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tv   Bloomberg Markets  Bloomberg  February 18, 2016 12:00pm-2:01pm EST

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from bloomberg world headquarters in new york, welcome to bloomberg markets. here is what we are watching at this hour -- gold, one of the best investments this year, up 14%, but it has lost a little luster as stocks recover. walmart rolling back its sales forecast, posting a disappointing earnings for the last order. they expect sales to be flat this year. standok steak -- takes a against the government over privacy and silicon valley lines up behind him as a tech industry becomes more confrontational. the markets desk where julie hyman has the latest. isare not down a lot, but it a rally. julie: if we had seen a fourth of 1% gains, that
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would have been highly unusual. it's not surprising the three-day run has ended for the major averages and we are seeing a drift occur in today's session. the s&p 500 had a relatively strong open, but if you look at the course of the session at the intraday chart, we have seen it fade as the day has gone on. despite the gains of the past several sessions, we are looking at a negative month. inse are the seasonal moves the s&p 500, still down about a percent. this is going all the way back to 2009. january was down for stocks as well. the biggest percentage declines have something to do with earnings and something to do with oil as well. shares are lower after the company missed estimates.
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marathon is down, coming up with beener loss and had expected. like so many oil companies, they have been cutting their capital expenditures as well. alix: oil has been giving away most of its games -- most of its gains. hopes were raised by the industry report showing a decline in inventory. what -- once the government report came out showing it wasn't the case, oil gave up its gains. it has paired up its gains and energy stocks have been gaining. finally, gold prices -- we want to look there as well because we .ere seeing gold muddle along when we got those inventory numbers, we saw gold start to
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move higher as oil started to pair its gains. more risk off after it was at risk on for the past several days. alix: and gold still holding that mental. thank you so much, julie hyman. let's check in on the bloomberg first word news. amy: president obama will make history next month. he will visit cuba. more than one year ago, the obama administration and the cuban communist government agreed to normalize relations. still, the castro regime is criticized for human rights abuses and congress has refused to lift a trade embargo. turkey has bombed kurdish positions after a deadly bombing turkey blames on the kurds. turkey's premised are says the
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kurdish militants in syria carried out the attacks. he warned western allies not to cooperate. british prime minister david cameron hopes to close the deal on new european union membership terms. he traveled to brussels to meet with other leaders. he can get the concessions, there will be a campaign leading to a referendum on whether to stay in the group. have somen: we important work to do today and tomorrow. i will be battling for britain. if we can get a good deal, i will take the deal, but i will not take a deal that doesn't meet what we need. it's much more important to get this right then to do anything in a rush. mark: the eu president warned there is no guarantee cameron will get an agreement. donald trump has a big lead heading into the presidential primary in south carolina. the poll shows a trump with a 19 point lead over ted cruz.
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marco rubio and jeb bush are fighting it out for third. dayal news and four hours a powered by our 2400 journalists in 150 news bureaus around the world. have breaking news concerning the citigroup. citigroup is planning to exit its retail banking units in argentina and brazil. julie hyman is looking into the headlines as they cross. julie: and we are watching the stock as these headlines come out. this is a scoop from our own reporter. looks like we are not seeing much reaction in the stock initially as the headlines crossing at this moment. shares were already down 2% in the session. they are exiting their argentine and brazilian operations. all of this according to a person familiar with the matter.
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the departures will be announced in the coming weeks. a spokesperson for the banks declined to comment. this has to do with the efforts of citigroup to scale back on its retail footprint and generally do some restructuring. in october 2014, he announced plans to drop consumer banking 11 markets including some in south america, peru, and costa rica. this is the latest move by citigroup. not showing much reaction to the headlines. alix: what businesses will citigroup make available? in 2014, citigroup agreed to sell its banking unit in japan and provided corporate and investment banking services.
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is there still stash are there still substantive part of the markets citigroup will be involved in? heard neil cache kari and james moeller talking about banks that are too big to fail. this is a bank shrinking itself justut any intervention, reacting to influence from the marketplace. citigroup gets more revenue from outside its home market and any other big u.s. banks. so to your point, the idea of trying to streamline costs but trim the waste a little bit. julie: shares are still down, holding steady. continuingof the effort and we are not seeing that much stock reaction. bloomberg markets will be
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right back. we are following this story of citigroup exiting its retail banking unit in argentina and brazil. ♪
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back to bloomberg markets. i'm alix steel. a recap of some breaking news we had just before the break. citigroup is planning to exit its retail banking unit in argentina as well as brazil. julie hyman has been looking at the headlines. iss comes as the company cutting costs and trying to boost returns. they've been in argentina for a long time. it was the first non-us branch. a monumental shift for citigroup.
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julie: the stock is down 24% and we've seen a lot of banks be hit this year, bank of america is down to the 5% over the past 12 months. a lot of the underperformance concernsthis year on -- take your pick. the flattening of the yield curve on exposure to debt and the natural gas industry. there are some particular issues that some of the banks have in terms of structure, so it's like that is what this is going to address. my guest broke the story for bloomberg. was this surprising? it was surprising. citigroup has been in brazil and argentina for 100 years.
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ofy have been getting out retail branch networks and selling them, but they have been much smaller countries, places the legacydon't have they have in brazil and argentina. that mean i can't get money out of a citibank atm in brazil? now, butu can right presumably when they shut this down or sell it, you won't be able to. alix: what about other services? when citigroup backed away from japan, they had massive banking services as part of it. branch network, so there are roughly 70 branches in brazil. they normally keep corporate banking services in those in october of 2014, they announced an exit from 11 countries. that was consumer banking but they continue doing bond deals
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and equity deals and things like that. on the corporate banking side, they tend to stay there. it takes far fewer people to be on the ground in those countries to do those businesses. alix: why did they choose argentina and brazil? they are in 24 countries and their operations in these two countries are quite big. than 2700has more employees in the country at 71 branches and 6000 employees in brazil. citigroup hasna, had some problems with the government there. not been able to ask for and bond markets. they are having contentious negotiations with hedge funds. there is some thought that it's not worth it to be in the
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country and mixing it up like that. brazil, their economy is not doing well. it's thought that a recession is maybe the worst in a hundred years. the outlook for brazil in the next 3, 5, 7 years is not very good. what are they going to do instead? stay trim? guest: good question. having branch networks in 24 countries is -- a lot of people have said that is unwieldy. keep that sort of presence all over the globe. so they have been pulling that back end will continue to do that. this is a smaller, less ambitious citigroup than it once was under michael corbett. that is what this is about. they will continue doing
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corporate and investment banking and that's big for them. they just won't have a branch footprint in for a four countries. it would still be widespread. alix: thank you very much. goldhing gears, is starting to loosen lester? it is up a little today but traders and analysts seem to be calling for a top. there's a greater percentage of gold bears for the first time in seven weeks. a pretty big shift from last week when the bulls outnumbered the bears 16 to four. joining us is the head of commodities research at capital economics. who is right, the traders were the market? guest: in the short term, perhaps the traders will be
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right. it's being driven higher by three things. one is the expectation of lower interest rates almost everywhere, including actual cuts of interest rates to almost zero. that policy will remain in place. revisions big downward in expectation, but i think the fed will press ahead and provide some for the u.s. dollar. the second is the safe haven demand. there will be less safe haven demand then there was for. alix: we almost hit your target for the year, would you be revising this up or down based on the velocity we have seen? guest: even though i think the price will drop back in the short-term, think the price is 1250. i think the risks are going to be on the upside.
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it may be that safe haven demand will fade but there are plenty of other attentional shocks out there. from emergingand markets, whether consumers or central banks is likely to remain strong. nobody has been talking about inflation for a while because of the weakness in commodity prices. if it takes a, safe haven demand could increase as an inflation hedge. jeff curry at goldman sachs disagrees. he thinks gold is a short. here's what he had to say. guest: given the correlation between gold and the 10 year yield, it really is saying that. gold is the barometer of fear. the currencyll it of last resort, so you have to be throwing in the towel to be long gold. old has a negative carry, while
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the dollar still has a positive carry. alix: does that mean you would be throwing in the towel for the u.s. dollar? guest: i agree to the extent that there is a close correlation between gold and the u.s. treasury yields, the two-year yields in particular. but that only holds in the short-term. other factors can dominate and i think that's what's going to happen over the next few years. strongl get continued demand from emerging economies and that's not dependent on whether the treasury yield is 1% or 3%. and more about income diversification. , goldman wasy calling for higher inflation in the u.s. if that's the case, they should be more positive on gold, too. alix: have we seen the bottom of oils -- of oil and metals? guest: it is clearly being
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supported at the moment by an output freeze by opec and maybe russia. but what we need is actual cuts in output and i don't think we will be seeing that. i think the oil price will be higher on cuts in non-opec supply and stronger demand because we are stronger than most on the global economy. that carries over to our more positive views on base metals. pessimistic views on china are overdone. something we have seen that has been quite puzzling is the correlation holding a between oil and stocks, which is something we don't typically see. when do you expect this correlation to deteriorate? the correlation has been unusually strong because people are focused on the negative aspects like the big hit on the energy sector. partly, it is a signal of weaker
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demand. significants a chance, so in the oil price is recovering, not only is a positive signal about demand, but it's positive for those energy stocks. will shiftthe focus away from the negative aspects of oil prices toward some of the positive. the larger parts of the equity indices that will increase from consumer spending and goods and services should start to outperform again. shift, the focus will but as long as we are right, the oil prices and the year slightly higher. that's good for oil companies that remain in business but good for the wider company -- for the wider companies. alix: thank you very much. more on commodities ahead from one of wall street desktop economists.
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we will hear from the chairman of ever core isi coming up at 2:30 p.m. eastern. still had, we will head to brussels where the head of european governments are meeting for a two-day summit. the big question on everyone's mind is will the u.k. stay in the union? ♪
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alix: welcome back. leaders of the eu began a brusselsummit and today and one huge agenda item is whether the u.k. will keep its membership in the block. ryan chilcote is in brussels. what are the sticking points right now? are: the sticking points twofold. one comes down to the benefits that eu migrants working in the
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u.k. are entitled to and how much are they going to get? the u.k. is demanding they cutback on some of the benefits those migrants get. eastern european countries want to make sure no other countries follow suit if they allow britain to do that. make sure migrants in the united kingdom don't already have their benefits yanked from them. the other issue is bank regulation or to what extent do the non-euro using countries within the european union countries have to listen to the andtries that use the euro to what extent can british banks be shielded from eurozone regulation? the french had major objections to some of the language, concerned british tanks might an unfair advantage, but some of that appears to be smoothing over. fair to say all the countries here do want to see a deal. sequence ofs the
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events over the next 48 hours? ryan: they are discussing the u.k. proposal. it has kind of been swept under and then in the morning, they are going to have a so-called english reckless where they will continue to discuss the issue. they are hoping they can get a deal by tomorrow where the prime minister can announce yes, i got a great deal. i'm lobbying to keep britain in the european union and a want to give him the best shot they can. they are concerned the brexit people, the people who want to pull out of the european union, it goes on, the more momentum those people get. alix: if cameron is able to go back and say he got a deal, what is the procedure in the u.k.?
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ryan: he gets a choose when the referendum takes place. member -- somee members of his own team would start campaigning against britain being in the european union while he is arguing britain should remain in the european union. the polls are on when it comes to referendum day and a concern as they need to get the process going. alix: thank you very much. ryan chilcote joining us from brussels. itsl had, walmart turns in annual sales forecast. we look at the challenges. ♪
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worldfrom bloomberg headquarters in new york, welcome back to "bloomberg markets." m alix steel. ramy inocencio has more from the news desk.
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ramy: we had to turkey, were the country is blaming kurdish separatist groups for a deadly bus bombing. one of those groups is counted as a major ally by the u.s. in the fight against islamic state. the attack killed 20 people. meantime, google, facebook, and other tech companies are supporting apple in its fight against the u.s. government. apple has rejected a court order to help the fbi unlock an iphone used by one of the shooters in a terror attack in california. the coalition of big-name tech companies says firms should not be forced to build backdoors into their tech products. notors without borders will inform syria posco government or its russian allies about the location about some medical facilities, such as the one hit by a deadly airstrike this week. there have been repeated attacks against health facilities during syria's civil war. one health facility was hit eight times.
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ted cruz leads all presidential candidates in the race for donations from the oil industry. that is according to the center for responsible politics. he even beat jeb bush, whose father and brother were oilmen before he became president. large energy investors have given $25 million to ted cruz's super back. -- super pac. 47% say the president should appoint a new justice to replace saynin scalia a, but 46% the next president should make that pic. antonin scalia died unexpected early saturday. i am ramy inocencio. walmart stock is falling into the procession, dropping 5% at one point, the world's largest retailer lowering its
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annual sales forecast to relatively flat. let's see with the numbers say about struggles in "the numbers do not lie. a normalized basis, walmart has significantly trailed the s&p with one of its rivals, target. walmart is down more than 27% over the past year. let's look at the company's disappearing revenue. you can see here, year-over-year growth. it is slowing in negative territory for fiscal 2016, down by 1%. as my daughter would say, bye-bye. profits are expected to fall as much as 12% in 2016, due to higher labor costs in the u.s. and spending on its web operations. it is not paying off -- is it paying off? take a look at e-commerce. online sales are following -- are following -- are falling only a percent. international business account
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for 25% of the company's almost 500 billion other -- $500 billion revenue. it reported net sales declined nearly 10% in the fourth quarter. affected by $4.7 billion of currency headwinds from the strength of the u.s. dollar. one bright spot is mexico. stores in mexico than anywhere else in the world, aside from the u.s. net sales increased nearly 10%. however, mexico is not enough to turn the tide for the overall company, and you can see shares today are falling in this section, mainly due to the flat total sales growth. you can see that the client throughout trading. walmart is the biggest laggard in the dow today. joining me is oliver chen, senior retail analyst at talent company.
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help me out here. oliver, i outlined a lot of negatives for walmart. what do you like about this company? oliver: the company is focused on execution basis. cleaner, friendlier. when we do surveys across the country, we are seeing slightly happier customers. keep in mind this generates great free cash flow. however, we have a market perform rating on the stock. as you specify, earnings growth is -62 -12, and the pe is 14. alix: so it has not yet reflected the negativity of the turnaround in the tide yet. >> no growth next year when you knock out currency, and we live in a world of currency, so you have to factor in currency. profit is declining. we were talking yesterday about the stock performance. the stock had been doing great this year as people looked at it as a flight to safety, the safe haven.
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is there a recession? there is the assumption that shoppers will go down to walmart. we have seen minimum wage increases. maybe today was a reminder that there still are issues with the company. the company is not growing. why have your money in walmart rather than amazon. alix: a fair point. oliver, let's go to currencies. all of the chatter last year was that the stronger dollar has been stalled, the covert has dealt with it. what happened yet go oliver: -- what happened? oliver: it is a big deal. revenue growth is slow from straight up flat from this year. alix: can't they hedge, though? oliver: you have to pay the proper with the algebra with the fx. the consumer could be saving a little bit instead of spending. we do have low gas prices, low unemployment, and rising minimum wages. -- we prefermart
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costco right now as walmart is engaging in a different company. alix: part of the transition is e-commerce. shannon, you and i were talking yesterday, that is e-commerce declines someone will have to answer to that, with a percent e-commerce growth in the fourth quarter. shannon: they are blaming outside markets. in the u.k., they are seeing increased competition there. there is always some reason. amazon fourth quarter retail sales are up 40%. they are chugging along. they are not blaming currency or inflation. they are international. amazon is trying to expand more outside the u.s., but it is sort of like -- it is something they have to do, and they have to spend in that area. a billion almost
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dollars more this year. oliver: what does the cut -- alix: what does the company look like in 360 days? 365 days? anyway, in a year. oliver: you should see cleaner, friendlier stores. that may lead to better traffic and a conversion rate. how can you offer the shopper value through saving time as well? 60% of walmart is grocery. that is probably a long-term battleground. herther would rather order items online and pick it up rather than stories later. growth inhe traffic the impressive stuff happening at amazon was a prime ecosystem. that is really a competitive, long-term threat. alix: it does seem you are
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posited on the long-term story of walmart. at what point do you say i am willing to hold it now? oliver: that is something we are watching. names that we prefer, with sharper sales, include target as well as ross. we are watching the valuation. -- in a tough environment, the consumer picture is mixed. we like the low to middle. we think they are making good steps. it is just a matter of understanding when we can forecast upside relative to estimates, and also valuations coming in a little bit. oliver: thank you very much -- alix: thank you very much, oliver chen and shannon pettypiece. more coming up on "bloomberg markets." we will be back on the other side of this break. ♪
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alix: we do have breaking news concerning mcdonald's. an internal survey has found that franchisees are pessimistic about the company's turnaround effort. this was obtained by leslie patton, who wrote the story. she joins us from chicago. talk about the findings that you saw. leslie: what the survey shows is that franchisees in the u.s. are increasingly pessimistic. they do not think the turnaround is working. it does seem like it is an issue. one important thing to keep in , the surveys were from october and november, which is when the company was starting to turn the corner. back in october and november, only 14% of franchisees thought the turnaround agenda was working. alix: how much of mcdonald's is
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franchisees versus corporate owned? leslie: here in the u.s. it is 90%. alix: what was not working for them? leslie: the biggest thing, since they have done the survey, is all-day breakfast. in october they started rolling that out. as of then, as of october-november, when they were rolling out all-day breakfast, franchisees did not think the turnaround was working. they had done some other operational things, little things like toasting the buns longer. franchisees thought those were not working that well. alix: what kind of leverage do franchisees have with the parent company? leslie: it is kind of hard to say. it is a very internal process. ceo, he has gone in
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and tried to communicate with franchisees to figure out what the issue is and with the restaurants and trying to get sales going again. it is hard to tell how much interaction corporate franchisees have. alix: the stock took a little bit of a leg down but has since recovered. survey wassaid the done before they rolled out all-day breakfast, but what are the challenges that franchisees were faced with when all-day breakfast was ruled out? all-dayoperationally, breakfast was a tough thing for franchisees. they were selling things they have not sold before during all hours and had them available that had not been available before. just making sure they have enough grills, enough people in the restaurants to serve a little bit of a bump in traffic. making sure things go smoothly when they are doing that. very leslie, thank you
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much. leslie patton of bloomberg, thank you for breaking that story for us on mcdonald's. coming up, the biggest names in silicon valley are rallying behind apple in its fight against the government. who is going to win the privacy war? ♪
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alix: welcome back to "bloomberg markets." abigail is live from the nasdaq with the latest. abigail: with the nasdaq down, the index will snap its three-day winning streak. one of the biggest percentage losers, jack-in-the-box p shares are plunging after the restaurant company missed first-quarter estimates. the estimates were especially bad, by about 10%. a week outlook. it looks like the mcdonald's all-day breakfast is hurting the company, even though an analyst --d the weakness should be stock is down about 30%, now
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below last year's lows, suggesting jack-in-the-box may adjust more. amazon had been one of the big boosts to the index, one of the few boosts, i should say. the stock is about flat. shares have been fighting between red and green. analyst michael graham lists six reasons they like the stock. among the reasons, the core e-commerce business. plus valuation is attractive. part of the reason valuation is attractive is the fact that the stock is down so much in several weeks. in a technical fashion, similar to 2011 and 2014. unlike those years, it appears as though the recent pace of the selling pressure that slows the downtrend to the amazon downside may extend. alix? alix: all for one and one for all is not a familiar refrain in silicon valley, but times are
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changing for privacy rights. mark cuban and stevenson a ski voicing their concern along with apple's tim cook. here to talk about silicon valley's rallying call is brett stone, head of global technology coverage. he joins us from san francisco. brad, is a very unusual to have this support here? brad: i would say i feel like the support is a little muted. i think silicon valley is worried. google,ioned the ceo of that he looks forward to an open discussion. whatsapp tweeted something stronger. they are worried that the pr optics are on the side of the government on this one. the san bernardino terror attack was a heinous crime, and what
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the government is asking apple to do is very specific related .o the iphone 5c the implications are broad. that is what silicon valley is worried about. they know that the government should usually picked the case where the sympathies will be on the side of the government. alix: can the government leverage that in essence to their advantage? brad: this has been playing around as this has been playing out since the snowden regulation -- since the snowden revelation. ande has gotten better better and stronger and stronger in approving the encryption with its customers with every device. apple's chip business -- it closed -- it codes in christian -- it codes encryption on the microprocessor. what they have been arguing all along is that they should have access, and apple has
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steadfastly denied it. businessping their model. they want you to put your financial information on your phone with apple pay, your health information on your phone . that is key to their business model. alix: let's talk about the article you wrote for "business week." the most important person you never heard of, tell you -- tell us what drew you to the story. brad: they have been doing it since the iphone. the chips have gotten better and better. of the mostne important manufacturers of mobile processors. in some cases leading the way, and it enables the iphone to have that formfactor to do things like touch id and the display. so we got johnny cerutti to run it. he is from israel, probably one of the most highly profile
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technologists in the world. this effort. it allowed him not only to do two things, but -- alix: how did you get access? brad: we asked. i think they were ready to tell that story. it is no secret. the stock has been a little bit deep lately. they have to continually prove to the world wide devices are better than the cheaper devices you can get from other companies. maybe running android software. i think under tim cook, recently they have been able to tell more of their story. they thought perhaps this was a good opportunity. sign of the importance of the silicon effort -- i think they were really to tell the story. brad, thank you very much. brad stone, head of global technology for bloomberg news.
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you can catch the latest story in the latest issue of "business week." the battle for the future of old-school tv just got a lot hotter. customersuld let swipe pricey cable boxes for cheaper devices and ask for the winner and a loser. who covers this space from bloomberg intelligence? what does this mean for me and my time warner cable bill? more choice for you. it could be that you do not have a big set-top box on top of your television. you actually pay for that box every month in your bill to your cable provider. it is a big number. it is like $20 billion of revenue to the cable tv industry in terms of lease payments for the set-top boxes. noticed, let's see whether we should open up this market to third-party providers of hardware and software to provide more competition and
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more choice for consumers. alix: what was that mean? highwood i get my cable -- how would i get my cable? provided by your cable company or its hero or some of the other providers have ecosystems. guy, so onogramming and so forth. there are a lot of technological solutions potentially that could potentially come in and open up that side of the business. and perhaps introduce more technological choices such as apps. a lot of people would rather go andhe phone, hidden app have something streaming rather than going to their set-top box. the cable industry obviously is trying to stop this. they are setting the fact that there was a lot of security built into the set-top box that
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protects the copyright so a lot of the content that comes through their cable systems, they want to ensure that security remains. there is going to be a very vicious, i think, give-and-take between the fcc and the cable industry over the next year. you mentioned some of the losers being time warner cable. who are the people who might benefit from that? >> i think a lot of the technology coverage's out there, whether it be google or somebody on the software side of the business, who may see an opportunity to create a software-driven solution to a or increasing the amount of context available on your television, your cable netflix,nd through trying to incorporate all the video choices out there for consumers today, that may or may not be outside that environment
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that we all lived in for generations now. alix: what cable company has the most to lose with this kind of thing? >> comcast is the largest cable company, so they have the largest amount of set-top box revenue. however, they have been very active by investing in technology. x1t notable, their service, which is very high tech, very user-friendly, user interface. they got it out 25% of the user base. a very aggressive rollout that ties in a lot of their icing programming functionality -- a lot of their icing proving functionality. of taking annd aggressive offensive strategy to protect that part of their business. alix: what argument do you think -- weour user interface,
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continue to invest and innovate. it provides a lot of security for our content partners -- by who prey upon -- us to secure their intellectual property. through our system, through our network. there are a lot of security issues that they have invested into their set-top box. paul sweeney of bloomberg intelligence, thank you very much. coming up in the next hour bloomberg markets, the ex-president president says we should break up the big banks. ♪ we live in a pick and choose world.
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from bloomberg world headquarters in new york, good afternoon. here's what we are watching at this hour. banks stilltill -- too big to fail? and, there is losing its grip on the market. -- fear is losing its grip on the market. created to share risk , but taxpayers might not be off the hook completely. let's go to the markets desk, where julie hyman has the latest. julie: we are seeing stocks model along today, the pause after the big three-day rally. it is once again low-volume. this has been typical all week. once again, volume is more than 10% below the 20-day average, so
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that scene is continuing as we pull back today. as a proxyat the dow for what has happened today. the dow has been the best performing of the three major averages today, even though it is now down 0.2%. what is interesting is the tightness of the range on the dow. look at the bloomberg -- one of my colleagues made this index that looks at the point spread for the dow each day. as you can see, today is the tightest it has been all year, the narrowest daily range for the dow we have seen all year long. a couple movers. ibm is rising after morgan stanley raised the recommendation on the stock, saying investors missed the transformation at ibm to more of a cloud-based and analytics company. shares are up 5%. more than counterbalancing it are a trio of stocks. goldman sachs is falling. walmart is declining after the company came in with weaker
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numbers than estimated. and caterpillar also falling, reporting january machinery sales fell 15% to the lowest on record, lower than even the recession era lous. -- lows. you have the selling in stocks, a little more risk-off. the dollar is not getting much traction today, but a little traction versus a basket of currencies. you can see it is coming off a little bit. in terms of the treasury market, we had been seeing yields pushing higher over the past several days. that has reversed, down to 1.78%. and gold prices have been catching a bid. areas of safety we have seen all year, at least they are perceived that way by investors -- gold gaining on the year. alix: thank you so much, julie.
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let's check in on the bloomberg first witness. ramy inocencio has more. with popet, news francis and the papal message today to donald trump. he said, anyone who wants to build a wall along the border with mexico is not a christian. pope francis said christians build bridges, not walls. trump accused the mexican government of using the pope as a pawn. mr. trump: they see the pope, they tell the pope that things about me, because i am very strong for illegal immigration. we have to stop it. so they tell the pope that trump is bad, and then he says something bad about me. who the hell cares? i don't care. ramy: trump also said on twitter that it is disgraceful to .uestion a person's faith
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it is official -- president obama will make an historic trip to cuba. the president said, next month i will travel to cuba to work on efforts to improve the lives of cuban people. more than year ago, the countries normalized relations. they had been estranged for more than half a century. cuba is still criticized for human rights abuses. the world bank says the spread of zika will have a moderate drag on the economy in the western hemisphere, with countries reliant on tourism most at risk. 26 nations and territories reported outbreaks of the cap toch has been -- zika, tied rare birth defects in brazil. antonin scalia a reportedl had -- reportedly had a suggestion for his replacement. a judge who the national rifle
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organization -- association said wanted to unravel the bill of rights. bill cosby has filed a breach of contract lawsuit against a woman whose sexual assault allegations led two charges against him. cosby is demanding they repay the settlement in a civil lawsuit. they reopened the more than decade-old case that eventually led to cosby's arrest. global news 24 hours a day, powered by 2400 journalists around the world. back to you. alix: thanks so much. yesterday on bloomberg tv, neil kari said -- neel kash no banks is too big to fail. this summers weighed in on this morning. mr. somers: i was a little surprised to see the minneapolis fed does not have any regulatory next this with any large --
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nexus with any large institutions. i found it surprising, the way he came out. on the other hand, i don't think any of us are completely satisfied with where we are with respect to the financial system, ile a great deal has been done since the passage of dodd-frank, there are very large challenges, both restr -- with respect to the shadow banking system, and with respect to the large financial institutions. so we need all the good thinking we can get about how to have a financial system that maintains a flow of credit and, at the and stable.s safe that is a very fundamental question, where there is a lot of work that still needs to be done going forward.
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i cannot honestly say that i saw much that was new beyond the s -- in kinkashkari's speech.s but perhaps some good new thoughts will come from the group he is forming. i don't think anyone can be satisfied with where we are with respect to the financial system right now, but, but, this is the crucial thing, we do need to keep in mind that balance between supporting the competitiveness of the united states, maintaining the flow of credit on one hand, and on the other hand assuring systemic stability. we also need to stay focused on issues relating to responsible behavior, making sure that this seemingly endless tendency
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problemscandals and and misbehavior, malfeasance that seems to keep getting unearthed, that we find some approach that is more effective of a deterrent to malfeasance than what we have had in the past. from that point of view, i have a lot of sympathy with those who feel that we need to move to an approach based more on prosecuting individuals and last on --less on finding not holding the individuals who did wrong things accountable. i would like to see a move towards more individual accountability. when there is proven serious malfeasance. >> larry, as you say, we can always use good thinking. but is there an issue with who
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is doing the talking? are you surprised it comes out of minneapolis? kashkari, heel said he had not even talked to the bank of america responsible for this. does the regulator need to know who he is talking to? larry: i am not going to get into the internal politics of the federal reserve. as i said, under the rules as they now stand, the minneapolis fed does not really have any important regulatory responsibilities with respect to the issues that governor kashkari was discussing. in recent years, he is coming out of a background in politics that puts a premium on making very strong announcements, in a way that i guess is a little different from the tradition of
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the federal reserve. -- ian'ther hand, don't think we can focus too much on financial reform. from that point of view, i think there's a prospect something constructive can come out of all this. alix: that was larry summers, former u.s. treasury secretary. coming up in the next 20 minutes -- the ties that bind could be getting weaker. s&p andions between the other assets have fallen recently. is that a sign that the tight link between stocks and assets like oil are beginning to loosen? moving to shut down digital magazines as star board reportedly prepares for a proxy fight. isabel coming sooner than later? are some say did u.s. banks
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being punished unfairly. is that a fair assessment? we will have the analysis. ♪
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alix: welcome back to "bloomberg markets." julie hyman has a check on the company movers. julie: let's start with one, sun edison, a company that has various solar projects that and still has a small manufacturing operation to make solar chips. they separated most of the business in 2014. they are restructuring, which will result in $437 million in charges, with a loss of jobs in texas and oregon. in addition, we have learned
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hawaiian electric canceled its contracts to buy output from sun edison. shares are moving down 9.5%. the unit that was spun off in 2014, the semi conductor unit, has said it is reviewing options. you can see the shares surging today. the company said it received unsolicited preventer interest, but not a definitive offer -- prillaman are interest, but not a definitive offer. ingram micro agreed to be acquired by a chinese semi conductor company for $39 a share, a 39% premium. you can see the shares getting a boost today. nvidia, the biggest maker of graphics chips used in high-end gaming, apparently those high-end gamers and the folks who make those games are still willing to pay for these chips, which tend to sell at a premium.
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for that reason, nvidia predicted sales ahead of analyst estimates, and the shares are among the best performers in the s&p today, up about 9%. alix: thank you so much. are things getting back to normal in financial markets? over the last two months, a washout across the world. global stocks hitting a bear market last week. is this now changing? check out this chart. it is the 30 day correlation between the shanghai composite, cks, all the big asset classes. they moved relatively in tandem, but now they are going in their own direction. i want to bring in oliver renick. oliver, what does this signify? it signifies everything that was going in the same direction, you had pretty much zero degrees of separation between these financial markets around the world, these asset
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classes that don't typically act in this way historically. they were for a while this year, and now it is starting to loosen up. the chart is looking at correlations for each asset class of the s&p 500. starting off in january of this year, we are talking correlation of 0.9, looking at values and prices. how closely have they moved together? for example, shanghai composite. as long as you can take it back historically, there is somewhat of a correlation to u.s. equities, but usually about a fifth of what it was at the start of this year. that tells you markets opened in china, and we have news, maybe a devaluation of the yuan, which moves markets. then you come in in the morning and see u.s. equities down. this is happening not just in china, but with all these asset classes. we talked about credit spreads, the high-yield market, how that had an impact in stocks. all across the board. alix: the brazilian stock
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bovespaibo vespa -- the . brazil is looking at the longest recession in 100 years. that would not make sense that they go in tandem. oliver: you have the high-yield market in the u.s. influencing stocks, and yet the s&p is moving in the same direction. you have these strange relations spa isrise, where the bove closely tied to the u.s. high-yield market. that is all fascinating, but pretty simple as to why. that as anon, investor you don't want to be in these risky areas, in anything that is not a guaranteed safe investment. the past three days, and this is only a three or four day thing, they start to loosen up a little bit across the board. you had decent economic data, with investors feeling pretty confident the fed will not hike,
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thinking about what will happen here to the u.s. some of those correlations are now starting to break apart, and you are seeing strength in the u.s. that is where you have some of the moves upward we have seen in the past three or four days. alix: starting to decouple. a great article. i really recommend it. thank you so much, oliver. coming up next on "bloomberg markets," the tech sector has fallen nearly 7% this year. we will explain the reasons behind the decline -- although kind of a comeback in the last few weeks. ♪
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alix: welcome back to "bloomberg markets." time for a look at some of the biggest business stories in the move right now. the much-hyped rollout of
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all-day breakfast has not made for a sunny outlook among mcdonald's franchisees. an internal survey reveals only 14% of the fast food giant's domestic franchisees think the comeback plan is working, and 35% are confident in long-term success, down from 46% a year ago. u.s. airlines are doing better at keeping flight on schedule, but more than 27% of them still arrive late. domestic flights were on time in december. the top performer, hawaiian airlines. bringing up the rear, spirit airlines. spirit airlines had the highest complaint rate. a colorado state health committee will begin the debate on being the first state to regulate organic labels in the pot industry. consumers cannot currently tell if marijuana with an organic
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label is the real thing. organic standards are regulated federally and pop is still illegal on the federal level. yahoo! is taking steps to streamline. yesterday, they cut their digital magazine business. let's go to carol massar at bloomberg radio with more. carol: welcome, everybody on bloomberg tv. scott kessler is with us, the deputy head of equity research at s&p global market intelligence. he joins us in our bloomberg studio in new york. nice to be talking with you again. technology, information technology in particular, not an easy sector for investors. where are we right now? , scott: it is fair to say, people have been talking about this as a tech wreck, so to speak. i see modest underperformance, particularly over the last couple days we saw the tech sector showing signs of life. in fact, my colleagues raised
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their opinion on the technology sector to overweight from market weight last week. we see solid fundamentals, attractive are you asian's, and very strong -- attractive valuations, and very strong balance sheets. carol: they are not worried about the bigger impact on these names? scott: no question, global growth is an issue. but we see this sector as somewhat of a safe haven. carol: safe haven? pe is the reason is, the at a discount to the broader market. you have a pe to growth ratio at a substantial discount. last time i looked it was 1.1, versus the market at 1.5 or so. most notably, you don't have an exposure to oil and commodities,
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basically this collapse that has really contributed to uncertainty in fundamentals and things like dividends, which you don't really have in the technology sector. you have stable dividends, growing dividends, and that is a story that will involve an appeal to investors. carol: maybe it is a good area for investors, how much of that is because money is still cheap and companies can do buybacks? scott: that is part of the story. but to be frank, technology has never been overly reliant on external capital. so that is maybe a positive, as we see consolidation continue. we have seen m&a news that is important for the sector, and we see larger technologies taking advantage of substantial decreases in valuations for smaller and private companies. carol: where within the technology space should investors be looking? areas we areo
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emphasizing most with strong buy opinions are, number one, larger semi conductor companies. emi.ike micro som and larger internet companies. we like alibaba. we like alphabet. carol: alibaba has had some trouble since the ipo, down about 18% in the united states. i assume it is a longer play, but that doesn't mean there could be pain along the way. scott: our recommendations look at 12 months. we have a strong by opinion recently implemented. we look at the selloff as -- carol: what is the catalyst? scott: the catalyst we see for alibaba, two 43 come to mind. this is abvious one, stock that still has very strong growth but is being priced as if it is nonexistent.
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second, they are a market leader that will be able to expand outside of china. notably, we think people are overreacting to what is going on in and around china. we think that is an opportunity. carol: we will leave it there. scott kessler, deputy head of research at s&p intelligence. carolthank you so much, massar of bloomberg radio. still ahead, betting on volatility. a number of new hedge funds hope to cash in on volatility in the head -- credit market, but is it too soon? we will explore. ♪
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alix: from bloomberg world
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headquarters in new york, welcome back to bloomberg markets. i am alex neil. going to bloomberg wrote headquarters. alix steele. amy: pope francis as christians build bridges, not walls. trump wasted little time responding by twitter saying it is grateful to western a person face. meantime, democratic presidential candidate bernie sanders has ramped up spending on advertising. almost $3sandra spent million in broadcast advertisement, almost twice as much as rival hillary clinton. he is taking advantage of the donations that have poured in since he won the new hampshire library. bombing in a deadly iraq kurdish flames on -- the turkish prime minister says the
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kurdish prime minister from carried outsyria the attack. also, south korea is morning is carrying out a terror attack. north korea kim jong-un has ordered military and intelligence unit to increase terror abilities. south korea's government has apportioned a national assembly to pass a new antiterrorism bill. president obama welcome the national -- blackhawks to the white house today. this was their third in the cup win in six years. the team presented president obama with a parking pass. local news 24 hours a day powered by our 2400 journalists. i am rainier -- ramy inocencio. alix: is the u.s. headed for a recession? it is one of the biggest
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questions right now in the market. the market is sending a different signal. come inside the bloomberg terminal. i am looking at the atlanta gdp for taxes, basically the tracking index versus a 10 year yield, the yellow line. technically they move together, because as both improved, so do yields. as you see here, a huge difference between the two. be half ofgdp should percent or the 10 year yield at 2.4% if they were to converge. which one is right you are , aning us with an insight man he was saved hundreds of assets and wrote about in the book investing and credit hedge fund, ms. price. what is your call? i think investors are pricing in different things in the market. if you look at what is out there
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horizon, there is cause for concern. high-yield energy, there is a area where there's a lot of damage. certainly investors are concerned about the health of banks in europe. and the banks have gotten better recently. >> even though the underlying good, in fact. >> yes. the u.s. economy is not standalone, such that i think the fed is very aware of this. if you dig into the fed minutes, janet yellen is certainly very aware the u.s. is not an island. european banks, a lot of people think recessions costs credit contractions, and that is not the case at all. it is the other way around. if european banks are in a world of pain from increased litigation or creating
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downgrades or in the case of of thatbanks, a lot could cause credit contraction ring europe back. alix: the trigger last week with cocoa bonds. we have seen this ease of little bit. what risk now is factored in? >> the risk is europe recovery will not continue. we are starting to see green shoots. however, it is lending from businesses in europe. it is all the big question about risk appetite in the market. alix: what about the decline in cocoa bonds. we don't have to hold it and was the risk is versus we are looking at a liquidity risk in the european bank? >> the risk of those bonds is twofold. one, they may be converted into
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equities because of the provision. the other, the coupon may be suspended. the latter is a very real possibility right now. alix: i'm trying to look at the credit default swaps of banks in europe right now as well as banks. and theple line here green line here are european andrdinated financials senior financials. you can see the spike that happened last week. is this justified? >> i think so. the risk is out there, and investors are jittery for a reason. alix: what makes this safer and numbers.s away >> good if we passed through the next round of downgrades and they turn out to be lower than anticipated, this would go a toward putting investor minds at ease. growth solves all ills. alix: this is not abiding
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opportunity for european yields? >> there are things to buy, but certainly a case of buyer beware . it be a little bit early. alix: talking about what might not be, and that is thanks a lot. all of -- a lot of this is due to energy. >> there is value,. if you look at the high-yield index, it is certainly a tale of two world. one is energy metals and mining. huge bifurcation of spread between those sectors and everything else. however, much of the damage is concentrated in certain actors. they are cheap for a reason. -- much of the damage is cotton -- concentrated in certain sectors. we may see more pain to come.
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they may lose excess liquidity. something that we have seen and something not necessarily capted to energy, the between the triple see related bonds and double the. they really tell of bizarre story. capital market is totally dried up, you will believe the triple see. if you have money flowing in, you will believe double d. who is right here? >> the difference is companies that have liquidity. if you do not have to go back to long astal market, as the business space is ok, companies doing fine do not need liquidity, even if the market space and high-yield market is not open for business right now, you will be fine. alix: at what point do you move
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down the risk yield? inre is a lot of money now this. >> maybe not in droves, but certainly -- people are certainly starting to sharpen their pencils and looking for the opportunity to go shopping. shopping very selectively again. areas that are non-discretionary , tech and health care, any area tore there is limited impact commodity, energy and dollar strength. alix: what kind of return do you foresee in the bond market this year? >> mid to high teens depending .n where you are a lot of it is depending on security. this is certainly a market where the index tells very little about the reality of the
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underlying. alix: the new york times had an article about hedge funds cashing in on volatility. what type of single -- signal does this send in the market? >> it is hard to make money. it is difficult, but the good news is, it is difficult for everyone. you think wait until the storm right? >> when it comes to starting your own business, people are on their own calendar. it is up to investors to structure their investment correctly. you do not have to go in all at once. alix: we started off talking about the restructuring -- restructure signals in the market. what do you look at? look at wage growth. employment number. i look at consumer spending.
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a lot of things. i think what a lot of people forget is the data points are not to be looked at individually lagginglot of these are indicators. what is important now is to look at where markets are headed. although things are cheap, it could very well get cheaper. pencil, butning the do not put it to the paper quite yet. thank you very much. credit strategist with pimco. coming up, is bigger always better when it comes to hotels? the power of scale and what it with to compete for the -- airbnb. barclays considering selling the egyptian unit that has been around since 1864. is this a sign of larger issues? howard edward heiman has been voted wall street's top economist for the past 35 years.
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what does he think of the new close relationship with oil cap ho?
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alix: welcome back to bloomberg markets. i am alex eyal. a look at some of the biggest business stories in the news right now. i am alix stele. el. citigroup has maintained operations in the two countries for more than a century. michael corbett has been scaling back global footprints to cut costs and boost profits.
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restructuring the remaining manufacturing operations and first quarter charges totaling $437 million. the company will shut 220 jobs in texas and oregon. shares have lunch more than 90% in the past year. the u.s. government wants to make it easier for you to buy boxes other than your cable provider. this is a two-nine vote. companies like tivo and apple could eventually be able to put this is part of the streaming device. that is the bloomberg business flash. heading over to the markets desk or julie hyman has the latest. julie: i'm looking at currencies specifically. the currency action as of late that has been difficult for currency predictors to predict.
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the dollar weakening against the japanese yen. the japanese economic data out. the pound seeing strength today. i want to highlight in particular because it is the fifth straight decline, down 2%. this is the lead all -- longest streak of back-to-back losses for the euro in about 10 months. traders betting on an additional stimulus for the eurozone. volatility across currencies is at the highest in four years. thisast if you look at measured by the jp morgan global volatility index. about the highest level in four years. to the difficulty in terms of trading these kinds of volatile currency market. this is looking at the currency forecast. i have chosen the young at random to illustrate where it has been trading. this is the forecast for where
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it is going. this is what the market is pricing in. there is a big divide between them. something else illustrating the changing nature, this is the world currency map over the past month. all of these currencies have .isen versus the u.s. dollar this is a very different picture than over the past 12 months where most currencies have fallen. it is a shifting landscape and an unpredictable one that traders are trying to navigate. alix: it is all about expansion for hotels. they want to compete with the big guys while also competing against the little guys. how exactly do they do that yet but jonathan tisch spoke to bloomberg both about the company battle plan. we made a commitment to
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growing our subsidiary of the corporation over the past couple of years. we have purchased six hotels and markets we thought we needed to be in to have a national distribution platform. jersey.ern new >> boston, washington. we just purchased a hotel in seattle, hotel 1000. through acquisition we wanted to round out the portfolio. the traveler, when they stay with us, they went to look for other hotels. we have built other hotels that opened that have been very successful and very additive to our bottom line. mentioned briefly, our joint venture with comcast nbc universal. >> do you have a target? >> >> right now we are at 24. we would like to be at the hotels by the year 2020.
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that puts us at a disadvantage to the much bigger names and lodging. they will end up with one .illion brooms if you look at a core merging, there is a sense in the industry that bigger is better. bigger is better, which the complete opposite, none. >> we like to be somewhere in the middle where we say smaller is better. the big want to get figures of they can compete more effectively with the air bnb's of the world. >> explained to us why this matters. what is the advantage? scale.s the advantage of to go that the third parties and essay i have more to offer you. give me a better rate on the
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profits you are selling from me. the airbnb that are industry,rupting the the question is, what is the real impact every single day on the u.s. hotel industry. up until now it has been for the consumer. they say they are adding more travelers, not taking away from our bread and butter traveler. we are not so sure about that. really slowly dipping their toe into taking the business traveler. to takein, we will try this away. not much of an impact there. industry, the question is, what is the our ability to raise rates has
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been impacted by what is going on in the world. with airbnb.e bit inare seeing negative growth new york city, even though occupancy is saying hi. -- staying high. up, things are not looking so sweet for netflix. reporting 2016 wales will fall short of target. we will talk about what kind of pressure this foot from the ceo. sale will fall16 short of target. ♪
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alix: welcome back to bloomberg markets.
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this is your global business report. european leaders are not meeting -- are now meeting in europe for a crucial summit that nation position in the eu. cameron.ear from david barclays may be reception global businesses. where is the company looking to close up shop? planning on raising business -- billions of dollars through global bond sales. details straight ahead. first, starting with the european union summit in brussels. the u.k. prime minister meeting with the european partner -- counterpart in helping to come up with an deal that will keep britain in the eu. >> i will be battling for britain if we can get a good deal, i will take that deal but i will not take a deal that does not meet what we need. i think it is much more important to get this right then to do anything in a rush. with hard work we can get a good deal for britain. the dutch prime minister
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said there is still a long work to do. according to people familiar with the matter, the egypt unit may be worth more than $500 million. the park a ceo says he is trying to decide whether to keep businesses.ket sales growth remains flat at nice play. the company forecasts 2016 sales will move target yet again. nestle said this should temper market expectations. >> we had to be realistic. this is at the higher end. definitely, if you compound it, it is part of the 5-6% over term . i am ok with that. >> what about -- alix: they are cutting the
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global forecast for the year. it will be the same as last year. .3% percentage point less than novembers forecast. one reason, slower growth in the u.s., germany, and brazil. vodafone is going into the bond market. the british phone company plans to raise $4.1 billion by selling mandatory convertible bonds. they are convertible into ordinary shares representing 5% of the current share capital. this has been your global business report. for more stories, visit back in the markets. news that u.s. inventory has declined but a minor reprieve for the energy markets. investors devastated by rock-bottom oil prices. there are bright spots for the travel industry at least. the cochairman of lows stopped
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by bloomberg to talk about the impact of cheap oil. we are actually having some technical difficulties there. nonetheless, in theory, lower oil prices are good for gasoline prices. they should be spending that as well. we will continue to follow that story on bloomberg markets. called thehe is been best strategist you have never heard of. and simon will be our guest. hyman will be our guest. ♪
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david: it is 2:00 p.m. in new york and 3:00 a.m. in hong kong. welcome to bloomberg markets.
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good afternoon. i'm matt miller. lower following a report on crude inventories that forced oil to pair earlier gains. are we looking at the end of the year's longest rally? top minds on the economy this hour. and ed hymanart will join me. where do these giants of economics put the odds of a u.s. recession? after maintaining operations there for more than 100 years, citigroup lance to exit retail banking in argentina and brazil. shares falling on the news. let's head over to the markets desk where julie hyman has a look at the oil. julie: you asked, is this going to be an end


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