Transcripts For CNBC Worldwide Exchange 20140901

In august, we ask if beijings growing debt pile is one of the worlds biggest risks. Youre watching Worldwide Exchange. Bringing you Business News from around the globe. Hello, everybody. Good morning. Welcome to Worldwide Exchange. A new face on cnbc. Its all very exciting here this morning. Wilfred, welcome. Thank you very much. Tell us about yourself. I decided recently to take the step into television. Im very excited about it and looking forward to the two hours. And youre english. Indeed, very much so. With a name like wilfred, i would say so. Youre from england. Yes. The last five years ive been working to follow into my fathers footsteps to be in television. Its a pleasure already and we look forward to getting to know you more. Well, thank you very much. Russias foreign minister says they will look for further sanctions following a summit over the weekend. Lavrov also said in talks later today between kiev and moscow should seek an immediate ceasefire. Meanwhile, u. S. Lawmakers urged the white house to take steps to arm the Ukrainian Government to stop putins aggression against the country. Democrats are Robert Menendez who heads the Foreign Relations committee saying the u. S. Should Work Together with nato and the European Union to arm kiev. This as russian president Vladimir Putin stoked fears he supports calls from rebels for independence after he called for the, quote, statehood of southern and Eastern Ukraine. I am in meaningful talks relating to the issues of the societys Political Organization and statehood in southEastern Ukraine should begin immediately in order to protect legitimate interests of People Living there. And in an attempt to clarify the president s comments, the kremlin later said Eastern Ukraine should remain part of the country. And he also called the tensions in the region a domestic ukrainan conflict. Hatley gamble was there earlier this week and has more. We know troops are on the ground there according to angela merkel, but she didnt want to define, she didnt know the definition of invasion under international law. She didnt want to go there. The and to be fair to the eu leaders, neither did president obama this week. Hes got an lot of flak for that as well. So the senate coming out, bob menendez, trying to get on his back saying we need to arm the rebels, why are you trying to arm them . These are the bigger questions and unfortunately the eu is going to be hesitant to do much more than in a weeks time possibly ratchet up sanctions and close loophole that is are already there. So i dont see any military engagement any time soon. What type of sanctions are we looking at . I mean, just more of the same or are they going to be targeting different sectors . That was the bigger question. Initially when the ukrainian president , i spoke with him, he said we are targeting and looking at level three secondtorial sanctions. And essentially i said, is this because we reached the point of no return. Mr. Baruso earlier talked about the need for diplomatic solution before we reached the point of no return, can you define then what is the point of no return and how do you plan to defend your country . I think that we are very close to the point of no return. The point of no return is fullscale war, which already happened on the territory controlled by regular russian troops. And any defensive action which we would undertake if it would happen would be the point of no return. And thats why we undertake the normal efforts to stop that and to bring the discussion under diplomatic form and under diplomatic dialogue. The issue, the essence of the discussion is also very easy to understand. This is the peace plan. And i hope that in the next week we will publish the draft of this peace trend and on monday it will be Trilateral Group meeting with the participation of the ambassador of the oec, the expresident of ukraine and the russian ambassador. And the discussion would be not only for the hostages, including the hostages which are illegally kept in russia. The discussion will not only be with the mission of the oec including the mugs alongside of the border, but the i cross my finger and hope that it will be ceasefire. There you see the ukrainian president , this poor man is essentially saying we need help, weve been invaded, but none of the other leaders of the eu wanted to come aboard with that. Because once they do, the military options have to be on the table. Essentially, they want to stay as far away from that as possible. I guess we are also waiting more to see what the response of the eastern part of ukrainian people is as well. Whether they would more want to be towards russia or whether they actually would want to remain ukrainian. Absolutely. And i spoke with the lithuanian Prime Minister and asked how worried she was about this. Russia is against ukraine meaning it is in stage of war against the country. Practical russia is in a stage of war against europe. And that means that we need to help ukraine to battle it back, to defend itself, its territory and its people and to help militarily, especially with the military materials to help ukraine to defend itself. Because today ukraine is fighting war on behalf of all europe. The European Union uses soft power. Soft power, number one, was the Association Agreement with ukraine. Soft power number two, when the situation escalates is to use sanctions. Have they worked or not . I think the jury is still out. And have they looked at the objective figure earlier. It doesnt strike me as someone confident. Hes going to get the support he needs. I think essentially hes walking away from this hoping next week at nato hell be able to push for a further discussion of nato membership for ukraine, but i dont think in any real sense he thought he had much of a hope of getting anything more than possibly more sanctions. Someone said something very interesting to me the other day. In order to push forward with nato membership, which even if it were to happen would be very far out, you have to have control over your own territory. Exactly. And which they dont at this stage, so the nato membership seems if anything a red herring in order to throw focus on what europe is doing to support ukraine at this stage. And the united states, no one really wants to admit anything is happening there, but things have been happening there since march. One diplomat said to me on the sidelines, he made the comment essentially, what they should have done when ukraine became its own state was to have the referendum and allow the people to go. But of course that didnt happen, but that was definitely discussed at that time. Hadley, thank you very much for being with us. Hadley gamble giving us the latest on the summit out of brussels. Timmy welsh is here now, welcome. What do you make of the latest round of discussions in brussels and what should europe be doing in regards to the ukrainian crisis . Its pretty clear, the european mentioned obama would rather ignore it and rather this was not happening. This discussion on invasion or not on insurgency, whatever you make of it, bottom line, its a fullscale war with a lot of casualties. Europe doesnt want to admit that and rather not do anything is the reality. We heard the finnish Prime Minister talk about the eu having soft measures up until now, but what could the eu otherwise do apart from sanctions and apart from the lines they have been giving us. What else can they do . The problem is sanctions. I think sanctions can work but it depends on how their shapes are formed. Unfortunately, russias allies in europe, the italians, the greeks, the bulgarians and austrians, theres plenty of them. And every chance to put sanctions in place, they watered them down so much they hardly work and are hardly effective. Sanctions can work in russia and can be effective and can encourage russia to change its actions, but you have to have meaningful sanctions. How much has the weak nps the european economy played in this . Very weak statements out of merkel over the weekend if the european economy is booming, would the tough sanctions have been imposed already . Im not sure. In the end its about close historical and cultural relationships between certain member states. And really very significant business relationships. Both of the professional and the personal level. I mean, russia is very effective at lobbying through business interests in europe. To counter the threat of sanctions. Just looking at the markets for a moment and looking at the august that we just closed out in the last couple of months that we are heading into, do you think geopolitics are going to weigh more on the european markets or less on the european markets heading forward . Im afraid we are sleepwalking through the Russia Ukraine crisis. Thats the reality. Its hard to see a resolution, frankly. This has been going on for ten months. Theres been a lot of focus on eu very senior diplomats and politicians, and we are nowhere near a resolution. It is escalating. And the events over the last few days, putin has made it pretty clear hes not going to butt out of ukraine. And if ukraine wants a western orientation, which the vast majority of the ukraine population does, hes taking crimea and hes likely to take other bits of the country. Is poleshenko or the ukrainian population willing to stomach that or fight more to retain territory . These are huge question marks for ukraine. The imf approved over the weekend a 1. 4 billion loan to ukraine. Is that going to help them at all . Its a small change. Its basically covering up the cracks. I mean, the west is, doesnt really want to go down the sanctions route, doesnt really, as i mentioned, doesnt want to admit theres a problem between russia and ukraine. I think the big problem with the imf program is when it was originally drafted in march april, you know, they painted a very optimistic scenario in terms of security situation in ukraine. And the macroassumptions wasnt very credible. Again, if you read christine la guards statement around the release of the 1. 4 billion credit lawn ch, if theres no resolution, the ukrainian economy will remain very deep in recession and the budget financing hole will be larger an there will be a need for more imf money. At the moment, the imf program doesnt add up well. Timothy, thank you very much for being with us. When you come back, well chat more in the next couple of minutes. Incidentally, if you want to get involved, feel free to send us your email, send through your twitter questions or your comments as well. An email at worldwide cnbc. Com. And on twitter, you can find us at my address, wilfred is on twitter, wilfredfost. And well post our questions to the guests in the studio. Lets have a look at markets. The s p 500 had its strongest august for 14 years. And that is house september is started. A mixture of green and red today in europe. Slightly up, the stoxx 600 is up but not with a huge amount of conviction. Why is it lacking conviction in because there was a lot of data earlier in the week. We had confirmation of the german 1. 2 contraction in the market. That market is slightly off. And we have important pmi credit data out of the u. K. In 20 minutes time. The ftse 100 slightly down as we look at things at the moment. Well look at bonds. If we go to the start of the summer, we thought the growth in europe was recovering. How far are we from that now . With the poor macrodata out pushing bond prices down, the record lows we have been telling you about, the german tenure is on 90 points that is really astonishing lower. And the most interesting thing to look at today is the euro, a fraction off the dollar, but it has hit the 12month low on friday and today. That both on the geopolitical tensions lifted up, but also looking ahead to thursday when we hear from the ecb from mario drugge. Thats the big question. Here on todays show, it is not just wilfreds first day on the show, but dave lewis is looking at the problems stocking up for tesco. And also all the details on one of the most highly anticipated ipos since facebook. This is a big one as alibaba goes public next week. And a list of them, we discuss how the festival season has become a lucrative business for artists with rapidly declining record sales. I used to love going to festivals but havent been in a long time. Im not much of a festival person. They are fantastic, the mood, the atmosphere. Im not the one to give updates on that, but if you have been to many festivals, we want to hear from you. Do you enjoy those or are you still buying albums in local stores . What was the last album people have bought . Join the conversation by email or by twitter cnbcwex. And still to come on the show, prodemocracy activists storm a news Briefing Held by chinese officials after beijing blocked universal sufficient ra rage in hong kong. More on the protests, next. [ woman ] the cadillac summer collection is here. [ male announcer ] during the cadillac summers best event, lease this 2014 ats for around 299 a month. Hurry in this exceptional offer ends soon. Antigovernment protests in pakistan turned violent with at least three people reported dead and hundreds wounded. Police used tear gas overnight to try to disburse the crowd demanding the resignation of the countrys president. The National Television station was also forced off air. At the same time, police used pepper spray against prodemocracy protestors in hong kong after the Chinese Government ruled beijing must now prove candidates running in hong kongs next leadership election. Emily towne has been following this story and filed this report. Reporter beijing officials just completed a twoandahalf hour briefing on the latest proposals for universal suffrage here in hong kong. Of course, this was not without protest just minutes into the seminar we had a number of democrats stand up voicing their dissent sent. After making a lot of noise, they were escorted out in order for the briefing to continue. There was also an incident with pepper spray where police were reportedly charged by protesters and had to use pepper spray to make them back down. Apart from that, we heard from the deputy secretary general of the National Congress Standing Committee outlining the framework for hong kongs universal suffrage saying this is a historical moment for hong kong allowing one man and more than 500 citizens here in hong kong, bringing new change to hong kong. And he urged hong kong people to put down their differences. The next move is for the lawmakers to move this to legislation, but the pandemocrats said they will be vetoing the proposal that does require twothirds majority in order for it to come into law. Thats the latest from here in hong kong, back to you. Peter lawson is joining us now. Good morning, peter, good afternoon to you there. Is china trying to ditch universal suffrage altogether . Well, there are some people definitely in hong kong who believe that. They have taken a very hard line view or very narrow view really of the democracy they are prepared to allow in hong kong. And there is a point of view that says as you heard in that report just now, in order to get this through the hong kong parliament, they need a twothirds majority meaning some of the pandemocrat party have to support it. If they dont, if they with hold support, the whole proposal will fail and the chinese have already made it pretty clear that in that case then universal suffrage goes off the table, possibly indefinitely and certainly until the next election in 2022. Thank you very much. Well be back with you shortly. We will, indeed, because theres more to talk about with regards to what is taking place in china. The slowdown in chinese activity provide more evidence at the second largest economy to be cooling. The official manufacturing pmi rised from the 27month high reading of 51. 1 in august, just shy of the reuters forecast of 51. 2. Meanwhile, the hsbc market slipped to a threemonth low of 50. 2, so barely clinging on though to that expansion territory above 50. The asian markets shrugged off the data. Some analysts suggested that beijing will need to step in with further easing measures. And with debt levels in china near 250 of gdp according to recent estimates, is the country at risk for default . Samantha laura is here with more. Reporter this is reminding us of chinas level of debt. The report is pointing out that chinas debt to gdp ratio is at 250 . And as you can see, thats slightly better than the u. S. And the u. K. And certainly a lot better than japan, but as a developing economy it has accumulated debt at lightning speeds. And countries like argentina have been sitting in the same position as the gdp ratios leading to financial crises. We know that beijing used credit during the financial crisis of 2008 to propel growth and that was when debt to gdp was sitting at 130 . So 250 you can see how quickly they have accumulated debt. Now another way to measure debt in china is looking at total social financing. This was a metric employed in 2011 to keep tabs on the Financial System as it diversified a way from traditional lending. You can see the blue line there representing a Traditional Bank loan. Orange and green representing shadow banking activity. And tend to be unregulated in the economy. This for trust products and trust loans as well as Wealth Management product. Both blue and green are rising drastically since the early 2000 and now sitting at 125 trillion, thats 25 of the gdp and currently growing at 16 outpacing nominal gdp growth of 9 . So now we are in a position which china has lofty debt, growth is slowing and of course we know that servicing debt is going to eat into the profits. And thats going to drag growth lower. That could have been allocated to reinvesting in the economy, so thats one aspect to it. Moodys warns if there are alarm bells, this could lead to a hard landing in china. Of course, chinas debt position is an erroneous conclusion. Yes, the rapid rise in debt in china is unhealthy, but china and beijing, the banks have buffers and they will capitalize nonperforming loans at the percentage of total loans sitting at relatively low levels right now. And overall, the strength indicators are showing that beijing has ample room to manage an internal debt issue if it needs to. Back to you in london. Peter is joining us again now. Peter, the longer this credit bubble builds, does it mean the fallout will be even bigger . I mean, the bubble is big. I think as you reported just now, the key thing is the speed at which its grown. Overall, the debt levels are kind of high but they are not that high, and the thing you have to realize about china is a lot of these really acclaimed from one Government Entity on another, there is a sense that kind of when the worst comes to worst, the issues can be sorted out. The other important thing on china is that the debt is all basically held domestically. China is not dependent on any significant extent on financing from outside china, which once again makes it more possible for the authorities to sort out these problems and to sort of avoid some sort of disorderly unraveling or some sort of disorderly collapse. Peter, where is the majority of the debt held and how is it being funded at this stage . Well, thats an extremely good question. One that doesnt have an easy answer. I mean, clearly as your report mentioned, Bank Financing was sort of the main financing but it really diversified away into what is broadly called shadow banking. Shadow banking is a misnomer in china. There are all kinds of trust financing vehicles, there are sort of these Wealth Management platforms that banks distribute that dont necessarily hold their Balance Sheets. And there are other kinds of techniques for financing. The difficult thing sometimes is working out really kind of where the claims end up. They are all crossguarantees and so forth. And its the complexity and the capacity of the system that in some ways keeps everything as it is and avoids people from getting into trouble, but if there were to be problems and some defaults, and we have seen a few wobbles and actual defaults in the past few months, theres a danger that some of these problems could cascade through the system, which could make the job harder for the authorities to con tape the problem. But as i said before, the authorities bail out banks already. Its very different from the west in 2007 and 2008. And it can contain problems much more easily. Peter, you said earlier that the debt is high but not that high. But 250 debt to gdp is incredibly high for what is essentially an emerging economy. Has china become indebted before its become rich . Its certainly become indebted. One of the questions about china is how much capacity it has to take on more debt. And thats part of the problem because its hard to know exactly where the debt lies and how much of this is real debt or how much of this is essentially Government Spending in disguise. But i think the key question really is to what extent chinas growth in the past few years has been dependent on the build up of that debt and to what extend some kind of deleveraging process would make the growth slower. Really, debt to gdp at 251 is a problem, but it becomes a real problem if it continues to grow. If actually the economy could grow more quickly in a normal sense than the debt level, then actually you could have a deleveraging. But i think thats really where opinions on china get divided. Some people think that is possible. Other people think they will have to be some sort of resolution of the debt in order for the economy to recover and otherwise if you dont do that, if you keep hiding the problems, you end up with the japanese style sort of stagnation scenario. Yeah. Timothy, what are your thoughts on that, just lay it out, two scenarios for what china is doing to growth. As an emerging market, head of emerging Market Research, what are your thoughts on china . Clearly china is systemic for the global economy. We are all driven by the chinese mobile growing map. For me the chinese authorities focus on the program and accept the program, so the answer is yes, they know the pace of accumulation of debt has been too rapid. They need to moderate it. The chinese Balance Sheet, sovereign Balance Sheet is still are strong. A huge amount of effort reserves in the country there. Its not particularly effex debt but it is gradual. You think authorities in china have enough fire power to keep turning tabs to pave over the cracks in the meantime . Well, one thing we have learned about the chinese authorities and policymakers is they are, you know, western standard in the quality. They are very good economists. They know their own economy much better than any of us do. And they have plenty of ammunition. So my sense would be, they have the tools to resolve this problem if needed and they are focused on it. Timothy ash, head of emerging Market Research at standard bank. And peter larson, editor at reuters breaking views. And were getting news on the u. K. As we said earlier coming out, u. K. Manufacturing pmi has hit a 14month low in august. So the u. K. Has been holding up much better than other parts of europe, but it seems like its joining the rest of the pack in terms of its weakness in the manufacturing segment. The reading came in at 52. 5. Against the expectation of 55. 1. Just looking at the money supply growth coming in, plus 0. 5 month on month minus 1 year on year, we are also looking at the net consumer and mortgage lending figures. Essentially they are both the highest we have seen since july of 2008. March approvals coming up just shy of what we saw in june, but nevertheless, being in line with expectations a little bit stronger than anticipated, if anything. So again, Consumer Mortgage lending both the highest since 2008 and we continue to see this willingness to take out mortgages to buy into the u. K. Housing market despite the fact that were supposingly in this cooling scenario. Interestingly there, the sterling is up slightly on the day, so people taking that lend dag a slightly more positively than the weak manufacturing data. We are still in expansion mode and among the strongest manufacturing scenarios we have seen in europe. And gdp is certainly a lot better than other places. Still to come, new auto sales slide into reverse. Well discuss after the break. Youre watching Worldwide Exchange. Bringing you Business News from around the globe. Russian defiance. Moscow says it will protect its economy from further sanctions as the eu draws up fresh targets. Meanwhile, u. S. Lawmakers call on the white house to arm the Ukrainian Government. Tesco shares trading after a major shareholder slashes its stake in the troubled retailer citing a lack of coherent strategy. And prodemocracy activists hurl insults after beijing blocks universal suffrage in hong kong. And we asked if beijings growing debt pile is one of the worlds biggest risks. Hi, everybody. Welcome back to Worldwide Exchange. We are just getting a bit of news through on the wires that Neil Woodford, one of the most highprofile Fund Managers in the u. K. Has sold his fund stake in hsbc over several industrywide probes, this comes from reuters. But theres a quote here from his blog posting saying im marly worried about the Ongoing Investigation into the historic manipulation of the Foreign Exchange markets that could expose hsbc to significant financial penalties. So, again, he sold his fund stake in hsbc on the back of the shares. The share price off by 1. 25 . Indeed lets have a look at the rest of the european markets and how they are trading so far today. Slightly down. We just brought you breaking news from the u. K. With the pmi and credit data and the ftse 100 being down 24 basis points off the back of that. Germany off 25 basis points after the confirmation of its q2 gdp contraction at minus 1. 2 . The markets here have been yields south. Thats been what we have seen over the last couple of weeks, actually. Remember that weve got a holiday stateside, labor day holiday, so very thin trade anticipated today throughout the session from europe. Germany sitting tight below that. 9 level. Staying very low. As we look at the euro, its weakening slightly today. In fact, it has ticked up but it was lower earlier. It is still hovering near a 12month low ahead of the ecb meeting on thursday where, of course, investors are expecting a statement on possible easing from mario dragge. David harrow told the newspaper he reduced the investment from 3 to 1 in the last month saying that the retailer lacks a Clear Strategy. Tesco issued a profit warning on friday last week and cut its dividend. Harrow spoke to cnbc earlier this year to address concerns about his burned stake in the economy. The reason why we have this stake in tesco is we recognize that it is a turnaround. We think it has the tools necessary to complete a turnaround. And we think that the strategy they are employing, the space, recycling the space and better using the space, leveraging their strengths and crm and in fuel savings and online, multichannel, they have a number of strengths which should aid them in accomplishing a turnaround. But clearly they have issues, clearly they have to address these issues and in our view they are doing just that. Tesco has an ongoing basis and has to improve its image with the Customer Base as fast as possible. That doesnt mean just slashing prices and competing with all that little, but it means providing a unique proposition to the tesco Customer Base, service, range, quality, all these things. And they are addressing that as quick as possible. That would probably be the best thing they could do now. Meanwhile, all eyes are incoming tescos ceo who takes up his role a month earlier than planned. The shares are down over 30 this year falling 6. 6 on friday after that profit warning. And we are joined now by the u. K. Business editor who has more on the story. Yeah, welcome, david, to tesco. Thats going to be the big news. Hello, you have just come off the back off this massive fallen shares. Lets not forget what happened on friday after that third profit warning, after a 75 cut in their dividend was the biggest fall we have seen in tescos share price for twoandahalf years. At one point it was down 9 . So david, it was his first day on the job, and the shareholder goes, i dont believe in you. Why . Because Management Strategy is incoherent. Now, weve heard a lot on this show about the fact that evaluations at tesco are cheap at the moment in compareson. Tesco is by far the u. K. s biggest supermarket. The problem is, how long before it gets any better . And even though the new chief executive david lewis has been given free reign at the moment when he comes in to do what he likes, i think most analysts and most market watchers are really concerned that its going to get worse before it gets better. And you know the reasons why. Yes, definitely. I mean, also youre looking at the discount retailers coming in, taking marketshare and things like that. I was just thinking when we spoke to mr. Harrow here a while back, i spoke to him and it already sounded then like he was backtracking and cautious at tesco at that point. Hes followed through to take the measures to decrease the stake. You have to wonder, though, i mean, its a lot of it down to the legacy left. We saw the measures put in place to go abroad, to expand into the u. S. But this was him resigning over tesco where it was all about the race for space. Thats what people were interested in. Getting the tesco supermarket into every place, not only britain but across the world. We saw that what meant disastrous with expansion overseas. A lot of money wasnt spent in stores. And the money that was spent was spent on stores that nobody wants to go to. These massive boxes out of town that nobodys interested in. So its going to be a massive challenge in the face of a radical change. I just wanted to pick up very quickly on hsbc because that is quite interesting. Because what Neil Hartford said in his blogs, its the size of the fines, the fact that they are fining banks, not just quantifiable numbers, but thats a risk he cant take. So very interesting. Thank you very much for that. Staying with us, youll come back with a different hat on in a second. In the meantime, here we go. Shares in the stoxx 600 are in talks to make a sweetened offer for the deutsche unit as the french group posted a drop in first half profits. Stephan has more in profits. Good morning. Good morning. The management will meet this week with some potential partners in order to sweeten its offer. It will meet with the private equity firm and could make an offer of at least 35 per share. The opener from the u. S. Indicated it should mean minimum evaluation for this unit. The ceo managers have also indicated that the fair value should be somewhere around 35 and 40 dollars per share. Iliads first bid was rejected months ago offering 15 billion in cash for 56 stake in tmobile in the u. S. , thats 33 per share. And just before the weekend, as you mentioned, iliad posted more than 2 billion euros to say it was ahead of schedule to admit its 2015 targets of at least 4 billion euros, so it would reach its target one year ahead of the original plan. Stephan, thank you very much. Good to see you this morning. Good to see you there brighteyed and bushytailed, as ever. And new car sales hitting the brakes in france last month with registration slumping by 11 over last year. The rival posted a 3. 1 drop while total registrations in france slowed by 3 for the second straight month of declines. The senior managing director and partner and head of isi group, welcome, hans. Well start with what we are seeing in france, first of all. New car sales are down significantly. Persia down, not by quite as much as we are seeing there, and overall france issing look pretty weak. Generally speaking, the French Economy is not doing great. We had a fairly slow start the beginning of the year. Now its getting a little bit tougher. We have fewer selling days. So car sales were slightly up, but overall france italy is still pretty sluggish in europe. And we were saying earlier we didnt think sangs had a huge effect on russia, but auto sales have taken quite a big hit, have they not . They were down more than 20 in russia in july. Of course, thats the matter of the uncertainty amid the country and Consumer Confidence in driving car sales, so russia is a trouble spot for us. What happens if we see trade retaliations in the auto sector by putin for these european sanctions that are put on . Well, russia has been very successful to attracting localization of production in the Auto Industry over the last ten years. They opened up a lot of international carmakers from korea, from japan, from europe, moved in and built plans. So most of it is actually now localized business. That would hardly be hit, i would say. But then you look at the companies importing, for instance, take bmw, they imported last year 20,000 units to russia, its a Company Selling 2 million cars globally, its probably not a big deal. In the likes of bmw and mercedes, audi, the big german manufacturers, how much have they benefited over the last years from the otherwise weaker currency than if they were not in the eurozone, Sales Holding up globally . Well, germany benefited more than any other country from the weak euro. You have the Auto Industry exporting more than ever into u. S. Dollar dominated countries. Of course, the u. S. And also china, so thats been a huge driver. Everyones now rushing to build capacity outside of the eurozone and thats partly the reason why you see some Business Confidence slipping in germany because production is being ramped up within europe or germany. I want to show you tesla said in the last week or two it will open up patents from other manufacturers to push sales of electric vehicles globally. Do you think electric vehicles will takeoff . We think its going to be huge. We think its more fun to drive the electric vehicle, you feel better, the acceleration is great, better technologies will improve by more than 50 over the next couple of years. The cost of interim engine cars will only rise so the future will be electric. Do you drive an electric car . I dont because there are not enough charging stations in london yet. I was just with a friend over the weekend and four of her family members got an electric vehicle and shes just bought one. Dont have one either. Art ellinghurst from isi group. Still to come, mud, music and money. We talk the billiondollar business of festivals. After the break, find us on twitter, find us on email, we are both on. We needed 30 new hires for our call center. Im spending too much time hiring and not enough time in my kitchen. [ female announcer ] need to hire fast . Go to ziprecruiter. Com and post your job to over 30 of the webs leading job boards with a single click; then simply select the best candidates from one easy to review list. You put up one post and the next day you have all these candidates. Makes my job a lot easier. [ female announcer ] over 100,000 businesses have already used zip recruiter and now you can use zip recruiter for free at a special site for tv viewers; go to ziprecruiter. Com offer2. Welcome back, everybody. Good morning. India is visiting japan and is scheduled to hold talks today with the Prime Minister to boost security and economic ties between the two nations. Makiko is live with this story live from tokyo. Makiko . Yes, hello. This is the first visit to south asia for indias Prime Minister after being elected in may. Prime minister abe has considered a special welcome by traveling to tokyo to travel around the temples and to go to dipper. This shows just how much importance abe is placing on the relationship. India is looking to increase direct investment from japan and japan is looking to call for more transparency of indias legal system. Abe is also looking to reach an agreement for a nuclear pact to allow japan to export Nuclear Technology to india. On the security front, they will upgrade talks between the foreign and defense ministries in order to strengthen ties with neighboring chinas rise in mind. And thats all from the nikkei. Back to you. Makiko, thank you very much for that. Now indian equity markets got a boost by strong gdp numbers out over the weekend. The sensex moved up to a 52week high while they hit an intraday record. The best growth in over two years is attributed to a pickup scene in corporate and consumer. Spending more than a billion pounds in the u. K. Alone in tickets, our next guest says festivals is a way for bands to reach out to fans in the 18 to 25 range. Here is our u. K. Business editor with us. Welcome to you. Marie, over the last before we get to festivals, over the last few years, whats the main problem facing the Music Industry . Its been a challenging time because people have more and more embraced the digital platforms and services online. So in terms of the traditional recording industry, they have had a little bit of catching up to do in how to bring people into more of a 360 digital experience really. So how do festivals help this . You know, whats really interesting is when i look to some of the artists that have played, say the big vessel that just happened, a huge amounts of them had some of the biggest increase in their online plays that they have had maybe in the past year. And so what that means is that live events like festivals that draw so much attention and so many fans together and really engage people drive online streaming. And that means people go and want to listen to the tracks, they download from itunes and there are 8 million more people this year that subscribed to streaming services such as spotify than there were last year. So thats obviously driving a huge amount. And its a huge area of growth in live entertainment, festivals. Where we are today, even in the u. K. , we have a plethora of festivals, not singularly music, but the after wilderness festival, and we have a foodie festival to follow. So festivals themselves have taken over and are in massive growth. And we have just obviously come off the end of burning man. This is the massive festival in the middle of the nevada desert which is about this utopia experience. People come together and try and have this experience of collectivity. And when researchers have looked at why musicians are so interested is because when researchers have looked at the attitudes of people at music festivals, they are really looking for a sense of collectivity. And that makes them more likely to want to take something home from that experience, download the music or share that experience with other people, send them the music and suggest it. And things like burning man are not only interested because of the music festival, but because its actually almost filtering into the things we look at at cnbc, like alternative currencies. Remember that burning man is a society where its supposed to be cashless. Many are saying capitalist in the skies. Well, the amount of private jet that is went into burning man this year might tell you something. And if you were cynical, you might go, if theres more than two massive chief execs of a tech u. S. Company, then its probably not the small industry it used to be. But the idea is that you barter goods. And in that bartering, you are looking at what, whether you want to be part of the whole system, the kind of Economic System that is managed by central bankers or not. Im just wondering, how much money goes into festivals now . Its like a 1. 8 billion business and a lot of that is the brand sponsorships that go in. So its huge money. And smart record labels, one for instance born and bred here in the u. K. Is now in partnership with a lot of syndicated companies. And that keeps people engaged after the big event itself. So once the festival has happened, people are thinking about more smart ways to keep people interested in that content online and driving those. And really just making it a fantastic experience for those passionate about music. And are these festivals driving regular sales as well off the back of them for the typical labels, typical means of download . I think they absolutely are. And looking at the stats from the fbi, it said that this year for europe was the first time in ten years that additional revenues have grown. And that market has massively increased. And even though its only 4. 5, coming up to 5 , that is showing really, really healthy signs. Double the amount now of digital revenues come from subscription and Online Streaming Services an they did last year. Well, thank you very much. That was marie chang, cofounder of similymmetriy. Last year i heard that a dejay made 66 million. Are you serious . Anyway, we want to hear from you on this. Who in the Music Industry deserves to be making the money, the deejays, the festival organizers, the labels or the artists . And can you remember the last album you bought . Have you bought a record in a record shop recently. We have a tweet from will, my last album was not at a store, only local music stores. And george tweeted, my last album was the vaccines, teenager idol. Join the conversation. If i could remember what my last album was, i wont admit it. I think stevie wonder. Im definitely not going to admit what mine was. Join the debate we mail or via twitter. Well be back after the break. Hello, everybody. Welcome to Worldwide Exchange. These are your headlines from around the world. Russian defiance. Moscow will protect them from further sanctions as the eu draws up fresh targets. Meanwhile, the u. S. Targets are calling on the white house to arm ukrainian elements. And shareholder woes impacting tesco. The retailer trailing the ftse after a major retailer reveals and slashes its stake citing coherent strategy. And china activity in august. We ask if beijings growing debt pile is one of the worlds biggest risks. Youre watching Worldwide Exchange bringing you Business News from around the globe. Now if youre just tuning in, thank you very much for joining us here on Worldwide Exchange. Heres a look at how european markets are trading so far today. As you can see, its red across the board but struggling really for clear conviction. They did start the day a little bit up and then weve had data throughout. German data gdp data confirmed at minus. 2 for the Second Quarter with the dax off. And we had credit data and pmis underwellimentin e well m underwhelming the market. Shanghai is up despite the phi data out earlier which is slightly disappointing. Louisiana, the markets in europe are still up. It almost seems like we brought two stories at play in the markets now. If you look at the equity markets, it still seems we have the positive notion well be supported by the Central Banks up. Then you look at the bond markets and its a slightly different story. The s p 500 had the strongest august in 14 years suggesting the momentum is there but the bond market lacking a bit. Yeah. Indeed. And if viewers are just joining us now, welcome, wilford. We are glad to have you in the house. Im enjoying it so far. Wilford is the new face on Worldwide Exchange. There you have it. Wilford, see you back at the desk in a second. I want to show viewers what is taking place in the bond markets. And here is the name of the game, weaker yields. We have seen decisive trade in place. Today we have labor day, so weve got quite low volumes out there as opposed to what we are usually seeing. No trade taking place stateside. The tenyear gilt is down. 08. Will mario dragge indicate the ecb is willing to dip into its toolbox to put easing measures in place. We have the tltros happening here in september and in december. And weve also got the mortgagebacked securities, the other measures being put in place, too, by the ecb. When it comes to what we are seeing in the currency market, we have a euro similar level near the 1. 31. The Dollar General near 104. And the Swiss National bank put this in place near 1. 20. It will be interesting to see if they step in with more measures, too, wilford. Joining us is jinah sanchez, chairwoman and founder of quantico. Is this Strong Enough to justify the equity gains we saw over the summer . It depends how you look at it. Sales really havent been that strong. But this quarter we have seen decent sales. So i find that very interesting. Now, yellens comments were important because she basically said, yes, we are seeing a recovering labor market. However, we still dont see wage growth yet and thats important. Right now earnings have been so propped up by liquidity that buybacks and chief financing are making earnings much better than they are. Earnings are started to pick up but evaluations are at record highs. Do we see a correction . I do believe we are due a correction. Obviously, if you look at the data, this is one of the longest rallies in history. The longer they go the harder they fall. This is actually a piece of data that is important to Pay Attention to. Weve gone almost 63 months without a 10 correction. Thats a pretty long way to go. And we are now above fair values in my opinion with a recovering economy thats only weakly recovering. So i think the strength of the recovery priced into the market versus whats actually happening in the market, those two are now divergent. But arent we back to kind of, which horse would you rather buy . And we are back to that old saying. And back looking at even if the fundamentals are not there in regards to the economy, we are still seeing support from the various Central Banks. We dont want to buy europe right now with too many things going on that continue to pile into the u. S. Youre absolutely right. Whats happening with ukraine is making the situation more interesting because it is bidding bond yields lower. So that does make equities look more interesting. Yeah, because who would buy the tenyear bond below 1 . And stateside also, i mean, if the fed does act at any given point before the ecb, which it is more likely to do heading up, but thats going to continue to put pressure on the euro as well. Absolutely. I mean, if in fact dragge goes through with any potential signals to the market, that will also continue to push treasury yields down. How different, i mean, so much of the market is focused on when rates do go up, but how different is tapering and quantitytive easing to actual tightening . And are markets pricing in the risk . Well, when you look at the markets right now, they really dont start to price in an actual risk of fed actual rate hikes until at least march of next year before you start to see sort of a greater than 50 chance. And then really not until june before you really see sort of the bulk of the probability towards a rate hike. So the fed right now, i mean, the markets right now are assuming that rates are going to stay low at least until mid2015. After that, the tenyear will probably go up slowly. Thank you very much. Well be coming back to gina in a little while. In the meantime, weve got news out on spanish new car sales, which are up 13. 7 year on year in august. Thats following a 10. 9 rise in july. So obviously some incentive, some measures to try to boost spending in spain and starting to get traction. Now hsbc shares have been taking a leg down after the very wellknown u. K. Fund manager Neil Woodford said he sold his stake in the lender citing litigation risks. He said potential fx investigations could increase the dividend. He also stressed that hsbc was not a bad investment but given the risks it appears to be about fair value. Hello, you mentioned a bit about what mr. Woodford is doing. I think Neil Woodford is a giant of the u. K. Equity markets. Remember his position in whether things like bae, hes a mammoth, so when he makes decisions, people stand up and listen. And what hes saying in his blog today is that his concern is that the risks being doned out to banks like hsbc by regulators is being decided in quantums that he cant guess. Because regulators are just handing out these massive fines based on the banks ability to pay. Remember, we are seeing that happen with bmp recently and barclays in the u. S. And this is the concern hes talking about. So hes, yes, hes saying its not a bad investment, but hes saying at the moment the size of any potential fund is unquantifiable. So this represents the unquantifiable risk. And he says instead that he sees more value in surprise surprise, stocks he already owns, things like bae systems, astro generze but people are saying increasingly hes defining quantums not related to actual costs born by consumers or losses born by any kind of customer has become intolerable and makes it very difficult in a world where we are supposed to have these higher capitalizations of banks for investors to earn anything. And the regulator pendulum does have a habit of swinging too far. Is this an example of banks facing far too much red tape moving forward . I think youre right. Regulators are always playing catchup and thats the problem. You know, you have these huge holes in the regulatory system. People take advantage of that. Regulators fight to fill that hole, but as is most often the case, history has shown that actually banks end up doing something else. I mean, look at the fixed payment costs instead of bonuses. Regulators in europe have been absolutely ridiculous in their demands for bonuses to be stripped down and to be only onetime salary or two times salary. And thats meant the fixed costs go up and thats a terrible thing for shareholders. Im not going to speculate about other banks, but you could look at the share prices and say some of the same stuff is going on in the european banks as well. Absolutely. And even if you go beyond fines in terms of regulators, what weve had in this country with ppi claims, consumers have lost out. But because of the vicious industry growing up because of it, ppi costs will be expected to be more than 20 billion. Its a massive crossover for banks. Thank you very much with the latest on the hsbc. The white house has welcomed the new pledge for fresh russian sanctions. Will washington step up its own efforts to aid ukraine . Well discuss that. Stay with us on Worldwide Exchange. Welcome back. Russias putin hopes common sense will prevail over western sanctions as the eu draws fresh tarts. Hsbc shares slip as woodford cuts his shares. And tesco shares seeing a discount . The eu leaders prepare to draw up a fresh list of targets following a summit that took place over the weekend. Lavrov also said talks later today between kiev and moscow and separatist rebels should seek an immediate ceasefire. Meanwhile, u. S. Lawmakers have urged the white house to take steps on the Ukrainian Government. Rob menendez head of the Foreign Relations Committee Says the u. S. Should Work Together with nato and the European Union to arm kiev. Meanwhile, russian president Vladimir Putin is looking into the statehood of southern and Eastern Ukraine. Meaningful talks concerning technical issues and issues regarding the statehood of southEastern Ukraine should begin immediately in order to protect legitimate interests of People Living there. In an attempt to clarify the president s comments, the kremlin spokesman later said if ukraine should remain part of the country, dmetry petrov also spoke up. What is the next step . As an american sitting on the sideline of the eu similar mium come to town, it is enough to drive anyone to drink. And i can tell you the press corps was drinking, but at the end of the day, they are not doing anything in terms of drawing a line to say theres been an invasion or we are doing anything in terms of supporting military action. Obviously, the eu is all about soft sanctions but they are not doing anything more or less than the american president is doing either. So what we want to see out of nato is some sort of a stance in terms of is it worth it in terms of putting arms on the ground for the ukrainian somes, should we be helping them, et cetera. And i have the chance to speak with the ukrainian president who is having a bad couple of weeks. I essentially asked him, at the end of the day, have we reached the point of no return here . Earlier he talked for the need for diplomatic sanction before we reached the point of no return. Can you define then what is the point of no return and how do you plan to defend your country . I think that we are very close to the point of no return. Point of no return is fullscale war, which already happened under territory controlled by regular russian troops. And any offensive action, which would be undertaken would be point of no return. And thats why we undertake enormous efforts to stop that and to bring the discussion under diplomatic format, in the diplomatic dialogue. The issue, the essence of the discussion is also very easy to understand. This is a peace plan. And i hope that in the next week we will publish the draft of this cease plan. And on monday, it will be trilateral conduct Group Meeting with participation of the ambassador of the oec, the expresident of ukraine and the russian ambassador. And the discussion would be not only for the hostages, including the hostages illegally kept in russia. The discuss would be not only with the verifying mission of the oec, including the mission alongside of the border, but the, i cross my finger, hope it will be ceasefire. So there the ukrainian president , its interesting the eu summit got caught up in the symantec of things and the Prime Minister was literally saying, i dont know if i would call this an invasion under international law. So certainly a disagreement there in terms of whats happening in Eastern Ukraine. They dont have to do anything. They are not a nato member. Exactly. We talked about the potential for ukraine becoming a nato member and one of the key sticking points is you have to be in control of all your territory before you become a nato member and they are not. Absolutely. And the polish foreign minister and Prime Minister has asked essentially, you know, i want more troops in poland. Im worried. So the nato countries need to have a long hard think if thats worth it. If provoking president putin is worth it. Its all about strategy, right . Hadley gamble, thank you for that. Still to come on the show, chinas growing debt. How will the european banks handle that . Well look at the biggest risks. Stay with us. Hi, everybody. Welcome back. Youre watching Worldwide Exchange on cnbc. The markets are pretty flat as we are just a couple points lower now. We have pretty light traders now in general with the holiday stateside. And we are coming a tough back of pretty big rallies happening, especially stateside. In asia we saw them edging higher overnight. The u. S. On friday, pretty magnificent stuff. The nasdaq, ruffle 2,000, best august since 2000. Youve got across the board a whole bunch of data i would kating the rally is really never ending. The fourth strongest bull market rally since the great depression. Yeah. Thats surprising, isnt it . A lot of equity players are saying theres still room to go. Interesting. Joining us now is the Global Fixed Income manager, we felt that the European Growth was happening and we are a long way from that now, right, jon . We are close to the bottom in growth disappointment and inflation is probably bottoming. What we saw is the currency peaking in may at very high levels. So if you look at it from the lows in 2012, it had us covered 15 . And thats typical for growth in europe. Exportdriven economy like germany for the currency to strengthen that much, so now we have seen it selloff by over 5 . And we would expect that to start to help the economy. Usually it tends to lag by 56 months. How much lower are yields going to go . Youre looking at the tenyear bond with 0. 86. Are we going to go below that . I would call it an old market difficult to call. I would say it is unattractive investment and overvalue. To what degree do you think the pressure in ukraine and the geopolitical trade is pushing this lower than it really should be . Certainly all of this adds to posting yields lower. People are playing additional qe from ecb and that or europe is going into a japanlike scenario. You know, certainly it will depend on the ecb. Its a quite exciting month with ecb coming out and we have the fed coming out in september. I think that i would say people should be fairly cautious in common bonds going into september. How significant were the first split votes we got from the fed and the metropolitan committee in the u. K. When do you think rates will start to go up in those countries . It is certainly not a 2014 event. It is most likely, we could see bank of england move in the first half, i would expect the u. S. In the second half, but it is very important to look at evaluations. The fed, you looked at the meeting, the average ofnc members was 2. 5 for the end of 2016. The market is only pricing in 1. 7 at the end of 2016. And now that the fed has become more hawkish with the data continuing to improve, it is very important to watch the new forecast at the end of september. What are we buying now . Broad anything it out including the entire scope, argentinian bonds, greek bonds, lets throw it all in there. You have to look at different parts. We have the long credit, we have been selling that all year, and we have been reducing credit as that is more or less full value. But we are seeing opportunities in sort of less common areas like the mortgages and the subprime offering quite an attractive yield, proving that the u. S. Economy is improving, unemployment is improving, so those areas we like. We have opportunities within emerging markets. Local rates in mexico and pursue other emerging markets. Jon, thank you very much from the Global Income manager and gina sanchez. Stay with us until after the break. Still to come here on the show, mark your calendars. Alibaba is launching its ipo next week. Well tell you what to expect from the biggest debut in history. Thats coming up here on Worldwide Exchange. Welcome to Worldwide Exchange. These are your headlines from around the world. Russian defiance. Moscow saying it protects its economy further from sanctions, this as the eu draws up fresh targets. Meanwhile, u. S. Lawmakers told the white house to arm the Ukrainian Government. Hsbc shares take a hit after the top u. K. Fund manager woodford sells his stock in the lender. Shareholder woes impacting tesco as they trail after a major retailer slashed his stake citing a lack of coherent strategy. And the european stocks in reverse. The sector underperforms after french car sales soar with spanish registration posting a doubledigit rise for the second straight month. Youre watching Worldwide Exchange bringing you Business News from around the globe. Lets get a look at our markets. First of all, the ftse global 300 is fractionally down on the day after we had a stronger opening in asia, but so far today the european markets are down, which well have a look at now. Dont forget, the u. S. Today has a holiday, so nothing is coming out of there today. Europe is up fractionally at the start of the day. Italy is down 70 basis points. France up almost half a percent. Germany doing relatively well down 1. 25 given the q2. And the ftse outperforming relatively down three basis points that was slightly better than expected. Yes, thank you, wilford. The week of september 8th is when alibaba is finally lawn ching the highlyanticipated share sale according to reuters and the wall street journal. Alibaba is wrapping up talks with the Security Exchange commission this week. Final approval is needed before the ecommerce giant can kick off the road show. The 20 billion flotation is set to be the biggest tech listing in the u. S. Alibaba declined to comment on the record. Gina sanchez is still with us, founder of the chantigo fund. What do you make of alibaba . I think this is interesting. They have a lot of chinese consumers and thats a big market for people. So the biggest threat is amazon trying to set up shop and has been in china for a while now and has yet to really take market share. And one of the interesting things for alibaba compared to the plethora of stocks is it is very profitable. The margin somewhere near 50 . The amazon shareholders would kill for that sort of level. Amazon is the largest Nonprofit Company in the world. So yes, amazon has absolutely no margin while alibaba managed to, in their march fiscal year ending, they basically grew their revenue by 50 to over 8 billion. And tripled their profits. Do you think that investors are going to differentiate between the Chinese Market and the nonChinese Market in this phase or are they going to think, im in amazon or alibaba . I think part of this is really i think what alibaba offers to companies that want to reach chinese consumers is just that, they offer a portal that is effective whereas amazon has yet to really do that. They have a miniscule marketshare. The nasdaq hitting a 14year high recently. Do you think the ipo will go smoothly . I do think the ipo will go smoothly. I think theres a lot of demand for this and they are extremely profitable. And that obviously is going to push a lot of people into this stock. When you talk about evaluations alone, do you think this marks the top of the tech bull run . Well, this is expected to be a 20 billion ipo. Larger than facebooks 16 billion. Yes, when you see a big ipo activity like we have seen over the last six months, thats tending to be the talk. Gina, thank you very much. Youre staying with us. Keep your emails coming through and your tweets as well. Loads of you writing in this morning. Jeff writes in, well get to some of the emails and tweets later on, but keep them coming. Worldwide cnbc. Com is where you can find us. Or you can go to twitter. Wilford is just joining us brand new to cnbc. How does it feel . Great so far. We still have 20 minutes to go and im loving it. Quite fun, isnt it . You get to talk to all these people at the same time. Its brilliant. Hsbc shares taking a leg down after the wellknown u. K. Fund manager woodford said he sold his shares. He said hsbcs ability to increase its dividend could be hampered and he stresses that this was not a bad investment but given the risk appears to be around fair value. Now continued litigation charges. Probes on fx are still upcoming the ecb stress tests. This continues to get worse, so will the continent value bank add to the risk of investors . It has been a tough year for european banks and doesnt expect to get any easier. U. S. Regulators have trend litigation crews on the continental rivals while the European Central bank is preparing to release results of a third stress test. It says it will be the harshest yet. The french bank was the first to enter the national stage. 9 billion walking out the door today is your money. The bank was forced to pay a record fine to u. S. Regulators for breaching u. S. Sanctions against certain countries, and in addition it was locked in a dollar clearing operation as well. We basically regret what happened. We settled with the u. S. Authorities and in particularly we talked about industrial steps to never have it happen again. And the probes kept happening. Even silver price fixing all went onto the investigation list. The suisse bag faced scrutiny wellknown for secrecy as longterm targets of u. S. Probes. We are making, we have very Good Progress in our investigation, but these matters are fairly complex. How do the european regulators feel about the watchdog and their firm . When criticizing the fines imposed on european lenders the thing important in these kind of decisions that have been taken from the u. S. Side, i think its important to see whether the implications and the lesson we drove for the whole functioning of the Financial System. Reporter the ecb already has its hands full with the third stress test. The outside quality review has evaluated bank Balance Sheets with final results due to be released in september while the outcome of the stress tests themselves will be published in october. The ongoing comprehensive assessments of bank Balance Sheets is offkey important. Banks should take full advantage of this exercise to improve their capital and solve this position. The main concern is around the peripheral banks, but the ceo of italys largest lenders were quick to insure the market of their capital position. We remain quite confident and can go through without major problems, but clearly the european Banking Sector would be tough. So will the european banks pose one of the biggest risks for 2014 . Or will the ecb be thirdtime lucky and win back market confidence with this stress test . Well, what is keeping traders up at night . The s p 500 index posed modest gapes this year and analysts told economists that plenty more shocks could be on the horizon before the end of the year. And we want you to have your say. Vote and let us know what you think and what the biggest concern is for the markets right now. Head to biggestrisks. Cnbc. Com. And use biggestrisks on twitter. Gina sanchez is still with us, at a time when mario dragge is working on this, what have they needed to do in the shortterm . Well, they have needed to do this for a very long time. Thats definitely an important thing. The problem is that the european banks have not deleveraged or forced to deleverage. That process has been so elongated relative to whats happening in the u. S. And you can see the result in terms of profitability in the u. S. As sort of you havent seen that in the european system yet. And many have allowed banks to continue on as an entity. Do you think its too early to buy into the banks or do we need to wait until after the stress tests . I do. The questions of what this is all worth and what can actually be collected upon at the end of the day, that is still an unknown. And how important is back lending for the european economy . The Corporate Bond market is far less developed than in the u. S. And with bank lending an anemic levels, are Bank Regulators stopping the economy . It is extremely important. In the u. S. You get twothirds of lending coming from the market. Its opposite in europe. Twothirds of lending comes from the bank. So when this kind of a bank is tightening in credit that it has been having the last six years, thats just devastating for corporate to try to just sort of have a shortterm finance in lines of credit and to keep operations going. So this is shortterm cash flow we are talking about that does make it very challenging at the european corporate to do business. Is there a particular market now where you think it looks like its in a better position than other markets . I mean, we talk about europe, but if im buying germany versus sweden and italy, its a very different outcome. Youre absolutely right. And obviously germany has always been in a better position partially because it was in such a weak Currency Union relative to its competitiveness. It entered this crisis in a much different position in terms of profitability with the company. And so certainly german corporates have fared differently than spanish corporate. Gina, thank you very much for being with us. Good to see you this morning. Gina sanchez, chairwoman and founder of chantico global. Some of the other top stories well look at what else we are following today. Te i tescos main shareholder has sold twothirds of his stake. He said they lack a Clear Strategy and issued their second profit warning in two months last friday. All the eyes are on the new ceo to take up his role today, much earlier than planned. Shares in tesco down 30 this year. Now capture bank will buy barclays spanish assets for 800 Million Euros as they look to reduce their banking business. However, barclays will keep the Investment Banking in business as well as credit operation. And barclays will make thousands of job cuts over the next few years. Barclays shares are down 9 over the last three months while the bank is trading 3 to 5 higher over the same period. I just want to mention that we are getting breaking news throughout the war with regards to ilead shares, they are now off quite a bit more after reporting smaller than anticipated year profit. We are just getting comments through that the cfo was saying the bid for tmobile u. S. Would still lead to Capital Increase of no more than 4. 5 times net debt. They are stating that the july offer for tmobile is still valid. And a Capital Increase is no more than 2 billion as well if this carries through. We are just hearing that on the wire. So this continues. Still to come on the show, the prodemocracy activists have held this by chinese officials after beijing dropped universal suffrage in hong kong. More on that after the break. Welcome back. Wilford frost is the new face you need to know, brand new to cnbc. Im enjoying your company very much. So am i. I have very much enjoyed the last hour and 45 minutes. More to come. People are writing in and we are asking your thoughts on vinyl records. Remember those . No, really . Neither do i. Do you remember the stop, stop, stop, stop, stop. I never took part in that, i must say. I love them. Paul writes in, vinyls king. Real music. Have a good day. A good day to you, too. I didnt know there was an auction taking place. And another viewer writes, l. L. Cool j was the last album i purchased at kmart last year. But that was not vinyl. How do you get your music . Im still downloading. I have to move on to streaming. Im spending too much at the moment. Im a good Old Fashioned cd girl. Theres something about looking at the cover. It takes up too much space. I know, but you can feel it. Let us know, what is the last vinyl record or cd you have bought . Write us or find us on emai email, worldwide. Or email us at worldwide cnbc. Com. Western sanctions as the eu draws up fresh target. And the hsbc stocks slip as woodford cuts his stake. And te sco is worried that management has checked out. All right. Just following up on the situation in ukraine. We are just hearing via reuters that Ukrainian Forces have been given the order to pull back from the airport in the east of ukraine. Thats from the Ukrainian Military spokesperson as well. So that is just coming through from ukraine. And im just looking at another flash where chancellor merkel in germany is stating there cannot be a military solution to the ukrainian crisis, but she talks about how europe cannot simply expect russias behavior either. So there cant be a military solution, but europe cant expect russia im surprised by her comments over the weekend and thought she would be more forceful, stronger, europes most powerful leader and she was fairly timid. I thought it was disappointing. But i also understand the position shes in where russia and germany rely heavily on each other for trade. I think russia probably needs europe more than europe needs russia in terms of where trade goes, you could argue. But i think the smaller european nations were looking for clear leadership from her and didnt get it over the weekend. I think you have a point there, yeah. Moving on, the results of the latest addition of the cnbc Global Council is whether well see a stock correction by the end of the year. Theres no consensus from the year, but theres an even split looking somewhat unlikely or somewhat likely. Its a fairly even split. The tax emersion deals are one of the deals from the previous quarter. The ceos want some reform to the u. S. Tax system while a third are neutral on the matter. And earlier we spoke to the head of finance who said gray areas in emerging markets are putting off investors. In the u. S. The tax rates are quite high compared to the rest of the world. And the tech world is very complex. Whereas i look at the emerging markets, indonesia, brazil or turkey, on the gray area creating a problem and attracting investments. And i believe postelection cycle this should be an area of specific focus for the turkish government. Probably for brazilian government as well. To find out what cfos from around the globe think about the state of the world economy, log on the to cfocouncil. Cnbc. Com. Now, weak manufacturing numbers in europe and china have sent crude prices sliding, but could a flareup move the numbers . Our next guest doesnt think so. Find out why after the break. Hi, everybody. Welcome back. Im louisa boilson. Well recape the numbers moving numbers today. The market index revealed a slowdown for chinas activity last month. Asian markets slugging off the data as some analysts suggest that beijing needs to step in with further easing measures. Meanwhile, the eurozone final manufacturing pmi for august fell to 13month lows weighed by a slowdown in germany, which the manufacturing pmi grows at the slowest rate in 11 months. Over in greece, gdp shows the economy shrunk for the fifth quarter slightly more than the initial reading of minus 1. 2 . Brents crude oil is falling on numbers after softer demands. Joining us is the chief political analyst. Welcome. Thank you. This comes down to whether supplies are at risk. It is very hard with the escalations now, anything happening in terms of the eu sanctions or russian response that would cut crude supplies out of russia in a significant way. Because of that, the market isnt really prime to move up with the lot because of ukraine. How quickly can geopolitics turn things around . We have not seen that impact the equity markets, but can things change quickly . Yes, if we look across the world, there are a huge number of political risks aed the moment, whether the situation in libya which is unstable with productions returning, iraq where we havent lost a lot of production yet but the crisis is very much ongoing, so it only takes one of those to trigger an actual supply loss and you could really see prices respond because what we are seeing at the moment is a shortage in supply. If that changes, which it can because of geopolitics, that can prompt a reaction. It seems that we are trading on that notion. We are very much trading on there is much supply out there. Absolutely. If you look at the structure in the market, looking at the curve, that will help you. And with the weak economic data, demand isnt looking to clear that supply. How much or how long is this going to last, do you think . I think it can carry on for quite a while unless we see some kind of supply or demand picking up. Because it really needs the volume to build up in terms of oil and storage at the moment clearing before the brent market can recover. We mentioned the oil price so far, has ukraine and russia impacting the gas prices . It has. The gas market european prices are much more sensitive. And we are seeing ukraines Parliament Approve a bill that could see some disruption to gas supplies passing through ukraine into europe. I think europe is probably leaning on kiev to not let that happen because of the potential impacts on european supplies in the economy, but theres much more risk in the gas market. So where do you think the price of oil would be at the end of the year . I think, if we look at the years average, we are forecasting 106 for brent over the year. So we could well see prices dropping down below 100. At the moment the geopolitical concerns are stopping people shorting aggressively, but we have the supply and we have weakening demand. None of those are getting a lot of support to the market. We are around 103 now. Yes, average that out over the year, its a stronger first half. Thank you, richard madsen, geopolitical activist at energy aspects. So the Energy Markets havent moved that much. The equity market has done relatively well given the news over the weekend. We have not had the u. S. Open today. No u. S. Open because of labor day. So theres catchup tomorrow, no doubt, for the markets. And a big economic agenda this week as well. Well be back tomorrow to do it all over again on Worldwide Exchange. Thats it for todays show. Im wilford frost. Have a lovely day. Narrator in this episode of american greed, in st. Louis, missouri, Martin Sigillito is a jetsetting International Lawyer who lectures at oxford, checks on his 50 million british realestate portfolio, and attends to his heavenly affairs as a bishop in the anglican church. He always traveled firstclass a lot of 10,000 expenses monthly on his charge cards. Narrator stateside, hes a board member of the racquet club, st. Louis most exclusive clique, and a man with an impeccable reputation. He seemed very knowledgeable, charismatic, professional. An attorney, a trusted adviser, friend. Narrator that is, until his own secretary unmasks him as a wolf in priests clothing