Transcripts For CNBC Worldwide Exchange 20140529 : vimarsana

CNBC Worldwide Exchange May 29, 2014

Issue basically in france right now, 11 unemployment. Japan suffers the first negative effect of the sales tax hike in april. Retail sales in the country fell at their fastest pace in three years. Youre watching worldwide exchange. Bringing you Business News from around the globe. A warm welcome again to todays edition of worldwide exchange. Lets get to one of our top stories straight away. Apple is buying beats electronics for 3 billion to boost its music business. Streaming services encroach on itunes. Apple doesnt only gets beats streaming service and its market leading highend head phones but high profile talent. Beats cofounder jimmy ivin and dr. Dre, too. Now, apple expects the deal to close in its fiscal Fourth Quarter. Tim cook tweeted this photo, saying, sharing a laugh with jimmy and dre. Interestingly for apple here, what do you think of it . I think its an interesting move. Because over the sort of past 20 years apple has been very much seen as a product innovator. And this is the first time that i can think of where theyve actually bought somebody who is a product innovator. In the overall scheme of things, for apple, 3 billion is not a huge sum but it is an interesting move. Theyre seeing theyre having to make moves like this as well. A lot of heads being scratched about the price tag right now. If they want to get into the streaming business its perhaps going to cost them a lot more to not be in this business at this stage or at least going forward. From that perspective it makes sense. Absolutely. I think thats probably the major reason theyre going for this. They want to get away into the streaming business. They see that as very much the future of the music. They want exposure to that. I think also the point you made about some of the talent theyre requiring as well and the people is also a reason for the deal. What about more broadly, the number of m a deals were seeing as a sign or at least underpinning the equity markets right now . Whats your take . I think it is underpinning the equity markets. I dont think its a real surprise. There has been a lag in m a deals since this sort of 2009 recovery. I think a lot of people expected to start in 2013 and it didnt. I think now that businesses are getting more confident, maybe chief executives are thinking that the Global Economy wont grow quite as quickly as theyre used to. They have to look to buy revenue. Theyre having to make acquisitions. They also realize the low Interest Rates may not stay there forever. They want to take advantage of that while theyre still there. I think its a combination of things. The deals we are seeing are very large. And i think that youll probably see more of them over the next few months. What weve seen has been primarily dominating the tech sector and pharma sector. Where specifically would you be focusing right now . I think weve seen it in the industrials, gec looking at alstom. I think there will be a broader pickup in m a deals as ceos get more confident for the outlook, the economy in general across the globe. As i said, as they look to buy, look to drive revenue through acquisition. You can read more on apples purchase of beats and why some experts think its all about new models in music on our website. Dont forget to check that out. You can see, the ftse 100 gaining around 0. 3 and losses for the mather markets today. The ftse mib, the only one really gaining. Thats europe but what about asia . Lets check in on the Market Action over there. Sri is in singapore for us. Sri . Hi there, julia. The markets here did start out in a reasonably resilient footing despite that wobble that we saw on wall street overnight. We are starting to see a lot of these markets succumb to selling pressure. Let me start with the nikkei. We are consolidating around this level of 14,700. We did see fairly retail Sales Numbers. It remains to be seen whether this is going to be repeated in future months. I think one of the big unknowns is really whether well see meaningful increases in real wages. Thats really going to be the key factor thats going to unleash the animal spirits amongst the japanese consumer. In the here and now, some are saying we continue to see weak consumer sentiment, weak retail Sales Numbers and that could be who want to see more accommodation from the bank of japan. Elsewhere, the broad weakness is confined to the southeasternationen markets, especially the philippine benchmark, the underperformer today. Down by almost 2 . A lot of these markets were in a Holding Pattern until we get a few more decisive leads externally, especially the nonfarm payroll. That will be key for next week. Back to you. We saw the u. S. Markets yesterday coming off a bit towards the close yesterday but we saw trading around these fresh highs particularly in europe, too, but all the focus really on whats going on in the u. S. Bond market. We saw the tenyear hit its lowest level since 2013. Now trading at 2. 43. The 30year trading at 3. 29 this morning, too. 12month lows for the 30year. A lot of questions being asked not just about the messages being sent but whats going on as far as the front end of the relative to the back end. Well be talking about that a lot more during the show. Lets get back to paul cedric. Youve given me lots of reasons about why were seeing this bull market being so unloved by investors. Yes. What changes that . Thats a good question. I think people i think the obvious things. People want to see confirmation that the Economic Growth is sustainable. They want to know whats going to happen, get a clearer picture when Interest Rates do start to move in the u. S. And the uk, how that pans out. And equity markets are all about earnings. Ultimately its earnings. Youve seen recently the earnings revision ratio start to tick up pretty much across most of the advanced markets. The uk, the u. S. I think the earnings season that just went through, definitely was encouraging. There were no there were no real upsets there. And in fact in the u. S. , they came out above expectations. Is it all about earnings, really . As you point out, zero Interest Rate policy covering half the world right now. Another 2 trillion worth of stimulus to be added this year, liquidity added this year to the markets. Its not just about earnings, surely. It was interesting. I was listening to jeff this morning first thing at 6 00. He was talking about the fact that he was pointing out the performance of the u. S. Bond markets and whats that telling people and the fact that equity markets are rerated so much in the past year where earnings havent really gone with it. He makes very good points. At the moment, most equity markets are of reasonable value. They dont look expensive. They done the necessarily look as cheap as they did. I do believe you need to start to see Earnings Growth come through and that will give people the confidence to continue to invest in the market. But you hear youre saying the pessimism is because people arent yet seeing earnings underpinning the rally were getting right now . I think thats part of it. I always think theres a psychological thing as well. I mean, the 200809 is relatively visible in peoples minds. To get over that and get the confidence back in the equity market is going to take a little bit of time. Does that explain the difference between what were seeing as far as professional investors are concerned and individual investors . As far as the professional investors are concerned theyre relatively bullish. If you look at investor surveys, like the aaii as you point out, twothirds of those polled in this market think well be at the same level or lower in six months time. I think thats right. But its a good Retail Sentiment is something you look for when you look for sort of markets topping out. Traditionally people say when the Retail Investor starts to get very bullish. The institutional investors, even so, they may talk about being bullish but a lot of the data i see and a lot of the surveys that i see indicate that they are still relatively underexposed to the equity market compared to history. I mean, Merrill Lynchs fun manager, for example, shows the average Pension Fund Manager has 5 of his portfolio in cash. Relative to history, thats pretty high. They may be talking a bullish game but they may not be following it through quite as much. Very quickly, this then looks like a Good Opportunity for investors to get involved. What should they be buying . You have to be exposed to we prefer good, solid Global Companies with strong balance sheets. Progressive supportive dividend yields. So if you do get the wobbles, which youre bound to do, you have the fundamentals underpinning you. Lets bring our viewers up to speed with other Corporate News today. We are watching king fisher on the slide as investors react negatively to weaker performance in key markets as well as promotional activity. Speaking first to cnbc earlier, the ceo was asked about the recent share price performance. On a longterm basis were very confident about the opposition in france. The French Economy, the french consumer. Short term, there is a confidence issue basically in france right now with 11 unemployment and uncertainty despite the more encouraging noises the french government has been making recently about how that economy is going to move. I think well ride out this period and maybe on the plus side, we wouldnt have had the opportunity to sort of look at this deal in the same way two or three years ago. Uk medical Technology Firm smith and nephew is trading higher on reports of a bid interest from stryker. Aggreko down 2. 6 as investors react to news that the company has poached an executive chris weston to be the new ceo. And saga has begun untraditional trading in london. They saw shares drop in conditional trading. Slightly higher this morning. 1. 87. New also on todays show, well head out to paris where frances biggest job related social network will attempt to lure investors with an ipo. But is the hunger for tech strong over in paris . Well be finding out. Meanwhile, egypts former military chief wins the president ial election with an astonishing 96 of the vote. With the opposition screaming foul play, just how reliable are those results . And a board thats far from boring. The side kick the edge are set to become Board Members for guitarmaker fender. All that after the break. Stay with us. Huh, 15 minutes could save you 15 or more on car insurance. Everybody knows that. Well, did you know that game show hosts should only host game shows . Samantha, do you take kevin as your lawfully wedded husband. Or would you rather have a new caaaaaar say hello to the seasons hottest convertible. Ohhh. And say goodbye to samantha. [ male announcer ] geico. 15 minutes could save you 15 or more. Youre watching worldwide exchange. Were seeing the first bite of japans sales tax hikes in april. Retail sales in the country fell that month at their fastest pace in three years. The number of cars and Electronics Sold declined in april showing consumers are trimming their purchases. In fact, the 4. 4 annual decrease in retail sales is the biggest drop since the devastating earthquake and tsunami in march 2011. Ed rogers ceo at ed rogers investments joins us now. The nikkei barely budged on these numbers. They were pretty much expected. You see this as a temporary blip and youre not worried at all. Is that right . Absolutely right. The markets saw this coming a mile away. It was well predicted. The reaction was so what. I think topix ended up slightly positive on the day. If we have three more months of worries like this, you should get worried. But im a bettingen and im betting thats not going to happen. This figure suggests that the underlying momentum of consumption was far weaker than it was in 97 when we saw the last sales tax hike. If youre going to draw a comparison to 97 i would say asia was crumbling around us, multiple countries. The currency crisis was taking hold. That was a far bigger problem. We look around asia today, there are far fewer issues. Balance sheets are healthy and whole. Many, Many Companies in many, many countries have cash on the balance sheets. I dont think were anything near close to having the problems, even if we have another quarter of bad numbers, frankly, in japan. Theres nowhere near the situation there was in 97. The reality is were far less worried. As far as investors are concerned, perhaps far more important is the governments restructuring plans, the progress as far as the tpp trade talks are concerned. Is that what we should be focusing on right now . Absolutely. The Bigger Picture number if you want to focus on a number was the First Quarter gdp at almost plus 6 annualized. Far better than anyone anticipated. We think that means that the underlying Investor Sentiment is actually quite positive. That will be reinforced over the coming weeks when we see the ldp reform plan, the government reform plan. The formal proposal is due out very, very soon that investors should be focused on. The tpp talks are absolutely ongoing. We think we will see resolution, positive resolution. We think its a very important agreement for not just japan and the United States but the entire asia region and, therefore, the world. Those are the things that were focused on when were allocating for our portfolio. Investors have responded to this downtick by putting more money into the market. Now is a great time to be getting more exposure, particularly to the hedge fund space. The hedge funds that were invested in are in aggregate down 50 basis points for the year versus the market down 10 still. When the uptick comes, we make 20 , 30 on the upside, which is quite conceivable, the next uptick leg. Investors want to be able to participate in that. Ed, do you think that the weaker Economic News may actually be good quite often they say poor Economic News can be good for the stock market. Because it means you get a response from the central bank. Do you think some of the Market Reaction today was a reaction to the fact they think the possibility that the bank of japan could increase their action this data could show that . Its a great question. When weve looked at this, we think that the news wasnt bad enough to warrant boj or government response. We think that the government sees this really, lets say the last five or six months in its entirety as confirmation that abeonomics is working. Were on track to 2 inflation. If you have a blip, especially in april, the march april move is going to be the most corporate intuitive of numbers to look at because really with the sales tax distortion, you just cant take these numbers as a serious number and base anything on it going forward. Another two or three months of this, absolutely. If we saw this continue, youd see bank of japan action. Were firmly convinced of that. We dont think theyll see that action. Thats a sign its worked, abeonomics is working despite news to the contrary or commentary to the contrary. Were on track towards 2 inflation. Thats the goal. I think its interesting that were talking about the possibility of the boj adding more stimulus. I hear theres informal debate right now in tokyo about just how they exit. They dont want you to make the same mistake as the fed made when they signaled an exit. Are you hearing anything like that right now . Look, i think the commentary is running as you say, more towards look, weve been very successful at this. We probably dont need to take further action. And what does that mean as far as how we do unwind . I would caution listeners to not overreact to that comment. Theyre not going to do anything until its very, very clear they were on track to 2 inflation. The goal is not to hit 2 and fall back again. They want a steady growth rate on the gdp and until thats achieved, you will not see anything that looks like an unwind on the part of the boj. Absolutely. Ed, great to chat to you. Ed rogers, ceo at ed rogers investment advisers. Paul, it seems like theyre in the sweet spot. They can sit pretty and see how the numbers go. Well, exactly. Japans been, obviously, its been talked about a lot. Its had a very difficult time over the last 20, 25 years. And this abeonomics as people talk about, theres a lot of stock being put by it to getting the economy recover again. He was talking about getting back involved in the markets. What do you think as far as the markets are concerned . Theyve had a slightly disappointing start to the year this year. Which is another one of the things that may have taken people by surprise. He seems optimistic that this is a Good Opportunity to get into the japanese markets. Not a market i focus on a huge amount. Obviously i watch it to keep an eye on the broad markets. It would make sense if the data continues to look in the way it is and the policies of the central bank are supportive, you would think this is a Good Opportunity for investors. Youre staying with us. Lets move on to our other top stories. U. S. Whistleblower Edward Snowden says he will attempt to extend his asylum in russia if he fails to reach an agreement to return to the u. S. He said he felt a moral duty to reveal the practices of the nsa. The reality is the situation determined that this needed to be told to the public. You know . The constitution of the United States has been violated on a massive scale. Now, had that not happened, had the government not gone too far and overreached, we wouldnt be in a situation where whistle blowers were necessary. I think its important to remember that people dont set their lives on fire. They dont say goodbye to their families, actually pack up without saying goodbye to their families. They dont walk away from their extraordinary, extraordinarily comfortable lives. I made a lot of money for a guy with no high school diploma. And burn down everything they love for no reason.

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