the flash composite pmi is 46.4 and the manufacturing component dragging that down versus the 46.5 we might have expected and 46.4 in june. so up matching the june level. joining us in the studio is chris williamson, chief economist at market which helped to compile the data. thanks for joining us. let's kick it off with the german number there, because that's weaker aacross the board than we might have thought, and the new orders contracted for the third month in a row. no signs of any stabilization in a contractionary levels. >> indeed the contraction is getting more severe. that's the key to all surveys out this morning. that german number is coming down. there's some blurring of the data by what's going on in france at the moment. the only area that we saw across the euro zone that saw any sort of improvement was french services. >> why? >> well, speculation and we can delve into the evidence that companies give us. it seems like there's some return to normal for some businesses after disruptions around the presidential elections, so this is a temporary phenomenon. there's some signs that countries see the new governments be a bit more pro-growth rather than austerity, so that's building their confidence a little. it's really local to french services. if you strip french services out, the rest of the region is going down at an increasing pace. >> what akikind the growth are these levels pointing to? is this telling us recession? >> yes. the data for the second quarter signal a gdp of 6% across the euro zone. in july it's the same as the second quarter average. so the same rate. when you look at the four indicators within the surveys, things like the service sectors expectations index that fell again and manufacturers starting to cut back at entry levels, it's really about 0 and 4 for the momentum in the rest of the quarter. >> what does it say about the german economy in terms of growth? >> the second quarter about .1% decline, so coming down a little further than that, .2% if we carry on. >> germany could go into a recession? >> indeed, yes. france is looking very shaky despite the services sector. there around a .6% gdp decline. >> are there any glimmers of hope, anything that came in better than expected this morning? >> well, indeed, the only good thing we see is the price indices. they're coming down and prices are falling, but that's good news from an inflation fight perspective. >> not so much from the broader perspective of deflation isn't what the doctor ordered now. >> it's how weak demand is at the moment. >> we tried. >> if the threat of another recession in germany isn't bad enough, moody's lowered its outlook from negative to stable. they cited several factor including the possibility of greece leaving the euro zone and the need for support for france and italy. they changed their outlook for the netherlands and luxembourg and review it by the end of the third quarter. we have a hearing in the spanish parliament where the former secretary of state is questioned by the economics commission in connection with to the bank crisis and also fr. we'll have coverage from madrid in 15 minutes as well. >> preliminary data from the private pmi survey hit a five-month high, which helped to ease some fears of a hard landing in the second biggest economy. they suggest beijing's easy measures may be starting to work, but at a level of 49.5. the mainland's factory output is in contraction mode and they're calling for more stimulus to prop up weak demand and sluggish employment. the china figures, in fact, are typically the more market moving set because we've seen weakness. now some stabilization, but in your opinion is the read today just as significant maybe as some of the figures we saw from the euro zone? >> yeah. it's great that there's symptom sig some signs of stabilization coming up. the sector is key, and when we see it bear up is a good sign. the employment index is down to a 40-month low. their cutting their staff levels at faster rates since early 2009 as the height of the crisis. you can ask why they're doing that. they must be worried about the future secotor. >> because there's so much wage pressure, you'd think it will come off the boil first but it's surprising they're indicating to shut workers? >> exactly, yeah. when you cross-reference what you see in german manufacturing and exports, that builds this picture of chinese companies really starting to reduce their investment both in plants and machinery. >> is that chinese -- export chinese companies exposed to the global economy, you think? >> to a large extent, yes. the european union is a big export market for china, of course. there's weakness of demand in china. it's building and the long-term trend is going up. >> we see this big deal with sitig and the outgoing orders, but that appears a separate issue than what's going on with a macroeconomy. >> the real indication is the minister of employment that drove policy. it's the need to create jobs that has driven policy in china. if they stop creating those jobs, one wonders what na implies for the politics. >> exactly yes. this is what we see across the world. in the u.s. we have the flash pmi coming out later. the employment numbers hold the key to every policy decision at the moment, because those levels are reaching socially undesirable and stressful levels. >> they put out a note ahead of the u.s. pmi data saying we don't like the flash pmis and they have a short history of the series and they're not a great indicator when they happened. when we asked other economists, he said actually the correlation really strong historically speaking so people should pay attention to the figure we get later today. last month it signaled the slowdown that was coming. >> i don't know where local relations get. we're around 90% correlation on 2007 on indicators like payroll, manufacturing output. it's doing a great job and really be unwise not to watch it. the central banks are great favors of flash pmis. we're pushed to do more pmis and more governments want us to do them because they're useful policy tools. >> flash pmis taking over the world. thank you so much for your time, chief economist at market there. >> thanks to chris. we're an hour into trade for european stocks, and we went negative again. we wanted a bounce against the china pmi. the flash euro zone numbers chris talked about have brought us back down again this morning. around about 6-4. on the back of heavy losses yesterda yesterday: it there are a little bit lower right now, as we put the numbers up for you. flat for the footsi 100 and the ibex is down. we continue to focus, of course, on what's going on as far as debt yields are concerned of those peripheral nations. that's the sentiment indicator. the five-year 7.557, we're just below the ten-year of 7.56. this was to get fairly inverted earlier on. we look at that and the two-year compared with german's five-year. i was going to compare the ten years there. let's show you where the german ten-year is right now. move it on. the u.s. treasury hit a fresh low yield on yesterday of 1.41%, just above it at 1.43. the ten year is 1.52 and we hit the fresh lows on them. eurodollar, we got to a session high of 131.38 this morning and down to 121.07 and the low yesterday 121-67 which h121.67. dlafr yen is 70.80 and the aussie dollar has a bounce in the pmi. that's where we stand right now in some markets in european trade. what about the asian session and the the immediate reaction to the chinese numbers. tracy has more for us. hi, tracy. >> good morning to you. as some investors took comfort from the china pmi figures others just simply shrug them off. they reverse earlier losses to finish higher. the losses in the banking sector capped the market's upside. the hong kong market ended lower after shutting in the morning session due to a typhoon wrarns. the nikkei dropped for the first time in six weeks on spain concerns, exporters were badly hit pushing the index of japan's sector to a three year low as the yen strengthened against the dollar and euro. south korea had gains in blue chip stongs despite the ongoing concerns over euro zone's crisis. the chip maker sk gained 2.1% and hyundai motor added 1.8%. elsewhere australia finished marginally higher, and that's amid light trading vok. they're supported by the right in the flash china pmi for july. the margin is higher. ross, back to you. >> thanks for that, tracy. joshua raymond is in london and joins us now. we fried to bounce this morning and not really happening. where do we go from here? >> it's hard training today to be honest with you. we tried to see a bounce down and a lot of people are concerned with the severity of the falls we've seen over monday and also friday and where spanish bond yields are of course. if you look at the two sectors the banks and insurers are the two sectors that drag us low if we see a footsi sell-off again. imperial tobacco and rvs looking low, too. the chinese numbers even though they were better than expected gives you the opinion that sentiment was pretty hurt from what happened yesterday. >> yeah. how much focus in this climate can we give. we were given a lot of focus in the earnings season last week. yesterday they didn't have them and got washed over. we heard from texas last night, and maybe they're warning their revenue to be weaker. is it a walk-through from what the big corps are saying. >> you look out for the headlines. we saw news from voda phone last week. we have barclays and overseas later on this week. that's a focus in london trading. what you tend to see is you tend to see a recycling of attentions. we had it from central banks and moved to earnings and straight back on the euro crisis. it's hard to look for reasons that's going to distract your attention away from that when you have spanish yields where they are, when you have italian yields where they are and you look at headlines and speculation of moving spain towards a potentially needing a full-grown -- a full-blown bailout. let's not forget about that, too. >> what are volumes like, josh? are we getting into a stage where you normally get crises erupting because volumes are thin. it's easier to push these markets. are volumes thinned down or not? >> they're starting to. when you get a big move and you see the volumes come in because everyone doesn't want to get lost in the leeway so to speak and being on the wrong side of the big move. we're in the summer months and about to get in august. everyone remembers what happens with august last year. that's fresh in the memory. that keeps a lot of people out of the market. the moves we tend to see are very short term, and that also exacerbates the volatility, too. >> good to see you as always. joshua raymond. kelly. >> on today's show we will be heading to china where the country makes an ambitious move into north america's energy sector. we'll speak to a guest who thinking the record-breaking deal could be a sign of more things to come. greece is the word yet again as moody warns of risks of an exit and we'll hear about hope for a greek fix. >> greece faces another bond auction this morning. we'll bring you analysis straight out of madrid in a few moments. ups has offered a window into the health of the u.s. economy when the world's biggest shipper reports earnings later today. one analyst is bullish on the company. >> in the meantime the u.s. is due for a strong recovery in the housing sector according to a goldman sachs report. do you agree, and we want to see if you're in the u.s., do you see home prices rising in your area? join the conversation here and let us know. e-mail us or tweet us @cnbcwx and reach us directly. >> meanwhile, we're coming back to madrid as the treasury prepares to tap the bond market today aafter they high eyre row area highs. worldwide exchange financcontin just a few moments. welcome back. india has put out a subdued forecast for the main i.t. services business. they joined their rival saying it expects an outsource rs in the months ahead but the earnings you were up but it was lower than expectations and shares are lower by about 2.5% now. joining us for first on cnbc interview is the cfo at wipro and joins us live. your outlook has investors spooked this morning. what can you say to reassure them? >> i think when we guided last quarter we tlifred $140 million on currency which is .3%, which is the percentile of our 2% range we guided. so it was a pretty satisfying number. not only that, we had good growth in $100 million numbers that went up. we had got the analytical business growing 3.3% sequential. we have business growing, and we had our standing at 69 and we had about 27 new customers added overall, it was a good quarter with about 2,600 net people added in quarter one. >> perhaps it wasn't bad, but there were signs of a slowdown across major business units, whether it's finance solutions, retail and transportation, i.t. services kind of broadly. is this a world where demand is just working against you right now? are you surprised by the slowdown you see in some of your end markets? >> actually the slowdown is in the capital and investment banking market. we think we can come back to first quarter, and quarter one was subdo youed because of that element and i think it has grown well and we look forward to growing better in the current quarter also. in fact, if we look at the funnel, there's a good part of revenue which comes from the retail banking site. similarly look at oil and gas sites. we have grown very well and oil and gas also looking very good. the top three accounts have grown more than 10% so farce the energy and oil and gas is concerned. if you look at it overall, they have grown 5% quarter on quarter in the currency. it's the cross quarters that depreciated a lot and therefore in some form there was a contraction in dollar terms of the revenue. in a constant currency basis, it is. likely promtsed in quarter one that "two would be a good quarter. quarter two a guidance of plus .3 to plus 2.3 which is more on the positive side. so we, again, look forward to growth in most of the region, particularly in energy. we're looking at growth in the financial services this time. growth has come back, and we have continued to stay focused in mining accounts and we have now had 130 people trying to look for new logos in terms of the customer base we're looking for able to have not only the customers that we have to be able to give more share of but also try to get new logos to get more revenues and momentum growth. we also did an acquisition in the retail space, which is in the advertisement and promotion space. we did well, and the appreciation from the customers is very well. we seek to get much more traction going forward. >> you've described this as a complex and difficult market. you've gone through quite a bit of restructuring already. do you need to do more restructuring? >> when you look at the market customers look for much more efficiency and much more spending on the change of business. more and more customers realize the fact that the home countries get much less of a moderated growth rate and it comes from emerging markets. there are issues in terms of new technologies and the new line, and that requires more spending. we have to help customers partnering to drive more costs and more solutions and level of automation so the dollars can change the business model, which will be primarily focused on it to understand the customers better, solutions better, and more on clout so they can save a lot of costs and also on the mobility because with it becoming more and more sophisticated the lifestyle is changing and the delivery is different. changing is the telecon company, financial services company, retail company wants more and more online selling and advertising et cetera. from that point we need to help the customers to set up the up shop to demonstrate that to their customers, that kind of a convenience, and exbead yens of customers. >> thanks so much for joining us first here on cnbc, the ceo from wipro from bangalore. >> sticking with the earnings, out the asia south korea's posco has reported a 29 periods of time drop in quarterly operating profit. they came out after markets closed. posco shares are up .83%. they've been hit by slowing global orders and tough competition from steel makers in china and japan. cheaper imports undercut prices at home. posco and other south korea steel makers are considering filing anti-dumping complaints against japanese and chinese steel imports. you hear that out of the u.s. >> we have comments from the austrian finance minister, he said the greece exit from the euro zones no currently discussed. until the report, we have to assume greece will stand on its own feet by 2020. >> in the meantime, spain this morning will auction off a -- will have an offering of about 3 billion euros of three to six-month bills this as they sit at euro era highs. the results are released at 10:40 central european time. stefan join us from mad drit. the most remarkable thing this morning is they invert the five years above the ten years. what's it mean for the auction this morning? >> well, it's clearly a sign of recession, and you know that's when the curves are inverting, but the bottom line is that all the yields are at a record level and we expect this morning the spanish treasury to pay a high price for its treasury bill auction. three and six-month treasury bills. it was at 2.56% for the three months' bill, and that's 3.23% for the six p months, which is extremely high for such a short-term maturity. we're expecting the spanish treasury to pay higher than this price aat this morning's auction. we have the results in about 10 to 15 minutes time. yesterday we saw the yield on the spanish ten-year hitting a record level of 7.51%. that's on the spanish -- on spain also hit aa record level at 652 basis points, which is good. of course, unsustainable on the long term and raising the question about possible bailouts, a full bailout for the spanish economy despite what a finance minister said yesterday. >> it's an extraordinary backdrop for the meeting taking place today between the finance minister and the finance minister of germany. what's the point of this meeting? what are we expected to hear out of it, if anything? >> it was hard to get some information from the spanish finance minister, to be honest. they're not very talkative about the meeting. officially he's traveling to berlin to explain the austerity measures, how it will have a positive impact on the spanish deficit and how in the long term it should have a p positive impact on the spanish economy growth. now, of course, we can't imagine that luis and the german minister won't mention the tensions on the market. it looks like people are very nervous here. there will mention the tensions, of course, on the bond market and what action can be taken in the short term it to ease the pressure on spain and italy. there is one to buy sovereign debts from the secondary market. they might buy some debt. another option is that the ecb restance its plan to buy scorch debt from the markets. i send it back to you. >> stefan, thanks very much. about the most noise we've heard there, the madrid exchange for quite some time. we show you images of a parliamentary session where we expect to hear from the former finance minister and bank of spain governor later this morning. some it appears are already speaking. any flashing from that ceremony we will definitely bring to you. all right. still to come on the show, greece is back in focus. we will go to athens where they're assessing how far the country's austerity program has strayed off track. stay with us. you're watching worldwide exchange bringing you business news from around the globe. >> these are the headlines from around the globe, no less up in sight for the euro zone. it shows manufacturing and services sector contracting for the sixth straight month. >> piling on the pressure, moody's downgrades its outlook for germ and the netherlands to negative, warning over the potential impact of a greek euro exit. >> china's factory output has picked up a little bit, but the early read on manufacturing has marketed the ninth straight month of contraction. >> the yield on spanish five-year debt rises above the ten-year showing more evidence of strain aahead of bilateral talks today between madrid and berlin. >> in the meantime a quick update on morning lending figures outs of the uk. they're showing potentially not a lot of demand or new mortgage lending going on. in fact, the june mortgage lending figures which showed a total of 7.2 billion pounds of activity was the lowest. they were the lowest approval since january 2009, and i believe among the lowest activity broadly, ross, and perhaps more than a decade. >> i'll tell you what's of real interest here as well. the june lending to nonfinancial firms contracting 3.2 billion. in may it was up 1.3 billion. they're launching the new loans for lending scheme, and that shows you examples why we need to get the lending for loans scheme in. whether it will do anything is different of course. in june we had the extra days off for the june. >> maybe it was on the river, on the thames. >> june data, you have to see how it plays out over june and july as well. we have the dutch auction results as well. this is pretty well covered, despite the fact we had the outlook negative by moody's. thaifr sold 875 million. the average yield on that, 0.03, and it was .52. so basically you get nothing for dutch two-year. we do know actually on the cash markets two years have gone neglecti neglective. it hasn't gone negative in the auction. >> i don't know if it can, ross. i don't know whether did can here. >> the netherlands interest rate? >> officially at auction i'm not sure. >> i don't know. that's about as flat as you can get without it being negative, isn't if? >> absolutely. >> the average yield is 2.18%, sharply lower from the 3.554%. the moody's move has absolutely no effect. every time somebody gets a downgrade anyway, yeeds go lower. >> it depends on the circumstances. it tells us what we know. >> i look at jjvs, and the u.s. >> are you suggesting two decades of downgrades to japan? it haven had much of an impacts on the yield. >> japan, u.s. and france all no longer aaa. >> finland is, though. we have the fins. they have the loan aaa rating across the euro zone at in the point. >> does germany still? >> yes. >> perhaps the lone aaa rating without an outlook? >> finland without the negative outlook is the thing. >> the key point. >> european stocks, meanwhile, just over an hour and a half of the trading session are flat. the ibex is up and we throw up the spanish curve right now. we have the two-years as well. the two-years nudging 7% to just nudge over 7% a short while ago, and up 7.6 and 7.5 as kelly said inversion there. you have to remember this is where we were with italy. we're looking like italy last november when we saw 2s and 5s in italy up above 8%. >> that's a great point. that's when we see the ecbs. >> that's when we saw the government fall, and then the ecb came in with the first. >> there were fewer politicians to topple those. we have to rely on central bank policy-making. >> the big majority came in, and that's not going to happen. >> look at the rates we see because the euro is under pressure. this morning it's 1.2113. that's the level down just one or two-hundredths of a percent. the aussie dollar is holding there over parity with the u.s. dollar. that's the level up 0.3 on the morning. the spanish economy minister will meet wolfgang in berlin later today to outline the latest measures madrid is taking to get its finances in order. he told journalists yesterday that sfan didn't need a full sovereign bail out. joining us now is sarah. does the market agree with the assessment from spain's finance minister? >> yeah, and in fact until the beginning of this issue, the market looks to support this and appears the green numbers. now we're in red numbers falling down more than 1%. we really waiting for what happens in this meeting that we believe is very important, because he's going to explain to the finance minister in germany how will have spanish financial system reform. really, we're very, very expect up ant about the reaction about the reaction of this meeting. >> is he explaining or is he reporting? effectively, has spain now lost control of what they can -- you know, the memorandum of understanding for the bank loans was a lot more stringent that we thought it was going to be. >> i could agree with you. it really is reporting, because the help that the european union has given to the spanish financial system has so many details in terms of interest rate, in terms of a term that really is more a report. probably the next step of the reforms that we talk about how creative it would be for the spanish government to be, in fact. now we are very, very focused on the line of miss merkel and the german government, and really we have a very small part apart pr brussels and the european union gave us. >> they said yesterday spain should take help, and he denied there was any sovereign bailout. look where yields are at the moment, and we'll see what happens with this three and six-month auction. surely it's only a matter of time where spain has to get external financing help. >> probably, because if you do look at the ten-year bond is terrible. never in the last 20 years has spain must pay so much for its debts, and we can't maintain this level for many days or many weeks. really we want to need some kind of help. it's not you want a rescue. you need help from the european fund or realto buy not only theh debt and the italy debt that has a problem, too. we can stand in this situation for more than one week to weeks. >> i'm curious, too, sarah, what effect the short selling ban is going to have. we see markets down this morning, and it seems like stheez measures come in as come in closing the barn door before the horse is gone. we also see just curious what impact you think that will have on trading. >> really, the measures that the spanish authorities have taken is not the solution. if you don't allow the position, you only are putting like a door to the lamp. the market is broken. the spanish market equity is broken, and we don't need this kind of measure. we need more reforms from the government and really that our partners from the european union take and recover the troops in our economy and in other government. so really all these measures that we are seeing is not the key point and is not the solution. >> sarah, we have the spanish auction results around the three and six-month t-bills. we're going to read it. they raised just over the 3 billion that they wanted, 3.5 billion across asia. 1.62 for three months, they raised 1.6 in the previous auction. this is a bit to cover in the 22 2.9 to the 2.6. it's 3 versus 2.8. what i don't have yet or what the average yields are just to remind you, last time in june the yields on the three-month were 2.36% and last time in june for the six months 3.23%. kelly, you haven't seen the yield. >> it's taking a couple of minutes. you have to wonder what levels we look at, given that remarkable yield curve where you see the two-year going for almost more than the 30-year. >> yeah, which is a key point. you think these yields -- we're unsustainable here for what? basically in another month you think we'll be in a bailout, sovereign bailout? >> no, no, no. it's not sustainable, because it's so strange that the short-terms must pay more than in the long-term. so we can sustain the situation more than week to week. we remember the terms that are allowed to survive greek with only one week with the levels or ireland, no more than ten days or portugal almost a month before that they need the rescue. we are in this situation, but we have to wait because probably in this couple of weeks and then the coming couple of weeks our government approved a new reform that allow our country to not ask for this terrible rescue for our economy. we are really waiting for reforms, because the european union has asked. the reforms are about our region. our region now has taken it off our total debt. this is the key. all the cash that they have approved is not enough. we need really to focus on the region p and not make it. we think in our country like our company, we need to make a@@ co cut, synergies and we're going to take our state. this is the key. >> thanks for that, sarah. we're still waiting for those. the yields are out, and i have to bring you the yields before we get to julia. the six-month average yield build is 3.16% and that's higher than 3.2 the last time around. the three-month yield is 2.43. not an enormous jump versus the 2.3 that we had previously. so that's the latest on the yields. we're slightly higher. we might expect them to be more high and only three at six-month moin. the troika is back in athens. julia went back there. we have to wait a while before we know what they think. >> reporter: absolutely. it looks like ilts going to take at least until the middle of the august. that's what we're hearing in order to get back data on what the deviation is towards the second bailout deal. we expect them to be here over the next few weeks anticipating we could see up to 40 billion euros worth of additional cash needed to go into greece. the eu commission said irrespective what happened the next bailout is not going to be got by greece at least until september. interesting timing given that's the earliest we could see the esm deal agreed by germany too. the politicians here are skral beming to find 11.5 billion euros of spending cuts to qualify. we need to understand the deviation, and then it's about the willingness of europe to negotiate. back to you. >> all right. thanks to you. they just have to detail the spending cuts and not implement them? is that how it works? we found where we are going to make the cuts. can we have some money, and then -- >> talk tough. placate. >> in six months we haven't been active. >> we're working on it. we're working on if. that would be one strategy. that's probably what the game is going on already. >> still to come on the show, what's driving china's m and a in the energy space, and some critical perspectives even from our experts. >> we'll be right back. okay. we have news out surrounding barclays. anthony salts has been appointed to lead an independent practice review of the company. the global review will assess the values, principles, and standards of operations and outline any changes required to the business practices. it's based on evidence gathered through it. anthony is a leading legal brain in britain who has been executive vice chairman of roths childs and they have banking experience. >> shares down 1%. not much action to that. china in the meantime is making a bold push for strategic energy assets. the top offshore oil producer is offering more than $15 billion for canadian oil and gas producer while the top refiner will buy 49% in the uk unit for talisman for $1.5 billion. tracy chang has more on what's behind these deals. tracy. >> that's right, cally. if these deals go through, chinese companies play an important role in determining global poil prices. nexus and intel is in control of a third of the dwindling uk and most important the oil field operated by nexus plays a role because it is a large contributor for the oil benchmark. the key question is really whether regulators give these ambitious deals the green light. the last major bit for the u.s. oil coal was thwarted by heavy political attacks from washington. guess what? most analysts say their prospects for sealing the new deal are brighter. >> joining us for more is regional head of oil, gas and petro chemical research for asia and pacific. how significant are stheez moves? >> well, clearly this is a very large transaction. you know, we've been expecting cnooc to do something of this magnitude, although it's run into a substantial number of hurdles in terms of identifying the types of assets it could successfully bid for. so in the absence of sort of the elephant, it's been undertaking smaller-sized transactions and joint venturing and partnering with companies like chesapeake in north america and other partners around the world. this transaction, though, does remind us of the 2005 attempt to take over unical. as you rightly identified, that did meet with some significant resistance at that time. it does appear, though, however, that now cnooc may have found a willing partner in canada and in nexen. a lot of things have to happen northward for this transaction to successfully close, but there does appear to be some support from the high levels in the canadian government based on dments and in fact from the two parties to progress this deal forward. >> thomas, i'm also curious broadly how we see a shift or remaking perhaps of the global energy industry. >> well, make no mistake about it. all three of the chinese oil majors have been very active in their international strategies over the last decade since they became public companies. so i don't see this per se as an exception to their strategy that has been undertaken over the last decade or so. they've involved themselves in different kinds of geographies and all different kinds of projects. in fact, each one of the three companies in their own right is a substantial oil producer in the space. so they've naturally extended themselves out into other geographies to diversify their resource base and diversify their production. >> lastly, do you expect other companies to be targets here? have you identified sort of around the globe who else might be swept up in the wave? >> i think there are a number of different names we can talk about, but broadly i think you just look at the strategy and you look at the overall oil consumption profile in china. you can expect them to be just as all of their international peers both the majors and the exploration and production companies in the listed market space. they are always looking for assets and looking for opportunities in various geographies, and i think that that strategy will continue at pace. >> thomas, what's the risk of these guys overpaying? does it matter if they overpay? >> well, you know, this is a very big transaction here in dollar terms certainly, but you also have to appreciate that in nexen's case they bring to the table a very dwurs fied resource base, including assets in north america, in the canada sands, in the gulf of mexico as you identified earlier in the north sea and in nigeria where they operate and even in the middle east. so it's very easy for people to simply say, this is' very high price. one of the things they get is some very significant up-front current production in the north sea, which is very high value production right now. so this is going to be immediately accredtive it to production by cnooc and about 30% of the reserve profile. more importantly when we look at the proved, probable and contingent resource we talk about 7 billion boes of resource according to the documents. >> thomas, thanks for that. so, does that mean that this m and a means that political changes in china aren't having an impacts? let's bring in rob cox, who is editor at "breaking views." rob, thanks so much for joining us. there had been this thought and you've written about it that the changing of the guard would hold back chinsz's global ambitions. do these deals mean that's not the case? >> well, i mean, this is an energy deal. the read-through for me is any deal in the energy sector, anything giving chinese companies, particularly state-owned companies more assets around the globe and resources is probably okay. even so, this is a pretty bold move when you think a $15 billion bid where there's quite a bit of -- there's all the questions about whether it's approved by regulators in canada and the uk and politicians are the other constituency here. on the eve of what is probably going to be one of the more, you know, difficult and important party congresses, the 18th party congress as soon as october, you know, this injects an element of global politics into what is aat the moment has been a very international chinese political discussion. >> rob, you say if anything this may underscore the degree under which china's willingness to go after energy plays is -- supersedes its political change. what are we learning from the timing, the size and the implications of the this announcement? >> well, i think one take away is that cnooc is a little different. there are three big state-owned enterprises or oil companies in china, but cnooc is more internal. it was cobbled together to asell bell all the joint ventures that china had with other joint oil companies. they have experience and expertise and understand of foreign companies. the unical bid was $18 billion, was at least the narrative goes. everything in china when it comes to the party is pretty inskrutable. the narrative goes that the company basically went ahead with the deal without seeking the approval via the red telephones that every single se executive has that reaches out to the ministries and party honchoes did it anyway. this may be a separate -- the cnooc is sort of developing as a sort of i would say more foreign-minded as it were. >> rob, thank you so much for joining us with your thoughts on that. more from his column online at breaking views. still to come on the program, ups offers a window into the health of the u.s. economy when it reports earnings later today. we'll speak with an analyst who is bullish. we'll find out why. >> see you in a minute. welcome to worldwide exchange this morning. >> here's are the headlines from around the world. >> it shows manufacturing and services continue to contract for the sixth straight month in july. >> piling on the pressure. moody's downgrades the outlook for germany and netherlands. >> china's factory output picks up a tad in july as beijing's easing measures kick in. the early read on manufacturing is the ninth straight month of contraction. >> spain taking up short-term debt, but yields on the paper jump to the higher levels since the first three and six-month paper. >> you're watching worldwide exchange, bringing you business news from around the globe. >> well, a good morning to you as viewers just joining me. let me smift over here. we have a little green this morning. the dow jones taking fair value into account. never mind, it's in the red as well. down about 10 points. the nasdaq is pointed lower by 5. this follows shart sell-offs yesterday. the closing price wasn't so bad. today global markets are trying to cover. the cnbc footsi global 300 is about flat. right now we're sitting in the middle there. look what europe is telling us about the action. the ftse is up and paris is up about the same am. the ibex is not doing much to support market and clearly the weak performer down another 1.6%. >> we had the euro zone services that came in weaker and took us down. whatever is happening with the equities, it's on unsustainable yield levels for faispain. we have the currency xharcharts here. yesterday, it was 120.67 is where we stand. let's bring up the bond wars because that's where we want to noex in this morning. five-year spanish yields 7.59%. the ten-year is 7.54. we're inverted, and the two-year worth pointing out nudging 7% this morning, 10-year in italy 6.32%. let's compare that with the fresh record lows yesterday for these core markets. well, the ten-year german yield is higher, 1.27%. we het a fresh low of 1.13. maybe the moody's outlook is not having an impact on germany. u.s. ten-year hit 141. so we're above that level at 145. ten-year yields hit a fresh record low above that. they're back up as well, kelly. so we've got peripheral yields a little bit, but also the cause as well. let's remind you where we traded for. we traded in asia today. tracy is with us once again. >> hello again, ross. asian stocks were mixed as investors digest the flash china pmi. some took comforts in the numbers while others shrugged them off. they finished higher about 0.2 of 1%. the hong kong market ended almost 0.8% lower after shutting the morning session due to a typhoon warning. the nikkei dropped for the first time in six weeks on spain concerns. exporters were badly hit pushing the subindex to a three-year low as the yen strengthened against the dollar and euro. back to you. >> tracy, thanks for that. so we're getting ahead of the u.s. session today. what do you think? >> the action is so much quieter this morning. on "squawk" europe the prices were all over the place and there's nothings on market against it. >> given up the fundamentals are so weak. >> that's why you get these issues in august, isn't it? >> perhaps. it's not like there's no reason for moves this large. maybe as people come back into the market it will offer some support. maybe they won't do it for a couple of other months. who knows. business activity in the urp row zone is confirmed in contraction for the sixth month running with it shrinking at the fastest pace in three years. the composite pmi index for the euro zone in july stayed at 46.4. that was unchanged from june. meanwhile, moody's has lowered the outlook for germany to negative too stable. they cited several factors behind the move including an increasing possibility to leave the euro zone and the support for spain and italy. moody's changed the outlook for the netherlands and luxembourg. joins us is stewart richardson, partner at rgm wealth management. welcome. >> good morning. >> how troubled are you by the moody's move on some of the northern or core european economies? >> i don't think there's two key things to take away from this. one, is clearly the cost of germany to bail out the rest of europe is weighing on some investors' minds and a full bailout of spain would pull pressure on germany's finances. there's a big cost to try to continue this bailout program. the last point about a review of france by the end of q-3, that's the other thing we're taking away. the french finances appear to be in much worse shape. >> why are the yields performing so well in the last three months? >> germany or france? >> both. france in particular. we saw quite a bit of a narrowing. >> there's a couple of things. first of all, the action from the ecb to move to zero rates a couple of weeks ago forces pension funds, insurance companies, et cetera, to chase yield. the next step was to go into the government bonds across the whole northern european space. >> the deposit rate cut to zero? >> to zero. for germany they went negative yields first out of all euro zone companies. it was a bit of a safe haven. if you own germany two-year and they decide to move back to the deutsche mark, you get repaid in dush marks that we can find. >> the market is positioning for the deflationary scenario than what was said to be the much more likely outcome, which is that it hangs together and there's some inflation ultimately in the core. are we right to be discounting sort of the former scenario instead of the latter? >> i don't think so. there's the likelihood that greece will exit the euro at some point in the next two years. in terms of deflation, the recession in europe is spreading. it started or stayed with the periphery countries post the great recession and is spreading to the core. with the pmi data, we're in recession times, and then the policy response for example spain last week where we saw a $65 billion package. this is deflationary stuff. it's right for the short end with the special bank committee. >> what do policymakers have to do to flip markets around and believe that the euro will hang together and there will be more inflation? >> i think the only way for the authorities and politicians in particular to get ahead of the curve would be to commit fully to fiscal integration. >> would ecb qe have more than a fleeting impact? >> in our view, no. we look what happened in the u.s. and the printed money does not help the economy and has a fairly fleeting effect on financial markets. so to ecb would be buying a bit of time if they printed money here. >> time that gets wasted. in your view there's no point to do it. >> there's more discussion among central bangers wordwide about what to do here and they said the burden on central banks is getting greater and greater. they have all said reentdly we've done a hell of a lot here, guys. it's time for the policymakers to do their bit. >> the political policy makes. >> good to have you. stick around. more to come from you. what's on the agenda for the united states? the market flash u.s. pmi figures for july are out at 9:00 a.m. eastern. earnings continue to dominate discussions as well. today we get results from dow components, at&t and dupont before the opening bell. we'll hear from the likes of ups and lockheed martin. after the close we get numbers from apple and netflix. about 130 of the s&p 500 components reporting this week, kelly? >> it's a ton of them, so it's harder to focus in who might drive those headlines. we'll have more on ups in particular in the program. also in the meantime the u.s. is due for a strong recovery in the housing sector, according to a goldman sachs report that helped to boost home building stocks yesterday. do you see home prices rising in your area? that's what we want to know if you're an american viewer or if you're anywhere. e-mail us worldwide at cnbc.com or reach us directly at kelly underscore evans or ross westgate. >> still to come, the libel scandal is expanding as it reached individual traders. we discuss with a guest who says the libor affair is a fight to the death. you're watching worldwide exchange. >> some other news out this morning. barclays has named anthony saltz to lead an independent review of its business. he will report directly to the deputy chairman. he's expected to publish the findings of the review by spring of next year. i think he's also on the board of roth child. the libor scandal is expanding its reach to individual traders. more than a dozen from at least nine banks are under criminal and civil investigation for co-lewding together to manipulate rates according to the "wall street journal." joins you go is howard davis professor for sciences and chairman. rich is still with us as well. thanks for joining us. give us your own view of the debt and likely xwab lly impact from what you know at the moment. >> there's a lot of uninformed comment on this, because there are many more shoes to drop. they're investigating several other banks, so we don't whether barclays was a complete outlie or barclays was one of the pack. it's difficult to know how far it will go. my own view is the most important thing is to re-establish confidence in the benchmark rates. i think that will probably mean that the bba should give up doing libor and it should be handled in some other way with quasi-official body. i think that the key thing is to re-establish some market confidence in rates and leave the enforcement actions which will be messy and extensive to proceed. >> why was the bba allowed back around the time you were at the fsa in the mid to late '90s to change the methodology to allow banks to self-submit their own borrowing costs? >> the arrangements were not part of the regulatory universe at all during my time. we had no right or purchase on libor. this was a purely market-driven thing. there was nothing in the financial services market act to say we should regulate it. i can't answer that question, because it didn't cross any desk at the time. i think they made an honest attempt to say, look, we're trying to establish a benchmark when there is no business being done at the particular rates and they assumed the best way to do that was self-submission. >> will they scrap self-submission for libor and all the rates used across the zo globe? >> we need something that triangulates the self-submission. you have to check around the rate does reflect what someone would have lent to that bank if they report the rate they borrow at. that seems to be what there wasn't. there wasn't an audit and checking mechanism. we need to put that in place as soon as possible. >> it is called the libor fix, isn't it? >> yes. >> there's so many puns in that term. >> actually, the name -- forget the fixing part of it, but this was banks getting together and creating a rate. look, this is what we think is sort of an average rate for borrowing. so there was this -- there was always an element of creationism about it. >> yes. i mean, personally when i look at what we know now about barclays, i would establish quite a clear distinction between the first set of episodes and the second. >> and the second in the financial crisis. >> when one does think about, this was an environment of great uncertainty where there were -- the spread was enormously wide and there were huge peaks in rates and people were desperate to find a benchmark. it doesn't appear they did it terribly cleverly, but i see a distinction between that. >> it's the former which is potentially going to result in criminal charges, which we're now looking into. >> howard, last week ben bernanke you said that libor was a flawed rate or mechanism. do you share any sentiments, and if so can you think of a better alternative? >> i think it is a flawed mechanism now, and there have been a number of interesting pieces of academic work using auction theory about how to re-establish confidence in a rate that was more rigorously based. i think that needs to be explored as a matter of urgency. the bank will do that. king has summoned a meeting in basil in september to work up a better way of doing this. >> it will create a global benchmark that was more volatile than it was if they don't go to something purely central bank set. is there a risk in upsetting the applecart? >> if you have volatile markets, you risk having the volatile rate. i don't think there's any way the avoiding that. i assume we hope that one day we'll get back to slightly more normal market conditions where interbank borrowing rates are more easily expoliceable by risks, but i don't think you can avoid that. the markets are volatile at present. >> can you stay for another ten minutes? what do you think? >> can we keep you -- >> for five. >> we'll breeze through these. a reminder of your headlines, the latest pmi data out of the you're low zone shows business activity continues to krcontrac for the sixth straight month in july. >> the netherlands to negative. >> they pick up a bit in july as beijing's easing measures kick in. 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[ female announcer ] the next generation of investing technology is now within your grasp with the e-trade 360 investing dashboard. e-trade 360 is the world's first investing homepage that shows you where all your investments are and what they're doing with free streaming quotes, news, analysis and even your trade ticket. everything exactly the way you want it, all on one page. transform your investing with the e-trade 360 investing dashboard. welcome back. the treasury managed to sell the top targeted amount at an auction of three and six-month bills. yeeds broadly speaking are still at euro era highs. stefan joins us from the madrid stocks exchange. what's the take there? >> it's not ideal, but it could be worse. let's summarize it, we expect spain was asked to pay more than for the last auction for the three and six-month treasury bill. 2.3% for the three-month treasury bill compared to 2.3% a month ago. for the six-month bill, 3.69% for the average yield and that's to compare with 3.2% in june. it's not a record level. it's the highest level since november, but clearly it's an -- it remains very expensive for such short term maturity, as you compare with the level of 1% that spain was paying for its six-month treasury bill in march of this year. it's probably the last auction until september probably because there are some auctions on the agenda for the months of august. traditionally the treasury can sell these auctions during the period. probably we won't see any option from spain until the beginning of september. meanwhi meanwhile, something interesting is happening on the bond market. the spanish five-year rose above the level of the ten year for the first time since 2001 and clearly it's a sign that the market fears a credit event in spain. >> thanks very much for that. >> there's a scheduled bond auction next week, so we see whether they cancel it or not as stefan suggests they might. the greek economy contracts by more than 7% this year and this is according to the prime minister to ease it this year and look for recoverying 2014. >> they want to cut unemployment to 10% over the next four years. their employment rate is extraordinary. that's a goal, but whether they can do is a totally different matter. >> let's get your view here. we've seen bond yields this northern in spain inverting between 5s and 10s. it looks like italy back in november for the collapse of the ltro. what's your end view of what happened? is spain heading for full sovereign bailout, do you think? >> yeah. i think this is very gloom news at the moment and it's worrying that the epicenter of the crisis has shifted from greece to spain because it's not clear what your options are. you haven't got a crazy government like you had in italy, so you have a government that has just recently changed and a perfectly sensible government, and yet, the markets are not convinced. we had the 100 billion supposed bailout, but that's really on the spanish government credit and not from -- >> is that a key mistake saying spain is fully responsible for na? >> yeah. i don't think a gree with what stewart said earlier. unless the germans are prepared for a mutualization of debt, which might be done originally through the ecb, spain is on the route to the door. >> were you a proponent of the euro project when it launched, and have you changed your mind now? >> yes, i was generally a supporter of the euro project at the time. there are very few people that admit to that now. it's only because you smiled nicely than i did. >> it's a very effective interview technique. >> i did at the time believe and i was part of the european monetary institute discussions because the bank of england was involved at the time in the construction of the euro. we did believe at the time that it would be followed by other measures of fiscal integration and economic governance in the euro zone. because we accepted -- at the time we all acknowledged it was an incomplete project. >> a kris is one way to get there. is it time to abandon the project? >> i think we're not getting there quickly enough, and what it looks as if is if the treaty was a high point of federalist nuc enthusiasm in europe. when people ask what they think at referendum, they're not keen on it. i think it may be that the politics simply will not deliver the retro fitting of the euro zone that is needed in order to make it work. i'm afraid i've become pessimistic. i think greece will leave and i think there's a possibility spain will leave, too. >> howard davies. >> still below 50 fers in my view. >> we need to let you go. thank you to that. plenty more investment advice from stewart as well. it's where we are in the u.s. markets right now. >> red arrows, ross, but not by a ton. we'll see if any u.s. data will break that and preview ups earnings when we come back. welcome back to worldwide exchange this morning. >> these are rur headlines from around the world. >> no letup in site for the euro zone. they show manufacturing and services continue to contract for the sixth straight month. >> piling on the pressure. moody's downgrades the out look over negative warning of a greek euro exit. >> beijing's easing measures kick in and it's the ninth straight month of overall contraction. >> spain has an auction of short-term debt but yields on the paper at the highest level since the launch of euro. >> you're watching "wor exchange" bringing you business new from around the globe. >> well, agreeing that you can glimpse behind me over here is unfortunately not necessarily what we see when the dow jones industrial average opens later on today, because when you take fair value into account, futures are pointed lower by about 18 points for the morning. the nasdaq is pointed lower by one or two points and same thing for the s&p 500. not sharp moves. certainly that's following more weakness in the markets yesterday, and the tone from trading in overtinight markets a bit mixed. the ftse is in the green and the ibex 35 and spain, this shows what happens when you institute a short-selling ban and people can't hedge positions they might have open. buyers are on strike in spain. 1.8% to the downside is what we see for that index. >> so stock markets are shrugging off a moody's warning that germany may lose its aaa rating. >> i have to say even if china was still going to struggle, i still like currencies like it because it provides you with an yield and an alternative home for your cash. >> you need ten years to make real sense of the businesses. for me, how much cash do you got and how much will you give to me as a shareholder in these yields? >> we have the strong two companies, adidas and s.a.p. with a relative strength and are holding up on the back of the news flow. of course, now that the olympics are coming next week, very strong. >> stuart richardson is with us. where would you return? >> within fixed income we look at asian bonds where the running yield is up 1.4%. in the rest of the world where we're not interested in g7 bonds at the time the moment. the credit risk is too great or the yields don't compensate you for the risks. we put money's worth in a high grade area in the u.s. we think the greater move towards zero interest rates from the central banks and talk to maybe the bank of england and the fed would cut rates on excess reserves and sets going to force investors to further out the curve. it's a high quality corporate area with a bit of yield. if you want to chase at that debt shs should give you some sort of yield in the nextew months. in the equity area, this is a well-trodden story. it's not true. you want to go for the robust dividends where they're well covered where the company increases the dividends in defensive secretariestors. >> they're the corporate bond and corporate equity and both areas that are expense i beliiv traditional metrics. >> where the central banks force you out, you have to do something with your noen. >> you don't see that in the greek stock market? >> speaking what's happening in greece, the prime minister is making comments it this morning saying that foreign officials are undermining reform efforts in greece. they say the country has little time to achieve the reform goals and it can do more but doesn't have much breathing space. at the present times to cut unemployment to 10% over the next four years, a pretty ambitious goal. >> they're arriving in athens to help revive the country's drive for austerity. troika says greece needs to fulfill its bailout commitments before there's discussion about adjusting the program. we have this report. >> this is the review that was supposed to happen in june but got delayed for the second election. it's likely we see troika here until the end of august. they're looking at what roomefo have been failed to be implemented over that period. we had this awful gap due to the political situation here right now. the eu commission says they do believe that the greek politicians here understand the urgency that irrespective of them they don't give them the next bailout chance until september. interesting timing, of course, given that's the earliest to see germany pass through the esm deal. in greece those delays mean that the recap talization is delayed. the politicians are scrambling to pull together spending cuts for 2013 and '14 in order to qualify for this installment. at the same time they need to find a plan to repay 6.5 billion euros. you don't need to stop bantying these numbers around to talk about it. we're suspending repayments to the esm and all the things. they come down to europe's willingness to negotiate but ultimately for now we need to understand how big the gap is. for now, though, guys, it's back to you. >> joining stewart, kelly and mus is john hennis, a partner at krishg land ellis. nice to see you again this morning. mario said yesterday the euro irreversible and you have german politicians saying if greece can't pay, they have to leave. clearly, it's not. >> i think that's right. i think that we've been sitting here talking about this, ross, for the last three years, and it seems like it's deja vu all over again. what germany and what the euro zone wants to do and what they can do is two totally different things. to me, greece is just a little dot now in a kind of sea of problems that we have, because we're looking at spain and italy that really have major problems. i think the biggest problem we've had is that the euro zone has just ignored and the u.s. hasn't done much better. kind of ignored some fundamental lessons you should take from other restructuring that we've seen, whether they're sovereign or corporate. the first one is you want to do no harm. and what they've done here is they've said to greece and now we're seeing it in spain and italy, they've said in order for you to get any of the bailout, in order for you to have our help, you need to put these austerity measures in. what austerity does is it slows growth. as they give money to greece and increasing greece's debt and making greece make all of these cuts and increase taxes, what we see is we see slow growth, increased debt, and we're just adding to the problem. in order for, i think, the eu to get it this fixed, they're going to need to stop for a second and find a way to say let's preserve value. even if the economy is stalled or slowed, let's just get it to a point where it just kind of -- we've hit bottom. now let's get a plan that actually works where investors want to invest. >> john -- >> we haven't seen that yet. >> we're pricing in the possibility of a full bailout for spain. what might that look like? if a sovereign payout to spain, what might that look like? are individuals encouraged to buy bonds get wiped ut? will senior debt holders take a cut and what will the consequences be? >> yeah. i think those are all incredible questions. what it demonstrates is the complete uncertainty of the situation. if you're a bondholder and what you see is you see europe come in with a bailout, do you think you're going to be able to be parity or equal to them when you get paid out? i think the answer to that is probably not. i think the government's and the ecb look to get paid back first. so, again, it just doesn't instill any confidence in anybody to invest unless they're getting huge rates and we see these yields go up in spain every day. i think we need to have a plan that works. we've seen this again and again in the corporate world where it's tried and true. you put a restructuring plan together. you let all the constituents know what that plan says, and then you get things done. >> john, we wanted, of course, to remind people that the u.s. has some debt problems of its own. u.s. treasury secretary tim geithner says congress must come together on a deal to cut the deficit as a wave of tax hikes and automatic spending cuts next year would damage the fragile economy. on an interview with charlie rose, they say they couldn't have a repeat of the debacle last year. >> these concerns about the end of the year could, as you said, cause people to pull back a little further. that would be -- that would make growth weaker than it is today. >> stewart richardson is still on set with us. >> i think inaction from policymakers to look at the short-term problem and say we can't have a repeat of last year and secondly to kick the can down the road like they do where they say we'll extend the tax cuts and so on and not tackle the problem at all. >> there are two issues here. there's the debt ceiling, which itself is this issue that we run into from time to time that says the u.s. can't bore roar beyond the a certain tlesh hold. we face this it issue, which is the fiscal cliff at the end of the year. being hamstrung by coming to an agreement to raise the debt ceiling, how do you take that into consideration and figure out whether you want to bet on u.s. growth at the moment? >> coming in a a slightly different angle. the ceo of honeywell said last week this is desperately needed to be tackled. you have a big company, the biggest uncertainty for him is this issue of the fiscal cliff. it's not just saying we'll increase the ceiling and tackle it in ten months time. if we don't do it now, the long term trajectory is worse looking five, seven years out. to me, you know, there's no easy solution out of this or no pain-free solution. either they tackle the problem now a accept that will impinge on growth, or they do nothing and get away with it like last year and have a bigger fiscal cliff down the road. >> is uncertainty now inhibiting investment now? >> sure. i think it's no question inhibiting investment. what we see across -- you see corporations sitting on hoards of cash because they don't know what's going to happen in the future, so they don't want to spend it. we see investors with the same types of issues, individuals. i think that we've kicked the can down the road, but the road is clearly ending. that's what tim geithner is saying. he was muted and understated because he has to be. if we hit january and see this increase in taxes and we see these cuts sp spending, we see a recession. obviously, that's a terrible thing for the u.s. economy, and we have so many great things in the u.s. economy with our technology and innovation that other countries don't have it's a shame that our political leaders can't get together and come up with a fix, which everybody else seems to see what that fix is. >> all right. john, stick around. more to come from you. stewart, we'll let you go. from rgm wealth management. >> still to come on the program. home sweet home. we show the u.s. housing market may be on the mend, but what's really happening on the ground? we'll take a look next. 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[ male announcer ] the citi thankyou visa card. redeem the points you've earned to travel with no restrictions. rewarding you, every step of the way. you're watching worldwide exchange. a goldman sachs report lifted home builder stocks yesterday and we want to know if you ag e agre agreed. john tweets residential real estate prices in richmond, virginia are improving. the market is improving and will take off after november. that's what he thinks. carolyn king says home prices have been stable in march where i live in the middle of the u.s. perhaps the heartland is doing okay as well. what's happening in your area? let us know, tweet us and e-mail us. of course, you can reach us direct directly. and a new report comes out today from real estate website zillo.com. shows u.s. home prices rose 0.2% in the second quarter. it's the first year-on-year increase in 2007. nearly a third of the metro areas showed annual price hikes as they measure prices of comparable homes in the same community. that gives a reasonable picture of trends. john, are you buying real estate? >> i actually did just buy a house. i think real estate can be a good investment, obviously, if you're buying a home and can afford it. i think the interesting thing about seeing the increase in prices for the first time year-over-year since 2007, you can look at that and says it's great and the prices are going up. we should expect them to go up a little bit. if you remember back in 2007, i believe housing start numbers were at about 2 million starts per year. that dropped down to historic lows at 400,000. you think there will be pent-up demand to buy homes again. with rates so low so we can afford a larger house because their monthly payments aren't going up and they can stay stable, i think you'd expect to see them go up. but, you know, i think at least when you buy a house and you can afford it, you buy something you can live in and stay in for a long time, which is obviously very different from jumping into the stock market and having to deal with the uncertainty there and the headline trading that goes on. >> and fight the machines no less. john henes, thanks for your thoughts this morning. good luck with the house. ross, irng we need a bit of luck in the spanish yield curve. >> nice to know who is putting some brokerage to work there. we had a spanish t-bill auction today. they wanted a little more than 3 billion. yields were high and within the realm of expectation in the s six-month. today we got up to just under 4%, 3.9%. which is where we want to look this morning. we want to point out the two-year nudged over the 7% fairly briefly. we have inversions on the 5s and 7s and 10s. 7.6% the yield there and 7.57 for the ten-year as you can see. that sounded a little like italy back in november, of course. what happened to the core bond yields? they have gone higher as well today. ten-year treasuries goes off to hitting the fresh record lows 1.44 this morning. we have that negative outlook for moody's on german debt and yields rise 1.25%. we started this morning below 1 1.2. there's been an impact on the yields there, but it didn't impact the dutch auction this morning. kelly. >> thanks for that. if you are just tuning in this morning, these are the headlines. the latest pmi data out of the euro zone show business activity contracting for the sixth straight month in july. moody's downgrades its outlook to negative, and china's factory output picks up a bit in july. >> still to come on the program, we preview apple's earnings right after the closing bell today. will ups deliver on the results? we'll talk about it as well. [ male announcer ] it's a golden opportunity... to experience the ultimate expression of power -- control. ♪ during the golden opportunity sales event, get great values on some of our newest models. this is the pursuit of perfection. if you just joined us, the stocks are flat this morning but the ibex is down again. >> the u.s. futures are in neutral territory if you take fair value into account. we have red arrows across the board. about 15, 20 points lower for the dow. the nasdaq pointed lower by about 6 or 7 and the u.s. 500 by a couple of points as well. >> did consumers continue to snatch up iphones or ipads at an incredible rate or holding off for new devices. john fortt is previewing the numbers. >> the biggest earnings report of the season, apple's is up after the bell today. wall street looking for revenue of $37.2 billion, earns per share of $10.36 plus or minus a sent. that's been fluctuating a little bit. the real question is whether apple can hit those numbers and beat them as they have been recently at the rate that wall street has come to expect. a number of analysts are relatively bearish on apple thinking that the iphone sales are he slowing down and the ipad's growth rate is slowing down as well. a number of analysts expecting fewer than 30 million iphones sold in the neighborhood of 15 million ipads. still good numbers but not blowout numbers. a number of independent analysts i've talked to think that's hogwash. that apple is indeed on track to sell more than 30 million iphones and perhaps in the neighborhood of 20 million ipads. if apple does that, not only will it change the kalb lcalcul growth. it would be another blowout quarter. the traditional analysts expect something muted and the independents expect another blowout. we'll see what happens after the bell. back to you. >> ups reports second quarter results before the opening bell, and the company will earn $1.17 a share on revenues of $13.7 billion. strengthening demand for domestic package deliveries and prices may offset growth overseas. joining us on the line from new york is john barnes, managing director and senior research analyst at rbc capital markets. john, you like ups and have an $88 price target. what do you expect to hear from the company? >> i think the second quarter results are largely in line with expectations. you know, expecting, you know, kind of modest single digit revenue growth and marginal improvement. what's much more important is people are going to look to ups for some insight as to what to expect in the back half of the year and especially with the peak shipping season. there's a lot more focus on back half expectations versus the actual second quarter number. >> now, we've heard so many cautious outlooks from companies, even mcdonald's, across the board whether it's consumer focus, materials or industrials. why do you think ups is able to come out and actually impress people today? >> well, i think the second quarter numbers, they didn't get out too far over in terms of expectations. i think they really kept the expectations reined in and are cautious about their commentary for some time, especially given their presence in europe and the slowdown they saw in asian trade. more importantly, you know, they touch 8% of u.s. gdp. they give us a good indication of what they're seeing, and i think through the quarter the consumer held up okay. i think that's going to be the saving grace here. the domestic u.s. parcel traffic remained fairly strong during the quarter. >> we get any updates here, john, on whether ups is being able to get access to the chinese domestic market? >> there might be a little bit of color provided there. the more pressing discussions at that take place are any questions and insight around the transaction. i think that's more pressing than there are opportunities in china just because that transaction is actually in the process right now. >> yeah. lastly, john, their margin outlook, if their business mix shifts at all, is that a problem for them? >> i don't think a problem. everybody recognizes they have two issues going on. more of a consumer oriented focus versus a business oriented focus. that's an issue, and also we anticipate the continued shift from air products to ground products in the u.s., and that's obviously been a bit of a mixed issue as well. don't think it's going to be a big surprise to anybody, and again, i think that's where you get that inline result on the quarter. >> what do you predict in jet few prizes and highway diesel prices for these guys? >> stability from here. we saw diesel fuel prices flatten out a little bit. jet fuel prices go down and delta is buying a refinery and that type of thing. ultimately i think we're going to start to see stability in fuel prices. we've gotten the correction we're going to get. keep in mind ups does a phenomenal job of recouping higher fuel costs and fuel suhr charges. so it's a pass thuf through for them, and we don't think it's a head wind or tail wind at in the point. >> john barnes, managing director from. ross, we don't have to wait long to find out what ups has to say about the u.s. and global economy. >> "squawkbox" is coming up next. >> keep an eye on that ibex, 35. good morning. troubles economic stats out of europe, but signs of improvement out of china. we've got another tech company warnings of a slowdown in spending, and new yorkers plan supersized comments today at a public hearing on proposed sugary drink bans. "squawk" begins right now. >> good morning, everybody. welcome to "squawkbox" here on cnbc where we like our sugary drinks. i'm becky quick and joe is on vacation today. let's get up to speed this morning. first up, moody's chang