, saying they could be used to potentially spy on americans pentagon officials said this
week they're moving to halt the sale of these items on military bases due to national security concerns i have two gentlemen with me barry eikengreen you a shor aut "populist temptation." and then also joining us on the show is guy sear from societe generale barry, just beginning with you there. lots of talk, it's surprising that the u.s. administration has yet announced further measures while this trip to china is happening simultaneously doesn't give us confidence that the talks will yield results what's your take >> i don't think it really is realistic to think anything will be accomplished in two days. the big issues are intellectual property, which the trump administration tried to
negotiate with t-- the obama administration tried to negotiate with the chinese in 2016 and ran out of time solving that will take a year if it gets solved beyond that, the trump administration has concerns about chinese industrial policy and the chinese will not give on that i'm not optimistic >> when you say things getting involved what are we looking for here both sides need to give concessions. we understand the intellectual property is important to china they export more goods to the u.s. than the u.s. exports to china. what is china going to get out of the u.s.? >> well, i think china can offer the u.s. cosmetic concessions on motor vehicle tariffs and the like it's in china's interest to strengthen intellectual property protections, because it's increasingly going to become a producer of intellectual property, not simply a consumer.
i think there is scope over time for negotiating a bilateral intellectual property and investment treaty between the two countries. but to tell china not to pursue high-tech and not to develop an industrial policy, that's a nonstarter over that issue i think negotiations could blow up >> we were just talking about how china was espousing this concept of multilateralism, free trade, but taking a step back, there seems to be an absence of trust when it comes to these multilateral institutions, wto, many issues there. it's not just the u.s. who have an issue with the wto, you speak to leaders and a lot of people take offense that china is classified as a developing economy as far as wto rules are concerned. so perhaps this conversation needed to happen in order to restore trust or in order to modernize some of these
treaties, this is a conversation that had to be had perhaps the manner which it was dealt with was not ideal, but perhaps it was a bit lopsided. >> talking is good again, i think it's important to be realistic about what can be accomplished in a couple of days, mainly nothing except for setting the stage for additional negotiations. >> just bringing you in here, gu guy. >> we had the selloff in equities when the initial tariff threats came out since then it seems as though for the most part people are sort of hoping that we'll get positive results out of these talks. there is not that much coming out of markets >> i think markets have learned to ignore political events
generally. we're still seeing some evidence of that. i agree with everything that was said there's some big fundamental differences between what the chinese want and what the u.s. want in the medium term. those will not be resolved in two days or maybe never resolved in terms of discussions. the markets -- you notice earlier on china has done better i think the markets were somewhat supported by the fact that china has been easing monetary policy a bit in terms of its reserve requirement cuts. that's something that the markets have taken reasonably well, saying that china has its own domestic fire power and domestic flexibility it can do things, even if it's under pressure in terms of external trade so that may be something which has provided some easing
>> how much will the renminbi have to retreat before the u.s. believes it is getting what it is trying to achieve >> in previous administrations, they've been trying to depend more on domestic growth that should make it less sensitive in terms of the currency one way or the other. i think if they do start to suffer weak internal growth, they find that they have not enough fire power, they will play with the currency i think that will be a later step rather than an earlier step just coming back to what we were talking about, this is part of a broader concept of going on. you spoke about it in your book "the rise of populism. many people feel they have benefitted from this era of globalization, free trade. the irony is this is happening at a time when the u.s. economy is growing the fastest it's grown in years we're at the end of a long cycle. these are the good times what do
you think it means for this so-called world order if the u.s. actually does dip back into recession again the next few years. what type of language can we see coming out of not just the u.s. but the rest of the world. will we have to more to more isolationist models to quell the op tight appetite of the pop lairs mouli movements? >> that's the fear i don't think it's inevitable. according to the last gallup poll 72% of americans think trade provides an opportunity rather than a threat i think the commitment to the mult itity lateral system is alive and well in europe and in asia there are many issues around populism that remind us it's not all about economic growth. it's about opportunity and distribution lots of country also have to address those problems >> absolutely.
stay with us we'll continue the conversation shortly. just before we head to the break, we have got a few headlines coming out from volkswagen the ceo has called for an intensive dialogue about making battery cells in europe. they are weighing spinoffs in some non-core assets here. and of course this is all part of the announcement coming out of the new ceo, new strategy, and they said they will draw up sustainable perspectives for noncore assets so they're addressing the electric side of things and also the potential to sell off other assets we'll be right back. it was an incredible record breaking night of european soccer stay tuned to watch why.
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it was an incredible record breaking night in the champions league, as livliverpool overcame roma to make it to the champions league final very exciting game something in it for everyone >> went on going and the goals kept on coming it was a record breaking night 7-6 on aggregate liverpool let 5-2 from the first leg. you think that would make it cut and dry and done they led 7-3 at half time. the goals kept on coming 7-6 it ended up being on aggregate. sadio mane opened up the scoring, back came roma almost immediately. they would not lie down even though they needed plenty of goals. a freak goal by james milner and it was liverpool going ahead. wijnaldum, the dutch midfielder scoring a rare first ever away goal for liverpool what an important one it was in the end. back came roma again
but interestingly they just couldn't make it towards the end. jurgen klopp said it was all in football by liverpool. that's the type of football you can expect it wasn't the one he wanted. but liverpool through to play real madrid going for their 13th european cup liverpool going for their sixth. the final in kiev in a few weeks time >> you have mo salah, my favorite, who didn't score yesterday, up against another titan, ronaldo what can we expect there >> what a meeting between these two attacking players. ronaldo, multiple ballon d'or winner having the season of his life. he has something like 43 goals for all competitions could this be the chance for mo salah to give cristiano ronaldo a run for his money in the commercial stakes? cristiano ronaldo one of the most bankable footballers in the world. 31 endorsements throughout his career
mo salah has deals with vodafone and uber gy egyptian steele m, mo talsalah have his eye on that in the future >> from football to the greek economy, which is in better shape than expected. that's the message from luxembourg's fin minister. last week financial ministers held discussions on greece's exit from eight years of international bailouts which will happen this summer. though officials praised greece's work on reforming its economy, many are still reluctant to give the company debt relief. i spoke about the controversial issue and began about aski about ongoing discussions and ether the imf will be involved
in the program >> we must realize the greek economy has performed much better than anticipated. that brings us to the point that greece is going to fulfill all its obligation by the end of august so the imf is involved in the discussions. what is not solved by august is the sustainability situation for grease and for the time being, the imf is involved. most want the imf to be involved let's see how this develops. >> there's been push back with the french proposal to lynch greece's debt payments to gdp what are the main obstacles there? >> we have a program that has been going on for all the countries that were supported.
there are some elements that are additional so we need to find an agreement, if there the greek government could be open to it it is in the best interest of greece that we find a common solution, but we're still at early stages, because this is a new element compared to other bailout programs >> one final question on greece. is it that the european commission would like to see more out of greece in terms of privatization measures and other measures before a big announcement is made in the summer >> it's always a question if the glass is half full or half empty, but we're on the right track here it's a question of squeequencino see how things will unfoal. the federal reserve held rates, and tweeted their
language saying overall inflation has moved close to the 2% target. investors took that as a sign that the central bank will push on with further rate hikes sending the u.s. two-year yield past the highest level since december of 2008 they also pointed to increased optimism on the economy and talked about risks to growth in the medium term rather than the short-term still with me is barr barry eichengreen and guy steer. just starting with you, guy. the language around inflation was interesting. growth wasn't really a story here, they dismissed the short-term weakness that we've had. the language being symmetric, how do you read that >> they could have been tougher in terms of inflation. they were trying to stress they would be relaxed as inflation
moves higher the big issue for them is that the nominal inflation rates will be influenced by oil prices. remember that oil troughed in about june of last year, around $45 a barrel we're at $68 a barrel. the year-on-year comparisons are higher that will drive headline inflation up so, yes, underlying inflation is up i think the fed is in the language had to try and reference the fact that maybe we shouldn't be too fix aated on t headline numbers because of this oil impact >> you think this is a dovish sound coming out of the fed, though warning that we could see higher headline inflation in coming months, but not to read too much into it. >> i think that's right. it's kind of a tightrope, but that's what they're trying to steer the market towards >> barry, professor of
economics, i want to ask you, is the phillips curve dead? we have been talking about this for years. unemployment rate breaking through 4% we're not seeing proper inflation. is it because the circumstances have changed structurally or just late to materialize this time around? >> i think the phillips curve is alive and well it's been napping. wages and salaries rising 2.7% year over year over the last 12 months if we don't see faster productivity that will feed through. 2% plus inflation. the fed is waiting to see, but once it sees, as i think it will, it will have to start raising rates faster i'm not certain the markets have incorporated that fact >> where do you see neutral rates in the cycle
>> i don't think the f can predict. it's in exploratory mode >> and be transparent along the way. where do you see treasuries going? lots of talk at treasuries at 3% my question is why are we not higher >> we struggled to break over 3% we briefly broke over, we have come back down our view of where the market will be is quite boring. the challenge is that there are medium term growth threats, one of the problems is that the u.s. corporate sector is leveraged, particularly sectors leveraged in terms of gross debt increases or things like the tech sector that leads to concern about how companies finance themselves as yields rise. >> this is part of the tesla story. that's a medium term concern
at the same time the fed is facing higher underlying inflation pressures. that's why the curve is so flat. they have these two different influences in terms of the market >> absolutely. a tough line for them to balance. thank you both for joining me. our colleague steve liesman will speak to san francisco fed president john williams on friday, that will be williams' first interview since being named the next president of the new york fed he'll also be speaking with the dallas fed president, robert kaplan that's it for toy's dashow "worldwide exchange" is coming up next. are you taking the tissue test?
i'm courtney regan it's 5:00 a.m. here is your five at 5:00. the u.s. trade delegation is in beijing at this hour talking tariffs. tesla shares take a nosedive as elon musk hosts a bizarre earnings call. and spotify drops after reporting a quarterly loss chinese smartphonemaker xiaomi pls to go public. and goldman sachs bething on bitcoin by opening a crypto trading desk it's may 3, 2018 "worldwide exchange" begins right