Transcripts For CNBC Worldwide Exchange 20130128

Welcome to todays Worldwide Exchange 37 im kelly evans and these are your headlines from around the world. A state of emergency declared in egypt after riots in the biggest cities along the suez canal. The dow is now set to post its best january in more than 20 years. Shares rise after the central bank approve the second bailout as politicians make accusations over the failed lender. 52 of those surveyed would prefer the uk to leave the euro. I should have said leave the european union. Britain cant leave that monetary issue. Well have plenty more on the relationship between britain and europe. For now, we can look at the relationship with markets. The euro stoxx 6700 is down about 0. 4 today. Not a done of differentiation. The biggest gainer, interestingly, is monti paschi. Some of the airlines are struggling, too, on the back of ryan airs results. Now take a look at whats happening across the bourses. Were seeing somewhat again of a trading pattern here after the last several trading sessions where its not consistent. Well get those up for you just as soon as we can. Today, its down pretty much across the board. The ibex shedding 0. 12 . The cac 400. 15 the. The xetra dax is also down 0. 1 . The ftse 1100, same thing. Pretty consistent story across these indexes here. Its a big week for earnings, too. In the meantime, lets take a look at the bond wall. Its been interesting, actually, to see the lack of action, lack of attention markets have been paying here lately. Over here, gilts are holding above the 2 level. Interesting to look at whether that relationship gap between gilts and trishrys will hold. 4. 1 in italy. There will be a couple of italian debt auctions later this morning. Spain, 5. 16 is the level there. Bunds, 1. 63 , so we have seen them move out a little bit. In the u. S. , earnings will include exxon. Nymex and brent are down this morning. Nymex by 0. 1 . Brent by 0. 4 . Great stories and illustration in the Financial Times today talking about shale burn as more of that sail Oil Production has increased. But gas outflows are big. You can see them the way you might see the city of minneapolis and the city of chicago. Thats raising plenty of questions. Over here, gold is continuing to sell off, down 1. 6 . Its been under pressure for the last couple of weeks as Growth Prospects around the world have actually started to perk up a little bit. Copper, though, is just fractionally lower, too. So its different, perhaps, than whats happening with global demand. Quick check off forex, we know the sterling has been weaker, but now another 0. 4 against the dollars. 1. 57 is the level there. It was shortly a go above 1. 60. Australian dollar, weaker, too. The dollar yen, down by 0. 3 . The euro dollar down by 0. 25 . 90. 63 is the level here to watch, one of the biggest stories on for ex. Lets get straight out to li sixuan who joins us now from singapore. Thank you, kelly. A lot of focus was on japan today. Shinzo abe used his first policy speech to high lie the importance for the boj to reach the 2 inflation target after new cabinets raised the countrys Growth Outlook from 2. 5 from april. But the nikkei saw some profit taking after touching a fresh 32month high. Caution over domestic earnings weighed on sentiment. Toyota didnt get a let, but sony shared dumped 9 after citigroup raised the countrys ratings to a buy from neutral. But look at the shanghai composite, a 2. 4 jump. This after data shows processing, Industrial Companies climbed more than 17 in december from a year ago. Brokerages rallied after the shanghai and shenzhen bourses said they were nearly double the scale for margin trading. Vol vo agreed to buy a 45 stake in its commercial vehicle unit. Meanwhile, shares in hong kong gained a modest 0. 4 . But chinas costcos h share split about 5 after after the shipping giant warned a second Straight Year of significant loss due to freight rates. The kospi extended its fourday losing streak. Automakers dragged tin decks low. Australias asx 200 is out for a Public Holiday. Indias sensex is currently trading along the flat line. Now back to you, kelly. Thank you for that. We want to turn our attention to asia. Jonathan stubb joins me now. Good morning. Good morning. Youve got the pullover look going, the zip up look. I like it. I just want to talk a little bit about equities broadly. Is one of the real questions coming into this year after the run up weve seen in european stocks this year, how much further can we go here . Looking in the medium term of the next two years, were looking at 25 to 30 returns which sounds like a lot. Base odd assumptions of modest earnings. The medium outlook looks good for markets. We are cautioned about running very aggressively with this swiss rally in the near term. I want to get into earnings in just a second. You mentioned three factors here. On the valuation side, we know weve seen the multiple at near year highs, but how much further could we go on that front . Theres two main points here. Last year, we saw a rerating and a no earnings rate in europe. Unfortunately it was driven by a reduction in risk premium thanks to policy reduction rather than risk pick up appetite. We think that happens from here on in. One of the key dynamics here is a change in corporate interest rates. So when you look at the triple b bond yields, they were 12 three months ago and theyre now 3 . We would just expect to see some releveraging from the corporate sector here. That is a great point. The second point briefly, equities are cheap now against credits. We mirror image on the late 90s. Equities look relative value great terms 37. Whats happening on the credits side than whats going on with equities given the rally . What weve seen and what youre suggesting is not necessarily a great rotation from credit into equities, but almost if they both continue to rally together. Yeah. I mean, credit has rallied very hard. We see sort of some upside in credit over the course of this year. But equities look like a better risk reward trade especially over this period in time. And they mirror the expensive levels of equities in the late 90s. We know what happened then. Were advising our investors to look at the trade because of the equity market of the next couple of years. Were just showing this morning we are kicking off the week with most of the major bourses down, down by 0. 1 . Do you like europe broadly . Or how would you prefer to play this market . Weve seen strong leadership within the market over two or three years. We think that broadly continues. But what is interesting, i think, about this year is that the opportunity, individual stock return opportunities are much more by corporate action. To the balance sheet, releverage or not, also by restructuring, as well. Restructuring for us is a very good bottom up. Its one of the key drivers of performance this year. Our key message is to be selective within europe. Thats both at a country level and at a sector level back both countries where you can see growth being delivered. You mentioned earnings, one of the tenants of your call here. Philips electronics will kick off Fourth Quarter results tomorrow morning. Other heavyweight these week include fiat, h m, do you have ya bank and shell on thursday. Jonathan, on that front, earnings here, any reason to be concerned . Because if anything, this being most ties to lets say nominal gdp or growth across europe which we know is extremely weak, what is priced in at this point . Well, i mean, one of the interesting things is if you follow earnings over the last six months, weve seen 38 consecutive weeks of earnings downgrade. You would have been pointed to the way share prices move. Earnings havent been a great guide over the last six months. I think at this stage in the cycle with nominal gdp growth, globally running at an average level, its quite hard for the corporate sector to meaningfully disappoint whats out there in the market. I think selectively in industries where you have high cap ex and low prospect abilities, utilities, come ex, youre at risk of seeing disappointment. Maybe the banks selectively in europe is maybe sustained some up side surprise, cost cutting and maybe improve capital divisions. Its interesting because in the u. S. , i think its Something Like 40 of the s p revenues, maybe profits, too, come from overs overseas. Whats the share in europe . You mentioned, again, that its not just the story about whats happening with the domestic economy. Yeah. Rates probably close to 50 in europe. Europe obviously is a collection of smaller companies. If youre historically in those countries youve had to reach out much sooner than American Companies have. Theyre Global Leaders in their industry around the world. They just happen to be based here in europe and one of our key messages of the last four years has been buy European Countries and make sure they have as little exposure as possible. Thats generally the message. Theres more competition in the market now even from peripheral countries benefiting in the risk rally. I wonder about philips, too, reporting tomorrow. Are they seen similar to alcoa as the barometer . I think, you know, any big company which comes out and meaningfully beats or disappoints the market, european equities are up. 25 from the lows in the summer. It could be any number of big stocks which sets the near term direction of the market. Overall, its very unlikely. The corporate sector has within its power to greatly disappoint or please the markets as we go through the next few weeks. I think politicians are a much greater risk, both up side and down side given the events coming up in italy. Thats often what youll hear is still about these events. But between the general Market Sentiment being so bullish on equities, i have to say almost globally the sense that theyre overbought, that theyre liked too much, that there needs to be a healthy correction and that maybe politics is the catalyst for that. It may well be. The pain trade, hardly any capital has been allocated in the markets the last five to seven years. Capitals have been allocated on a capital protection basis rather than any attempt to protect inflation or to generate capital returns. So theres a huge potential for capital to come back for equities. We think that happens slowly. Any risk factor out there, whether its politics, whether its macro, can this market buy sense in the quarter. Thats one reason why perhaps theyve struggled to go down that much. Two final questions. First, how is european equities earnings season generally going to go and, second, where is the stoxx 600 for the year . We think the stoxx 600 tends to head higher. How much is the question of how much money comes into the market between now and then. Its quite easy to see the market up some 5 , 10 levels. Earnings season will be down generally. You have to be selective. I think id be looking elsewhere for the market direction over the next six months rather than earnings season, to be honest. All right. Jonathan, thanks very much. Thank you. Speaking of earnings, ryan air has raised its full year forecast after a surprise Third Quarter profit. The budget carrier said average fathers for the traditionally weak period did rise 8 . But speaking to squawk box earlier, the companys ceo Michael Culley was not as optimistic on growth Going Forward. The awkward surprise in these results with the strong yield from october to december. And were not really experiencing the same surprise in this quarter. Were doing well, but were not doing as surprisingly well as we did in the Third Quarter. He also weighed in on the irish governments efforts to boost its economy, saying progress was being made, but insisted more could be done. The government has not necessarily addressed all the issues. Theyve done well and theyve certainly addressed certain aspects of the cost space within ireland. But for those companies, particularly retailers, were operating within the irish domestic market exclusively, its a very, very different environment with awkward rent reviews, Public Sector costs are highly uncompetitive right across costs such as wages. Other local authority charges on retailers in particular and those with Large Industrial premises within the country and we also have a domestic mortgage crisis with the banks. Now, ryanair shares are under pressure today. You can see theyre trading down by better than 2 , in fact, taking the sector down, too. Ezjet is one of the worst performers on the stoxx 600 today. Ryanair is roughly flat over the past seven days, so marginally higher from where we were a week ago on the back of those comments. We are going to head out to tokyo as toyota reclaims the crown from gm as the worlds biggest carmaker. Well get the latest from egypt as president morsi declares a monthlong state of emergency. Dozens of people have been killed over antigovernment protests. Well take a view on equities, too. The dow, as we said, is on pace for its best january since 1989. And, again, for that backdrop, blackrock is reportedly buying an 80 million stake in twitter, snapping up shares early from employees looking to liquidate their stock options. That is up from a report 8. 4 billion in late 2011 when saudi prince amalied invested in the country. Is twitter is bargain here if its going to be the next facebook, maybe, for better or worse. What price would you put twitter at . Join in the conversation, email us or tweet us. Now, coming up, is Central Bank Independence a myth . Our next guest has some strong opinions. Well be right back. Welcome back to the program. A state of emergency has been called in dozes of egyptian cities where protests have been going on. Egypts morsi delivered a stern warnings in an address to the nation. On one hand, he issued a state of emergency for some of the cities that have seen the toughest fighting since clashes began. He also imposed a curfew for the residents of those cities. Now, he also warned that the government would use all force necessary to try and restore security, including deploying the military as theyve already done in the cities of suez and port saied. Thousands of people turned up today to bury the dead, including at least 30 people that were killed in deadly clashes with the police on saturday. On the same front, though, the president is facing a political crisis with members of the leading opposition. He has invited members of the National Salvation front and other notable politicians and independent politicians here to the president ial palace on monday to hold emergency crisis talks to try and find a way out of these crises. But for protesters on the street, their demands are simple. President morsi must step down and there is no indication that president morsi is going so be meeting any of those demands anytime soon. He still enjoys a great deal of popularity. So this country is as polar eiz and divided as it has been. Well have plenty more events on the conflict out of egypt at about 10 40 central time. Dont miss that. Turning to japan, shinzo abe is wasting no time in putting pressure on the boj to raise its inflation goal. Abe says the central bank needs to hit the target asap. That is up from the earlier 177 projection last summer. Its expecting heavy monetary and fiscal stimulus to spark domestic demands. Meanwhile, in south korea, a bank of korea policymaker is sounding the alarm over the rash of quantitative easing in japan and other countries. Suun kung is, yes, in a renewed currency war. Many are citing the world of political independence and rising political pressure as a factor behind qe around the world. Joining us now, luca dixon. Thank you very much for being with us. The whole debate about Central Bank Independence, i wonder if it isnt a little bit off the mark. Are we talking about independence or are we talking about Central Banks acting in isolation . Because those are two very different things. Yeah, exactly. This is exactly a very, very true and its important to point to the difference of the two. The fist, what we mean by generally by Central Bank Independence is some kind of central bank sticking to their target, to their own target, their own belief that citing inflation or as in the case of japan welcoming inflation is the best solution or the best contribution that the central bank can give. What, in fact, independence is central bank not taking the queues from government leaders. I think in this second rotation, not taking the queues from government leaders, then the independence is pretty widespread. So there is real independence. However, there is a misled opinion that Central Banks will stick to their targets no matter what and this is just common sense. You know, in the last four years, we have seen Central Banks acting in order to prevent financial instability and i think this is what Central Banks should do, even when this prevention of physical instability goes beyond their targets. Whats interesting is basically what were saying is that if a Central Bank Says in order to achieve my targeted goal i have to Work Together with the fiscal authorities, thats frankly an exercise of independence. Youre deciding this is the best way to introduce policy. Is that too naive an interpretation, luca . No, no, thats a perfect interpretation. The threshold is very, very and sometimes its continuously overlapped by Central Banks and the government. Look at what is happening in japan, mr. Abe is pressuring every day the bank of japan to get to this 2 inflation. While bank of japan probably cannot do anything, at least since my opinion to make price go in the direction of achieving 2 deflation target. So its a little bit of thin line, but this whole concept of independence as a stone, as something that is very, very important for the equilibrium of the country is probably misplaced. Lets take japan as an example. Finally deciding in order to try and achieve these targets were going to have to tarpt with fiscal policy, you wonder whether they can achieve that. The 2 inflation from 0. 6 deflation on the core cpi in japan, how are they going to get there from here . Look, my interpretation of this, of course, i cannot say too much in japan, is that the real target of mr. Abe is the yen. On this eve, its been very successful. By continuously pressuring the bank of japan to adopt this 2 inflation target and to get to 2 real inflation, basically, mr. Abe is weakening the yen. And i think that mr. Abe knows well that it cannot really, as you said, coming from a minus 0. 6 deflation to a plus 2 inflation overnight. So the only effect that it can achieve and is achieving it is the depreciation of the yen. Only its not politically correct to say i want the yen weaker because otherwise you get into this currency war target that was quoted by the official from the bank of korea. And theres still questions about whether if this is what theyre pursuing based on trying to talk down the yen, trying to talk down the british pound, is that the best outcome . You can pay more for energy imports, but does that not hurt your competitiveness longterm . And does that undercot some of the vitality of these economies . Absolutely. And then in the case of japan, its sending the wrong message that we can go on creating Government Debt. And while i think that we should send actually the message of the country of that so that we should stick to a policy that is able to reduce bonds, that reduce Government Debts and then inflation will come once the pressure of Government Debt is lifted. Luca, last word, then, are you worried that Central Banks have lost their independence here as weve come through the financial crisis . Im not worried. I used to work for a central bank and nobody is really worried about this. What worries central bank is to get pressure to something that they cannot achieve because, obviously, this affects their republic ewe tagdz and credibility in something not very nice way. So this is a little bit what is happening to bank of japan. They have been pushing towards something that they cannot achieve and obviously their International Credibility is suffering from it. Will you ca, you worked for a central bank. We wont hold it against you. We very much appreciate your time today. Luka silipo, k450e6 chief economist with natixis. Still to come, well get a check on debt markets. Italy tees up for a bond auction. Well preview the results when we come back. To grow, we have to boost our social media visibility. More likes. More tweets. So, beginning today, my son brock and his whole team will be our new senior social media strategists. Any questions . Since we make radiator valves wouldnt it be better if we just let fedex help us to expand to new markets . Hmm gotta admit thats better than a few likes. I dont have the door code. Whos that . He won a contest online to be ceo for the day. How am i supposed to run a business here without an office . [ male announcer ] fast, reliable deliveries worldwide. Fedex. Welcome back to Worldwide Exchange. A state of on emergency has been declared in egypt after four days of violent antigovernment riots. U. S. Markets hitting one milestone after the next. The dow jones average set to enter its best january in more than two years. Politicians continue to trade accusations over bailout trades. And one suggestion from a poll in frons show those in the uk would prefer to leave the eu. We are waiting on the results from italys latest debt auction. It will be two years of a zero coupon and five years of an italian linked paper. Well get the results coming up in just a moment. Here is a check of the european markets. We have seen them particular to the upside. Now with the exception of spain trying to fight back into the green this morning, bolstered basically by the general risk on attitude. Perhaps some of the credit flows, some of the equity fund flows boosting stock markets around the world. Here is a look at who is leading the index this morning. Onte paschi is on the top of the board, up 6. 35 . Today its continued to snap back on hopes of. Continued investor returnings. Asml, elements which help make computer chips is up about 4 . It has been upgraded. Its viewed as a winner here in the mobile phone wars as more continue to shift to that market. Sbm offshore, peugeot, tnt express towards top of the pack. At the bottom, its a different story. Down 3. 5 o a downgrade, some other companies there trading down rage of 2 to 3 . Not at the top, but close ryanair is among the decliners this morning. Italy paper is trading higher, up to 4. 14 . Thats still a good percentage point below spain. Italy will test debt markets today with an auction up to 2. 3 billion in twoyear bonds. For more on what we might expect, head of strategy at ing investment management, valentine. How important is this auction . I think it is important, but the signs are relatively good. We have seen so far in this year the market is willing to take up the auctions from third world countries and sizable auctions from spain last week. I would say that so far the market is digesting political news or news surrounding the italian Banking Sector relatively easy. And you see that not only of italian investors or spanish investors, but also International Investors for sovereign bonds in italy and spain has really picked up and, therefore, i would be quite constructive on the auction. If anything, people are raising questions about how much further this move can go in tandem with what weve seen in equity markets. Whats your view on that . Well, i do agree with that. Theres clearly a message shift in overall willingness to look for shift by investors. You can see once these yields fall back, that feeds back into a better sentiment in general for economic conditions, including improving confidence in house holds or corporates. And you see a rising interest in exploring the m a sector. I think it ties in together for Equity Assets and corporate credit. What about the news on friday that were going to see 137 billion repaid from those shortterm crisis lpo funds. More expected, potentially a sign again that banks are having the ability to tap funding markets here. How much do you read into it . Well, i do think that the main impact will be on the shorthand of the sovereign curve. There you see some awkward pressure. We have seen that from basically zero rates to 10 or 20 basis points, increases in really shortterm papers. Other than that, i do not think it will be a massive change in the overall credit songs or the supply of credit in the european economy. It will be a marginal support sector, but i dont think that is the game changer with respect to the cyclical outlook or the outlook in market over the next two or three months. And lets talk a little about bit about the spread in italy. I think mario montis grandson was nicknamed fred at one point because there was so much focus on this. Do you look for any spread betts at this point between germany, maybe even between italy and spain where youre still seeing about a percentage point dmirchbs what theyre paying for tenyear funds . Yeah, well, first of all, i think indeed there is clear room for further tightening in the express levels. They have come down quite a bit. But if the conviction rises and the euro really not break up, i do think that italian and spanish threats can pull down further and can trade closer to german yields. So i think thats the most important thing and thats really signaling a chance for the market. Lastly, to look at the two types of paper which are up for auction today, we have a twoyear zero coupon bond looking to raise 3. 4 billion of bonds. From there, inflation linked paper. Interesting that you have a zero coupon on the one hand and an inflation linked bond on the other. How important are these to italy for the year . Well, i mean, they are important. They diversify their Spending Plans and needs a little bit. And, obviously, at this point, the link up market can help liquidity. The send is that they are willing and able to issue more in the markets. Overall, this is not, you know, the big numbers in the overall issuance that italy has to do for the year as a whole. So in that sense, i would emphasize the two as being really, really very important. I still wonder about longterm the validation of these inflation links. Valentine, well get into that discussion another time. Well get the results from that debt auction at about 10 10. So in just about 30 minutes time well bring this to you as soon as they cross. Now, volvo is making big moves in china. The swedish automaker is looking to acquire a 45 stake in Chinas Dongfeng motors. It will focus on transport and construction trucks. It will give dongfeng access to vol volvos production models. Shares of both companies were moving higher. Well check in now, look at that, dongfeng up 10 . Investors are warning what they see there in terms of longer term prospects. Toyota back in the drivers seat when it comes to sales. It sold 9. 75 million vehicles for 2012, up 22 from a year earlier. Its closest rival, general motors, saw a sales gain of 2. 9 for the year. And volkswagen was third on 1 is. 2 sales gain from 2011. Live from tokyo, Nozomu Kitadai has the latest. In this case, sonys run of bad luck may be coming to an end. What is happening there . Thats right, kelly. Sony shares ended 9 higher and continued to rise for the Third Straight trading day on the back of a weak yen. Its trading while it reached the highest level since way back in 1974. The fist boost came from Merrill Lynch which rates tonys target price. The upgrade was based on the yens drop to its lowest level in 2 1 2 years against the dollar and a turn around in unprofitable businesses. Then the next piece of good news playing into the picture came from china. China daily said that the nation is considering ending a 12year ban on the sale of video game consoles. Beijing forbid the sales of game consoles in 2000 over the concern about the potential harm to young people. But the ministry of culture is now Holding Discussions with other departments about potentially ending the ban. Although game consoles are available on chinas black market, investors welcomed the good news as it would open up more than a billion people to sony and other makers. Who knew that they had banned game consoles. Fascinating. Tomorrow, nintendo, fuji film are expected to report. On the policy front, Indias Central Bank will hold its rate review meeting. Many Analysts Expect the rbi will cut rates this time around. And a state of emergency has been called in egyptian cities where doesz of people have been killed over the past four days in renewed protests. David heartman joins me now. David, good morning. Good morning. Thanks for your time. So egypt, lets put this in context here. Two years on from the arab spring, where is the country headed . Its a great question. It comes at a critical time, i think, and weve been trying to analyzed this in the broader spectrum of the egyptian history. Weve come to the conclusion that two years on and not an awful lot has changed. The current government is still relying on the same power and the same institutions of power and the same way of exercising power that mubarak did before him. So this clearly feeds into the frustration that many egyptians are feeling. Now they have a new target for their anger, which is the muslim brotherhood. And i wonder to what extent this feeds the negative political situation. Youve seen this is their currency weakening, stock market struggling. People who are very excited about prospects for reform in egypt now seem to be throwing in the towel. Absolutely. I think if you look at the situation in terms of the imf loan, the discussions and the imf loan have been postponed since december last year, that is hitting confidence, i think, and the way in which egypt is still stumbling on the bottom, if you like, and seems unable to tie up, you know, longterm loans to help bail out the economy is clearly feeling the political insecurity. Over the weekend, cumberland put out this client note, talking about events from north korea to north africa, saying the world is a dangerous place and worried that perhaps some of these events are being overlooked in terms of the significance. Generally speaking, im creating more waves of unrest. Do you read anything more from the situation in egypt as to whats happening in nearby north africa should investors be concerned generally about these events continuing to cause uncertainties . I think historically the links between egypt and what goes on in sort of north africa, particularly events in mali and south africa in the last couple of weeks, there hasnt been much cross historically. And that probably has much more to do with the situation in libya. Egypt has been plugged into the middle eastern countries. From that point of view, there isnt much of a cross. Clearly, if youre looking at egypt and two years on and youre looking at an immature political system that cannot gain stability and cannot unite around a single new national interest, clearly the longer that persists, then the worries about the longer term stability in the future. How vulnerable is egypt at this point . I dont know how close we are to an economic a Major Economic crisis. I think i do think a lot will depend on how successful and how quickly they can hold parliamentary elections. The latest rumors are that it will be held in april. That may go to some way of helping to set in stone the new transition process and that in itself may help engender some confidence and stability that Parliament May be able to work with the president to bring some stability. But youre looking at an extremely divisive and polarized device at the moment. Trying to concoct something out of that appears very difficult at the moment. Thats true. David, thanks very much. Im sure well see more from him as we follow this story. Still ahead on the show, a new poll shows more than half of french people want the uk to leave the european union. Can they really bid adieu to britain, though . Well discuss that when we come back. Welcome back to the program. 58 of those polled want the uk to stay in the eurozone. Another poll found 52 favored a british departure. Meantime, David Camerons pledge to hold a referendum on eu membership if he wins the next election has given his conservative party a boost. Still, the increase does fall shy of expectations. Welcome. Thank you very much. Well talk about these polls showing the french quote unquote want to leave the eu. What do you make of that . Thats a question many havent had much time to think about and two polls gave different results, so i wouldnt place too much credence on it. At the same time, i wouldnt be surprised to learn that people are tired of britain getting special treatment. And what about here at home where it seems this idea of leaving the eu is popular because we saw some lift in the polls over the weekend. Is that also premature . Well, again, the last time we had the conversation and when we had a british veto on discussions about further integration is that they had a bounce in the poll at that time and it settled back down. Its way down on the list of priorities. In the shortterm, you get a bounce. In the longterm, i dont think theres any clear evidence that the british put and the majority want to leave. And i dont understand why its such an issue in it doesnt generate more of a lift. They have to be doing it ultimately for reelection purposes, right . So where is the big sign that this is going to do and play so well for them . In start, some mps represent constituents where there is a strong european feeling. A larger portion of older voters who tend to be more skeptical of the eu. But other mps are fait facing battles in marginal areas, more urban areas who are different interests. I think there is a split within the party in terms of the electoral damage this could cause. And when you ask people what is it that theyre upset with, is it regulation . Thats what a lot of people in the city or business would say. A lot of others might say its immigration. Negative ad campaigns might run later this year to discourage workeres from coming. It seems to me that a lot of owners view that. Because eu ridership does give members as a whole, other issues, far lesser. I think most people in britain, to be honest, has very little idea of what the eu does, they have very little understanding of the regular tatory structure of the eu and of eu laws on our economic activities. And i think most people, if we have an Electoral Campaign in the city, i think it might become a bit clearer to people with the costs and benefits of leaving. What about joining america, the 51st state . Weve learned the United States has no interesting in leaving the weve had several warnings making it clear that the special relationship as such exists depends on britain and part of the eu. And i wonder why to them its so important that the status quo is maintained. For the United States . Yes. Because britain clearly, thelithe li linguistic say Close Corporation on military issues means that there is a level of trust, perhaps, as the u. S. Bank is more difficult to establish with other major european nations. So its very important. Interesting with more on that in a bit. We also want to follow what is happening with italy. Shares are trading higher after monte paschi gave the go ahead for a bailout. The group is seeking a new investor to keep the company afloat. It comes as the banks derivative trading loss is spiraling into a broader political crisis. Former Prime Minister berlusconi is once again courting controversy. Speaking in milan, berlusconi said except for antijewish laws, mussolini had been a leader. Do you want to weigh into that story . Yeah. I think well, first of all, anyone who has observed berlusconis political career over the last two decades wouldnt be that surprised. Its a shocking statement, for sure. But its not surprising to see him making these kind of provocations. Whats his intention . Sadly in italy, it probably doesnt cost him many votes to make this statement, and it could potentially shore up his votes on the extreme. I think its a low cost way of him trying to get a few votes. What does it mean, though, ultimately for you know, were looking into the elections with just, what, about a month away at this point . What prospects for a Coalition Government . How do you see this shaking out . At the moment, the polls all suggest that the cd, the left wing Democratic Party will get a majority in the lower house. But will probably struggle to get a majority in the senate. The government needs to come through both chambers, which means that if that comes to pass, then the leader of the pd will have no option but to form some kind of coalition or some kind of alliance, most likely with montis party. And how much of a spoiler is berlusconi in all of this . Yeah, i mean, bersani at the moment is following the strategy of shoring up the left wing vote, count on the fact that he will need to make an alliance with the center, that he. He probably has firm interests in having somebody else involved because the government that is formed after the election is going to have to make some tough decisions, its going to become unpopular quite quickly. What are some of those decisions they face . More austerity, more there are promises in election campaigns that some taxes might be lightened a little bit. But on the whole, italy has no skill for a fiscal expansion. So at the moment, theyre going to have to button down, keep spending heightened and keep things right. Do you think italy is in a better position . In the shortterm, spain has a more stable government. Thats becoming unpopular, but at the moment, theres no threat to the majority of the Popular Party in spain. Italy, we have an election coming up and anything could happen. We have a lot of strange things going on. There is a party which is looking like it will get around 15 cents a vote run by a former comedian. Theres no clear political agenda, as well. There is a lot of political instability, but i think the longterm economic picture is in less trouble because it has much lower overall debt limits than spain combined. And how times have changed on that front. Thanks very much for your time this morning. Thank you. Growing market optimism fueled by a string of upbeat earnings has put equity markets on stronger footing. But u. S. Budget sequester is supporting cutbacks and it could knock out market euphoria. Can washington stop bickering for investors sake . Read about that story on our website. A couple of things you can check out there, too, wall street is waiting for the next good reason to love apple again. What might those be is in the you can find out on the website. Blackrock, the Worlds Largest Asset Management company has taken an 80 million stake in twitter and putting a value on the company of more than 9 million. Plenty to keep you busy there. While we take a quick break, straight ahead on the program, before he can even get his feet under his feet in his new office, well take a look at how jack lew might tackle his new position in office. Welcome back to Worldwide Exchange. U. S. Markets hitting u. S. Market stones. The dow is set to post its best january in more than 20 years. Stronger u. S. Growth prospects may be under cut as lawmakers say now its likely delayed automatic spending cuts will take effect in march. A state of emergency declared in ee gupt after dozens of people were killed in antigovernment riots in the biggest cities along the suez canal. In france, a poll found 52 of those surveyed would prefer the uk leave the eu. 1496 is the level of the s p 500. We know it did close above the 1500 level for the first time in years. Were looking generally speaking at whether these indexes can sustain the kinds of positions that weve seen build up over the last several weeks. Some say they would like to see a healthy correction to clear some of the overbought levels and some of the Technical Levels were seeing here. The nasdaq and the Dow Jones Industrial average are looking higher. If you take value into the dow, weve been down by about 13. Now, the ftse cnbcs global 00 tells you whats been happening around the world overnight. Europe has been interesting to watch bourses start lower for the morning, then they slipped higher. Lets get a sense of where trade is now. Were about an hour, two hours into the trading session. The cac 40 is now back in the red. Same for the ibex 5. The underperformer today down by about 0. 25 . The cac 40 is just fractionally lower. And more broadly, on a couple of downgrades from that company. Now, a quick check off bonds, we are expecting results due out in about ten minutes time from italy, which is auctioning a twoyear zero coupon bond and some inflation linked fiveyear paper. Its still off a bit, but yields down 4. 17 . Same different story, rallying a good percentage higher at 5. 15 . Both yields and bunds, i should say, are selling off a bit. Forex, lets take a look at whats been happening there. The euro dollar, weaker by 0. 1 . 1. 3453 is that level. Yen, of course, this is down by about 0. 2 to 90. 70. We were looking at that 91 level earlier. For more on whats been happening across asia and especially in japan, lets get straight out to will i sixuan. She joins us now from sing pore. Thank you, kelly. A lot of focus, indeed, on shinzo abes first policy speech where he continued to pressure the boj to achieve the 2 inflation target as soon as possible. Earlier today, the new cabinet raised the countrys growth forecast to 2. 5 a year from april. But the nikkei saw some profit taking today after touching a fresh 32month high. Question over domestic earnings weighed on sentiment. Despite winning back the worlds top sales crown from general motors, they didnt get a lift. But sony shares jumped 9 after citigroups upgrade and on reports that china is considering ending a decadelong ban on video game consoles. Sentiment boosted by news that Chinese Industrial profit climbed to 17 in december from a year ago. Brokerages rallied after the shanghai and shenzhen bourses said they would nearly double the scale for margin trading. Dofu auto shares boosted up after volvo agreed to buy a stake in its commercial vehicles unit. Shares in hong kong gained 0. 4 . Chinas coastco shares fem sharply. South korea lost ground for the fourth straight session. A tumble in Samsung Electronics and selloffs in automakers were the major drag. Australia is closed for a Public Holiday and Indias Sensex ended just a touch below the line. Back to you. Thank you very much for that. A Top Republican lawmaker says the automatic spending cuts will go into effect as scheduled in march. House Budget Committee chairman paul ryan says the sequester which will cut about 1. 2 trillion in domestic and defense spending over the years will happen because they havent offered gop alternative proposals. Congress passed a stopgap spending bill by 2027. We are more than happy to keep spending at those levels going on into the future while we debate how to balance the budge, how to grow the economy, how to create opportunity. Thats the kind of debate the country deserves. By the way, if we keep going down this path, we will have a debt crisis. Its not an if question, its a when question. Joining us now is tony fratto, former treasury secretary, hes in paris this morning. Tony, what brings you to paris . I have some meetings here on my way back from davos, kelly. We missed you in davos with the rest of the team there. I know. I wonder if they didnt send you over there to try and get a read as to why the french wanted the british to leave the eu or something. Ill take some informal polling on the street. Could you please, we appreciate that. In the meantime, lets talk about whats happening in the u. S. Have people been overlooking the likelihood of a sequester happening . Yeah, i think so. Look, i feel like weve gone through a period of, where the sentiment was very much on the conservative side, concern and risk and now we went through a little bit of a period where people are overlooking some of the riskes and not recognizing that were going to have these things to deal with this year. So really an important transition year. In the u. S. , were dealing with the debt. I think were going to get through this in the spring. But if you look at governments all the way, you know, across the globe from japan, china, europe and in the United States, so, you know, the four major markets. Theyre all dealing with looking towards the end of the tunnel, some kind of exit with a lot of their extraordinary programs and dealing with some of their debt problems. And so that is what were looking at this year. And i think were going to see that play out here. The start of the last inning in the spring, kelly. Well, its interesting because the journal is reporting there may be some sort of replacement with the sequester with the smaller package. They would still amount to some fl fiscal drag. Theyre warning 180,000 employees about being furloughed if this happens. So what exactly are we talking about when we talk about the cuts coming down the pike this year sthp how big do you ultimately think the size of the cuts will be . Look, i think they could get agreement to replace them with smau smaller cuts. I still think thats mott the most likely outcome. I still think the most likely outcome is the full sequester. They could get that. But youre right, if you take a look at the drag from the sequestration, you know, the cut in that spending, in addition to the tax increases that are comes into play, the obama care tax increase and increase on incomes higher than 400,000 a year in earnings, you know, thats going to create some drag. But, you know, i get a sense, kelly, when we do our own analysis at hamilton play strategies, we think that the u. S. Economy will be able to power through that this year, even with the even with the drag. So, you know, solid growth, but certainly not matching some of the euphoria that weve seen in the last couple of months. Its extraordinary because if you say this is a 1. 5 drag which is roughly some of the estimates ive seen lately on this and where gdp is almost in the 2. 5 range that would suggest were somewhere in the growth of 1. 4 . You could understand why markets are doing better. But unfortunately the what could have or should have doesnt matter too much. If its the opposite, it will be are reminder of how growth was in the Fourth Quarter. I think the ee zester and the tax increases will take the top off of growth. I think we would have been looking at a very good year, very strong year if not for you know, if not for that drag. But still, if we get into the 2 to 2. 5 range for like i said is a transition year, at some point were going to have to transition out of the extraordinary support we are getting from monetary policy. Of course, were still getting some of that, but the extraordinary support were getting on the fiscal side, also. At some point were going to have to wean ourselves off of that top growth. But i think we have to go through that and i think its going to bode well for the future. Tony, lastly, Webb Jack Lew is supposed to be taken over at treasury but he hasnt been confirmed yet. When do you expect him to take over . Of course, these issues are playing out in the next couple of weeks. I dont think weve ever had a treasury secretary, you know, going through a confirmation process in the middle of exactly this kind of major negotiation on policy issues. I do expect it to take place early in march. Its going to be right in the middle of the fire for jack lew. But for these very questions, he is, you know, unusually experienced to handle these questions. He does have some holes in his resume, particularly on the international side. He has some work there to build his relationships and his reputation. But for the u. S. Domestic fiscal issues, he is unusually well qualified as twoterm budget director and hes been dealing with these issues for a long time. . Right. That potentially might help smooth out his pass. We know his resource in congress is something they have have to consider. Tony, thanks so much. Well let you get back to the street and ask about the exits, so to speak. Thank you. Italy, results are out. Lets bring those to you as we get them. Italy going to auction, its twoyear has gone off with the lowest yield, i believe, since 2010. Were looking at a fiveyear 2014 inflation link bond that went off with a growth yield of 1. 434 , a bid to cover of 1. 4 . Total bids, i believe, of 5. 8 billion euros, 4 billion of that assigned. So thats on the high end of what they were looking for. That was the two year, im sorry, the high end of what theyre looking for on the twoyear. 1. 434, the bid to cover, just shy of 11. 5 . And thats the high end of the 4 billion that was planned. Growth yield of 1. 8 . And it appears that theyve done about 2. 628 billion worth of the fiveyear and that is within the 2 to 2. 75 billion range. So demand for the inflation linked fiveyear paper, a bit shy at the high end, but comfortably above the low end and demand for the twoyear zero coupon bond was at the high end of that range. You can see the italian curve there moving out just a little bit, but not a ton of reaction on the news. Just ahead, we will take a look at ring dings and devil dogs which may have found a new home. Yes, well tell you from who is bidding for hostess when we come back. Welcome back to Worldwide Exchange. If youre just tuning in, these are your headlines. U. S. Markets are hitting one milestone after the next. The dow is set to post its best jarchb performance in more than 20 years. A state of emergency is declared in egypt as the riots continue. And saying adieu to the brits in the european union. And lets take a look at todays other top stories. Hostess has found a new host for its cup cakes. Mckee foods will be presenting their bid in white plains new york today. Now b blackrock is reportedly buying an 80 million stake in twitter. The deal values the blogging site at more than 9 billion. Thats up from 4. 8 billion in 2011 when saudi prince alvalid invested in the country. We want to know is twitter overvalued, undervalued . What is twitter worth . Join the conversation and email us. Tweet us, cnbcwex. Frankly, you can tweet ross westgate. Now, still ahead on the show, could the housing be the bright spot for the u. S. Economy in 2013 . Find out why the say the economy could be the real deal. Here is a look at the heat map to see how european markets are trading. We are seeing weight on the index about 1. 1 generally. Well be right back. With hotwires low prices, i can afford to visit chicago for my first big race and l. A. For my best friends wedding. Because when hotels have unsold rooms, they use hotwire to fill them. So i got my hotels for halfprice men hotwire hotwire. Com welcome back. Pending home sales are due later today. Theyll be followed by the caseshiller index out tomorrow. Although weve been seeing a continued rise in reports lately, our next guest says a recovery for the sector is firmly under way. Eric green joins us now, head of u. S. Rates at td securities. Eric, good morning. Good morning. Good, thanks. Its not a new idea that the Housing Market is recovering. I guess the risk here is that the recovery is already priced in. I think so. When i look at housing, we look at numbers, of course, every quarter. If you look at q4, it will be lower. I look at it from the perspective is is it going to be better or worse, are we going to have a good outcome or a bad outcome . I think the way things are shaping up, not only in terms of housing, if you look at debt metrics there, theyre the best its been since 2002. Household wealth has risen by 15 trillion since 2008. That is extremely good development. So i think that a better outcome is being priced in the stock market. The thing that we have to be extremely careful of i think Going Forward or at least over the next couple of months is that its not going to be obvious in the numbers that we see. But all the fundamentals are in splais place to push growth up, thinking around 2. 5 to 3 over the second half of the year and that changes peoples attitudes in terms of outlook and confidence and the fed which is meeting this week, as well. Well, we saw in december and it caught my attention where if you look at the inventory levels, theyre lowest in a decade. Prices rose by the most in a 12month period since the boom again. But we also know that we had rates at record lows in december. As prospects for a better Economic Performance push up yields, how much of a headwind will that be . Well, i think well i look at this from the view of the fed, all right . So if you look at rates, in real terms, they are termly negative. If they go up 25 or 30 basis points, is that going to away deal breaker in an economy that has all of these positive things developing . I dont think so. I dont think the fed will lean against that. But i think that the Crucial Point here really is the flattening out in home prices. I personally would prefer to see housing activity and home pricing actually slow down somewhat. But lets just think of it in terms of it being flat. When home pricings are flat or generally rising, what that does is it lets people jump back into the market. No matter how cheap it is to finance a house, youre not going to want to buy something that you know is going to fall in value over the next 12 months. That has been crucial in terms of confidence in this sector and that feeds through a lot of different things. Construction jobs as you flatten this recovery, were looking for a nice rebound this year. The construction of washing machines, all of those things begin to feed. And i think youre on the cusp of get ago more virtuus feedback. But, eric, are you suggesting that the u. S. How the Housing Market is overheating . I dont want to say overheating. But i would prefer to the activity and the price of pressurization begin to slow down a little bit because, quite frankly, we know that that is not sustainable. So i would prefer to have a steady improvement as opposed to a volatile improvement. So i think youre going to probably see some of that over the next couple of months as the base effects begin to wear off. But this Housing Market is much better, but its in no way suggesting that we should be rising at the rates of activity or prices as were right now. So we will take the good news for now. Is there not also a concern about the repeat from the past . Weve learned from the boom that this was not a Sustainable Way to invest in americas future. Is there a concern that we are reinflating the same sector which was at unsustainable levels in the past without necessarily helping the broader economy inspect. I really dont think so. When i look at the size of mormg debt in the u. S. , its actually still falling. So what we are getting this sort of hyper inflation in terms of actual borrowing, were seeing home prices appreciate and i found some sense of caution. Remember, we fell about 30, 35 . So the base is a lot smaller, as well. The inventories, as you mentioned, kelly, are a lot lower than they have been at any point in the past five or six years. But the shout of inventory over half of what it was is still significant. So the monthly selling inventory numbers are by its lower, then they really are. So i think that you shouldnt look at this in terms of a problem waiting to happen. Remember, it has been five or six years in the making. But as all things, you know, the combination of father time and sound policies from the fed are finally beginning to work in terms of housing and ultimately on the economy, as well. Well, i just worry. If were having a conversation about the Housing Market overheating win just worry if sentiment generally speaking about the Housing Market hasnt gotten way ahead of itself. But, you know, it tells you a lot about how times have changes in the last several years. You know, lets look at one measure, nahb, for example, who was average background 65 or 70, its much higher, but its still not back to the frothy levels and its nowhere close to the frothy levels. Very sound improvement, very quick. We still have a long way to go. Eric green, head of rates and he are search at td securities. Eric, thanks very much. My pleasure. Thanks. You can see more of the mega mansion pictured here. I dont really know whats going on. Were going to look at some of the most expensive homes of new york city in an all new episode of secret lives of the super rich mega homes at 9 00 p. M. Eastern. In the meantime, major u. S. Indexes now just a stones throw away from reaching their all time highs back in 2007. Will another unforeseen event throw a block in the markets path . Well get some perspective when we come back. train horn vo wherever our trains go, the economy comes to life. Norfolk southern. One line, infinite possibilities. Welcome back to Worldwide Exchange. U. S. Markets hitting one smile stone after the next, the dow is set to post its best january in more than 20 years. Lawmakers say its likely automatic spending cuts will go into effect in march. State of emergencies are declared in egypt after four days of antigovernment riots in its biggest cities along the suez canal. Dont be deceived by the color here. My shirt is the more telling color on what were seeing as a play on future. If you take fair value into account, the dow is pointed lower by about 14 points. A couple of points lower in the nasdaq and is s p, too. We saw this kick above 1500 for the close friday, ending a stretch of days for the index, ending one of the longest streaks in years. The dow is pointed to have one of its best januarys in two decades. Youre seeing more of this red play out, although not major moves are lower for the ftse. 7853 is the level there. The ibex 35 is off its lows. It was down by about. 25 earlier. Italy did go to auction raising about 6 billion euros in both the two year and fiveyear paper. Now, a Top Republican lawmaker says the automatic spending cuts popped as part of the fiscal cliff deal will go into effect as scheduled in march. House Committee Chairman paul ryan says the sequester would cut spending in years would happen because democrats havent offered alternatives to gop proposals. But ryan says no one is talking about allowing a Government Shutdown there. We are more than happy to keep spending at those levels going on into the future while we debate how to balance the budget, how to grow the economy, how to create economic opportunity. Thats the kind of debate the dunn deserves. By the way, if we keep going down this path, we will have a debt crisis. Its not a if question, its a when question. The layest survey by the National Association of business economics finds 50 of corporate forecasters believe gdp will grow 2 or better over the next four quarters. Theyre optimistic about the job market. With about a third saying their firms or industries will increase hiring in the next six months. About 27 say hiring will stay the same. Joining us now on set is michael b. Gurka, in town for seeing clients. Not just for the show . Well, of course, thats first. That goes without saying. Youre here on a great day because theres so many happening in markets that themselves are the headlines. So with these indexes at highs with people talking about them being overbought, how concerned are you . It would only be normal to get that, but at the same time, the reason and how we got here over such a collective period of time, its warned for fundamental reasons. World is not on its head any more. And its for all the right reasons and were starting to get targets well above the market right now. What do you mean by that . Right now at least weve had a nice retracement level on the s p. And theres a lot of economists that i really respect and one in particular back in chicago. Diane was talking about for the second year in a row, shes looking at basically the low teens for the stock market in year will be gradual, but its healthy and i think its there for a reason because the yield has been numerous and the Balance Sheets have been pristine. So, you know, when youre looking for that yield and theres certain dynamics or Asset Classes, it does make sense. Right now, at least, im not surprised. I think the fed is giving us reasons to think that the foundation is set pretty well on rates and maybe some growth down the road. Obviously, no inflation. And for the same reason, i think that employment number at the end of the week or as weve been looking back the next couple of months, there could be surprises there to the up side. But this is whats interesting. So much is now priced in, you know how if you look at the citys price index, once you get a better and better stretch of news, its hard to continue that happening. So if anything, markets are high for the remainder of the year. It is. You know what . Our baseline number on these jobs is not 300, 400 yet. Were st. Louis below 2 hup. Thats why the market is perceiving this as an accurate barometer. The market is going to probably pull away from that news and pull back. But i think right now at least on the side of the equity indexes in general, especially the broad market, im not surprised if every substantial pullback will be met with a lot more buying. How much does this have to do with earnings, if anything . It was a lot to begin with. Thats one of the reasons why we could see a correction is because the earnings scenario has been a stampede, but, again, i agree with what were seeing in the market. Were going to get the numbers of weearnings come well below this. Stock market aside, things are a little strange at the moment. Earlier, we were looking at the commodities war. Youve seen, for example, the selloff in gold. Copper and oil are underperforming. Theres not really this consistent story. There are some things youre talking about that are happening with grains, for example, in some of the commodities back home. Are there signs of a breakdown, perhaps, signs of a correction coming from other Asset Classes or is that too much to read into it . You know what . We trade, 50 of what we do at spectrum is in commodities. One of the things that has been an impetus for us is anything volatility. What were starting to notice is the fact that the market talks a lot about the drought we saw this summer and how grains and corn shot up from 5 to 7. Now weve had this pullback. But not that there hasnt been any snow in chicago or in the midwest, which is surprising. So, really, its been how long without snow . Over 360 days without over an inch. Extraordinary. Were not complaining, but its a rarity. And for those reasons, we need that moisture. So grain prices, as we start looking at the forward should start to increase from that, but we havent been. One of the things thats been a problem in the markets is the volatility. And i think thats one of the reasons. Theres some ex extraneous reasons why and maybe the demand out of china for brent hasnt increased as much as sweld expect and for the same reasons when we were about to test or breach below 79 in wti, we turn around and all of a sudden were trading in the mid 90s again. Domestic production in the u. S. Is start to go wean itself off of opec to where as you start seeing some of these estimates, the u. S. Could be rather independent on their own. Nat gas price is trying to price in a very cold winter. Were halfway through winter and now its getting mild again and here comes the pullback. Take there. We want to get to some top stories. U. S. Regulators are reportedly warning banks they shouldnt assume countries will Work Together to avoid a catastrophic failure. Banks must submit new living wills or resolution plans to the ic later this summer. Apparently still no real sense of how to do that with global coordination. Cnbcs robert frank takes us inside for an exclusive look at this property and explains why sky high real estate prices didnt scare away buyers in 2012. This is the most expensive coop on the market in new york city. Price tag . 95 million. The apartment takes up the entire 18th floor of the famous sherry netherlands building overlooking central park with seven bedrooms, eight bathrooms and three elevators. What is not included in the rice tag . Maintenance fees that will run you about 60,000 a month. Between maintenance fees, insurance, caretakeres and more, expenses just keep this mega home up and running are around 1 million a year. But sky high prices are not scaring away buyers. Sales of homes in new york city worth 10 million or more jumped 44 in the last quarter of 2012 compared to the Fourth Quarter of 2011. Why the big rush for a pricey pad . Fiscal cliff fears in late 2012 spurred a frenzy for 2012 and sellers were anxious to unload their properties before tax rates went up. Those would beat the fiscal cliff deadline saved big, avoiding the rise of Capital Gains taxes that jumped more than 8 in 2013. Sellers said, you know what . Im giving in. I dont know where were going with this fiscal cliff business or the taxes so im going to sell now and get out now. Everybody won. Were talking about hundreds of thousands to millions of dollars. For cnbc, im robert frank. You can see more of this mega mansion. Some of the most expensive homes in new york city in an all new episode of secret lives of the mega rich. Michael gurka, is your house on there . Absolutely not. You didnt want to let the cameras in, right . No. Once the kids get done with it, it would never be on that program. Dow is pointing lower by about 12 points. Nasdaq and s p 500 down just fractionally. Next, egyptian authorities declare a state of emergency in the country as deadly antigovernment riots continue. Well have the latest out of cairo when we come back. All stao mission a for a final go. No go call. This is for real this time. We are on step seven point two one two. We have entered our two minute hold. Cabin venting has been inhibited. Copy that. Sys two, verify and lock. Command is locked. Flight computer state has entered auto idyll. Three, two, one. The falcon 9 has launched. Preparing for nose cone separation. Standing by for capture. The most Innovative Software on the planet. Dragon is captured. Is connecting todays leading companies to places beyond it. Siemennswers. [ male announcer ] how can power consumption in china, impact wool exports from new zealand, textile production in spain, and the use of medical technology in the u. S. . At t. Rowe price, we understand the connections of a complex, global economy. Its just one reason over 75 of our mutual funds beat their 10year lipper average. T. Rowe price. Invest with confidence. Request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully before investing. Welcome back to the program. Earlier, we asked you what price you put on twitter after black today rock valued it at about 9 billion. Jeff tweets in to say lets price it at about 140 billion. But will it be euros or dark mas . Tony tweets in to say twitter is worth much more than facebook. You can share your thoughts with us, email, worldwide cnbc. Com. Tweet us, cnbc wex. Its said iceland didnt break dwoft protection law necessary 2008. The court is apparently ruling in icelands favor saying it did not break Deposit Protection laws back during the crisis. If youre just joining us today on the program, these are your headlines. The dow is set to post its best january in more than 20 years. A state of emergency is declared in egypt as antigovernment riots continue. The state of emergency has been called at egyptian cities where dozens of people have been killed over the past four days in renewed protests. After days of egypts debtedly clashes, president morsi issued a state of emergency for the cities of port said, ismaila and suez. He also imposed a curfew for the residents of those city peps now, he also warned that the government will use all force necessary to try and restore security, including deploying the military as theyve already done in the cities of port said and suez. Including at least 30 people that were killed in deadly clashes with the police on saturday. On the same front, though, the president is facing a political crisis with members of the leading opposition. He has invited members of the salary vagsz front and other notable politicians here to the president ial palace on monday to hold emergency crisis talks to try and find a way out of these crises. Protesters on the street are reclear, president morsi must step down and annul a constitution that was approved in a nationwide referendum. There is no indication that president morsi will be meeting those demands anytime soon. He still enjoyed a great deal of pap layerty. Nbc news, cairo. Michael gurka is still with us here. We were just getting into a discussion about what is happening with oil prices. A lot of people came into the year because of technology and innovations, the u. S. Tech price is going to fall. There is a whole lot of reasons. You would think so because that is where brent would catch its bid. But i think its the relative strength of wti, why we had it narrowing. If we get a higher close this week, it will be the eighth consecutive week of wti closing on the higher side. Thats a bull run. The last time we had that move in a consecutive fashion, it was off that high of the 70, 89 level. Our near target here with the 102, it gets way too high. I look for the pullback. But i think the real question is brent. Youre basically saying at a time when were talking about supply in the u. S. , that were going back over 100 a barrel. Right. And, again, supply is increasing. Right now, were having factors out of china that says the demand will carry the cost for most of europe to buy that. It should narrow. Im looking for more widening as we get to the middle of this hurdle and weve hit the price already. Whats going on with present . Europe has had the slow down. That being said, this is probably where it starts to pick up again. And i think right now its start to go look on a relative basis rather cheap here. Spec laterers are starting to step in. So this is the demand story. Weve all been focusing on the supply side, the fracking innovations and whatnot. But what youre basically saying is that stronger u. S. Demand prospects are boosting demand for wti. Its almost as simple as that it sounds like. Supply is not going to be a problem for 13 whatsoever. I think demand is really where we start. And that is the reason why i think the far east is going to hold the ball for most of this concern here for the brent. And, again, with those supply leflgs where theyre at, it should substantiate to widen. Thats why im surprised that weve had a narrowing in the spreads. And were starting to talk about caterpillar. Were well in the middle of earnings season. Anything there youre focused on . Id like to know how caterpillar is looking at the dollar and if the easing or some of the have helped or hurt them. Michael gurka, thank you so much. Straight ahead, well be digging for profits, or at least caterpillar will. Theyll be reporting Fourth Quarter results in just a few hours amid a big writedown at their chinese unit. How much will that weigh on the equipmentmaker . train horn vo wherever our trains go, the economy comes to life. Norfolk southern. One line, infinite possibilities. [ male announcer ] make your escape. Twice as rewarding. Earn Double Points or double miles on all your hotel stays through march thirty first. Sign up now at hidouble. Com. Welcome back to the presume. Here is a quick check off whats on the program for the United States. Well be topping it off with fridays no more nonfarm payrolls report. Durable goods we go at 8 30 eastern. Pending home sales outside of 110 00 a. M. As far as earnings are concerned, dozens of earnings are out this week. Well hear from caterpillar and biogen before the opening and yahoo seagate and vwware after the close. Were down about 13 points on the dow, a couple of points for the nasdaq and s p which is at that 1496 level having breached 1500 just barely on friday. Caterpillar reports Fourth Quarter results at 7 30 a. M. Eastern. Ceo doug oberhelm on squawk box just after 8 00 a. M. The constructionmaker is projected a revenue of 600 billion, but does doesnt include the write youp. Last week, caterpillar sound it found deliberate accounting issues. Joel, thanks for joining us and good morning. Yes. Thanks for having me on. Lets start with the one off, the accounting issue. How serious is this for caterpillar . How much of an impact in the Fourth Quarter . Well, i think its just going to be a onetime write yoouf. Cat is a 70 billion in revenue company. Less than a 1 billion write off, its not a big deal. But i think what is important is that cat is not a Fast Growing Company longterm. So they need to reallocate their capital. So if there this is any indication that maybe theyre overreaching or theyre not as disciplined on price for acquisitions, that could have some implication peps. Right. What is your sense of who is to blame for the mess up . I just think theyre probably a little too excited about rushing into china and they dont want to be left behind and, you know, in an important growth market. So they probably paid a little more than they should have. But at least they caught it early and theyll deal with it and integration that bit into the rest of what they have and we wont be talking about this in another quarter. Joel, this is a company that economists love. Its a Global Barometer for demand. That is one of the issues here is that if you hoo very roughly look at the four key end markets, mining, power generation, energy and construction, the three out of four, the mining, the power gen and the economy, were four years into a very strong global recovery. And so the construction part of it looks really good, but the other parts of it look a little tired. So i dont think there will be as much power. If it got to be a constructionled play, how important is that for its regional market . Yeah, its going to i mean, theres definitely a lot of pent up demand in the world in Construction Equipment and especially in the more development countries. And so i think thats, you know, caps the Global Leader in most categories. So i think its going to be important. But if its only 30 of the company, you know, i wonder how theyre going to be able to really show strong Earnings Growth over the next three years. Just briefly, we heard Michael Gurka ask whether the dollar is helping or hurting them for the next quarter. Whats your sense . The quarter doesnt matter. Whats going to matter is going to be their guidance for 2013. So i think theyre going to throw in the kitchen sink to try to cover up this china writedown. So, you know, there was a lot of slowness in the Fourth Quarter, a lot of Companies Taking extended downtime trying to get their inventories back in line. And i think whats going to real drive the stock will be their 2013 guidance and the inflexion in their voice about, you know, the sense is that 13 is going to be backend loaded because cat had 2 billion of excess inventory in the channel going intooth Fourth Quarter. Well looking be looking for vocal inflexions. We thank you so much. Caterpillar reporting in just about 90 minutes time. Thank you for tuning into Worldwide Exchange this morning. Squawk box starts now in the u. S. Have a great day. Z