Transcripts For CNBC Worldwide Exchange 20130712

Suggestions of a hard landing. Shares saw the uk Engineering Group receive a bid from Frances Schneider electric. The big u. S. Banks get set to kick off earnings today with jpmorgan and wells fargo being the first ones out of the starting gates. Warm welcome to you. Final Worldwide Exchange of the week. And we start off with a look at where we are with equities. 6 to 3 advancers outpacing decliners. And buoyed by the fresh record close on u. S. Indices. The dow closing up. Ftse up 38 points. Today,. 6 today. Were up another 21 points. Ibex is lower. Still concerns about the look at peripheral. Looking at the individual stories that were looking at here. First of all, invensis up. They say it is likely to recommend a firm offer of around 505 pence a share. And still more share weakness for serco. Off 8 yesterday. Another 2 weaker today. An audit found the private contractors had overcharged the uk government for running schemes to attack criminals. Tens of millions of pounds were charged to tag criminals that were dead, in prison or never tagged in the first place. Bull markets, yields in the states lower again today. 2. 54 after hitting 2. 75, the twoyear high earlier. Gilts high as well. On the currency markets, dollar at its worst twoday performance for over a year. Couple of years. Down 2. 3 in the last few days. Right now, eurodollar up to 1. 32. The aussie dollar, again, just above this 34year trough of 19. 36. Time to go to singapore. Sixuan is there. Happy friday. It is a mixed day of trading in asia this friday. Japan, australia and taiwan ended marginally in the green. We saw profit taking after chinas finance minister scaled down expectations of this years gdp growth. Following yesterdays 3 surge of the shanghai composite led the decline in the region, down 1. 6 today ahead of the key data due out next week. Mainly banks lost ground. Beijing has already been drafting plans for promoting Interest Rate liberalization and may soon scrap the floor for lending rates. Markets fear this will bring more competition and squeeze Bank Net Interest marriagens. Gains on the market, tanking nearly 6 in todays session. Q3 operating profit came in worse than expected due to discounts and marketing expenses. Goldman sachs cut the outlook for the financial year. The worst performers in south korea were hyundai and kia motors. Shares plummeted about 5 to 6 in todays session on worries that their car sales may dip in china as more chinese cities may restrict new car purchases. And the Australia Market, the best performer for the week, gaining nearly 3 over the past five sessions. Gold miners like newcrest, evolution and kings gate, they once again outperformed the Broader Market jumping to 9 . Back to you, ross. Sixuan, thanks for that. Thats where we stand now. Joining with us his views, kevin gardener for barclays. Nice to see you. Extraordinary to see u. S. Stocks back up at record highs. And we have been at this massive debate, of course, with the fed. What is driving us here . Is it fed fears . Or less fears about that . Or fundamentals . I think it is a little bit of both. Actually it is not that surprising that the u. S. Equity market is performing pretty resilie resiliently. Equity markets are not particularly expensive after the rally we have seen to date. What the fed is saying when it is talking about tapering qe is that it thinks theyre capable of standing on their own two feet. Theyre at the same time as the prospect as higher shortterm Interest Rates it is still not materializing, youve got a recipe for stock markets continuing to do reasonably well for a while. Im not saying it is going to go up in a straight line, but we have been feeling any setback should be used as an opportunity by investors to move into stocks if they missed the boat so far. Yeah. This point about the theyre saying the u. S. Economy is able to stand on its own two feet, we rallied this last few days because bernanke was more dovish than we thought, suggested hes got doubts that the u. S. Economy can stand on its own two feet. I think hes reassuring people that many markets have actually backed up quite a bit. I think hes reassuring in the feds have no plans to raise shortterm Interest Rates or anything more dramatic in the near term. Lets not mess about with this. The bond yield is higher now than it was a few months ago. That means normalization, we are in the beginnings, the foothills of that longterm process. Thats happening. The economy is continuing to move forward, and valuations are still not stretched. So it is difficult to get too upset about equities i think at the moment. Bonds is the bond market perhaps is a different matter because the u. S. Treasury, even after selling off as it has done this past month or two is still looking historically quite expensive. If we have misgivings Going Forward, it is the outlook for bonds on a strategic basis rather than stocks. Is there any chance the fed might lose control of the bond market . I dont think any central bank controls a bond market. They influence it. They can shape it. But at the end of the day, the owners of most bonds control it and these days the fed doesnt own most of the bonds in existence. And if the economy is moving forward and people bonds are expensive, it doesnt matter what the central bank is doing. Theyll decide at some stage to economize on the holdings and sell them. If the economy is moving forward, if people start to worry about there being better Investment Opportunities elsewhere, if they start to think that the world isnt quite as forbidding a place as they have been assuming the last few years, then whatever the fed says or does is not going to stop bond yields from moving higher over the next few years. How far do bonds have to go before they become a real impediment for equity owners . I think cause and effect often goes the other way. It is not the bond market stopping the economy from growing, it is the economy pushing bond yields up that is the driving force behind this process. Thats whats happening. People are realizing despite all the worries about debt, despite unemployment coming down very slowly, u. S. Economy is moving forward. Budget deficit is this rifrpg g i shrinking. One potential constraint on growth is being lifted. Thats whats making itself felt here. Okay. Want to talk about oil, kevin. Wti, we hit 107. 42 on thursday, come back since then. Currently at 104. 65. Brent at 107. What is interesting is when you compare the price of oil now to when equities last hit their high in may, when last time we had a record high on the dow in may, nymex was down in the 90. 5 area. Why this move now . Particularly when the iea came out and said were going to have this huge increase in supply. What do you think of the oil story . There are lots of technicalities in your market. The spread between wti and brent narrowed quite markedly. I would steer away from linking the equity market overall specifically with a particular level of the oil price. It is tempting. Many people looking at the oil price going back up to think that in itself means that the stock market is due for a correction. There are lots of Big Oil Companies in the stock market. That higher wti number for lots of american suppliers means that theyre profits will be better than people had been anticipating. So i dont as yet see it as being anything that will cause major concern. I dont see the price of gasoline as being a major constraint on u. S. Consumer spending just yet. So it is interesting. And for what its worth, the Oil Commodity itself, oil is probably our favorite within the commodities asset class. It is not an asset class we like very much because if the economy is normalizing, then gold in particular still looks quite vulnerable. But energy, oil in particular, we think can actually hold up reasonably well. And at the global level it is partly a managed market. Opec is good at managing prices there. And we still think that the Global Economy is moving forward, keeping demand. Okay. Kevin, thanks for that, for now. Kevin gartner from barclays. A significant breakthrough. Senior officials in washington have agreed to restart stalled talks on an investment treaty. The deal could open more than 100 Industry Sectors in china to u. S. Investors while giving similar access to countries who launched treaty talks in 2008. Chinas Commerce Ministry didnt specify when the new negotiations might start. So how slow could chinas economy grow . The countrys finance minister says the figure could be as low as 7 this year and that implies we could see growth below 7 in the second half. The comments were made on the sidelines of economic talks in washington. Most Analysts Expect Second Quarter gdp to come in at 7. 5 , though weak june figures have cast some doubts. Go to our website and take part in an online poll, where were asking, will china experience a hard landing 2013 . However you define a hard landing. You can follow us on twitter cnbcworld. Political turmoil in portugal led to a delay in the review. They have now agreed to go at the end of august at the earliest. The governments request for a postponement came after the countrys president proposed a cross Party Agreement to hold early elections next year. It has drawn criticism. Portugals borrowing costs rose in response. You can see yields on the tenyear back over the 7 threshold. Our colleague spoke to the ecb Vice President in singapore a few hours ago and asked if the situation in lisbon could derail the Bailout Program. Portugal has been on track in terms of applying all the measures that have been with the authority and the imf. And the latest figures indicated that they were also on track in with regards to the fiscal situation this year. So there is no political problem in portugal. We will see this has to be, of course, solved as it is the case in any democracy. And we anticipate that the program will portugal will stay in the program and will citizen to comply because the program is supposed to end next year. And be sure to stay tuned for a full version of that interview later in the program. Standard poors from positive to stable. The Ratings Agency said the upgrade was based on a steady recovery in tax receipts and irelands rigor to sticking to budget cuts. Still to come on todays show, riding the bernanke bounce. Markets up at new records for the year. Well check in on equities state side. Share s soaring as there is a jump in profits. Well be in mumbai in the next ten minutes. And the north american shale boom is changing the Regions Energy landscape. In half an hour, well find out how some firms are seeking agen alternative ways to get into the game. And jpmorgan reporting before the bell today. Can dimon deliver another gem . Well head to cincinnati to preview the earnings. Besides all of that, the long lenses are at the ready and high streets up and down the country are full of baby souvenirs. It can only mean one thing. A royal baby is on the way. While the duke and duchess havent revealed the due date for the third in line to the throne, reports point to july 13th. While the baby probably needs no gifts, we thought Investment Advice might be in order. Which asset class do you think would be a fit for the future king or queen of england. You can also tweet u us cnbcworld. Maybe up until the 21st birthday, how about that . The release of crucial Economic Data from india being delayed until later today. Well find out why and what it means when we go to mumbai in a few moments. 7 [ male announcer ] its time. Time to have new experiences with a familiar keyboard. To update our status without opening an app. To have all our messages in one place. To browse. And share. Faster than ever. Its time to do everything better than before. The new blackberry q10. Its time. [ agent smith ] ive Found Software that intrigues me. It appears its an agent of good. [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. [ static warbles ] on a trade trip to the u. S. , India Finance ministers are urging others to be patient with the can country. The latter punished the indian rupee sending it to record lows earlier this week. All eyes on key trade data out later today. Joining us for more on india is the head of Asia Research and economics. P. K. , good to see you. How much of a problem is the rupee for the country, down near fresh lows against the dollar. What can they do to combat it . The rupee stabilized, but the sharp depreciation of the past month and a half is already a significant problem because over the past two or three years, the government had actually encouraged corporates to go for external commercial borrowings and those who took that option are now in considerable trouble with the need to to service those debts at at a much higher effective Interest Rate than they had imagined at first. So thats one significant problem. Of course, from the trade standpoint, it will probably help to improve the trade and current account deficits over the next six to nine months, but really the biggest problem in india is that the government is under a great deal of pressure to go for popularism over the last nine months of its term in office. They have introduced something called a Food Security bill and they have done it through an ordinance, a parliamentary maneuver that effectively makes it a law for six months until parliament is able to debate it. So they have already introduced this ordinance, which means that the fiscal numbers this year will be very difficult indeed to achieve. And i think thats going to be a source of great concern to investors over the next six months. Source of great concern. What does that mean for indian assets . Well, you know, i would i would stay away from committing fresh money to the india market. Because there are some positives. Of course, in the equity market, the export the export sectors will do very well. So the software sector, pharmaceuticals, et cetera, will benefit from the sharp depreciations of the rupee. So there are a few opportunities like that, but broadly speaking, the worst is still probably ahead for indian asset prices, given the fact that the twin deficits are probably going to get worse. In particular, the fiscal deficit is going to be very difficult to control with the introduction of the Food Security bill. And particularly the fact it has been introduced through an ordinance. Meanwhile, what will happen with indian demand for gold . If the rupee has declined in value, gold is more expensive, what happens with that . Well, of course, gold prices have come off sharply globally and theyre still slightly down. But the government has introduced some measures to deter gold imports. Gold imports are a major contributor to the deterioration. The government is trying to deter gold imports by introducing some duties and making gold imports more expensive and less attractive. So those measures should have some impact over the course of the next few months, and i do think that the worst phase for the trade balance is probably behind us. But seasonally speaking, the april to september period is the worst point for the fiscal balance, for the trade balance. The trade balance deteriorates a lot more during the april and september period. And this year we have seen that normal sort of season of deterioration albeit not quite as bad as it would be without that depreciation of the rupee and without the measures to deactuad deter gold imports. Thank you. P. K. Basu. Sticking with india, earnings season off to a good start. The second biggest it Services Provider surprising by keeping full year guidance. Ekta is in mumbai with more. Thanks for that. It is a thumbs up after many quarters of declines in terms of the stock price. The infosis stock price is down and today it is up 11 reacting to a healthy set of numbers. In terms of the new guidance, around 2. 7 on a subsequential basis. And this was led by the volume growth which came in at 4 , which actually surprised the street and was one of the Key Highlights in terms of the numbers this quarter. One of the other key points in terms of the pricing this quarter, the blending pricing was down 0. 7 , but the Revenue Growth was managed this quarter simply because of the volume growth, hence emphasizing that it was one of the key points this quarter. Now in just in just coming to the guidance, the management has increased its rupee guidance all the way to around 10 to 13 on back of the depreciating. They have mentioned the dollar of the new guidance will be maintained within the earlier target of 6 or 10 and now this indicates that maybe the management Going Forward will meet the top end of the guidance which would possibly be the 10 level, hence that would be a completely outperformance compared to the previous year. To put things into perspective, now there is an expectation there could be a percent and a half of growth, which is expected in the next quarter in a subsequential basis, which will then result in that 10 growth, which the company is aiming for. But for the next quarter, the region could come under pressure because the management didnt see that they have they have taken wage hike and that impact will be around 300 basis points in the Second Quarter. It has resulted in a positive uptick in terms of the strategy. Back to you. Thanks for that. Good to see you, ekta carl icahn is preparing to submit a sweetened offer for dell by today. In an interview, he said hes looking to add to a warrant to his 14 a share tender offer for the pc maker. Icahn said michael dells 24. 4 billion buyout bid undervalues the company. The dell special Board Committee has backed that offer. Set to vote on the buyout on thursday. Dell stock is up nearly a percent in frankfurt. Microsoft reportedly worked with both the fbi and National Security agency to help them get easier access to user data. The guardian citing documents from nsa leaker Edward Snowden said microsoft worked with the agencies to bypass encrypted emails from outlook as part of the preside. R. I. S. M. Program. In a statement, microsoft repeated it only provided Customer Data in response to lawful government requests. And the man behind one of the worlds most Popular Party games, twister, has passed away. Charles foley died 82 in minneapolis. He invented the hugely popular game that brought partygoers together in the most awkward of positions. Twister was purchased by Milton Bradley and became a sensation after Johnny Carson and eva gabor played it on the tonight show. What is your Favorite Party game . Keep it clean, please. Email us at worldwide cnbc. Com, tweet cnbcwex or direct to me rosswestgate your Favorite Party game. We had a few from the directors, but i cant repeat them on air. Still to come on the program, Jpmorgan Chase and wells fargo kick off u. S. Earnings later today. Find out more after this. [singing] hoveround takes me where i wanna go. Where will it send me. One call to hoveround and youll be singing too pick up the phone and call hoveround, the premier power chair. Hoveround makes it easier than any other power chair. Hoveround is more maneuverable to get you through the tightest doors and hallways. More reliable. Hoveround employees build your chair, deliver your chair, and will service your chair for as long as you own your chair. Most importantly, 9 out of 10 people got their hoveround for little or no cost. Call now for your free dvd and information kit. You dont really have to give up living, because you dont have your legs. Hoveround replaced the legs. And now every hoveround comes with this handy tote bag and cup holder for access to your favorite items. And right now, get this limited edition hoveround America Travel mug free with your hoveround delivery. [singing] hoveround takes me where i wanna go. Call or log on to hoveround. Com to find out where a hoveround can take you thshe makes a nifty livingn sleeping on mattresses pioneered by engineers whose singluar devotion is not stopping until they have given her the best sleep of her life. Thats not greta. Save up to 500 on the tempurergo collection and get your best sleep possible. Visit tempurpedic. Com to find a store near you. These are the headlines from around the globe. Stocks in europe tried to end the week in the green after u. S. Markets closed at historic highs. Investors shrugging off the renewed crisis in portugal. We anticipate that the problem portugal will stay in the program and will continue to comply because the program is supposed to end next year. Chinas finance minister says Economic Growth could come in at only 7 this year, but denies suggestions of a hard landing. Shares in invensys soar. The big u. S. Banks get set to kick off earnings with jpmorgan and wells fargo the First Companies out of the starting gate. Right. Were hearing from s p on ecb bank ring fencing. We dont have that particular story at the moment. Well bring it to you in a few moments. Lets show you where we are with european equities at the moment. Ftse up a third. The cac quarante is up a third. As far as bond markets are concerned, tenyear bond yield is 1. 6 . Treasury yield, 10. 2 . Dollar index was up at three year highs and then two day selloff. Stabilizing today. We were at 1. 32 at one stage yesterday. There is one currency player causing a storm. Catch the investment call on our website, cnbc. Com. Thoughts or comments, email us worldwide cnbc. Com. U. S. Earnings season heated up with citi reporting Second Quarter results on monday. Tuesday, coca cola and Goldman Sachs. Yahoo reports after the close. Midweek, bank of america, ibm and intel. Thursday, Morgan Stanley, microsoft and google take the lead. And finish the week with General Electric and state street. But it is jpmorgan and wells fargo that will be kicking off earnings before the bell. Jpmorgans Second Quarter results at 7 00 a. M. Eastern. Profits there are forecast to rise 19 to 1. 44 a share. With revenue rising 8 just under 25 billion. Analysts expect the firm to signal strength in the Capital Markets and growing fees for the big banks. Wells fargo reports Second Quarter numbers at 8 00 eastern, forecasted to around 92 cents a share and 5 billion. Wells fargo, could provide a clear picture of how bank profits have been hit by dropping refinancings as Interest Rates have risen. Both stocks today in frankfurt. Jpmorgan up a bit, a percent. Wells fargo down. 4. Cnbc will have an exclusive interview with the Jpmorgan Ceo Jamie Dimon at 10 00 a. M. Eastern on squawk box. Right now, we have richard state. Richard, good to see you. Thank you for coming in. Lets kick off with, first of all, the improvement in the Housing Market and the backup in Mortgage Rates, how important is that going to be to see what these two banks say about that . Well, certainly the improvement is going to allow the banks to release more of their loan loss reserves and that will boost this Second Quarter set of results, particularly for jpmorgan. I think they already indicated theyre going to release about a billion dollars of reserves just for that. I think thats going to continue to play out over the next six to 12 months. Youre going to get continued reserve releases and thats all helpful for their capital ratios building up. The backup in Interest Rates clearly has also had a negative impact of slowing the amount of mortgage refinancing taking place. That didnt really start to happen until the very end of this quarter through the end of june. So well see a bit of it in this set of numbers, but much more a q3 and q4 event and thats when youll see a big slowdown in the mortgage refi and impact the banks which generated a lot of revenue out of that, wells fargo, a huge beneficiary of that trend over the last couple of years. The other thing fascinating to see, particularly on the trading side, is what a hit jpmorgan has taken on the backup on treasury yields and fixed income portfolios. Absolutely. Management itself at the end of may was saying we had quite a bit Second Quarter trading revenues, fixed income equity trading up about 15 year on year. But everybody is now worried that through the end of june, particularly fixed income could have slowed and they could have taken some losses on the they hope to trade the assets. It will be fascinating to see how that impacted jpm and other investment banks and to see really what their view is going into q3, whether well have a continued slow period in terms of volumes of trading, everybody is sitting on the sidelines, waiting to see what happens. Could be another difficult q3. Equity trading, though, different story . Yeah, that has thats remained strong. And that is definitely a better story. I think it is more around fixed income, which where there is more concern. But that, you know, again, sort of varies. Trading remained strong because of the volatility. And thats probably benefits banks a bit more like citigroup and jpm over Morgan Stanley and goldman. What you say, look, youve got an negative view on wells fargo because of this impact from mortgage financing. What is your overall view on jpmorgan as an investment . We like jpmorgan. We think for the strength of the earnings, it is a cheap stock, trading at 9 1 2 times pe multiple where as wells fargo is up on 11. 5. Jpm is going to see steady growth in earnings over the next couple of years. It has a number of levers to pull, beneficiary of the housing recovery. I dont think it is going to continue to take market sharing Investment Banking generally. And it has got that sort of slight growth that the rest of the world gaining share in european Investment Banking, pulls back. It remains a good story. Do you think the fed will be able to anchor the short end and get a steep in yield curve, which should be, you know, good for banks . Well, thats a huge debate as to whether this move in Interest Rates is really good for the banks or not. Clearly higher Interest Rates if we go back 10, 20 if it means proving a margin, yes, we dont know if thats the case. Theyre sending upfront negative requests. Capital could be impacted. In terms of earnings, steep yield curve will help earnings in two to three years time. Only actually when shortterm rates move higher well see a real benefit and that may not happen until late 2014 or 2015. So the question is whether stock prices have moved a little bit too fast ahead of that, sending some simpler Regional Banks, some have moved a lot this year already on that theme and actually if it doesnt come through until 2015, people may get bored and see a setback. Richard, thank you so much for joining us. Stick around for a little bit more. A small group of u. S. Senators introduced a bill to breakup wall streets megabanks. The measure led by democrat Elizabeth Warren and Jonathan Mccain would split commercial Investment Banking. The bill would bring back elements of the last act enacted in 1933 but later repealed in 1999. Debate renewed last year when the former ceo said it was time to break up banks so they can get back to growth. Senator warren will be on squawk box at 8 30 eastern. What is your view of this debate and how are investors taking this on board . Should they be reacting right now . I dont think that people will take that too seriously. The question of whether you split Investment Banking from Retail Banking was debated at great length in the runup to the introduction of the dodd frank legislation in 2010. And the u. S. Politicians at that point decided that that was not the way forward. They would go ahead with other ways of skurg the banking system, requiring higher capital, stronger leverage ratios and thats the direction they took. What youre now seeing is that it has taken a long time to get this dodd frank legislation put into place. A lot of the work is still ahead of us in terms of regulators who are actually have to implement it. I think that a bill like this is intended to put more pressure on those regulators to speed up the implementation and also just to keep banks kind of in check to make sure theyre clear, theyre very much in the spotlight still in that respect. I dont think this bill would actually ultimately pass. Symbolic rather than meaningful thats how we see it. Something very similar a few weeks ago in terms of the leverage ratio. Some said we want a 15 ratio compared to the three. What happened is that kind of put pressure on the fed and they came up with a 5 ratio. All about sort of just this negotiation that is going on. All right, we should thanks for that. We got calls from Standard Poors around the ring fencing of banks. Meaningful change may lower trading risk appetite. But could also reduce the availability of Investment Banking services and lower the diversification benefits enjoyed by some universal banks. As for ratings, which is what theyre there for, they could lead to more frequent differences between those on ring fence trading emphasis and those on the banking group. Staying with the sector, ubs said that some of its german offices were searched as part of a tax probe dating back to 2012. Speaking to reuters, the swiss bank confirmed earlier reports that the raids were aimed at recovering evidence of tax evasion by clients. Ubs trusted that it was not the specific target of the investigation, saying they dont tolerate activities to help clients avoid taxes. Now, do you want to be top dog at conserving wasted energy . Sony found a unique way to let you do so. Lets get more on this story. Whats going on . Hi, ross. Well, sony has applied the Artificial Intelligence Technology Used in its dog robot to support households, stores and offices trying to cut energy bills this summer. By attaching a special sensor used in the technology, it can analyze data of the surrounding electric current. It can figure out in real time which electric devices are in operation and their power usage level. Users can figure out which devices are Wasting Energy without attaching sensors to individual devices. It can provide recommendations for an ideal number an lay out electric devices in rooms. This new service will be offered by a startup firm launched by sony this year within the company. Extreme heat is covering japan all this week, and temperatures in some cities in the central part of the country even exceeded 39 degrees celsius. Most of japans Nuclear Reactors are still shut down after the tsunami disaster in 2011, so the country is continually trying to find ways to conserve energy this summer. Ross, back to you. All right. Extraordinary stuff. Thanks for that. North koreas economy is on the move according to the southern neighbors central bank. The bank of korea says the norths economy is expanded for the second Straight Year in 2012 to 1. 3 . That includes manufacturing and industrial growth for First Time Since 2008. Agricultural sectors, livestock farming showed healthy gains but the country is among the most impoverished places on earth. A quick look at the agenda for asia on monday. Chinas economy in focus. When isnt it . The gdp figures are due. June data including industrial output, retail sales and Foreign Direct Investment and india releases main inflation gauge for june. Singapore press Holdings Posts Third Quarter earnings. We have some response from the portuguese Prime Minister who says that the crisis forces all Political Parties to seek unity and realism and says the countrys challenge requires a National Compromise response, in response to the president s suggesting might are to have elections in early 2014, which has drawn some criticism from the troika. That was in return, of course, for the coalition staying put until then. Still to come on the program, with the race for Renewable Energy picking up, well speak to a leading investor in the field. The ceo of impacts Asset Management will be with us. Worldwide exchange continues. I want to make things more secure. [ whirring ] [ dog barks ] i want to treat more dogs. Our Business Needs more cases. [ male announcer ] where do you want to take your business . I need help selling art. [ male announcer ] from broadband to web hosting to mobile apps, Small Business solutions from at t have the security you need to get you there. Call us. We can show you how at t solutions can help you do what you do. Even better. [ agent smith ] ive Found Software that intrigues me. It appears its an agent of good. [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. [ static warbles ] news around the european automakers. Lets kick off with renault. Deliveries down 1. 9 on a weak europe Global Vehicle sales. Offsetting gains elsewhere. They also cut its french and Global Outlook predicting an 8 contraction in its home market. Instead of 5 decline previously forecast as well. Global sales up 2 instead of 3 it had forecast in april. So downgrading of global sales for renault. Vw, they say group sales are up 3. 7 in june. The smallest gain since march. Deliveries in the core european markets keep falling. The trend is the same. Though the numbers are different. Theyre both saying the same thing. Europe is weak. It is offsetting stronger global sales elsewhere. Their sixmonth global sales up 5. 5 to a record for vw at 4. 7 million autos. Though european deliveries again down 3. 5 to 1. 87. So the story is the same. Good global sales, europe is still getting weaker. Slightly different part of the auto sector, the super rich case in point the high car market in asia. Looking at one exclusive brand that is trying to expand. Not a lot of people heard of the british supercarmaker mclaren in asia, but that will change very soon. Theyre expanding aggressively in this part of the world, aiming to double their network bit end of this year to 13 including four in china. So tell us about this. You know, china, huge market, multimillionaires, even billionaires, we know that, but it is slowing down. The timing of their expansion out there in asia as this is going on, not a worry . I think there is not a worry for us so much because the economy downturn in asia is much less than we see in europe. And we are only expanding right now, we were in asia in march last year with five dealers and now slowly growing. At this price point and at this part of the market, it is pretty the economy is slowing down, but the people who can afford a mclaren, lets say, even if they are hurt, theyre only slightly less rich. Yes. I mean, like i said, this is a product that somebody buys because they want to reward themselves or want the Newest Technology that is available on the market. And youre always going to have buyers for this sort of product. You know, ive heard so much about this car. A Million Dollar singapore on the road goes as fast as 330 kilometers an hour, thats 205 mph. I got to take this for a test drive. Wow. So look at this. Carbon fiber wheel. Lets start this baby up. What a ride. This is probably the only chance im going to get to drive one of these mclarens. So, guys, if you want me out, youre going to have to drag me out. Martin enjoying himself. Why not . Now, Schneider Electric is considering whether to take over one of its rivals. The french firm confirmed it is in the early stage of talks to buy invensys in a deal that values the engineer at 3. 3 billion pounds. It is hoped the move will help boost their automation business. It represents a 15 premium to invensys Closing Price on thursday. Schneider has until august 8th to make a firm offer. Lets check in on where we are with oil prices today. We have seen a huge increase in wti in the last month or so. We got up to 107. Today, 104. 74. We have gone weaker over the last 24 hours or so. Brent, 107. 67. Despite the recent spike in crude, the north american shale boom is one factor that should keep longterm Energy Prices in check. This was the view of the iea. As oil and Gas Companies rush to tap underGround Resources, other firms are looking at alternative investments tied to shale. When youre looking at opportunities in shale, youre not looking at shale exports per se, but you think there will be lots of other spinoff businesses around i suppose Shale Service businesses. Is that a way to describe it . Yes, thats right. There already are. If you look at conventional gas, you dont need any water to extract gas from the rock. If the zbas trgas is trapped in shale, you need a large amount of water. Where is the water coming from . Thats part of the problem, coming from a long way away or coming from Ground Resources that maybe on the verge of depletion. Thats a big problem. Then you have to put lots of chemicals in the water to make sure that the fracking works effectively. Chemicals then need to be treated if the water is disposed of safely. This is all so so what sort of companies then are you looking at that are managing these these services . It is three types of companies. The companies that are actually putting the pipes in place to supply additional water, stocks like aqua america. The companies that provide the pumps and if you like the components to make the whole system work, Companies Like zion and then companies that are helping to extract the chemicals and cleanup the water, like eco lab. Because of the use of water, one of the big problems for china during fracking. Because they have scarce water sources anyway. I understand there are firms that are looking to see whether you can do fracking with briane with sea water. Is that something youre aware of . Thats definitely a strong possibility for helping solve the water problem. Meanwhile, if youre in the middle of the u. S. , sea water is a long way away. You have to use fresh water. At the same time, new report from your company as well that suggests firms are coming this is away from companies that extract fossil fuels as well. What is the story here . This is interesting. If you look at human emissions of Carbon Dioxide over history, we have pumped 500 billion tons of co2 in the atmosphere. If we pump more, well have a low chance of limiting Climate Change to a couple of degrees. Look at the value of the fossil fuel stocks out there in the world, theyre at about 2 trillion tons of co2, equivalent. So the work being done recently to say, isnt it actually impossible to burn all that Carbon Dioxide, and therefore isnt the question about whether the value of those fossil fuel stocks is correct or not . So we have been looking at what would have happened had investors divested fossil fuel stocks 5, 6, 7 years ago. The implications are the implications are that investors should look at whether they need to hold as much fossil fuel stocks in their portfolio as they do at the moment. How does clean coal generation come into that equation . Okay so there are various i was of reducing co2 emissions from fossil fuel. Efficient use of fossil fuels, clean coal is one of those areas. Second area is Carbon Capture storage, still unproven, but like a great white hope for reducing co2 emissions. And Renewable Energy and energy efficiency. Is there im just interested, are there as we explore shale opportunities in the uk, are there going to be Investment Opportunities in the uk around the development of the shale industry, away from directly the likes of those who are drilling on the support side that youre looking at . Yes, well, obviously the uk is a densely populated country. So environmental permits and planning are going to be a big issue around shale Gas Exploration. Companies involved in Environmental Consulting should benefit. To you think it will take off here or will it be so we have so many environmental concerns, it never actually is going to get any sort of Critical Mass . Environment agency said the current regulations they believe are adequate to ensure that any shale Gas Exploration is done in an environmentally appropriate manner. But as you say, were so densely populated, local people are probably going to have concerns about trucks coming in with equipment and perhaps piping in water. And so i think it is going to take a lot longer than people hope. And clearly you need to give local communities a cut of the profits, dont you . You need to incentivize them to i dont know how you do that, but i imagine you need to say well take the money and build schools or chip in for hospitals. Thats a standard part of planning in the uk. Smart developers know they got to bring in support from local community and no matter what theyre building. Good to talk to you. Did you ever play twister, by the way . I did. We all have done it, right . Gone on to some very unusual positions. The man behind one of the worlds most popular games twister has passed away. He invented the hugely popular game. This brought partygoers together in some of the most awkward positions. It was purchased by Milton Bradley. And became popular after Johnny Carson and eva gabor played it on the tonight show in 1966. What is your Favorite Party game . Ed tweeted his favorite game is our very own nail the number. Im not sure what he means. Is he talking about the employment report . And rick tweeted clue is his Favorite Party game. Havent got a clue about that. Keep your responses coming here on Worldwide Exchange. Get in touch with us, email, worldwide cnbc. Com, tweet cnbcwex or direct to me rosswestgate. Still to come, Ben Bernankes remarks sent u. S. Treasuries higher. Can the rally continue . Well get into it when we come back. The second hour of Worldwide Exchange right after this. Stooks in europe try to end the week in the green after u. S. Markets close at fresh highs. Investors also shrugging off renewed political crisis in portugal. The ecbs Vice President told cnbc there is no reason to worry. We anticipate that the program portugal will stay in the program and will continue to comply because the program is supposed to end next year. Chinas finance minister says Economic Growth could come in around 7 this year but denied suggestions of a hard landing. Stocks in invensys soar. They received a 505 pence a share bid from Frances Schneider electric. The big u. S. Banks getting set to kick off earnings today with jpmorgan and wells fargo the First Companies out of the starting gate. Welcome. Fresh record close for u. S. Equities last night. Right now, futures indicating fairly cautious start. The dow is 6 points below fair value after closing up 15,452, up 1. 1 . The nasdaq has been a real outperform, up 11 out of the last 12 sessions, up 5 so far this month. Right now, it is fairly flat. The s p 500 is just half a point below fair value as you can see after being up 1. 3 yesterday. Thats where we stand. The dow jones stocks 300, ftse, global 300 is just up 6 points at the moment. Were near the session high for european equities. Yesterday, the ftse up 38 points. 6 . Now the ftse is up. 3 , 22 points higher. Ibex is an underperformer, keeping an eye on what is going on in portugal, down 1 . Cac quarante is up. 2 of 1 . On the currency markets, the dollar had its worst twoday decline in around a year four years. Yesterday. Today, the dollar yen a little firm firmer, 99, eurodollar got up to 1. 32. Right now 1. 3042. Dollar on a more stable footing off that selloff, but only because it was up at three year highs anyway. A huge long dollar buy. Just saw an unwinding of that in the last two sessions. Thats where we stand right now. If you are just tuning in, thanks for having us on the show. Lets recap what happened with the Asian Session as well. Sixuan filed this report. A mixed day of trade in asia this friday. Japan, australia, and taiwan ended marginally in the green, but we saw some profit taking after chinas finance minister scaled down expectations of this years gdp growth. Following yesterdays 3 surge of the shanghai composite led the decline in the region, down 1. 6 today, ahead of the key data due out next week. Banks lost ground. The official China Securities journal reporting that beijing has already been drafting plans for promoting Interest Rate liberalization and may scrap the floor for lending rates. Markets fear this will bring a mark competition and squeeze banks net interest margins. In japan, fast retailing capped gains on the market, tanking nearly 6 in todays session. Its q3 operating profit came in worse than expected due to discounts in marketing expenses. Goldman sachs cut the companys operating profit outlook for the financial year. And the worst performers in south korea were hyundai and kia motors. Shares plummeted about 5 to 6 in todays session on worries that their car sales may dip in china as more chinese cities may restrict new car purchases. And the Australia Market was the best performer for the week, gaining nearly 3 over the past five sessions. Gold miners like new crest, evolution and kings gate, they actually once again outperformed the Broader Market, jumping about 4 to 9 . Back to you, ross. All right. That was sixuan with the update from asia. On the agenda today in the united states, june ppi due out at 8 30 eastern. Producer prices are forecast to rise. 6 , but only by. 1 when you take out food and energy. And 9 55, the first read on july consumer sentiment. Also a number of fed speakers today. Charles prosser and james bull on the panel at 2 45 p. M. San franciscos John Williams speaks later at 5 15 p. M. We swing around a lot depending what individual fed speakers say. A diverse bunch of views. Some other stories were looking at, jpmorgan and wells fargo kick off earnings season for u. S. Banks. Jpmorgan reports Second Quarter results at 7 00 a. M. Eastern. Profits there are forecast to rise 19 to 1. 44 a share with revenue up 8 to just under 25 billion. Analysts expect jpmorgan to signal strength in the Capital Markets and growing fees for the big banks. Wells fargo reports its Second Quarter figures at 8 00 a. M. Eastern, forecast to earn 92 cents a share on revenue of around 5 billion. Wells fargo, the nations biggest Mortgage Lender so could provide a clear picture of how bank profits have been hit by drop in refinancings as Interest Rates rise. Both of those stocks, jpmorgan up a percent and wells fargo off. 4 as well. Dont forget, cnbcs got an exclusive interview with the Jpmorgan Ceo Jamie Dimon at 10 00 a. M. Eastern on squawk box today. Now, small group of u. S. Senators meanwhile introduced a bill to break up wall streets megabanks. The measures led by democrat Elizabeth Warren and republican john mccain would split commercial and Investment Banking. The bill would bring back elements of the act enacted in 1933 and repealed in 1999. Debate was renewed last year when former citigroup ceo said it was time to break up banks so they can get back to growth. Senator warren will be sharing his views on squawk box today in the u. S. At 8 30 eastern. Carl icahn is preparing to submit a sweetened offer for dell by today. In an interview, icahn says hes looking to add a warrant to his 149 a share tender offer for the pc maker. Warrants are added to bond or share offers as a sweetener. He said michael dells 24. 4 billion buyout bid undervalues the company, but dells special Board Committee and proxy Advisory Firm iss have both backed that offer. Dell shareholders set to vote on the buyout next thursday. Dell stock in frankfurt today is up half a 1 . Microsoft reportedly worked with both the fbi and National Security agency to help them get easier access to user data. This is coming from the guardian, which is citing documents from the nsa leaker Edward Snowden. It says microsoft worked with the agencies to bypass encrypted emails from outlook as part of the nsas p. R. I. S. M. Program. The company also aloud them to collect data from video and audio conversations on skype. In a statement, microsoft repeated it only provided Customer Data in response to lawful government requests. And the man behind one of the worlds most Popular Party games, twister, passed away. Charles foley died at the age of 82 in minneapolis. He invented the hugely popular game that brought partygoers together in the most awkward of positions. We all remember. Twister was purchased by Milton Bradley and became a sensation after Johnny Carson and eva gabor played it on the tonight show in 1966. Dont quite remember that. What is your Favorite Party game . Let us know, email us worldwide cnbc. Com, tweet cnbcwex, or tweet direct to me rosswestgate. Well take a short break. When we come back, were going to the latest on fixed income. Where are u. S. Yields going next . Turmoil in portugal led to a delay in the Bailout Program by the troika. They were due to carry out their eighth inspection next week. But now agreed to go at the end of august at the earliest. The governments request for a postponement came after the countrys president proposed a cross Party Agreement to hold early elections next year. The move has drawn criticism. Portugals borrowing costs have been elevated, back over that symbolic 7 mark. And at the same time, our colleague spoke to the ecb Vice President in singapore a few hours ago and asked him whether the current political crisis in lisbon might derail the countrys Bailout Program. He also weighed in on the state of europes Banking Sector. No one is anticipating that we will have the needs to resolve banks in the short time horizon. That is not it is not being anticipated by anyone. So it means that the need for actual resources to resolve banks will not come in the immediate future. So there is time to build up this fund. But it is also possible that in the regulation about such an authority, the possibility of anticipating the number of years of contributions would be included in order to get any need that could emerge. And thats why also it is foreseeing in the commissions proposal that the authority could borrow to bridge its financing requirements and then that would be paid later by the future contributions coming from the sector. So the possibility is there for that to happen, because, of course, it is advisable that the contributions paid by the banks would be gradual, and would take some years, as you said, to build up the overall fund that is considered necessary. Youve recently seen a flareup in the political situation in portugal. Are you worried about the Political Developments there and do you think they have the potential to derail the process of keeping on track with the Bailout Program . Portugal has been on track in terms of applying all the measures that have been agreed, with the European Authority and the imf. And the latest figures indicated that they were also on track in what regards the fiscal situation this year. So there is now a political problem in portugal. We will see this has to be, of course, solved as it is the case in any democracy. And we anticipate that the problem will portugal will stay in the program and will continue to comply because the program is supposed to end next year. Europe is still facing tough Economic Conditions and will likely see a recession again this year. When do you think that the eurozone is going to be able to emerge from this Current Crisis and what more do you think the National Governors need to do to stimulate growth . Well, governments have been doing reforms, not only at the european level as we already talked about, but also at national level, in a big way, in countries that have been adjusted, their policies and doing reforms. And the International Consensus is that next year there will be growth in europe including in the not very buoyant growth, but some growth, which is in which will be indeed the first sign of europe coming out of this phase of adjustment since the crisis. So its a positive outcome that will it is still our main scenario. Right. Lets just get over to gila bass, the chief income strategist. Thanks for joining us this morning. Taking a look at portugal yields up at 7 . We clearly in the last mainly because of fed policy seen high peripheral yield as well. How much risk do you think is attached now to the peripheral sovereign bonds in europe . Well, i would say a substantial risk. Increasingly over the last couple of years what we have seen is a move from what was sort of broad concern and broad exit from that sector and to a little bit greater country specific sort of philosophies. And i think really the eye has turned in particular to one country which is portugal, and many of their issues structurally speaking are much longer lasting than perhaps some of the challenges it faced in ireland in particular. I think that differentiation among the various peripherals in europe is an increasing trend that were going to see. I think it is less likely we lump them all into one. Though more broadly speaking, particularly as the ecb enters into more of an easing phase, well see risk premiums on average in those peripherals decline a little bit, even as certain countries widen on the result of fundamental pressures. The thing here is whether how much the ecb loses control a little bit and how much of a hostage are surely european deficit is to fed policy. Certainly to some degree. And one of the things we have learned perhaps in tough ways over the course of the last two years or so is that central bank intervention, be it the fed, the bank of japan, the ecb, it is really a global phenomenon. We live in sort of a very cross border financial world at the very least. So as a result, actions in one area certainly affect actions in the other. Here in the u. S. , the great leverage trade pushed down risk premiums and all sorts of asset classes, perhaps emerging market and riff rawl peripherals felt worst. Well talk about u. S. Markets when we come back to you. A recap of the headlines, european equities cheer the u. S. Valley. Investors struggle in portugal. Economic growth could come in lower than forecasted at 7 this year. And invensys shares move higher after a takeover proposal from Schneider Electric. The countdown to u. S. Bank earnings is on with jpmorgan set to give the first glimpse at Second Quarter performance and well preview those results. Worldwide exchange continues in a few moments. [ agent smith ] ive Found Software that intrigues me. It appears its an agent of good. [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. [ static warbles ] lrall right. Record closes yesterday, and now pretty flat for the open right now. S p is down just under a point. The dow down 3 points. The nasdaq is caught up just under a point. No real indication at the moment. European equities are firmer today. Not by much. Ftse 100 up by a third of a percent. Xetra dax up threequarters. As far as bond markets are concerned, treasury yields, little bit lower. 2. 53 . We hit 2. 75, twoyear high at the beginning of the week. Joining us still with us. Gila bass. After listening to mr. Bernanke trying to reclarify things as well, are we now in a range of, say, 2. 75 yield to sort of, i dont know, 2. 3 . Is there a 50 basis point range you think well trade in on tenyear treasuries . I think thats a little wide. One of the things that the market spent the last three weeks doing is sort of sort of selling off that first phase in response to the fed announcement which came on june 19th, the press conference which came on june 19th. That first phase of the upward pressure has done and what we see now is the u. S. Rates markets are looking to find an equilibrium based on economic expectations. It is our view that that is really a right around the 2. 50 to 2. 60 neighborhood and were better buyer of the u. S. Rates markets which treasuries get above 2. 60 or so and better sellers when were below 2. 50. Well see a range around that 2. 50 to 2. 60 area. Is there any chance of whatever happens with the fed, the bond markets continue to deteriorate. And what risk is there to take control and move the yield back to highs. It would suggest the fed is starting to lose some power. Well, i mean, it certainly is possible. The Federal Reserve is one source of demand at a very large and vibrant market with a lot of opinions. If you look to the original bond, what they were pricing in is concerns of greater inflation. Right now it is exactly what we dont have in the u. S. And worldwide. Inflation expectations even as Interest Rates have risen since may and march lows, Inflation Expectations here in the u. S. Declined. So were pricing in the simultaneous fed exit with lower Inflation Expectations and that doesnt speak to the private market being too aggress evly negati negative. With the selloff we had over the last three weeks, there is always a greater risk. That level of volatility is certainly heightened and one of the things were very, very cognizant of, uniquely so now, is managing risk around portfolios. Yeah. What is the the fed has got 30 , is it, of the tenyear equivalence . Im sure i saw a stat somewhere around that figure. Is that about right . Theyre a very large buyer of the percentage that is issued of longterm debt. So on average, over the course of the last year or so, they have been absorbing about 60 of the net longterm debt issuance. And they own, i believe, a little under 30 of the tenyear out part of the yield curve. When they stop buying well, in reality, in the markets are discounting mechanism. The Federal Reserve on june 19th indicated that, hey, guys, at some point in the pretty near future, and to me, whether it is september or november or january, thats kind of a marginal discussion, but sometime in the pretty near future were going to stop buying bonds. And i think the sort of period between june 19th and the end of the month and the last couple of weeks as well is really about reflecting that reality, so it is my argument that the backup that we had so far in rates actually reflects most of the effects of the fed exit already. If you loobt whk at qe 1 and qe the markets basically rallied ahead of the rumor and when the actual bond buying started, markets sold off a little bit. We think thats what happens in reverse. Were seeing a selloff ahead of the rumor and little buying or relative stability once the fed actually stops. Look, how worried are you how concerned should we be about if there is a spillover a further rise in other rates, Mortgage Rates, for example. Mortgage rates are very closely tied to the level of treasury yields. If you asked me two or three years ago whether i thought a 3. 5 or 4 Mortgage Rate made any difference to the Housing Markets, i would have to say no, absolutely not. Because the dynamics that are going on in the Housing Markets and how that is affecting consuming spending levels and wealth and balance sheets, it is much more tied to home prices which are in themselves tied to the lack of inventory that is available on the market for sale. So i think there are many, many factors, beyond just the rate market which play a more dominant role particularly in things like housing, stimulating international trade, et cetera. Guy, stay there. Well come back to you. Get a cup of coffee. A breakthrough in u. S. China trade relations. Senior officials in washington, the strategic and economic dialogue have agreed to restart stalled talks on investment treaty. That deal could open more than 100 Industry Sectors in china to u. S. Investors. The two countries launched treaty talks in 2008 but failed to make any headway. Chinas commerce minister didnt specify when the new negotiations might start. Just how slow could chinas economy grow . The countrys finance minister says the figure might be as low as 7 this year. That implies we could see growth below 7 in the second half. The comments were made to shxin. Weak june trade figures have cast some doubts. So still to come, the bere nachnachg bernanke effects lifted the markets. Well preview the trading day ahead, well be at the cme when we come back. This is Worldwide Exchange. A recap of the headlines today from around the globe. Stocks in europe try to end the week in the green after u. S. Markets close at historic highs. Investors shrugging off renewed political crisis in portugal. The ecb Vice President told cnbc there is no reason to worry. We anticipate that the problem portugal will stay in the program and will continue to comply because the program is supposed to end next year. The big u. S. Banks are going to kick off earnings season tod today. Chinas finance minister says Economic Growth could come in at only 7 this year. Hes denied suggestions of a hard landing. So fresh record close for u. S. Equities last night. This morning, futures indicating pretty flat start really across the board. The dow is just some 4 points below fair value. The nasdaq is on fair value. The s p about half a point below fair value. The ftse cnbc global 300 has ticked higher, just up six points. And european equities by and large have ticked higher. Ftse up around twothirds to a third. We continue to watch some political ruminations out of portugal. The cac quarante up just under. 2 as well. Thats where we stand at the moment. Big question is at the end of another volatile week, what are investors to do . Our preference is for the emerging market, in terms of yield s where we are, decent spreads versus treasuries, stable and around 4 . And also we have lower correlation with treasuries. U. S. Gas prices are up 83 year on year. So that helps bp. It helps shell. So i think theyre going to outperform on those. There is another element here in that sterling is down. Bad news for the holidays but good news for the uk crude oil companies. Looking ahead, to the extent that Asset Allocation is a forward looking view, they have a weaker growth outlook, lower inflation. I think it will look like a better fixed income market for european and global investors, second half of the year. Some of the thoughts we had, joining us for more, scott bower, Senior Market strategist at trading advantage. Good to see you. We have the s p and dow up at fresh highs. What do you think of the grand ire . Well, heres two things i really look at, everybody is looking at earnings, jpmorgan and wells fargo. Of the two, wells fargo is the one to key in on because were looking at the whole housing industry here and wells fargo being the biggest lender in this states here, theyre going to be the ones to really give guidance Going Forward. What has the Significant Impact of the rise in Interest Rates recently, how is that going to impact guidance Going Forward . The other thing im really looking at, if you take a close look, a couple of months ago when we hit the highs, the vix, the volatility level had already bottomed out and was on its rise back up. This time right now the vix is really in a i dont want to say a free fall, but really on a sharp trend line down and still going lower, which, to me, points that the market is going higher. So if we get any glimpse from jpmorgan and wells fargo that guidance Going Forward is steady, and good doesnt even have to be blockbuster, but just that it is steady, this market is going to breakthrough these recent highs, and go higher. Okay. Lets bring guy in on that. The thing with wells fargo, well see whether, i presume, they might give us an indication whether slightly higher Mortgage Rates impacted financing. How significant would that be . To some degree. Keep in mind, the rise in Interest Rates really in the period of late may to midjune and towards the end of that month as well. So many of the mortgages that were had their rates locked in in march and april are really going to be funding in the latter part of the quarter. So well see probably pretty good mortgage originations from not just wells but across the sector. Thats really a backward looking reflection. And if you judge Bank Earnings in general by the degree of mortgage refinancing revenue, for example, thats a Revenue Source that is very much in the past and not forward looking at all. So i think were more interested in the quality of Bank Earnings and the quantity Going Forward, which is to say, is it driven by commercial lending growth . Driven by other sources of nonmortgage origination type lending growth. And that would be a very positive sign, not just for the Banking Sector and the markets, but the economy as well Going Forward. More on the banks as well in this half of the program. Scott, come back to you, look, we had the dollar index up at a twoyear high. Threeyear high a couple of years ago and big twoday fall, of course. Do you think we stabilize these sort of levels . I think we are going to stabilize right here. And, you know, that coincides with the rally the shortterm rally we have seen in gold, which i think is much a Short Covering as well. I think both markets, the currency is going to stabilize here. I think what is really going to drive markets here is the quality of earnings. And not so much what has happened in the past quarter, but what is this guidance Going Forward, how is the impact of qe, you know, infinity, coming off the table at some point, how is that going to impact earnings Going Forward . Yeah. More fed speakers today as well. Are we ever going to get away from sort of, you know, every time the fed speaker we have a reaction . Well, i truly wish i was an english major, i would be able to decipher what chairman bernanke says a lot better. But the macro world here, earnings is the focus. Hopefully at least over the next two to three weeks fed speak is somewhat out of the equation, and we can really focus on what is happening in the economy here. Are these are Companies Growing . Is guidance good . Are we expecting continued growth, albeit very slow, continued growth going into third and fourth q this year. Yeah. Im not sure lets hope we can guy, do you think question get away from worrying about fed speak and just concentrating on earnings . You know, it is going to be hard. We talk a lot in our strategy meetings, my team, about the difference between signal annoyance. If youre a shortterm trader, you got to pay a lot of attention to the noise. Historically the Federal Reserve has all been about signal. Provide a consistent message, clear, may not be a lot of information, but at least it is that consistency. And we have broken away from that. So instead of providing a longterm signal for the direction of Monetary Policy with the Federal Reserve has done post the june 19th press conference, which was quite clear to be honest, what they have done post that has introduced a lot of noise into the equation. And so for the shortterm traders among us, that noise has really become a focus. I dont think well get away from that until the signal returns and the fed actually takes action, again, be that september, november, or january. Scott, you want to sorry, i thought you were going to pick up on that. No, i really do. And being a trader here myself, you know, you talk about this noise. But what i think that bernanke and the fed did a couple of months ago with introducing the thought of easing coming off the table, that was a brilliant plan on their part. They put it out there. Two months ago that was the first shock to the system. What happened . Well, the market went down 5 , 6 . That was it. We rallied all the way back and then some. I think that as far as traders are concerned, there is for the here and now, less impact on the noise coming from the fed and more concern about Earnings Growth Going Forward. All right. Scott, good to see you. Scott bower joining us from chicago, hope he sticks around for a couple more comments. Some other stories were following today, us airways is holding its annual meeting at 9 00 a. M. Eastern in new york. Shareholders are expected to vote on the merger with american airlines. The 11 billion deal would create the worlds biggest airline. The merger announced in february still needs approval from the justice department. A group of 19 state attorneys general have joined the antitrust review, concerned their states s may lose air service with the merger. Us airways is up. 1 in frankfurt. A stripped down version of the massive farm bill that doesnt include spending for the food stamps program. The narrow vote gives republicans a victory after a decisive defeat on the original bill last month. Gop leaders made the decision to drop the politically sensitive food stamp portion of the measure earlier this week. The plan ran into opposition from democrats, farm and conservative groups. And still to come, Edward Snowden struck again. Reports say documents from the fugitive u. S. Contractor show microsoft may have been working hand and hand with the National Security agency and the fbi. The latest details still to come. I want to make things more secure. [ whirring ] [ dog barks ] i want to treat more dogs. Our Business Needs more cases. [ male announcer ] where do you want to take your business . I need help selling art. [ male announcer ] from broadband to web hosting to mobile apps, Small Business solutions from at t have the security you need to get you there. Call us. We can show you how at t solutions can help you do what you do. Even better. Now, fresh reports suggest microsoft may have worked with u. S. Intelligence agencies to give them unobstructed access to users data as part of the governments top secret spying program. More revelations, courtney. You didnt think it was over yet, did you, ross . The guardian has broken this latest information about the extent that Major Tech Companies are working closely with the government. The paper is citing documents for fugitive u. S. Contractor Edward Snowden. He said microsoft worked with the National Security agency to bypass encrypted emails from outlook. Com, the updated application thwhich was launche in february. The guardian says the company also helped the p. R. I. S. M. Program collect video and audio from conversations on skype, which is microsofts web chat service. Microsoft previously said it hasnt given the nsa direct access to user information, something it repeated in a statement late thursday. The company says we provide Customer Data only in response to legal government processes. Nor does it give, quote, bank et access to any other products. Microsoft, facebook, google and other Tech Companies have been lobbying u. S. Authorities to let them publicly disclose the number and scope of surveillance requests about their users. As for the whereabouts of Edward Snowden himself, still holed up in the transit lounge at the moscow airport. Having flown there from hong kong on june 23rd. He plans to meet with several human Rights Groups there today including amnesty international. In a letter to the group posted open facebook, he said u. S. Officials have been waging a campaign to prevent him from accepting offers of asylum. Snowden says he plans to speak to the media later today. I also hope that youre on royal baby watch this weekend and you will keep us updated if anything happens. Im not sure how anybody knows the due date is this weekend. But thats kind of they never really said, right . No, no. People just trying to make it up. We are but as we know, i dont know anybody had a child really that has come necessarily on or near the due date anyway. As you rightly say, courtney, thanks as you rightly say, the world media is on high alert. The long lenses are ready. High streets are full of baby souvenirs. The duke and duchess of cambridge havent revealed the due date for the third in line to the throne. Newspaper reports point to july 13th. I wouldnt trust journalists to know the due date of anyones baby. While the royal baby probably needs no gifts, we thought Investment Advice might be due. Which asset class do you think would be an investment fit for the king or queen. The options clearly are stocks, bonds, gold, silver, oil or property. Tweet us using the worldbaby. Keep the answers coming. A recap of the headlines today, european equities cheering the u. S. Rallies, they shrug off Political Tension in portugal. Finance ministers warn Economic Growth could come in lower than forecast at 7 this year. And big u. S. Banks kicking off earnings season today. Jpmorgan and wells fargo first up for the sector before the bell. And still to come, well preview those numbers next. [ agent smith ] ive Found Software that intrigues me. It appears its an agent of good. [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. [ static warbles ] time to have new experiences with a familiar keyboard. To update our status without opening an app. To have all our messages in one place. To browse. And share. Faster than ever. Its time to do everything better than before. The new blackberry q10. Its time. Unh hey lets go [ male announcer ] you can choose to blend in. Yeah yeah yeah or you can choose to blend out. Oh, yeaheah the allnew 2014 lexus is. Its your move. All right, european equities today are a little firmer. Weakness in italy and spain. Still some concern emanating from portuguese politics. The ftse up a third. Xetra dax up threequarters. U. S. Futures after record closes last night for u. S. Equities flat right now. The s p is, what, about a point below fair value. So indicated flat. On the agenda today, the united states, we have got june ppi out today, 9 55, the first read on july consumer sentiment. And then Charles Plosser at 2 45 p. M. John williams speaking at 5 15. U. S. Earnings season heating up this week. Citi kicks off Second Quarter results on monday. Tuesday, cocacola and Goldman Sachs before the bell. Yahoo after the close. Midweek, bank of america, ibm and intel. On thursday, microsoft and google pick up the baton. We finish the week with General Electric. But today, it is jpmorgan and wells fargo. They get a head start on their peers, kicking off earnings seas season. Profits are forecast to rise 19 to 1. 44 a share. With revenue up 8 just under 25 billion. And also expected jp morguen to signal strength in the Capital Markets and growing fears for the big banks. Wells fargo reports Second Quarter figures at 8 00 a. M. Eastern. Its forecast to earn 92 cents a share on revenue of around 5 billion. Wells fargo, the nations largest Mortgage Lender, also providing a picture of how bank profits have been hit by dropping refinancings as Interest Rates have risen. Those stocks trading in frankfurt. Jpmorgan now up with the best offers of the dow. Wells fargo up 1. 25 . Dont forget, cnbc has an exclusive interview with the Jpmorgan Ceo Jamie Dimon at 10 00 eastern on squawk box. Joining us to talk about what we could get from cincinnati, matt mccormick, Vice President and portfolio manager. Still with us, guy labar. Okay, matthew, well kick off with you, first of all. Revenues, earnings per share, outlook is important. First of all, though, how important is what they say about the impact of raising rising rates . I think it is crucial. I expect jpmorgan to have a slight beat on earnings mainly due from Loan Loss Provisions and revenues. I think the outlook will be key. I think people do not understand the impact on the rise and rates or maybe they dont understand how big it will be on refi and also Capital Markets and trading. I think jpm will be hard hit on fixed income trading and equity trading and i expect jamie dimons outlook to be somewhat cautious and i think that could cause investors to take some profits. Yeah. And how will that have hit wells fargo, a mortgage machine. And, you know, guy was talking about his view on the impact on refinancing from high Mortgage Rates. What do you think it will be . Youre right, about 30 of wells fargos revenues are from mortgages. And i think they dont have the Capital Markets to rely on. So i think i expect a miss on revenues and earnings and expect outlook to be equally cautious. I do expect people to take profits. Money center banks and banks like wells fargo had strong runs. I like the Regional Banks that havent had as much of a run and i think here that when you look at what happened with the Capital Market ratios, youre looking with the impact on rates, i think the outlook will be crucial to what investors will be keying in on and i expect caution coming out from management. There is a sense that if you do get a if you manage to get the fed out and you get higher bond yields rising, steepening curve that would be beneficial to banks at some point. But is it too early to play that game or have we played it and got ahead of ourselves . Sure. I dont think we dont expect any move in short rates for next 12 to 18 months. I think you can see a lot of volatility on the long side. However, i dont think thats going to be creative to banks, especially Money Centers at this time. I expect more volatility, not less. I dont think it is i think they have had a good run. I think it is time to take some cream off the top, especially names that have run a little bit too far, too fast in my opinion. Okay. Do you sort of agree, generally, with the sentiment. Youre looking at the fixed income side. Sure. So first a couple comments. Number one on the fixed income trading revenues what we saw particularly in the last two weeks of the Second Quarter from our perspective being a similar business is that the issue is not a rise in Interest Rates, but the spreads in many markets including the high yield corporate markets, lesser the Investment Grade corporate markets, they widened out. You can hedge Interest Rate risk in your trading book, a lot harder to hedge the swings and credit risks. It took a prescient trading effort to get ahead of that and i wouldnt be surprised to see trading losses at a number of institutions concentrated in the last two weeks of the quarter. Back to the shape of the yield curve front. Banks typically, depends on the institution, make their money by borrowing effectively deposits or very, very short and investing a few years down the yield curve. So what were really concerned about is the difference between the overnight rate and the fiveyear area of the curve, which remains relatively steep despite the fed anchor weighing on the overnight. This increase in Interest Rates has come over the last several weeks and is going to take a while to flow through into Bank Earnings and loan origination, least in our view. It will take a while. You also take profits now. Clearly the interesting thing is what backup in yields does, investors have been on this search for a yield, how is that if we get rising yields, how is that going to impact what investors do in that search for yield . When you look at a rise in yield, it is impacted, some of what we call the bond surrogates, hurt the utilities and telecoms. Were not advocates of that area. We think you need to be selective. Were an activist of dividend growth. We like the Regional Bank names, some of the technology names. We think people that have the ability to grow earnings and dividends will be sought out if volatility picks up. Going back to the trading side or im sorry the bank side, i think the rise in rates impacted also m a activity, Investment Banking, refi, that is something i think will be particularly outlined in todays results and i think it is causing a lot of people who have refis to already have done it. There are not a lot of people willing to do it. That has broad implications. Matt, thank you for that. Good to see you. Matt mccormick from bond Gate Investment capital. Good to see you as always. Thats it for todays edition of Worldwide Exchange. Plenty more on the banks and the ceos. Squawk box coming up next. Have a good weekend. And a profitable day. Good morning. Todays top story, stocks rally to all time closing highs. It was nice. It was beautiful yesterday. Financials in focus. Jpmorgan and wells fargo top this mornings earnings calendar. Speaking of wall street power players, some well known names in washington are joining forces and a call for breaking up the big banks in a modern version of glass stegele. Elizabeth warren. Dont we just dont take this seriously, do we . It is july 12th, 2013 and squawk box begins right now. Breaking up is hard to do good morning. Welcome to squawk box here on cnbc. Im joe kernen. Becky and andrew continue off today. They will be back next week. Im told. Im joined by my colleagues from street signs, mandy drury and brian sullivan. Well call you sully. I just saw monsters university, hes a big scary guy played by john goodman. Youre big and scary. Not scary. The whole point of monsters inc. , hes not scary, big and fluffy and green. Or blue. I dont know. Big and fluffy and green. I appreciate the sentiment of what youre trying to do, but the whole fluffy thing, uncalled for. Is that offensive if i call you fluffy . It is better than calling you fluffer. John goodman is a good actor, fantastic. I have no the show just started. Is this how it is going t