Transcripts For CNBC Squawk On The Street 20160629

Capitalal has changed its business and cites among other things ge capitals exit of the u. S. And consumer businesses and transformation of its funding model. You might recall during the financial crisis ges finance arm almost took the company down and since that time, it has certainly changed that this or i should say last year undertaking an aggressive plan to reduce ge capital selling over half of its assets and, indeed, since that time, it sold about 166 billion or signed 166 billion worth of deal. Now keep in mind, ge is one of four nonbank companies that have been given this systemically important financial rating. Others include aig, met life and prudential and met life is involvedn a legal battle with the fed having, of course, received a favorable ruling earlier this year by a judge who said tFederal Reserve or the government could not designate it as that. That means these companies are subject to Federal Reserve reover sight and enhanced capital rerooirmts. The fsoc voted to dedesignate ge. Back to you. Thank you very much. This began in april of last year when ge with the stunning announcement it would, in fact, make itself a simpler and what they believe would be more valuable and theyve been right stock has gone up since then. The Company Selling most of ge capitals assets and they have done that. The key is youre going to get the big dividend to ge from ge capital but they have really worked fairly quickly. Yes. To sell as mary said so many of the assets. The big move for the stock actually did not come with that announcement, though it was up last april, but followed in october when triant took the large stake, an endorsement of ge at the time and that helped to send the shares up to levels they hadnt seen in some time. Its been hanging around the 30 mark. Now we have to see because you know that theres a bit of a difference of opinion between nelson peltz, whos been fabulous in this and jeff immelt, how aggressive to be on the buyback. That is true. Im wondering whether jeff immelt had to be restrained while waiting for this designation and whether there isnt going to be [ inaudible ]. When triant came out with its note last fall, that again did help to really propel that stock price, it would seem, they were talking about 40 to 45 bucks of implied value and to your point, jim, they wanted ge to commit to roughly 20 billion of increm t incremental net leverage and therefore, return cash to shareholders through buybacks more than they were already doing. Ge didnt go that far. No. At least not yet. The sifi designation a part of why they wanted to get out of ge capital and the designation one of the things they said on the announcement if in april of 2015 when they said were out of here when it comes to ge capital. This is very important because what it says is, that if you look at this stock, postbrexit, its been a rock of gee brawl tar. Huge exposure to europe and worldwide but the great infrastructure in industrial and we didnt worry about it like we worried about the banks. The question is, are you going to get a big dividend boost now that theyve been saying no. No, right. Are you going to lever. Mum. But this Balance Sheet good. They have root. I come down on the pelt side of this. I would like to see the stock power higher but immelt has look, they have this division thats oil and gas which, obviously, has done better since oil and gas has bottomed. Will they buy more oil and gas. Right. And again triant again im looking at their original white paper asking for them or saying they thought there was an opportunity to return over 40 of what was then the current market cap to shareholders by the end of 18. Try to sell some shares along the way in ge . I did sell down a they did sell down. A percentage of the firm. Became larger and they did reduce ive seen that when theyve been really good is starboard and you dont want to take it as a cue. Starboard we did a piece on insperity, one of the greatest activist campaigns ever. Theyve done well. Sometimes it gets to be too big. A percentage of the overall portfolio if youve done well you want to cut it down. All right. Lets get to the broader market. Sure. As well. U. S. Stocks on track for another day of gains following the major losses that we saw on friday and monday. The s p and the dow each coming off what was the best daily performance in almost four months, jim. Will it continue . You know what, im looking at china and i know people have taken their eye off china, Chinese Market has been up since brexit, the copper market, seeing oil made a reverse, when oil reversed the stock market reversed. That seems like how could oil possibly, possibly beat. I mean beat europe, britain. Our man our man in london. Like a Graham Greene novel. Our man. Not havana. Not in havana. Because hes done unbelievable coverage. The thing is we took our eye off china and therefore took our eye off world growth. The nike Conference Call filled with Amazing Things about china. Carnival cruise Conference Call otherwise considered to be too much capacity coming on they need all the capacity they need in china. The chinese story has taken a back seat and shouldnt. It should take a front see. Thats why the rally has possible staying power until 10 30 when we get the Oil Inventories. Worried about china with the juan declining, worry about capital flows and out flows from the country. Capital flight i should call it. And whether they will need to defend the currency more aggressively and reducing their reserves when they may have a big hole in their Banking System in terms of nonperforming loans. Look. Didnt cant disagree. 25 of exports go to europe. But i am deeply focused on the consumer side because of apple, nike, starbucks, yum, and a belief that consumer is alive and well there, even as the state industrial companies, the ones that are zombies keep pumping out stuff. The iron ore in the last few weeks was the highest its been in a year. I did not. Theres no place to put that and steel in a world where were turning against globalization which is code for turning much not as much china heat as brussels heat but the globalization is the dumping worldwide of everything. Because china changes policy in the state run institutions. Lets keep track of that. You mentioned brussels, of course, and we have our man, hes over there, european officials gathering in brussels for what is the second straight day, of course, following the uks vote to leave the eu. Wilfred frost in brussels and joins us now. Good morning, wilfred. Good morning, thanks very much as well for giving me the credit for moving markets myself as opposed to the story im reporting on. Lets get to the headlines of that story right now. Of course eu leaders today were meeting without David Cameron, 27 of the 28 members of the eu and as theyve wrapped up the meeting theyve been echoing one key message. Lets listen to what that is. Summarized here by the head of the European Commission. There would be no internal markets a la carte so those who want to have success to our market they have to implement for freedoms without exception and i have to add without nuances. So theres a clear dichotomy here for the brits who, of course, want to have free trade, but they want to put curbs on the Free Movement of people, which all of the leaders have been saying today after they met without David Cameron thats not going to be possible. The Clear Division . Terms of what the uk want and the eu willing to give, will we end up seeing a brexit at all. In response to that i would say one key thing. Both yesterday here in brussels and back in the uk, weve heard from politicians that will of the uk people must be adhered to. When David Cameron was there he was saying it clearly as other european leaders here yesterday, but most importantly, back in the uk, the conservative party, both sides of it, the remainers and David Cameron and George Osbourne and leavers like Boris Johnson have said that the will of the british people must be listened to and they will form the next government, no matter how many protests there are in london or words coming out of scottish leaders they dont want it, it is the conservative party that will form the next government. I would add to that once article 50 is invoked thats it. Path for britain to leave the eu is set, still take time, probably two years, and still be uncertain with tough negotiations to happen as weve just said, but the path on its way out will still happen. The focus now is not on so much the european leaders who have wrapped up their meetings but in the uk who is the next Prime Minister and once he or she is chosen when will he or she invoke article 50. Thank you very much, wilfred frost. The allimportant invocation of article 50 but what weve been focused on here the European Banks, particularly the uk banks, jim, and their kriblbly poor performance in the markets until of a bit of a rebound yesterday. Right. Where do we stand today . Europe, of course, was up. Asia was up as well. Broader markets im talking about right now. Look, were looking at at stocks which are signaling dire, dire circumstances. If you look at the bonds, trading quite well. Actually up again. The lloyds paper, the barclays paper very strong. I mean, to the point where you would be questioning if theres anything wrong at all. Now the credit side is more important and smarter than the common side. Take off royal bank. Its a ward of the state. That may be david, we if Washington Mutual were still around we could make a comparison that could make World Bank Look good. This is the real market, so to speak is the bonds. Wilfred, raises really good points which is that the idea that you can have no Free Movement of labor, i mean, thats kind of what the vote was about. When people panic on the stocks saying buy the stocks. The stocks are trading irrationally and i dont want to get in the way of some etf created to drive them down. You said emotion and machines. Machines on friday when i was speaking to people they were indicating the algorithms got it right in terms of how to respond to brexit, as opposed to those acting with emotion who may have, perhaps, not predicted the proper outcome. Its possible i did a piece last night talking about how jpmorgan may be the longterm winner. Obviously everyone feels the yield curve so bad it doesnt matter that you could argue that numbers are all too high because of the yield curve and no one can make any money on their investments and on lending and there could be a recession in the uk, but the bonds would trade down as they did in 2008 and 2009 in our country during the recession. So im just saying im trying to temper the hysteria. Yep. Hysteria is more fun than anything. When youre out but it should be reserved for the stadium. Hysteria in cleveland and there should have been. Why . Lebron james soldier sneak has taken back the mantle from the under armour curry speak. Thats what emotion should be saved for. We will talk about nike in the next block of our show. By the way, before we get there, of course, istanbuls ataturk airport has reopened one day after it was rocked by a terror attack. Explosions left at least 41 people dead, about 150 people were wounded according to turkeys Prime Minister. Turkey is blaming isis for the attack though no group has claimed responsibility for those blasts. Frightening. And tragic. All right. Coming up, of course, as we said nike beats by a penny profit did fall a bit, future orders weighing on the company. We will hear from the ceo on his plan to accelerate growth in key areas. Another look at futures on this wednesday morning. Were back from post nine right after this. The first stock index musicwas createdughout over 100 years ago as a benchmark for average. Yet many people still build portfolios with strategies that just track the benchmarks. But investing isnt about achieving average. Its about achieving goals. And invesco believes doing that today requires the art and expertise of highconviction investing. Translation . Its time to bench the benchmarks. Eu antitrust regulators signaling plans they will conduct a strict review of buyer 62 billion bid for mon san no if that ever comes to pass as a potential deal. This on a day on which monsanto posted results that missed wall street forecasts. They were they were fine, but they were not particularly stellar numbers from monsanto. The focus as you know is on buyer. I reported yesterday ceos had meetings and hadnt made a lot of progress and we got this from the company in its press release. A quote from its ceo hugh grant saying, i have been personally in discussions with bayers management over the last several weeks along with others regarding alternative Strategic Options. Ive got a lot of calls this morning saying what does that mean . And, of course, i then made calls trying to determine what exactly that meant. But i can tell you at this point is, without a lot of detail unfortunately, is that they have had a number of approaches from what im told are other companies, regarding to the just potential swaps. Theres been a concern would they do an asset swap in some way that wouldnt require a shareholder vote that would, in effect, torch the bayer deal, a scorched earth approach. Thats not what were talking about here. Jim, ale told these alternative transactions would provide potentially more value, they are not scorched earth type and may include the potential of a bayer of monsanto that is not germanys bayer. I dont want it to read too much into it. Were not getting a lot of detail on this. But it was interesting that i would assume the lawyers said, please include this in the quote when talking about whats going on. There was a bit more to it, but basically all we know is alternative Strategic Options and all i can tell you is thats not talking about vague asset swaps but things of real significance that might lead to an alternative. What it also does, of course, is give them some leverage as they try to get bayer to increase its 122 a share offer for monsanto despite what were not great numbers the stock is ticking up as were telling people this. We will see whether we get more detail at this point im afraid i dont have names or numbers for anybody. Geez. The cycle has been terrible and no one cares. Consolidation, the equipment doing well and its almost as if everyone is trying to call bo. Bottom in the term. Anything in latin america has been terrible. The stock should be down maybe 4 or 5 if it were earnings. The numbers just trading end peptsly. Absolutely. You would think it would be down on the numbers. Theres something here and im quickly trying to tick through who would be necessary buyers. Its not dupont. Theyre busy. Right. If you look at this you know a company not involved. The question, of course, has been would be asf look to get involved. Yes. We dont know the answer. There have been vague rumors theyve hired up i havent been able to confirm any of that. They could use it. Their away too linked to the fact the they chose to include this in the statements about the ongoing discussions the ceos of bayer and monsanto met deemed it as having been, you know i said they hadnt made progress on anything in terms of price and thats true but theyre talking to me about it being relatively good meetings at this point and continue expect it to continue. But their decision to throw out their alternative options is an interesting one and were not talking about just asset swaps but im told by people familiar with the situation potentially other buyers. David, we are supposed to have a major European Crisis and here you have bayer possibly in a bidding war for a u. S. Seed company. Does that tell you that life goes on . Life does go on. Life goes on. Meanwhile the eu weighing in. The eu is going to try to the eu im hearing already weighing in. The jack people on twitter saying jim, proeu. The eu could stop anything. Remember the old days honeywell dave cody, wish you the best of luck. Of course. But the eu could make it difficult to do movies in london. Yep. All right. Were going to talk nike later in the program. Sorry we didnt get to it there. Looked down, now looking up. The mad dash coming from jim as we count down to the opening bell. Heres another look at futures. A lot more squawk on the street from the nyse straight ahead. , the master of suspense and the macabre. I enjoy keeping people up at night. My Analysis Shows your stories are actually about human connection, even love. Great storytelling needs drama and empathy. My cognitive apis can help any business Better Connect with its audience. You should try writing a book. Find a remote hotel. Bring the family. I do not think that is a good idea. All right. Ahead. All right. We have a mad dash what we like to call for your hump day. Lets get to it. We will talk alco. I have the most complicated transaction ive come across in ages. The executing the separation between alcoa and arconic and Klaus Kleinfeld going to stay with arconic, engineering, and then alcoa will be the heavy lifting metal side. I like everything i hear but theres still way too still too sketchy where the debt will reside. They can say no, thats not the case, but even just a very important piece of paper, im not sure about that, but this is going to happen at year end. You will get a company that basically has that looks like freeport before it went into oil and gas and then or the and then a company like precision. Warren buffet bought precision gas parts and thats going to be the Klaus Kleinfeld side. I like it very much. Youre burdened with what i regard as being a call on the Worldwide Growth particularly china. The stock is down 16. 5 this year because of the underlying because commodities. Yes. Because of sluggishness worldwide and because of the lme. There is excess of aluminum. Klaus talked about demand exceeding supply but the fact is the last quarter was a subpar quarter and i make no bones about it the company will be in better shape by year end. When is this happening . The end of the year. They kept back 19 , back was immediately bought. You think something gets immediately bought. Can i Say Something . I thought i heard something. Maybe i didnt. All right. We got a lot more to talk about, of course. So stay with us right here on squawk on the street. Romantic moments can happen spontaneously, so why pause to take a pill . Or stop to find a bathroom . Cialis for daily use, is the only daily tablet approved to treat erectile dysfunction so you can be Ready Anytime the moment is right. Plus cialis treats the frustrating urinary symptoms of bph, like needing to go frequently, day or night. Tell your doctor about all your medical conditions and medicines, and ask if your heart is healthy enough for sex. 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I think that were going to go back and were going to have to take a look at whats going on with the big what i regard as being senior growth stocks. Because nike could lead a rally in senior growth. Its important to think about that group. Thats the 20 times earnings larger cap stocks that have been so bad. Starbucks. Mcdonalds. Nike. Theyve been the big drag on the market. See what happens with them. David, were now having a narrative to the market thats really rather extraordinary. We got some technology stocks, facebook, amazon, netflix, starting to do much better. Apple struggling but not going down. Interesting. Interesting, indeed. All right. You hear the applause building, of course, as we await the opening bell for this wednesday. After a stronger day if youre long the market yesterday and, of course, were coming off of a rally in asia and in europe and you can see the realtime exchange there. There is the opening bell. Here at the big board, mizzou who Financial Group celebrating the launch of the mizzou who america as a u. S. Bank holding company. Core vel, provider of Risk Management for workers compensation, auto and Health Management industries and start off with nike because we didnt get to it prior to the bell. We mentioned it briefly. The company reporting numbers on the face did not look good. The stock looked like it was going to open down and lo and behold a reversal and up 2 plus percent. What gives . Theres two reasons. One of them is were psychological and the other is definitely more impeer call. This stock everyone thinks trades on futures and there are periods when thats the case. Its becoming too rogue. People have to an sliz stocks in kind of an ongoing fashion. What was determining was the u. S. Being weak and inventories clean. At least they are clean. Finish line slammed nike last week talking about adidas. Nike comes back and says its foot locker you to look at. The direct to consumer business excellent. The inventory lean. Sports authority cost a major overhang in this country. Sports authority has been a drag on Sporting Goods companies. That goes away in july. China very strong. Western europe extraordinarily strong. Mark parker what a great executive this team did not get its due from the market last night at 49 because people didnt listen to what parker had to say. Speaking of that, lets listen to what parker had to say about growth. This is a sound bite from the Conference Call, mark parker, nike ceo. Our focus will be to continue to drive our potential across north america and western europe, to expand our leadership in china and across our emerging markets, to unleash the power of the jordan brand across multiple categories, to accelerate our complete womens business, and to grow the Young Athletes business globally through Premium Products and extend our leading position in running, basketball and sports wear. Well, he buried the lead and the lead is that in the last few weeks, the lebron soldier 10 and the kyrie have been selling incredibly well and also theres a new Concept Store which is extraordinarily exceeding not as though as adidas and under armour dont represent competition. Your stock is down 15 and drops 4 , down 19 on the senior growth stock which has the most iconic brand name in the world, its an opportunity. And thats what people are seizing on. Dont forget remember who won the playoffs. Playoffs i remember who won the playoffs. The winner was nike. People should remember that. Lets go over the chinese numbers because theyre extraordinary. Nike is more in Greater China we had a truly incredible year. Trevor edwards president of nike brands, rev growth 23 , full year 27 , nikes business 44 increase in direct to consumer sales. You have to wait until the end of the call to get that. No the morons who love to trade before the market closes, before the release, did they get that, no. Andy and dave, another cfo to watch because hes so good. China continues to be one of the Worlds Largest and Fastest Growing markets in terms of consumption, someone tell tim cook thats a good data point. Went on to add in addition to tremendous Revenue Growth delivered strong growth particulamargin expansion and you missed it before if you started to trade before the numbers. Thank you. I have nothing left to add on nike so i will move on to a deal this morning my wife said just come to bed and stop reading about nike. No, this is the most exciting thing happening in my life right now. I dont know what that says for you. Thats sad too. It didnt come out that way. Im going to cry for a minute. Keep telling me thats that was because i had read Carnival Cruise. Of course. Thats the highlight for all of us before we go to bed reading the Carnival Cruise Conference Call. I recommend it to everybody as bedtime reading. It was contentious about whether theres too much supply coming on in china. Got it. Diamond resorts bought by apollo for 30. 25 a share in cash, deal about 2. 2 billion. Diamond resorts has been for sale or put itself up for sale some time back when it said it would pursue strategic alternatives. My understanding there were a couple other potential bidders there. Really . We certainly think there was operating companies there for this big time share. Thats their key thing. Wyndham is the other big time share. Wyndham the other time share thought potentially to be interested. The represents a 26 premium over the Closing Price on june 28th and 58 over where the stock was before they announced the plan to explore strategic alternatives. Look at that move, jim. Thats very important. Very nice. A number of people who are owners who believe the deal was coming and they did, in fact, get it. Apollo still aggressive. Amazing. Not worried about brexit. Worry about airbnb. No financial fitz van patrick, the conference, thank you for participating with me, amazing talked about fritz who was let go from starwood the idea that airbnb is bigger than the three Largest Hotel chains combined. Expedia buys [ inaudible ]. Time shares i think they want to compete one day with airbnb. Airbnb 30 billion valuation. Yeah. Not wrong. Not wrong. Is that interesting to put it in perspective. 30 billion for airbnb, 2. 2 billion for diamond resorts. Although they have a decent amount of debt. Isnt that something. What it says is this is another disrupter, david. It really is a disrupter. Because people regard it as quite the bargain. Right. When you buy property you almost Vacation Property check to see whether its listed on airbnb. Because its instant profit for when youre not using it. Thats changing the world. It is. Although theyve run into their share of problems here in new york. Thats very important. And changes in the regulations in new york city. Dave cody, one of your neighbors, we talked about him many times through the years, he will be stepping down in march. Probably going to have a better time than i do as the ceo of honeywell. Adam check is coming in. Dave cody has been a remarkable ceo. He has a little time. Not going anywhere for a little bit. Thats why i think the stock is not down. Honeywell, david cody, trying to develop a colossus. That was his final run at it. Didnt end the way they hoped it wouldp once we made it public they made it public. The quarter was excellent. Both stocks responded positively thereafter. Right. United technologies below the 100 level. Honeywell, dave cote had a remarkable quarter given they have overseas exposure, cycle will remain strong. They were playing honeywell for the air space because its everybody. Dave cote figured that out. Logical buyer for alcoa didnt say it. Arconiche one youre talking about. Wait. Thats the one youre talking about as a that youre not talking about as a potential acquisition target. Klaus kleinfeld is going to run it. Warren buffet bought precision, the reason i liked alcoa i want arconic. I do not want smelting, david. I do not want aluminum. I do not want you got me . Do you want green eggs and ham . Green eggs. I said i am. Ge. How about general mills. How about gis. Lets take a look at that. Raise the dividend. Ken powell delivers. David, this is the most borg stock in the world other than American Electric power. I love boring. Ever hear wilfred have to talk about general mills, a battle between labor no. No theres no battle. They took a lot of the High Fructose Corn Syrup out of the cereal. Tastes every bit as good. Thank you for doing. That. Could have done that a long time ago. Honey nut cheerios not that bad for you. Yeah. Is that true. Yeah. Annie has been a good deal for them. Do you think they will consider further acquisitions, for example a white wave. White wave has great deal of debt. White wave the call volume has been active. People feel its a natural. I dont. White wave is a big company. In it for a takeover basis you are in it for the wrong reason. White wave does have an 8 billion market value. You have to own it for the doubledigit growth in the food business which is rare. General mills has negative well they had currency Profit Growth but the food group, the best performer in the food group has been b and g foods which is remarkable. Just remarkable congom rags of old brands you and i would have said are pantry brands and done the best. They have an old london. We used to make mel ba toast we were so poor. You buy it now. You can make melba toast out of old bread and give it to ducks. So much packaging and waste. As we throw it over to bob pisa pisani. The desification of ge. Tell us what else is going on. The whole market is up. This is a strong open. 10 to 1 advancing to declining stocks. Thats pretty good for the open. Dow up 141 points. Right near the highs for the day. Want to show you the sectors moving and remember were approaching the end of the quarter here. So bank stocks have had a tough time of it. Theyre up. Materials, industrials doing well. Retail has had a terrible time this quarter. To the upside today. Energy is up as oil is up 40 cents here. Getting near 49 as well. Were approaching the end of the quarter. Even though the s p 500 is only down 1 or 2 , other parts of the markets have had a terrible quarter overall. Weve been talking about the airlines and many of them down double digits, many of the big retailers are down double digits, many of the big tech names are down as well and some of the banks are weak as well. Put back the airlines, please f youll notice you see today even though many of the airlines are down double digits on the month theyre all rallying today. Put up the big tech names here. You can see microsoft, google, rallying modestly down double digits as well. All of the names are down double digits so far this quarter. Were getting modest pops as we come into the last two days of the quarter. You would expect that in the most beaten up groups that are going on. Remember theres talk about pension rebalancing for the end of the quarter as well. I dont know if were at the bottom or not yet but the last 24 hours has seen notable stability. Weve seen a modest bounce in u. S. Stocks, the dollar has stopped rising, the vix is essentially almost back where it was before the brexit and oil and copper have been firmer. Gold still remains elevated. I think thats an issue thats out there. The other sectors that gotten beaten up badly is showing signs of stability, big cap bank stocks. Bank of america, citigroup, jpmorgan had a rough time this quarter popping for a second day. These are modest pops but some stability. Remember at the end of the day today, 4 30 eastern time we will get their ccar results. Comprehensive analysis and review. 33 banks in it and the fed will evaluate whether they can pass the stress tests after capital reits, pay out dividends and stock buybacks and do acquisitions. Its expected theyre all going to pass and some will pass with flying colors. A lot of speculation we may see an increase in dividends with the number of the big banks. Some of the them like bank of america and citigroup foreca, f example, theyre poultry, paying out 1. 6 , 0. 5 yields. Their payout ratios are low right now, true of bank of america and citigroup. The payout ratio what percentage of your earnings youre paying in dividends. Citigroup paying out 11 of earnings in dividends. Thats really, really low. You can see a lot of the other guys in the 30 range. So the speculation is, after the ccar results bank of america and citigroup may announce dividend increases. Its about time and who knows down the road, may even see some buyback announcements as well. Right now were standing at the highs for the day, dow up 134 points. Guys, back to you. Thank you very much, bob pisa pisani. We should note keith sharon who runs ge capital will join us a couple hours from now or less, actually. Ceo keith sherin in a first on cnbc interview after the company was desified. No longer going to be an important financial institution. A faber report this morning. Ive been havent talked viacom in a while. Our viewers know im fascinated by the battle between the Controlling Shareholder of the Company Sumner Redstone and his board of directors and ceo. A lot of back and forth whether its Court Filings or letter. Yesterday letters caught my attention and theyre worth sharing. They go to the heart of the matter and one that was not explained as well as it might have been in Delaware Court by lawyers for National Announcement which says why are you doing this fell leap demond and george abrams, fred sell hair no why do you continue to come after us when its hopeless because even if demond and abrams were back on the trust that controls National Amusement stock, that therefore controls cbs and viacom, even back on we have affidavits from the four other trustees that say we would have done the same thing we did. I would refer to the letter yesterday. Read from it. David and leonard. Tyler korff and sharry, assuming mr. Demond and mr. Abrams continue to serve as trustees voted to remove mr. Du monde and abrams and appoint in there sted. Thus the composition of the National Board national amu amusement in the world in which sumner did not have capacity means mental capacity, is identical to that in which he did and National Board that then acted unanimously to approve nationals removement and replacement of viacoms 11 directors. Simple point, simply means even if you were back on the trust nothing would have changed. Why do you continue to do this. The answer a bit later from viacom. May have to go stretch here but let me read it to you. It matters a great deal to viacoms shareholders and viacoms board that sumner red stone lacked capacity to make governance changes. Under the law the implications would be grave if a court would are ruled recent changes were infected by sharry red stones undue influence and any improper acts allegedly. Sumner red stones name. Any vote made under these circumstances would be meaningless and heres their key thing, individuals who have taken part in such a scheme could and should be ruled unfit to serve as trustees or board members. So jim, the latest back and forth makes it clear, of course, why National Amusement feels they have every right to have done what they did and doesnt matter if you were to have reinstated abrams and dueman as they want to be and the hearing is tomorrow in Massachusetts Court on this very matter, well see what we get or whether we get a dismissal, and viacom says were saying if you did all this and were deemed shari to be exerting undue influence you cant be a trustee and thats what were going to rely on. Its a stretch but gets to the heart of the matter. Viacom up 44, idle takeover talk its not getting taken over. That i can tell you. Im not sure theres anybody that wants to buy it. No. Totally time shift everything. Speaking of buyer or no buyer, and wind ham, you mentioned wyndham. Look at that flying. Because people are revaluing time shares . It must be. Wyndham i thought was potentially a buyer for thats what i thought. Maybe people are saying the pressure is off there. Drii. Thats a very attractive situation in terms of where time shares have been undervalued since the starwood deal when starwood was going to strip the time share. Looks like this was a very important deal. This the diamond resort deal. Because it put a bid underneath in a group hurt by travel. So theres viacom deflated, but inflated to the hotel group. Yep. Maybe people should be rethinking priceline. Okay. Doing well. Which got hurt on brexit. Brexit. You know brexit, look, brexit did matter, okay, 66, uk, but a lot of 3. 5 trillion lost in market value. It mattered. It mattered but i would say again fixed income told you what was happening. Speaking of fixed income lets go to the bond pits. Rick santelli joins us from the cme group in chicago. Good morning. Ill tell you lets use the one week chart as the wednesday de jur vehicle. One week of 10s and one week of bunds. A defining move when the vote results were known friday and Everything Else has been an inside trade meaning we really havent expanded that range and we are hovering for the most part at the bottom end of it. Thats very important considering how many yields worldwide are creating new low closes going back in many cases to the very beginning with our 10s and our 30s. Were getting very close. We need to Pay Attention to that. Its like a magnet. You should see the options circumventing price structures. Bunds by the way continue to day trade very close to this minus 11 to minus 12 range, even though settlement doesnt reflect the bigger extremes. Look at one week of the ftse and one week of the pound, this is very important. The pound is kind of the medicine. Their currency is moving down. We could see that clearly. And we could see that their stock market of course influence, i dont want to ignore the venezuela component the botswana component, any level of stocks, the upside to bring your currency down enough, its been orderly and not bad at all. If we look at a 10year of different combo pound versus the yen, two more aggressive currencies in opposite directions, this is going to be very interesting to handicap because their currency is helping with regard to the pound, so what does that mean about the yen for the export economy in japan and finally, a very simple volatility and risk barometer, hig month to date, yeah, it took a hit but it is coming back like equities. David, back to you. Thank you very much, mr. Santelli. Coming up eu leaders meeting for a second day in brussels. But just what are the ongoing Global Implications of brexit. Were going to talk exclusively with the former managing director of the institute for International Finance charles delaire ra. 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Call now and request this free decision guide to help you better understand medicare. And which aarp Medicare Supplement plan might be best for you. Theres a wide range to choose from. We love to travel and theres so much more to see. So we found a plan that can travel with us. Anywhere in the country. [ male announcer ] join the millions of people who have already enrolled in the only Medicare Supplement insurance plans endorsed by aarp, an Organization Serving the needs of people 50 and over for generations. Remember, all Medicare Supplement insurance plans help cover what medicare doesnt pay. And could save you in outofpocket medical costs. Call now to request your free decision guide. And learn more about the kinds of plans that will be here for you now and down the road. I have a lifetime of experience. So i know how important that is. Viacom,. With the s p up about 1 we will show you some of the leaders. Wyndham which jim was mentioning on this deal in which apollo is acquiring one of its i guess competitor diamond resorts. Thats helped wyndham stock. Sea democrat gate also. Seagate. Nike up and under armour. Stop trading coming up next with jim. Its here, but its going by fast. The opportunity of the year is back the mercedesbenz summer event. Get to your dealer today for incredible onceaseason offers, and start firing up those grilles. Lease the cla250 for 299 a month at your local mercedesbenz dealer. Mercedesbenz. The best or nothing. Thank you. Ordering chinese food is a very predictable experience. I order b14. I get b14. No surprises. Buying business internet, on the other hand, can be a roller coaster White Knuckle thrill ride. Youre promised one speed. But do you consistently get it . You do with comcast business. Its reliable. Just like kung pao fish. Thank you, ping. Reliably fast internet starts at 59. 95 a month. Comcast business. Built for business. Stop trading with jim. Just came public. Goldman upgrade, hold the conviction buy, american tower, but then twlo. This came public last week. 15. This was a company that is the backbone behind Uber Technology in terms of getting the tech and whatsapp. It became public at a valuation i believe it was one quarter it would have come public in 2014. Original unicorn fantastic company and now doubled and reminder that if they were able to open the window and willing to come public as mark benioff has said look what can happen, twill leeium, not done going higher. What do we have on mad . Look if monsanto is hot about what adco. And then sonic. I am worried about wage growth. I want the workers to make more because im a man of the people so to speak, in the sense i own a restaurant and pay my people more than but sonic is struggling. When i was a dishwasher and waiter and geez, you know, bus boy, i did not make enough. I got to tell you, going to be one of these guys running a restaurant youre struggling. Wages is important. All right. Look forward to that. I want people to do well. Is that all right. No, thats all right. We all want people to do well. Speaking of doing well the dow and s p are back in positive territory for the year. Well be right back. Before a movie star unwittingly gave you a global product endorsement. And millions of women everywhere decided, i love that shoe. And the companys data center handled the spike in traffic without any drama. Before all of this. Cdw orchestrated a Scalable Software defined Data Center Solution using vmware nsx technology. Scalability by vmware. Orchestration by cdw. With usaa is awesome. Homeowners insurance Life Insurance automobile insurance i spent 20 years active duty they still refer to me as Gunnery Sergeant when i call being a usaa member because of my service in the military to pass that on to my kids something that makes me happy my name is roger zapata and im a usaa member for life. Usaa. We know what it means to serve. Get an insurance quote and see why 92 of our members plan to stay for life. Very good morning and welcome to squawk on the street. Both sara and carl are on assignment today. Check where we are with the markets. Day two of a good rebound that were having in the wake of the brexit scare for a second straight session we are higher. Dow put on about 400 points in the trading sessions. The dollar on the back foot as the uk pound recoups some of the huge losses and oil is moving back towards 50 a barrel. We have breaking Economic Data pending home sales are out, to diana olick. Good morning, diana. Good morning, simon. Pending home sales down 3. 7 in may compared to april. Thats larger than expected drop. The street looking down 2 and aprils numbers were revised down as well. This is a measure of signed contracts in may, closings for june and july. The weakness and softening weve been talking about for weeks. Pending sales down 0. 2 for the year now, year over year, that is the first annual drop in two years and the realtors are blaming it squarely on the lack of supply of homes for sale. Buyers continue to be frustrated by the tense competition and lack of Affordable Homes for sale on the market. Weve seen home prices have reached new highs in at least seven major metropolitan markets. They do make a note on brexit and say lower rates an increased demand from foreign buyers could help the market on the other hand, uncertainty in the World Economy could temper appetites for home buyers. Split will there. Regional in the northeast pending home sales fell 5. 3 , midwest down 4. 2 , south, 3. 1 and west down 3. 4 . Again, pending home sales in may, a disappoint because of lack of homes for sale. Back to you guys. Okay. Diana, thank you very much. It is day two of the European Union summit. Leaders of 27 countries gathering to discuss where next after the eus vote to exit. Not in attendance, the 28th, outgoing Prime Minister David Cameron leaving. David cameron not there on day two. Joining us from brussels where the meetings are being lelds our own wilfred frost. Wilfred, did they ask David Cameron to leave after the first day . They did, indeed. He wasnt welcome. Last night he had his final press conference after dinner and then left and the other 27 leaders, as you said, carried out the final day of the meetings which have just wrapped up in the last hour or so. And three main takeaways on the two days of this summit. The first one is that the eu leaders respected the decision the british people have made and intend to help carry out that decision. The second they are waiting on article 50 to be invoked before any form of negotiation will take place. They would like that to be sooner than later but understand its up to the british people and unlikely to happen until a new Prime Minister in place. Thirdly, negotiations are not going to be easy. They say they will not relax the idea that if you want to have Free Movement of goods and services the free trade, you also have to have Free Movement of people. You cant curb that immigration. So, of course, negotiations going to be very, very tricky between britain and the eu when they start. The eu summit of the European Commission has wrapped up but still a lot of action here in brussels today because nicolas sturmgen the leader of the National Scottish party in town met with members of the European Parliament Martin Schultz and meets with the head of the commission Claude Juncker and we know the Geographic Division in terms of who wants to stay and go in the uk surrounding brexit. Now finally, going to get to a little clip from the uk London Parliament earlier today because it sums up the crazy nature of british politics right now. During Prime Ministers questions heres a clip from David Cameron. Looking for excuses about why the side he and i were on about the referendum frankly he should look somewhere else. And i have to say to the honorable gentleman he talks about job insecurity and my two months to go. It might be in my partys interest to sit it there but not in the national interest, for heaven sake man, go. So, of course, there weve got the outgoing current british Prime Minister from the conservative party trying to tell the leader of the opposition jeremy corbyn, the leader of the labour party to resign. I bring it back to this, weve seen markets rally in the last couple days but uk politics is in an unprecedented amount of turmoil which ever way you look at it, in scotland or london or both sides of the aisle and this story has a long way still to go. Simon. There is a view, wilfred, many people have and one of the reasons weve rebounded is when the dust has settled and theyve chosen their new leaders, that they will attempt to walk back the referendum in some form. If not delay some sort of conclusion for many years. That seems particularly if teresa may becomes the next Prime Minister. I mean would you see that from your point of view . Is that growing possibility . I think its a very small possibility. Thats how i would sum it up. The key thing for me is, of course, that the next Prime Minister will be from the conservative party and pretty much every side of that, whether the remain side, David Cameron, and George Osbourne or the leave side, Boris Johnson, have said that will of the british people needs to be carried out. The european leaders have said there will be no negotiations until article 50 is invoked. So that seems like it will be the next step. The article will get invoked and then negotiations will start. And once that happens then the path is set. Just the terms of the separation unsure still. I think talk of possible second referendum in a similar vain to the one weve had is highly, highly unlikely at this stage. Although there could be a general election. Wilfred, in brussels, thank you very much. Lets get back to the markets which continue to bounce back as brexit worries ease. Will the trend continue . Lets bring in ben mandell, and art hogan, chief Market Strategist at wonder lick securities. Watched 3. 6 trillion in market cap disappear from global assets not just here but around the world on i guess it was friday and monday. Now a rebound. Have we hit our equilibrium or do we have further to go. An overshoot in the short run, 3. 6 trillion in global assets is a bit of a reach for what we have no answers to. So, you know, until and unless we know how this plays out and we wont for some time, i think we are probably at a point in time we can slow down and stop the panic. I think reaction to the referendum vote has fall noon bracketed category. Either the sky is falling and this will cause a global recession for some reason or doesnt matter whatsoever and the truth probably lies in the middle. So i think for the near term we can have a little more stability in markets op obviously the vix has come down a bit. What gets dangerous as we sort of get lulled into this, you know, things are okay, a lot of defensive plays look pretty elevated here. Think about the multiples on staples and utilities being the safe harbor that has gotten very expensive. Interesting point. Back to the u. S. Itself, art makes the point that many others have, which is, you know, how much is the impact going to be economically. I will ask the question, if we get a recession if the uk, again this is months to come before we have any sense, but and perhaps the eu slows, what is the effect here and the effect on our markets . What we saw on thursday was a manifestation of Downside Risk in our Global Economic outlook so i dont want to sugar coat it by any means but what we do have is a set of two shock absorbers which mitigate the effect for the u. S. In particular. The first one is that cyclical strength is reasonably good, right. So you have the consumers, firing on all cylinders as you saw on data this morning. The labor market is wholistically resilient even though you have a deceleration in hiring, manufacturing surveys looking better on the margin and cyclical strength in the u. S. Meaning that if this were to given this happened its better it happened in q2 than q1 and secondly, as a mitigating factor the fact that Central Banks are on the case. Right. So youre going to have an aggressive response most aggressive in bank at the bank of england and ecb. I think the boj is forced to act some time this summer. For its part the fomc is probably on hold until december. You have ubiquitous tack towards monetary easing which cushions the blow. I dont think this spells out the beginning of the end of the u. S. Expansion. But art, when we think about cyclical strength in the u. S. Amid volatility and weakness in the world its popular to say buy verizon, wells fargo, buy the companys stocks who are focused here in the u. S. But are you saying you think those stocks are too rich to actually be a viable investment thesis right now . Thats great question. You know, theyve been too rich for a while, probably too rich three quarters now on a multiple basis in looking back historically. The problem with that argument they still have a dividend thats certainly higher than the yield on the 10year so they can stay too rich for a period of time. I think this is important when you look at this, and youre thinking about investment something that is safe understand utilities usually trade at 15 or 16 times, theyre trading at 20 or 21 times, staples trade 15 to 17 times, theyre trading at 24 times. They have dividends and yes, theyre recession resistant, but as things can calm down and we get into a more normalized economy were going to see a rotation out of some of the safety plays into cyclical names Like Technology and health care and financials and that gets dangerous. You can give up a couple years worth of dividends and 3 draw down. Understand that theres when these safety trades get wound up they get expensive. Ben, i mean, art is making an important point here about the danger of that rotation. Would you echo that or do you think actually to the point you were making earlier about Central Banks pushing Interest Rates down that were well supported here . Yeah. I mean i think you do have a lot of headwinds facing equities thinking about the mapping of that, okay Economic Situation into markets. Bond yields is going to be a persistent headwinds on financials, the fact that this is going to be in all likelihood a messy divorce in the brexit situation, and a very persistent shock, so thats going to be, you know, just a general thats going to cause volatility in a lot of these movements to and from defensive stances in the portfolios. I think what weve generally favored in our book of business is an up and quality trade, so in this situation, in this type of environment we favor the u. S. Equity market over pretty much all others. We favor low beta asset classes, the credit universe and Investment Grade in particular, and yeah, so i think thats, you know, you also probably want a little duration as a hedge against additional Downside Risks. All right. Guys, well leave it there for now. As we all watch our equity that weve been talking about up about 1 on the s p. Ben man dell from jpmorgan and art hogan from wonder liquidiow securities. Turk at istanbuls airport killing 41 people last night. Richard engel is there and joins us now live. Richard, what is the focus now . The focus now is keeping this city operational and the attack did not shut down the airport a few hours after the attack took place the airport reopened. I was in the terminal a few minutes ago, and there is a very strange scene. A cleanup is under way where construction workers and sanitation workers are cleaning up broken glass. Some of it destroyed by the bomb, other walls pot marked with bullets. Around the debris passengers pushing their luggage carts making their way to the checkin counters. It is very crowded today. The shops are open and restaurants are open, customers buying sandwiches and chocolates and all the windows behind them shot out. A sign of resilience. They did not want to shut down. It didnt want to let the terrorists believe that they had won. It also is an economic decision. This airport is incredibly strategic for istanbul, for the entire region. It is the hub so it is a scene of trying to move on. Well leave it there. Thank you very much. Richard engel joining us live there from istanbul. Much more ahead. Stay with us on squawk on the street. On cnbc. Its here, but its going by fast. The opportunity of the year is back the mercedesbenz summer event. Get to your dealer today for incredible onceaseason offers, and start firing up those grilles. Lease the e350 for 499 a month at your local mercedesbenz dealer. Mercedesbenz. The best or nothing. Ge capital becoming the first firm to lose its designation as systemically important. Well sit down with the ceo of ge capital at 11 00 a. M. Eastern time. You will not want to miss that. Speaking of systemically important the fed will release its Bank Stress Tests after the bell. Analysts said the u. S. Banks are relatively sound because those stress tests have forced the banks to envision scenarios beyond those that brexit has brought to the markets so far like some of the scenarios in the severely adverse plan arranged by the fed the uk economy contracting 4. 4 at the same time the eu contracts 5 . The pound falling to 1. 41 and negative Interest Rates across the board. All major banks are expected to pass, but it could be a different story next year when European Banks like credit suisse, barclays and ubs will have take the u. S. Stress tests. Moodys has downgraded the credit of 12 uk banks citing the brexit vote saying there will be little shortterm likts implications for the uk banks ginchs the extensive Contingency Planning by the banks of eng glnds and regulators themselves. What do the contingency plans look like. We asked barclays ceo back in march. Do you have a contingency plan for if britain leaves the European Union . We have come out and state we think staying is part of the European Union is the best thing for barclays customers and the best thing for barclays corporate clinz in the uk. We are a uk business in the retail side and corporate side. We will be affected if our corporate clients and retail clients are affected. Obviously our intention and our belief is that we stay within the European Union. What would the economic effect be, beyond just a simple devaluation of the pound . How would the market look if all of a sudden the uk was not in the eu . The impact aside from what may happen to the pound is very difficult to determine but i dont think it would have a deleterious impact in a significant way on barclays business or Balance Sheet. Balance sheet strength those the banks may have their approaching the brexit vote from a point of weakness. Theyve been posting losses, need to sell assets, scrapping dividends, even the best contingency plan cant stave off the effects of a po seshl recession. Goldman sachs said this morning some 35 billion could come off European Bank profits between now and 2018. The uk banks alone could lose about 12 billion. People are trying to put a fine point simon on exactly how costly this vote could be for the banks but theres so many different factors. I think were just starting to see the layers being peeled back. Tonight the second half of the stress tests we could get news on whos returning extra cash to shareholders. Yes. Huge for tomorrow. It is very huge and, of course, investors have been expecting now eight years, seven years after the financial crisis here perhaps this is the year that we will get some sizable buybacks. And dividends from the u. S. Banks, although the uncertainty in the markets, definitely complicates that. When it comes to brexit being costly we know one guy thats its been costly for jeff staley and every other banker at barclays. The decline in that stock truly amazing july and monday. I assume hes not said anything or sat down for an interview with you since. We have certainly asked not only barclays but ceos of the European Banks asked for interviews and asked them about whether they posted any losses on friday or monday amid those steep declines, whether they have been bolstering their Balance Sheets and accepting money from the boe or bce to provide more liquidity. No answers. Theyre getting their ducks in a row. Earnings power story perhaps more than Balance Sheet story in terms of their ability to operate in the new environment. Yeah. Definitely. Thanks. In the meantime keeping our eyes north of the border. President obama has landed in ottawa, canada. There to meet the canadian Prime Minister and the Prime Minister of mexico in what they describe as the three amigos meetings. Well have more on cnbc. When we return nike shares on the rise after earnings. Well breakdown the road ahead for the sports wear giant after the break. And dont miss, of course, that exclusive interview with microsoft ceo satya nadella, this afternoon at 2 45 eastern. Squawk on the street will be right back. Live pictures of the president arriving in canada for his meeting with the canadian Prime Minister and the president of mexico. The three amigos meetings going to stress the importance of bilateral trilateral relations in north america. We will bring you more of that state visit as we work our way through the morning. Back to the stock markets, nike shares in the green after mixed earnings. The sports wear giant reporting sluggish north american sales and weak future orders. Ceo mark parker addressing those concerns on the Conference Call last night. Take a listen. In the near term we know there are certain areas we have work to do, but nobody is more demanding of our business than we are internally. While outside of nike we face Macro Economic and gee owe political geopolitical volatility our offense gix us our greatest competitive advantage. How we drive profitable Sustainable Growth in the near and long term. Joining us for analysis, jay sole, analyst with Morgan Stanley and john kernen retail analyst. Whats gone wrong here if going wrong is the correct expression . Why have they missed to an extent . Certainly the environment in north american retail has become much more difficult. Its a bit of an inventory overhang. Sports authority go under. The biggest change, though, has been adidas inflection, one of the few north american analysts that cover adidas as our top pick and a complete change in the product cycle and Consumer Perception of that brand. One of nikes biggest headaches to date in north america. Jay, whats your annual this . There is suggestion that whats gone on in the First Quarter could be argued to be selfinflicted. Thats a great point. In addition to what john is saying nike had selfinflicted issue because they had a warehousing issue in the Memphis Distribution Center exacerbated inventory issues and why gross margin probably disappointed the market expectation in the Fourth Quarter. At the same time nike is preparing for a world where people shop more online and trying to pull out some of brick and mortar distribution they dont feel is appropriate anymore for their brand. It its selfinflicted issues that drove the 4 q results a lot of investors will think thats easily correctable and see nike return to strong eps growth over fiscal 17. Would that be your reading, john . First of all you claim you need to diagnose whats going on and secondly, the assumption within the figures theyre giving is that there will be a rebound in the second half of the year. Do you think that will come . Yes, we do. I do agree with a lot of what jay said. The gross margin guidance for q1 is ugly down 100 basis points, the worst gross margin nike would have seen going back several years. We think their selling prices are moving higher and a big driver of their gross margin. A lot is a function of their international selling prices. Seeing pressure in north america around their signature basketball products but as asp has moved higher so will nikes gross margin. 50 billion in sales, theyre talking north of 4 in earnings power, probably double Free Cash Flow to north of 5 billion. So still a good growth story. Stock is up today because the valuation was so cheap going into the earnings print despite the negative guidance. Jay, coming back to the point you were making, direct to consumer sales group, 23 year on year, ecommerce growth better than 40 in north america. Overall where does that leave you on the stock . Well, you know, our rating is equal weight and i think the reason we see the upside opportunity john is talking about. Some of the issues that the competitive issues that have emerged, adidas making a strong comeback in the u. S. , under armor strong in basketball foot wear, its not clear that those issues are going to go away soon. I think the perception in the market is that most of that stuff is near term noise that nike longterm growth story is fully intact and now Fourth Quarter bad news is out of the way the stock which has been off a lot this year can get back to strong growth. Our view is that the some of the competitive issues could persist longer than some people think and thats why our rating is equal rate. With a price target of 60. John, whats your price target . Where are you . Our price target is 65. Okay. So we see upside from here and think the stock is cheap going into the print despite the negative guidance but the Competitive Dynamics jay is talking about have changed with under armors apparel business gaining market share from nike, adidas cycle turning, new change agent and ceo that will be starting in october so theres a Competitive Dynamics in this group have had significant change. Under armour one of the best performers on the s p 500 today. John, you mentioned also adidas. Of the three, over the next 12 months which does best do you think . We like adidas and sets up well relative to expectations. Okay. We have to leave it there. Jay joining us from Morgan Stanley and joe from cowan and company. Meanwhile lets send it to meg terrell for a market flash. Hey, kayla. The biotechnology industry needed good news and got some today in the form of tess ser ro. The company reporting a phase three trial of its Ovarian Cancer drug met study goals and sending shares up more than 100 p today. Look at shares of clovis which is developing a similar drug in the same class. Those shares up in sympathy about 15, 16 today. Good news there in biotech. Back to you. Quite a stunning move for that stock. Thank you, meg. Pimcos chief Investment Officer andrew balls his take on brexits bond impact coming up. The former chief economist of the ecb ot mar issing is with us. Much more ahead. Squawk on the street will be right back. Great time for a shiny floor wax, no . Not if you just put the finishing touches on your latest masterpiece. Timings important. Comcast business knows that. Thats why you can schedule an installation at a time that works for you. Even late at night, or on the weekend, if thats what you need. Because you have enough to worry about. I did not see that coming. Dont deal with disruptions. Get Better Internet installed on your schedule. Comcast business. Built for business. Good morning, everyone. Im sue herera. Your cnbc news update at this hour pope francis calling for a moment of silent prayer for those affected by the suicide bombing at istanbuls international airport. 41 people were killed, 239 more wounded. The pope called it a, quote, brutal terrorist attack. Ge capital becoming the first firm to lose its designation as systemically important. A label born of the financial crisis that the government gave to companies with the potential to wreck the economy in times of distress. The stock is moving up on the news. First Lady Michele Obama joined by star meryl streep in morocco as she continues her six day tour to promote girls education. They attended a state dinner last night. Sasha and malia are on the trip as well. Amazon back in the phone business in a different way, though. After its fire phone flopped, the company is now selling special edition of other maker phones at 50 discount as a benefit of it par 100 prime loyalty program. Thats the cnbc news update this hour. Over to jackie with the eia inventory. Good morning, sue. Oil prices are higher on the back of the report from the department of energy. Weve got a draw down in crude Oil Inventories of a little more than 4 million barrels. A surprise increase in gasoline of 1. 4 million. I will say this, the api set us up for this last night but we talked about 30 more cents when we got the confirmation. Theres three other reasons, though, that crude is higher today. The first is concerns about disruptions in venezuela and also concerns about a pending or looming strike in norway as well. Oil workers there. The second reason is, a aaa is expecting a Record Number of motorists to hit the road for fourth of july weekend. That tick in demand is expected to keep these prices a little higher. Gas prices are about 40 to 50 cents lower than this time last year. And finally even though these prices are elevated near the 50 mark we are sort of seeing an easing after the brexit vote and traders are saying its time to buy the dip especially going into the weekend. But thats not necessarily a longterm trade. Back over to you guys. Thank you very much for that. Stocks in the green as investors start to calm their brexit concerns. Our next guest sees a reduction in uk growth likely leading to the bank of england cutting rates. Joining us is andrew balls, pimco cio. Welcome to the program, mr. Balls. Hi there. Its extraordinary, really, the way in which the markets, i appreciate your uk focus and many of the stocks have not come back there, but in general terms, in Global Market terms, we seem to have got through this at the moment quite successfully . Yeah i think thats right. I think if you look at market prices, you need to be careful b because there was a run up in risk markets before the referendum, look at the five day or month to date, but you have seen fairly limited moves in terms of the credit widening compared with the worst levels this month before the referendum. The decline in terms of treasures, that makes sense as you anticipate central bank responses. Broadly, things have played out as we expected. The uk has taken the hit in terms of the uk banks in particular which makes which makes sense, and if things stabilize here and they seem to have been stabilizing the last couple days, that also means you dont you have less risk of the ongoing kind of negative cycle market moves leading to more market moves. So far, given the event in the uk, you know, about as good as it could be probably. You know, andrew, lets be honest if you walked into a client meeting, people might point out your heritage here, the fact that your older brother was the shadow chancellor in the united kingdom, the shadow finance minister some time. They may say maybe you know more or have greater insight as to the political situation. Do you think as many in the market would like to believe, that the uk will walk back this referendum in some form, maybe with a general election under a new conservative leader . So my brother helped keep us out of the eurozone, so im always pleased he did that, but beyond that i think i know about as much as anyone else which is nothing. Its very unclear whats going to happen now in terms of the next months. Its very unclear what the shape of negotiations will be, all sorts of machinations in terms of whether there could be another election. You have profound uncertainty going to be reflected in weaker uk growth. It could well be reflected in bank of england moves. But i think the markets are pricing this correctly. There are some spillover risks but its largely a uk event, largely a uk Macro Economic event. Theres not much signs of rise in uk overall credit risk, but a reprising of sterling and then the banks which are more uk exposed reprising on the equity side, less so on the credit side. Markets seem to be functioning quite well and there is unfortunately though very profound uncertainty and we have to get used to this in other jurisdictions not just in the uk if populism will have a bigger impact on markets over time. I mean, one of the striking things is the fact that central bankers have not been out in force over the last few trading sessions. If anything, theyve been more silent than they normally would be. And janet yellen withdrew from a panel she was supposed to be in portugal. I wonder if the markets are doing the job for the Central Banks with the yields continuing to come further down and more sovereign debt going into negative territory, as far as the yield is concerned, what assets work best moving forward, do you think. People are saying its fixed income and credit and the defensive area of the stock market. What do you think . So i think we sometimes use a thee day rule at pimco. Dont do anything for three days with a big surprise event and you allow markets to adjust. Central banks wait a bit of time before they, you know, do their open operations. Thats probably sensible. Because weve already had a significant stabilization compared with friday. Going forward from here, i think that the uk banks certainly look interesting. And then more broadly, high quality credit looks interesting. Weve seen some widening of high quality credit, you know, the index in europe or take your pick, so high quality credit, uk banks, i think look interesting. And then, you know, you go through all the different asset markets and scare the world so to speak looking for anomalies in terms of pricing. The backdrop could be positive for emerging markets if theres going to be easing on the part of the Central Banks or maybe a slower path for the fed as long as its a broadly stable environment that could be supportive for emerging markets. Its good to meet you, sir. Thank you for sparing the time. Andrew balls joining us from pimco in london. Thank you. Lender ge capital becoming the first firm to lose its designation as systemically important. Mary thompson joins us with more on that story. Mary, quite a turn of events for a company that really didnt like that distinction a couple years ago. Im not sure any Companies Like that distinction but yeah, seeing capital or the company is fundamentally changed its business. The Financial Stability Oversight Council removed ge capitals designation as a systemically important nonbank financial firm. What this means is the industrial giants finance arm is no longer subject by by oversight by the Federal Reserve. In granting the companys request, ge capital bd designated citing the restructuring ge capital has undertaken including exiting exiting banks and consumer operations to far more dependent on long term than short term debt. The debt taking down ge capital and its parentally during the financial crisis or access to that debt i should say. In a statement ges Ceo Jeff Immelt saying i am proud of the tremendous execution of the ge capital team. Since last april ge capital signed agreements for the sale of about 180 billion at the finance arms businesses that expects to complete the sale of 20 billion more by the end of this year. Ge is one of the four nonbank firms designated as systemically important the first to be. Met life is involved in a legal battle with the government have its designation removed. Todays news another step towards the goal of having 90 of its profit for its industrial operations from its finance arm. Ge capital accounted for over 50 of ges earnings. Back to you. Yeah. Its been a pedia company, a bank media company, bank and now an Industrial Company at the end. You wont want to miss a conversation coming up the ceo of ge capital Keith Sherren will join us on squawk alley. When squawk on the street comes back, one of the Founding Fathers of the euro and former chief economist of the ecb will join us coming up next. After the brexit are there other major risks that the market might be missing . Find out at trading nation. Cnbc. Com. More squawk on the street coming up. The stock market rebound continues with the dow up 16 points. To Rick Santelli with the exchange. Thank you, simon. Listen, when i think of a german banker disciplined, rule based, the person i envision is my guest today, professor otmar issing, many call him the euro founding father. Hes currently the president of the center for financial studies. I call him a worldclass gis disciplined banker. Thank you for taking the time today, professor. Good afternoon. All right. I guess the best place to start, ive been reading many things that youve written or been interviewed on over the years, and i cant believe deep down inside you were shocked at the brexit vote when youve talked many times about how difficult it is to have a union without full political integration. Your thoughts on the brexit vote . First i have to say the overwhelming few in germany among politicians, among academics, economies, Political Union should proceed pull multi union. It came the other way around. Over time i was convinced Political Union for the time being and foreseeable future has become an illusion. The brexit is indicating that even with this limited state of political integration, for the british, for the english to be more precise, this has already gone too far. The president of the the head of the European Commission, jeanclaude junker quoted as saying yesterday in meetings, the uk cannot have the same benefits as a member state. That seems so logical, but its going to be a difficult divorce. How do you think it will proceed, professor . Yeah. I think you see a kind of turning point in european integration. It started after the second world war, the election was always the same, more integration, more countries included starting with the six founding members and finally 28 members of the European Union and now for the first time the direction of integration is pointing in the other direction, losing one member and erasing concerns if all present members, 27 now, will stay on board. I guess my final question is the one everybody wants to know. If your opinion, considering your historic involvement in the integration process, going back decades, is this the beginning of more discontent within those 27 remaining or will this event make those countries in some way more cohesive . The question, will the brexit case create contagion, indicating that others might go the same way, i am not so much afraid. If negotiations are handled correctly, i think people in the member countries, the 27 countries, will realize how many advantages are involved in staying in eu and how developments will come, how risky it is to leave the European Union. Theyre giving me time for one more question, sir, and my one more question, actually, is about the markets. Many times youve said that the biggest financial risk right now is are low Interest Rates. Do you still think that and you must also factor in how much more negative rates have permeated parts of europe . I think the longer Interest Rates even will continue, the more the negative sides of this policy are shown up. Investors taking highrisks, several banks drive almost investors into more risky investments. Total Financial System in germany and other continental countries is at stake. Pension funds, Life Insurance companies are very difficult time to just to survive. Thank you, approach sore. Its been a pleasure. And were going to carry this into cnbc. Com pro to talk about of all things an 800yearold document, the magna carta. You interested . Follow us along. Thank you professor. Simon hobbs back to you. Coming up dont miss our exclusive with the ceo of microsoft, satya nadella. Cnbc will be right back after this break. Thank you. Ordering chinese food is a very predictable experience. I order b14. I get b14. No surprises. Buying business internet, on the other hand, can be a roller coaster White Knuckle thrill ride. Youre promised one speed. But do you consistently get it . You do with comcast business. Its reliable. Just like kung pao fish. Thank you, ping. Reliably fast internet starts at 59. 95 a month. Comcast business. Built for business. Less than a week after the uk voted to leave the eu president obama telling npr theres more hysteria than actual impact. Take a listen. Theres been a little bit of hysteria postbrexit vote as if somehow nato is gone, the Transatlantic Alliance is dissolving, and every country is rushing off to its own quarter. Thats not whats happening. To break down brexits impact on u. S. , were joined by the head of north american sovereign. Charles, when you listen to the president say its not as if every country is running into its own corner how do you as a marketeer size up the potential Market Impact and the spillovers if were looking at the impacts on the u. S. , lets remember u. S. Is a large economy. Not particularly open economy. So, you know, a shot to trade is not going to derail the u. S. Economy like it might or another smaller country. Exports of the u. S. To the uk are about 5. 5 of exports. Thats goods and services. We do see domestic demands in the uk actually contracting next year. So there will be some measurable impact but not have a really large impact from the u. S. Strictly from a trade point of view. Theres the trade point of view and real economy point of view and the impact on psychology that this volatility could have. You say prolonged and severe investors could be spooked. Whats prolonged . Whats severe . You can make the case that Financial Market volatility moments in asset prices can have an effect on the real economy on consumers and on investors. So we saw a pretty sharp Immediate Reaction to the brexit movement. Some movement in credit spread but its calmed down a little bit. That is a possibility that you could see that kind of impact. But it doesnt look like a huge event at the moment. Is there another shoe to drop though because we have moodys downgrading 12 uk banks and then you have obviously the overall Sovereign Rating of the uk coming down a notch as well. Well eritrea of those have long standing impacts . Well, we warned sometime ago that if the uk does go brexit its negative for the rating and thats primarily for reduced Growth Prospects and a knock on impact and public finances in the uk. It does have some kind of spill over for the eu as well and well be looking at our forecast. The most exposed country is ireland which trades the most with uk. I think more generally if this leads to forces in the eu which, you know, oppose integration, if that lent support to those forces, then thats negative for the eu and that spills over obviously as the Global Economy and back to the u. S. Eu has a very long policy agenda, it has a lot of other problems to deal with now and obviously has to renegotiate its relationship with the uk as well. Yes. Were in the very early innings of that. Charles, we appreciate you bringing that to us as well. We have some breaking news to you from kate kelly. A key rescuepackage for puerto rico. It looks like its passing. A procedural vote in the senate intended to end debate over to bill seems to have resulted in, at present count 67 votes in favor of the bill. This makes it took likely that it has passed. This would establish a financial control board for the troubled island among other things would have some authority over negotiations with creditors. The islands governor has said some 70 billion in puerto rican debt is unmanageable and this may establish a path forward to resolve some of those issues ahead of a potential 2 billion default that would occur on friday without some sort of intervention. Not without some controversy. Kate, thank you. Squawk alley is next. In a world held back by compromise, businesses need the agility to do one thing another. 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