Percent here in europe as stocks start to open up for trade. Lets delve into the sectors. We saw on wall street the hand over has been where the markets closed a little bit weaker on the dow over what weve had. But in term of the sectors its about rotation. Thats whats been happening in the underlying trade on trade. Not buying index but rotating on sectors which is why this picture is so important. Oil and gas right at the top. Health care at the bottom. But all stocks are moving higher this morning. Health care, the sector a tenth of a percent north. Travel and leisure getting a bit of a bump up. There are some decent percentage increases this morning but banks. 4, most stocks in the basket trading. Retail. 4 higher. Pandora the pop of the basket on the back of its numbers. Stocks are racing ahead. Three top performers, media stocks, bp and gas is. 9 higher. China macro data has been positive for the overall sector. 9 on its trade. Lets look at individual indices. 20 points off the 7,000 handle so far for the ftse. Oscillating above and below that level. This morning we start a little below 7,000. It was down fairly significantly yesterday. Almost. 9 of a percent so were scooping up some of that territory today. Energy shares which tracked the weaker crude price. Financial stocks are busy yesterday. We did see a bit push higher. Look through for that improvement, three quarters of 1 . The general market is trading higher by. 6 out of the gate. If you look at the two day picture about a third of a percent yesterday. Gains today early on eclipse the losses you saw yesterday. I want to talk you through the oil trade. We had the oil trade below 50 on brent and below 47 on wti. The exception has been bp which is falling on the back of its earnings. I want to take you to shell. 3. 1 hire. The stock was called up about 2 to 3 . So its matching up to the higher end of expectation. The oil giant post a forecast beating net income for Third Quarter. Oil producer was able to boost output. Weak Oil Prices Remain a challenge. Keep in mind performance were showing is up 37 . So the extra 3 today adding to those double digit gains. Lets just do a compare and contrast. Bp hitting the tape this morning and shares moving lower by 1. 3 . Bright numbers from the company has been the line as profit on Weak Oil Prices but beat analysts expectations. It trimmed its 2016 spending by 1 billion as it grapples with weak crude price. The picture very similar from shell. It is over these months from august on wards where youre seeing a real gain in the share price. Linked to the opec conversation about cutting production. They are not standing idly by. We have the conversation about opec and where the Oil Price Goes and see oscillation of the pound. This is why theyve had a decent month. As you see from the out performance of bp over the last six months theres hopes that deepwater can be put behind it which it finally is. Performance of bp has been extraordinary. 31 higher as the oil prices rallied, the pound has fallen. Its not been the same story for Royal Dutch Shell which has been absorbing the huge financial ramifications of its massive deal, the shares down 1. 16 . In terms what the brokers think. Very similar. Brokers of six strong buys. Ten hold. No sellers. Theres one strong certainly. By and large very positive on the story. So very similar story over at bp. Few more holders. 15 holders, two sellers, eight buyers and three strong buyers. The performance in bp up from a low three handle up to 541 pence. What is the story now . As we mentioned, its about having lower cap x, defending the dividend, getting to Free Cash Flow positive so they can cover the dividends with cash flow. The other point is about growing their production as well and shell had some good news on that as well. 5,000 barrels a day equivalent. A big figure. Talking about growth Going Forward as well. Bp upstream earnings were down 224 million. Lots of projects Going Forward which will grow that production. So lots to play for. The dividend i suppose i should update you on what the current yield is on these two. Shell 7. 45 dividend yield and bp it is 6. 13. We should bring in Charles Newsome on this. Hes a divisional director there. Its ironic that boston these companies are reporting a reduction in cap x running into 2017 and yet shell this morning is benefiting from that news play. Or is it Something Else thats driving the share price higher . I think in shells case theres been a loss of, a concern about the very high level of dividend pay outs and that they were not covered and people have been worrying about that for some time. Im always deeply suspicious about Companies Paying uncovered dividends and effectively paying today and not investing for tomorrow which appears to what is going on here. You know, you need have oil exposure in portfolios, focus on the bigger ones in my opinion. Theres not much between them. Clearly shell has had some good numbers. Bp has had a very good run. Shell has too. Probably, you know, you also need to bear in mind whats gone on with sterling. Given your point about the cover, suggest to me you wouldnt chase at these prices then . I think thats probably broadly speaking would be my conclusion once i have a close are look at the numbers today. You need the underlying Capital Growth because you have the 7. 5 dividend. You trust the dividend will thereabout. The commitment has been from the company is forthright. But, steve, we invest for the long term. Thats what we look at. Long term quality businesses paying sustainable dividends. Royal dutch isnt here. Maybe less so bp. But over paying dividends is dangerous. Bp is the one that has increased pitts 3 its 32. 4 billion. Clearly dividend is coming out of the debt. You know, shareholders pay tax on that. Thats not good really. If you look at the share Price Performance through this year, across the Energy Stocks and even those in the services space, the market has clearly rerated. But on what basis . Because at this stage the question as toe with whether any opec halt in production levels will stick at this point remains an open one. What do you think the market has decided as regards this rerating. Why are these companies benefiting from that because i dont hear positivity from you . Well they were deeply over sold with oil prices locking like they could fall but they didnt but they did fall a long way. Once oil prices started recovering people came back and looked at, actually a decent yield there. And i think it comes down to the fact, really, ultimately they were over sold. The broader question is one about the recovery for cyclicals that weve seen, retailers have done better. So, my question really is one about delivery coming into the early part of 2017. The earning season has been a bit damp is there a possibility we might start to see this rerating justified through higher profitability into 2017 . Conceivably, yes. In the figures they are talking about challenges of the oil price. And i think they really need oil above 50 and were not there on a consistent basis to be profitable over the longer term and thats the important point. I know you were commenting on this, but if i may i would like to bring in jason. The reason why im very keen to bring you in is because my guest charles is concerned about the longer term viability of the dividend, concerned about cash flow and cover over at shell. Its something youve mentioned in your previous note but its something which youre willing to not ignore but be less concerned about. Youre a buyer of shell, arent you . Im not sure jason can hear us. Jason, good morning. You like shell. Our guest in the studio is concerned about the cover for the dividend, concerned about the cash flow. Youre less concerned . Were concerned about it. Were seeing some fairly dramatic improvement in cap generation as well. This morning it illustrates shell has more potential than what we saw at the beginning part of the year. The Capital Expenditures are coming down significantly. That provides a lot more potential for cover on the dividend. Very simple, though in many ways about the dividends. If we get to 55, 60 we can breathe a sigh of relief if were holders of these companies. If we dont and we stay in the 40s we have a longer term problem. Mid40s is an issue. We think shell can cover their dividend assuming they maintain the script component down to 45 brent. We believe oil will move about 50 next year. But low 40s is problematic, no question. The majors say to me where gas and Oil Companies in many ways, they are very keen, these three gentlemen are keen to emphasize that their gas and Oil Companies. Are we pricing off the wrong measure in many ways but continuing to concentrate on the oil price rather than the gas price . Its a fair point. These companies are moving to a mix of roughly 5050 between oil and natural gas. A large component of their natural gas sales is via the l and g market and l and g for the most part is pegged off of oil prices. So they do still maintain an oil price linkage in the majority of their revenue stream but certainly with gas providing clearly a greener alternative to oil and i think thats the reason why they want to emphasize that. On the sector, because clearly what weve seen in the last days the measures of a lot of new players in the oil market. Do you expect consolidation to keep on happening because thats an easy way to keep the capacity in check. Yeah. Its a fair point. Certainly the emergence of shell oil in the u. S. Has been transformative. Now we havent seen too much consolidation amongst those names. Thats something that could play out over at that longer period of time. But thus far we are still seeing that space not only very active in drilling but very active in the Capital Markets and raising their ability to continue drilling. Jason, were looking at a picture at bp stock trading. The takeaway message is more. You had a number on the underlying replacement cost basis that beat expectations. Cap x has been trimmed. It will sell assets this year around 3 to 5 billion this year. Why is the stock trading weaker . I think bp numbers is fine. Shells numbers look good. You have a differential in performance. There could be shifting out of bp into shell on the back of the results. Theres nothing in the bp numbers on an underlying basis that were concerning to me. Cap x needs to come down very dramatically over the next few years to justify the kind of dividends that are being paid currently. What is your expectation where we might see cap x go . Well, we think cap x is largely where its going to be on a move forward basis. Were projecting well see a 5 decline in Capital Spending in 2017 relative to 2016. This follows a 42 reduction in Capital Spending. I would almost argue these companies are underspending if they want to replace their production because this is a declining asset base. The point is well taken the dividend is not well covered without further cap x cuts. In mid50 type price environment theres room for cap x expansion. Bp today was detailing where it sees cap x what key projects have been side lined. What are we learning about the overall theme . I think the overall theme is that companies are trying to get more into short cycle spending, which is not only shell but near Field Development and been moving away from the multibillion dollar longer cycle Time Construction projects. Bp has been one of the leaders in trying to work down cost structures in deepwater and well see bp sanctioned the mad dog project in the deepwater project in gulf gulf. That area is being deferred. Just a quick one on peck. One is hoping for too much in terms of specific details about what individual members or nonopec members will do. Are we hoping for too snch. The devil is in the details on these opec plans. Our expectation is that theres going to be very little physical effect on the market from the part of opec. But that their central banker hats on and talking about trying to rebalance the market does have some important psychologically for the floor. The market is coming back into balance and that it moves into balance this quarter or in the first half of next year. So the need for specific cuts is not necessarily as acute as it would have been helpful a year ago. Jason, thank you very much. Great speaking with you. Gentleman charles, dew point to chip in on peck as well . I read an interesting piece the other day that was making the point that shell can be turned on and off quite quickly. So any agreement weve seen in opec may be neutralized fairly quickly by these shell producers. Im skeptical about some of these discussions. Okay. It puts a psychological floor on the market in some ways. Absolutely. Theyve learned some very good lessons from what we saw a few months ago when oil prices were collapsing. I think they are going to i think its a traditional approach. Who makes the swing comment, though . Because its been interesting how weve heard and we remarked on this earlier in the program the russians and russia corporates in this space do a lot of the running. Its funny. I was asked yesterday on worldwide exchange, if you can get the iranians to talk the talk regardless of whether theres a production cut, that will keep verbal support for the markets. If the iranians talk the talk, it sounds good. But if the iranians have a verbal line which is different from the saudis then i think the oil price is in trouble. Very difficult to say. I would say that if anything going to be the saudis. Here we are, two different opinions. Back to you. I want to take you through more stock moves. Weir group is down 4 . The guidance reduced after a continued weak conditions in the middle east and quote little improvement in the pricing environment. Outlook for minerals and flow controllers is unchanged. 160 Million Cost Reduction Program remains on track. The stock is 62 higher. 4 may not touch if you bought in at the right. Im. Danish jewelry maker, pandora they rose 18 . Stock sliding 1. 7 . Pandora raised its guidance for the year by 1 . They stepped up plans to open up more stores in 2017. You want more stores or online strategy would be useful for the company at this point. In the meantime, virgin money redid their guidance. I think this is the term we use also grew up 33 to 3. 5 billion pounds. The stock slightly stopped in the middle part of the session. After dozens of candidates a designated committee and two different recruitmen compat com pimco is welcoming its new ceo. Hes the third man to take the helm since bill gross left in 2014. Manny roman has had a remarkable career. Many would say hes been incredible fortunate to make the career changes that hes made. Has he met his match this time given that as we know pimco is a bond house and were at the end of what 30 odd year bull run for the bond market. There are many challenges facing pimco. One as you mentioned october is a very difficult month for bonds. That may continue. Secondly we have the rise of passive and pimco is very much an active house. Less pronounced on the fixed income side but actually coming more and more. If you look at this year, u. S. Funds for instance u. S. Active equities lost a lot of money, a lot coming on the passive equity side. On the fixed income side although there has been inflows net into passive, interactive fixed income they have been absolutely dwarfed by the inflows into passive income. Youre seeing more momentum which will be a big challenge for pimco Going Forward. Pimco has always relied having high faith which becomes very egregious when you have yields so low. What do you think about this current spike in yields we have been seeing for the last three or four weeks . Are we in the final innings for the bond market or as so many times happened in the past year actually things will settle down again as Central Banks show no desire to lift Interest Rates. The short answer is i dont know. I think it was clearly overdone the bond yields and weve seen a bounce back and people are saying is this bottom. Many people calling the bottoms in bond yields for a while now. Its going to be sit back and watch. Can i go back to the manny roman piece. I was a bit disappointed when he left mangrove because being a uk company i met manny many times. I was impressed by him. I felt he left with more work to do. Maybe much bigger job at pimco. His departure and his appointments at other Companies Based on the strategy i can basis of the company. Is that what youre saying . That hasnt crossed my mind. Man group had a Clear Strategy in place. Ooh so he worked with him set to take the range. Pimco had this big void which they needed to fill by a year long equipment process, special Committee Formed justifying in finding somebody. Even if manny is out the door at man theres a continuing process from what he set out the implement. You came on the talk about one of the big mergers in the Asset Management space as well. I cant help this is part of the same part of the same story. They are trying to face down the passive threat. Can it to be done . Is this an immovable structural change in the industry rather than something sillical . It depends on the product. You see thats why somebody like man group trying to expand into the longer term. That makes a lot more sense. Do you pick a house that you like or where you trust the star name because everyone is building up businesses whether youre in emerging markets whether youre man group or pimco. Is that why it works to have a star name attached to a business . Star names are always very dangerous because if youre a long term investor, investing on 20 year basis will the star be there in five years time. I guess going back to the point that you are make about consolidation in the industry, the main problem is that were leaving where theres not many assets. An inactive fund is expensive. If you dont have that performance the normal switch will be towards passive and the other normal switch will be towards consolidation because the Asset Management team needs to be mor