Today. Were going to preview whether targets results will hit that bulls eye. And later on the show, the Company Still trying to get workers back to the office and a looming reset of billions of dollars in commercial real estate loans, a health check on the sector from one of the biggest players in that market it is wednesday, august 16th, 2023 youre watching Worldwide Exchange right here on cnbc good morning welcome to Worldwide Exchange. Im frank holland. Lets get you ready to start the day. Breaking Economic News at this hour the latest snapshot on the state of the eurozone with Second Quarter flash gdp. Our london newsroom has the numbers. Good morning good morning, frank yes, so the numbers have just been hitting the wire now. This is the second estimate for the Second Quarter gdp coming in at 0. 3 quarter on quarter, in line with the initial estimates. No real surprise there annualized basis, were looking at 0. 6 year on year this tells you the eurozone economy did actually show slight improvement in the Second Quarter versus where we were in the first quarter. If you look at the subcomponents of the individual Company Level at the leadership that is coming from france, we saw 0. 5 for the preliminary reading out of the French Economy spain also at 0. 4 but germany, the number one economy that were watching in the eurozone did actually record a flat reading for the quarter, coming in at 0 . Looking ahead as we get early signs of how the economy is going to shape up in the third quarter, so far the news hasnt been very promising. We are beginning to see a slump in some of the manufacturing numbers and in addition to the business certaisentiment. Elsewhere in the uk today, were watching the pound very closely. Sterling is ticking higher after july inflation data painted a mixed picture for the uk economy. Now, headline inflation came in at 6. 8 on the year, in line with expectations. Both the core and the services cpi figures came in slightly hotter than expected on the back of that, the market is dialing up their expectations for what the bank may do at the next meeting 25 basis point hike is priced in terminal rate of 6 is not priced into the Interest Rate curve and thats having an impact on the Interest Rate sensitive sectors in the uk economy. Frank . Joumanna with the latest numbers on slash gdp for the eurozone and uk inflation. Back to this side of the atlantic, well take a check of u. S. Stock futures as you can see in the green across the board at this hour. It looks like the dow would open up 70 points higher. Well look at the action on the futures after the flash gdp for the eurozone the actions on the futures in the u. S. After the major av averages closed down more than 1 yesterday they were weighed down by decline in the banks and worries about chinas stalling recovery. Youre seeing the s p Market Action right here. The s p closing below its 50day moving average the line youre looking at right here for the First Time Since the end of march we also saw the dow transports one of the big gainers in the second half of the year, the biggest laggard among the major indices yesterday, down 1. 75 . It is the worst day in two and a half months. Yields kind of just hit yesterday. 4. 274, highest level since october. This morning, seeing the benchmark ten year declining a bit here, 4. 18 we see the inverted yield curve here we continue to watch jeelds overall. The tenyear hitting the highest level since october. We want to look at the asian markets, falling today on the back of wall streets losses japan, hong kong and south korea, all down across the board right now. The nikkei hardest hit, down 1. 5 hang seng down almost 1. 5 after the kospi in south korea down 1. 75 , the hardest hit, but in the red across the board the Energy Market this morning, oil in particular is always wti crude, just above 81 bucks a barrel, basically flat brent crude about 10 cents below 85 bucks a barrel, also flat a little more movement in the naturalgas market. More insight into what we have seen in the markets so far this week. Anna catrion, thank you for being here good morning. First, i want to get your reaction to the flash read of gdp for the eurozone and the mixed Inflation Report out of the uk how do you see that impacting the International Markets and potentially the u. S. Market . Well, lets start with the mixed Inflation Report, the most important thing to focus on is core inflation the world has a core inflation problem. And it is stickier than we would have hoped and thats again what you see in the uk, which had the biggest problemin the all of europe core inflation is still sticky and it is sort of three times what the bank of england has it is structurally higher inflationary environment that were in, but yet another proof point. Thats the main thing there. Europe, you can look at it on to sides. One side to say, in october of last year, had we known we would end up with a gdp at this level in europe, we would all be extremely happy. We were talking about a deep, deep, deep dark recession for europe then. On the other side of the table, it is the issue we have complacency that the economy is slowing down, but you dont see it in markets and equity markets. Thats a really great point were looking at the european markets. Not seeing a deep impact either way from that gdp read but we are seeing the asian markets kind of having a negative impact from what we saw in the u. S do you see this interconnectivity and cyclical situation continuing going forward. And are u. S. Markets, are they looking for some reason to pull back well talk more about that later in the show. After such a big runup, is that investors looking for a reason to pull back yeah, we have been using words like markets climbing the wall of worry for years already, right . The only thing we need to be extremely careful about is lets remember those acronyms, tin alternative, trina, there really is no alternative and if you can get a 4 yield risk free, 5 by adding very limited risk, it is always extremely tempting to move from equities to bonds, and thats why the movement from one side to the other can be much sharper, much more aggressive, and more volatile than we have seen in the last ten years were spending a lot of time talking about the International Markets. One thing i want to talk to you about is china and the gdp forecasting. They believe theyll be below the 5 gdp growth target and we have a downgrade of u. S. Banks including possibly jpmorgan and other Big Money Center banks were talking about International Things and big mac row things which one of those two do you believe will have the biggest impact on the u. S. Market today . I think that the talk about banks, we have to zoom out the Banking System in the u. S. Is healthy and yes there are areas within regional banks we need to watch more carefully and could be consolidation there. But the larger banks in the system are healthy looking at any ratio you want to look at. What is more important is the china story. Why . Because all eyes are on whether or not the central bank there is really going to start stimulus engine and thus far it just hasnt happened we have seen a property crisis i think that potentially is more interesting. More interesting or more impactful when talking about the u. S. Market . Probably more impactful, indeed could be, depending what decisions are made, of course. Anneka, thank you for being here thanks. Lets check with this mornings top stories, Silvana Henao has those. Good morning. Good morning to you all right, intel is terminating its 5. 4 billion deal to buy israeli chipmaker power semiconductor. Intel struck the agreement in february of last year, but failed to secure approval from chinese regulators, which was required under the contract with tower. Intel will instead pay a 353 million breakup fee to exit the deal Apollo Global is reportedly selling a 500 million loan to yellow and halting plans to help finance the companys bankruptcy the Financial Times reporting the loan has been sold to a fund owned by citadel last week, an attorney for yellow said the group will not seek corporate approval to borrow more than 140 million from apollo. It is exploring alternative options. Tesla is cutting prices on the model s and x in china by nearly 7 as it looks to reduce its existing inventory this follows a similar price cut for some models in the u. S. This week the move comes after sales of teslas china made vehicles fell 31 in july from june, first monthly decline since december as the automaker halted some production to prepare for a launch of the revamped model 3, frank. I think these price cuts are good for consumers the stock is a different story ev drivers looking forward to the price cuts bsolutely price is a little more competitive. Yeah. Silvana, see you later on on the show. More to come on Worldwide Exchange, including one word investors have to note today and buying the dip, but not that dip. Shares of cava jumping after the fast casual restaurant chain reports its first set of results since going public that is just one of your big money movers this morning. And the worlds biggest iphonemaker is diversifying its production and supply chain further away from its home base in china where foxconn has just cut the ribbon on a new factory. And consumers continue to spend. It may not show up in the results from target. We have a very busy hour still ahead on Worldwide Exchange. Stay with us welcome back to Worldwide Exchange. Futures trading pretty close to their highs of the morning with the exception of the dow, the dow is down a few points in general, green across the board. All right, looking now at commercial real estate sector. Wall street may be looking to capitalize on the sluggish sector creating new funds to acquire Office Buildings, apartments and other properties at heavily discounted prices Regulatory Filings showing Goldman Sachs and bgo are among the names rising prices for distressed properties. Values for commercial real estate have declined in recent years due to spiking Interest Rates, higher borrowing costs and a slow pace of workers returning to the office. Now as the u. S. And some of the biggest banks assess the possibility of Credit Rating downgrades from fitch and moodys, could there be even more pain for this sector lets ask assam naji, president and ceo of marcus realchat good morning thank you for being here great to be with you. Thank you for having me on. Give us a sense of the state of the industry. Youre coming off earnings your most recent call, you said the Media Coverage of the stress of the commercial real estate sector has been overblown. You say were doing too much when it comes to us. Give us a sense what is the state of the sector right now compared to how it was prepandemic . Lets start with the fundamentals occupancies, rents, and theyre as healthy as they have ever been theyre a reflection of a strong economy. Were at full employment, had many years of solid employment growth and that is reflected in demand for all kinds of office space. Im sorry, commercial real estate space except for office because of the effect of the pandemic even Retail Shopping centers made a big comeback, apartment buildings are very well occupied, and selfstorage, hotels, even to a very large extent industrial warehouses, which have been the darling of the industry and had some building are still performing very, very well. The fundamentals are very healthy. It is really the Interest Rate and valuation part of the industry that is broken because of the 525 basis point increase at such a rapid pace and thats whats causing all the trepidation. The reason i say it is overblown is because of the fact that if you look at a Banking System, 24 of total outstanding loans are in commercial real estate and 15 in Office Buildings. The vast majority of properties that are within those loan portfolios are performing really well, including most of the Office Buildings. 15 of all the commercial loans are Office Buildings. Correct. The thing were overblowing is the Office Building situation. Were accurate when it comes to just the Office Building it is certainly hard to get some workers back to work were seeing in the office, i should say, were seeing a lot of companies entice, force workers to go back in. Longterm, what does that mean for your business . What it means is that the Office Sector certainly is going to experience more pain than any other sector in the next two to four years no question about it but multifamily and all the other property types are less likely to have this notion of huge distress sales and huge fire sale discounts. In fact, you were talking about the funds being raised for distressed buying, we saw it in 2008, 2009, and they were extremely frustrated because the fire sale never came okay. I have to ask you, though, when it comes to commercial real estate, Office Buildings, apartments, anything else youre talk about, leverage is important. You mention the huge basis point hike, 5. 25 on Interest Rates. Isnt that a longterm headwind that is going to really hurt this sector . Because leverage is so important. It is absolutely important. It is the reason why transaction velocity is down about 50 to 60 across the industry. We have it right. We have it right in the sense that the industry is slowing down because of this but the notion of widespread distress leading to fire sales is whats overblown. Lets get to other reporting. You touched on it. Wall street firms reportedly are raising new funds to buy commercial real estate at lower prices some funds are even looking to raise funds so they can lend to commercial Real Estate Property owners, presumably at higher rates. Overall, what does that mean for this industry and this sector . There is a credit crunch were facing in the industry now. Banks pulled back for all the obvious reasons. Though i will say another thing that is overblown, the Banking System that is so much better capitalized today than it was in 08, 09 to magnitudes of significant improvement in liquidity and therefore my assessment has always been the overall u. S. Banking system is much, much healthier than you would expect. But besides that, what i think is going to happen with these funds is that theyre going to see some opportunities and funds are stepping in to fill the void where banks have basically stepped out of the market. Thats loaning, though. If you look at residential real estate, which was red hot, youre seeing people start to slash those prices. Prices are adjusting. And to go back to your question what is going to get us through this and the outlook for the industry, prices have to adjust in a higher Interest Rate environment. The fed said Interest Rates arent coming back down anytime soon and the reality of the higher Interest Rates, which, by the way, longterm basis are normal Interest Rates i dont think anybody wants to hear that i dont think your clients want to hear that i dont think you want to hear that. It is an adjustment from where we were. It sounds like youre saying the funds that are raising money, theyre going to buy some of the properties at lower prices if you give an estimate, what would it be . Were seeing a 15 to 20 discount from the march 2022 high it is what is taking to get multiple offers. By the way, a wall of capital waiting to come into the industry when youre seeing the 15 to 25 discount from the peak there is multiple offers and theyre overcoming the lack of financing availability by putting in more equity that seems to be the number. It is going to go higher for some 10 to 15 . Office is more like 40 to 60 . I think we have to leave the conversation there you have other meetings to get to a busy time for you. Thank you so much for coming in. Great to have you here hessam nadji, thank you very much. A rich session, Global Wealth declining for First Time Since the financial crisis we look at where the rich are becoming less rich in todays top trending stories power e trades easytouse tools, like dynamic charting and riskreward analysis help make trading feel effortless. And its customizable scans with social sentiment help you find and unlock opportunities in the market. E trade from Morgan Stanley. 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